JUDGMENT B.S. Chauhan and Dilip Gupta, JJ.
1. This writ petition has been filed for setting aside the decision conveyed to the petitioner by the Executive Engineer, Electricity Store Division, Varanasi by his letter dated 31.3.2006 for cancelling the auction and for a direction upon the respondents to give effect to the sale order on the basis of the highest bid offered by the petitioner in the auction held on 17.3.2006 and for certain other consequential reliefs.
2. An auction notice dated 20.2.2006 was published in a number of national newspapers announcing that auction would be held on 8.3.2006 at the Electricity Store Centre (Raja Talab), Purvanchal Vidyut Vitran Nigam Limited Varanasi for "Uneconomical Damaged Power Transformers" and "Scrap Steel, Copper, Aluminium, Wires, Cables. Core Stampings, Empty T/F Tanks, Burnt T/F Oil etc." It was further mentioned that the registration amount in respect of the various items indicated in the notice should also be deposited by Bank Draft favouring "Executive Engineer, Electricity Store Division, Varanasi" along with the entry fee of Rs. 250/-. The registration was required to be done between 9.00 AM and 10.00 AM and the auction was to take place immediately thereafter subject to the terms and conditions to be announced before the commencement of the auction. The date of auction was subsequently changed to 17.3.2006 and this fact was also published in the newspapers.
3. The Auction Committee which consisted of Deputy CAO, Varanasi Zone, Deputy General Manager (Planning), Deputy General Manager (Stores) and Four Executive Engineers fixed the reserve prices in respect of the various items. The registration of the various firms by deposit of the registration fee of Rs. 250/- and the earnest money by Bank Draft started from 9.00 AM on 17.3.2006 and as there were large number of prospective bidders it could be completed only by 10.50 AM. Thirty eight bidders including twenty five for "Uneconomical Damaged Power Transformers" and fifteen for 'other scrap materials' got themselves registered after completing the formalities. Thereafter the auction proceedings for the "Uneconomical Damaged Power Transformers" and other scrap materials was held.
4. The bid of the petitioner for the "Uneconomical Damaged Power Transformers" for Rs. 1,80, 20,000/- was the highest and was accepted by the Auction Committee as it was for an amount higher than the reserve price. The petitioner was required to deposit Rs. 17,15,000/- which he deposited immediately on 17.3.2006. The petitioner was thereafter issued a sale letter dated 17.3.2006 by the Executive Engineer. It was mentioned that the sale order was being placed for the materials on the basis of the highest bid offered by the petitioner in the auction held on 17.3.2006. The petitioner was required to deposit the balance amount of Rs. 1, 63,05, 000/- by 31.3.2006 and the delivery period for lifting the materials was 60 days from the issuance of the sale letter.
5. In response to the aforesaid sale letter, the petitioner went to deposit the Bank Drafts for Rs. 1,63,05,000/- on 27.3.2006 but these Bank Drafts were not accepted by the Executive Engineer. This compelled the petitioner to file an application dated 28.3.2006 before the Executive Engineer and the Managing Director of the U.P. Power Corporation mentioning therein that the Bank Drafts may be accepted as the last date for their submission was 31.3.2006. As there was no response from the Power Corporation, the petitioner filed this petition for a direction upon respondents to give effect to the aforesaid sale letter dated 17,3.2006. When the petition was taken up by this Court, the communication dated 31.3.2006 sent by the Executive Engineer to the petitioner was placed before the Court by Sri Ranjit Saxena, learned Counsel appearing for the Power Corporation. The said letter mentions that in continuation of the letter dated 30.3.2006 sent by the Director (Technical) and the letter dated 31.3.2006 sent by the Deputy General Manager, Power Corporation, the petitioner was being intimated that a decision had been taken to cancel the auction on 17.3.2006. He was, therefore, requested to collect the security amount. An amendment application was thereafter moved on behalf of the petitioner for challenging the decision contained in the aforesaid letter dated 31.3.2006. This amendment application has been allowed by us.
