Decision under Article 298 is administrative and challengeable under Article 14 for arbitrary termination of long-standing supply arrangements

SC held that a decision by a State instrumentality under Article 298 is administrative and subject to challenge for arbitrariness or violation of Article 14. Where a monopoly-like public corporation abruptly ended long-standing supplies without informing the affected distributor, the action was unfair. The respondent was directed to place its case before the appellant distributor and reconsider the matter afresh, taking the distributor into confidence and assessing whether the existing arrangement constituted a contract or was exempt from the new government policy. No mandate on oral hearing or reasons was prescribed; decision must follow fair play and equity.

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Issues Involved:
1. Maintainability of the writ petition.
2. Whether the respondent company is an instrumentality of the State under Article 12 of the Constitution.
3. Applicability of Article 14 of the Constitution to the respondent company's actions.
4. Validity of the respondent company's discontinuation of lubricant supplies to the appellant firm.
5. Doctrine of promissory estoppel.
6. Whether the respondent company acted arbitrarily and against principles of natural justice.

Issue-Wise Detailed Analysis:

1. Maintainability of the Writ Petition:
The respondent-company raised objections to the maintainability of the writ petition, arguing that it was not a State under Article 12 of the Constitution and that the appropriate remedy for the appellants was to claim damages for breach of contract or seek specific performance of the contract. The High Court held that the writ of mandamus was not maintainable as the appellants did not have a legal right to enforce the continuous supply of lubricants indefinitely. The Supreme Court, however, found that the nature of the respondent company's actions could be subject to judicial review under Article 14 if they were arbitrary or unreasonable.

2. Whether the Respondent Company is an Instrumentality of the State:
The Supreme Court concluded that the respondent company, being a statutory body incorporated under the Indian Companies Act, 1956, is an instrumentality of the State as contemplated under Article 12 of the Constitution. The Court emphasized that every action of the State or its instrumentality in the exercise of its executive power must be informed by reason and subject to Article 14 of the Constitution.

3. Applicability of Article 14 of the Constitution:
The Court held that Article 14 of the Constitution applies to the actions of the respondent company. The Court referenced several cases to support the view that actions by a State instrumentality must meet the test of reasonableness, fairness, and non-discrimination. The Court stated that the rule against arbitrariness and discrimination, rules of fair play, and natural justice are part of the rule of law applicable in situations involving State instrumentalities.

4. Validity of the Respondent Company's Discontinuation of Lubricant Supplies:
The Court found that the respondent company's sudden discontinuation of lubricant supplies to the appellant firm without notice or adjudication was arbitrary and against the principles of natural justice. The Court noted that the appellant firm had been dealing with the respondent company for over 18 years and that the supply stoppage in May 1983 was unjustified. The Court directed that the respondent company reconsider the appellant firm's case, taking into confidence the submissions made by the appellant firm.

5. Doctrine of Promissory Estoppel:
The appellants argued that the respondent company's actions were hit by the doctrine of promissory estoppel, as the appellant firm had relied on the respondent's continuous supply of lubricants for over 18 years. The Court did not explicitly rule on the doctrine of promissory estoppel but emphasized the need for fairness and reasonableness in the respondent company's actions.

6. Whether the Respondent Company Acted Arbitrarily and Against Principles of Natural Justice:
The Court concluded that the respondent company's actions were arbitrary and violated principles of natural justice. The Court emphasized that the respondent company, as an instrumentality of the State, must act fairly and take into confidence the parties affected by its decisions. The Court directed that the respondent company reconsider the appellant firm's case and continue the existing arrangement until a fair and reasonable decision is made.

Conclusion:
The Supreme Court set aside the High Court's judgment and directed the respondent company to reconsider the appellant firm's case, taking into account the principles of fairness, reasonableness, and natural justice. The Court emphasized that the respondent company must act fairly and take into confidence the parties affected by its decisions. The appeal was allowed, and the application made to the High Court was disposed of on the terms indicated by the Supreme Court. There was no order as to costs.

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