Judgment

BHAGWATI, J.:- This appeal by special leave raises interesting questions of law in the area of public law. 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? These questions fell in the sphere of both Administrative law and Constitutional law and they assume special significance in a modern welfare State which is committed to egalitarian values and dedicated to the rule of law. But these questions cannot be decided in the abstract. They can be determined only against the background of facts and hence we shall proceed to state the facts giving rise to the appeal.

2. On or about 3rd January, 1977 a notice inviting tenders for putting up and running a second class restaurant and two snack bars at the International Airport at Bombay was issued by the 1st respondent which is a corporate body constituted under the International Airport Authority Act, 43 of 1971. The notice stated in the clearest terms in paragraph (1) that "sealed tenders in the prescribed form are hereby invited from Registered IInd Class Hoteliers having at least 5 years experience for putting up and running a IInd Class Restaurant and Two Snack Bars at this Airport for a period of 3 years". The latest point of time up to which the tenders could be submitted to the 1st respondent was stipulated in Paragraph 7 of the notice to be 12 p.m. on 25th January, 1977 and it was provided that the tenders would be opened on the same date at 12.30 hours. Paragraph (8) of the notice made it clear that "the acceptance of the tender will rest with the Airport Director who does not bind himself to accept any tender and reserves to himself the right to reject all or any of the tenders received without assigning any reasons therefor." There were six tenders received by the 1st respondent in response to the notice and one of them was from the 4th respondents offering a licence fee of Rupees 6,666.66 per month, and the others were from Cafe Mahim, Central Catering Service, one A. S. Irani, Cafe Sea-side and Cafe Excelsior offering progressively decreasing licence fee very much lower than that offered by the 4th respondents. The tenders were opened in the office of the Airport Director at 12.30 p.m. on 25th January, 1977 and at that time the 4th respondents were represented by their Sole Proprietor Kumaria, A. S. Irani was present on behalf of himself, Cafe Mahim, Cafe Seaside and Cafe Excelsior and there was one representative of Central Catering Service. The tenders of Cafe Mahim, Central Catering Service, Cafe Seaside and Cafe Excelsior were not complete since they were not accompanied by the respective income-tax certificates, affidavits of immovable property and solvency certificates, as required by cl. (9) of the terms and conditions of the tender form. The tender of A. S. Irani was also not complete as it was not accompanied by an affidavit of immovable property held by him and solvency certificates. The only tender which was complete and fully complied with the terms and conditions of the tender form was that of the 4th respondents and the offer contained in that tender was also the highest amongst all the tenders. Now it is necessary to point out at this stage that while submitting their tender the 4th respondents had pointed out in their letter dated 24th January, 1977 addressed to the Airport Director that they had 10 years experience in catering to reputed commercial houses, training centres, banks and factories and that they were also doing considerable outdoor catering work for various institutions. This letter showed that the 4th respondents had experience only of running canteens and not restaurants and it