MAHABIR AUTO STORES & ORS.
INDIAN OIL CORPORATION & ORS.
DATE OF JUDGMENT06/03/1990
MUKHARJI, SABYASACHI (CJ)
MUKHARJI, SABYASACHI (CJ)
RAY, B.C. (J)
1990 AIR 1031 1990 SCR (1) 818
1990 SCC (3) 752 JT 1990 (1) 363
1990 SCALE (1)410
CITATOR INFO :
F 1991 SC 537 (32,48)
D 1991 SC 818 (18)
Constitution of India 1950--Article 14, 32, 226 and 298 --State organ--Action of entering or not entering into contracts with individual parties--Whether can be questioned in writ jurisdiction.
The appellant-firm had been carrying on the business of distribution and sale of all kinds of lubricants received from the respondent, a statutory corporation, since 1965. It is the case of the appellant that it acted as Lube distribu- tor of the respondent corporation and that it had been given the Customer No. during the course of business. The appel- lant claimed that from Feb. 1965 to 27th May, 1983, it had received and uplifted the supply of lubricants/goods each year and the total quantity, of lubricants/goods thus lifted had gone upto the extent of 1,11,34854 litres or kgs. The respondent suddenly stopped the supply of lubricants to the appellant-firm on 27.5.1983. The appellant-firm made several representations to the respondent against the aforesaid action of the respondent but to no use. The appellant there- upon filed a writ petition in the High Court praying for a writ of mandamns directing the respondent to desist from denying or discontinuing the supply of lubricants and there- by save the appellant from being ousted from the business; claim for damages from the date the supply was discontinued was also made.
Before the High Court, it was inter alia contended by the appellant that the correspondent that passed between the appellant and respondent and the invoices issued during the long years of business would show that the respondent always treated the appellant as its agent and distributor; sudden stoppage of supply violated the principles of natural jus- tice. It therefore sought the specific performance of the alleged contract. The respondent on the other hand ques- tioned the maintainability of the petition as according to it the respondent was not 'State' within the meaning of Art. 12 of the Constitution. It further averred that there was no concluded contract by the respondent with the appel- lant and that the work continued under an adhoc arrangement; that the policies of the respondent were governed by the guidelines/directions issued to it from time to time by the Ministry of
Petroleum whereunder it was no longer possible to give further supplies to the appellant firm.
After considering the rival contentions advanced by the parties the High Court, dismissed the writ petition. The appellant has filed this appeal with special leave. Allowing and disposing of the appeal with directions, this Court,
HELD: Every action of the State or of an instrumentality of the State in exercise of its executive power, must be informed by reason. In appropriate cases, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32 of the Constitution. [826D] The respondent-company Indian Oil Corporation is an organ of the 'State' or an 'instrumentality of the State' as contemplated under Article 12 of the Constitution. [826F] The State acts in its executive power under Article 298 of the Constitution in entering or not entering in contracts with individual parties. Article 14 of the Constitution would be applicable to those exercises of power. Therefore, the action of the State organ under Article 14 can be checked. [826F]
Rule of reason and rule against arbitrariness and dis- crimination, rules of fair play and natural justice are part of the rule of law applicable in situation or action by State instrumentality in dealing with citizens in a situa- tion like as in the instant case. Even though the rights of the citizens are in the nature of contractual rights, the manner, the method and motive of a decision of entering or not entering into a contract, are subject to judicial review on the touchstone of relevance, and reasonableness, fair play natural justice, equality and non-discrimination in the type of the transactions and nature of the dealing as in the instant case. [827E-F]
The dichotomy between rights and remedies cannot be obliterated by any straight jacket formule. It has to be examined in each particular case. [829D]
Decision of the State/Public authority under Article 298 of the Constitution, is an administrative decision and can be impeached on the ground that the decision is arbitrary or violative of Article 14 of the
Constitution or on any of the grounds available in public law field. It appears to us that in respect of Corporation like Indian Oil Corporation when without informing the parties concerned, as in the case of the appellant firm on alleged change of policy and on that basis action to seek to bring to an end the course of transaction over 18 years involving large amounts of money is not fair action, espe- cially in view of the monopolistic nature of the power of the respondent in this field. [829F-G]
E.P. Royappa v. State of Tamil Nadu and Anr.,  4 SCC 3; Maneka Gandhi v. Union of India and Anr.,  1 SCC 248; Ajay Nasia and Ors. v. Khalid Mujib Sehravardi and Ors.,  1 SCC 722; A.D. Shetty v. International Airport Authority of India and Ors.,  3 SCC 1 and Dwarkadas Mariatia and Ors. v. Board of Trustees of the Port of Bom- bay,  3 SCC 293, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1350 of 1990.
