Holding

When a tender is publicly invited, the State must award the contract to the lowest bidder who complies with the tender specifications and cannot arbitrarily give preference to a government undertaking.

Summary

The appellant, a long‑time supplier of fresh milk, submitted the lowest bid in a tender issued by the Military Farms for fresh buffalo or cow milk. The authority instead awarded the contract to a government agency that had submitted a higher bid for pasteurised milk and also gave it a 10% price preference, contrary to the tender terms. The appellant challenged the decision by filing a writ petition, which the High Court dismissed on the ground that it involved contractual policy. The Supreme Court held that once a tender is invited, the State must award the contract according to the stipulated criteria and cannot arbitrarily favor a government undertaking; the tender of the appellant, being the lowest compliant bid, should have been accepted. Consequently, the High Court order was set aside and the writ petition allowed.

Issues considered

The State, after inviting tenders, is bound to award the contract to the lowest compliant bidder.
Whether the authority’s acceptance of a higher bid with a 10% price preference to a government agency was arbitrary, discriminatory and violative of Articles 14 and 16.
Whether a tender that does not conform to the specifications (pasteurised milk) can be accepted in place of a compliant tender.
Whether the High Court was correct in dismissing the writ petition on the ground that the matter pertained only to contractual policy.

Legislation cited

Railways Acts. 27A, s. 28

Subjects

government tenderpublic procurementarbitrarinessdiscriminationArticle 14Article 16lowest bidprice preferencewrit petitionArticle 32Article 226

Judgment

A
~
HARMINDER SINGH ARORA
v.
UNION OF INDIA & ORS.
B
[R.S. PATHAK, R.B. MISRA AND G.L. OZA, JJ.]
j
MAY 9, 1986

~ Constitution of India, Arts. 32 and 226--Government Contracts
by calling tenders-Whether can be assailed in writ proceedings as in-
fringing fundamental rights. c

)., . Government Contracts by tenders-Variation of terms of tender-
Whether notice to parties obligatory.

The appellant is carrying on the business of bulk supply of milk D
and milk products for the last twenty years. He has a plant for pasteuri-
zation at Pone. On July 16, 1985 the officer-in-charge of the Military
Farms-respondent No. 2, issued tender notice for the supply of pure
fresh buffalo and cow milk. The appellant being eligible and already on
I.. the approved list of the respondent authority, submitted a tender offer-
ing fresh buffalo milk of the specified fat content and gravity giving a E
rate of Rs. 421 per 100 litres. The General Manager, Government Milk
Scheme, Pune---repondent No. 4, also submitted a tender for the supply
of pasteurized milk, an item not contemplated by the tender notice, at
Rs.400 per 100 litres. Tenders were opened on August 23, 1985 and the
appellant was found the lowest bidder.
F
The Military Officer concerned submitted a report to the higher
' authority stating that the appellant was not only the lowest .,idder but
also that the purchase of milk from him would be profitable, while the
purchase of milk from respondent No. 4 would result in serious loss to
the extent of rupees ten lakhs or so. But all the same, the respondent
authority accepted the higher bid of respondent No. 4, in preference to G
the lower bid of the appellant contrary to the terms of the notice inviting
tender. Feeling aggrieved by the rejection of his tender, the appellant
1.. challenged the order by filing a writ petition in the High Court which
was dismissed in limine.

In this appeal by special leave on behalf of the appellant it was H
64 SUPREME COURT REPORTS [1986] 3 S.C.R.

A contended that even in the matter of contracts, the Government has to
act fairly and justly and the failure of the Government to do so gives a
r
right to the citizen to approach the court for justice, that the authority
concerned in rejecting his tender had acted contrary to the principles of
law, unfairly, arbitrarily and discriminately, that the tender submitted
by respondent No. 4 was uot in consonance with the tender notice and it
B
should have been ignored, and that if the authority wished to alter the
conditions of the tender notice it was obligatory and mandatory for it to \
call him for negotiation. It was further contended that the IO per cent
price preference given to respondent No. 4 contrary to the terms of the (
tender notice was illegal and discriminatory.
."t
c On behalf of the respondents it was contended that respondent
No. 4 being the Government agency was rightly awarded the contract as
per the policy of the Government of India laid down in notification
dated August 13, 1985. ··~

