JUDGMENT

KULDIP SINGH, J.:—Food Corporation of India (FCI) entered into an agreement dated August 14, 1967 with Jagannath Dutta entrusting him the work of clearing, transporting, storing and distribution of foodgrains on behalf of the FCL In other words he was given a storage agency by the FCI. The District Manager, FCI, by his notice dated June 25, 1987, terminated the agreement with effect from August 31, 1987. Jagannath Dutta challenged the validity of the notice by way of a writ petition under Art. 226 of the Constitution of India before the Calcutta High Court. A Division Bench of the High Court by its judgment dated May 31, 1989 allowed the writ petition and set aside the notice dated June 25, 1987. This appeal by way of special leave is against the judgment of the High Court.

2. Clause 37 of the agreement dated August 14, 1967 is as under:

"Notwithstanding anything herein contained, either party may be at liberty without assigning any reason to terminate this agreement on giving two months prior notice in writing so to terminate this agreement."

3. The operative part of the notice dated June 25, 1987 terminating the agreement is as under:-

"According to the Article 37 of the Agreement, the Food Corporation of India has the right to terminate the Agreement and relinquish your Agency with two months prior notice without assigning any reason.

The Food Corporation of India has taken the policy of terminating the storing Agencies gradually and I have been directed by the Food Corporation authorities to give effect to that policy early.

Under the circumstances, I, Dr. Priti Madhab Dey, District Manager, Food Corporation of India, Hooghly .... Serve this notice upon you under the provisions made in para 37 of the said Article of Agreement terminating your storing Agency at Belmuri with effect from 31st day of August, 1987."

4. Jagannath Dutta challenged the termination notice on the grounds that (i) clause 37 of the agreement was arbitrary and as such violative of Article 14 of the Constitution, (ii) clause 37 was unilateral, against natural justice, unlawful and as such was void under Sec. 24 of the Contract Act, and (iii) the action of the FCI was arbitrary, against public policy and public interest. The High Court did not go into any of these questions and instead set aside the impugned notice on the short ground that the FCI had not taken any policy decision before terminating the agreement. The High Court examined the correspondence and various office-orders placed before it by the FCI and came to the. conclusion that in fact no policy decision was taken by the FCI . The High Court held that the impugned notice having been issued apparently as a result of a policy decision by the FCI and there being no such decision on the record the impugned notice was liable to be quashed. We reproduce the High Court reasoning hereunder:

"From the foregoing facts, it appears that the desirability of abolishing the system was raised by the Managing Director and the entire correspondence shows that it was an issue which was pending at the Headquarters level and the decision was expected to be taken at the level of the Managing Director. The Zonal Manager (East) or the Zonal Office did not and could not take any decision in the matter. The issue always remained pending for decision at the level of the Managing Director....

Even assuming that the letter dated 14th March, 1984 does, contain a policy decision and the letter dated 30th March/2nd April, 1985 contains the Headquarters approval to the above decision, the said policy decision as contained in the letter dated 14th March, 1985 is not a valid policy decision. If a phase-wise or a gradual abolition of a system is to take place there must be a plan this plan must be preconceived. The preconceived plan must be reasonable and rational with particular reference to the local conditions. Implementation of any such policy must depend on an action plan drawn up and implemented on a rational basis wit