JUDGMENT
G. Bikshapathy, J.
1. This Writ Petition is filed for issuance of Writ of Mandamus declaring the action of the 1st respondent in forfeiting the sum of Rs. 1,00,000/- of Earnest Money Deposit (for short ‘EMD) deposited by the petitioner as illegal and arbitrary.
2. The petitioner submits that the 1st respondent issued tender notification on 10-7-1996 for running scooter stand in an open space of 15,000 Sq. Ft. at Imlibun Bus stand. Along with others, the petitioner also submitted a tender in the prescribed form. He also enclosed an Account Payee Cheque for Rs. 2,50,000/- and a Demand Draft for a sum of Rs. 1,00,000/- The tenders were opened on 15-7-1996. The petitioner stood at fourth place. Accordingly, the highest tenderer was awarded the contract for running the scooter stand. It is the case of the petitioner that consequent on the rejection of the tender on the ground that the petitioner was not the highest tenderer the EMD was required to be refunded to him. However, the Corporation issued proceedings dated 3-8-1996 forfeiting the sum of Rs. 1,00,000/- apart from returning the Cheque for Rs. 2,50,000/- on the ground that the petitioner had violated Clause 5 of terms and conditions of tender notification. Aggrieved by the order of the respondents in forfeiting the sum of Rs. 1,00,000/-, the present Writ Petition has been filed.
3. Counter affidavit has been filed on behalf of the respondent Corporation stating that six tenders including that of the petitioner were received in pursuance of the notification for running the scooter stand in Imlibun Bus stand. As per the terms and conditions of the tender, the person has to deposit a sum of Rs. 3,50,000/-towards EMD either in the shape of a Demand Draft or a Banker’s cheque and the same should be enclosed to the tender while submitting to the authorities. In the instant case, admittedly the petitioner has enclosed a cheque for Rs. 2,50,000/- and Draft for a sum of Rs. 1,00,000/- which is contrary to Clause No. 5 of the terms and conditions of tender and, therefore, the same was rejected. It is also the case of the Corporation that it was their experience that in most of the tenders, the deposits are not being made properly and the tenders were not being submitted with proper EMDs as notified in the tender notices. In order to curb such practice in submitting tenders, the present condition of forfeiture was included in the tender notification. Therefore, the Corporation submits that the action of the respondents in forfeiting the sum of Rs. 1,00,000/- submitted by the petitioner through Demand Draft is quite legal and valid.
4. Heard the learned Counsel for the petitioner and the learned Standing Counsel for the respondent Corporation Sri C.V. Ramulu.
5. The issue in this Writ Petition though falls in a very narrow compass carries considerable importance. The issue is whether the Corporation is justified in fixing one of the terms and conditions of tender as conferring the right of forfeiture of EMD, if the tenderer fails to comply with the terms and conditions.
6. For proper appreciation of the case, it is necessary to extract Clause 5 of the tender notification. It reads:
“The Earnest Money Deposit (EMD) prescribed in the tender notification should be in the form of Demand Draft/Banker’s cheque only, drawn in favour of the Deputy Chief Accounts Officer, A.P.S.R.T.C, Ranga Reddy Region. The Demand Draft/Banker’s cheque in original should be enclosed to the tender form. Other than DDs/Banker’s Cheque, the DDs/Banker’s Cheque (less than the requisite EMD) and cheques etc, will not be accepted and the same amount will be forfeited to the Corporation account without any notice. The EMD amount will not carry any interest.”
It is now well settled that the authority which is floating the tender or the purchaser of certain commodities may fix various terms and conditions of tenders. It is also well settled by a catena of decisions that the terms and conditions so fixed shall not be unreasonable so as to smack arbitrariness in the conditions violating Article 14 of the Constitution of India. The power of Judicial Review in matters of contracts has now been approved by the Supreme Court in a number of decisions. It cannot be denied that the principles of Judicial Review would apply in exercising contractual powers by Government bodies in order to prevent arbitrariness or favouritism. However, it must be clearly stated that there are inherent limitations in exercising the power of Judicial Review.
