JUDGMENT
V.K. Jhanji, J.
1. In this petition, challenge is to decision dated 21.12.1993 (Annexure P-8) of respondent No. 2 awarding contract for handling of various foodgrains at the depot of Food Corporation of India at Shahabad. Petitioner has also sought a writ in the nature of mandamus directing respondents 1 and 2 to allot contract of handling operations at Shahbad Markanda by inviting tenders.
2. Food Corporation of India (in short the F.C.I.) is engaged in storing and distributing foodgrains all over the country and for this purpose, maintains storage-depots in which foodgrains are stored. The process of storage involves the handling of various good-grains which are packed in bags transported, dumped, loaded, unloaded and subjected to various other operations of a similar nature in which the employment of labour is essential. For this purpose, contract labour is engaged through a contractor at every such depot. F.C.I. for the purpose of carrying out the task of storing food-grains; floats tenders from time to time as per the policy governing the subject in order to award contract to the most economical and deserving contractor for each depot. According to the petitioner, as per the policy followed in the past by the F.C.I., tenders are required to be called through public advertisement directly from contractors. At the time the tenders are floated, the rates in accordance with “scheduled rate” prepared by F.C.I. are quoted in the tender and thee parties who submit the tenders, quote their rates keeping in view the rates stated in the Schedule. These schedule rates vary marginally from time to time. In the year 1988-89, a tender was floated by F.C.I. for Shahabad Depot and the contract was awarded to Shahabad Truck Union at the rate of 2% above the scheduled rate. Similarly for the period from 18.3.1989 to 17.3.1991 the tender after advertisement was allotted to Roop Lal and Co. at 9% below the scheduled rate. The tender floated for the months of June, 1991 to December, 1991 was allotted to the petitioner after open public tender had been called. It was allotted at the rate of 32% above the scheduled rate. Later, a tender for the period from December, 1991 to December, 1993 was advertised and the same was allotted to Khazan Singh and Co. which comprises of two partners namely Khazan Singh and Sh. Jagjivan Paul Singh (respondents 4 and 5 herein) at 26.1/2% above the scheduled rate. It has been averred in the petition that as per practice prevailing, a few months before a contract is to expire the F.C.I. publishes an advertisement and notice, inviting tender for the place at which the contract is to expire so that the competitive bids are available. For depot at Shahabad the contract awarded to Khazan Singh and Co. was to expire on 26.12.1993, but to the surprise of the petitioner in advertisement dated 27.9.1993 which appeared in the Punjab Kesri thee tenders were invited for various centers except for the centre at Shahabad Markanda. Petitioner apprehending that the transaction was likely to be entered into by F.C.I. with either, Khazan Singh and Co. or Ors. acting as benami for said Khazan Singh, filed Civil Writ Petition No. 13098 of 1993 seeking a direction that the respondents be directed to allot work only by way of open tender and not by way of private negotiation. In that writ petition, it was averred by the petitioner that exclusion of Shahabad from the tender is being done deliberately with a view to favour the existing contractor with whom negotiations are going on and it has come to the knowledge of the petitioner that the negotiations are almost at the final state and the respondents have decided to allot work to the said contractor by some other mode. The writ petition was disposed of by a Division Bench of this Court on 23.10.1993 with the observation that “if instructions or rules provide allotment of work by inviting tenders, it is taken that the Food Corporation of India would act according to rules. If the work is allotted by negotiations, the petitioner would be at liberty to challenge the action.” Petitioner informed respondent No.2, i.e. Senior Regional Manager, F.C.I. by registered letter dated 2.11.1993 with regard to the order passed in the above said writ petition. It has been averred by the petitioner that he learnt from the officials of respondents 1 and 2 that instead of inviting tenders, the contract for handling operations had been allotted on 8.2.1993 for a period of two year to Bhartiya Khadya Nigam Workers Coop. L/C Society Limited, Shahabad c/o Simran Singh son of Raja Singh, Mohalla Majri, Ward No. 2, Shahabad Markands (hereinafter referred to as Workers’s Cooperative Society) who comprise the same manage ment as that of the previous contractor, i.e. Khazan Singh and Company. It has also been averred that Simran Singh, President of Workers Co-operative Society is the real brother of Khazan Singh and both of them live together in the same house at Shahabad. The rate at which the work has been given is 15% above the scheduled rate. The action of respondent No.2 in awarding the handling