Mahipala Venkanna vs Government of Andhra Pradesh and Others

The 3rd respondent issued an auction notice dated 8-2-1997 inviting tenders from the bidders for awarding contract for collecting rentals of the shops belonging to R5 Municipality for the period from 1-4-97 to 31-3-98. The said auction was scheduled to be held on 13-3-97. In pursuance of the said notification the petitioner participated in the auction along with others and became the highest bidder of Rs. 6,17,200/-. The auction was confirmed in favour of the petitioner on 13-3-1997 by the 3rd respondent. While the matter stood thus, the impugned auction notice dated 22-3-97 was issued by the 3rd respondent for re-auction of the same rights, namely collection of rentals, which was already confirmed in favour of the petitioner in the earlier auction. Questioning the said auction notice the petitioner approached this Court by way of this writ petition under Article 226 of the Constitution, seeking for writ of Mandamus.

It is contended by the learned Counsel for the Petitioner that the action of R5 Municipality cancelling the earlier auction and seeking to re-auction the same, was at the instance of the Hon. Minister for Cooperation and hence it was a colourable exercise of power and is liable to be declared as illegal. It is further contended that the petitioner''s highest bid having been confirmed by the Commissioner, the Municipal Council ought to have approved the same, since it was much higher than the earlier year''s bid of Rs.3,56,000/-. In the resolution No. 352, dated 18.3.97. passed by the Municipal Council the only reason given for not approving the highest bid of the petitioner was the letter written by one Gannavarapu Venkat Rao, dated 17-3-97, in which he requested for re-auction on the ground that he could not attend the auction and that if it was re-auctioned the Municipality would also to get higher bid. It was contended that this reason cannot be a valid reason for cancellation of a validly held auction and hence the said re-auction was vitiated by arbitrariness.

The 3rd respondent filed counter affidavit. While stating that the petitioner was the highest bidder of Rs. 6,17,200/- in the auction held on 13-3-97, it was stated that the 3rd respondent placed before the Municipal Council for its ratification and the Council in its resolution No. 352, dated 18-3-97 did not confirm the bid expecting higher amounts than the bid offered by the petitioner. It is also stated that the Commissioner received 2 letters one from G. Venkata Rao and another from A.M. Jaganadha Rao, offering more lease amounts than the petitioner. The Council discussed the matter with reference to the above 2 letters and also with reference to the increase of the rates mentioned in G.O.Ms.No.21, dated 5-1-96. and having expected more lease amounts, which would be useful for providing more civic amenities, rejected the highest bid of the petitioner and resolved to auction the lease-hold rights again. It is also stated that the resolution was passed by majority of members and about 7 members and Chairperson expressed their dissent. It was further stated that there was no mala fide intention in calling for re-auction and that the Municipal Council was the highest decision making body. The 3rd respondent, thus defended the action for conducting fresh auction, on the ground of expecting more revenue.

It was contended by the learned Counsel for the respondents that as per conditions 9 and 10 of the notification, the auction was subject to the approval of the Municipal Council and since the Municipal Council did not ratify the highest bid of the petitioner, the petitioner cannot question the resolution passed by the Council directing re-auction and that there was no obligation on the part of the Council to accept the highest bid.

The following facts are not in dispute: The petitioner was the highest bidder in the auction held on 13-3-97 for Rs.6,17,200/. The said bid was much higher than the bid amounts of the earlier years of Rs. 3,56,000/-. The Commissioner, R3, has declared that the petitioner was the highest bidder. In Council meeting dated 18-3-97 the auction in favour of the highest bidder, viz., the petitioner, was placed before the Municipal Council for approval. G. Venkata Rao or the other person, who have written letters and at whose instance the auction was sought to be cancelled, were not the bidders of the auction held on 13-3-97. The letters of the above 2 persons were not placed in the Agenda of the Council meeting and hence not dismissed.

The only question that arises for consideration is whether the action of the Municipal Council in not approving the highest bid of the petitioner and cancelling the same only on the basis of the letters written by two persons, was arbitrary.