6. A detailed counter-affidavit to the writ petition and to the amendment application has been filed on behalf of the Power Corporation. The communication dated 29/30.3.2006 sent by the Director (Technical) to the Deputy General Manager and the report submitted by the Director (Technical) to the Managing Director have been brought on record. The counter-affidavit mentions that after the auction was over, a telephone call was received by the Director (Technical) on 17.3.2006 at about 2.30 PM. The caller complained that he and few others from Delhi/Ghaziabad were not permitted to enter the Store premises in time and when they managed to reach the auction place, the Deputy General Manager of the Power Corporation refused to register them. Thereafter certain written complaints were also received. The Director (Technical) was asked to submit his report in respect of these complaints. He submitted his report on 29.3.2006 mentioning therein that many complaints had been received regarding lack of transparency and opportunity to participate in the auction held on 17.3.2006 and one firm had even offered to give Rs. 20-25 lacs additional amount over and above that fetched from the auction. It further mentions that even though the charges levelled in the complaints could not be conclusively proved, yet in order to maintain transparency and in order to fetch a higher amount, a decision may be taken to cancel the auction held on 17.3.2006 and a fresh auction may be held. The Managing Director of the Power Corporation on 29.3.2006 approved the suggestion of the Director (Technical) for cancelling the auction held on 17.3.2006 and for holding of a fresh auction. On the basis of the aforesaid decision, the Director (Technical) sent a communication dated 29/30-3-2006 to the Deputy General Manager and Chairman of the Auction Committee informing him of the decision taken to cancel the auction held on 17.3.2006 and for holding a fresh auction. A copy of this letter was also sent to the concerned Executive Engineers. It is on the basis of this communication that the concerned Executive Engineer intimated the petitioner by the communication dated 31.3.2006 that the auction held on 17.3.2006 had been cancelled and he may collect the security amount.
7. The petitioner has filed a rejoinder-affidavit, in which he has annexed letters sent by Deepali Electricals Pvt. Ltd., New Delhi and Kumar Metal Store, Delhi certifying that they had never made any complaint regarding the auction held on 17.3.2006 and that some person may have made a false complaint in their name and that they were not at all interested in purchasing the Power Transformers.
8. We have heard the learned Counsel for the petitioner and Sri Ranjit Saxena, learned Counsel appearing for the respondent Power Corporation.
9. Learned Counsel for the petitioner submitted that the decision to cancel the auction held on 17.3.2006 were taken in an absolutely arbitrary manner and there was no justification at all to cancel the auction. In support of his contention, he submitted that the complaints which had subsequently been lodged after the auction was over and after the highest bids had been accepted, were not only frivolous in nature, but had been lodged by such persons who had not even got themselves registered within the time stipulated in the notice. He further submitted that the complainants had also failed to substantiate their claims by producing the Bank Drafts before the authorities which would have shown their bona fides for getting themselves registered prior to the auction and that the order impugned does not contain any reason for cancelling the auction.
10. Sri Ranjit Saxena, learned Counsel appearing for the respondent Power Corporation has, however, submitted that the Director (Technical) had examined the complaints and had submitted a detailed report to the Managing Director of the Corporation who after looking to the entire facts and circumstances of the case, approved the suggestion to cancel the auction held on 17.3.2006. He, therefore, submitted that in such circumstances when the authorities have examined the matter, this Court should not interfere with the decision taken by the authorities.
11. The basic question, therefore, that arises for our consideration, is whether the respondents were justified in cancelling the auction held on 17.3.2006 and for this we would necessarily have to examine the scope of judicial review in such matters.
