J. S. LUTHRA ACADEMY & ANOTHER versus STATE OF JAMMU AND KASHMIR & OTHERS on 30 October 2018

SUPREME COURT REPORTS

[2018] 10 S.C.R.

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J. S. LUTHRA ACADEMY & ANOTHER

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STATE OF JAMMU AND KASHMIR & OTHERS

(Civil Appeal Nos. 7184-7185 of 2013)

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OCTOBER 30, 2018

[N. V. RAMANA AND MOHAN M. SHANTANAGOUDAR, JJ.]

Natural Resources Allocation:

Allotment of land – To educational institution – By the State –CFor shifting the institution from a Waqf property, pursuant to orderby the Waqf Authority to evict the premises – Out of the 4 kanalsallotted land State charged the institution only for 2 kanals@ Rs. 8,00,000/- per kanal while 2 kanals were allotted free of cost– Writ petitions challenging the allotment, on the ground interaliathat the property was not put in auction – Single Judge dismissedDthe writ petitions – Division Bench of High Court quashed theallotment – On appeal, held: When there is transfer of land by theState, allocation must be guided by consideration of the commongood as per Art. 39(b) and must not be violative of Art. 14 – Thisdoes not necessarily entail auction of the resources – It is discernibleEfrom the facts and circumstances of the case that the land was allottedkeeping in mind public interest in education of hundreds of children– The circumstances of the case warranted deviation from thestandard procedure of auction, to prevent prejudicing future of thechildren studying at the institution – Moreover, the allotment was inthe nature of an exchange of the Waqf land – The action of theFState in allotting the land does not suffer from vice of arbitrarinessas the same is backed by a welfare purpose – the action of the Statewas fair, reasonable, transparent, unbiased, without favoritism andnepotism – However, the action of the State in allotting 2 kanalsfree of cost was bad in law as there is nothing on record to showGthat the institution was being run purely for charitable andeducational purposes – The allotment/transfer (of the land allottedfee of cost) can be saved by giving the transferee an opportunity tomake good the shortfall in the consideration by paying for the twokanals @ Rs. 8,00,000/- per kanal with interest @ 6% per annumfrom the date of allotment, till the date of payment – Constitution ofHIndia – Arts. 14 and 39(b) – Auction. – Tender.

Constitution of India:

Art. 14 – Arbitrariness under – Test of – Held: An executiveaction would not be arbitrary merely because the action is notexplicitly stated to have been taken for a particular reason or basedon a particular principle which in itself is reasonable – It is open tothe Court to see whether such a reasonable principle is discerniblefrom the facts and circumstances of the case.

Arts. 38 and 39 – Rights under – Held: The rights u/Arts. 38and 39 covers means of livelihood, health and the general well-being of all the sections of the people in society, of which educationis an important part.

Auction/Tender:

Need of public auction or floating of tenders – In case ofallotment/transfer of land by State – Held: Generally the State shouldresort to public auction or floating of tenders for transfer of itsland – However, non-floating of tender or non-conducting of publicauction cannot be deemed in all cases to be an arbitrary exerciseof executive power, if the decision of the executive is result of a fairdecision-making process – Constitution of India – Art. 14.

Allowing the appeals, the Court

Conclusion

HELD: 1.1 Generally, when any land is intended to betransferred by the State, or any State largesse is to be conferred,resort should be had to public auction or transfer by way of invitingtenders from the people. The State must ensure that it receivesadequate compensation for the allotted resource. However, non-floating of tender or non-conducting of public auction would notbe deemed in all cases to be an arbitrary exercise of executivepower. The ultimate decision of the executive must be the resultof a fair decision-making process. The allocation must be guidedby the consideration of the common good as per Article 39(b),and must not be violative of Article 14. This does not necessarilyentail auction of the resource; however, allocation of natural A

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Aresources to private persons for commercial exploitation solelyfor private benefit, with no social or welfare purpose, attracts higherjudicial scrutiny and may be held to be violative of Article 14 ifdone by non-competitive and non-revenue maximizing means.[Para 6] [1111-G-H; 1112-A-C]

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Institute of Law Chandigarh v. Neeraj Sharma (2015)1 SCC 720 : [2014] 11 SCR 1096; Centre for PublicInterest Litigation v. Union of India, 2012 3 SCC 1 :[2012] 3 SCR 147; In Re Natural Resources Allocation(2012) 10 SCC 1 : [2012] 9 SCR 31; Manohar LalCSharma v. Principal Secy. (2014) 9 SCC 516 : [2014] 8SCR 446; Bharti Airtel Limited v. Union Of India (2015)12 SCC 1 : [2015] 5 SCR 867; Goa Foundation v.Sesa Sterlite Ltd. (2018) 4 SCC 218 : 2018 (2) SCR 361; Netai Bag & Ors. v. State of W.B. & Ors.(2000) 8 SCC 262 : [2003] 4 Suppl. SCR 187; 5 M&TDConsultants v. S.Y. Nawab (2003) 8 SCC 100 : [2003]4 Suppl. SCR 187; Villianur Iyarkkai PadukappuMaiyam v. Union of India (2009) 7 SCC 561 : [2009] 9SCR 225; Ajar Enterprises (P) Ltd. v. SatyanarayanSomani (2018) 12 SCC 756; Goa Foundation v. SesaESterlite Ltd. (2018) 4 SCC 218 : [2018] 2 SCR 361 –relied on.