Allowing the appeal, the Court,
D
HELD: I. The Government may enter into a contract with any
person but in so doing the State or its instrumentalities cannot act
arbitrarily. It is open to the State to adopt a policy different from the
one in questim, but once the authority or the State Government chooses to )
invite tenders then it must abide by the result of the tender. [75 C-D; 770 -El
E
2. The High Court was not justified in dismissing the writ petition
in limine by saying that the question relates to the contractual obliga-
tion and the policy decision cannot be termed as unfair or arbitrary. [77 E]

There was no question of any policy decision in the instant case.
F
The notification dated August 13, 1985 laying down the policy came in
/'
after July 16, 1985 when respondent No. 2 issued tender notice. The
instrumentalities of the State having invited tenders for the supply of
fresh buffalo and cow milk, these were to be adjudged on their intrinsic
merits in accordance with the terms and conditions of the tender notice.
The contract for the supply of milk was to be given to the lowest bidder
G
under the terms of the tender notice and the appellant being the lowest
bidder, it should have been granted to him. The authority acted caprici-
ously in accepting a bid which was much higher and to the detriment of >-
the State. 175B-D; 770-FI

H 3. Where the tender form submitted by any party is not in con-
H.S. ARORA v. U.0.1. [MISRA, J.J 65

formity with the conditions of the tender notice the same should not be A
accepted. So also, where the original terms of the tender notice are
changed the parties should be given an opportunity to submit their
tenders in conformity with the changed terms. [72 C-E]

4. The authority acted arbitrarily in allowing 10 per cent prite
B
preference to respondent No. 4. The terms and conditions of the tender
had been incorporated in the tender notice itself and that did not indi-
cate any such price preference to government undertakings. The only
concession available to Central/State Government or to the purely gov-
ernment concerns was under para 19 of the notice, that is, that they
need not pay tender form fee and earnest money. No other concession or
benefit was contemplated under the terms of the tender notice. [73 A-Cl c
Ramana Dayaram Shetty v. The International Airport Authority
of India & Ors., [1979] 3 SCR 1014; V. Punnan Thomas v. State of
Kera/a, Am 1969 Kerala 81; C.K. Achuthan v. State of Kera/a [1959)
Suppl. 1 SCR 787; Vik/ad Coal Merchants, Patiala etc. etc. v. Union of D
India & Ors. AIR 1984 SC 95; and Madhya Pradesh Ration Vikreta
Sangh Society & Ors. etc. etc. v. State of Madhya Pradesh & Anr.
[1982] 2 SCR 750, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 824
of 1986 E
From the Judgement and Order dated 10. 1.1986 of the Bombay
High Court in W.P. No. 5327of1985.

S.N. Kacker. Rani Chhabra and Swatanter Kumar for the
Appellant. F

V.S. Desai, C.V. Sobba Rao, A.S. Bhasme and A.M. Khan-
wilkar for the Respondents.

The Judgment of the Court was delivered by
G
R.B. MISRA, J. The present appeal by special leave is directed
against the judgment and order dated January 10, 1986 of the High
Court of Judicature at Bombay dismissing the petition under Article
226 of the Constitution filed by the appellant.

The appellant is carrying on the business of bulk supply of milk, H
66 SUPREME COURT REPORTS [1986[ 3 S.C.R.

A products and milk cream etc. The appellant is well-known in the said -{
field and has a plant of pasteurization in Pune and has been carrying on
the said business for more than twenty years. The appellant installed a
plant for pasteurization at a heavy cost to the tune of rupees three
lakhs. The appellant has been supplying large quantities of milk and
milk products pasteurized or otherwise to various companies, Govern-
B
ment Departments including respondents Nos. 2 and 3. The appellant
as a registered contractor has been supplying fresh buffaloes and cows
milk to respondent Nos. 2 and 3 as per the requirements for the last
twenty years. The appellant is on their approved list for the same
period and his supplies and work were always appreciated and ac-
cepted by the respondents for all these periods.
c
The appellant is also capable of supplying any quantity of paste-
urized milk and, indeed, he had been supplying to various organisa-
tions the milk and milk products and also pasteurized milk. Later on
Respondent No. 2, the officer-incharge of the Military Farms, Pimpri,
directed that the local purchase of milk be stopped and regular supply
D
under a contract by inviting tenders be effected. Accordingly, the
appellant's contract for supply of fresh buffalo and cow milk ended in
1984.