12. The parameters of the Court's power have been analyzed by the Supreme Court in Commissioner of Income-tax, Bombay and Ors. v. Mahindra & Mahindra Ltd. and Ors. . We reproduce paragraph-11 of the said judgment-:
By now, the parameters of the Court's power of judicial review of administrative or executive action or decision and the grounds on which the Court can interfere with the same are well settled and it would be redundant to recapitulate the whole catena of decisions of this Court commencing from Barium Chemicals case on the point. Indisputably, it is a settled position that if the auction or decision is perverse of is such that no reasonable body of persons, properly informed, could come to, or has been arrived at by the authority misdirecting itself by adopting a wrong approach, or has been influenced by irrelevant or extraneous matters the Court would be justified in interfering with the same. This Court in one of its later decisions in Smt. Shalini Soni v. Union of India , has observed thus: "It is an unwritten rule of the law, constitutional and administrative, that 'whenever a decision-making function is entrusted to the subjective satisfaction of a statutory functionary, there is an implicit obligation to apply his mind to pertinent and proximate matters only, eschewing the irrelevant and the remote". Suffice it to say that the following passage appearing at pages 285-86 in Prof. de Smith's treatise Judicial Review of Administrative Action' (4th Edn.) succinctly summarises the several principles formulated by the Courts in that behalf thus: "The authority in which a discretion is vested can be compelled to exercise that discretion, but not to exercise it in any particular manner. In general, a discretion must be exercised only by the authority to which it is committed. That authority must genuinely address itself to the matter before it: it must not act under the dictation of another body or disable itself from exercising a discretion in each individual case. In the purported exercise of its discretion it must not do what it has been forbidden to do, nor must it do what it has not been authorised to do. It must act in good faith, must have regard to all relevant considerations, must not be swayed by irrelevant considerations, must not seek to promote purposes alien to the letter or to the spirit of the legislation that gives it power to act, and must not act arbitrarily or capriciously. Nor where a judgment must be made that certain facts exist can a discretion be validly exercised on the basis of an erroneous assumption about those facts. These several principles can conveniently be grouped in two main categories; failure to exercise a discretion, and excess or abuse of discretionary power. The two classes are not, however, mutually exclusive. Thus, discretion may be improperly fettered because irrelevant considerations have been taken into account; and where an authority hands over its discretion to another body it acts ultra vires. Nor, is it possible to differentiate with precision the grounds of invalidly contained within each category.
(emphasis supplied).
13. In State of U.P. and Ors. v. Renusagar Power Co. and Ors. it was held that exercise of administrative power will be set aside if there is a manifest error in the exercise of such power or the exercise of the power is manifestly arbitrary.
14. The famous "Wednesbury Case" Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation (1947) 2 All ER 680 (CA) is considered to be the landmark in so far as the basic principles relating to judicial review of administrative or statutory direction are concerned. We quote a passage from the judgment of Lord Greene which is as follows:
It is true that discretion must be exercised reasonably. Now what does that mean? Lawyers familiar with the phraseology used in relation to exercise of statutory discretions often use the word 'unreasonable' in a rather comprehensive sense. It has frequently been used and is frequently used as a general description of the things that must not be done. For instance, a person entrusted with a discretion must, so to speak, direct himself properly in law. He must call his own attention to the matters, which he is bound to consider. He must exclude from his consideration matters, which are irrelevant to what he has to consider. If he does not obey those rules, he may truly be said, and often is said, to be acting 'unreasonably'. Similarly, there may be something so absurd that no sensible person could even dream that it lay within the powers of the authority.... In another, it is taking into consideration extraneous matters. It is unreasonable that it might almost be described as being done in bad faith; and in fact, all these things run into one another.
15. The principles of judicial review of administrative action were further summarized in 1985 by Lord Diplock in Council of Civil Service Unions v. Minister for the Civil Service 1984 (3) Al. ER. 935, (commonly known as CCSU case) as illegality, procedural impropriety and irrationality. He said more grounds could in future become available, including the doctrine of proportionality which was a principle followed by certain other members of the European Economic Community, Lord Diplock observed in this case as follows:
...Judicial review has I think, developed to a stage today when, without reiterating any analysis of the steps by which the development has come about, one can conveniently classify under three heads the grounds on which administrative action is subject to control by judicial review. The first ground I would call 'illegality', the second 'irrationality' and the third 'procedural impropriety'. That is not to say that further development on a case-by-case basis may not in course of time add further grounds. I have in mind particularly the possible adoption in the future of the principle of 'proportionality' which is recognized in the administrative law of several of our fellow members of the European Economic Community Lord Diplock explained 'irrationality' as follows:
By 'irrationality' I mean what can by now be succinctly referred to as 'Wednesbury unreasonableness'. It applies to a decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it.
(emphasis supplied).
16. In Union of India and Anr. v. G. Ganayutham the Supreme Court after referring to the aforesaid two cases namely Wednesbury case and CCSU case held as follows:
We are of the view that even in our country-in cases not involving fundamental freedoms-the role of our courts/tribunals in administrative law is purely secondary and -while applying Wednesbury and CCSU principles to test the validity of executive action or of administrative action taken in exercise of statutory powers, the courts and tribunals in our country can only go into the matter, as a secondary reviewing court to find out if the executive or the administrator in their primary roles have arrived at a reasonable decision on the material before them in the light of Wednesbury and CCSU tests. The choice of the options available is for the authority; the court/tribunal cannot substitute its view as to what is reasonable.