From the Judgment and Order dated 9.2. 1989 of Delhi High Court in C.W. No. 1904 of 1983.
Dr. L.M. Singhvi, Dr. A.M. Singvi and D. Bhandari (N.P.) for the Appellants.
Harish N. Salve, Mrs. P. Shroff and S.A. Shroff for the Respondent.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, CJ. Having heard counsel for the parties and having considered the facts, circumstances and the contentions involved herein, we grant special leave and dispose of the appeal by judgment herein.
This appeal arises out of the judgment and order of the High Court of Delhi dated 9th February, 1989. Appellant No. 1 is a partnership firm. The other four appellants are the partners of the said firm. The respondent is a company incorporated under the Indian Companies Act, 1956 and hav- ing, inter alia, one of its regional offices at Janpath, New Delhi. The appellants sought in the Writ Petition filed under Article 226 of the Constitution before the High Court a writ of mandamus against the respondent directing it to desist from denying or
discontinuing the supply of all kinds of lubricants to the appellant No. 1 and from ousting, black-listing, coercing or pressurising the appellant No. 1 from the business of deal- ing with all kinds of lubricants supplied by the respondent company to have and to continue to supply all kinds of lubricants to the appellant firm as was done in the past and for the maintenance of status quo existing on the 27th May, 1953 and for payment of necessary damages for the period from 28th May, 1983 till the date of the filing of the writ petition before the High Court or till the decision of the writ petition.
The appellant No. 1, herein referred to as the firm, is a partnership firm duly registered with the Registrar of Firms, Delhi. The said firm had been carrying on the distri- bution and sale of all kinds of lubricants and was regis- tered under Sales Tax Act vide Registration no. 1636 dated 22nd October, 195 1 and has a goodwill of its own, according to the said appellants, in the entire region of Northern India with expertise and knowledge in the distribution and sale of all kinds of lubricants. The appellants contend that in the past 32 years the appellant firm had acquired a very good reputation and has earned enviable goodwill in the trade.
As stated hereinbefore, the respondent company is a statutory body incorporated under the Indian Companies Act, 1956 and have been dealing throughout with the appellant firm since 1965 when the firm became, according to the appellants, its distributor. The appellants claim that the said firm had been appointed as Lube Distributor and the appellant firm have been given the Permanent Customer Code No. 63-01-3115-1022-9-X, according to the appellant. The appellants contend that this was done in due course. It is the further case of the appellants that the lubricants were released by the respondent company to the said appellant firm on 25th January, 1965 by Invoice No. 146668 and there- after the firm had promoted the sales of the products of the company successfully inasmuch as from February, 1965 to 27th May, 1983 and the firm had received and uplifted the supply of lubricants/goods each year and the total quantity of lubricants/goods such lifted had gone up to the extent of 1, 11,34,854 litres or kgs. The appellants claimed that the said firm is one of the respondent company's Lube Distribu- tor in Northern India. It was the case of the appellants before the High Court and also before this Court that the said firm had been carrying on business as the Lube distrib- utor of the respondent company and had been selling all kinds of lubricants. The appellants contend that the re- spondent company had recognised the appellant firm during all this period as authorised dealer and a distributor and an agent.