The Military Farm had its own plant for pasteurization and for all
'
these years respondents Nos. 2 and 3 had been making purchases of
E
only fresh buffalo milk and used to pasteurize the milk for their own
purposes in their own plant. The plant of respondents 2 and 3 is very
much in operation till to-day and also on the date of inviting tenders in
question.

F Respondent No. 2 issued on or about July 16, 1985 tender notices
for the supply of fresh buffalo or cow milk. The said tender notice was
published in the Indian Express on July 29, 1985. The tender notice
was also sent to the appellant by Respondent No. 2 by registered post
acknowledgement due which was received by the appellant in July
1985. By the said tender notice, the respondent had invited tenders for
G supply of fresh buffalo or cow milk at Military Farms of Pimpri, Pune.
The appellant being eligible and already on the approved list of the
respondents submitted a tendar for supply of fresh buffalo milk to
respondents 2 and 3 as per the requirements stated in the tender
notice. The appellant had offered the milk at the rate of Rs.4.21 per
litre having 6 per cent fat and specific gravity of 1.030 as required in
H the tender notice, thus, giving a rate of Rs.421 for each 100 litres.
H.S. ARORA v. U.0.1. IMISRA, J.I 67

Respondent No. 4, General Manager, Government Milk Scheme, A
Pune, also submitted a tender but the tender of respondent No. 4
related not to the item asked for in the tender notice viz. fresh buffalo
or cow milk but related to the supply of pasteurized milk. While the
cow milk asked for in the tender provided for 4 per cent fat with a
specific gravity of 1.029, respondent No. 4 agreed to supply pasteu- B
rized milk for Rs.4 per litre, that is Rs.400 per 100 litres.
i
'·' It appears that after the submission of the tender, the appellant
received a notice dated October 30, 1985 from respondent Nos. 2 and 3
requesting the appellant to extend the validity period of tender up to
November 30, 1985 on the same terms and conditions as mentioned in
the tender submitted by the appellant. The appellant acceded to the c
request and extended the validity period till November 30, 1985 in
view of the long standing business and his good relations with respon-
dents 2 and 3.

During this period respondents 2 and 3 kept on receiving sup-
D
plies of fresh buffalo milk to the satisfaction till the appellant was
asked to stop the supply from November 20, 1985 vide letter dated October
30, 1985, although the appellant had been requested earlier to con-
tinue the supply at least up to December 1, 1985 vide letter dated
October 30, 1985. The appellant thus had to suffer a huge loss on
account of the abrupt stoppage of the supply. '
E
Tenders were opened on August 23, 1985. The appellant was the
lowest bidder. The rates given by the appellant in the tender for supply
of fresh buffalo ~ilk was lower and tender of respondent No. 4 could
be of no consequence as it was for a different item not contemplated by

-
the tender notice. The tender given by Respondent No. 4 was however
F
accepted on November 19-20, 1985 and the tender of the appellant was
rejected alth~ugh it was lower than that of respondent No. 4. The
concerned officer had made a report to the higher authorities about
the two tenders, one from the appellant and the other from respondent
No. 4, vide letter dated August 23, 1985. It will be appreciated at this
stage to refer to the advice given by the officer concerned which is as
G
follow:

"CONCLUSION OF CONTRACT FOR SUPPLY OF
MILK AT PR MF KIRKEE/P!MPRI.