operation contract to Workers Cooperative Society has been called in question on the ground that the allotment of tender to the Workers Co-operative Society at an exorbitant rate is against public interest as it involves reckless gifts of public funds. Challenge is also on the ground that allotment of the tender to the Workers’ Co-operative Society is nothing but benami for Khazan Singh son of Raja Singh. Petitioner also filed an additional affidavit dated 22.11.1994 in which he deposed that after filing of the petition, he has been able to gather information with regard to the rates at which contract for labour and transport has been awarded to various centres of F.C.I. In the affidavit, he has mentioned about various centres where godowns are being maintained and also the rates at which contracts have been awarded. He has further averred that except for centre at Shahabad, at all other centres there is a single contract given for both labour and transport. It is only at Shahabad that a separate contract has been given for labour and transport of which the work component is equal, and the consolidated contract for labour and transport would work out to 127 per cent above the schedule rate.
3. Two sets of written statement have been filed one by respondents No.1 and 2 and the other by respondent No.3. Respondents No. 1 and 2 have defended then-action in not inviting the tenders by saying that in awarding the handling work to the Workers’ Co-operative Society the respondents have followed instructions contained in Headquarters’ circular letter dated 11.6.1991 and that too on the recommendation by the Committee of senior officers constituted for the purpose and the District Manager, Kurukshetra. Respondents 1 and 2 have denied that the work has been allotted to the previous contractors, rather their stand is that the Workers’ Co-operative Society is totally a separate entity which has beep formed by the working labourers of Shahbad depot. They have averred that the rate of 26-1/2 per cent of previous contract was meant for combined contract, i.e. for labour as well as transport work. The contractors usually save in transport work and pay to the labour from the saving of transport work. They have thus, averred that since the work to the society was allotted for labour work only, the respondents were under legal obligation to ensure that minimum wage at least are received by the workers and so, the rates were settled after taking into consideration all aspects and the rates settled with the society are quite reasonable. The Workers’ Cooperative Society in its written statement has averred that the petitioner has no vested right to claim the contract which has been given to a labour co-operative society with a view to encourage the labour societies. It has been averred that the labourers of the Shahbad depot joined hands together to form a labour cooperative society and got such society registered under the Haryana Cooperative Societies Act, 1984 with a view to stop the exploitation of the contractors. As regards Simran Singh who is president of the Society, it has been averred that Simran Singh was working in the depot and therefore, was elected as president of the Co-operative Society. Respondent No. 3 has denied that the society is benami for Khazan Singh.
4. It may also be mentioned at this stage that petitioner has filed a few affidavits of the workers, who are alleged to be members of the society, in which they have deposed that they are working in the same godown under Khazan Singh and Simran Singh, contractors, who call themselves to be owners of the Workers’ Cooperative Society. In the affidavits, it has also been stated that blank papers were got signed/thumb-marked from them. To counter this, respondent No. 3 has also filed affidavits from these very workers in which it has been stated that thumb- impressions were obtained by one Ram Chander by representing that these are required for settling old dues.
5. Learned counsel for the petitioner has contended that the F.C.I. has acted arbitrarily in awarding contract to the Workers’ Cooperative Society without affording any opportunity to others to compete for obtaining contract and this action of the State is not based on any rational or relevant principle and therefore, is violative of Article 14 of the Constitution of India. He also contended that the order is arbitrary, mala-fide and not in public interest inasmuch as the Workers’ Co-operative Society is nothing but benami for Khazan Singh and his brother, Simran Singh who are labour and transport contractors. In answer to these submissions, learned counsel for the respondents have contended that the contract has been awarded to the Workers’ Cooperative Society in pursuance of policy decision of the government to engage the, Labour Cooperative Society for handling labour operations in F.C.I. depots and railway sidings. Learned counsel also contended that action of the F.C.I. is neither irrational nor arbitrary. Counsel for Workers’ Cooperative Society has contended that it is not a benami society for Khazan Singh and Company.
