Validity Of Orders Not Tested On Basis Of Gain/Loss To Exchequer: Kerala HC Rejects Challenge To Govt Order Granting Preference In Tender Process To Labour Societies

The Kerala High Court has rejected a petition challenging the government orders that grant preference to labour contract societies, stating that the “focus of the executive order, though ultimately related to the award of the contract, is essentially a focus to promote community interest consistent with the policies of the welfare State. Therefore, individual contractors cannot claim parity of treatment with co-operative entities".

The court went on to add that "in the absence of any fundamental right that can be claimed by the individual contractors, the rest is a matter of State policy and where no parity can be claimed as the object of differentiation is not in recognising individual interest but rather the larger community interest”.

A division bench consisting of Justice A Muhamed Mustaque and Justice Shoba Annamma Eapen heard the matter.

Background

The government of Kerala, by an order, had decided to accord preference to labour societies, for up to 10% over the quoted amount of the lowest bidder. By an order dated November 4th, 2020, the Government granted sanction to Uralungal Labour Contract Co-operative Society Ltd to have preference of work in light of a previous government order.

Challenges were raised against these orders which were then dismissed by a decision of a Kerala High Court single bench, stating that the preference is given to the ULCCS as a matter of State policy and does not involve any infringement of fundamental rights in this matter.

Arguments

The counsel for the petitioners, Shri Santhosh Mathew submitted that the government orders are arbitrary and illegal, on the ground that the fundamental rights of private contractors have been violated by executive orders. He argued that providing such preference would have ramifications on the public exchequer without any real benefits for the public at large. He also emphasized that granting such preferential treatment to a labour society compromises public interest.

Additionally, the counsel argued that executive instructions issued under the Essential Commodities Act to secure an equitable distribution of goods at fair prices are based on the plenary power issued under the Act and in the absence of any legislative mandate, executive instructions cannot regulate or prohibit the production and supply of goods and services.

The petitioners also argued that the provisions of the Kerala Co-operative Societies Act do not allow any unlimited price preference but rather allow for providing financial assistance for deserving individuals after taking into account their financial weakness through loans and advances.

Haris Beeran, counsel for the petitioners, also argued that these government orders contravene Articles 19(1) and 19(6) of the Constitution. He explained that fairness as explained under Article 14 would be violated if contractors of the same class are treated differently, stating that “a responsible government is bound to create a level playing field for all builders, ensuring principles of fairness and equity in competition”.

The learned Advocate General rejected these submissions and argued that government policy cannot be subjected to judicial review. He submitted that the government is like any other entity and can award the contract based on sound policies to advance common interest, stating that “no one has a fundamental right to obtain a contract from the government”.

Counsel appearing for the Uralungal Labour Contract Co-operative Society pointed out that the government holds a stake in the society amounting to 84.7%, and reasoned that price is not a determining factor but the broader interest of the state.

Court's Decision

The court rejected the petitioners' claims on the basis that the “state's freedom to contract and to award the contract is not the same as the fundamental right of a citizen to engage in trade and occupation”.

The court pointed out that the government is free to enter into a contract with various entities, individuals, co-operative society, etc, going on to explain that the relationship between the public and private sectors is normally assessed through the scale of accountability, premised to eschew arbitrariness.

Regarding the argument relating to Article 19(i)(g), the court held that the “freedom to pursue any occupation or business does not automatically grant the right to demand the award of a contract”.

The bench went on to explain that a right presupposes legal interest with a corresponding duty on the government, which is not the case as the government “also has equal freedom in the matter of awarding contracts like ordinary citizens”.

The bench also went on to emphasize the importance of labour rights, pointing out that the preamble of the Indian constitution ensures not only political and socialist justice but also economic justice. The court highlighted several provisions, including Article 39(c) which outlines the guiding principles for the State to prevent wealth concentration and promote means of production for the common good, Article 43A which emphasizes worker participation in industrial management, and Article 43B which refers to the promotion of co-operative society by the state. In doing so, the court pointed out that the executive orders are premised on the ideas of economic justice and as such, its validity is not tested on the basis of loss or gain to the public exchequer.

“The focus of the executive order, though ultimately related to the award of the contract, is essentially a focus to promote community interest consistent with the policies of the welfare State. Therefore, individual contractors cannot claim parity of treatment with co-operative entities. In the absence of any fundamental right that can be claimed by the individual contractors, the rest is a matter of State policy and where no parity can be claimed as the object of differentiation is not in recognising individual interest but rather the larger community interest” concluded the court.

Counsel for Petitioners: Advocates Santhosh Mathew, Arun Thomas, Jennis Stephen, Vijay V Paul, Karthika Maria, Anil Sebastien Pulickel, Divya Sara George, Jaisy Elza Joe, Abi Benny Areeckal, Leah Rachel Ninan, Veena Raveendran, Mathew Nevin Thomas, Kurian Antony Mathew, Manasa Benny George, Karthik Rajagopal, OA Nuriya, Mathews Raju, Haris Beeran, Anand B Menon, Revathy P Manoharan

Counsel for Respondents: Advocates K Gopalakrishna Kurup (Advocate General), KV Manoj (General Pleader), M Sasindran, S Shyam Kumar

Case Citation: 2024 LiveLaw Ker 256

Case Title: Cherian Varkey Construction Company (Pvt.) Ltd. and ors. v. State of Kerala and ors.

Case Number: WA No. 44 of 2021, WP(C) No. 23696 of 2023, WP(C) No. 16921 of 2023

Click here to read/download the order