7. In the words of Lord Scarman in Nottinghamshire County Council v. Secretary of State for the environment, 1986 AC 240 “Judicial Review is a great weapon in the hands of the Judges; but the Judges must observe the constitutional limits set by our Parliamentary system upon the exercise of this beneficient power.” As said by Lord Brightman in Chief Constable of the North Wales Police v. Evans, (1982) 3 All E.R. 141 Judicial Review is concerned, not with the decision, but the decision making process itself. He said: ”Judicial Review, as the words imply, is not an appeal from a decision, but a review of the manner in which the decision was made.” An application for Judicial Review is not an appeal. It is a protection and not a weapon. In Re Amin Lord Fraser observed as follows:
“Judicial review is concerned not with the merits of a decision but with the manner in which the decision was made……………Judicial Review is entirely different from an ordinary appeal. It is made effective by the Court quashing an administrative decision without substituting its own decision, and is to be contrasted with an appeal where the appellate tribunal substitutes its own decision on the merits for that of the administrative officer.”
8. Thus, the duty of the Court is to confine itself to the question of legality. It has only to proceed to find out whether a decision making authority exceeded its power, whether has committed error of law or committed breach of rules of natural justice ,or reached the decision which no reasonable tribunal would have reached it or abused its powers. Therefore, any administrative action can be subjected to the control of Judicial Review in case of any illegality, irrationality viz., Wednesbury, unreasonableness and procedural impropriety. In R. v. Secretary of State for the Home Department Ex Parte Brind, (1991) 1 AC 696. Lord Diplock referred specifically to one development viz., the possible recognition of the principle of proportionality. In all these cases the test to be adopted is that the Court should consider whether something has gone wrong of a nature and degree which requires its intervention. In Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation, 1947 (2) All E.R. 680. Lord Greene M.R. drew attention to the fact that the word “unreasonable” had often been used in a sense which comprehended different grounds of review. He said that dismissal of a teacher for having red hair is a case of “frivolous and foolish reason”. In another case, he said that taking into consideration the extraneous matters might be so unreasonable that it could almost be described as being done in bad faith. In R. v. Tower Hamlets London Borough Council, Ex Chentnik Development Ltd, (1988) AC 858. the principles were summarised as follows:
“The Court is entitled to investigate the action of the local authority with a view to seeing whether or not they have taken into account matters which they ought not to have taken into account, or conversely, have refused to take into account or neglected to take into account matter which they ought to take into account. Once that question is answered in favour of the local authority, it may still be possible to say that, although the local authority had kept within the four corners of the matters which they ought to consider, they have nevertheless come to a conclusion so unreasonable that no reasonable authority could ever have come to it. In such a case, again, I think the Court can interfere. The power of the Court to interfere in each case is not as an appellate authority to override a decision of the local authority, but as a judicial authority which is concerned, and concerned only, to see whether the local authority has contravened the law by acting in excess of the power which Parliament has confided in them.”
In Council of Civil Service Unions v. Minister for the Civil Service, 1985 (1) AC 374. Lord Diplock said:
“By “irrationality” I mean what can now be succinctly referred to as “Wednesbury unreasonableness” (Associated Provincial Picture Houses v. Wednesbury Corporation, (1948) 1 KB 223). It applies to a decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be deiced could have arrived at.”
9. If the body acts in a bad faith or with an ulterior object, which is not authorised by law, its decision will be set aside (See Sydney Municipal Council v. Campbell, 1925 AC 338. In exercising the powers of Judicial Review, the Courts will take into account any reason which the body may give for its decision. If it gives no reasons in a case when it may reasonably be expected to do so, the Courts may infer that it has no good reason for reaching its conclusion, and act accordingly (See Padfield v. Minister of Agriculture, Fisheries and Food, 1968 AC 997.) However, it is observed that the Courts should be slow in quashing the administrative orders. Clive Lewis in his “Judicial Remedies in Public Law” (1992 Edition at pages 294-95) observed as follows:
“The Courts now recognise that the impact on the administration is relevant in the exercise of their remedial jurisdiction. Quashing decisions may impose heavy administrative burdens on the administration, divert resources towards reopening decisions, and lead to increased and unbudgeted expenditure. Earlier cases took the robust line that the law had to be observed, and the decision invalidated whatever the administrative inconvenience caused. The courts nowadays recognise that such an approach is not always appropriate and may not be in the wider public interest. The effect on the administrative process is relevant to the courts’ remedial discretion and may prove decisive. This is particularly the case when the challenge is procedural rather than substantive, or if the Courts can be certain that the administrator would not reach a different decision even if the original decisions were quashed. Judges may differ in the importance they attach to the disruption that quashing a decision will cause. They may also be influenced by the extent to which the illegality arises from the conduct of the administrative body itself, and their view of that conduct.
The current approach is best exemplified by R. v. Monopolies and Mergers Commission, exp. Argyll Group, (1986) 1 WLR 763)”.
