R.D. Shetty v. International Airport Authority of India

R.D. Shetty v. International Airport Authority of India, AIR 1979 SC 1628


Petitioner: R.D. Shetty (contractor)

Respondent: International Airport Authority of India (IAAI)


Facts of the Case:

The International Airport Authority of India (IAAI) invited tenders for the establishment of a second-class restaurant and two snack bars at the Bombay Airport. One of the tender conditions was that the applicant must have at least five years of experience in running a first-class restaurant. The tender was awarded to a firm that did not meet this requirement.

R.D. Shetty, an interested contractor who did not submit a tender due to the eligibility condition, filed a writ petition claiming that the IAAI violated Article 14 of the Indian Constitution, which guarantees equality before the law. He argued that the acceptance of a tender from an ineligible bidder, while he had refrained from participating due to his understanding of the eligibility criteria, was arbitrary and unfair.

The primary issue centered around whether a public authority like the IAAI was bound by constitutional obligations, such as the requirement for non-arbitrariness and transparency, in awarding government contracts.


Issues Before the Court:

  1. Applicability of Article 14 to Public Contracts: Whether Article 14 of the Constitution, which guarantees equality before the law, applies to the process of tendering and awarding public contracts by authorities like the International Airport Authority of India.

  2. Fairness and Non-Arbitrariness in State Actions: Can public authorities, while exercising their discretionary powers, act arbitrarily when issuing or accepting tenders, or must they ensure fairness and transparency in such transactions?

  3. Eligibility Criteria: Whether the acceptance of a tender from a party that did not meet the prescribed eligibility criteria amounts to a violation of Article 14 by making the process arbitrary and unfair.


Decision of the Court:

The Supreme Court of India, in a landmark ruling, held in favor of R.D. Shetty and expanded the scope of Article 14 by establishing that governmental and public authorities are bound by constitutional mandates in all their actions, including the award of public contracts. The key findings were:

Application of Article 14 to Public Authorities: The Court held that the IAAI, being a public authority and an instrumentality of the State, is subject to Article 14 of the Indian Constitution. This implies that every action it undertakes, even in awarding contracts, must be free from arbitrariness and conducted fairly.

Fairness and Non-Arbitrariness in Contractual Matters: The Court emphasized that public authorities cannot act arbitrarily in awarding contracts. Any action that contravenes the principles of natural justice or fairness is a violation of Article 14. The Court clarified that government contracts are not the private domain of the executive and must be governed by constitutional principles.

Importance of Adhering to Eligibility Criteria: The Court ruled that deviation from the established eligibility criteria in the tendering process is arbitrary and discriminatory. In this case, the IAAI, by awarding the contract to an ineligible firm, failed to follow its own rules and, thereby, acted unfairly. This made the entire process arbitrary and a violation of Article 14.

Discretionary Powers of Public Authorities: While recognizing that public authorities have some degree of discretion in awarding contracts, the Court clarified that this discretion must be exercised in a fair, reasonable, and transparent manner. The IAAI's action of ignoring the eligibility criterion was an example of abuse of discretion.

Governmental Contracts Subject to Judicial Scrutiny: The Court made it clear that public contracts and tendering processes are subject to judicial review to prevent arbitrariness. Public authorities are accountable for ensuring that all actions comply with constitutional requirements, particularly the principle of equality under Article 14.


Case Analysis:

Expansion of the Scope of Article 14: The judgment expanded the scope of Article 14, ensuring that government contracts must adhere to the principle of non-arbitrariness. This decision was significant in extending the right to equality to all government dealings, including contractual transactions. It established that public authorities cannot act arbitrarily in their contractual matters and must ensure fair treatment to all potential bidders.

Fairness and Non-Discrimination in Public Contracts: The Court emphasized that public authorities must act with fairness when awarding contracts. The Court took a strong stance against discrimination in public contracts and made it clear that any arbitrary action by a public authority violates the fundamental rights of citizens. In this case, the IAAI’s acceptance of a tender from an ineligible party was a classic example of discrimination.

Doctrine of Legitimate Expectation: Although not explicitly stated, the ruling laid the groundwork for the doctrine of legitimate expectation. When a public authority lays down eligibility criteria or rules, individuals have the right to expect that these rules will be followed consistently. If the authority deviates from the established rules without justification, it gives rise to a legitimate expectation that can be challenged in court. R.D. Shetty’s claim rested on the fact that he did not submit a bid due to the eligibility condition, and his legitimate expectation was violated when the IAAI ignored its own rules.

Accountability of State and Public Authorities: The judgment underscored the importance of holding public authorities accountable for their actions, particularly in contractual matters where public resources are at stake. By subjecting public contracts to the scrutiny of Article 14, the Court reinforced the idea that public authorities must operate within the bounds of constitutional mandates.

Impact on Future Tendering Processes: This case established that transparency and fair play must be integral to tendering processes carried out by public authorities. It laid down a precedent for ensuring accountability in public procurement, influencing how government contracts were awarded in the future. The ruling ensured that government tenders must adhere to principles of fairness and non-arbitrariness, impacting the administrative practices in the award of public contracts.


Importance of the Case:

  1. Landmark in Public Law Contract Theory: This case is a cornerstone in the development of public law contract theory in India. It established that government contracts are not immune to constitutional scrutiny and must follow principles of fairness, equality, and non-arbitrariness. It also ensured that contractual matters involving public authorities are subject to judicial review under Article 14.

  2. Establishment of Non-Arbitrariness Principle: The Court’s ruling emphasized the importance of non-arbitrariness in government actions, making it clear that public authorities cannot exercise their discretion in an arbitrary manner. This principle has far-reaching implications for the functioning of the executive, ensuring that public power is exercised in a manner that upholds equality.

  3. Precedent for Judicial Scrutiny in Administrative Actions: The case has had a lasting impact on how the judiciary approaches administrative actions. It reinforced the idea that even discretionary powers must be exercised within the framework of the Constitution, and any deviation from established procedures must be justified. This judgment has since been cited in numerous cases involving public procurement, tendering, and contractual disputes with public authorities.

  4. Transparency and Accountability in Government Contracts: The ruling imposed a higher standard of transparency and accountability on public authorities in awarding government contracts. It served as a warning to public officials that discriminatory or arbitrary decisions in the award of contracts will not be tolerated and will be subjected to judicial scrutiny.

  5. Role of Judiciary in Curbing Abuse of Executive Power: The Court’s judgment reflects the role of the judiciary in curbing the abuse of executive power. By holding the IAAI accountable, the Court established that the executive is not free to act whimsically in matters of public interest, and its actions will be examined to ensure compliance with constitutional principles.

The case of R.D. Shetty v. International Airport Authority of India is a significant milestone in Indian constitutional law, particularly in the realm of public contracts. It extended the right to equality under Article 14 to government contracts, ensuring that fairness and non-arbitrariness are at the core of public procurement processes. The judgment continues to serve as a foundation for challenging arbitrary executive actions and strengthens the doctrine of judicial review in administrative law. By reinforcing the need for transparency and accountability, the ruling has had a profound impact on the way government contracts are awarded in India.

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