1.2 An executive action would not be arbitrary merelybecause the action is not explicitly stated to have been taken fora particular reason or based on a particular principle which inFitself is reasonable; rather, it would be open to the Court to seewhether such a reasonable principle is discernible from the factsand circumstances of the case. Just like the Court has the powerto look into the underlying purpose of an executive action todetermine whether it is motivated by extraneous reasons whileGexamining it for arbitrariness, so also the Court may determinewhether there is a germane objective being served through theexecution of the action, by examining the surrounding facts andcircumstances in which the executive action was effected.[Para 7] [1113-C-E]

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Shrilekha Vidyarathi v. State of U.P. (1991) 1SCC 212 : [1990] 1 Suppl. SCR 625 – relied on

1.3 Though the appellant is a private educational institution,it cannot be said that the action of the Government was not backedby a welfare purpose merely because it is not stated in so manywords in the correspondence between the Academy and the StateGovernment that the alternative land sought for allotment was toprotect the interests of children studying at the school. This isbecause the same is clearly discernible from the facts andcircumstances of the case. It has been stated that the appellantwas evicted from the Wakf land not because of any wilful defaultor unauthorized use, but because the Wakf required the land forits own use. In such circumstances, having no other alternative,the Appellant approached the Government for allotment of suitableland for running the school. It seems that the State Governmentalso preferred to peacefully settle the issue of getting the schoolvacated from the Wakf property, at an early date, withoutdisturbing the education of the students and peace in the locality.[Para 7] [1113-E-H]

1.4 Articles 38 and 39 of the Constitution provide that theState must strive to promote the welfare of the people of theState by protecting all their economic, social and political rights.These rights may cover means of livelihood, health and thegeneral well-being of all sections of the people in the society, ofwhich education is an important aspect. [Para 8] [1114-A-B]

1.5 Imparting basic education is a constitutional obligationon the State as well as societies running educational institutions.Education is a basic tool for individuals to lead an economicallyproductive life and is one of the most vital elements for thepreservation of the democratic system of Government. TheConstitution of India bestows considerable attention to the fieldof education. It recognizes the need for regulating the variousfacets of activity of education and also the need for not onlyestablishing and administering educational institutions but alsoproviding financial support for educational institutions run byprivate societies. [Para 9] [1114-B-D]

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ASecretary, Mahatama Gandhi Mission v. BhartiyaKamgar Sena, (2017) 4 SCC 449 – referred to.

1.6 Thus, the State Government proceeded to allot the landin favour of the appellant keeping in mind the public interest inthe education of hundreds of children as well as considering theBurgency of the matter and it cannot be said that the action wasnot backed by a social or welfare purpose. The test of Article 14must be applied from the perspective of substantive rather thanformal equality, and must be mindful of the effect of the action orrule that is being tested. While under ordinary circumstances,the usual practice of allocation of sites on the basis ofCadvertisements or auction was being followed, the instantsituation warranted a deviation from the standard procedure toprevent prejudicing the future of the children studying at theAcademy. Taking a holistic view of the matter, the action takenby the State Government did not suffer from the vice ofDarbitrariness insofar as it was backed by a welfare purpose. [Para9] [1114-E-F]

1.7 The allotment of 4 Kanals of land to the appellant wasin the nature of an exchange, inasmuch as the State Governmentwanted to evict the appellant who was running a school at WakfEland situated in the main city area. Such a decision seems to havebeen taken by the State Government to avoid any unrest in thelocality or city. In such circumstances, there is no arbitrarinessin the decision taken by the State in allotting 4 Kanals of property.On the other hand, the action of the State was fair, reasonable,transparent, unbiased, without favourtism and nepotism. [ParaF10] [1114-G-H; 1115-A]

2.1 The action of the authorities can be assailed to theextent that the allotment of two kanals free of cost was bad inlaw. It is evident that the consideration paid by the appellant wasonly with respect to two kanals and the remaining two kanals ofGland were allotted for free to the appellant. It is not in disputethat Rs. 8,00,000/- per kanal was the average auction sale pricewhich was fetched around the time of allotment. Keeping thisfigure in mind, the State Government fixed the allotment price atRs. 8,00,000/- per kanal. It is clear that there was no arbitrarinessHin fixing the price at Rs. 8,00,000/- per kanal. However, the allotment of 2 Kanals of land for free was not justified. This is allthe more significant in light of the absence of any material onrecord to show that the school was being run purely for charitableand educational purposes. [Para 12] [1115-E-G]

In Re. Natural Resources Allocation (2012) 10 SCC 1 :[2012] 9 SCR 31; Union of India and another v. JainSabha, New Delhi and another (1997) 1 SCC 164 :

[1996] 9 Suppl. SCR 1 – relied on.

