Today Homes and Infrastructure (P) Ltd. vs Ludhiana Improvement Trust and Another

Hemant Gupta, J.—The petitioner has sought appointment of an arbitrator to adjudicate the dispute between the parties arising out of agreement dated 24.5.2005 in the present petition u/s 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter to be referred as ''the Act''). Hon''ble the then Chief Justice appointed an arbitrator, vide order Arbitration Case No. 76 of 2007 dated 4.4.2008, while deciding the present petition inter-alia holding that the dispute between the parties in respect of existence of the agreement is required be decided by the arbitrator alone. The said order was set aside by Hon''ble the Supreme Court on 14.10.2008. The petition was remitted back to this court to consider the matter of appointment of an arbitrator afresh. Hon''ble the Chief Justice has entrusted the present petition to this court vide order dated 10.7.2009. Ludhiana Improvement Trust (hereinafter to be referred as ''the Trust'') is respondent No. 1 established under the Punjab Town Improvement Act, 1922 (hereinafter to be referred as ''the IT Act''), whereas respondent No. 2 is the State of Punjab (hereinafter to be referred as ''the State''). The dispute pertains to development of City Centre on land measuring 25.59 acres which is part of 475 acres Development-cum-Housing Scheme on Pakhowal Road, Ludhiana. Initially, the scheme was sanctioned on 28.6.1979 for housing and commercial development of the area. The Trust passed Resolution No. 130 on 13.9.1999 for amending the layout plan of 475 acres of scheme u/s 43 of the IT Act to establish City Centre type market on land measuring 24.5 acres. Resolution No. 193 was passed on 3.2.2000 proposing to develop such site through Special Purpose Vehicle. Later, the Trust passed resolution No. 57 on 5.7.2000 approving the lay out plan of City Centre bearing drawing No. LIT/5/2000 dated 26.6.2000 in view of changed circumstances and planning. The said resolution of the Trust was approved by the State Government vide notification dated 10.01.2001 u/s 43 of the IT Act. Thus, the scheme sanctioned earlier stood modified so as to provide for City Centre on land measuring 25.59 acres.

On 15.3.2005, the Trust published a request for proposal for operating and maintaining the City Centre in partnership with entities in the private sector. All the prospective applicants could raise queries by 31.3.2005. The pre-bid meeting was advertised to be held on 2.4.2005 and the last date of receipt of bids was 20.4.2005. But, clarifications were issued on 22.4.2005 and 28.4.2005. The bids were invited to be received by 10.5.2005. The dispute between the parties arises in respect of the issuance of letter of intent and the subsequent agreement etc. Since the events happened in quick succession, it will be appropriate to give the details in chronological order.

Hon''ble Supreme Court in S.B.P. and Co. Vs. Patel Engineering Ltd. and Another, has held that in proceedings u/s 11 of the Act, the Chief Justice or his designate has to decide ''whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long-barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection''. In VISA International Ltd. Vs. Continental Resources (USA) Ltd., , the Supreme Court held that--

The Chief Justice or the designated judge, as the case may be, is bound to decide whether he has jurisdiction to entertain the request, in the sense, whether there is a valid arbitration agreement in terms of section 7 of the Act and whether the person before him with a request is a party to the arbitration agreement or whether there was no dispute subsisting which was capable of being arbitrated upon. These principles ought to be borne in mind while deciding the application u/s 11(6) of the Act.

In fact, that was the direction of the Hon''ble Supreme Court in its order dated 14.10.2008 when the matter was remitted back to this court for fresh decision by the Hon''ble Supreme Court after setting aside the order passed by Hon''ble Chief Justice. Therefore, the issue in dispute in the present petition is: Whether the agreement dated 24.5.2005 entered by the Chairman of the Trust is a valid agreement between the parties?

To return a finding whether such agreement is valid or not, the following questions arise between the parties, which need adjudication from this court:

Whether the Chairman of the Trust was required to seek prior approval of the Trust before signing the agreement with the petitioner as contemplated by Rule 94 of the Punjab Town Improvement Trust Rules, 1939?

Whether the State Government has the power and jurisdiction to issue directions to the Improvement Trust in the manner of execution of scheme in respect and/or in respect of execution of agreement under Chapter VII-A of the IT Act?

Whether the order passed by the Secretary, Local Self Government on 27.05.2005 is an order passed within the scope of section 72-E of the IT Act and whether such order could be reviewed by the Minister without there being any power to review such an order?

Whether the agreement in favour of the petitioner contemplating private participation and authority to sell the plots/Area in the City Centre was required to be provided for in the Scheme in terms of Section 28(2)(iii) of the IT Act and notified by the State Government in terms of Section 43 of the IT Act?

Whether the acts of the chairman of the Trust in executing agreement and power of Attorney, a trustee of public trust and property, amounts to squandering away of the same and, thus, void?

Whether the agreement in question is void or voidable and if it is voidable, whether the Trust is required to initiate positive action to seek declaration that such agreement is not enforceable and, if so, from which court?

What is the effect of the meeting held on 6.10.2006 in respect of sale of the area on the basis of floor area rather than fund sharing?

Certain statutory provisions which are necessary for the controversy raised therein read as under:

The Punjab Town Improvement Trust Act, 1922

Meetings of Trust--(1) (a) The Trust shall ordinarily meet for the transaction of business at least once in every month at such time as it may fix, provided that the chairman may, whenever he thinks fit, and shall, upon the written request of not less than two trustees, call a special meeting.

(b) The quorum necessary for the transaction of business at an ordinary or special meeting shall be not less than three.

(c) At every meeting the chairman, if he be present, or in his absence such one of the trustees present as may be chosen by the meeting, shall preside.

(d) All questions which come before any meeting shall be decided by a majority of the votes of the trustees present; the president of the meeting in case of an equality of votes having a second or casting vote.

(e) Minutes of the names of the trustees present and of the proceedings at each meeting shall be drawn up and recorded in a book to be kept for the purpose, shall be signed by the person presiding at the meeting or at the next ensuing meeting, and shall at all reasonable times and without charge be open to inspection by any trustee.

(2) No trustee shall be entitled to object to the minutes of any meeting unless he was present at the meeting to which they relate.

Control by Chairman--The Chairman shall exercise supervision and control over the acts and proceedings of all officers and servants of the Trust; and, subject to the foregoing sections, shall dispose of all questions relating to the service of the said officers and servants and their pay, privileges and allowances.

Supply of information and documents to the Government--(1) The Chairman shall forward to the State a copy of the minutes of the proceedings of each meeting of the Trust, within ten days from the date on which the minutes of the proceedings of such meeting were signed as prescribed in clause (e) of sub-section (1) of section 12.

(2) If the State Government so directs, in any case, the Chairman shall forward to it a copy of all papers which were laid before the Trust for consideration at any meeting.

(3) The State Government may require the Chairman to furnish it with-

(i) any return, statement, estimate, statistics or other information regarding any matter under the control of the Trust, or

(ii) a report on any such matter, or

(iii) a copy of any document in the charge of the chairman.

The Chairman shall comply with every such requisition without unreasonable delay.

Combination of schemes and matters which may be provided for in scheme--(1) A scheme under this Act may combine one or more types of schemes or any special features thereof.

