The main legal point established in the judgment is that the preference clause in the rate contract was based on a policy decision of the State of Punjab and did not infringe any legal right of the petitioners.

We have heard the learned counsel for the petitioners at length and perused the paper-book.

2. In this writ petition under Articles 226/227 of the Constitution of India, the petitioners challenge Instruction No. 9 contained in Endorsement No. 13796-895 dated October 6, 2004 in the rate contract dated October 6, 2004 (Annexure P-6), as ultra vires the Constitution of India and the terms and conditions of the notice Inviting Tender No. 7/2003/2004, as also of the rate contract.

3. In the case of Ramana Dayaram Shetty v. The International Airport Authority of India and others, AIR 1979 Supreme Court 1628, the Supreme Court considered the questions :- What are the constitutional obligations on the State when it takes action in exercise of its statutory or executive power ? Is the State entitled to deal with its property in any manner it likes or award a contract to any person it chooses without any constitutional limitations upon it ? What are the parameters of its statutory or executive power in the matter of awarding a contract or dealing with its property ? After considering the entire matter, the Supreme Court has held as under :-

"11. Today the Government, in a welfare State is the regulator and dispenser of special services and provider of a large number of benefits, including jobs contracts, licences, quotas, mineral rights etc. The Government pours forth wealth, money, benefits, services, contracts, quotas and licences.

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Some of these forms of wealth may be in the nature of legal rights but the large majority of them are in the nature of privileges. But on that account, can it be said that they do not enjoy any legal protection ? Can they be regarded as gratuity furnished by the State so that the State may withhold, grant or revoke it at its pleasure ? Is the position of the Government in this respect the same as that of a private giver ? We do not think so. The law has not been slow to recognise the importance of this new kind of wealth and the need to protect individual interest in it and with that end in view, it has developed new forms of protection. Some interests in Government largess, formerly regarded as privileges, have been recognised as rights while others have been given legal protection not only by forging procedural safeguards but also by confining/structuring and checking Government discretion in the matter of grant of such largess. The discretion of the Government has been held to be not unlimited in that the Government cannot give or withhold largess in its arbitrary discretion or at its sweet will ..........."

12. We agree with the observations of Mathew J. in V. Punnan Thomas v. State of Kerala, AIR 1969 Ker 81 (FB) that : "The Government, is not and should not be as free as an individual in selecting the recipients for its largess. Whatever its activity, the Government is still the Government and will be subject to restraints, inherent in its position in a democratic society. A democratic Government cannot lay down arbitrary and capricious standards for the choice of persons with whom alone it will deal".

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But the Court, speaking through the learned Chief Justice, responded that the Government is not like a private individual who can pick and choose the person with whom it will deal, but the Government is still a Government when it enters into contract or when it is administering largess and it cannot, without adequate reason, exclude any person from dealing with it or take away largess arbitrarily ........

"The democratic form of Government demands equality and absence of arbitrariness and discrimination in such transactions .......... The activities of the Government have a public element and, therefore, there should be fairness and equality."

4. Is the action of the State of Punjab in consonance with the law laid down by the Supreme Court is the significant question which arises in this writ petition. As the controversy revolves around