2.2 Thus, there is a loss to the public exchequer to theextent of Rs.16,00,000/- for two kanals as on the date of allotment.However, having regard to the fact that the Appellant-Academyhas been running on the allotted site since many years, afterconstructing a new building, the transfer may be saved by givingthe transferee an opportunity to make good the shortfall in theconsideration. [Para 13] [1116-G]

ITC Limited v. State of U.P., (2011) 7 SCC 493 : [2011]7 SCR 66 – relied on.

2.3 It is appropriate to give the appellant the opportunityto make good the shortfall in consideration, as the loss to thepublic exchequer caused by the free allocation cannot be said tohave had an everlasting effect or impact on public interest.Moreover, there is no high-handedness on the part of theappellant in seeking the allotment in its favour, as it acted in abona fide manner. This would also be in consonance with theprinciple that the public must be adequately compensated for thealienation of natural resources by the State. [Para 14] [1118-B-C]

2.4 Therefore, the appellant should pay consideration fortwo kanals of land received gratuitously, at the rate ofRs. 8,00,000/- per kanal, which was the average auction priceprevailing at the time of allocation. The appellant is also liable topay interest at the rate of 6% per annum from the date of theallotment till the date of payment. [Para 15] [1118-D-E]

Case Law Reference

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CIVIL APPELLATE JURISDICTION : Civil Appeal No.7184-7185 of 2013

From the Judgment and Order dated 01.04.2009 of the HighCourt of Jammu and Kashmir in LPA (OW) Nos. 38 and 39 of 2008.

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Vikas Singh, Sr. Adv., Bimal Roy Jad, Ms. Shreya Handoo, Advs.for the Appellants.

M. Shoeb Alam, Ujjwal Singh, Mojahid Karim Khan, Advs. forthe Respondents.

The Judgment of the Court was delivered byF

MOHAN M. SHANTANAGOUDAR, J. 1. The judgment ofthe Division Bench of the High Court of Jammu and Kashmir at Jammuin L.P.A. (OW) No. 38/2008 and L.P.A. (OW) No. 39/2008 dated01.04.2009 is the subject matter of these appeals.

2. The brief facts leading to these appeals are that the Appellant-J.S. Luthra Academy (hereinafter referred to as the ‘Academy’), aneducational institution, initially was situated on a Wakf property in Jammu.Vide order dated 27.12.1995 of the authority constituted under the J&KWakf Act, 1978, the said educational institution was ordered to be evictedfrom the Wakf property. Against the said order, the Academy approached G

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the Jammu & Kashmir Special Tribunal, and an interim order of stay oneviction was granted by the tribunal on 09.01.1996. During theinterregnum, the Academy made representations to the State Governmentrequesting for allotment of a piece of land at any place mentioned in therepresentations for shifting and running the school. The concernedminister in the meeting dated 14.1.1998 considered the question ofallotment of land in favour of the Academy. Subsequently, a note wasprepared by the Managing Director of the J & K Housing Board on25.1.1999, proposing that the Board had 4 kanals of land in Sector 2 ofChanni Himmat, Jammu earmarked for schools which could beconsidered for allotment to the Appellant at Rs. 8,00,000/- per kanal. Ina subsequent meeting on 29.4.1999 after completion of formalities, fourkanals in Sector 2 of Channi Himmat were alloted to the Academy atRs. 8,00,000/- per kanal on lease for 40 years and the Academy wasdirected to deposit 50% of the said amount, the remaining amount to bedeposited subsequently. In a meeting dated 28.6.2000, a decision wastaken by the J & K Housing Board in pursuance of the orders of theChief Minister, that two kanals of land would be allotted to the Academyat the rate of Rs. 8,00,000/- per kanal and the other two kanals free ofcost. Further, in a Cabinet meeting dated 18.8.2000, it was decided thatthe Jammu Development Authority was to be compensated for the freeallocation of land in the form of allotment of alternate land to the Authority.The allotment of land to the Academy was sanctioned by the PrincipalSecretary, Government of J&K, vide letter dated 24.8.2000. TheAcademy finally paid a total of Rs.16,00,000/- for two kanals of landand obtained two more kanals free of cost. A lease deed was executed,and possession was handed over on 12.12.2001. The Academyconstructed the school building thereon and the school is being run onthis premises, having shifted from the wakf property.

