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What holds for SC must hold for others too

Every step that was taken in every decision of privatisation was taken in accordance with prescribed procedures. These procedures were well ...

Every step that was taken in every decision of privatisation was taken in accordance with prescribed procedures. These procedures were well publicised — they had been set out in publications of government.

Every step was taken after being deliberated upon by the bodies that had been set up for the purpose. The composition of each body was settled, it was ex officio, and well-known.

The principles on which each decision would be taken — for instance, the criteria by which companies would be disqualified or deemed qualified; the methods that would be used for valuation — were well known: they too had been set out in publications of government.

At each stage, each decision was made known to the public.

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The criteria that are to be used, the processes that are to be followed, the bodies through which the matter is to pass — all these were policy decision of the Cabinet. Each step was but the implementation of a policy decision.

In view of what the Supreme Court has held in regard to policy matters, for which decision on privatisations can the new government prosecute anyone? Consider even an extreme instance among these decisions.

In the Juhu Centaur case, about which so much falsehood has been spread, the bid was 53 per cent higher than the reserve price. The bid was accepted. But consider an extreme case — that of Paradeep Phosphates. The company was bleeding — the provisional figures that were available indicated that it was losing Rs 12 crores a month; once the figures had been finalised, it seemed that the loss was closer to Rs 20 crores a month. Only one bid was received. It was Rs 8 crores less than the reserve price that had been fixed. The Cabinet Committee on Disinvestment deliberated over the matter in detail. Eventually it decided to accept the bid — the shortfall would be made up in two-three weeks, it reasoned. The decision has been vindicated by time: production of the company has increased by almost 250 per cent; wages and allowances, which had not been revised for years as the company was incurring losses, have gone up by almost 30 per cent. I am not on the results, however. I am on the decision of the Cabinet Committee to accept a bid that fell short of the reserve price. That was a policy decision. It was taken by the body empowered to decide the matter. It was taken after the most intensive consideration of relevant factors. Is it the sort of decision that warrants an inquiry? Or better still, prosecution? Is it the sort of decision that should be taken to courts for being overturned, and the members of the Cabinet Committee starting with the Prime Minister charge-sheeted?


Decisions of the Supreme Court in a host of cases contain the complete answer. I will confine myself to what the Court has set out in just one of these — the oft-cited Tata Cellular v. Union of India, ((1994) 6 Supreme Court Cases 651). That single decision itself shows at once how off-the-mark is the current shouting.

The Supreme Court held that, while courts can always intervene when a power is abused or when it is used in a patently discriminatory manner, ‘‘The right to refuse the lowest or any other tender is always available to Government,’’ and that ‘‘The right to choose cannot be considered to be an arbitrary power.’’

‘‘Judicial review is concerned with reviewing not the merits of the decision in support of which the application for judicial review is made,’’ it explained, ‘‘but the decision-making process itself. It is thus different from an appeal. When hearing an appeal, the court is concerned with the merits of the decision under appeal. Since the power of judicial review is not an appeal from the decision, the Court cannot substitute its own decision. Apart from the fact that the Court is hardly equipped to do so, it would not be desirable either. Where the selection or rejection is arbitrary, certainly the Court would interfere. It is not the function of a judge to act as a superboard, or with the zeal of a pedantic schoolmaster substituting its judgment for that of the administrator…’’


The Supreme Court cited the British case, Regina v. Panel on Takeovers and Mergers, to the effect that ‘‘The duty of the Court is to confine itself to the question of legality. Its concern should be: (i) Whether a decision-making authority exceeded its powers; (ii) Committed an error of law; (iii) Committed a breach of the rules of natural justice; (iv) Reached a decision which no reasonable tribunal would have reached; or (v) Abused its powers. Therefore, it is not for the Court to determine whether a particular policy or particular decision taken in the fulfillment of that policy is fair. It is only concerned with the manner in which those decisions have been taken. The extent of the duty to act fairly will vary from case to case…’’ Accordingly, the Courts would intervene only in three circumstances: when there has been a manifest illegality; when the ‘‘Wednesbury principle’’ is violated — that is, when the ‘‘decision is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at (it),’’ when ‘‘The decision is such that no authority properly directing itself on the relevant law and acting reasonably could have reached it’’; and, finally, when ‘‘procedural impropriety’’ has been committed. It is for ascertaining whether any of these circumstances exist that the courts may review the Executive’s evaluation of the facts, or to see whether unequals have been treated as equals.

