G.B. MAHAJAN AND ORS v. JALGAON MUNICIPAL COUNCIL AND ORS

Citation: [1990] SUPP. 3 S.C.R. 20

Court: Supreme Court of India

Bench: M.N. VENKATACHALIAH, N.D. OJHA, J.S. VERMA

Case summary

the field of trade and commerce and of the range of economic and commercial enterprises of government an,d its instrumentalities there is an increasing dimension to governmental concern for stimulating efficiency, keeping costs down, improved management methods, prevention of...

Judgment text

G. B. MAHAJAN AND ORS. v. JALGAON MUNICIPAL COUNCIL AND ORS. SEPTEMBER 13, 1990 [M. N. VENKATACHALIAH, N. D. OJHA AND J. S. VERMA, JJ . ] Constitution of India, I950: Articles 14 and 298-State Instrumentality-Municipal Council entering into contract with private developer for construction of Commercial Complex on self financing basis-Adoption of such an unconventional technique as a policy option-Validity of. Article 226-Resort to-Contractual transaction of Government or its instrumentality-Presence public law elemem-Essential for invoking· Judicial Review. Municipalities: Maharashtra Municipalities Act, 1965: Sections 92 & 272( 1)-Municipal Market-Disp0sal of occupancy rights- Construction o[ Commercial Complex-Private developer to undertake on self financing basis-Giving adrninistrative building to Municipal Council free of cost-Shops to be given to a/lottees-Liberty to dispose of the remaining accommodation to cover financial outlays and project -Whether valid.

Administrative Law: Judicial Review-Policy decision-Government or its instrumentality-Whether free to evo! Ve and adopt any method for executing of a Project-Such decisions-Whether open to Judicial Review. Test of'Reasonableness'-To distinguish between proper use and improper use of power-Applicability of. the test depends upon context. Delegation ofpower-Statutory function under Section 272 ofthe Maharashtra Municipalities Act, I965-0ccupancy rights-Powers to substitute occupiers in its own place by developer~Whetherpermissible. Interpretation ofStatutes: Use ofsame word/phrase or concept in different laws-Distinction in meaning and usage-Need for. Words & Phrases: 'Reasonableness'-'Reasonable man'-Mean- ~· ing of. MAHAJAN v. JALGAON MUNICIPAL COUNCIL 21 . ,. The respondent Municipal Council received by way of gill certain lands from one 'L' and the said lands were used by the Agricultural Produce Market Committee as a cotton market and wholesale fruit and vegetables market.

The Respondent Council, in order to put the land to a better and more profitable use, persuaded the Market Committee to yield up possession. However, since the gill stipulated certain conditions regarding the user, the Respondent Connell approached the heirs of the donor for amending the terms of the gill, and the heirs bargained for and secured a benefit that five shops be given to them free of cost in the proposed c Minister, having regard. to the importance of the matter, ' will expeditiously dispose of the matter. The minister will also consider whether the scheme in question is in conformity with the statutory provisions. With these observations the Special Leave Petition is dismissed. " Special Leave Petition (Civil) No. 3293 and 3268/1989 which arose out of the orders in W. P. 1765 of 1988 and the Writ-Petition preferred against the Advertisement were also dismissed with the following / observation: "In view of the above order in Special Leave petition (Civil) No.

3222/1989 these Special Leave Petitions are dismissed. " 9. Later, the Minister disposed of the Revision Application by his order dated 3. 8. 1989. The Minister took into account the order made by the High Court in Writ-Petition No. 1765/1988 and was persuaded to the view that that decision could not be ignored by him. That apart, he also went into the merits of the scheme and recorded findings against the appellants. Against this order of Minister, appellants preferred a fresh Writ-Petition No. 2404/1989 before the High Court. The present appeal before us arises out of the High Court's order dismissing the said W. P. 2404/1989. The High Court was of the view that the orders made by this Court in the earlier SLPs indicated that this Court had really intended that all the controversies should conclude with the decision of the Minister. The High Court, however, also went into the merits as well and held that there were no grounds to interfere. 10. Sri R. K.

Jain, strenuously contended before us that the High Court misdirected itself as to the scope of the proceedings before it on .... ' an obviously erroneous view that this Court, while disposing of the earlier SLPs, had precluded any further enquiry into the merits after the Minister's decision. Sri Jain submitted that this Court while disposing of the Special Leave Petitions had merely indicated its disinclination to interfere at that stage and had left the matter to be dealt with under the statute by the Minister which obviously meant that at an appropriate stage when the correctness of the Minister's order came to be assailed the matter would require to be examined on its own merits. It was erroneous to think, contended Sri Jain, that the effect of the orders of this Court was to impart a finality to the Minister's order whatever its vitiating features. There might be some force in what Sri Jain says if the observations which Sri Jain takes exception to are alone taken into account.