3. The residents of Channi Himmat vide Writ Petition No. 1093of 2002 questioned the allotment made in favour of the Academy, on theground that the piece of land was meant for a playground but the samewas allotted to the Academy in violation of the original scheme and planof the Channi Himmat Housing Colony. One Mr. Naresh Kumar, aproprietor of the United Public School situated at Channi Himmat, fileda writ petition being O.W.P. No. 10/2003, questioning the allotment madein favour of the Academy on the ground that the property ought to havebeen auctioned by the Government, so that he could have also applied AB

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Afor the allotment of the plot, which he required for the upgradation of hisschool to the higher secondary level. Both the writ petitions were clubbed,heard and decided together by the learned Single Judge of the HighCourt and were dismissed. However, the Division Bench by the impugnedjudgment set aside the order of the Single Judge and allowed the writpetitions and consequently quashed the allotment made in favour of theBAcademy with the following observations:

“The board is directed to hold public auction of the land for thepurpose of leasing the same out on the same terms and conditionsit had leased it to the private respondent, except that the premiumthereof shall be fixed at the highest price to be obtained at suchCauction to be held by inviting people interested in setting up of asecondary school on the plot of land in question by publishing atleast two advertisements in newspapers widely circulated inJammu and also published therefrom. The Board is directed tofix the minimum bid price at Rs.16.00 lacs plus the cost ofDconstruction ascertained in the manner as above. In the eventthe bid to be had at the public auction does not exceed theminimum reserved bid price, the Board shall execute a freshlease in favour of the private respondent upon obtaining paymentof Rs.16.00 lacs from him. In the event the bid price to be had atthe auction exceeds the minimum reserved bid price and theEsame is not given by the private respondent, the Board shall givean opportunity to the private respondent to meet the same and, ifhe meets the same, to execute the lease in favour of the privaterespondent upon accepting the amount of such bid, less the costof construction ascertained in the manner as above, as premium.FIn the event the private respondent fails to match the bid price,the Board shall grant the lease in favour of the highest bidderand from the amount so to be received, first pay the cost ofconstruction ascertained in the manner as above to the privaterespondent.”

G4. The contesting respondents herein, i.e., the original writpetitioners who were before the learned Single Judge and the DivisionBench, have chosen to remain absent before this Court despite serviceof notice on them. Heard the learned counsel for the Academy, theState and the Housing Board. Learned counsel for the Academy takingus through the material on record submitted that the allotment of the siteH

was done following due procedure. The Academy was asked to vacatethe wakf property, where it was running the school earlier, since thewakf wanted the property for its personal purposes. As the school wascatering to the needs of hundreds of students and as it was being runsuccessfully, the Managing Committee of the Academy did not want toclose the academy, inasmuch as the closure would have been detrimentalto the interests of the students. The Cabinet being competent to allot theland had duly considered the matter and had taken the decision on18.8.2000 to allot the land to the Appellant keeping in mind the plight ofthe students and urgency of the matter inasmuch as the school had to beshifted at an early date. The sum and substance of the argument of theAcademy, the State and the Housing Board is that the allotment wasmade keeping in mind the public interest at large and the personal interestof any personality involved in running the Academy was not given anyimportance at all.

5. Learned Advocate for the State of Jammu and Kashmirsubmitted that the allotment of 2 Kanals of land to the Appellant free ofcost was a policy decision of the Government inasmuch as such allotmentwas in the nature of an exchange for eviction of the Appellant, who wasrunning a school on the Wakf land in the main city area. The object wastwofold, firstly, to ensure continuity of the school/public purpose, andsecondly, to expeditiously evict the appellant from the wakf land andconsequently, free such land from prolonged litigation. He furthersubmitted that neither was there any violation of any policy for allotmentof land to educational institutions in the State of Jammu and Kashmir atthe relevant time, nor was there any loss caused to the State qua the 2Kanals of land (out of total 4 Kanals of land) that was allotted to theAppellant. Under such facts and circumstances of the case, he arguedthat the judgment of this Court in the case of Institute of LawChandigarh v. Neeraj Sharma, (2015) 1 SCC 720 wherein the allotmentof land to an educational institution without inviting competitive biddingwas cancelled is distinguishable on two counts:

a) At para 32 of the judgment, the Development authority wasfound not to have adhered to the applicable policy, i.e. theallotment of land to Educational Institutions (Schools), etc. onlease hold basis in Chandigarh Scheme, 1996 for allotment ofland.

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Ab) At Para 17 of the judgment it is recorded that the auditdepartment of the UT Chandigarh Administration found that theallotment caused a loss of Rs.139 crores to the public exchequer.

Lastly, he submitted that the allotted land was earmarked forschools and playfields in the Master Plan and hence, there was noBviolation of the Master Plan in allotment of land to the Appellant.