10. Sir John Donaldson M.R. in R. v. Monopolies Commission, Ex Parte Argyll PLC (C.A.), (1986) 1 WLR 763. observed as follows:
“We are sitting as a public law court concerned to review an administrative decision, albeit one which has to be reached by the application of judicial or quasi-judicial principles. We have to approach our duties with a proper awareness of the needs of public administration. I cannot catalogue them all, but, in the present context, would draw attention to a few which are relevant.
Good public administration is concerned with substance rather than form.
……………Good public administration is concerned with speed of decision, particular in the final field.
……………Good public administration requires a proper consideration of the public interest. In this context, the Secretary of State is the guardian of the public interest.
……………Good public administration requires a proper consideration of the legitimate interests of individual citizens, however rich and powerful they may be and whether they are natural or juridical persons. But in judging the relevance of an interest, however legitimate, regard has to be had to the purpose of the administrative process concerned.
……………Lastly, good public administration requires decisiveness and finality, unless there are compelling reasons to the contrary.”
11. I may usefully refer to certain decisions of the Apex Court in this regard.
12. In Erusian Equipment and Chemicals Limited v. State of West Bengal, . The Supreme Court observed that when public element is involved in the activities of Government, then there should be fairness and equality. Though the State is entitled to impose reasonable conditions but arbitrary conditions prevent entering into contractual relations with the State. A duty to act fairly can be interpreted as meaning a duty to observe certain aspects of rules of natural justice. In Dwarkadas Marfatia and sons v. Board of Trustees of the Port of Bombay, . the Supreme Court held that the Corporation must act in accordance with certain constitutional conscience and whether they have so acted must be discernible from the conduct of such Corporations. Every activity of public authority must be informed by reasons and guided by the public interest. The Supreme Court further held that even in contractual relations the Court cannot ignore that the public authority must have constitutional conscience so that any interpretation put up must be to avoid arbitrary action. Whatever be the activity of the public authority, it must meet the test of Article 14 and Judicial Review strikes at an arbitrary action. In Ramana Dayaram Shetty v. International Airport Authority of India, it was held by the Supreme Court that in a welfare State in regulating and dispensing special services including contracts, the citizen derives rights or privileges by entering into favourable relations with the Government. The Government, therefore, cannot anchor its role as a private person. The exercise of power or discrimination to award contract etc. must be structured by rational, relevant and non-discriminatory standards or norms. In Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir, . it was held by the Supreme Court that every activity of the Government has a public element in it and it must, therefore, be informed with reason guided by public interest. In L.I.C. v. Escorts Limited, . the Constitution Bench of the Supreme Court while carving out a distinction between public and private law remedy observed:
“If the action of the State is related to contractual obligations or obligations arising out of tort, the court may not ordinarily examine it unless the action has some public law character attached to it. Broadly speaking, the court will examine actions of State if they pertain to the public law domain and refrain from examining them if they pertain to the private law field. The difficulty will lie in demarcating the frontier between the public law domain and the private law field. It is impossible to draw the line with precision and we do not want to attempt it. The question must be decided in each case with reference to the particular action, the activity in which the State or the instrumentality of the State is engaged when performing the action, the public law or private law character of the action and a host of other relevant circumstances.” In Mahabir Auto Stores v. Indian Oil Corporation, . it was held that the State when acting in its executive power, enters into contractual relations with the individual, Article 14 would be applicable to the exercise of the power. The action of the State or its instrumentality can be checked under Article 14 and their action shall be subject to rule of law, If the governmental action even in the matter of entering or not entering into contracts, fails to satisfy the test of reasonableness, the same should be held unreasonable. Even though the rights of the citizens, therefore, are in the nature of contractual rights, the manner, the method and motive of a decision of entering or not entering into a contract, are subject to judicial review on the touchstone of Article 14 of the Constitution. It was further held that whatever be the act of the public authority, it must be subject to rule of law and must be supported by reasons so as to withstand the test of Article 14. In Kumari Shrilekha Vidyarthi v. State of U.P., . the Supreme Court held:
“It is a different matter that the scope of judicial review in respect of disputes falling within the domain of contractual obligations may be more limited and in doubtful cases the parties may be relegated to adjudication of their rights by resort to remedies provided for adjudication of purely contractual disputes. However, to the extent, challenge is made on the ground of violation of Article 14 by alleging that the impugned act is arbitrary, unfair and unreasonable, the fact that the dispute also falls within the domain of contractual obligations would not relieve the State of its obligation to comply with the basic requirements of Article 14. To this extent, the obligation is of a public character invariably in every case irrespective of there being any other right or obligation in addition thereto. An additional contractual obligation cannot divest the claimant of the guarantee under Article 14 of non-arbitrariness at the hands of the State in any of its actions,”
13. The right to refuse the lowest or any other tender is always available to the Government, but the principles laid down in Article 14 of the Constitution of India have to be kept in view while accepting or refusing a tender. There can be no question of infringement of Article 14 of the Constitution, if the Government tries to get the best person or the best quotation. The right to choose cannot be considered to be an arbitrary power. Of course, if the said power is exercised for any collateral purposes, the exercise of that power will be struck down (See Tata Cellular v. Union of India, .