(2) A scheme under this Act may provide for all or any of the following matters:

(i) the acquisition under the Land Acquisition Act, 1894, as modified by this Act, or the abandonment of such acquisition under sections 56 and 57 of this Act, of any land or any interest in land necessary for or affected by the execution of the scheme, or adjoining any street, thoroughfare, open space to be improved or formed under the scheme;

(ii) the acquisition by purchase, lease, exchange or otherwise of such land or interest in land;

(iii) the retention, letting on hire, lease, sale, exchange or disposal otherwise of any land vested in or acquired by the Trust;

(iv) the demolition of buildings or portions of buildings that are unfit for the purpose for which they are intended and that obstruct light or air or project beyond the building line;....

Alteration of scheme after sanction--A scheme under this Act may be altered by the Trust at any time, with the prior approval of the State Government between its sanction by the State Government and its execution."

CHAPTER VII-A

72-B. Power to suspend any resolution or order of Trust--The Deputy Commissioner may, by order in writing, suspend the execution of any resolution or order of a Trust or prohibit the doing of any act which is about to be done, or is being done in pursuance of or under cover of this Act, or in pursuance of any sanction or permission granted by the Trust in the exercise of its powers under the Act, if, in his opinion, the resolution, order or act is in excess of the powers conferred by law or contrary to the interests of the public or likely to cause waste or damage of Trust funds or property, or the execution of the resolution or order, or the doing of the act, is likely to lead a breach of the peace, to encourage lawlessness or to cause injury or annoyance to the public or to any class or body of person.

72-E. Power of State Government and its officers over Trusts--(1) The State Government and Deputy Commissioners acting under the orders of the State Government, shall be bound to require that the proceedings of Trust shall be in conformity with law and with the rules in force under any enactment for the time being applicable to Punjab generally or the areas over which the trusts have authority.

(2) The State Government may exercise all powers necessary for the performance of this duty and may among other things, by order in writing, annul or modify any proceeding which it may consider not to be in conformity with law or with such rules as aforesaid, or for the reasons, which would in its opinion justify an order by the Deputy Commissioner u/s 72-B.

(3) The Deputy Commissioner may, within his jurisdiction for the same purpose, exercise such powers as may be conferred upon him by rules made in this behalf by the State Government.

72-EB. Power to issue directions by State Government--If, on receipt of any report u/s 72-EA or otherwise, the State Government is of the opinion-

(a) that any duty imposed on the trust or any trust authority by or under this Act has not been performed or has been performed in an imperfect, insufficient or unsuitable manner; or

(b) that adequate financial provision has not been made for the performance of any such duty; it may direct the trust or the trust authority, to make arrangements to its satisfaction for the proper performance of the duty, or, as the case may be, to make financial provision to its satisfaction for the performance of the duty within such period as the State Government thinks fit, and the trust or the trust authority shall comply with the direction so made:

Provided that, unless in the opinion of the State Government, the immediate execution of the direction is necessary, it shall, before doing so, give the trust or the trust-authority, as the case may be, an opportunity of showing cause why the direction should not be made.

Validation of Acts and proceedings--(1) No act done or proceeding taken under this Act shall be questioned on the ground merely of-

(a) the existence of any vacancy in, or any defect in the constitution of the trust or any committee, or

(b) any person having ceased to be a trustee, or

(c) any trustee or any person associated with the trust u/s 13 or any other member of a committee appointed under this Act, having voted or taken any part in any proceeding in contravention of section 16, or

(d) the failure to serve a notice on any person, where no substantial injustice has resulted from such failure, or

(e) any omission, defect, or irregularity not affecting the merits of the case.

(2) Every meeting of the Trust, the minutes of the proceedings of which have been duly signed as prescribed in clause (e), sub-section (1), of section 12, shall be taken to have been duly convened and to be free from all defects and irregularities.

Punjab Town Improvement Trust Rules, 1939

(1) The Chairman may, on behalf of the Trust enter into any contract or agreement, whereof the value or amount shall not exceed one thousand rupees, in such manner and form as, according to law for the time being in force, would bind if such contract or agreement were on his own behalf, and every such contract or agreement shall be re-ported to the Trust at the next ordinary meeting thereof.

(2) Every other contract and agreement on behalf of the Trust shall re-quire the previous approval of the Trust, and shall be signed by the Chairman and sealed with common seal of the Trust as hereinafter provided. No contract or agreement referred to in this sub-rule, unless executed as herein provided, shall be binding on the Trust.

(3) The common seal of the Trust shall not be affixed to any contract or other instrument except in the presence of the Chairman who shall attach his signature to the contract of instrument in token that the same was sealed in his presence.

A reference needs to be made to the instructions issued by the State Government on 24.01.2003/16.2.2003, annexure R1/1, that till the approval/directions regarding resolutions from the Trust are not received by the Trust, the Trust should not initiate any action for implementation of the resolutions. The relevant extract from the said communication read as under:

In connection with the above cited subject, it was written to you vide Govt''s Memo No. 8/139/2001-3SS2 dated 02.12.2002 that it has been decided that the proceedings to implement resolutions would be completed within 30 days instead of 20 days.

It has been generally seen that the resolutions passed by the trusts are received belatedly by the Govt. for approval and it is not possible to examine the resolutions and to take decisions on the same within prescribed period of 30 days. In such circumstances, the trusts start further proceedings to implement the resolutions after the lapse of 30 days period.

After considering the matter, the Government has decided that till the approval/directions regarding resolutions from the Government are not received by the Trust, the trusts should not initiate any action for implementation of the resolutions. A serious notice would be taken in case any trust by violating these orders, initiate any proceedings regarding implementation of the resolutions without obtaining approval of the Govt. and strict disciplinary action will be initiated against the responsible officer/official.

Question No. 1

Whether the Chairman of the Trust was required to seek prior approval of the Trust before signing the agreement with the petitioner as contemplated by Rule 94 of the Punjab Town Improvement Trust Rules, 1939?

Learned counsel for the petitioner has vehemently argued that as a matter of fact seven trustees vide writing at page 1303, out of ten, have given consent for issuance of letter of intent in the meeting held on 18.5.2005 at 3.30 pm. Since the majority of the members of the Trust have agreed for the issuance of letter of intent, therefore, the agreement in pursuance of such letter of intent is a valid document executed by the Chairman, the Trust being an independent statutory and autonomous legal entity. Therefore, the agreement is in fact with the prior approval of the Trust. It is also argued that rule 94 of the rules is a rule of procedure and, therefore, prior approval of the Trust is not mandatory. It is contended that the lack of procedural approval is either a defect or irregularity not affecting the merits of the case and, thus, the act of the Chairman in signing the agreement cannot be questioned in terms of section 101 of the IT Act. To support the said argument, learned counsel for the petitioner has relied upon Montreal Street Railway Company v. Normandin AIR 1917 PC 142 and Bangalore Woollen Cotton and Silk Mills Co. Ltd. Bangalore v. Corporation of the City of Bangalore by its Bangalore Woollen, Cotton and Silk Mills Co. Ltd., Bangalore Vs. Corporation of the City of Bangalore, by its Commissioner, Bangalore City, It is also contended that violation of the provisions of a rule cannot result into an action void as such action is not a violation of mandate of the statute."

