Supreme Court on Fair Consideration in State Largesse Disposal: Powai Panchsheel Co-op Hsg. Society vs. MHADA (2018)

Date of the Judgment: October 12, 2018
Citation: Powai Panchsheel Co-op Hsg. Society & Anr. vs. Maharashtra Housing Area Development Authority (MHADA) & Ors. Civil Appeal No. 7608 of 2009, (2018) INSC 944
Judges: Abhay Manohar Sapre, J., S. Abdul Nazeer, J.

When a government body decides to sell public assets, can it ignore some offers while considering others? The Supreme Court of India recently addressed this question in a case concerning the sale of flats by the Maharashtra Housing and Area Development Authority (MHADA). The court emphasized that when dealing with public resources, the state must act fairly and transparently, considering all valid offers. This judgment clarifies the obligations of state entities when disposing of public assets.

Case Background

The Maharashtra Housing and Area Development Authority (MHADA), a statutory body, aimed to sell flats in its Powai Project. Initially, in 1995, MHADA advertised the sale of 1924 flats at Rs. 2,995 per square foot. However, by 1999, only 1597 flats were sold through seven advertisements. To sell the remaining 327 flats, MHADA reduced the price to Rs. 2,200 per square foot.

In early 2003, three cooperative societies offered to buy 500 flats. Simultaneously, Powai Panchsheel Co-operative Housing Society (Appellant No. 1) also offered to purchase 110 flats for Rs. 17 crores through MHADA’s agent, M/s. Kamath Constructions, on March 3, 2003. M/s. Kamath Constructions forwarded this offer to MHADA on the same day.

However, in meetings held on May 10 and 14, 2003, MHADA only considered the offers from the three cooperative societies, accepting them with some modifications, while completely ignoring the offer from Appellant No. 1. This led to Appellant No. 1 filing a writ petition in the High Court of Bombay, which was dismissed.

Timeline

Course of Proceedings

The High Court of Bombay dismissed the writ petition filed by the appellants, finding no fault in MHADA’s decision to accept the offers of the three societies while excluding the offer of the appellant. The High Court did not find any merit in the arguments of the appellant and upheld the decision of MHADA. Aggrieved by this decision, the appellants filed a special leave petition in the Supreme Court.

Legal Framework

The Supreme Court referred to the well-established principle of law regarding the disposal of state largesse, as laid down in the case of R.D. Shetty vs. International Airport Authority (1979) 3 SCC 497. The court emphasized that the government should not act arbitrarily or capriciously when dealing with public resources.

The court quoted Justice Mathew in V. Punnan Thomas vs. State of Kerala (AIR 1969 Ker 81), stating, “The Government, is not and should not be as free as an individual in selecting the recipients for its largesse. Whatever its activity, the Government is still the Government and will be subject to restraints, inherein 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.”

Arguments

The Appellant argued that MHADA should have considered their offer alongside the other three societies, as they had also expressed interest in purchasing the flats. They contended that M/s. Kamath Constructions, being the authorized agent of MHADA, had forwarded their offer, making it a valid submission to the Board. The Appellant argued that excluding their offer was arbitrary and violated principles of fairness.

MHADA argued that the Appellant’s letter was not a formal offer but a request for information. They claimed that the offers from the three societies were received earlier, and therefore, they were prioritized. MHADA denied any mala fide intentions and maintained that their decision was justified.

The three cooperative societies supported MHADA’s decision, stating that their offers were valid and were rightly accepted by the Board. They contended that there was no basis to interfere with the decision of MHADA.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the decision of the Board in accepting the offers of the three societies for purchase of flats of Powai Project and exclusion of appellant No.1’s offer in their meetings held on 10/14.05.2003, is justified?
2. Whether the High Court was justified in upholding the decision of the Board contained in their Resolution No.192 in relation to sale of flats of Powai Project to the three societies without considering appellant No.1’s offer?

Treatment of the Issue by the Court

Authorities

Judgment

The Court relied on the following authorities:

• R.D. Shetty vs. International Airport Authority [(1979) 3 SCC 497]*: The Court reiterated the principle that the State should not act arbitrarily while disposing of its largesse.
• V. Punnan Thomas vs. State of Kerala [AIR 1969 Ker 81]*: The Court quoted this case to emphasize that the government must adhere to democratic principles and cannot act as freely as an individual when distributing public resources.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principles of fairness and transparency in the disposal of state resources. The Court emphasized that when a government body is dealing with public assets, it must act in a non-arbitrary and reasonable manner. The Court found that MHADA’s decision to exclude Appellant No. 1’s offer without a valid reason was a violation of these principles. The Court also highlighted that the authorized agent of MHADA had forwarded the offer of the appellant, which made it incumbent upon the authority to consider the same.

The Court’s reasoning was structured around the following points:

• The Court noted that M/s. Kamath Constructions was the authorized agent of MHADA and had forwarded the offer of the appellant.
• The Court observed that the offer of the appellant was very much available with the Board prior to the meeting.
• The Court held that the letter of the appellant was indeed an offer to purchase the flats.
• The Court emphasized that the Board was under a legal obligation to consider all offers.
• The Court stated that the reason given by the Board for not considering the offer of the appellant was not valid.
• The Court concluded that the decision of the Board to exclude the offer of the appellant was arbitrary and violative of Article 14 of the Constitution.

The Court rejected MHADA’s argument that Appellant No. 1’s letter was merely a request for information, stating that it was, in fact, an offer to purchase the flats. The Court held that MHADA’s decision to exclude Appellant No. 1’s offer was arbitrary and violated the principles of fairness and equal treatment.

The court stated, “In our view, the Board was under a legal obligation to consider also appellant No.1’s offer which appellant No.1 had made to the Board through M/s. Kamath Constructions vide its letter dated 03.03.2003 for purchase of the flats of Powai Project along with the other offers made by the three societies in their meetings held on 10/14.05.2003.”

The court further observed, “Indeed, exclusion of appellant No.1’s offer dated 03.03.2003 and keeping appellant no.1 out from the zone of consideration by the Board in its meetings held on 10/14.05.2003 and only confining the consideration of the offers made by the three societies vitiates the entire decision of the Board taken on 10/14.05.2003.”

The Court also noted, “The reason given by the Board for non-consideration of appellant No.1’s case/offer namely that appellant No.1’s letter dated 03.03.2003 was not an offer and, therefore, it was not considered, had no basis for three reasons.”

Key Takeaways

• State entities must act fairly and transparently when disposing of public assets.
• All valid offers must be considered, and no offer should be excluded without a valid reason.
• Decisions must be based on objective criteria and must not be arbitrary.
• Government bodies cannot give reasons for the first time in the court that were not recorded in the meeting.

Directions

The Supreme Court quashed the decision of MHADA made on 10/14.05.2003 and directed the Board to reconsider all the offers, including that of the appellant, in accordance with the law.

Development of Law

The ratio decidendi of this case is that state entities must act fairly and transparently when disposing of public assets, and all valid offers must be considered. This decision reinforces the principle that the state cannot act arbitrarily when dealing with public resources and must adhere to the principles of fairness and equal treatment.

Conclusion

The Supreme Court’s judgment in Powai Panchsheel Co-op Hsg. Society vs. MHADA emphasizes the importance of fairness and transparency in the disposal of state largesse. The Court held that MHADA’s decision to exclude the offer of Appellant No. 1 was arbitrary and violated the principles of Article 14 of the Constitution. This ruling serves as a crucial reminder for government bodies to act reasonably and consider all valid offers when dealing with public resources.