1. Reference discussion DOME and ADMP of. date. H
68 SUPREME COURT REPORTS [19861 3 S.C.R.
.
A 2. The infonnation required is given below: I
(a) The cost of blended milk and standard milk taking the
buff milk rate of Rs.421 for 100 litres works out to:
i) Blended Milk (Taking - Rs.3.59 per litre
of BMP Rs.28 per kg.)
B
JO% price preference - Rs.0.36
,.\ .

ii) Standard Milk (Taking cost of - Rs.3.48 per litre
separated milk Rs.2.30 per litre)
10% price preference - Rs.0.35 'r
c Rs.3.83

(b) If contract for purchase of cow milk is concluded, farm
will lose 41 paise per litre on blended milk and 52 paise on
standard milk per litre. Taking a daily purchase of 3000
D litres of cows milk for which tender has been called for it
will amount to a loss of Rs.4.48 lakhs in tenns of blended
milk and Rs.5.69 lakhs in terms of standard milk during the
period of contract of one year.
3. In so far as pasteurization is concerned, milk has to be )

E repasteurized as delivery timings of units in the station are
different. Moreover, even if Milk Scheme delivers the milk
just before one hour of sending out the delivery rounds, it
will only save on electricity charges which will be negligi-
ble. The 7.500 litres of cows milk being· produced daily at
Pimpri has to be pasteurized for which the daily section will
F continue to work as it is at present.

4. The collection charges under farm arrangement works
out to Rs.0.10 per litres. The details are enclosed at Ap-
pendix-'A'. Though collection charges will be less by 10
paise but it will cause lot of inconvenience to the dairy staff
G because milk is already being collected three times a day
from Pimpri and lot of difficulties are being experienced in
route. If Milk Scheme delivers the Milk at MP Dairy that
arragement will be the best."

From the above report it is obvious that the respondents will be
H put to' substantial loss to the tune of about Rupees ten lakhs by accept-
H.S. ARORA v. U.0.I. !MISRA, J.) 69

ing the tender of respondent No. 4 but all the same the tender of
respondent No. 4 was accepted in preference to the tender made by A
the appell!1111. Respondents 2 and 3 would have gained by accepting
the tender of the appellant which is strictly in terms of the
tender notice because the respondent could further increase the
quantity of milk by diluting the same to bring to fat and gravity stan-
dard. From the terms and conditions inviting the tender, the Govern-
i ment suppliers were given· exemption from depositing the earnest B
I
money and tender form fee but no other concession to the Govern-
ment supplies was indicated in the tender notice yet 10 per cent price
preference was given to respondent No. 4 without any basis and in
violation of the terms of notice inviting the tender. All the same the
price of the appellant quoted in the tender was lower than that of
respondent No. 4 and there was absolutely no justification whatsoever c
.l. for not accepting the tender of the appellant .
To start with the appellant had made an offer of Rupees four
hundred fifty per hundred litres but para 16 of the tender notice pro-
vided for negotiations by respondents 2 and 3 with the contractors on
rates or otherwise. As a result of subsequent negotiations between the D
appellant and the respondents, the offer of Rs.450 was reduced to
Rs.421 per hundred litres. If the tender notice had indicated for the
supply of pasteurized milk there was no difficulty for the appellant to
have done so. But in the absence of any such indication in the tender
notice and in the absence of any subsequent negotiations between the
appellant and the respondents under para 16 of the tender notice, the E
appellant offered to supply the buffaloes or cows fresh milk.

Feeling aggrieved by the rejection of his tender, the appellant
challenged the order of the authority concerned by a Writ Petition in
the High Court. The Writ Petition was, however, dismissed in limine
by a cryptic order as under: F

"Heard both sides. The Writ Petition involves Questions
relating to contractual obligations. Even otherwise, we do
not find that there is anything wrong or unfair in accepting
the milk from the Government Milk Scheme. The policy
decision cannot be termed as unfair or arbitrary. Hence G
W.P. rejected."

The appellant has now come to challenge the judgment and or-
der of the High Court dated 10.1.1986 by special leave. Shri S.N.
Kacker, learned counsel appearing for the appellant has reiterated the
same contentions as had been raised before the High Court. H
70 SUPREME COURT REPORTS [1986] 3 S.C.R.