14. In Fasih Chaudhary v. Director General, Doordarshan, it was observed by the Supreme Court that there should be fair-play in action and the action should be legitimate and the transaction should be without any aversion, malice or affection. In Haji T.M. Hassan Rawther v. Kerala Financial Corporation, . it was observed that while fair-play in action in matters of administrative nature is an essential requirement, however, “free play in the joints” is also a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere. In G.B. Mahajan v. Jalgaon Municipal Council, , the Supreme Court observed:
“It was urged that the basic concept of the manner of the development of the real estate and disposal of occupancy rights were vitiated by unreasonableness. It is a truism, doctrinally, that powers must be exercised reasonably. But as Prof. Wade points out:
“The doctrine that powers must be exercised reasonably has to be reconciled with the no less important doctrine that the court must not usurp the discretion of the public authority which Parliament appointed to take the decision, Within the bounds of legal reasonableness is the area in which the deciding authority has genuinely free discretion. If it passes those bounds, it acts ultra vires. The court must therefore resist the temptation to draw the bounds too tightly, merely according to its own opinion. It must strive to apply an objective standard which leaves to the deciding authority the full range of choices which the legislature is presumed to have intended. Decisions which are extravagant or capricious cannot be legitimate. But if the decision is within the confines of reasonableness, it is no part of the court’s function to look further into its merits. ‘With the question whether a particular policy is wise or foolish the Court is not concerned; it can only interfere if to pursue it is beyond the powers of the authority’……………”
In F.C.I. v. Kamdhenu Cattle Feed Industries, the Supreme Court said;
“In contractual sphere as in all other State actions, the State and all its instrumentalities have to conform to Article 14 of the Constitution of which non-arbitrariness is a significant facet. There is no unfettered discretion in public law: A public authority possesses powers only to use them for public good. This imposes the duty to act fairly and to adopt a procedure which is ‘fairplay in action’ “.
In Sterling Computers Limited v. M/s M&N Publications Limited, . the Supreme Court observed:
“……………………In contracts having commercial element, some discretion has to be conceded to the authorities so that they may enter into contracts with persons, keeping an eye on the augmentation of the revenue. But even in such matters they have to follow the norms recognised by courts while dealing with public property. It is not possible for courts to question and adjudicate every decision taken by an authority, because many of the Government undertakings which in due course have acquired the monopolist position in matters of sale and purchase of products and with so many ventures in hand, they can come out with a plea that it is not always possible to act like a quasi-judicial authority while awarding contracts. Under some special circumstances a discretion has to be concerned to the authorities who have to enter into contract giving them liberty to assess the overall situation for purpose of taking a decision as to whom the contract be awarded and at what terms. If the decisions have been taken in bona fide manner although not strictly following the norms laid down by the courts, such decisions are upheld on the principle laid down by Justice Homes, that courts while judging the constitutional validity of executive decisions must grant certain measure of freedom of “play in the joints” to the executive.”
In Union of India v. Hindustan Development Corporation, . the Supreme Court held:
“……………………the Government had the right to either accept or reject the lowest offer but that of course, if done on a policy, should be on some rational and reasonable grounds. In Erusian Equipment and Chemicals Ltd. v. State of W.B. , this Court (Supreme Court) observed as under:
“When the Government is trading with the public, ‘the democratic form of Government demands equality and absence of arbitrariness and discrimination in such transactions’. The activities of the Government that a public element and, therefore, there should be fairness and equality. The State need not enter into any contract with anyone, but if it does so, it must do so fairly without discrimination and without unfair procedure.”
After scanning through all these decisions, the Supreme Court in Tata Cellular Case (17 supra) deduced the following principles;
“(1) The modern trend points to judicial restraint in administrative action.