In a Privy Council judgment reported as Montreal Street Railway Company''s case, supra, the issue was in respect of irregular constitution of the jury. The jury was said to be coram non judice and, thus, a nullity. It was held that when the provisions of a statute relate to the performance of a public duty and the case is such that to hold null and void acts done in neglect of this duty would work serious general inconvenience or injustice to persons who have no control over those entrusted with the duty and at the same time would not promote the main object of the legislature, it has been the practice to hold such provisions to be directory only.

In The Bangalore Woollen Cotton and Silk Mills Co. Ltd. Bangalore''s case, supra, the notification in the official gazette was not published in respect of imposition of a tax by the Local Authority. It was found that the resolution was published in the newspaper and was communicated to those affected by it and, thus, it was well known. Therefore, the publication in the Government Gazette does not affect the merits of the levy of Tax. On the other hand, learned counsels for the respondents have argued that the Scheme of the statute mandates the meeting of the Trust to be held at regular intervals. The minutes thereof are required to be recorded in the minute''s book to be kept for the purpose. Such minutes are required to be statutorily sent to the State Government u/s 21 of the IT Act. Once the minutes are sent to the State Government, then the State Government u/s 72 of the IT Act is required to examine whether the proceedings of the Trust are in conformity with the law and the rules in force. The State Government has the power to annul or modify any proceeding which it considers to be not in conformity with the law or with the rules under sub-section (2) of section 72 of the IT Act. Rule 94 of the rules has been framed in terms of section 73(1)(vii) of the IT Act. Therefore, the rules framed under the IT Act have the same force as the statute itself. Rule 94 of the rules contemplates prior approval of the Trust. Sub-rule (2) of rule 94 of the rules is mandatory as it is to the effect that ''no contract or agreement referred to in this sub-rule unless executed herein provides shall be binding on the Trust''. Since the provision is prohibitive and absolute, therefore, rule 94 of the rules is mandatory provision, the violation of which will render the act of signing of agreement by the Chairman of the Trust as void. It is contended that the defect or irregularity protected u/s 101(1)(e), should not affect the merits of the case. It is only the procedural irregularity or omission which can be ignored. But the act of signing agreement by the Chairman, is without complying the provisions of law in respect of valuable property of the Trust, therefore, the same would render the agreement a nullity and void. Public responsibility placed upon the Chairman of the Trust cannot be permitted to be usurped and wasted in the manner as an individual deal with his property. He is the guardian of the public faith. The Trust is responsible for carrying out the public purpose for the public good and, therefore, the provisions of the statute have to be complied with before a valid and legally enforceable contract can be said to come in existence. The Chairman of the Trust can exercise only such powers and duties which have been entrusted to him under the IT Act. He does not have any inherent or residuary powers. Therefore, the provisions of the IT Act are to be complied with in the manner provided. The manner of entering into contract by the Trust is required to be performed in the manner contemplated in the statute and rules framed there under. It is also contended that agreement has been signed by the chairman of the trust without approval of the State Government in a post haste manner even though there were general directions not to give effect to any resolution of the Trust, vide communication dated 24.1.2003; subsequent direction in respect of issuance of letter of intent 17.5.2005 and direction not to proceed further in the meeting attended to by the Chairman of the Trust on 23.5.2005. The Chairman has proceeded ahead to sign the agreement without the approval of the resolution of the Trust. It shows that the agreement not only lacks bona fide but compromises the interest of the Trust and belies the faith of the public. Therefore, it is not an irregularity which can be ignored u/s 101(1)(e) of the IT Act, but act of signing agreement is against the public interest and is against the mandatory provisions of the IT Act.

It is also contended that the writing propounded by the petitioner dated 18.5.2005 is, in fact, a writing on a register kept for the purpose of receiving bids of intending bidders. On 18.5.2005 itself, there was meeting of the Trust and the minutes of the meeting statutorily kept and communicated to the State Government does not contain any resolution in respect of issuance of letter of intent. The writing relied upon by the petitioner cannot be said to be a resolution on the basis of which any action could be taken. Such writing was never sent to the State Government as required u/s 21 of the IT Act. It is contended that in a short span of seven days, the chairman of the Trust has not only opened the financial bids, evaluated the same but also issued letter of intent and signed agreement when the contract amount is more than Rs. 370 crores. The agreement completely changes the nature of the contract as was advertised from build operate transfer module to joint venture with permission to outright sell the area in the City Centre. Such material alterations in the terms of the contract are without the approval of the State Government and are against public interest.

11.1 I have heard learned counsel for the parties at length. The writing relied upon by the petitioner by seven trustees out of ten trustees purportedly on 18.5.2005 at 3.30 pm is, in fact, appear in a register maintained by the trust for the purposes of issuance and recording of bid documents in respect of City Centre project. It is so apparent from the photocopy of the some of the pages of the register produced by Shri Chopra. The register records the sale of the application forms. It also records the entries in respect of the opening of bids on 17.5.2005. In fact, a regular meeting of the trust was scheduled to be held on 18.5.2005 at 3.30 p.m. Such meeting was in fact held. Minutes of such meeting have been produced by the respondent as annexure-A along with affidavit dated 17.08.2009 of Shri Gurinder Singh Sodhi, Executive Officer, Improvement Trust, Ludhiana. The said meeting is attended by eight trustees. Therefore, the signatures of the seven trustees on 18.5.2005 on a register not meant for the minutes of the meeting of the trust shows the interpolation in the register meant for different purpose than recording of the minutes of the trust in its statutory minute book. The minutes of the meeting are required to be recorded in terms of section 12(e) of the IT Act and sent to the State Government u/s 21 of the IT Act. The seven trustees of the trust have allegedly signed the bid register but not got recorded the proposal in the meeting of the trust held on the same day and at the same time. The recording of minutes and its communication is a statutory duty to be carried out. The statutory minutes do not contain any proposal of issuance of letter of intent on 18.5.2005. Therefore, the reliance of the petitioner on the document at page 1303 to say the least is based upon untrue document. Rule 94 of the rules prohibits that no contract or agreement as referred to in sub-rule (2) of rule 94 unless executed as provided in the said provision is binding on the trust. Such rule prohibits the execution of the agreement without prior approval of the trust. Such stipulation in the Rules has to be read as a mandatory condition. Hon''ble Supreme Court in Lachmi Narain and Others Vs. Union of India (UOI) and Others, while considering the requirement of giving notice of not less than three months, has held that such provision is mandatory. It was held that if the provision is couched in prohibitive or negative language, it can rarely be directory. The use of peremptory language in a negative form is per se indicative of the intent that the provision is to be mandatory. It was held to the following effect:

Section 6(2), as it stood immediately before the impugned notification, requires the State Government to give by notification in the official gazette ''not less than 3 months'' notice'' of its intention to add to or omit from or otherwise amend the second schedule. The primary key to the problem whether a statutory provision is mandatory or directory, is the intention of the law-maker as expressed in the law, itself. The reason behind the provision may be a further aid to the ascertainment of that intention. If the legislative intent is expressed clearly and strongly in imperative words, such as the use of ''must'' instead of ''shall'', that will itself be sufficient to hold the provision to be mandatory, and it will not be necessary to pursue the enquiry further. If the provision is couched in prohibitive or negative language, it can rarely be directory, the use of peremptory language in a negative form is per se indicative of the intent that the provision is to be mandatory: Crawford, The Construction of Statutes, pages 523-24. Here, the language of sub-section (2) of section 6 is emphatically prohibitive; it commands the Government in unambiguous negative terms that the period of the requisite notice must not be less than three months.