A The main contention is that the authorities concerned had acted I
contrary to the principles of law, unfairly, arbitrarily and discrimi-
nately. The appellant being the lowest bidder his tender ought to have
been accepted by the Panel Officers and there was absolutely no
reason or justification for the respondents to reject the same. It was
further contended that the tender submitted by respondent No. 4 was
B
not in consonance with the requirements of the tender form and,
\
therefore, that should have been ignored. The tender notice deman-
ded supply of fresh buffaloes or cows milk hut respondent No. 4 had '
submitted for pasteurized milk. In any case, if the respondents wished
to alter the invitation of the tender it was obligatory and mandatory for
.
(
the respondents to call the appellant for negotiations before rejecting
c his tender and accepting the tender of respondent No. 4. There was a
clear provision for negotiation in the tender notice and it was open to
respondent No. 4 to have negotiated with appellant and asked him to
tender for the supplying pasteurized milk. In any case, on the own
admission of the respondents, that the pasteurized milk supplied by
D respondent No. 4 would have to be re-pasteurized and secondly the
cost of 50 paise had to be added even to the price of respondent No. 4
as the same was being added to the price given by the appellant. The
action of the respondent is completely arbitrary and discriminatory
inasmuch as respondent No. 4 merely being the Government organisa-
tion had been given preference over the appellant while respondent )
No. 4 had no better quality or standard for effecting the supplies asked
E
for under the contract and even for the pasteurized milk. Even in the
matter of contract, the Government has to act fairly and justly and the
failure of the Government to do so given a right to the citizen to
approach the court for justice. The respondents have made a wrongful
exercise of their power in rejecting the tender of the appellant.
F
It was contended for the appellant that he being the lowest bid-
der, the authorities concerned acted arbitrarily in accepting the bid of
respondent No. 4 which was higher than that of the appellant. We find
considerable force in this contention. In Ramana Dayaram Shetty v.
The International Airport Authority of India and Ors., [19791 3 SCR
1014, this Court laid down the law in this respect in the following
G
words:

"Where the Government is dealing with the public,
whether by way of giving jobs or entering into contracts or
1ssumg quotas or licences or granting other forms of
H largess, the Government cannot act arbitrarily at its sweet
H.S. ARORA v. U.0.1. [MISRA, J.] 71

will and, like a private individual, deal with any pe"on it A
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 largess must be confined and structured by
rational, relevant and non-discriminatory standard or norm
B
, and !Lthe Government departs from such standard or norm
~ in any particular case or cases, the action of the Govern-
ment would be liable to be struck down unless it can be
shown by the Government that the departure was not
{ arbitrary but was based on some valid principle which in
itself was not irrational, unreasonable or discriminatory.''

On August 23, 1985, the officer of the Military Department sub-
c
mitted a report to the Higher Authority stating therein that the appel-
l.. lant was not only the lowest bidder but also the purchase of milk from
the appellant could be profitable while the purchase of milk from
respondent No. 4 would result in serious losses to the extent of Rupees
ten lakhs or so. The report further indicates that respondents would D
have to re-pasteurize the milk for its supply to its various units without
any profit because the minimum fat standard of 4 per cent with the
gravity of 1.029 has to be maintained. As such the entire labour would
be deployed without any fruitful result or benefit to the respondent
(_
while on the other hand, if the respondent wished, by pasteurizing the
fresh milk supply of the appellant they could otherwise earn profits E
extracting fat while maintaining the fat and the gravity standard. In
spite of the report of the Military Officer, the higher bid of respondent
No. 4 in preference to the lower bid of the appellant was accepted. It
clearly indicates that the action of the respondent authority was
arbitrary and fanciful.
F
-- The terms contained in the tender notice have been detailed in
the notice itself and it is not necessary to refer to all the terms but we
would refer to paras 2, 16 and 19. Para 2 of the tender notice provides
that tenders will be invited for the supply of pure fresh buffaloes milk
testing not less than 6.0% butter fat and 1.030 specific gravity or pure
fresh cows milk testing not less th~n 4% butter fat and 1.029 specific G
gravity daily at Military farms/depots as mentioned in Appendix 'A'.
_,(
Para 16 provides that as per orders of Army Headquarters, Milit-
ary Farms contracts are to be concluded through a panel of officers
which may hold negotiations with the contractor where necessary and
recommend the reasonable rates to the higher authorities. H
72 SUPREME COURT REPORTS [1986] 3 S.C.R.
A Para 19 provides that the Central Government/State Govern-
ments are purely government concerns need not pay tender form fees
and earnest money. They are, however, requested to inimate the
period of supply for which they desire to tender their rates to enable
the undersigned to send them the required tender form.
B
It is contended for the appellant that the tender submitted by
respondent No. 4 did not satisfy the requirement of para 2 of the
tender notice. Tl\e tenders had been invited for the supply of pure
fresh buffaloes milk or fresh cows milk but the responclent had submit- ~
ted tender for supplying pasteurized milk, and therefore, the tender (
submitted by respondent No. 4 beina not in conformity with the tender
c notice should not have been accepted by the authorities. In any case, if
the tender of respondent No. 4 regarding supply of pasteurized milk
was accepted and the original terms of the tender notice were changed,
the appellant should have been given an opportunity to submit his
tender in conformity with the changed terms but this was not done
D which has caused serious prejudice to the appellant. If the tender
forms submitted by any party is not in conformity with the conditions
of the tender notice the same should not have been accepted but the
authorities concerned arbitrarily and in a fanciful manner accepted the
tender of respondent No. 4. The State of its instrumentality has to act
in accordance with the conditions laid down in the tender notice. In )
E any case if the authorities chose to accept the tender of respondent No.
4 for supplying pasteurized milk, the appellant should also have been
given an opportunity to change its tender. The authorities have, how-
ever, given preference to the tender of respondent No. 4 for offering
to supply pasteurized milk contrary to the terms contained in para 2 of
the tender notice. We find considerable force in this contenti6n of the
F appellant.