6. Before considering the rival contentions of learned counsel for the parties on merits, it is necessary to make reference to the judgments of the Apex Court in regard to law on the subject. In . Kasturi Lal Lakshmi Reddy etc. v. The State of Jammu and Kashmir and Anr., AIR 1980 S.C. 199 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. If the Government awards a contract or leases out or otherwise deals with its property or grants any other largess, 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 Apex Court further held that it must follow as a necessary corollary that the Government cannot act in a manner which would benefit a private party at the cost of the state; such an action would be both unreasonable and contrary to public interest. The Government, therefore, cannot, for example, give a contract or sell or lease-out its property for a consideration less than the highest that can be obtained for it, unless of course there are other considerations which render it reasonable and in public interest to do so. Such considerations may be that some Directive Principle is sought to be advanced or implemented or that the contract or the property is given not with aview to earning revenue but for the purpose of carrying out a welfare scheme for the benefit of a particular group or section of people deserving it or that the person who has offered a higher consideration is not otherwise fit to be given the contract or. the property. In Mahabir Auto Stores and Ors. v. Indian Oil Corporation and Ors. 1990(2) S.L.R. 69, the Apex Court reiterated that every action of the State or an instrumentality of the State in exercise of its executive power must be informed by reasons. Hon’ble Mr. Justice Sabyasachi Mukharji, Chief Justice of India speaking for the Bench observed “Every action of the State executive authority must be subject to rule of law and must be informed by reason. So, whatever be the activity of the public authority, in such monopoly or semi-monopoly dealings, it should meet the test of Article 14 of the Constitution. If a Government action even in the matters of entering or not entering into contracts, fails to satisfy the test or reasonableness, the same would be unreasonable.” In Union of India and Ors. v. Hindustan Development Corpn. and Ors., J.T. 1993(3) S.C. 15, the Apex Court held “It is true, as it is today, that the Government in a welfare State has the wide powers in regulating and dispensing of special services like leases, licences and contracts etc. The magnitude and range of such Governmental function is great. The Government while entering into contracts or issuing quotas is expected not to act like a private individual but should act in conformity with certain healthy standards and norms. Such actions should not be arbitrary, irrational or irrelevant. In the matter of awarding contracts inviting tenders is considered to be one of the fairways. If there are any reservations or restrictions then they should not be arbitrary and must be justifiable on the basis of some policy or valid principles which by themselves are reasonable and not discriminatory. In Food Corporation of India v. Kamdhenu Cattle Feed Industries, 1993(1) Supreme Court Cases 71,the Apex Court held “In contractual sphere as in all other State actions, the State and all its instrumentalities have to conform to Article 14 of which nonaritrariness 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’. Due observance of this obligation as a part of good administration raises a reasonable or legitimate expectation in every citizen to be treated fairly in his interaction with the state and its instrumentalities, with this element forming a necessary competent of the decision-making process in all State. actions. To satisfy this requirement of non-arbitrariness in a State action, it is, therefore, necessary to consider and give due weight to the reasonable or legitimate expectations of the persons likely to be affected by the decision or else that unfairness in the exercise of the power may amount to enforce or excess of power apart from affecting the bona fides of the decision in a given case. The decision so made would be exposed to challenge on the ground of arbitrariness. Rule of law does not completely eliminate discretion in the exercise of power, as it Is unrealistic, but provides for control of its exercise by judicial review,” In United India Periodicals Pvt. Ltd. v. M and N Publications Ltd. and Ors., 1993(1) Supreme Court Cases 446, the Apex Court has held that State action in commercial/contractual transactions with private parties must be inconsonance with Article 14. Decision making process of public authorities, if influenced by extraneous/irrelevant considerations would vitiate the decision, even if it is without bias. The Court observed “Unlike policies, contracts are legally binding commitments and they commit the authority which may be held to be a State within the meaning of Article 12 in many cases for years. Public authorities are essentially different from those of private persons. Even while taking decision in respect of commercial transactions a public authority must be guided by relevant considerations and not by irrelevant ones. If such decision is influenced by extraneous considerations, which it ought not to have taken into account, the ultimate decision is bound to be vitiated, even if it is established that such decision had been taken without bias. There is nothing paradoxical in imposing legal limits on such authorities by courts even in contractual matters because the whole concept of unfettered discretion is inappropriate to a public authority, who is expected to exercise such powers only for public good.”