(2) The Court does not sit as a Court of appeal but merely reviews the manner in which the decision was made.
(3) the Court does not have the expertise to correct the administrative decision. If a review of the administrative decision is permitted it will be substituting its own decision, without the necessary expertise which itself may be fallible.
(4) The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract. Normally speaking, the decision to accept the tender or award the contract is reached by process of negotiations through several tiers. More often than not, such decisions are made qualitatively by experts.
(5) The Government must have freedom of contract. In other words, a fairplay in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness (including its other facts pointed out above) but must be free from arbitrariness not affected by bias or actuated by mala fides.
(6) Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure.”
15. In Delhi Science Forum and Ors. v. Union of India and Anr., the Supreme Court observed as follows:
“………………Even in the absence of rules the power to grant licence on such conditions and for such considerations can be exercised by the Central Government but then such power should be exercised on well- settled principles and norms which can satisfy the test of Article 14 of the Constitution. If necessary for the purpose of satisfying as to whether the grant of the licence has been made strictly in terms of the proviso complying and fulfilling the conditions prescribed, which can be held not only reasonable, rational, but also in the public interest can be examined by courts. It need not be impressed that an authority which has been empowered to attach such conditions as it thinks fit, must have regard to the relevant considerations and has to disregard the irrelevant ones. The authority has to genuinely examine the applications on their individual merit and not to promote a purpose alien to the spirit of the Act. In this background, the Courts have applied the test of a reasonable man i.e. the decision should not be taken or discretion should not be exercised in manner, as no reasonable man could have ever exercised. Many administrative decisions including decisions relating to awarding of contracts are vested in a statutory authority or a body constituted under an administrative order. Any decision taken by such authority or a body can be questioned primarily on the grounds: (i) decision has been taken in bad faith; (ii) decision is based on irrational or irrelevant considerations; (iii) decision has been taken without following the prescribed procedure which is imperative in nature. While exercising the power of judicial review even in respect of contracts entered on behalf of the Government or authority, which can be held to be State within meaning of Article 12 of the Constitution, Courts have to address while examining the grievance of any petitioner as to whether the decision has been vitiated on one ground or the other. It is well-settled that the onus to demonstrate that such decision has been vitiated because of adopting a procedure not sanctioned by law, or because of bad faith or taking into consideration factors which are irrelevant, is on the person who questions the validity thereof. This onus is not discharged only by raising a doubt in the mind of the court, but by satisfying the court that the authority or the body which had been vested with the power to take decision has adopted a procedure which does not satisfy the test of Article 14 of the Constitution or which is against the provisions of the statute in question or has acted with oblique motive or has failed in its function to examine each claim on its own merit on relevant considerations. Under the changed scenario and circumstances prevailing in the society, courts are not following the rule of judicial self-restraint. But at the same time all decisions which are to be taken by an authority vested with such power cannot be tested and examined by the court. The situation is all the more difficult so far as the commercial contracts are concerned. Parliament has adopted and resolved a national policy towards liberalisation and opening of the national gates for foreign investors. The question of awarding licences and contracts does not depend merely on the competitive rates offered; several factors have to be taken into consideration by an expert body which is more familiar with the intricacies of that particular trade. While granting licences a statutory authority or the body so constituted should have latitude to select the best offers on terms and conditions to be prescribed taking into account the economic and social interest of the nation. Unless any party aggrieved satisfies the court that the ultimate decision in respect of the selection has been vitiated, normally Courts should be reluctant to interfere with the same.”
16. In New Horizons Limited v. Union of India, the award of contract to M & N Publications was questioned. The Supreme Court considered the relevant provisions of tender conditions and observed:
“At the outset, we may indicate that in the matter of entering into a contract, the State does not stand on the same footing as a private person who is free to enter into a contract with any person he likes. The State, in exercise of its various functions, is governed by the mandate of Article 14 of the Constitution which excludes arbitrariness in State action and requires the State to act fairly and reasonably. The action of the State in the matter of award of a Contract has to satisfy this criterion. Moreover a contract would either involve expenditure from the State exchequer or augmentation of public revenue and consequently the discretion in the matter of selection of the person for award of the contract has to be exercised keeping in view the public interest involved in such selection. The decision of this Court, therefore, insist that while dealing with the public, whether by way of giving jobs or entering into contracts or issuing quotas or licenses 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 the standards or norms which are not arbitrary, irrational or irrelevant. It is, however, recognised that certain measure of “free play in the joints” is necessary for an administrative body functioning in an administrative sphere.”