It was next contended that the conditions contained in the tender
notice did not contemplate of giving 10 per cent price preference to
Government undertakings yet 10 per cent price preference was given
to the Government illegally and the policy of the Government to give
G 10 per cent price preference to Government undertaking was dis-
criminatory and violative of Articles 14 and 16 of the constitution. The
State policy places respondent No. 4 above the appellant without any
basis or reasonable classification. In the absence of any such stipula-
tion in the contract such price preference was unjustified.

H If the terms and conditions of the tender have been incorporated
H.S.ARORA v. U.0.1. (MISRA, J.] 73

in the· tender notice itself and that did not indicate any preference to A
Che Government undertakings of giving 10 per cent price preference to
Government undertaking, the authority concerned acted arbitrarily in
·allowing 10% price preference to respondent No. 4. The only facility
provided to the Government undertakings was provided in paragraph
19 which contemplates that the Central or State Government Depart-
B
ments are purely Government concerns need not pay tender forms fees
! and earnest money. This was the only concessio11 available to the
-. Central/State Government or to the purely Government concerns, and
no other concession or benefit was contemplated under the terms of
the tender notice. If the appellant had known that 10 per cent price
preferene to Government undertaking was to be given to respondent
No. 4 the appellant would have taken every precaution while submit- c
ting the tender. In support of his contentions, Shri S.N. Kacker, ap-
pearing for the appellant strongly relied upon Ramana Daya ram Shetty
v. The International Airport Authority of India and Ors. (supra). In that
case, the first respondent by a public notice invited tenders for putting
up and running a Second Class Restaurant and Two Snack Bars at the
D
International Airport at Bombay. The notice, inter alia, stated in para-
graph 1 that sealed tenders in the prescribed form were invited from
Registered Second Class Hoteliers having at least five years experi-
ence for putting up and running a Second Oass Restaurant and two
Snack Bars at the Bombay Airport for a period of three years.
\.
Paragraph 8 stated tl)at the acceptance of the tender would rest with
E
the Airport Director who does not bind himself to accept any tender
and reserve to himself the right to accept or reject any tender received
without assigning any reason therefor. Out of the six tenders received
only the tender of the 4th Respondent was complete and offered the
highest amount as licence fee. All the other tenders were rejected be-
cause they were incomplete. As the 4th respondent did not satisfy the
F
description of a Registered Second Class Hotelier having at least five
years experience prescirbed in paragraph (1) of the tender notice, the
first respondent called upon the 4th respondent to produce docu-
mentary evidence whether they were registered second class hoteliers
having at least five years experience. The Fourth Respondent stated
once again that they had considerable experience of catering for vari-
G
ous reputed commercial houses, clubs, messes and banks and that they
held on Eating House Catering Establishment (Centeen) Licence. On
being satisfied by the information given by the 4th respondent, the first
respondent accepted the tender on the terms and conditions set out in
its letter.
H
74 SUPREME COURT REPORTS [1986] 3 S.C.R.