7. Recently, while dealing with the Government contacts having commercial element, the Apex Court in Tata Cellular v. Union of India, J.T. 1994(4) S.C. 532, has laid down 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 decissions 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,”
Thus, on a conspectus of the afore-mentioned judgments of the Apex Court, it stands settled that in the matter of awarding contract, the Government cannot act arbitrarily at its sweet will like a private individual but its action must be in conformity with a standard or norm which is not arbitrary, irrational or irrelevant. To maintain equality and fair-play, the safest method to award contracts is by inviting tenders, but when to implement a welfare scheme or policy the Government decides to dispense with this procedure and if the decision is questioned, the Court has power and duty to exercise power of judicial review not as a Court of appeal but in exercise of judicial review to Consider whether the decision has been properly taken or is vitiated by mala-fides or equated by extraneous considerations or against the public interest of arbitrary.
8. This being the position in law, it shall be necessary to find out whether the action of the respondents in awarding contract to the Workers’ Co-operative Society in fact was in public interest and not arbitrary as has been submitted by the respondents. The contract has been awarded without inviting tenders on the basis of instructions contained in circular letter No. 1/91/Cont. dated 11,6.1991. The circular provides for entrusting of handling work in FCI depots, without invitation of tenders, to the labour cooperative societies on the basis of workable rates to be offered by them and to be finalised by mutual negotiations. This decision was taken by the Board of Directors for implementing policy of the Government to encourage the formation of labour cooperative societies in depots of FCI where the labourers are engaged in the handling of food-grains. For determining workable rates, broad guidelines have been suggested in the circular letter itself. The petitioner has not questioned the legality of the circular letter but has challenged the procedure adopted in awarding contract to the Workers’ Cooperative Society. It is the admitted position that for the depot in question, for the year 1988-89 for handling labour as well as transport operations, the contract was awarded at the rate of 2 per cent above the schedule rate. For the period from 18.3.1989 to 17.3.1991 it was awarded at the rate of 9 per cent below the schedule rate. For June, 1991 to December, 1991 it was awarded at, the rate of 32 per cent above the schedule rate. For the period from December, 1991 to December, 1993 the contract was awarded to Khazan Singh and Co. at 26-1/2 per cent above the schedule rate. All these contracts were awarded after inviting tenders through public advertisement from labour and transport contractors. The last contract was to expire in December, 1993, but before the tenders could be invited a letter was received from the Workers’ Co-operative Society, which came to be registered on 29.7.1993, stating that the society has been formed by the workers in pursuance of FCI Headquarters’ instructions, and contract for handling operations in F.C.I. depot at Shahbad be allotted to it for two years by settling the rates through negotiations. Record produced by the F.C.I. has shown that this letter of the Workers’ Co- operative Society was put up before various functionaries of the F.C.I. who after opining that the documents submitted by the Workers’ Cooperative Society appear to be legal and in order, recommended that the contract be awarded to the Workers’ Cooperative Society by negotiations. When the matter was put up before the Senior Regional Manager of the F.C.I., he was of the