Food Corporation of India v. Kamdhenu Cattle Feed Industries
Supreme Court of India · 3 November 1992 · 3 judges
The State and its instrumentalities must act non-arbitrarily under Article 14 even in contractual matters; rejecting the highest tender for a significantly higher bid obtained through negotiations open to all tenderers was a fair and valid exercise of power.
Facts
The Food Corporation of India invited tenders for the sale of stocks of damaged foodgrains, with offers to remain open until 17.7.92. The respondent's tender for a stock of damaged rice was the highest when the tenders were opened on 18.5.92. Not satisfied that the price offered was adequate, the Corporation did not accept any tender and invited all tenderers to negotiations on 9.6.92. The respondent refused to revise its rates, and higher offers were made by others, yielding about Rs. 8 lakhs more for the respondent's lots and Rs. 20 lakhs more overall. The respondent challenged the refusal to accept its highest tender as arbitrary and violative of Article 14. The Punjab and Haryana High Court allowed its writ petition and directed allotment of the stock to it. The Corporation appealed by special leave.
Questions before the Court
- Can a public authority that has invited tenders reject the highest tender and dispose of the goods by negotiating with all tenderers for a higher price?
- What place does the doctrine of legitimate expectation have in testing State action for arbitrariness under Article 14?
What the Court held
- In the contractual sphere, as in all other State action, the State and its instrumentalities must conform to Article 14, of which non-arbitrariness is a significant facet. There is no unfettered discretion in public law, and powers must be used fairly and for the public good.
- A reasonable or legitimate expectation may not by itself be a distinct enforceable right, but failure to consider and give it due weight may render a decision arbitrary. Whether an expectation is legitimate is a question of fact, decided in the larger public interest and not by the claimant's perception.
- The highest tenderer has no right to have his tender accepted, but the power to reject all tenders cannot be exercised arbitrarily and must rest on cogent reasons. Inadequacy of the price in the highest tender is a cogent ground for negotiating with all tenderers on equal terms.
- Negotiating for a significantly higher bid while the tenders remain open, and rejecting the highest tender only if such a bid is obtained, ordinarily satisfies non-arbitrariness. Here the respondent was superseded only by a significantly higher bid after equal opportunity, so the High Court erred; the appeal was allowed and the writ petition dismissed.
Why it matters
The judgment applies Article 14 to the State's contractual dealings and explains how legitimate expectation fits into Indian law: not as an independent enforceable right, but as a relevant factor whose neglect can make a decision arbitrary. It also lays down when a public body may depart from the highest tender, namely for cogent reasons such as inadequacy of price, after giving all tenderers an equal chance to improve their bids.
In the Court's words
Copied from the official judgment; each passage links to its page.
“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 impose the duty to act fairly and to adopt a procedure which is 'fairplay in action'.”
“The mere reasonable or legitimate expectation of a citizen, in such a situation, may not by itself be a distinct enforceable right, but failure to consider and give due weight to it may render the decision arbitrary, and this is how the requirement of due consideration of a Legitimate expectation forms part of the principle of non-arbitrariness, a necessary concomitant of the rule of law.”
“From the above, it is clear that even though the highest tenderer can claim no right to have his tender accepted, there being a power while inviting tenders to reject all the tenders, yet the power to reject all the tenders cannot be exercised arbitrarily and must depend for its validity on the existence of cogent reasons for such action.”
Provisions interpreted
Case and bench
- Parties
- Food Corporation of India v. Kamdhenu Cattle Feed Industries
- Case
- Civil Appeal No. 4731 of 1992
- Decided
- 3 November 1992
- Bench
- J.S. Verma, Yogeshwar Dayal, N. Venkatachala
- Opinions
- Unanimous. The judgment of the Court was delivered by J.S. Verma, J.
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