Ramana Dayaram Shetty v International Airport Authority of India

Facts

• The International Airport Authority of India invited tenders for a licence to run a second class restaurant and snack bar at an international airport.
• The tender notice stipulated that tenderers should be registered second class hotel keepers having at least five years experience as such.
• None of the tenderers, including the successful party, satisfied that condition.
• The Authority nevertheless accepted the tender of one party who did not fulfil the eligibility requirement.
• The appellant, who ran a restaurant elsewhere at the airport and would have been interested, contended that the acceptance was arbitrary and that the Authority was bound by the standard it had itself prescribed.
• A preliminary question arose whether the Authority, being a statutory corporation, was subject to the discipline of Part III at all.

Issue

1. Whether the Authority is an instrumentality of the State bound by Art.14; and whether it may award a contract to a party who does not satisfy the eligibility condition it has itself laid down.

Held

• The award was held bad. The Court held that the Authority is an instrumentality or agency of the State and is therefore subject to the same constitutional discipline as the Government itself, and it set out the indicia for determining that question, including the extent of financial assistance and share capital held by the Government, the existence of deep and pervasive State control, whether the functions performed are of public importance and closely related to governmental functions, and whether a departmental undertaking has been transferred to the body. On the merits, the Court held that where the State or such a body confers a benefit or enters into a contract, it is not free to act arbitrarily or capriciously: it may lay down standards for eligibility, but having done so it is bound to adhere to them, and it cannot depart from them in favour of a particular person. To act otherwise is to treat unequally persons who ought to be treated alike, which Art.14 forbids. If the standard was found to be unworkable, the proper course was to revise it and invite fresh tenders, not to ignore it.

Ratio Decidendi

The State acts as a trustee of public resources, so its distribution of contracts, licences, quotas and other benefits is not a private transaction but an exercise of public power. Every exercise of public power must be capable of justification by reference to a standard, and a standard once announced generates a legitimate expectation in all who might have competed. Departing from it defeats those who stayed away because they could not qualify, so the discrimination is against the field and not merely against the disappointed tenderer.