The Supreme Court reiterated what it had held earlier in Fasih Chaudhary v. Director General, Doordarshan, a case regarding the award of a contract for a serial, namely, ‘‘While, … fair play in action in matters like the present one is an essential requirement, similarly, however, ‘free play in the joints’ is also a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere as the present one. Judged from that standpoint of view, though all the proposals might not have been considered strictly in accordance with order of precedence, it appears that these were considered fairly, reasonably, objectively and without any malice or ill-will…’’ In a word, to fall afoul of the law, the decision would have to be one that was manifestly not fair, reasonable, objective or was marred with malice or ill-will. Let us see which decision relating to privatisation its worst critics can show bears any of these scars.

The Supreme Court amplified this matter by recalling its earlier judgment in G B Mahajan v. Jalgaon Municipal Council, in which it had cited the observations of Professor Wade to the effect that:

‘‘The doctrine that powers must be exercised reasonably has to be reconciled with the no less important doctrine that the Court must not usurp the discretion of the public authority which Parliament appointed to take the decision. Within the bound of legal reasonableness is the area in which the deciding authority has genuinely free discretion. If it passes those bounds, it acts ultra vires. The Court must therefore resist the temptation to draw the bounds too tightly, merely according to its own opinion. It must strive to apply an objective standard which leaves to the deciding authority the full range of choices which the legislature is presumed to have intended. Decisions which are extravagant or capricious cannot be legitimate. But if the decision is within the confines of reasonableness, it is no part of the Court’s function to look further into its merits. ‘With the question whether a particular policy is wise or foolish, the Court is not concerned; it can only interfere if to pursue it is beyond the powers of the authority’…’’

Which decision regarding privatisation, which single step in which decision in the privatisation of the Centaur Hotels went beyond the powers that the Cabinet Committee on Disinvestment, or the committees of officials, or the Ministry itself had for executing Government policy?


The Supreme Court reiterated what it had held earlier in Sterling Computers Ltd. v. M&N Publications Ltd.: ‘‘… Under some special circumstances a discretion has to be conceded to the authorities who have to enter into contract giving them liberty to assess the overall situation for purpose of taking a decision as to whom the contract be awarded and at what terms. If the decisions have been taken in bona fide manner although not strictly following the norms laid down by the Courts, such decisions are upheld on the principle laid down by Justice Holmes, that Courts while judging the constitutional validity of executive decisions must grant certain measure of freedom of ‘play in the joints’ to the Executive.’’

Summarising the earlier rulings and its own conclusions in the case at hand, the Supreme Court declared,

‘‘The principles deducible from the above are:


(i) The modern trend points to judicial restraint in administrative action.

(ii) The Court does not sit as a Court of Appeal but merely reviews the manner in which the decision was made.


(iii) The Court does not have the expertise to correct the administrative decision. If a review of the administrative decision is permitted it will be substituting its own decision, without the necessary expertise which itself may be fallible.

(iv) The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract. Normally speaking, the decision to accept the tender or award the contract is reached by process of negotiations through several tiers. More often than not, such decisions are made qualitatively by experts.

(v) The Government must have freedom of contract. In other words, a fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness (including its other facets pointed out above) but must be free from arbitrariness not affected by bias or actuated by male fides.

(vi) Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure.’’

To say nothing of the decision to accept the Juhu bid that was 53 per cent higher than the reserve price, I am certain that the decision to accept the bid for Paradeep Phosphates, which was marginally short of the reserve price, falls squarely within the law as it has been laid down by the Supreme Court — in scores and scores of cases.

In the decisions of the Supreme Court in these cases, we get both the limits that have necessarily to be observed in examining bona fide action of the Executive as well as the reasons on account of which it is important that authorities other than the Executive should stay within these limits. Apart from the fact that the decisions are necessarily complex; apart from the fact that they necessarily entail the balancing of several competing criteria and goals; apart from the fact that many of them require expert knowledge — apart from such factors is the condition to which governance has already been reduced in India. Years pass for decisions to be taken. Even a higher number of years pass for them to be executed. For other institutions to overstep the limits that have been laid down by the Supreme Court will paralyse governance even more thoroughly. In addition, doing so will dissipate responsibility all together.

These considerations as well as the self-restraint that the Courts have prescribed for themselves apply with even greater force to institutions like the CAG — institutions that, apart from everything else, function, unlike Courts, behind a curtain, opaquely.

There is one final consideration. Anyone with the slightest acquaintance with Courts and their judgements knows that when Executive action is assessed by legalisms, there is but one consequence: Government is deflected from striving to attain goals. In exactly the same manner, and to the same degree, subjecting them to pettifogging minutiae of auditors is as sure a way of convincing officials and others that it matters not if the country loses crores, all they have to do is to ensure that they can show they have saved a paisa or two.

That is the only effect that the sorts of hypothetical observations that the CAG has made on the hotel privatisations shall have.

As for the inquiry, what will it do? Overturn the Supreme Court?


The writer is former union disinvestment Minister

First published on: 27-06-2005 at 12:00:00 am
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