The High Court was possibly wrong in its view as to the effect of this Court's earlier orders. But what appears clear is that the High Court also went into the merits of the matter. Therefore the grievance that the High Court abdicated its jurisdiction on an erroneous interpretation of this Court's earlier order may not be correct. However, in order that there be no dissatisfaction on the question that the matter did not receive adequate consideration in the High Court, we asked the appellants to present their case on the merits also so that any need for a remit of the matter to the High Court at this late stage was obviated. Parties placed their case fully before us. 11. Sri Jain raised a number of contentions touching the power of the Municipal Council to make such disposal of Municipal property as was implicit in the scheme and on, what Sri Jain called, a manifest susceptibility of the scheme for arbitrariness in the matter of the choice of the developer.

The main thrusts on Sri Jain's argument are, first, that the project, in substance, envisaged a disposal of the propertyrights of the Municipal Council in favour of Respondent No. 6 which, in turn, became entitled to further deal with the properties squarely attracting the prohibition under section 92 of the Act; and secondly, that the scheme was a wholly non-conventional one unknown to settled principles of public finance. Sri Jain strenuously urged that the non-conventional and unorthodox features of the scheme particularly as to the mode of its finances, were tailored with Respondent 6 in mind and were intended to, and did, confer on Respondent 6 a pre-mediated largesse, in flagrant violation of financial disciplines and morality. It was also urged that the project gave enormous pecuniary advantage to Respondent 6 wholly disproportionate to its outlay of funds on the project. ' I I MAHAJAN v. JALGAON MUNICIPAL COUNCIL [VENKATACHALIAH, J.

1 33 In the ultimate analysis, the contentions of Sri Jain admit of being formulated thus: ) (a) That the scheme of financing of the project was not one that was, as a matter of policy, open and permissible to a Governmental authority. The Municipal authority could either have putup the construction itself departmentally or awarde. d the execution of the whole project to a building contractor. The method of financing and execution of the project are, in short, ultra-vires of the powers of the Municipal authority under the Act. (b) That the terms of the agreement with the developer that the latter be at liberty to dispose of the occupancy-rights in the commercial complex in such manner and on such terms as it may choose woul amount to an impermissible delegation of the statutory functions of the Municipal Council under Section 272 of the Act to the developer.

(c) That the project, in effect, amounted to and involved the disposal of Municipal property by way of a long term lease with rights of sub-letting in favour of the developer violative of section 92 of the 'Act'. (d) That the scheme is arbitrary and unreasonable and is violative of Article 14 of the Constitution. The project is patently one intended to and does provide for an unjust enrichment ofrespondent no. 6 at public expense. We may now deal with these contentions. 12. Re: Contention (a) The mode of financing of the project is stated to be un-conventional one and does not accord with any recognised or accepted norms of functioning and financial discipline of Governmental bodies. It is urged that the Municipal Council could have engaged a contractor to execute the work against payment in accordance with well accepted --~ procedures for Government contracts or could have executed the ' works itself departmentally.

It is said that the method now chosen for the development involves a policy impermissible for a Government body. This contention of the appellants, as a legal contention is somewhat vague and does not admit of clear-cut legal contours. As we apprehend the contention, it pertains to the legality or propriety of a policy-option. However, reliance was placed on certain observations of this Court in Ramana Dayanand Shetty v. International Airport Authority, [1979] 3 SCR 1014 and Kasturilal Laxmi Reddy v. State ofJ & K, [1980] 3 SCR 1338.

In those cases relied this Court pointed out that with the growth of a welfare state and with the Government assuming a pluralist role as provider of social welfare services and with the corresponding increase in the magnitude of the governmental functions and the consequent evolution of new forms of wealth and new forms of property, the scope for conferment of largessee by Government had increased and the discretion of Government in the disposal of such properties, rights or privileges should not be unlimited and arbitrary. Sri Jain said that in the present case the project involved purely commercial considerations and had had no social objectives and the securing of terms to the best advantage of the Municipal Council should have been the objective. It is urged that the Municipal Council disregarded this criterion and resorted to a method which gave uncontrolled discretion and authority to Respondent 6 to exploit the commercial potential of the property for its own aggradisement.

Sri Jain said that the avowed reason why the Municipal Council did not itself, with all its vast financial resources, undertake the execution of the project was that the Municipal Council wanted to save itself from the difficulties involved in the process. Sri Jain said that if the developer could finance the project by the income received from a disposal of the occupancy-rights and make huge profits, there was no reason why the Municipal Council itself could not have done the same. 13. Sri Singhvi, for the Municipal authority submitted that the execution of the project of this magnitude involved a degree of financial outlay and management expertise well beyond the immediate sources of the Municipal Council and that though the Municipal Council had a budget which indicated crores of rupees on the receipt side, the increasing revenue expenditure and other financial commitments rendered it well-neigh impossible to set-apart the financial inputs requisite for this project.