6. This Court in a series of cases including Centre for PublicInterest Litigation v. Union of India, 2012 3 SCC 1 (popularly knownas the “2G case”), in Natural Resources Allocation, In Re. SpecialReference No. of 1/2012, (2012) 10 SCC 1, Manohar Lal Sharma v.CPrincipal Secy., (2014) 9 SCC 516, Bharti Airtel Limited v. Union OfIndia, (2015) 12 SCC 1, and Goa Foundation v. Sesa Sterlite Ltd.,(2018) 4 SCC 218 has formulated the guidelines for allocation of naturalresources by the State. In Bharti Airtel Ltd. v. Union of India, (2015)12 SCC 1, this Court summed up the principles governing the allocationof natural resources by the State laid down in Centre for Public InterestDLitigation v. Union of India, (2012) 3 SCC 1 (“the 2G case”) as follows:

“41. The licensor/Union of India does not have the freedom toact whimsically. As pointed out by this Court in 2G Case [Centrefor Public Interest Litigation v. Union of India, (2012) 3 SCC 1]in the above-extracted paragraph, the authority of the Union isEfettered by two constitutional limitations:

firstly, that any decision of the State to grant access to naturalresources, which belong to the people, must ensure that thepeople are adequately compensated and, secondly, theprocess by which such access is granted must be just, non-Farbitrary and transparent, vis-à-vis private parties seekingsuch access.”

Referring to the observations in the 2G case, the Court also highlightedthat the State is bound to act in consonance with the principles of equalityGand public trust and ensure that no action is taken which may bedetrimental to public interest, and that itmust always adopt a rationalmethod for disposal of public property,and ensure that a non-discriminatory method is adopted for distribution and alienation, whichwould necessarily result in national/public interest.H

The principles governing the distribution of natural resources by the Statewere also discussed in the decision of the constitutional bench of thisCourt in Natural Resources Allocation, In Re, Special Reference No.1 of 2012, (2012) 10 SCC 1. In para 149 thereof, the Court observed asfollows:

“149. Regard being had to the aforesaid precepts, we have opinedthat auction as a mode cannot be conferred the status of aconstitutional principle. Alienation of natural resources is a policydecision, and the means adopted for the same are thus, executiveprerogatives. However, when such a policy decision is not backedby a social or welfare purpose, and precious and scarce naturalresources are alienated for commercial pursuits of profitmaximising private entrepreneurs, adoption of means other thanthose that are competitive and maximise revenue may be arbitraryand face the wrath of Article 14 of the Constitution.”

This decision emphasised that the ultimate goal to be served was that ofthe public good, and all methods of distribution of natural resources thatultimately served the public good would be valid, as reflected in thefollowing observations:

“120. …There is no constitutional imperative in the matter ofeconomic policies—Article 14 does not predefine any economicpolicy as a constitutional mandate. Even the mandate of Article39(b) imposes no restrictions on the means adopted to subservethe public good and uses the broad term “distribution”, suggestingthat the methodology of distribution is not fixed. Economic logicestablishes that alienation/allocation of natural resources to thehighest bidder may not necessarily be the only way to subservethe common good, and at times, may run counter to public good.Hence, it needs little emphasis that disposal of all naturalresources through auctions is clearly not a constitutionalmandate.”

It would be useful to note at this juncture that in this decision, the Courtassessed the position of law developed through a catena of decisions,including Netai Bag& Ors. v. State of W.B. & Ors., (2000) 8 SCC 262,5 M&T Consultants v. S.Y. Nawab, (2003) 8 SCC 100, and VillianurIyarkkai Padukappu Maiyam v. Union of India, (2009) 7 SCC 561,wherein it has been held that non-floating of tenders or holding of auctionby itself is not sufficient to hold that the exercise of power was arbitrary.It would be useful to reproduce the following observations from Netai A

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ABag (supra), which were also relied upon by the Court in NaturalResources Allocation, In Re (supra) to highlight that the ultimate test isonly that of fairness of the decision-making process and compliancewith Article 14 of the Constitution:

“19. … There cannot be any dispute with the proposition thatBgenerally when any State land is intended to be transferred orthe State largesse decided to be conferred, resort should be hadto public auction or transfer by way of inviting tenders from thepeople. That would be a sure method of guaranteeing compliancewith the mandate of Article 14 of the Constitution. Non-floatingof tenders or not holding of public auction would not in all casesCbe deemed to be the result of the exercise of the executive powerin an arbitrary manner. Making an exception to the general rulecould be justified by the State executive, if challenged inappropriate proceedings. The constitutional courts cannot beexpected to presume the alleged irregularities, illegalities orDunconstitutionality nor can the courts substitute their opinion forthe bona fide opinion of the State executive. The courts are notconcerned with the ultimate decision but only with the fairnessof the decision-making process.”

The above principles were also reiterated in Manohar Lal SharmaE(supra), wherein this Court observed at para 110:

“It is not the domain of the Court to evaluate the advantages ofcompetitive bidding vis-à-vis other methods of distribution/disposalof natural resources. However, if the allocation of subject coalblocks is inconsistent with Article 14 of the Constitution and theFprocedure that has been followed in such allocation is found tobe unfair, unreasonable, discriminatory, non-transparent,capricious or suffers from favouritism or nepotism and violativeof the mandate of Article 14 of the Constitution, the consequencesof such unconstitutional or illegal allocation must follow.”