view, that a committee of officers be constituted to explore the market for making recommendations regarding the workable rates based on among others the past rates, prevalent rates of agencies at Shahbad and its nearby centres including that of FCI and the percentage of rates during the past two years. He also suggested that an offer from the society be obtained. On asking, the society quoted the rate of 215 percent above the schedule rate. The Committee appointed to judge the workable rates prepared a statement indicating the rates obtained from various agencies. It noticed that at the existing rate of 26.5 per cent above the schedule rate, the payable rate works out to Rs. 30.26 per hundred bags. The existing rate, i.e. 26.5 per cent above the schedule rate, was not given much weight for the reason that nowhere in Haryana the labour works at such a low rate The other reason was that the contractors usually save in transport work and out of this saving pay to the labourers. In the light of the report of the Committee, negotiations were held with the representatives of the society who agreed to work at the rate of 155 per cent abbve the schedule rate on the terms and conditions contained in the standard tender, form of the F.C.I. Accordingly, contract for the years 1994 and 1995 was given to the Workers’ Cooperative Society at the rate of 155 per cent above the schedule rate. Respondents have not denied that except for the centre at Shahbad, at almost all other centres a single contract is given for both labour and transport. As noticed, the F.C.I. gave labour handling contract to the Workers’ Cooperative Society at the rate of 155 per cent above the schedule rate primarily for the reason that the contractors meet the short-fall from saving of transport work. However, the record has shown that the stand of the F.C.I. is not correct. The previous contract which was for both labour and transport was allotted at the rate of 26-1/2 per cent above the schedule rate, and previous to that, consolidated contract had been awarded to the petitioner at the rate of 32 per cent above the schedule rate, whereas contract to the Workers’ Cooperative Society for labour alone has been allotted at the rate of 155 per cent above the schedule rate. If the only reason for awarding contract to the Workers’ Cooperative Society at such a high rate was to ensure that the labour gets fair deal, then contract for transport work for the years 1994 and 1995 should not have exceeded 26-1/2 per cent or it should have been less than the existing rate. But the contract for transport has been allotted at 99 per cent and that too to Kahazan Singh who had taken the previous contract at the rate of 26-1/2 per cent above the schedule rate. The average rate for both these works, i.e. labour and transport, works out to 127 per cent above the schedule rate which is four times the existing rate. Petitioner in his affidavit dated 22.11.1994 has submitted that he is willing to take on the work of both labour as well as transport at 50 percent above the schedule rate. He has averred that the current value of the contract is over Rs. one crore and if the work is allotted to him, the same would amount to a saving of more than Rs. 34 lacs per annum to the government exchequer. In these circumstances, I am of the view that the procedure adopted by the F.C.I. for working out the rate for awarding labour handling contract to be given to the Workers’ Cooperative Society by negotiations does not satisfy the test of reasonableness and is against public interest. The decision of the F.C.I. has resulted in reckless expenditure of public funds, the ultimate burden of which would fall on the consumers and therefore, decision to award contract to the Workers’ Co- operative Society at the rate of 155 per cent above the schedule rate deserves to be quashed.