In P.T. Rajan Vs. T.P.M. Sahir and Others, , while considering section 23(3) of the Representative of Peoples Act, 1950, Hon''ble Supreme Court has held that the provision has been couched in negative language, therefore, such provision is mandatory, whereas publication of electoral roll is a ministerial act and not mandatory. The relevant extract from the judgment reads as under:

Sub-section (3) of section 23 ex facie is imperative in character. It has been couched in a negative language. The word ''shall'' has also been used. What is thereby, however, prohibited is that after 3 p.m. of the date specified for filing of the nomination no correction by way of amendment, transposition or deletion of the entry can be made.

Publication of electoral roll, however, is not mandatory

The question which has been posed is whether the publication of the electoral roll was permissible after 3 p.m. on 23.4.2001. The submission of the learned counsel appearing on behalf of the appellant to the effect that having regard to the provisions contained in section 21 of the 1950 Act, and rule 22 of the 1960 rules publication of an electoral roll is imperative in character, cannot be accepted

A statute as is well known must be read in the text and context thereof. Whether a statute is directory or mandatory would not be dependent on the user of the words ''shall'' or ''may''. Such a question must be posed and answered having regard to the purpose and object it seeks to achieve.

What is mandatory is the requirement of sub-section (3) of section 23 of the 1950 Act and not the ministerial action of actual publication of Form 16.

In Haridwar Singh Vs. Bagun Sumbrui and Others, Hon''ble Supreme Court was seized of rule 10 of the Bihar Rules of Executive Business. It was held that where a power or authority is conferred with a direction that certain regulation or formality shall be complied with, it seems neither unjust nor incorrect to exact a rigorous observance of it as essential to the acquisition of the right or authority. Hon''ble Supreme Court held as under:

Where, however, a power or authority is conferred with a direction that certain regulation or formality shall be complied with, it seems neither unjust nor incorrect to exact a rigorous observance of it as essential to the acquisition of the right or authority (see Maxwell, Interpretation of Statutes, 6th Edn., pages 649-650).

In this case, we think that a power has been given to the Minister in charge of the Forest Department to do an act which concerns the revenue of the State and also the rights of individuals. The negative or prohibitive language of rule 10(1) is a strong indication of the intent to make the Rule mandatory. Further, rule 10(2) makes it clear that where prior consultation with the Finance Department is required for a proposal, and the department on consultation, does not agree to the proposal, the department originating the proposal can take no further action on the proposal. The cabinet alone would be competent to take a decision. When we see that the disagreement of the Finance Department with a proposal on consultation, deprives the department originating the proposal of the power to take further action on it, the only conclusion possible is that prior consultation is an essential pre-requisite to the exercise of the power...

The judgment in Montreal Street Railway Company''s case, supra, relied upon the learned counsel for the petitioner has been considered by a Constitution Bench of the Hon''ble Supreme Court in a judgment reported State of U.P. Vs. Manbodhan Lal Srivastava, and held that ''the use of the word ''shall'' in a statute, though generally taken in a mandatory sense, does not necessarily mean that in every case it shall have that effect, that is to say, that unless the words of the statute are punctiliously followed, the proceeding or the outcome of the proceeding, would be invalid. On the other hand, it is not always correct to say that where the word ''may'' has been used, the statute is only permissive or directory in the sense that non-compliance with those provisions will not render the proceeding invalid. In that connection, the following quotation from Crawford on Statutory Construction--Article 261 at page 516, is pertinent:

The question as to whether a statute is mandatory or directory depends upon the intent of the legislature and not upon the language in which the intent is clothed. The meaning and intention of the legislature must govern, and these are to be ascertained, not only from the phraseology of the provision, but also by considering its nature, its design, and the consequences which would follow from construing it the one way or the other....

In Kasturi Lal Lakshmi Reddy, Represented by its Partner Shri Kasturi Lal, Jammu and Others Vs. State of Jammu and Kashmir and Another, it has been held that every activity of the Government has a public element in it and it must, therefore, be informed with reason and guided by public interest. The Government cannot act arbitrarily and without reason and if it does, its action would be liable to be invalidated. It was held to the following effect:

So far as the first limitation is concerned, it flows directly from the thesis that, unlike a private individual, the State cannot act as it pleases in the matter of giving largesse. Though ordinarily a private individual would be guided by economic considerations of self-gain in any action taken by him, it is always open to him under the law to act contrary to his self-interest or to oblige another in entering into a contract or dealing with his property. But the Government is not free to act as it likes in granting largesse such as awarding a contract or selling or leasing out its property. Whatever be its activity, the Government is still the Government and is subject to restraints inherent in its position in a democratic society. The constitutional power conferred on the Government cannot be exercised by it arbitrarily or capriciously or in an unprincipled manner; it has to be exercised for the public good. Every activity of the Government has a public element in it and it must therefore, be informed with reason and guided by public interest. Every action taken by the Government must be in public interest; the Government cannot act arbitrarily and without reason and if it does, its action would be liable to be invalidated. If the Government awards a contract or leases out or otherwise deals with its property or grants any other largesse, it would be liable to be tested for its validity on the touchstone of reasonableness and public interest and if it fails to satisfy either test, it would be unconstitutional and invalid.

The question whether a provision has to be treated as mandatory or directory has to be interpreted keeping in view the provisions of the Act and the objective sought to be achieved. The language of the statute can never be said to be determinative of the mandatory or directory nature of the provision. Under the scheme of the IT Act and the rules, the chairman has been given the power to supervise and control over the act and proceedings of the officers and the servants of the trust alone. The chairman does not possess any implied authority to represent the trust in respect of any other activity including the execution of the contract with third person. The provision has put embargo on the chairman to enter into contract of value more than Rs. 1000 without the approval of the trust-Such prohibition is to safeguard the interest of the trust and also to provide opportunity to the State Government to have effective control envisaged under Chapter VII-A of the IT Act to ensure that the activities of the trust are being carried out in terms of the provisions of the IT Act and in fact all other Laws applicable in the State. The chairman of the trust was not dealing with his personal property. He was not free to act as he like in awarding a contract or selling or leasing out his private individual property. The chairman could not enter into any contract without the approval of the trust as such procedure alone satisfies the requirement of sections 12, 21 and Chapter VII-A of the IT Act. The signing of the agreement by the chairman on 24.5.2005 cannot be examined in isolation. The facts anterior thereto speak volumes of haste in which the chairman signed the agreement even though there was direction of the State Government not to enter into any such agreement. Firstly, there are general directions of the State Government issued on 24.1.2003, annexure R-1/1 that all the trusts in the State shall not initiate any action for implementation of the resolution for a period of 30 days. Such direction was issued so as to enable the State Government to carry out its statutory responsibility to keep the trust in bound of the statutory provision in terms of Chapter VII-A of IT Act. Section 21 of the IT Act makes mandatory for the trust to communicate its decision to the State Government. Such communication is necessary to enable the State Government under sections 72-E, 72-EB as well as of the Deputy Commissioner u/s 72-3 of the IT Act to carry out the statutory responsibility. Section 72-E of the IT Act contemplates that the State Government shall be bound to require that the proceedings of the trust shall be in conformity with law. If that is the power given to the State Government u/s 72-E of the IT Act, the same cannot be made nugatory by empowering the chairman to enter and execute agreement and in fact permitting the trust to give effect to its resolution soon after the same was passed so as to render the provisions of section 72-E of the IT Act as otiose.