In Ajar Enterprises (P) Ltd. v. Satyanarayan Somani, (2018) 12 SCCG756, this Court affirmed the above principles in the following terms:

“49. …Where a public authority exercises an executiveprerogative, it must nonetheless act in a manner whichwould subserve public interest and facilitate the distribution of scarce natural resources in a manner that would achieve publicgood. Where a public authority implements a policy, which isbacked by a constitutionally recognised social purpose intendedto achieve the welfare of the community, the considerations whichwould govern would be different from those when it alienatesnatural resources for commercial exploitation. When a publicbody is actuated by a constitutional purpose embodied in theDirective Principles, the considerations which weigh with it indetermining the mode of alienation should be such as wouldachieve the underlying object.”

The position of law developed through these decisions was summed upin the following manner by this Court in Goa Foundation v. Sesa SterliteLtd., (2018) 4 SCC 218, after adverting to the various decisions referredto above:

“80.1. It is not obligatory, constitutionally or otherwise, that anatural resource (other than spectrum) must be disposed of oralienated or allocated only through an auction or throughcompetitive bidding; 80.2. Where the distribution, allocation, alienation or disposal ofa natural resource is to a private party for a commercial pursuitof maximising profits, then an auction is a more preferable methodof such allotment; 80.3. A decision to not auction a natural resource is liable tochallenge and subject to restricted and limited judicial reviewunder Article 14 of the Constitution; 80.4. A decision to not auction a natural resource andsacrifice maximisation of revenues might be justifiable if thedecision is taken, inter alia, for the social good or the publicgood or the common good; 80.5. Unless the alienation or disposal of a natural resourceis for the common good or a social or welfare purpose, itcannot be dissipated in favour of a privateentrepreneurvirtually free of cost or for a consideration notcommensurate with its worth without attracting Article 14 andArticle 39(b) of the Constitution.”

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AFrom the above decisions, the following principles may be culled out:

(i) Generally, when any land is intended to be transferred bythe state, or any state largesse is to be conferred, resortshould be had to public auction or transfer by way of invitingtenders from the people. The state must ensure that itBreceives adequate compensation for the allotted resource.However, non-floating of tender or non-conducting of publicauction would not be deemed in all cases to be an arbitraryexercise of executive power. The ultimate decision of theexecutive must be the result of a fair decision-makingprocess.

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(ii) The allocation must be guided by the consideration of thecommon good as per Article 39(b), and must not be violativeof Article 14. This does not necessarily entail auction ofthe resource; however, allocation of natural resources toprivate persons for commercial exploitation solely for privateDbenefit, with no social or welfare purpose, attracts higherjudicial scrutiny and may be held to be violative of Article14 if done by non-competitive and non-revenue maximizingmeans.

Keeping in mind the aforementioned principles formulated by thisECourt in the aforementioned judgments, we have considered the entirematerial on record. It must be determined as to whether the allocationmade in favour of the Academy fell foul of the above principles. In theinstant case, the allocation has evidently been done to a privateeducational institution by non-revenue maximizing means. Assuming thatFthe Academy is engaged in commercial activities while engaging in itsmain activity of imparting education to students, two questions remain tobe seen: first, whether there was any social or welfare purpose underlyingthe allocation, i.e., if the furtherance of the public good was the ultimategoal of the allocation so as to justify the non-auctioning of the land, andsecond, if the allocation is bad for lack of adequate compensation.G

7. As far as the underlying objective of the allocation is concerned,in our considered opinion, the Division Bench of the High Court was notjustified in rejecting the submission of the Academy that the allocation ofland was done keeping in mind the plight of the students of the school.One of the reasons assigned by the Division Bench in rejecting this H

contention was that there was no discussion about the plight of the studentsin the correspondence between the Appellant-Academy and theGovernment. However, a mere lack of explicit statements to that effectdoes not imply that the action was not motivated by welfare considerations,inasmuch as the displacement and uprooting of several hundreds ofstudents from their school was the obvious underlying concern in therepresentation made by the Appellant and the order passed by the StateGovernment. It would be appropriate at this stage to quote the followingobservation made by this court in Shrilekha Vidyarathi vs. State ofU.P., (1991) 1 SCC 212:

“36. The meaning and true import of arbitrariness is more easilyvisualized than precisely stated or defined. The question, whetheran impugned act is arbitrary or not, is ultimately to be answeredon the facts and in the circumstances of a given case. An obvioustest to apply is to see whether there is any discernible principleemerging from the impugned act and if so, does it satisfy the testof reasonableness. Where a mode is prescribed for doing an actand there is no impediment in following that procedure,performance of the act otherwise and in a manner which doesnot disclose any discernible principle which is reasonable, mayitself attract the vice of arbitrariness.”

