2007 (2) TMI 582 - SC - Indian Laws

Government must obtain Section 81(3)(b) exemption before inviting tender under Kerala Land Reforms Act 1963

The SC upheld the HC's decision that the Government and GIDA should have obtained exemption notification under Section 81(3)(b) of the Kerala Land Reforms ... Validity of the order of cancellation - Entitlement to further time to furnish the bank guarantee after the order granting exemption in terms of Section 81(3)(b) of the Kerala Land Reforms Act, 1963 ('Act') - Interpretation of tender terms and conditions - appellants not come to Court with clean hands - difference between administrative law and contractual law - principles relating to 'implied terms'. HELD THAT:- It is clear that the Division Bench of the High Court was of the view that duty is cast on the Government as well as GIDA to inform the prospective bidders as to whether they propose to place any restriction or condition in granting exemption under Section 81(3)(b). The High Court also noted that both the Government and the GIDA were aware of the necessity of issuing a statutory notification in the gazette under Section 81(3)(b) of the Act failing which the entire contract would be rendered void and unworkable. Once the Government refuses exemption the entire contract would be frustrated, as also, the restrictions or conditions the Government may impose in a given case may not be acceptable to the parties. Disregard of statutory requirements may render the contract illegal and when the contract is entered into in violation of these statutory requirements it would be opposed to public policy and may violate Section 23 of the Indian Contract Act, 1872 ('Contract Act'). Therefore, it was held that notification under Section 81(3)(b) should have come before inviting the global tender so that the bidders were in a position to know the restrictions and conditions which Government would impose while granting exemption. That being so, learned Single Judge’s view is affirmed by the Division Bench of the High Court. Clauses 10 and 15 in the tender document which have been extracted above are of considerable significance. Clause 10 provides the mode of payment. Clause 13 provides that in case of non-payment of 1st installment, the bank guarantee can be invoked. Clause 15 provides that the sale deed is to be registered on payment of the full value of the land. The High Court misconstrued the scope of Section 87 of the Act. The reason that the bank guarantee was not given is of no consequence. In fact as rightly submitted by learned counsel for the appellant, Venus itself being conscious that the exemption notification was not necessary before furnishing of bank guarantee, requested for immediate registration of the sale deed. The only reason indicated was that if it is done before a particular date considerable amount of stamp duty would be saved. At that stage, GIDA was never even intimated by Venus that it had no money or that it was awaiting for bank finances or that there was any necessity to obtain exemption notification. It appears even the stands regarding the availability of finances are different at different points of time. The High Court also has held that the exemption notification can be treated as part of implied terms. It is to be noted that the Government itself permitted GIDA to sell the property initially. Section 23 of the Contract Act has really no application to the facts of the case. Section 87 as noted above, deals with acquisition after the date of notification and permits filing of the statement subsequently in terms of Sub-section (1A) of Section 87. Illegality is attached to a case where a person continues to hold the land and there is a requirement of surrender after acquisition. It is to be noted that there was no privity of contract between Government and the bidders. The tender conditions inter alia contained provisions relating to signing of contract and payment of money. There can be no implied terms so far as the Government is concerned. Terms can be claimed to be implied by the parties to the contract. Thus, it was open to the contracting parties to say that subject to obtaining exemption notification, the contract would be given effect to. It is not so in the present case. An implied warranty, or as it has been called, a covenant in law, as distinguished from an express contract or express warranty is really founded on the presumed intention of the parties and upon reason. The implication which the law draws from what must obviously have been the intention of the parties, it draws with the object of giving efficacy to the transaction and preventing such failure of consideration as cannot have been within the contemplation of either side. In view of what we have stated above, it is not necessary to deal with the grievance raised by the State Government in its belated Special Leave Petition. Issues Involved:1. Legality of the order of cancellation dated 13.4.2005.2. Entitlement of respondent No.1 to further time to furnish the bank guarantee.3. Application of Section 81(3)(b) and Section 87 of the Kerala Land Reforms Act, 1963.4. Interpretation of tender terms and conditions.5. Judicial review of administrative decisions in contractual matters.Detailed Analysis:1. Legality of the Order of Cancellation:The Supreme Court examined the legality of the cancellation order dated 13.4.2005 issued by Goshree Island Development Authority (GIDA) against respondent No.1, M/s Hotel Venus International (Venus). The High Court had previously held the cancellation illegal, granting Venus additional time to furnish the bank guarantee. The Supreme Court scrutinized the sequence of events leading to the cancellation, including the tender process, Venus's failure to furnish the bank guarantee, and the subsequent ratification of the cancellation by GIDA's General Council.2. Entitlement to Further Time to Furnish Bank Guarantee:The core issue was whether Venus was entitled to additional time to furnish the bank guarantee, which it failed to do within the stipulated period. The High Court had ruled in favor of Venus, stating that the exemption notification under Section 81(3)(b) of the Act was a condition precedent for compliance with the tender conditions. The Supreme Court, however, found that Venus was aware that the exemption could be granted later and had not initially contested the requirement for the bank guarantee. The Court held that the High Court erred in treating the exemption notification as a condition precedent.3. Application of Section 81(3)(b) and Section 87 of the Act:The Supreme Court analyzed the applicability of Sections 81(3)(b) and 87 of the Kerala Land Reforms Act, 1963. Section 81(3)(b) pertains to the exemption of land for specific purposes, while Section 87 deals with the acquisition of excess land. The High Court had interpreted these sections to mean that the exemption notification should precede the tender process. The Supreme Court disagreed, stating that the exemption was necessary only if the total area exceeded the ceiling limit and that the successful bidder could be allotted land below this limit without immediate exemption.4. Interpretation of Tender Terms and Conditions:The Supreme Court emphasized the importance of adhering to the explicit terms and conditions of the tender document. Clauses 10 and 15 were particularly significant, detailing the requirements for furnishing bank guarantees and the conditions for registering the sale deed. The Court concluded that the High Court had effectively re-written the tender terms by implying conditions that were not explicitly stated. The Court also noted that the tender conditions did not make the exemption notification a prerequisite for furnishing the bank guarantee.5. Judicial Review of Administrative Decisions in Contractual Matters:The Supreme Court reiterated the principles governing judicial review of administrative decisions in contractual matters. Referring to precedents, the Court stressed that the terms of the invitation to tender are not open to judicial scrutiny and that the Government must have the freedom to contract. The Court highlighted that the High Court had overstepped its jurisdiction by modifying the tender terms, which is not permissible under the principles of judicial review.Conclusion:The Supreme Court set aside the orders of the learned Single Judge and the Division Bench of the High Court, holding that the cancellation of Venus's tender was justified due to its failure to furnish the bank guarantee. The Court directed that the appellants, who had matched Venus's offer, should be allowed to pay the amount within one month, with interest, and that Venus's deposit be refunded with interest. The appeals were allowed without any order as to costs.