Memorial o behalf of petioner

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government contract are a matter of public policy thus public interest is paramount in such transaction
rather than the commercial interest of competitive bidders.

Currently, the public sector procurement of construction is largely based on the lowest bid award
system. The customary practice of awarding contracts to a lowest bidder was established to ensure the
least cost for completing a project. In public construction works, this practice is almost universally
accepted since it not only ensures a low price but also provides a way to avoid fraud and corruption
(Irtishad, 1993). While the low-bid procurement system has a long-standing legal precedence and has
promoted open competition and a fair playing field, a longstanding concern expressed by owners and
some of their industry partners is that a system based strictly on the lowest price provides contractors
with an incentive to concentrate on cutting bid prices to the maximum extent possible (instead of
concentrating on quality enhancing measures), even when a higher cost product would be in the
owner’s best interest, which makes it less likely that contracts will be awarded to the best performing
contractors who will deliver the highest quality projects.
This extract is taken from Harminder Singh Arora v. Union of India, (1986) 3 SCC
247 at page 256
23. This Court quoted with approval the following observations of Mathew, J. in V.
Punnen Thomas v. State of Kerala [AIR 1969 Ker 81 : ILR (1968) 2 Ker 1 : 1968 Ker LT
800] :
“The Government is not and should not be as free as an individual in selecting
the recipients for its largesse. Whatever its activity, the Government is still the
Government and will be subject to restraints, inherent in its position in a democratic
society. A democratic government cannot lay down arbitrary and capricious
standards for the choice of persons with whom alone it will deal.”
This extract is taken from Harminder Singh Arora v. Union of India, (1986) 3 SCC
247 at page 257
25. The wide observations made by Hidayatullah, J., was explained in Ramana
Dayaram Shetty [(1979) 3 SCC 489 : AIR 1979 SC 1628 : (1979) 3 SCR 1014] .
Bhagwati, J. as he then was, speaking for the court observed: (SCC pp. 514-15, para
23)
“Though the language in which this observation is couched is rather wide, we do
not think that in making this observation, the court intended to lay down any absolute
proposition 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 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 [(1969) 1 SCC 414 : AIR 1969 SC 1081 : (1969) 3 SCR
374] which was also a decision of the Constitution Bench, where it was held in so
many terms that the State cannot act arbitrarily in selecting persons with whom to
enter into 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 Article 14, because the government must necessarily be entitled to make
 a choice. But that does not mean that the choice be arbitrary or fanciful. The choice
must be dictated by public interest and must not be unreasoned or unprincipled.”
This extract is taken from Ramana Dayaram Shetty v. International Airport
Authority of India, (1979) 3 SCC 489 at page 505
12. We agree with the observations of Mathew, J., in V. Punnan Thomas v. State of
Kerala [AIR 1969 Ker 81] that:
“The Government, is not and should not be as free as an individual in selecting
the recipients for its largesse. Whatever its activity, the Government is still the
Government and will be subject to restraints, inherent in its position in a democratic
society. A democratic Government cannot lay down arbitrary and capricious
standards for the choice of persons with whom alone it will deal.”
The same point was made by this Court in Erusian Equipment and Chemicals
Ltd.v. State of West Bengal [(1975) 1 SCC 70 : (1975) 2 SCR 674] where the question
was whether blacklisting of a person without giving him an opportunity to be heard was
bad? Ray, C.J., speaking on behalf of himself and his colleagues on the Bench pointed
out that blacklisting of a person not only affects his reputation which is, in Poundian
terms, an interest both of personality and substance, but also denies him equality in the
matter of entering into contract with the Government and it cannot, therefore, be
supported without fair hearing. It was argued for the Government that no person has a
right to enter into contractual relationship with the Government and the Government,
like any other private individual, has the absolute right to enter into contract with any
one it pleases. But the Court, speaking through the learned Chief, Justice, responded
that the Government is not like a private individual who can pick and choose the person
with whom it will deal, but the Government is still a Government when it enters into
contract or when it is administering largesse and it cannot, without adequate reason,
exclude any person from dealing with it or take away largesse arbitrarily. The learned
Chief Justice said that when the government is trading with the public, “the democratic
form of Government demands equality and absence of arbitrariness and discrimination
in such transactions. . . The activities of the Government have a public element and,
therefore, there should be fairness and equality. The State need not enter into any
contract with anyone, but if it does so, it must do so fairly without discrimination and
without unfair procedure”. This proposition would hold good in all cases of dealing by
the Government with the public, where the interest sought to be protected is a privilege.
It must, therefore, be taken to be the law that where the Government is dealing with the
public, whether by way of giving jobs or entering into contracts or issuing quotas or
licences or granting other forms of largesse, the Government cannot act arbitrarily at its
sweet will and, like a private individual, deal with any person it 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 largesse
including award of jobs, contracts, quotas, licences, etc. must be confined and
structured by rational, relevant and non-discriminatory standard or norm and if the
Government departs from such standard or norm in any particular case or cases, the
action of the Government 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.
Where any governmental action fails to satisfy the
test of reasonableness and public interest and is found to
be wanting in the qualities of reasonableness or lacking in
the element of public interest, it would be liable to be
struck down as invalid.