Still further, on 17.5.2005, there was direction of the State Government not to open the financial bids. Though the financial bids were open by the trust before the said communication could be received by the trust but to proceed ahead even after receipt of the said communication and to enter into agreement on 24.5.2005 in defiance of the directions of the State Government, show the contumacious conduct of the chairman.

On 23.05.2005, the chairman of the trust was directed not to enter into agreement in a meeting presided over by the Principal Secretary to the Government in which, the chairman was present. The chairman of the trust has still executed agreement on 24.5.2005. The executive officer of the trust has communicated to the State Government on 24.5.2005 itself that the chairman is proceeding to sign the agreement unilaterally by ignoring the other officers. Such conduct of the chairman in executing the agreement with the petitioner conferring benefit of huge value without the prior approval of the trust and in violation of the directions of the State Government shows that the provisions of the IT Act were ignored with impunity. Such conduct of the chairman speaks more than what meets the eye. The chairman was not dealing with his private property but the property which vested in the Trust acquired by the trust for public purpose after paying compensation from the public exchequer. While dealing with public property, the chairman has to adopt procedure which is fair and reasonable, just and equitable. Not only the chairman has violated the directions of the State Government, the chairman has signed the agreement in violation of rule 94 of the Rules and also dealt with public property in the manner not contemplated by law. Such action cannot be recognized by the court as legal and valid. The provisions of rule 94 of the Rules are couched in negative form, therefore, such rule is mandatory. Any agreement entered upon by the chairman of the trust in violation of such condition cannot be said to be legal and valid. Therefore, the signing of contract by the chairman without prior approval of the trust, in favour of the petitioner is void.

Learned counsel for the petitioner has vehemently argued that such violation of rule 94 of the Rules is only a procedural irregularity, therefore, the act of signing the agreement performed, by the chairman cannot be invalidated as contemplated u/s 101 of the IT Act.

I do not find any merit in the said argument. Under clause (e) of section 101(1) of the IT Act, the acts done or proceedings taken under the Act are not questionable merely on account of any omission, defect or irregularity not affecting the merits of the case. Here the omission of prior approval of the trust, which is a mandatory requirement, cannot be said to be an omission not affecting the merits of the case. The prior approval of the trust is required to be obtained in the manner contemplated by law. Since the agreement has been signed by the chairman without prior approval of the trust, the same cannot be said to be mere omission. The said contention has been dealt with by Hon''ble Supreme Court in Haridwar Singh''s and in Kasturi Lal Lakshmi Reddy''s cases, supra. The argument that rule 94 of the Rules does not have force of statute is again not correct. Such rules have been framed in terms of section 73 of the IT Act. Once the rules have been framed in the manner contemplated by law, they have the force of the statute. Reference may be made to Sukhdev Singh, Oil and Natural Gas Commission, Life Insurance Corporation, Industrial Finance Corporation Employees Associations Vs. Bhagat Ram, Association of Clause II. Officers, Shyam Lal, Industrial Finance Corporation, , wherein, it was held to the following effect:

Rules, regulations, schemes, bye-laws, orders made under statutory powers are all comprised in delegated legislation. The need for delegated legislation is that statutory rules are framed with care and minuteness when the statutory authority making the rules is after the coming into force of the Act in a better position to adapt the Act to special circumstances. Delegated legislation permits utilisation of experience and consultation with interests affected by the practical operation of statutes....

Subordinate legislation has, if validly made, the full force and effect of a statute. That is so whether or not the statute under which it is made provides expressly that it is to have effect as if enacted therein. If an instrument made in the exercise of delegated powers directs or forbids the doing of a particular thing, the result of a breach thereof is, in the absence of provision to the contrary, the same as if the command or prohibition had been contained in the enabling statute itself. Similarly, if such an instrument authorises or requires the doing of any act, the principles to be applied in determining whether a person injured by the act has any right of action in respect of the injury are not different from those applicable whether damage results from an act done under the direct authority of a statute. Re. Langlois and Biden (1891) 1 QB 349; and Kruse v. Johnson (1898) 2 QB 91.

Question No. 2

Whether the State Government has the power and jurisdiction to issue directions to the Improvement Trust in the manner of execution of scheme in respect of execution of agreement under Chapter VII-A of the IT Act?

Learned counsel for the petitioner has vehemently argued that the trust is autonomous legal entity and the State Government has no power or control over the affairs of the trust. The State Government has the power to annul or modify the resolution as and when passed by the trust but the State Government cannot issue peremptory direction so as to regulate or control the working of the trust. Reliance was placed upon single bench decision of this court reported as Dr. Manmohan Singh Khanna Vs. State of Punjab,

However, I do not find any merit in the argument raised by the learned counsel for the petitioner. Chapter VII-A introduced by the Punjab Act No. 17 of 1974 deals with control over the trust by the State Government or by the Deputy Commissioners. Section 72-E of the IT Act mandates the State Government to require that the proceedings of the trust shall be in conformity with the law and the rules in force under any enactment for the time being applicable to Punjab. The said provision takes into its ambit not only to take action after any action is taken by the trust and to annul or modify the same, but also to require that the proceedings of the trust shall be in accordance in law even before any action or decision is taken by the trust. Such intention is manifested by sub-section (2) of section 72-E of the IT Act when it provides that the State Government ''may exercise all powers necessary for the performance of this duty''. Sub-section (2) further provides that the State Government may among other things, by order in writing, annul or modify any proceedings which it may consider not to be in conformity with the law. Sub-section (2) empowers the State Government to exercise all the powers which will include the power to take action after action is taken but also the power to guide the Improvement Trust before action is taken so that the action of the trust is not in violation of the provisions of the IT Act or the Rules framed there under. Such direction is to obviate the necessity to annul a resolution passed by the trust. Section 72-EB(a) also empowers the State Government, on receipt of report u/s 72-EA or otherwise, that if in its opinion, any duty imposed on the trust has not been performed or has been performed in an imperfect, insufficient or unsuitable manner, the State Government may direct the trust to make arrangements to its satisfaction for the proper performance of the duty. Such provision will take in to its ambit power to issue directions to the trust to seek compliance with the mandate of law.

