Constitution of India: Art.14 – Government Contracts – Transparent and non-arbitrary method to be adopted by the Government – Decision of the government regarding purchase of the Ayurvedic Drugs only from the IMPCL (the appellant) – Challenged on the ground that selection of IMPCL by the government is arbitrary and illegal by virtue of Art. 14 – High Court held that by virtue of Para 4(vi)(b) of the Operational Guidelines, the government was to invite supply of the drugs from various pharmacies and PSU listed therein so as to foster competition and quality of medicines and the practice adopted by the government to purchase Ayurvedic drugs only from IMPCL is illegal – Aggrieved IMPCL filed instant appeal – Held: Government Contracts involve expenditure out of the public exchequer, therefore, the moneys expended must not be spent arbitrarily – The State does not have absolute discretion while spending public money and, therefore, all government actions including government contracts awarded by the State must be tested on the touchstone of Art.14 – The government can deviate from the route of tenders or public auction for the grant of contracts, but such deviation must not be discriminatory or arbitrary – Deviation from the tender route has to be justified and such a justification must comply with the requirements of Art. 14 – Administrative Law.
Constitution of India: “Social Welfare” – State Largesse – Largesse is term used to describe a “generous donation” – Welfare State aims at realising socio-economic rights which are recognised by the Constitution – Social Welfare Benefits provided by the State, which is a constitutional mandate is commonly understood in the language of largesse and therefore terming all actions of government as government largesse results in doctrinal misconception – Therefore government action targeted for the well-being of citizens cannot be termed as largesse as use of such terminology belittles the sanctity of the social contract that the ‘people of India’ entered into with the State to protect and safeguard their interests. Constitution of India: Government Contracts – Judicial Review – Extent and Ambit – The scope of judicial review in matters of government contract is limited – But the government does not have unlimited discretion in granting the State Largesse and it must act in fairness – It is a settled proposition of law under Constitution that the government cannot act arbitrarily while dealing with the public, whether it is while giving jobs or entering into contracts. Constitution of India: Tender – Constitutional Requirement – Inviting tenders and conducting public auctions are considered to be preferred methods of allocation for two reasons – Firstly procurement can be made at the best price and secondly, allocation is through a transparent process – However, if the purpose of allocation by the State is not revenue maximization, the State could award contracts through other methods, provided it is non-arbitrary and meets the requirements of Art.14.
Dismissing the appeals, the Court
HELD: 1. The welfare State plays a crucial role in aiding the realisation of the socio-economic rights which are recognised by the Constitution. Social welfare benefits provided by the State under the rubric of its constitutional obligations are commonly understood in the language of ‘largesse’, a term used to describe a generous donation. Terming all actions of government, ranging from social security benefits, jobs, occupational licenses, contracts and use of public resources – as government largesse results in doctrinal misconceptions. The reason is that this conflates the State’s power with duty. The Constitution recognises the pursuit & ORS.
of the well-being of citizens as a desirable goal. In doing this the Constitution entrusts the State with a duty to ensure the wellbeing of citizens. Government actions aimed at ensuring the wellbeing of citizens cannot be perceived through the lens of a ‘largess’. The use of such terminology belittles the sanctity of the social contract that the ‘people of India’ entered into with the State to protect and safeguard their interests. [Para 11][485-GH; 486-A-C]
Ramana Dayaram Shetty v. International Airport Authority of India 1979 (3) SCC 489 : [1979] 3 SCR 1014; Sterling Computers Ltd. v M/s M & Publications Limited, (1993) 1 SCC 445 : [1993] 1 SCR 81; Jesper I. Slong v. State of Meghalaya (2004) 11 SCC 485; Association of Registration Plates v. Union of India (2005) 1 SCC 679:[2004] 6 Suppl. SCR 496; New Horizons Limited v. Union of India (1995) 1 SCC 478 : [1994] 5 Suppl. SCR 310; Food Corporation of India v. M/s Kamdhenu Cattle Feed Industries (1993) 1 SCC
71 : [1992] 2 Suppl. SCR 322 – relied on.
C.K Achuthan v. State of Kerala AIR 1959 SC 490 : [1959] 1 Suppl. SCR 787 – referred to.