17. In L.I.C. of India v. Consumer Education and Research Centre, (D.N.) validity of the conditions laid in Table 58 of term policy was considered. The Supreme 30 Court held that the offending clause extending the benefits only to the persons in Government, semi-Government and reputed firms was unconstitutional. In Para-27 it is stated thus;
“In the sphere of contractual relations the State its instrumentality, public authorities or those whose acts bear insignia of public element, action to public duty or obligation are enjoined to act in a manner i.e., fair, just and equitable, after taking objectively all the relevant options into considerations and in a manner that is reasonable, relevant and germane to effectuate the purpose for public good and in general public interest and it must not take any irrelevant or irrational factors into consideration or arbitrary in his decision. Duty to act fairly is part of fair procedure envisaged under Articles 14 and 21. Every activity of public authority or those under public duty or obligation must be informed by reason and guided by the public interest.”
It further held:
“The arms of the High Court are not shackled with technical rules or of procedure. The actions of the State, its instrumentality, any public authority or person whose actions bear insignia of public law element or public character are amenable to judicial review and the validity of such an action would be tested on the anvil of Article 14. While exercising the power under Article 226 Court would be circumspect to adjudicate the disputes arising out of the contract depending on the facts and circumstances in a given case, The distinction between the public law remedy and private law field cannot be demarcated with precision. Each case has to be examined on its own facts and circumstances to find out the nature of the activity or scope and nature of the controversy. The distinction between public law and private law remedy is now narrowed down. The action of the appellants bears public character with an imprint of public interest element in their offers with terms and conditions mentioned in the appropriate table inviting the public to enter into contract of life insurance. It is not a pure and simple private law dispute without any insignia of public element. Therefore, we have no hesitation to hold the writ petition is maintainable to test the validity of the condition laid in Table 58 term policy and the party need not be relegated to a civil action.” ‘
In Paragraph-47, it is observed:
“It is, therefore, the settled law that if a contract or a clause in a contract is found unreasonable or unfair or irrational one must look to the relative bargaining power of the contracting parties. In dotted line contracts there would be no occasion for a weaker party to bargain or to assume to have equal bargaining power. He has either to accept or leave the services or goods in terms of the dotted line contract. His opinion would be either to accept the unreasonable or unfair terms or forego the service for ever. With a view to have the services of the goods, the party enters into a contract with unreasonable or unfair terms contained therein and he would be left with no option but to sign the contract.”
18. Keeping the aforesaid decisions of the Apex Court and the English Courts in view, it has to be seen whether Clause 5 as stipulated by the Corporation is reasonable and valid in law, It is not in dispute that the said condition was introduced by the Corporation as an administrative decision. No statutory rules have been framed by the Corporation in respect of the award of contracts. The matter relates to the award of licence for running the scooter stand in the premises of Bus complex at lmlibun in Hyderabad. The purpose of EMD is to ensure that in the event of the tenderer being successful and the contract having been allotted to him, he shall ensure the due compliance of the terms and conditions of the contract of allotment. Thus, the purpose requiring the tenderers to submit the EMD is to secure the due performance of the contract. In the instant case, the requirement of EMD is Rs. 3,50,000/- and the same should be paid by way of Demand Draft or the Banker’s Cheque, “”he said Cheque or draft should be enclosed along with the tender quotation. Admittedly, in the instant case, the petitioner has only enclosed a Demand Draft for Rs. 1,00,000/- and a cheque for Rs. 2,50,000/-, which is not a Banker’s Cheque. It is the case of the learned counsel for the Corporation that initially such condition was not there in the tender notification but of-late the experience of the Corporation showed that the tenders are being filed with incomplete information and insufficient EMD and thereby causing lot of inconvenience to the administration and therefore they have incorporated such a clause that if any insufficient EMD is sent, the said amount shall be forfeited by the Corporation. The Corporation is well justified in rejecting such tenders which did not conform to the conditions laid down in the tender notification. But the crucial question that falls for consideration is whether the Corporation is entitled to forfeit the EMD amount sent along with the tender, even if the amount is not in compliance with the terms and conditions of the notice. It is the case of the Corporation that at the threshold itself, the tender has been rejected and some other tenderer was allotted this contract as the petitioner failed to enclose the necessary EMD amount through a Banker’s cheque or a Demand Draft. The amount sent by him by Demand Draft for Rs. 1,00,000/- is contrary to Clause 5 of the tender notification and therefore the amount was forfeited. The learned counsel for the Corporation has not been able to bring to the notice of this Court the power of forfeiture of the HMD. The forfeiture may be justified in cases of violation of terms and conditions of concluded contracts but it is a case where no contract has been concluded and the matter is only at the stage of invitation of tenders. At this point of time, invoking forfeiture clause does not arise. The reasonableness of the clause was sought to be sustained by the learned counsel for the Corporation that number of tenders were being received with incomplete EMD amounts. In my opinion, that cannot be a valid ground to forfeit the amount which was sent along with the tender towards EMD. It is true, as contended by the learned counsel for the Corporation, that since the petitioner understood the terms and conditions of the tender and yet he enclosed the EMD for a lesser amount and therefore he cannot assail when the amount is forfeited, but at the same time it has to be seen whether the Corporation has acted fairly and reasonably.