17. In Indian Railway Construction Co. Ltd. v. Ajay Kumar the Supreme Court held as follows-
It is trite law that exercise of power, whether legislative or administrative, will be set aside if there is manifest error in the exercise of such power or the exercise of the power is manifestly arbitrary.... If a power (whether legislative or administrative) is exercised on the basis of facts which do not exist and which are patently erroneous, such exercise of power will stand vitiated.
18. In People's Union for Civil Liberties and Anr. v. Union of India and Ors. 2004 AIR SCW 379, the Supreme Court observed as under:
The jurisdiction of this Court in such matter is very limited. The Court will not normally exercise its power of Judicial review in such matters unless it is found that formation of belief by the statutory authority suffers from mala fide, dishonesty or corrupt practice. The order can be set aside if it is held to be beyond the limits for which the power has been conferred upon the authorities by the Legislature or is based on the grounds extraneous to the legislation and if there are no grounds at all for passing it or if the grounds are such that no one can reasonably arrive at the opinion or satisfaction required thereunder.
19. In State of N.C.T. of Delhi and Anr. v. Sanjeev alias Bittoo 2005 AIR SCW 1987 the Supreme Court held as follows:
...One can conveniently classify under three heads the grounds on which administrative action is subject to control by judicial review. The first ground is 'illegality' the second 'irrationality' and the third 'procedural impropriety'.
...
...
The Court will be slow to interfere in such matters relating to administrative functions unless decision is tainted by any vulnerability enumerated above; like illegality, irrationality, and procedural impropriety. Whether action falls within any of the categories has to be established. Mere assertion in that regard would not be sufficient.
(emphasis supplied)
20. The aforesaid decisions of the Supreme Court clearly hold that if an action or decision is perverse or is such that no reasonable person can come to it or it has been arrived at by the authority misdirecting itself by adopting a wrong approach or has been influenced by irrelevant or extraneous matters, then the Court would be justified in interfering with the same; that the authorities must act in good faith and must have regard to all relevant considerations and must not be swayed by irrelevant considerations; and that the grounds on which Administrative action is subject to control by judicial review can be conveniently classified into three heads, namely, illegality, irrationality and procedural impropriety.
21. It is in the light of the aforesaid principles that we have to examine the decision taken by the U.P. Power Corporation to cancel the auction held on 17.3.2006.
22. The factual position that emerges from the pleadings of the parties is that for the auction to be held on 17.3.2006 it was incumbent upon every bidder to first get himself registered for the auction for which the times lot was between 9:00 A.M. and 10:00 A.M. It is also clear from the averments made in the counter affidavit that as there were large number of prospective bidders, it was subsequently extended to 10:50 A.M. and for the purposes of registration, the prospective bidders were required to deposit the earnest money by Bank Drafts and the registration fee of Rs. 250/-. The earnest money varied from Rs. five thousand to Rs. three lacs depending upon the particular item indicated in the auction notice. Thirty-eight bidders had got themselves registered and after the registration was completed, the auction was conducted by the seven member Auction Committee which had earlier fixed the reserve price for the various materials to be auctioned. The petitioner participated in the auction and his bid was found to be the highest. It was also accepted as it was over and above reserve price fixed by the aforesaid Auction Committee. The letter dated 17.3.2006 was then sent to the petitioner placing the sale order and requiring the petitioner to deposit the balance amount of Rs. 1,63,05,0007- by 31.3.2006. The petitioner obtained the Bank Drafts for the said amount but the same were not accepted by the officials of the Power Corporation and ultimately the auction was cancelled by the communication dated 31.3.2006. The records also reveal that the Managing Director of the Power Corporation had approved the suggestion made by the Director (Technical) in his report dated 29.3.2006 that the auction held on 17.3.2006 should be cancelled and a fresh auction should be held. The petitioner was, thereafter intimated by the letter dated 31.3.2006 that the auction held on 31.3.2006 had been cancelled.