It was the case of the appellants before the High Court and they had tried to demonstrate with reference to the various documents, annexures etc. filed by them that the firm had been always carrying business as Lube Distributor of the Company, and has been selling all kinds of lubri- cants. The appellants further contended that the Company had recognised the firm during all this period as authorised dealer, distributor and agent. Certain letters were written by the company directing various customers to contact the firm as an authorised Lube Distributor. This contention was stated before the High Court as well as before us. It iS stated that annexures A-2 to A- 14 were copies of letters written by the company directing various customers to con- tact the firm as an authorised Lube Distributor. Annexure A-15 is an advertisement issued in a specially published souvenir on the occasion of All India Highway Motor Rally held in 1972 sponsored by the Company in which the firm was referred to as the Company's authorised Lube Distributor. Annexures A- 16 to A-35 are copies of the letters written by the Company to the appellants in relation to the dealing of the appellants as Lube Distributor. There are several other documents on which reliance was placed on behalf of the appellants. The firm was treated as authorised dealer and agent of the respondentcompany. It was contended that there was a change of policy by the respondent company, and cer- tain documents of the year 1972 were relied upon to indicate that the supply of lubricants was stopped to those Associa- tions and Dealers to whom ad hoc supplies were given, who were merely re-sellers, traders and who did not have written contracts with the Company. That was the case of the appel- lant's firm. However, the appellants asserted, that the supply was continued to the appellant firm being a dealer and distributor of the Company. Reliance was placed on Annexures P-28 to P-34 which are the Product Indent-cum- Delivery Orders for various periods issued by the Company to the firm. It is stated that in the said Product Indent- cumDelivery Order there was a note indicating "For Condi- tions of Supply Please Turnover ..... ". However, in the copies filed with the rejoinder affidavit, there are no terms on the reverse side of the Product Indent-cum-Delivery Order. Although the firm has been receiving continuous supply of lubricants from the Company, it was suddenly stopped on 27th May, 1983 by the Company, and it was con- tended that such an action of the Company will have the effect of black-listing the firm and is arbitrary and against the principles of natural justice besides being hit by the doctrine of promissory estoppel. The appellant firm, it was contended, had made representations against the aforesaid action of the respondent company but to no use. In that background the reliefs mentioned here-in-before were sought from the High Court
in the application filed under article 226 of the Constitu- tion.
The respondent-company had raised various objections to the maintainability of the Writ Petition, namely, inter alia, that the Company was not State within the meaning of Article 12 of the Constitution as the Company is registered under the Companies Act, 1956, the Writ Petition was not maintainable as no writ to enforce alleged supply, according to the respondent company, was maintainable and the appro- priate remedy for the appellants was to claim damages for breach of contract or relief for specific performance of contract, if any. It was submitted, further, that the firm had not any contract and was seeking to rely on an irregular course of conduct and on an ad hoc arrangement which the company cannot perpetuate in view of the prevailing guide- lines and/or directions received from the Ministry of Energy in the Department of Petroleum. Where in fact there was an actual written agreement the Company's contractual relation- ship with its distributors was also capable of termination forthwith and was only subject to the normal contractual laws and decisions in the realm of contract could not be the subject matter of proceedings under article 226 of the Constitution, it was submitted. The appellants case, it was urged by the responde it-company, was at much lower footing. The Company however deaied that the firm had even been black-listed and it had never acted in a mala fide, or capricious or arbitrary manner or on any extraneous, or oblique or irrelevant consideration. There was no commit- ment, it was suggested, to supply a fixed quantity regular- ly, made to the appellant firm at any stage. It appears that the procedure adopted for the supply of lube oil products was that the party requiring supply would write a letter to the Company 'whereupon the Divisional Office through the Lube section would process the same and would intimate as to how much supply was possible. Thereupon the requisition slip would be processed and a delivery challan/order would be made out. The conditions of the Proluct Indent-cum-Delivery Order, inter alia, categorically provided that "IOC also reserves the right to cancel your order without any intimation or assigning any reason". It further provided that "IOC took no responsibility of des- patches/releases of stocks shall be on the basis of avail- ability of stocks." There was no other contract in the facts and circumstances of the case, it was urged. The letters making the requisitions, the Product Indent-cum-Delivery Orders, the Delivery Challans as also the payment are the only documents constituting the dealing or transactions between the parties. The Company had categorically reserved its right to refuse and/or cancel the orders with- 824
out any intimation or assigning any reason and it was per- fectly within its fight to discontinue the said arrangement. Several obligations have been provided under the arrangement including, inter alia, price controls, minimum off-take of stocks, safeguards against contamination, fight to the inspection and/or unrestricted access, right of account etc. It was asserted' that even under the contractual transaction as entered into with the Associated Trading Company, the respondent company had fight of termination forthwith for any reason whatsoever and the Company's fight to terminate was not lettered by the doctrine of reasonableness or doc- trine of natural justice and rights of hearing etc. as sought to be put forward on behalf of the appellants. It is, therefore, suggested that what was not even contractually recognised should not be artifically given higher status, in the facts and circumstances of the case, as the appellants were seeking to invoke the fight flowing from an utter irregularity specially when the company had been made publi- cally accountable especially when the Company does not act unless through a written contract as also when only autho- rised.
