Sukhdev Singh Kang, J.
1. An issue in this writ petition under Articles 226 and 227 of the Constitution of India is the legality and validity of the policy decisions of the Punjab Government dt. Oct. 29, 1984 and Feb. 12, 1987 and the consequential orders dated Aug. 5, 1985 and Mar. 2, 1987, issued by the Director, Health and Family Welfare, Punjab (respondent 2) to the Civil Surgeons/Medical Superintendents and Principals of Medical Colleges in the State of Punjab, directing them to purchase drugs/ pharmaceuticals from respondents 4 to 9. A broad brush factual backdrop will help delineate the contours of the forensic controversy.
2. Punjab Drugs Manufacturers Association (the petitioner in this case) is an association of drugs manufacturers of Punjab. Members of the petitioner Association used to supply drugs/medicines to Punjab Government at rates approved after inviting tenders from time to time.
3. The Punjab Government, on Oct. 29, 1984, took a policy decision (Copy Annexure R-1 to the written statement of respondents 1 and 2) that :
'(i) All the six approved sources, namely, (a) I.D.P.L., (b) H.A.L., (c) Smith Stanistreet,(d) Bengal Chemicals & Pharmaceutical Ltd,(e) Bengal Immunity Co. Ltd and (f) M.S.D., must be treated equally, and those medicines, which are manufactured by them, must be purchased
(ii) Purchases shall be made from the cheapest firm and orders must be placed direct with the approved sources;
(iii) So long as a medicine is available with the approved sources, it should be purchased from them only and not from firms on rate contract and vice versa;
(iv) Rate contract should not be arranged/ entertained in respect of medicines, which are available from approved sources.'
Indenting Officers were requested to make purchases strictly in accordance with the store purchase rules and the policy framed by the Government. Any lapse would be viewed strictly.
4. In pursuance of this decision of the Government, the Director of Health & Family Welfare, Punjab, respondent 2, vide his order dt. Aug. 5, 1985 (Copy Annexure P 2 to the writ petition) directed the Indenting Officers to ensure that medicines on the price list of any of the approved sources be not purchased from rate contract firms.
5. In supersession of the orders dt. Oct. 29, 1984 (Annexure R-I), the Punjab Government vide orders dt Feb. 12, 1987 (Annexure R-III) laid down the following policy for purchase of drugs/medicines for the State of Punjab : --
'(i) Limited tenders will be invited from all the approved sources for the supply of drugs/formulations to the State of Punjab;
(ii) xx xx xx xx(iii) If one approved source cannot meet with the total requirements, then the orders are placed at the same price with the other sources or at the rates quoted by them, whichever is lower.
(iv) The policy will apply only in respect of drugs/formulations manufactured by the concerned approved source and that no trading will be allowed. It will also be ensuredthat the approved sources do not merely supply the drugs/formulations but actually manufacture the same.'
A copy of this policy decision (Annexure R III) was forwarded by the Secretary to Government, Punjab, Department of Health and Family Welfare, to the Director, Health Services, Punjab, with a direction that he would invite limited tenders for drugs/ formulations required by the Department from all the approved sources, and that the purchases were to be made strictly in accordance with the abovesaid policy. Copies of the aforesaid policy decision of the Government were also addressed to all the approved sources, namely,
(1) M/s Indian Drugs & Pharmaceuticals Ltd, Gurgaon.
(2) M/s. Hindustan Antibiotics Ltd Pimpri (Poona).
(3) M/s. Smith Stanistreet Pharmaceuticals Ltd, Calcutta;
(4) M/s. Bengal Chemicals & Pharmaceuticals Works Ltd, Calcutta;
(5) M/s. Bengal Immunity Co. Ltd., Calcutta;
(6) M/s. Japson Pharmaceuticals (Punjab) Ltd, Chandigarh;
(7) M/s. Medical Store Depot, Karnal;
(8) M/s. Haffkin Institute, Bombay; and
(9) Central Research Institute, Kasauli.
