Judgment

RANGANATH MISRA, J.- Special leave granted.

2. Three applications were filed under Article 226 of the Constitution before the High Court of Bombay by the respective appellants before us challenging the rejection of their highest offers in response to invitation by public tender without assigning any reason for the same as arbitrary, unconstitutional and contrary to Rule of Law.

3. The respondent a government company within the meaning of Section 617 of the Companies Act has been constituted as the New Town Development Authority under sub-section (3)(A) of Section 113 of the Maharashtra Regional Town Planning Act, 1966. The respondent is empowered to dispose of land vested in it and the respondent has formulated with the approval of the State Government under Section 159 of the said Act a code for regulating, inter alia, disposal of land. Regulation 4 provides:

"4. The Corporation may dispose of plots of lands by putting to auction or considering the individual applications as the Corporation determines from time to time."

4. According to the appellants the normal practice adopted by the Corporation is to invite tenders for the disposal of specified plots which the Corporation chooses to assign according to the terms and conditions for lease of plots for mercantile use. The appellants maintained that they had given the highest offers by way of tender for certain specified plots by complying with the requirements of deposit and claim that though the offers were the highest, yet the same have not been accepted Each of the appellants was before the High Court challenging the action of respondent 1 but the writ petitions were dismissed in limine by saying that there was no arbitrariness in respondent 1 trying to get proper price for its plots.

5. It is not disputed that the scheme which is operating provides that "respondent 1 reserves the right to amend, revoke or modify the scheme at its discretion as well as to reject any or all offers for allotment without assigning any reason." Obviously it is in exercise of this power that the highest tenders have not been accepted.

6. It is the contention of Mr Dwivedi appearing in support of these appeals that the respondent is State under Article 12 of the Constitution and conferment of naked and unguided power as referred to above is arbitrary and contrary to the provisions of Article 14 of the Constitution; and since there is no prescribed norm or guideline and the power is unregulated and unfettered and the highest offer after complying with the prescribed requirements is liable to be rejected without assigning any reasons, citizens are likely to be affected by exercise of such uncanalised power. Shortly put, Mr Dwivedi submits that the procedure is contrary to the requirement of Rule of Law and, therefore, cannot be sustained. An affidavit in opposition has been filed on behalf of respondent 1 wherein the circumstances under which the highest offers have not been accepted has been indicated and the position has been explained.

7. We do not find it difficult to agree with Mr Dwivedis submissions that respondent 1 is State within the meaning of Article 12 and in its dealings with the citizens of India it would be required to act within the ambit of Rule of Law and would not be permitted to conduct its activities arbitrarily. It is too late in the day for an institution like respondent 1 to adopt the posture that the activity in question is commercial and as respondent 1 is engaged in trading activity it would be open to it to act as it considers appropriate for the purpose of protecting its business interest. An instrumentality of the State as has been laid down by this Court in a series of authoritative decisions beginning with R.D. Shetty v. International Airport Authority of India{(1979) 3 SCC 489} and in Ajay Hasia v. Khalid Mujib Sehravardi{(1981) 1 SCC 722} and a number of decisions thereafter has to act within the ambit of Rule of Law and would not be allowed to conduct itself a