The judgment referred to by learned counsel for the petitioner relates to blanket order of cancellation, passed by the State Government, of plots allotted by the Trust. It was held that the State Government has no power to pass the order of cancellation of allotment of plots. Such judgment is not helpful to the argument raised by the learned counsel for the petitioner. The State Government has no such power to take action against the allottee of the plots directly. But the State Government has the power to direct the improvement trust to remain within the bounds of law and to act in conformity with law. A reading of the judgment further shows that the provisions of Chapter VII-A of the IT Act were not referred to by the State. Therefore, u/s 72-E of the IT Act, the State Government has the jurisdiction to issue directions in respect of the manner of execution of the scheme and also in respect of the matter of signing of agreement as the State Government has the power to modify or annul the resolution after the action is taken. It has also the power to direct the Trust before action is taken so as to act in accordance with law. Such directions of the State Government are not in contravention of any of the statutory provisions or the rules framed there under. Therefore, such directions can be exercised in exercise of the executive powers of the State de hors the provisions of Chapter VII-A of the IT Act as well. Therefore, the general directions issued by the State Government issued on 24.1.2003, annexure R-1/1, is within the jurisdiction of the State Government. Similarly, the direction of the State Government issued on 17.5.2005 is also within the jurisdiction of the State Government and, thus, action taken by the chairman of the trust in violation of such instructions renders the act of signing of agreement as illegal, null and void.

Question No. 3

Whether the order passed by the Secretary, Local Self Government on 27.05.2005 is an order passed within the scope of Section 72-E of the IT Act and whether such order could be reviewed by the Minister without there being any power to review such an order?

Learned counsel for the petitioner has vehemently argued that the Principal Secretary to Local Government, Punjab, had no jurisdiction to pass the order annulling the action taken by the chairman of the trust on 27.5.2005 as the power of the State Government u/s 72-E of the IT Act was to be exercised by the Minister-in-Charge. It is contended that since the order passed by the Secretary, Local Government, on 27.5.2005 was not an order passed in exercise of the authority vested in him, therefore, such an order could be reviewed by the competent authority i.e. Minister-in-Charge. Learned counsel for the petitioner has argued that any decision on the City Centre project was a policy decision and, therefore, in terms of the rules of business, the same could be entertained by the Minister-in-Charge. Reliance is placed upon entry No. 5 of annexure-II of the standing order issued by the Local Government Minister on 23.5.2003 whereby the appeals/reviews against the orders of the Secretary in respect of the members of the Municipal Corporation/Trust Services, is to be entertained by the Minister-in-Charge.

On the other hand, learned counsel for the respondents have argued that power u/s 72-E of the IT Act to annul or modify the resolution of the trust is a quasi judicial power and such power falls within the scope of entry Nos. 8, 9, 26 and 28 of annexure-IV of the standing order issued by the Local Government Minister on 23.05.2003. It is further contended that major policy decisions are required to be submitted to the Chief Minister and not to the Minister-in-Charge.

Before considering the respective contentions of the parties, it may be noticed that rule 18 of the Rules of Business of the Government of Punjab, 1992, notified on 25.2.1992, contemplate that except as otherwise provided by any other rule, the Minister-in-Charge may, with the prior approval of the Chief Minister, by means of standing orders, give such directions as he thinks fit for the disposal of cases in the department. Rule 28 contemplate that the cases which are submitted to the Chief Minister through the Chief Secretary before the issue of orders which is inclusive of cases including all cases relating to all policy matters including all cases in which new policy is to be formulated or the existing policy relating to the functioning of the department is to be changed. In terms of rule 18 of the Rules of Business of the Government of Punjab, the Local Government Minister has issued standing orders on 23.5.2003. Annexure-I of the said standing order is in respect of cases to be submitted to the Chief Minister Punjab for passing the orders; annexure-II is the list of cases to be submitted to the Minister-in-Charge of Local Government; annexure-III is in respect of cases to be submitted to the State Minister/Deputy Minister of Local Government; and annexure-IV is the list of cases to be submitted to the Secretary-in-charge of the Department of Local Government. The relevant extract from the rules of business of the Government of Punjab and the standing order issued by the Local Government Minister on 23.5.2003 read as under:

Rules of Business of the Government of Punjab

Except as otherwise provided by any other rule, cases shall ordinarily be disposed of by or under the authority of the Minister-in-charge, who may, with the prior approval of the Chief Minister, by means of standing orders, give such directions as he thinks fit for the disposal of cases in the Department and copies of such standing orders shall be sent to the Chief Minister and the Governor:

Provided that if the Minister-in-charge is unable to dispose of the business of his department for some time due to any reason, the Chief Minister may direct the Chief Secretary to modify the existing standing orders of the Department or formulate fresh standing orders, as the Chief Minister may consider appropriate.

28 (1) The following classes of cases shall be submitted to the Chief Minister through the Chief Secretary before the issue of orders, namely:

(i)....

(ii) Cases relating to all policy matters including cases in which new policy is to be formulated or the existing policy relating to the functioning of the Department is to be changed and cases which are not covered by the Schedule;

(iii) to (xxx)....

Standing order

ANNEXURE-I

Cases to be submitted to Chief Minister Punjab for passing orders as per provisions of rule 28(1) of the Rules of Business of the Government of Punjab, 1992 amended vide Order No. 15/1/95-GOI/21008, dated 24.11.1995

* * * *

ANNEXURE-II

Cases to be submitted to the Minister In Charge of the Department of Local Government, Punjab.

* * * *

ANNEXURE-IV

Cases to be submitted to the Secretary In Charge Department of Local Government, Punjab.

* * * *

The communication of the State Government to the Trust while issuing directions are to the effect that the City Centre Project is unique in kind and such project is being implemented in the State for the first time; therefore, the State Government has issued directions to seek its approval at every stage of the project. In view of the said fact, in my opinion, the issue is required to be examined in two parts, the first relating to the approval of the City Centre Project i.e., whether such a project should be carried out by the Trust individually or by private participation or in any other mode. Such policy decision would require approval of the Hon''ble Chief Minister in terms of rule 28(1) (ii) of the Rules of Business of the Government of Punjab and entry No. 6 of annexure-I of the standing order: The second part, that is, the power u/s 72-E of the IT Act to annul or modify any resolution of the Trust. It would not vest with the Minister-in-Charge in terms of entry No. 5 or 18 or 28 of annexure-II. Entry No. 5 deals with appeals/reviews against the orders of Secretary in respect of the members of the Municipal Corporation/Trust Services. The said entry is not applicable in respect of resolution of the Trust granting contract of development of City Centre as it is not an appeal or review against the order of Secretary or deals with Municipal Corporation/Trust Services. No doubt, the policy matters fall within the scope of annexure-II or annexure-I but the fact remains that the modification or annulment of resolution of the trust is not a policy decision which may fall within entry No. 18 or 28 of annexure-II. Such power is to ensure due compliance of the policy decisions. The action of the Chairman of the Trust is, during the course of the implementation of the policy of construction of City Center after the Scheme was modified and notified. Thus, the power of the State Government in respect of modification or annulment of resolution u/s 72-E of the IT Act would vest with the Secretary as it would fall within scope of entry 8, 9 and 26 of annexure-IV. It is the execution of the policy regarding Town Planning Scheme which was subject matter of consideration by the Secretary in its order dated 27.5.2005.

Though the learned counsel for the petitioner has argued that the Minister-in-Charge could review the order passed by the Secretary, Local Government, on 27.5.2005 as the said order is administrative order but the learned counsel for the respondents has argued that the Order passed by the Secretary u/s 72-E of the IT Act is in exercise of the quasi judicial function and, thus, unless the power of review is conferred by the statute, the same could not have been exercised by the Minister-in-Charge. The power of annulment of a resolution u/s 72-E of the IT Act cannot be said to be administrative order as it has civil consequences for the Trust or for the persons drawing rights under such resolution of the Trust. Still further, when an order is passed in exercise of a statutory provision, then, the power to annul a resolution would be in exercise of quasi judicial functions. For review of the order passed by a quasi judicial authority, the power has to be specifically conferred. In the absence of any statutory power of review, the Minister would be deemed to exercise the power exercised by the secretary alone and thus cannot be said to have the power to review the order. It may be noticed that the Secretary Local Government has refused himself from entertaining the representation against his order dated 27.5.2005.