Sri Singhvi said that in the matter of management of the transactions relating to the disposal of occupancyrights and prompt mobilisation of funds, the deficiencies and limitations of the bureaucratic machinery should not be put out of consideration in assessing the value and utility of the alternatives. Sri Singhvi pointed out that despite the heterogeneity of their political affiliations, • the members of the Municipal Council, passed all the resolutions in MAHAJAN v. JALGAON MUNICIPAL COUNCIL (VENKATACHALIAH, J. l 35 regard to this project unanimously. Sri Singhvi said that although popular support could not validate an ultra vires action, it might become relevant to the question whether a certain action was reasonable or not and that the circumstance that all the resolutions had been passed unanimously would lend credence to the propriety and wisdom of the measure.

Sri Singhvi claimed that the estimates and calculations on which the scheme was worked-out by the Municipal Council would show that the developer would not have any opportunity of making any run-away profits or exploitative gains. 14. On a consideration of the matter, it appears to us that the . argument that a project envisaging a self-financing scheme, by reason alone of the particular policy behind it, is beyond the powers of the local authority is somewhat too broadly stated to be acceptable. A project, otherwise legal, 1>lied) ) (See: Davis Contractors v. Fareham U. D. C. , (1956] 2 ALL ER 145 at 160] Yet another area of reasonableness which must be disinguished is the constitutional standards of 'reasonableness' of the restrictions on the fundamental rights of which the Court of judicial review is the arbiter. The administrative law test of reasonableness is not by the standards of the "reasonable man" of the Torts law. Prof.

Wade says: "This is not therefore the standard of 'the man on the Clapham omnibus'. It is the standard indicated by a true construction of the Act which distinguishes between what the statutory authority may or may not be authorised to do so. It distinguishes between proper use and improper abuse 0 of power. It is often expressed by saying that the decision is unlawful if it is one to which no reasonable authority could have come. This is the essence of what is now com- . monly called 'Wednesbury unreasonableness', after the now famous case in which Lord Greene MR expounded _,.. it. " (empahsis supplied) [ See: Administrative Law-HWR Wade, 6th Edition- 407] To the same effect are the observations in "Legal Control of Government" (Bernard Schwartz and H. W. R. Wade] at page 253: . B " ..... Confusion has perhaps arisen because the test of reasonableness in this context is the law of tort and elsewhere.

In applymg the latter standard the judge merely enforces what he thinks is reasonable. But in condemning unreasonable administrative action he asks himself whether the decision is one which a reasonable body could have reached. In other words he allows some latitude for the range of different opinions which may fall within the bounds ofreasonableness .... " The 'reasonableness' in administrative law must, therefore, distinguish between proper use and improper abuse of power. Nor is the test the Court's own standard of 'reasonableness' as it might conceive it in a given situation. This is the essence of Lord Greene's dictum now familiar as the 'Wednesbury unreasonableness', in [1948] 1KB223]. It was observed: "It is true that discretion must be exercised reasonably. Now what does that mean? Lawyers familiar with the phraseology used in relation to exercise of statutory discretions often use the word 'unreasonable' in a rather comprehensive sense.

It was frequently been used and is frequently used as a general description of the things that must not be done. For instance, a person entrusted with a p discretion must, so to speak, direct himself properly in law. He must call his own attention to the matters which is bound to consider. He must exclude from his consideration matters which are irrelevant to what he has to consider. If he does not obey those rules, he may truly be said, and often is said, to be acting 'unreasonably'. Similarly, there may be something so absurd that no sensible person could ever dream that it lay within the powers of the authority. Warrington U in Shortv. Poole Corporation, [1926] Ch. 66 gave the example of the red-haired teacher, dismissed because she had red hair. This is unreasonable in one sense. In another it is taking into consideration extraneous matters. It is so unreasonable that it might almost be MAHAJAN v. JALGAON MUNICIPAL COUNCIL [VENKATACHALIAH, J.

] 45 described as being done in bad faith; and, in fact, all these things run into one another. " Referring to the doctrine, Prof. Wade says: "This has become the most frequently cited passage (though most commonly cited only by its nickname) in administrative law. It explains how 'unreasonableness', in its classic formulation, covers a multitude of sins. These various errors commonly result from paying too much attention to the mere words of the Act and too little to its . general scheme and purpos~. and from the fallacy that unresticted language naturally confers unfettered discretion. Unreasonableness has thus become a generalised rubric covering not only sheer absurdity or caprice, but merging into illegitimate motives and purposes, a wide category of errors commonly described as 'irrelevant considerations', and mistakes and misunderstanding which can be classed as self-misdirection, or addressing oneself to the wrong question .... " [See: Administrative Law: H. W. R.