A The appellant challenged the decision of the first respondent in ]·
accepting the tender of the 4th respondent. This Court held that the
action of the first Respondent in accepting the tender of the 4th
respondent who did not satisfy the standard or norms was clearly dis-
criminatory since it exlcuded other persons similarly situated from
tendering for the contract and it was arbitrary and without reason. The
B
acceptance of tender was invalid as being violative of the equality
clause of the Constitution as also the administrative law for its \
arbitrary actions. This Court also did not justify the action of the first l
respondent on the ground that it could have achieved the same result by
rejecting all the tenders and entering into direct negotiations with the
4th respondent. This Court observed:
c
"It is true that there was no statutory or administrative rule
requiring the !st respondent to give a contract only by in-
viting tenders and hence the 1st respondent was entitled to
reject all the tenders and, subject to the constitutional
norm laid down in Article 14, negotiate directly for entering
D
into a contract. Paragraph (8) of the notice also made it
clear that the 1st respondent was not bound to accept any
tender and could reject all the tenders received by it. But
here the 1st respondent did not reject the tenders outright
and enter into direct negotiations with the 4th respondents
E
for awarding the contract. The process of awarding a con- /
'
tract by inviting tenders was not terminated or abandoned
by the 1st respondent by rejecting all the tenders but in
furtherance of the process, the tender of the 4th respon-
dents was accepted by the 1st respondent. The contract was
not given to the 4th respondents as a result of direct nego- \
tiations. Tenders were invited and out of the tenders
F
received, the one submitted by the 4th respondents was
accepted and the contract was given to them."

This Court quoted with approval the following observations of
Mathew J., in V. Punnan Thomas v. State of Kera/a, AIR 1969 Kerala
81:
G
"The Government is not and should not be as free as an
individual in selecting the recipients for its largess. What-
ever its activity, the Government is still the Government
and will be subject to restraints, inherent in its position in a
H democratic society. A democratic Government cannot lay
H.S. ARORA v. U.0.1. [MISRA, J.] 75

down arbitrary and capricious standards for the choice of A
persons with whom alone it will deal."

Shri Anil Dev Singh, appearing for the respondents, has con-
tended that respondent No. 4 being the State Government agency was
rightly awarded the contract as per the policy of the Government of B
India as laid down in Letter No. 12(1)/1/85/D/(QS) dated August 13,
) 1985. The policy adopted by said letter dated August 13, 1985 crune in
after the 16th July, 1985 when respondent No. 2 issued tender notice
'
·I
\.
for the supply of fresh buffalo or cow milk. As such the notification
dated August 13, 1985 is of no avail to the respondent in so far as the
acceptance of the tender of respondent No. 4 is concerned. Accept-
ance or rejection of tender made by the appellant or the respondent c
No. 4 will depend upon the compliance of the terms of tender notice. It
is true that the Government may enter into a contract with any person
but in so doing the State or its instrumentalities cannot act arbitrarily.
In the instant case, tenders were invited and the appellant and respon-
dent No. 4 submitted their tenders. The tenders were to be adjudged D
on their own intrinsic merits in accordnace with the terms and condi-
tions of the tender notice. The learned counsel, however, placed re-
liance on C.K. Achuthan v. State of Kera/a, [1959] Suppl. 1 SCR 787
where Hidayathullah, J., as he then was, held that a contract which is
held from Government stands on no different footing from the con-
tract held by a private party and when one person is chosen rather than
E
another, the aggrieved party cannot claim protection of Article 14.

The wide observation made by Hidayatullah, J., was explained
in Ramana Dayaram Shetty (Supra). Bhagwati J. as he then was,
speaking for the Court observed:
F
"Though the language in which this observation is couched
is rather wide, we do not think that in making this observa-
tion, the Court intended to lay down any absolute proposi-
tion permitting the State to act arbitrarily in the matter of
entering into contract with third parties. We have no doubt
that the Court could not have intended to lay down such a G
proposition because Hidayatullah J. who delivered the
judgment of the Court in this case was also a party to the
judgment in Rashbihari Panda v State of Orissa (Supra)
which was also a decision of the Constitutton Bench, where
it was held in so many terms that the State cannot act
arbitrarily in selecting persons with whom to enter into H
76 SUPREME COURT REPORTS 11986] 3 S.C.R.