It was further the case of the respondent that the company was subjected to distribution policies and guide- lines of the Department of Petroleum in the Ministry of Energy, Government of India. They are also bound by the directives to the effect that lubricants are to be sold only to consumers, to those parties who will not sell directly or indirectly to foreign oil companies and no sale should take place to old agents or distributor of foreign oil companies. All sales of lubricants must take place to actual consumers or to such small parties who will sell actually to consumers and not to foreign oil company. Besides this, the Ministry of Energy by the letter beating reference No. P-17011/7/82- SUP dated 21st December, 1982 under policy number 201 had communicated to all oil companies that no new distributor was to be appointed for distribution of lubricating oils and there is a ban on such appointments. In the facts and the circumstances of the case the Company was, thus, according to the respondent, prevented by the
directive/instruction/guidelines of the Ministry of Energy to appoint new dealers and distributors or to formalise any agreement constituting the dealership or distributorship. In fact, right since 1972, 24 parties who had ad hoc arrange- ment of supply of lube oils were discontinued, according to the respondent. There was no assurance, whatsoever, nor any promise nor any contract or nor any prescribed schedule to supply any quantity of lubricants, as alleged, to the appel- lant or to anybody else. It was further asserted in the present case that in view of the ban imposed, no fresh distributors could be appointed nor the oil companies empow- ered to regularise and contract afresh for
dealers/distributors in lubricant oils. It was further the case of the respondent that the customer code number is given to authorised distributors/dealers only. The position was explained that the mode and manner of computerisation of accounts set out in Annexure P-25 and the allotment of customer code number is only for the purpose of identifica- tion and not for any other purpose nor to designate the firm as an authorised Lube distributor. The Company had denied that the Code 01 was allotted only to dealers/agents as alleged. The Code 01 was applicable to all re-sellers, where a further sale is a necessary concommitment of the first sale. Certain particulars were given how 01 is given and it was stated in the case of four parties the partnership was terminated because of the new policy.
The High Court after exhaustively dealing with the rival contentions came to the conclusion that viewed from diverse angles, the appellants had sought the specific performance of certain alleged contract. It was also held that the said alleged contract was neither precise, nor definite nor certain nor was capable of being made certain. It was not certain, in this case, as to how much goods were required and for how long were these required and at what considera- tion, these were all uncertain and vague, it was submitted. It was held by the High Court that for a Writ of mandamus the appellants should have a legal right to enforce the performance of alleged duty by the respondent and since no right was shown to exist by the appellants for selling the continuous supply of the lubricants whatsoever indefinitely for future and no corresponding legal duty was imposed on the respondent to supply, the Writ of mandamus was not maintainable. In those circumstances the Writ Application was dismissed as not maintainable.
Aggrieved thereby the appellants have come up to this Court, as mentioned hereinbefore.