19. It is now beyond pale of any controversy that inequality in bargaining power vitiates the contract. Lord Denning in Gillespie Bros. and Co. Ltd. v. Roy Bowles Transport Limited, (1973) 1 All E.R. 193 while construing the indemnity clause in a contract said that the courts are not to permit party to enforce his unreasonable clause, so unreasonable as to be unconscionable and stated:
“When it gets to this point, I would say, as I said many years ago, ‘…………………………there is the vigilance of the common law which, while allowing freedom of contract, watches to see that it is not abused’. It will not allow a party to exempt himself from his liability at common law when it would be quite unconscionable for him to do so.”
20. In Lloyds Bank Ltd. v. Bundy, (1974) 3 All E.R. 757. inequality of the bargaining power was enunciated by Lord Denning, M.R. and held that one who enters into a contract on terms which are very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity………the one who stipulates for an unfair advantage may be moved solely by his own self-interest, unconscious of the distress he is bringing to the other…………One who is in extreme need may knowingly consent to a most improvident bargain, solely to relieve the strains in which he finds himself. It would not be meant to suggest that every transaction is saved by independent advice. But the absence of it may be fatal.
21. In A. Schroeder Music Publishing Co. Ltd. v. Macaulay (Formerly instone), (1974) 3 All E.R. 616. House of Lords considered and held that a party to a contract would be relieved from the terms of the contract. In the course of his speech learned Lord Diplock outlined the theory of unreasonableness or unfairness of the bargain to relieve a party from the contract when the relative bargaining power of the parties was not equal. In that case the song writer had contracted with the publisher. The song writer was relieved from the bargain of the contract on the theory of restraint trade opposed to public policy. The distinction was made even 20 in respect of standard forms of contract emphasising that when the parties in a commercial transaction having equal bargaining power have adopted the standard form of contract, it was intended to be binding on the parties. The court would not relieve the party from such a contract but the contracts are between the parties to it, or approved by any organisation representing the interests of the weaker party, they have been directed by that party whose bargaining power, either exercised alone or in conjunction with others providing similar goods or services, enables him to say; “If you want these goods or services at all, these are the only terms on which they are obtainable. Take it or leave it.”
22. In Central Inland Water Transport Corporation Limited v. Brojo Nath Ganguly, . Madon, J. speaking for a Bench of two Judges considered the development of law, held that an instrumentality of the State cannot impose unconstitutional conditions in statutory rules vis-a-vis its employee to terminate the service of permanent employee in terms of the rules and held thus;
“Should then our courts not advance with the times? Should they still continue to cling to outmoded concepts and outworn ideologies? Should we not adjust our thinking caps to match the fashion of the day? Should all jurisprudential development pass us by, leaving us floundering in the sloughs of nineteenth-century theories? Should the strong be permitted to push the weak to the wall? Should they be allowed to ride roughshod over the weak? Should the courts sit back and watch supinely while the strong trample under foot the rights of the weak? We have a Constitution for our country, Our judges are bound by their oath to ‘uphold the Constitution and the laws’. The Constitution was enacted to secure to all the citizens of this country social and economic justice. Article 14 of the Constitution guarantees to all persons equality before the law and the equal protection of the laws. The principle deducible from the above discussions on this part of the case is in consonance with right and reason, intended to secure social and economic justice and conforms to the mandate of the great equality clause in Article 14. This principle is that the Courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between parties who arc not equal in bargaining power. It is difficult to give an exhaustice list of all bargains of this type. No Court can visualize the different situations which can arise in the affairs of men. One can only attempt to give some illustrations for instance, the above principle will apply where the inequality of bargaining power is the result of the great disparity in the economic strength of the contracting parties. It will apply where the inequality is the result of circumstances, whether of the creation of the parties or not. It will apply to situations in which the weaker party is in a position in which he can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party of go without them. It will also apply where a man has no choice, or rather no meaningful choice, but to give his assent to a contract or to sing On the dotted line in a prescribed or standard form or to accept a set of rules as part of the contract, however unfair, unreasonable and unconscionable a clause in that contract or form or rules may be. This principle, however, will not apply where the bargaining power of contracting parties is equal or almost equal. This principle may not apply where both parties are businessmen and the contract is a commercial transaction. In to-day’s complex world of giant corporations with their vast infrastructural organizations and with the State through its instrumentalities and agencies entering into almost every branch of industry and commerce, there can be myriad situations which result in unfair and unreasonable bargains between parties possessing wholly disproportionate and unequal bargaining power. These cases can neither be enumerated nor fully illustrated. The Court must Judge each case on its own facts and circumstances.”