A contracts. Obviously what the Court meant to say was that
merely because one person is chosen in preference to
another, it does not follow that there is a violation of Arti-
cle 14, because the Government must necessarily be en-
titled to make a choice. But that does not mean that the
B choice be arbitrary or fanciful. The choice must be dictated
by public interest and must not be unreasoned or un-
principled." \
Next reliance was placed on Vik/ad Coal Merchants, Patiala, etc.
(
etc. v. Union of India & others, AIR 1984 SC 95. In that case this Court -~

had to construe section 27 A and 28 of the Railways Act and the I
c Court observed:

"Section 28 forbids discrimination by giving undue or un-
reasonable preference or advantage in respect of any
particular traffic to any particular person or any railway
D administration but this general prohibition against dis-
crimination is subject to .the overriding power conferred on
Central Government under section 27 A. If while giving
effect to the orders of the Central Government issued un-
der Section 27A, priority is accorded in the matter of trans-
port of goods consigned to Central or State Government or
class of goods specified in the general or special order is- >
E
sued in this behalf, the action of the railway administration
in complying with such special or general order could not
be said as tentamounting to giving undue or unreasonable
preference or advantage to or in favour of any particular
person or railway administration. What section 28 forbids
is discrimination in the matter of transport of goods against J
F
a class but this is subject to the permissible classification
that would be introduced by a special or general order
issued by the Central Government in exercise of the power
conferred by Section 27A. It may be recalled that the Pre-
ferential Traffic Schedule according to Priority 'C' to trans-
port of coal by those mentioned therein has been issued in
exercise .of the power conferred by Section 27 A. There-
fore, the submission that petitioners in the matter of trans-
port of coal are similarly situated with the Central or State
Government or transporters given priority by general
or special order issued under Section 27A cannot be
H ,entertained."
H.S. ARORA v. U.0.1. [MISRA, J.] 77

A
r This case is not of much help in the present case. The facts were
materially different in that case. In that case, the railway authority had
to comply with the directions given by the Central Government which
was in the public interest.

Lastly, the counsel relied upon Madhya Pradesh Ration Vikareta B
Sangh Society & Ors. etc etc. v. State of Madhya Pradesh & Anr. I1982] 1
SCR 750. In that case the question for consideration was whether the
\ Fair Price Shops in the State under the Government Scheme should be
' directly run by the Government through the instrumentalities of the
.[ Consumers Co-operative Societies as its agents or by retail dealers to
1 be appointed by the Collector. This Court took the view that essen-
tially this was a matter of policy to which the Court is not concerned. c
This case also is not of much help in the present case.

In the instant case, the instrumentalities of the State invited
tenders for the supply of fresh buffaloes and cows milk and, therefore,
this case has to be decided on the basis of bid by the tenderers. There D
was no question of any policy in this case. It is open to the State to
adpot a policy different from the one in question. But if the authority
or the State Government chooses to invite tenders then it must abide
by the result of the tender and cannot arbitrarily and capriciously
accept the bid of respondent No. 4 although it was much higher and to
the detriment of the State. The High Court, in our opinion, was not
E
justified in dismissing the writ petition in /imine by saying that the
question relates to the contractual obligation and the policy decision
cannot be termed as unfair or arbitrary. There was no question of any
policy decision in the instant case. The contract of supply of milk was
to be given to the lowest bidder under the terms of the tender notice
and the appellant being the lowest bidder he should have been granted F
the contract to supply, especially, when he has been doing so for the
last so many years.

In the result, the appeal must succeed. It is accordingly allowed
and the judgment and order of the High Court dated January 10, 1986
is set aside and the Writ Petition is allowed and the order of the G
authorities rejecting the tender of the appellant and accepting the
tender of respondent No. 4 is quashed. The respondents authorities
are directed to accept the tender of the appellant. There is, however,
no order as to costs.

P.S.S. Appeal allowed. H