We have heard learned counsel Dr. L.M. Singhvi as well as Mr. Salve exhaustively. Further affidavits were filed and documents produced before us. It was sought to be urged by Dr. Singhvi that the respondent was an instrumentality of State and as such the question involved was whether an instrumentality of State can suddenly, arbitrarily, unrea- sonably, without any relevant factors and without any notice and determination or proceeding stop supplies of products which, according to him, had been supplied more than-1 crore 11 lacs litres/kg of product continuously and uninterrupted- ly over a period of more than 18 years. Dr. Singhvi suggest- ed that the respondent IOC is an instrumentality of State under Article 12 of the Constitution. From
the nature of the business carried on by the appellants, it was manifest to us that the supply of the lubricants of the type with which the respondent had a monopoly, could be carried on by the appellants only as the supplier from the reSpondent.That business was not possible otherwise. The respondent had monopoly in that respect. This aspect is important. The respondent firm was supplying from 1965 to 1983 large quantities of lubricant oil and from 1983 onwards till 1989 supplies were continued on the interim order of the High Court of Delhi. Supplies were stopped suddenly on 27th May, 1983. There is no dispute that no intimation was given, no notice was given, no query or clarification sought for and there was no adjudication as such. It was held that the appellant firm was not entitled to supply, the stoppage of supply in May 1983 was, therefore, bad. The appellant further contended that the case of the respondent-company IOC was never made known or revealed prior to the Counter Affidavit in the High Court of the appellants. The conten- tion urged on behalf of the appellants was that this is patent violation of all canons of natural justice, fair play and reasonableness. It is submitted that natural justice and reasonableness of the procedure are enshrined under Article 14 of the Constitution.
It is well settled that every action of the State or an instrumentality of the State in exercise of its executive power, must be informed by reason. In appropriate cases, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32 of the Con- stitution. Reliance in this connection may be placed on the observations of this Court in M/s Radha Krishna Agarwal & Ors. v. State of Bihar & Ors.,  3 SCC 457.1t appears to us, at the outset, that in the facts and circumstances of the case, the respondent-company IOC is an organ of the State or an instrumentality of the State as contemplated under Article 12 of the Constitution. The State acts in its executive power under Article 298 of the Constitution in entering or not entering in contracts with individual par- ties. Article 14 of the Constitution would be applicable to those exercises of power. Therefore, the action of State organ under Article 14 can be checked. See M/s Radha Krishna Agarwal v. State of Bihar, (supra) at p. 462, but Article 14 of the Constitution cannot and has not been construed as a charter for judicial review of State action after the con- tract has been entered into, to call upon the State to account for its actions in its manifold activities by stat- ing reasons for such actions. In a situation of this nature certain activities of the respondent company which consti- tuted State under Article 12 of the Constitution may be in certain circumstances subject to Article 14 of the Constitu- tion in entering or not entering into contracts and must be reasonable and taken
only upon lawful and relevant consideration, it depends upon facts and circumstances of a particular transaction whether heating is necessary and reasons have to be stated. In case any right conferred on the citizens which is sought to be interfered, such action is subject to Article 14 of the Constitution, and must be reasonable and can be taken only upon lawful and relevant grounds of public interest. Where there is arbitrariness in State action of this type of entering or not entering into contracts, Article 14 springs up and judicial review strikes such an action down. 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 Governmental action even in the matters of entering or not entering into contracts, fails to satisfy the test of reasonableness, the same would be unrea- sonable. In this connection reference may be made to E.P. Royappa v. State of Tamil Nadu & Anr.,  4 SCC 3; Maneka Gandhi v. Union of India & Anr.,  1 SCC 248; Ajay Hasia & Ors. v. Khalid Mujib Sehravardi & Ors.,  1 SCC 722; R.D. Shetry v. International Airport Authority of India & Ors.,  3 SCC 1 and also Dwarkadas Marlaria and sons v. Board of Trustees of the Port of Bombay,  3 SCC 293. It appears to us that rule of reason and rule against arbitrariness and discrimination, rules of fair play and natural justice are part of the rule of law applicable in situation or action by State instrumentality in dealing with citizens in a situation like the present one. Even though the rights of the citizens are in the nature of contractual rights, the manner, the method and motive of a decision of entering or not entering into a contract, are subject to judicial review on the touchstone of relevance and reasonableness, fair play, natural justice, equality and non-discrimination in the type of the transactions and nature of the dealing as in the present case. The existence of the power of judicial review however depends upon the nature and right involved in the facts and circumstances of the particular case. It is well settled that there can be "malice in law". Existence of such "malice in law" is part of the critical apparatus of a particular action in administrative law. Indeed "malice in law" is part the dimension of the rule of relevance and reason as well as the rule of fair play in action.