Wade; Sixth Edn. , p. 408] 'E. The point to note is that a thing is not unreasonable in the legal sense merely because the Court thinks it is unwise. Some observations of Lord Scarman in Nottinghamshire Country Council v. Secretary of State for Environment, [1986] AC 240 at 247 might usefully be recalled: " ..... But I cannot accept that it is constitutfonally appropriate, save in very exceptional circumstarices, for the courts to intervene on the ground of "unreasonableness" to quash guidance framed by the Secretary of State and by necessary implication approved by the House of Commons, the guidance being concerned with the limits of public expenditure by local authorities and the incidence of the tax burden as between taxpayers and ratepayers. Unless and until a statute provides otherwise, or it is established that the Secretary of State has abused his power, these are matters of political judgme:>t for him and forthe House of Commons.

They are not for the judges ot H" yow- Lordships' Hoase in its judicial capacity. " "For myself,. I refuse in this case l examine the detail of the guidance or its consequences. My reas005 are these .. Su. W:ll for holding that the Secretary of State had a1:ted in bad faith,. r for an improper motive, or that the comseqaences of his guidance were so absurd that be must have taken leave of his M:llses ,, l\lhen Lord Denning MR stated in the Courl of Appeal that ''Nol only ml! Sf lthe probationer-COllnselled be gi. ven a fair hearing, bal Clie deciskm itHlf must lJe fair and reasonable" {emphasis supplied), the House of Lords thought that the statement of the learned Masterof the Rolls, if allowed to pass in! o law, would wrongly .. _fonn the remedy of judicial review, as the statemen1 .. -W imply that rhe C€1Urf am ilself sit, as in appeal, in judgment of the reason-ablness of. the! demion instead of om lhe correctness of the" decision makio& 1""'"3&". '"'1'!

\e {lWl\)OSe oli Judidaf Review", ii was stated: "" •••• is; to msme than ! he individual receives fair treatment, and 1101 to -. e that the anlfuority, after accordimg fai• trealment, reaches on iunct wbidi it is ~e-d "" ellljOO! ed h" law to decide fm i"lself a · CUlldmion wfri~b is; WFJe o~ fr a&l:ire· or that the proj1 fto [1>0l'ameters, we f! M oo ineril. Sri K. X. Si:Jl'ghvi submi:tted that tire telllller papers we•e pre· pand l! >J r&Jll! lfelll a. el>iteets and the pre tpor. aledi it1' the ie-. ·J!! ll! Pel:&.. ne· poi! mi aga;im is. nll! at ml'>' ©the• tieiaderer expnessed\""'Y ff P~"llllli£ec.. Tliit' temts. wen: sucllt· ! bl. the t¢1ildli:i;n ~ ill:e1>1li:iy lire· MAHAJANv. JALOAONMUNICIPALCOUNCIL! VENKATACHALIAH,J. ] 47 terms which form the 'basis of comparative evaluation. The charge of arbitrariness cannot tie upheld.

Tests to be applied in a given case may be Influenced by the extent to whk:h a decision is supported by democratic unanimity which evidences the decision --• granted, of course, the power. . 22. Sri R. K. Jain stated that the scheme . enables Respondent 6 tp resort to certain well-known financial malpractices for tax-evasion now known to be rempant when propertres change hands. Sri Jain said that the Court ought to take judicial notice of so rempant and pervasive an evil and interdict anything that tends to promote such unhealthy economic trends. While it is true that large scale tax-evasion and evils of unaccounted money bedevils the nation's economic discipline and that with the increasing erosion of morality in public life and the serious personal degradations fur unjust gains one sees alround, the situation is, indeed, serious. But we fail to see what the Court can do in case like this. The ptesent argument proceeds on two assumptions. The first is that respondent no.

6 has, in fact, indulged in s\lch pr11ctices in the matter of disposal of occupancy·rights. This is a mere allcption whk:h is emphatimlly repudiated by respondent no. 6. The second is that the accommodation in this commercial complex is such good competitive selling proposition that there is great demand and limited supply enabling Respondent 6 to exploit the situation. This again is 11 matter of mere allegation. To condemn the municipal authority's ~jsion, otherwise valid, on the ground alone that the developer is likely to resort to transactions of unaccounted money would, as a judicial remedy, be plainly unthinkable. Contention (d) requires to be and is also held against appellants. 23. On a consideration of the matter, we think that the conclusion. reached by the High Court does not call for interference. These appeals are accordingly dismissed. In the circumstances, we make no orders as to the costs. G. N. Appeals dismissed.