9. As regards the contention that respondents 1 and 2 have committed fraud by awarding handling work contract to Workers’ Cooperative Society, a benami for respondents 4 and 5, the petitioner has averred that Simran Singh, president of Workers’ Cooperative Society, is the real brother of Khazan Singh labour and transport contractor, to whom contract for the year 1993 had been awarded. The petitioner has also averred that the society came into existence just before the contract in favour of Khazan Singh was to expire and it was only a guise adopted by Khazan Singh to obtain contract without competing with others. He has also averred that Simran Singh and Khazan Singh live together in a same house, i.e. House No. 248, Mohalla Majri, Shahbad. The averments that the society came into existence in July, 1993 and all workers who are members of the society were at one time working with Khazan Singh and that Khazan Singh and Simran Singh reside in the same house, have not been denied by any of the respondents. In order to test the merit of the allegations of the petitioner, respondent No. 3 was asked to place on record the particulars or the bank in which account of the society is being maintained and how much amount till date has been deposited in that account; who is authorised to operate the account; and, how much amount till date has been withdrawn. The F.C.I. was, also asked to place on record information showing as to how – much amount has been paid to the society towards the contract awarded to the society and to contractor Khazan Singh for transportation of food-grains. In pursuance of the directions, additional documents which have been placed on record are audit reports for the period from 17.7.1993 to 22.7.1994 and 23.7.1994 to 31.3.1995. Respondent No. 3 has also admitted that the bank account is being operated jointly under the signatures of Simran Singh and Raj Kumar who is cashier of the society. Audit reports have revealed that during currency of the contract period, the society made payment of Rs. 6,00,869-15 to its labourers but no receipt regarding making of payment to the labourers was shown to the Auditor. A note to that effect has been made by the Auditor in his report. Record has shown that after the contract was awarded to the society, a dispute arose between the labourers working at the Shahbad depot and the Workers’ Cooperative Society. Interestingly, in the record at some places the Workers’ Cooperative Society has been referred to as the contractor’. Labourers working at Shahbad were not willing to work with the contractor and were demanding payments directly from the F.C.I. As a matter of fact, labourers refused to receive payment of handling of bags through the society which was being managed by Simran Singh, contractor. As a result of dispute, disposal of stocks was held up and at one stage the F.C.I. was intending to terminate the contract. Workers’ Cooperative Society apprehending cancellation of contract, filed a civil suit at Chandigarh for restraining F.C.I. from cancelling the contract. Record has further revealed that officials of the F.C.I. at Shahbad depot apprehending confrontation between the labourers and the contractor and for smooth running of the depot have recommended that police protection be obtained. Once a firing had also taken place. These circumstances lend credence to the stand of the petitioner that in the guise of Workers’ Cooperative Society, the contract has been awarded to respondent No. 4 who is none else but a labour and transport contractor. I am also of the view that if it had really been a Workers’ Co-operative Society formed for the benefit of the labourers, alleged to be members of the society, there was no reason for the labourers to have refused to work or demand direct payment from the F.C.I. Confronted with these circumstances, learned counsel for the respondents contended that no useful purpose would be served in cancelling the contract at this stage because the contract awarded to Workers’ Cooperative Society would come to an end in December, 1995. This contention too is devoid of any merit. Respondents cannot be allowed to take advantage of their own wrong or the relief sought by the petitioner cannot be rendered infructuous, particularly when at the earliest he had approached this Court and also when this Court is of the view that the contract awarded to the Workers’ Co-operative Society was not in public interest. Another matter which was brought to the notice of this court at the time of hearing of the petition, requires to be taken note of. F.C.I. for awarding handling and transport work for the years 1996 and 1997 gave advertisement dated 25.8.1995 in the newspaper for various depots including Shahbad, but in Corrigendum dated 31.8.1995 the tender invited for Shahbad depot has been cancelled. Counsel for the F.C.I. was unable to explain as to why the tender has been withdrawn and that too when it is to the experience of the F.C.I. that the labourers working at Shahbad depot are not prepared to work with the society. Circular dated 11.6.1991(Annexure R-1) was not meant to be used for awarding contract to the labour and transport contractors on the guise of Workers’ Cooperative Society, but was to encourage the genuine Labour Cooperative societies. The policy having not been adhered to, the impugned action deserves to be quashed.
10. For the reasons recorded above, this writ petition is allowed. The contract awarded to respondent No. 3 vide Annexure P-8 shall stand quashed. Since the contract was to expire in December, 1995, for the remaining period the F.C.I. shall be entitled to get the work executed either departmentally or on work- charge basis or by inviting a short-term tender. For future, respondent Nos. 1 and 2 are directed to award consolidated contract of labour and transport only after floating or inviting a public-tender. There shall be no order as to costs.