2. Inviting tenders and conducting public auctions are considered to be preferred methods of allocation for two reasons: firstly procurement can be made at the best price; and secondly, allocation is through a transparent process. However, if the purpose of allocation by the State is not revenue maximization, the State could award contracts through other methods, provided it is non-arbitrary and meets the requirements of Article 14. Government contracts involve expenditure out of the public exchequer. Since they involve payment out of the public exchequer, the moneys expended must not be spent arbitrarily. The State does not have absolute discretion while spending public money. All government actions including government contracts awarded by the State must be tested on the touchstone of Article
14. The following principles emerge from the discussion : (i) Government action must be just, fair and reasonable and in accordance with the principles of Article 14; and (ii) While government can deviate from the route of tenders or public auctions for the grant of contracts, the deviation must not be discriminatory or arbitrary. The deviation from the tender route has to be justified and such a justification must comply with the requirements of Article 14. [Paras 20, 21, 22][492-G-H; 493-AC-E] M/s Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir, (1980) 4 SCC 1:[1980] 3 SCR 1338;
Sachidanand Pandey v. State of West Bengal 1987 (2) SCC 295 : [1987] 2 SCR 223; Haji T.M Hassam
Rawther v. Kerala Financial Corporation (1988) 1 SCC
166 : [1988] 1 SCR 1079; Centre for Public Interest Litigation v. Union of India (2012) 3 SCC 1 : [2012] 3 SCR 147;Natural Resources Allocation, in re Special Reference No. 1 of 2012 (2012) 10 SCC 1 : [2012] 9 SCR 311; Vallianur Iyarkkai Padukappu Maiyam v. Union of India (2009) 7 SCC 561 : [2009] 9 SCR 225; Nagar Nigam v. Al Farheem Meat Exporters (P) Ltd. (2006) 13 SCC 382 : [2006] 10 Suppl. SCR 354 – relied on.
3. There is no material on record to support the submission that IMPCL is the only establishment among the establishments mentioned in paragraph 4(vi)(a) that manufacture good quality Ayurvedic drugs. In fact, paragraph 4(vi)(b) states that 50 percent of the grant-in-aid shall be used to purchase medicines from the units mentioned in the paragraph “keeping in view the need for ensuring quality of AYUSH drugs and medicines.” This would indicate that the need for ensuring quality is subserved by all the sources mentioned there. Besides IMPCL, which is an establishment of the Government of India, paragraph 4(vi)(b) includes other establishments of the State Governments or cooperative societies. The contention that IMPCL does not have any commercial interest because it is an establishment developed by the Government of India is then equally applicable to other & ORS.
establishments prescribed in paragraph 4(vi)(b). The argument that the procurement of Ayurvedic drugs from IMPCL would fall within the exceptional circumstances (assurance of quality medicines) is erroneous. The submission of the appellant that IMPCL is the sole producer of quality Ayurvedic medicines is based on surmises and conjectures without any cogent material to support the claim. In fact, the notification of 2 January 2019 issued by the Ministry of AYUSH stipulates that 50 percent of the grant-in-aid has to be used to procure medicines from IMPCL or other Central/State PSUs’ or pharmacies under the StateGovernments and co-operatives. It is open to the appellant to procure medicines using any method other than tender, so long as it is not arbitrary. The claim of the appellant is that it deviated from the rule of tender because IMPCL is the only establishment that produces quality medicines. However, there is no material to substantiate the claim that IMPCL is the only establishment which manufactures ‘quality’ medicines to the exclusion of other establishments mentioned in paragraph 4(vi)(b). The appellant has been unable to discharge the burden placed on it by producing cogent material demonstrating that the procurement of medicines through nomination is warranted because of the existence of exceptional circumstances bearing on need for quality. The action of the appellants of procuring medicines only from IMPCL to the exclusion of the other establishments mentioned in paragraph 4(vi)(c) is arbitrary and violative of Article 14 of the Constitution. [Para 30][498-D-H; 499-A]
State of Tamil Nadu v. National South Indian River Interlinking Agriculturist Association Civil Appeal 6764 of 2021; Caterpillar India Pvt. Ltd. v. Western Coal Fields (2007) 11 SCC 32 : [2007] 7 SCR 251 – relied on.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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