As a corollary of the above, it is evident that an executive actionwould not be arbitrary merely because the action is not explicitly statedto have been taken for a particular reason or based on a particularprinciple which in itself is reasonable; rather, it would be open to theCourt to see whether such a reasonable principle is discernible from thefacts and circumstances of the case. Just like the Court has the powerto look into the underlying purpose of an executive action to determinewhether it is motivated by extraneousreasons while examining it forarbitrariness, so also the Court may determine whether there is a germaneobjective being served through the execution of the action, by examiningthe surrounding facts and circumstances in which the executive actionwas effected. Though the Appellant is a private educational institution, itcannot be said that the action of the government was not backed by awelfare purpose merely because it is not stated in so many words in thecorrespondence between the Academy and the State Government thatthe alternative land sought for allotment was to protect the interests of AB

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Achildren studying at the school. This is because the same is clearlydiscernible from the facts and circumstances of the case. It has beenstated that the Appellant was evicted from the wakf land not because ofany wilful default or unauthorized use, but because the wakf requiredthe land for its own use. In such circumstances, having no other alternative,the Appellant approached the government for allotment of suitable landBfor running the school. It seems that the State Government also preferredto peacefully settle the issue of getting the school vacated from thewakf property, at an early date, without disturbing the education of thestudents and peace in the locality.

8. Articles 38 and 39 of the Constitution of India provide that theCState must strive to promote the welfare of the people of the State byprotecting all their economic, social and political rights. These rights maycover means of livelihood, health and the general well-being of all sectionsof the people in the society, of which education is an important aspect.

9. Imparting basic education is a constitutional obligation on theDState as well as societies running educational institutions. Children arethe future of our nation. Education is a basic tool for individuals to leadan economically productive life and is one of the most vital elements forthe preservation of the democratic system of government. TheConstitution of India bestows considerable attention to the field ofEeducation. It recognizes the need for regulating the various facets ofactivity of education and also the need for not only establishing andadministering educational institutions but also providing financial supportfor educational institutions run by private societies. (See: Secretary,Mahatama Gandhi Mission v. Bhartiya Kamgar Sena, (2017) 4 SCC449, paras 33-36 and 39).F

Thus, in our considered opinion, the State Government proceededto allot the land in favour of the Appellant keeping in mind the publicinterest in the education of hundreds of children as well as consideringthe urgency of the matter and it cannot be said that the action was notbacked by a social or welfare purpose. It is worth emphasizing that theGtest of Article 14 must be applied from the perspective of substantiverather than formal equality, and must be mindful of the effect of theaction or rule that is being tested. While under ordinary circumstances,the usual practice of allocation of sites on the basis of advertisements orauction was being followed, the instant situation warranted a deviationHfrom the standard procedure to prevent prejudicing the future of the children studying at the Academy. In our view, taking a holistic view ofthe matter, the action taken by the State Government did not suffer fromthe vice of arbitrariness insofar as it was backed by a welfare purpose.

10. In addition, we do not find any reason to reject the contentionof the State Government that the allotment of 4 Kanals of land to theAppellant was in the nature of an exchange, inasmuch as the StateGovernment wanted to evict the Appellant who was running a school atWakf land situated in the main city area. Such a decision seems to havebeen taken by the State Government to avoid any unrest in the localityor city. In such circumstances, we do not find any arbitrariness in thedecision taken by the State in allotting 4 Kanals of property. On theother hand, we are of the opinion that the action of the State was fair,reasonable, transparent, unbiased, without favourtism and nepotism.

11. We now turn to the second question, regarding the adequacyof compensation recovered by the State. In this respect, we note thefollowing observations made by Khehar J. in his concurring opinion inNatural Resources Allocation, In Re (supra):

“200. I would, therefore, conclude by stating that no part of thenatural resource can be dissipated as a matter of largesse, charity,donation or endowment, for private exploitation. Each bit ofnatural resource expended must bring back a reciprocalconsideration. The consideration may be in the nature ofearning revenue or may be to “best subserve the commongood”. It may well be the amalgam of the two. There cannotbe a dissipation of material resources free of cost or at aconsideration lower than their actual worth. One set of citizenscannot prosper at the cost of another set of citizens, for thatwould not be fair or reasonable.”

Thus, the impugned transaction must be probed to determine whether itleads to an adequate consideration being received by the State.

12. In our view, the action of the authorities can be assailed to theextent that the allotment of two kanals free of cost was bad in law. It isevident that the consideration paid by the Appellant was only with respectto two kanals and the remaining two kanals of land were allotted forfree to the Appellant. It is not in dispute that Rs. 8,00,000/- per kanal A

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Awas the average auction sale price which was fetched around the timeof allotment. Keeping this figure in mind, the State Government fixedthe allotment price at Rs. 8,00,000/- per kanal. It is clear that there wasno arbitrariness in fixing the price at Rs. 8,00,000/- per kanal. However,we are unable to accept the contention that the allotment of 2 Kanals ofland for free was justified. This is all the more significant in light of theBabsence of any material on record to show that the school was being runpurely for charitable and educational purposes. In this regard it would bepertinent to refer to the observations of this Hon’ble Court in the matterof Union of India and another v. Jain Sabha, New Delhi and another,(1997) 1 SCC 164 wherein the following observations are made:

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“11. Before parting with this case, we think it appropriate toobserve that it is high time the Government reviews the entirepolicy relating to allotment of land to schools and other charitableinstitutions. Where the public property is being given to suchinstitutions practically free, stringent conditions have to beDattached with respect to the user of the land and the manner inwhich schools or other institutions established thereon shallfunction. The conditions imposed should be consistent with publicinterest and should always stipulate that in case of violation ofany of those conditions, the land shall be resumed by theGovernment. Not only such conditions should be stipulated butEconstant monitoring should be done to ensure that those conditionsare being observed in practice. While we cannot say anythingabout the particular school run by the respondent, it is commonknowledge that some of the schools are being run on totallycommercial lines. Huge amounts are being charged by way ofFdonations and fees. The question is whether there is anyjustification for allotting land at throw-away prices to suchinstitutions. The allotment of land belonging to the people atpractically no price is meant for serving the public interest, i.e.,spread of education or other charitable purposes; it is not meantto enable the allottees to make money or profiteer with the aid ofGpublic property. We are sure that the Government would takenecessary measures in this behalf in the light of the observationscontained herein.”

The aforementioned observations suggest that while in the case of a nonprofit-oriented educational institution serving the public interest, publicH

property can be allotted to it at a concessional price or for free by imposingstringent conditions for the use of the land, it is questionable whether thesame can be done for profit-oriented institutions.

13. Thus, in our considered opinion, there is a loss to the publicexchequer to the extent of Rs.16,00,000/- for two kanals as on the dateof allotment. However, having regard to the fact that the Appellant-Academy has been running on the allotted site since many years, afterconstructing a new building, the transfer may be saved by giving thetransferee an opportunity to make good the shortfall in the consideration.In this context, it is relevant to note certain observations made by thisCourt in the case of ITC Limited vs. State of U.P., (2011) 7 SCC 493:

“107.1 If the transferee had acted bona fide and was blameless,it may be possible to save the transfer but that again would dependupon the answer to the further question as to whether publicinterest has suffered or will suffer as a consequence of theviolation of the regulations:

(i) If public interest has neither suffered, nor is likely tosuffer, on account of the violation, then the transfer may beallowed to stand as then the violation will be a mere technicalprocedural irregularity without adverse effects.

(ii) On the other hand, if the violation of the regulationsleaves or is likely to leave an everlasting adverse effect or impacton public interest(as for example when it results in environmentaldegradation or results in a loss which is not reimbursable), publicinterest should prevail and the transfer should be rescinded orcancelled.

(iii) But where the consequence of the violation is merely ashort-recovery of the consideration, the transfer may be savedby giving the transferee an opportunity to make good the shortfallin consideration.

107.2 The aforesaid exercise may seem to be cumbersome, butis absolutely necessary to protect the sanctity of contracts andtransfers. If the Government or its instrumentalities are seen tobe frequently resiling from duly concluded solemn transfers, theconfidence of the public and international community in thefunctioning of the Government will be shaken. To save the A

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Acredibility of the Government and its instrumentalities, an effortshould always be made to save the concluded transactions/transfers wherever possible, provided (i) that it will not prejudicethe public interest, or cause loss to public exchequer or lead topublic mischief, and (ii) that the transferee is blameless and hadno part to play in the violation of the regulation.B107.3 If the concluded transfer cannot be saved and has to becancelled, the innocent and blameless transferee should bereimbursed all the payments made by him and all expenditureincurred by him in regard to the transfer with appropriate interest.If some other relief can be granted on grounds of equity withoutCharming public interest and public exchequer, grant of suchequitable relief should also be considered.”

14. On an examination of the facts and circumstances of the casein the light of the above observations, it is evident that it is appropriate toDgive the Appellant the opportunity to make good the shortfall inconsideration, as the loss to the public exchequer caused by the freeallocation cannot be said to have had an everlasting effect or impact onpublic interest. Moreover, we do not find any high-handedness on thepart of the Appellant in seeking the allotment in its favour, as it acted ina bona fide manner. This would also be in consonance with the principleEstated by us in the beginning of the judgment that the public must beadequately compensated for the alienation of natural resources by theState.

15. Therefore, the Appellant should pay consideration for twokanals of land received gratuitously, at the rate of Rs. 8,00,000/- perFkanal, which was the average auction price prevailing at the time ofallocation. The Appellant is also liable to pay interest at the rate of 6%per annum from the date of the allotment till the date of payment. Thepayment should be made within three months from this date.

16. In view of the above, the appeals are allowed, the impugnedGjudgment passed by the Division Bench dated 01.04.2009 is set asideand the judgment of the learned Single Judge dated 25.04.2008 passedin O.W.P No. 1093 of 2002 and O.W.P No.10 of 2003 is restored, withthe aforementioned modification.

HKalpana K. Tripathy Appeals allowed.