It was submitted that the respondent had continuously, uninterruptedly, consistently and repeatedly dealt with the appellant and recognised the appellant, and had treated it as a dealer. On that
basis the appellants and his family had acted for 19 years. To substantiate these assertions, certain documents and samples were referred to by the appellants. Our attention was drawn to large number of invoices, cash memos and to the customer code No. 013115 allotted to the appellant. It was submitted that the prefix 01 applied only to dealers, dis- tributors etc. The defence of the respondent was the absence of written contract which was the standard form and not appointment letters. The appellant contended that the appel- lants were selling IOC products without written contract. It was further asserted that the IOC has sought to change its stand and say that it does not deal with person without contract but according to the appellants, has issued letters of appointment to some of them and these persons, according to the appellants, sell lubes. It was submitted that this change of stand was an afterthought. It was further stated that letters, in some cases, cannot lead to an exclusion of all others to whom letters of appointment had not been issued. It is submitted that in the fairness IOC could have and should have issued such letter of appointment to appel- lant No. 1 also and should have considered the case of the appellant-firm. It was submitted that IOC has always treated lube and non lube products on the same basis, without dis- tinction. This distinction which was sought to be urged before us, it was submitted, was an after thought and not justified. The appellant contended that the IOC's purported reliance upon the guidelines, was not justified. Further- more, the guidelines were not mandatory or binding. These use directory words like "may". More importantly, these exclude all those who are part of the existing network and apply for fresh appointment of new distributors. The appel- lant was part of the existing network and was not to be inducted as a new distributor and the appellant-firm falls within the existing network and has always been so treated continuously and uninterruptedly from 1965 to 1983, it was the case of the appellants. It was contended that the appel- lant-firm was entitled to relief, inter alia, on grounds of promissory estoppels, unreasonable and arbitrary exclusion, and discriminatory treatment under Article 14 of the Consti- tution.
Mr. Salve on behalf of the appellants sought to urge that the appellant firm had never been appointed as a Lube Distributor. There is no letter of intent, letter of ap- pointment, much less letter at all. Ad-hoc supplies of Lube products alone had been made to the appellant from 1965 onwards. The procedure adopted for the supply of lube products was that the appellant would write a letter to the company whereupon the Divisional Office, Lube Section would process the same. The policy decision in December, 1982 indicated that no new
Distributor for Lube products would be appointed and no new products would be distributed either through the existing net-work, of existing Lube Distributors or to authorised dealers of other products such as, petrol, SKO, LDO and HSD. It was submitted that as a result of the policy it was not the appellant alone to whom the supplies were discontinued. There was similar discontinuance of supplies to 24 other parties whose names were given in the counter affidavit. Mr. Salve submitted that in private law field there was no scope for applying the doctrine of arbitrariness or mala fides. The validity of the action of the parties have to be tested, it was urged on behalf of the respondent, on the basis of "right" and not "power". A plea of arbitrariness/mala fides as being so gross cannot shift a matter tailing in private law field to public law field. According to Mr. Salve to permit the same would result in anomalous situation that whenever State is involved it would always be public law field, this would mean all redress against the State would fall in the Writ Jurisdiction and not in suits before Civil Courts.