It is true that normally the highest bids shall have to be accepted. But it is not necessary, in all cases, for the authorities concerned to accept the highest bid and that rejection of highest bid will give a cause of action to the highest bidder to question such action. The auction was held in accordance with the provisions of A.P. Municipalities Act, 1965 (for short, ''the Act'') and the Rules framed -thereunder. Conditions 9 and 10 of the auction notification clearly state that normally the auction will be struck of in favour of the highest bidder. However, in certain cases without giving any reasons, the Commissioner can reject any bid, and that the Council is the ratifying authority for the highest bid. Accordingly, the Commissioner has placed the highest bid of the petitioner before the Municipal Council. The resolution No.352 dated 18-3-97, does not disclose any other reasons except one letter given by G. Venkatarao, stating that he could not attend to bid in the auction and was prepared to bid higher amount. The Agenda does not disclose that the letter written by G. Venkata Rao was discussed. There is no mention about this letter. It does not even show that the Commissioner has placed the letter before the Council. However, in the counter affidavit filed by the 3rd respondent, it was stated that the Commissioner received two letters from G. Venkata Rao and Jagannadha Rao offering more lease amounts than the petitioner. The dates of letters also are not mentioned in the counter affidavit. It was stated that the Council has discussed the letters in the meeting held on 18-3-97. The Commissioner also mentioned G.O.Ms.No.21 dated 5-1-96, wherein higher rates were stated to be mentioned. On the basis of these two letters and the G.O., the re-auction was held. The letter given by G. Venkata Rao is filed by the Municipality. It was dated 17-3-97. It was stated therein that he could not attend the previous auction due to unavoidable reasons and he was prepared to bid for more than Rs.6,25,000/- and he was also prepared to deposit Rs. 1,58,250/- as E.M.D. It is stated that he was enclosing solvency certificate for Rs.50,000/-. Another letter, which was mentioned in the counter affidavit, was not filed in the material papers filed by the Municipality. In fact only one letter was mentioned in the impugned resolution, that of G. Venkata Rao. It is clear from that letter that the only reason given was that he was not able to participate in the earlier auction and that he was prepared to give higher bid. Surprisingly that letter was taken as a valid reason for cancellation of the earlier auction.

As per the conditions of auction, it is true that the Council is the approving authority of the auction that would be conducted by the Commissioner, and it is not necessary, in all cases, that the highest bid should be accepted either by the Commissioner or for the Council to accept the highest bid. Even if the Commissioner accept it, the Council may reject the same and direct to re-auction. The instant case is not one of such cases; The action of the Council was sought to be justified only on the basis of the letter of G. Venkata Rao. The impugned action was taken, only on the basis of that letter. The said letter, in fact, cannot be considered, since, it was written after the bid was accepted and the auction was over and the Commissioner has already declared that the petitioner was the highest bidder. It is a clear case, where the Municipal Council has acted in violation of principles of natural justice and also contrary to the Act, and the Rules Such action is wholly-arbitrary since the Council has violated the fundamental principles, of fair play in action. The impugned action appears to have been taken only; to accommodate G. Venkatgrao. This Court would not permit, the Council to execute its power in an uncontrolled fashion. Though the Municipality, in the interest of getting more revenue to it would riot approve the highest bid, but such action should be taken in conformity with Article 14 of the Constitution. The Municipality could have requested the petitioner to increase his bid, if it was felt that the bid was so low. It is true that the highest bid in the subsequent auction was double to the bid of the petitioner. But it is a matter of common knowledge that in every case if auction was made for more than one or two times, always the Highest bid amount in the last of the auctions Would be quite higher. But there is no reason for not finalising the auction in the first instance itself, if it was in accordance with Rules and Regulations Otherwise the doors would be opened wide for the decision making authority to grant the Contract to the person of his own choice.

Learned counsel for the petitioner relied upon the decision of the Apex Court in Ram and Shyam Company Vs. State of Haryana and Others, , wherein it was held that it was wholly wrong to reject the highest bid without giving any opportunity to such person to improve upon his bid, since he was the highest bidder and the highest bid was south to be rejected on the ground that it did not represent adequate market conditions. It was observed that-

"The appellant suffered an unfair treatment by the State in discharging its administrative functions thereby violating the fundamental principle of fair play in action. When he gave the higher bid, he could not have expected to raise his own bid in the absence of a competitor. Any expectation to the contrary betrays a woeful lack of knowledge of auction process. And then some one surreptitiously by a secret offer scored a march over him. No opportunity was given to him either to raise the bid or to controvert and correct the erroneous statement."

Thus, it is clear that the rejection of the highest bid of the petitioner was in violation of Article 14 of the Constitution and wholly arbitrary and is liable to be set aside.

The specious ground advanced by the learned Counsel for the respondent-Municipality that the Municipality would get more money to provide civic amenities, by virtue of the re-auction (wherein the Municipality get about Rs. 12 lakhs) can be a ground for re-auction. But I am afraid that the said action which was based on an arbitrary exercise of power cannot be sustained. It is an act of mala fide in fact and in law. Every auction under the Act and Rules should be held in accordance with the provisions of the Act and the Rules and not at the whims and fancies of any authority.

The next contention urged by the learned Counsel for the petitioner, that the action is colourable exercise of power since it was done only at the instance of Hon.Minister need not be considered. In fact no notice has been served on the concerned respondent. This writ petition is disposed only on the ground that the decision to conduct re-auction, taken in the meeting of the Municipal Council on 18-3-97, was wholly arbitrary and not on grounds of any mala fide exercise of power.

It was stated that pending the writ petition a fresh auction was held on 27-3-97 striking the auction in favour of one Kalva Kolanu Srirangam. In view of the finding given supra, the above proceedings of fresh acution are also liable to be set aside and are accordingly set aside.

The writ petition is therefore, allowed and the impugned notice dated 18-3-97 and the re-auction notification dated 22-3-97 are set aside. The Municipality, R5, is directed to consider the approval of the petitioner''s highest bid, confirmed by the Commissioner, R3, for awarding the lease in his favour, in the light of the observations made supra. In the circumstances, no order as to costs.