23. In Delhi Transport Corporation v. D.T.C. Mazdoor Congress, (1991) Supp. (1) SCC 600 the Supreme Court held that rule giving power to terminate the services of a permanent employee by giving one month notice or salary in lieu was unconstitutional. K. Ramaswamy J. speaking for the majority held that freedom of contract must be founded on equality of bargaining power between the contracting parties. The learned Judge further observed that today’s complex world of giant corporations with their vast infrastructural organisations and with the State, through its instrumentalities and agencies has been entering into almost every branch of industry and commerce and Held of service. There can be myriad situations which result in unfair and unreasonable bargain between parties which possess wholly disproportionate and unequal bargaining power. Thus an unfair and irrational clause in a contract is also unjust and amenable to judicial review. Therefore, while invoking the power of judicial review in matters relating to contract or clauses in a contract, as being unreasonable, unfair or irrational, the relative bargaining power is the criteria. Sri K. Ramaswamy J., in LIC Case (26 supra) stated:
“In dotted line contracts there would be no occasion for a weaker party to bargain or to assume to have equal bargaining power. He has either to accept or leave the services or goods in terms of dotted line contract. His option would be either to accept the unreasonable or unfair terms or forego the service for ever. With a view to have the services or the goods, the party enters into a contract with unreasonable or unfair terms contained therein and he would be left with no option but to sign the contract.”
24. As narrated in the decisions referred to supra, it is clear that administrative action of the State or its instrumentalities even in the sphere of contractual obligations can be tested on the touchstone of arbitrariness under Article 14 of the Constitution of India. The HMD is meant for a specific purpose i.e. for due performance of the contract in the event of allotment of contract and that the authority is entitled to either forfeit or recover a portion of the amount or the deposit. In other words, it is only a security for proper execution of the contract between the Corporation and the allottee but it is not meant for forfeiture even prior to the allotment of the contract. It is not the case where the petitioner is challenging the action of the respondents in awarding the tenders. It is the clear case that the petitioner was not successful in allotment of contract and that some other tenderer has been awarded the contract and therefore his EMD should be returned and the same cannot be subjected to forfeiture. Thus, I find no nexus to the object sought to be achieved by forfeiting the amount. Further applying the principles laid down in Brojo Nath’s Case (30 supra), Delhi Transport Corporation Case (31 supra) and L.I.C. case (26 supra), it is manifest that the petitioner cannot be said to yield equal bargaining power on par with the Corporation. Gross inequality is quite apparent and necessarily he is bound to succumb to the conditions prescribed by the giant organisation. The unreasonableness and arbitrariness stare at Clause 5 itself to the extent it seeks to forfeit the EMD amount. The Corporation is not justified in introducing such a clause. It is very much doubtful that the tender of the petitioner could at all be rejected as it is not even the case of the Corporation that the cheque sent by the petitioner for Rs. 2,50,000/- was dishonoured by the Bank. Therefore, I find that the Corporation cannot introduce the confiscatory or expropriatory devices in the guise of tender conditions as in clause 5 forfeiting the EMD amount and to that extent the clause is wholly arbitrary and unreasonable offending Article 14 of the Constitution of India.
25. Accordingly, the Writ Petition is allowed and the portion covering the forfeiture of FMD amount in clause 5 is severed and declared as illegal and arbitrary. Consequently, there shall be a direction to the respondents to refund the sum of Rs. 1,00,000/- to the petitioner within a period of four weeks from the date of receipt of this order, failing which it shall carry interest at 18 per cent per annum from the date of filing the Writ Petition till the date of payment. No costs.