We are of the opinion that in all such cases whether public law or private law rights are involved, depends upon the facts and circumstances of the case. The dichotomy between rights and remedies cannot be obliterated by any straight jacket formula. It has to be examined in each particular case. Mr. Salve sought to urge that there are certain cases under Article 14 of arbitrary exercise of such "power" and not cases of exercise of a "right" arising either under a contract or under a Statute. We are of the opinion that that would depend upon the factual matrix. Having considered the facts and circumstances of the case and the nature of the contentions and the dealings between the parties and in view of the present state of law, we are of the opinion that decision of the State/public authority under Article 298 of the Constitution, is an administrative decision and can be impeached on the ground that the decision is arbitrary or violative of Article 14 of the Constitution of India on any of the grounds available in public law field. It appears to us that in respect of Corpo- ration like IOC when without informing the parties con- cerned, as in the case of the appellant firm herein on alleged change of policy and on that basis action to seek to bring to an end the course of transaction over 18 years involving large amounts of money is not fair action, espe- cially in view of the monopolistic nature of the power of the respondent in this field. Therefore, it is necessary to reiterate that even in the field of public law, the relevant persons
concerned or to be affected, should be taken into confi- dence. Whether and in what circumstances that confidence should be taken into consideration cannot be laid down on any straight jacket basis. It depends on the nature of the fight involved and nature of the power sought to be exer- cised in a particular situation. It is true that there is discrimination between power and fight but whether the State or the instrumentality of a State has the right to functign in public field or private field is a matter which,in our opinion, depends upon the facts and circumstances of the situation, but such exercise Of power cannot be dealt with by the State or the instrumentality of the State without informing and taking into confidence, the party whose fights and powers affected or sought to be affected, into confi- dence. In such situations most often people feel aggrieved by exclusion of knowledge if not being taken into confi- dence.
Such transaction should continue as an administrative decision with the organ of the State. It may be contractual or statutory but in a situation of transaction between the parties for nearly two decades, such procedure should be followed which will be reasonable, fair and just, that is, the process which normally be accepted to be followed by an organ of the State and that process must be conscious and all those affected should be taken into confidence. Having regard to the nature of the transaction, we are of the opinion that it would be appropriate to state that in cases where the instrumentality of the state enters the contractual field, it should be governed by the incidence of the contract. It is true that it may not be necessary to give reasons but, in our opinion, in the field of this nature fairness must be there to the parties concerned, and having regard to the large number or the long period and the nature of the dealings between the parties, the appellant should have been taken into confidence. Equality and fair- ness at least demands this much from an instrumentality of the State dealing with a right of the State not to treat the contract as subsisting. We must, however, evolve such proc- ess which will work.
Therefore, we direct that the case of the respondent be put to the appellants, and let the respondent authorities consider afresh the submissions made by the appellant firm, namely, that the existing arrangement amounts to a contract by which the distributorship was continued in case of the appellant firm without any formal contract and further that the new policy of the Government introduced in December, 1982 would not cover the appellant firm and as such the 831
appellant should continue. It will be sufficient, having regard to the nature of the claims, for the respondent authority to consider this aspect after taking the appellant firm into confidence on this aspect. Nothing further need be stated or required to be done and we give no 'directions as to whether reasons should be recorded or hereinafter should be given. In the facts and circumstances, it is not neces- sary to give oral hearing or record the reasons as such for the decision. The decision should be based on fair play, equity and consideration by an institution like IOC. It must act fairly.
We direct accordingly that the present arrangement to continue until the respondent company gives the considera- tion on the lines indicated above and makes the decision. It is not our decision which is important but a decision on the above basis should be arrived at which should be fair, just and reasonable--and consistent with good govern- ment--which will be arrived at fairly and should be taken after taking the persons concerned whose rights/obligations are affected, into confidence. Fairness in such action should be perceptible, if not transparent.
The Judgment and the Order of the High Court are, there- fore, set aside and the direction and order as aforesaid are substituted and the application made to the High Court is disposed of on the aforesaid terms. In the facts and circum- stances of the case, there will be no order as to costs. Y. Lal Appeal al-