The state government's exercise of contractual power is subject to judicial review on the touchstone of relevance and reasonableness, fair play, natural justice, equality, and non-discrimination. The state must abide by the rules of the game in its trading activity and specific legislation is required to create any monopoly in the state.

( 1 ) AGAINST the dismissal of a few writ petitions writ appeals are filed by the petitioners. Other writ petitions were referred to the division bench by the learned single judge in view of the pendency of the writ appeals. All the parties are referred with reference to their rankings in the writ petitions. However, one of the parties impleaded subsequently i. e. , Karnataka antibiotics and pharmaceuticals Ltd. , A public sector undertaking is referred as kapl.

( 2 ) PETITIONERS question the legality and propriety of the government order dated 23-2-1991 (referred as the impugned order ). By this order the state government approved the purchases of the drugs and i. v. fluids required by government hospitals from public sector undertakings ('psu' for short) on the basis of an alleged recommendations of a high power committee. The conditions stated in the said impugned order are 7 in number, they are as follows:"1) 100% injectable antibiotics should be purchased from M/s. , kapl, Bangalore. If the drug is not manufactured by M/s. Kapl then it can be purchased from other public sector undertakings. In case of oral antibiotics, if the rate is cheapest, 100% should be purchased from M/s. Kapl. If the rates are equal 50% should be purchased from M/s. Kapl and the remaining 50% should be distributed equally among other public sector undertakings. In case of other drugs, if the rates are equal 50% should be purchased from M/s. Kapl and the remaining 50% should be distributed equally among other public sector under takings. If any one of the public sector undertakings is the only manufacturer for any of the drugs not manufactured by M/s. Kapl, 100% should be purchased from the public sector undertakings only. Where M/s. Kapl is in the picture and if it is cheapest, 100% should be purchased from M/s. Kapl. 2) the public sector undertakings should supply the drugs to the government medical stores and other government, quasi-government institutions directly and no supplies should be made through agents. 3) the rates quoted by the public sector undertakings should be valid for atleast one year without requesting for price increase except in case of statutory increases like increase in excise duty or sales tax of dpco, 4) only those drugs which are not being manufactured by public sector undertakings be purchased from other sources including ssi. 5) regarding the security deposits, etc. , The amount will be determined by the director of health and family welfare services, which will be set-off against the value of defective or short supplied and the public sector undertakings will be required to recoup this amount. 6) the drugs which are not purchased from the public sector undertakings and which are not life saving drugs will be purchased from ssi units of the state provided they are of good quality. 7) all other terms applicable to rate contract will apply and usual procedure will be followed for fixing rate of contract".

( 3 ) ACCORDING to the petitioners the rates at which the psu supply the Articles in question (medicines, drugs etc.) Are far in excess of the rates at which the petitioners are willing to supply. It is also the case of the many of the petitioners that the government had already approved the rates quoted by the petitioners for the supply of the various Articles and the said approval is to be operative till the end of august, 1991. These petitioners are all small scale industries started mainly with the hope of supplying the Articles to the governmental institutions and these industries are substantially financed by the state finance corporation and are heavily indebted to the said state finance institution. The sudden change of the policy of the government to place orders substantially from kapl and other psu would be injurious to these small scale industries. Their investments in the business of manufacturing these Articles will be jeopardised by the curtailment of the available market the state be