Still further, it may be noticed that the Minister-in-Charge has set aside the order passed by the Secretary, Local Government on 27.5.2005. The effect of such order is to place action of the chairman of the trust in the position which was in existence immediately prior to the order dated 27.5.2005. The Minister-in-Charge has not ratified the action of issuance of letter of intent, agreement or power of attorney. It was held to the following effect:

I have closely examined the matter. None of these grounds are available in the case in hand. The department had, after giving green signal to the Trust to independently decide and execute the matter, decided to convey that the Project involved some policy decisions and further action ought to be taken only upon finalization of policy. The financial bid had already been opened when the first communication was faxed at 6.40 p.m. on 17.5.2005. The Trust ought to have not proceeded with the finalization of the agreement in the light of the communication and the decision taken in the meeting held on 23.5.2005. However, the short ground of the trust in not complying with a certain specific direction requiring them to keep the matter pending, would not provide a valid ground for annulment of the decision or actions of the trust. I am, therefore, of the opinion that order dated 27.5.2005, issued by the Principal Secretary, Local Government, is not in accordance with law and cannot sustain. As such the same is withdrawn. All the concerned may be informed.

(Emphasis supplied Here italicised for emphasis)

From the order reproduced above, another thing which transpires is that the Minister-in-Charge has not given any reason to set aside the order passed by the secretary except to state that violation of the directions of the State Government does not entitle the secretary to pass an order of annulment of the decision or actions of the Trust. The Minister-in-Charge has also noticed that the Trust ought not to have proceeded with the finalization of the agreement in the light of the communication and the decision taken in the meeting held on 23.5.2005. If that was the situation then the order passed by the Minister-in-Charge to set aside the order of secretary is contradictory in itself. Therefore, in respect of question No. 3, it is concluded that the order passed by the secretary, Local Government on 27.5.2005, in the absence of any power to review, the order passed in exercise of quasi judicial function could not be reviewed by the Minister-in-Charge. Such order passed by the Minister-in-Charge is also not helpful in returning any finding that the agreement dated 24.5.2005 is legal and valid.

Question No. 4

Whether the agreement in favour of the petitioner contemplating private participation and authority to sell the plots in the City Centre was required to be provided for in the Scheme in terms of Section 28(2)(iii) of the IT Act and notified by the State Government in terms of Section 43 of the IT Act?

After the arguments were concluded on 24.08.2009, while going through the records, I found that further arguments are necessary in respect of whether the modified scheme contemplates its use by private participation; whether such scheme is required to incorporate private participation either by way of sale, lease or exchange in terms of section 28(2)(iii) of the Act requiring prior approval of the State Government u/s 43 of IT Act. I have heard learned counsel for the parties on 4 September, 2009 on such issues. Learned counsel for the petitioner has argued that there is no dispute regarding private participation in development of City Centre project as there is no objection in respect of tenders invited on 15.3.2005. Therefore, once the scheme has been modified by the State Government, it necessarily empowers the Trust to develop City Centre either exclusively or by seeking private participation. However, I find that the modification of the Scheme by the State Government, vide notification dated 10.1.2001, was in respect of lay out plan approved by the Trust vide Resolution No. 57-dated 5.7.2000. The said resolution is in pursuance of the earlier Resolution No. 130 dated 23.9.1999. Resolution No. 193 dated 3.2.2000 has resolved the development of City Centre site through special purpose vehicle in which the Trust prices the value of the site as the share of the Trust with proposal to incur expenses for the construction site by the other firms. The proposal which was approved by the trust reads as under:

Therefore, in order to remove the above said difficulties, a proposal is being given for the development of these sites through special purpose vehicles (a separate company) on the basis of equal shares. Under this proposal, the Trust through big consultants and by giving advertisements, could call the big firms for raising infrastructure under this scheme. The price/value of the sites would be kept by the Trust as its share and the big firms would incur the expenses for the construction of these sites. On completion of the buildings, these sites would be auctioned by the trust and special purpose vehicles jointly and the profit to be earned would be distributed between the trust and special purpose and vehicles as per their shares. Besides this, the annual maintenance expenditure of this scheme would also be met by the consultant and the funds for this purpose would also be generated by it at own level. As such, modern City Centre would also be developed and the trust shall not have to bear any expenses and the trust would get good price of its land.

A Scheme under the IT Act may provide retention, letting on hire, lease, sale or disposal of any land vested or acquired by the trust as contemplated by section 28(2)(iii) of the IT Act. In pursuance of such mandate, the scheme originally notified, in fact, contemplated disposal of land under the provisions of the Act and Land Disposal Rules. However, there is no provision under the Act and the Land Disposal Rules for development of the site and the sale or lease thereof at the instance of an agency or firm other than trust. The said aspect was considered by the trust in its meeting held on 3.2.2000. The constitution of a special purpose vehicle was mooted. The notification of the scheme notified on 10.1.2001 would by implication mean the mechanism of constitution of special purpose vehicle and to auction the site by the trust and the special purpose vehicle jointly and to earn profits between the trust and such special purpose vehicle as per their shares. Therefore, the Trust was required to act in terms of the aforesaid resolution which is deemed to be part of the modified scheme. The agreement entered by the Chairman of the Trust on 24.5.2005 authorises the petitioner to construct, sale, lease, license, operate and maintain the project and for opening of an Escrow account for transfer of revenue to the extent of 30% to the trust. The concessionaire period was 24 years including implementation period of 20 months. Some of the conditions of the agreement to determine the nature of the transaction read as under:

2.1 Grant of Concession

Subject to and in accordance with the terms and conditions set forth in this agreement, LIT hereby grants and authorizes the Concessionaire to investigate, study, design, engineer, procure, finance, have joint venture, construct, sell, lease, licence, operate and maintain the project/every or any other area of project/project facility and to exercise and/or enjoy the rights, power, privileges, authorizations and entitlements as set forth in this agreement, including but not limited to the right to levy, demand, collect and appropriate fee from persons liable to payment of Fee for using the project/project facility or any part thereof (collectively ''the Concession''). Notwithstanding to the contrary contained in this agreement, this clause shall apply. However, for transfer of revenue of the 30% to the LIT, an Escrow Account namely Today Homes and Infrastructure Pvt. Ltd. City Centre, Ludhiana shall be opened.

2.3 The Concessionaire hereby unconditionally and irrevocably without demur agree to receive and deposit all receivables from sale/lease or use of the built spaces or otherwise the project facility into the Escrow Account with the bank. The amounts in cash, if any received by the Concessionaire shall be deposited in the Escrow Account within 24 hours of the receipt or the immediate next working day in case of a bank holiday. The Concessionaire shall not give credit or make any adjustment against the receivables for any payment due from the Concessionaire. The Concessionaire shall ensure that no other person is authorized to utilize or appropriate any part of the receivables contrary to the above.