23. It is true that the aforesaid communication dated 31.3.2006 does not contain any specific reason for cancelling the auction except making mention of the letter dated 30.3.2006 sent by the Director (Technical) and the letter dated 31.3.2006 sent by the Deputy General Manager. The letter dated 30.3.2006 sent by the Director (Technical) to the Deputy General Manager who was also the Chairman of the Auction Committee merely mentions that a decision had been taken to cancel the auction. It also does not contain any reason for cancelling the auction. Sri Ranjit Saxena, learned Counsel for the Power Corporation, however, urged that the reasons for cancelling the auction held on 17,3.2006 are to be found in the detailed report submitted by the Director (Technical).
24. We have, therefore, to examine the said report of the Director (Technical) to gather the reasons for cancelling the auction. A bare perusal of the report of the Director (Technical) shows that after receiving the complaints he sent them to the Deputy General Manager and Chairman of the Auction Committee for his comments who submitted his comments mentioning that certain persons had approached the Auction Committee after the auction of the Transformers was over at 11:30 A.M. but these persons were not permitted to participate in the auction for the remaining material as they had not got themselves registered for the auction and even the time for registration was over. The Director (Technical) in his report further mentions that since many firms/persons had complained about lack of transparency and lack of opportunity to participate in the auction and one firm was even willing to offer 20-25 lacs more than the highest auction bid, it would be in the interest of the Corporation to cancel the auction and hold a fresh auction even though there was no concrete evidence to establish the allegations made in the complaints in order to maintain transparency and in order to secure some additional amount. It is this suggestion of the Director (Technical), which was accepted by the Managing Director of the Corporation.
25. The said report of the Director (Technical), therefore, clearly shows that no enquiry whatsoever was conducted to ascertain the veracity of the allegations contained in the complaints and merely because many complaints had been received it was observed by the Director (Technical) that the auction should be cancelled in order to maintain transparency. What must also be emphasised is that in this very report the Director (Technical) has also made a categorical observation that there is no concrete evidence at all to support the charges. We are really surprised at the manner in which the officials of the Power Corporation have conducted themselves in this matter. It is no doubt true that an auction can be cancelled in certain circumstances but before taking such a decision the authorities must satisfy themselves that there are valid and good reasons for taking such a decision and the complaints made against the procedure in holding of the auction are factually correct. In the present case, no such exercise was undertaken as is clear from the report and the Director (Technical) got swayed by the number of the complaints that had been received and it is merely on this basis that he concluded that the auction must be cancelled in order to maintain transparency in the system. It is, therefore, clear that the decision to cancel the auction had been taken in an arbitrary and whimsical manner. The discretion has not been exercised reasonably and is influenced by irrelevant and extraneous considerations. Such an irrational decision cannot be sustained in view of the principles laid down by the Supreme Court in the cases referred to above.
26. We must also hasten to add that though the Director (Technical) in his report has not recorded any finding with respect to the truth or otherwise of the allegations made in the complaints, yet we have examined some complaints to examine the nature of the allegations contained in them. The complaints are general in nature and do not give any specific details. Infact two complainants, namely Deepali Electrical Pvt. Ltd. and Kumar Metal Store have certified that, in fact, they had never made them and they are not even interested in purchasing the Transformers. We have also examined the affidavit filed by Gulshan Kumar on behalf of M/s. Kamdhenu Traders, Ghaziabad in support of his complaint. The deponent does not even mention that he had made any attempts to get himself registered for taking part in the auction and all that he states is that he is ready to offer 25 lacs more than the bid price. In our opinion, it was imperative for the authorities to have first formed an opinion about the veracity of the allegations made in the complaints regarding the auction held on 17.3.2006 and for that it was necessary to have at least required the complainants to produce the Bank Drafts required for the purposes of registration as this would have substantiated their case that they actually wanted to get themselves registered for auction but were prevented. There is, however, no mention of the specific details of the Bank Draft in any of the complaints and nor has any finding been recorded by the Director (Technical) on this aspect as is clear from his report itself.
27. We are, therefore, for all the reasons stated above, unable to sustain the decision to cancel the auction held on 17.3.2006. Accordingly the decision to cancel the auction contained in the communication dated 31.3.2006 sent by the Executive Engineer to the petitioner is set aside and we direct that the petitioner shall now be permitted to deposit the Bank Draft as was required to be deposited under the communication dated 17.3.2006 within such reasonable time as the Corporation may now indicate to them in writing.
28. The writ petition, therefore, succeeds and is allowed. There shall be no orders as to costs.