2.6 Concession Period

The Concession hereby granted is for a period of 24 years (including implementation period of 30 months) commencing from the date of signing of this agreement (the Concession Period) during which the Concessionaire is authorized to implement the Project, sell, lease and to operate Project Facility in accordance with the provisions hereof.

Provided that:

* * * *

A perusal of the terms of the agreement reproduced above shows that the concessionaire i.e., the petitioner and its successors and assigns have been given the right not only to construct but sale or use of built spaces or otherwise the project facilities for a period of 24 years. Such conditions of the agreement authorise a company i.e., the petitioner to sell or lease the property, is in contravention of earlier resolution dated 3.2.2000. The decision was to constitute a special purpose vehicle and sell the area after construction jointly. Therefore, the agreement dated 24.5.2005 entered upon by the chairman of the trust giving outright authority to sell area, is against the earlier resolution of the trust; scheme of acquisition and its disposal. Therefore, agreement entered upon is contrary to the provisions of the law and the earlier resolution of the Trust."

Question No. 5

Whether the acts of the chairman of the trust, a trustee of public trust and property, amounts to squandering away of the same and, thus, void?

The sequence of events reproduced above shows that the financial bids were opened on 17.5.2005 even though the directions of the State Government not to open the financial bids were received after the opening of the bids. The financial bid by contending bidders were in respect of a contract running into minute details and has financial stakes of over Rs. 350 crores. There is nothing on the record to show that there is any detailed analysis undertaken by the officers of the Trust before accepting the bid of the petitioner. It appears that the financial bid was opened with a predetermined mind to award the contract to the petitioner. It is evident from the tearing hurry reflected by the chairman in issuing letter of intent the very next day i.e. 18.5.2005 and execution of the agreement on 24.5.2005 i.e., within 6 days. The possession of the land was also delivered to the petitioner on 24.5.2005. The manner in which the chairman has acted to part with the property of the Trust shows that the Chairman has belied the faith of the public imposed upon him as a custodian of the public property. As held in Kasturi Lal Lakshmi Reddy''s case, supra, the activity of awarding the contract in favour of the petitioner has public element in it. Such action has to be with reason and guided by public interest. The chairman could not act arbitrarily. The action of the chairman in executing the agreement of the petitioner not only lacks bona fide but also shows little respect for the public trust imposed upon him. In Ramana Dayaram Shetty Vs. International Airport Authority of India and Others, it was held as under:

It must, therefore, be taken to be the law that where the Government is dealing with the public, whether by way of giving jobs or entering into contracts or issuing quotas or licences or granting other forms of largesse, the Government cannot act arbitrarily at its sweet will and, like a private individual, deal with any person it pleases, but its action must be in conformity with standard or norms which is not arbitrary, irrational or irrelevant. The power or discretion of the Government in the matter of grant of largesse including award of jobs, contracts, quotas, licences, etc. must be confined and structured by rational, relevant and non-discriminatory standard or norm and if the Government departs from such standard or norm in any particular case or cases, the action of the Government would be liable to be struck down....

In M/s. Style (Dress Land) Vs. Union Territory Chandigarh and Another, the Supreme Court again observed as under:

This court in Kumari Shrilekha Vidyarthi and Others Vs. State of U.P. and Others, , held that every State action, in order to survive, must not be susceptible to the vice of arbitrariness which is the crux of Article 14 and basic to the rules of law, the system which governs us, arbitrariness being the negation of the rule of law. Non-arbitrariness, being a necessary concomitant of the rule of law, it is imperative that all actions of every public functionary in whatever sphere must be guided by reason and not humour, whim, caprice or personal predilections of the persons entrusted with the task on behalf of the State and exercise of all powers must be for public good instead of being an abuse of power. Action of renew ability should be gauged not on the nature of function but public nature of the body exercising that function and such action shall be open to judicial review even if it pertains to the contractual field. The State action which is not informed by reason cannot be protected as it would be easy for the citizens to question such an action as being arbitrary.'' Thus, I find that the actions of the chairman of the trust, in signing the agreement in the manner noticed above lacks transparency, reasonableness and fairness in respect of contract to deal with public property."

Question No. 6

Whether the agreement in question is void or voidable and if it is voidable, whether the trust is required to initiate positive action to seek declaration that such agreement is not enforceable and, if so, from which court?

Learned counsel for the petitioner also argued that the question whether prior approval of the Trust is necessary is a provision without any reasonable nexus with the objective to be achieved as it is always open to the trust to take the benefit of a beneficial agreement and not to choose the agreement which is detrimental to its interest. Thus, a provision of law which is not certain and vague cannot be said to be void. If such an action is voidable, then the declaration to this effect is necessary from the competent court. It is contended that, in fact, the trust has not repudiated the agreement so far in any proceedings except taking stand in the reply to the present petition that such agreement is void. It is contended that even if prior approval was necessary that will only render the agreement voidable. Therefore, the trust is to initiate affirmative action to obtain a finding from the competent civil court that such agreement is not binding on the rights of the trust but the trust cannot avoid such agreement in proceedings for appointment of an arbitrator. It is also contended that violation of the provisions of a rule cannot result into an action void as such action is not a violation of mandate of the statute.

The question, whether the agreement is voidable and whether the trust is to initiate affirmative action to get declaration from the competent court does not arise in the present case. The arbitrator u/s 11(6) of the Act can be appointed only if there is a legal and valid agreement. Reference may be made to the judgments referred earlier. Whether the agreement is void or voidable is not of much consequence as it has been found that such an agreement is not legal and valid. Thus, the disputes which arise between the parties on account of an agreement having been executed by the chairman of the trust cannot be referred to the Arbitrator as the agreement is not legal and valid document binding on improvement trust.

Question No. 7

What is the effect of the meeting held on 06.10.2006 in respect of sale of the area on the basis of floor area rather than fund sharing?

The learned counsel for the petitioner has vehemently argued that in the meeting held on 6.10.2006, it was decided to resolve the disputes between the parties by agreeing to permit the petitioner to sell the covered area to the extent of 70% instead of fund sharing agreement entered earlier. Therefore, such agreement recorded in the minutes of meeting held on 6.10.2006 has the effect of acceptance of agreement dated 24.5.2005 by the State Government. However, I do not find any merit in the said argument as well. In the meeting held on 6.10.2006 presided over by the Principal Secretary, Local Government, Punjab, it was decided to permit the petitioner to sell the floor area instead of fund sharing module agreed earlier. However, in terms of the minutes, an agreement was to be executed but no such agreement has ever been executed. The minutes also contemplate constitution of special purpose vehicle but none was established as well. Since, certain action were required to be taken by the parties but none has been taken, therefore, such minutes of the meeting are only on paper. Such minutes are not enforceable by the petitioner in the present proceedings for appointment of an Arbitrator, in any case. Such minutes in a meeting though presided over by the Secretary to the Government are not the decision of the State Government exercised by Government in accordance with rules of business and is again in contravention of earlier resolution of the Trust dated 3.2.2000. In view of the above, it is concluded that the agreement dated 24.5.2005 signed by the Chairman of the Trust in favour of the petitioner is not legal and valid. Therefore, the disputes between the parties arising out of the said agreement are not referable to the arbitrator. Consequently, the present petition is dismissed with no order as to costs.