The aforesaid undertakings had been declared by the State Government as approved sources for supply of drugs/medicines to the State of Punjab and its Departments and Officers. Out of these, the companies mentioned against serial Nos. 1 to 5 and 8 and 9 are public sector undertakings of Government of India and company mentioned against serial No. 6, i.e. M/s. Japson Pharmaceuticals (Punjab) Ltd, Chandigarh, is a joint sector company in which the Punjab State Industrial Development Corporation (for short, the 'PSIDC') holds 5.0 per cent equity. M/s. Medical Store Depot, Karnal mentioned at serial No. 7 is a Government Undertaking. In compliancewith the orders of the Secretary to Government, Department of Health & Family Welfare, respondent 2, addressed a communication dt. Feb. 11, 1987, to the abovementioned nine undertakings which had been declared approved sources, inviting tenders/quotations for the purchase of 164 drugs/drugs formulations required for the Health Department so as to reach his office by Feb. 23, 1987. A detailed list of the drugs was appended with the said communication. It was stated in the communication that the tenders/quotations will be opened on the same day, i.e. Feb. 23, 1987 at 3.00 P.M. in the presence of the Pricing/Purchase Committee, M/s. Japson Pharmaceuticals (Punjab) Ltd. (respondent 9) sent quotations for 65 items and it was awarded contract for 57 of them, as the prices quoted by it were lower than those quoted by the other approved sources, Respondents 4 to 8, which are Central Government's public sector undertakings were approved for 17 drugs/medicines. Haffkin Pharmaceutical Corporation, Bombay, Central Research Institute, Kasauli and M.S.D. Karnal, who are approved sources, did not send any quotations/tenders and were thus approved for none.
6. The Director of Health & Family Welfare, Punjab (respondent 2) addressed a letter dt. Mar. 2, 1987 (Copy Annexure P-6 to the writ petition) to all the Civil Surgeons/ Medical Superintendents and Principals of the Medical Colleges in the State of Punjab, intimating that the firms listed at Annexures 1 to 6 to that communication will be approved sources for the supply of drugs/drugs formulations listed in the annexures and at the rates noted against each drug/formulation. The orders were to be placed in respect of those items with the approved sources. In case the approved source is unable to supply these items, then the same shall be purchased in accordance with Appendix 11 of Punjab Financial Rules, Vol. II.
7. According to the written statement on behalf of the Controller of Stores, Punjab (respondent 3), tenders for supply of drugs/medicines were invited from the openmarket and opened on May, 6, 1987, but the rate contract could not be finalised due to non-participation of the indenting department, i.e. respondent 2, in the meetings of the Technical Committee in four consecutive meetings held in the months of May, June and July, 1987. Finally, the Director, Health & Family Welfare, Punjab (respondent 2), vide his letter dated July 8, 1987, informed respondent 3 that the policy of purchase of drugs/medicines from the approved sources was under review and case of finalisation of rate contract (of drugs/medicines) be kept pending. It is further averred in the written statement that the tenders in question were invited for arranging rate contracts with various firms for purchase, of medicines etc. However, so long as the policy of the State Government regarding (purchase of drugs/medicines from) approved sources dt. Aug. 25, 1986 (sic Aug. 5, 1985) is in force, no purchase of medicines appearing on approved source can be made from any other source. It is further averred that the arranging of rate contracts thus becomes redundant in respect of medicines which are available from approved sources.
8. Dr. B. S. Cheema, Director, Health & Family Welfare, Punjab (respondent 2) in his reply has averred that in pursuance of the Punjab Government's policy dt. Feb. 12, 1987 (Annexure R-III with the return), limited tenders were invited from the approved sources and the lowest rates quoted by the firms for various drugs/medicines were approved by the Price Fixation Committee. Thereafter, instructions dt. Mar. 2, 1987 (Annexure R-IV with the return) were issued to all the indenting officers. In view of the clear policy (Annexure R-III with the return) there was no necessity of inviting open tenders and giving opportunity to the petitioner to submit tenders. Since the medicines manufactured by public sector undertakings are to be purchased from them without inviting (open) tenders the rates of medicines are not compared with those of the private manufacturers.
9. From the above, it is manifest that the State Government has framed policy that for:he purchase of drugs/formulations only limited tenders should be invited from the approved sources only. The manufacturers of drugs/medicines in the private sector like members of the petitioner-Association, who lave been previously supplying drugs/medicines to the Government, and had legitimate interest in and reasonable expectation of the continuance of this arrangement, have been excluded from offering to supply drugs/medicines. By the impugned policy decisions of the Punjab Government and the orders issued by the Director, Health & Family Welfare, Punjab (respondent 2), they have been denied the opportunity to quote the prices and submit tenders for supply of drugs/medicines, along with respondents 4 to 9. Only respondents 4 to 9 have been permitted to send tenders/quotations for 164 drugs/medicines to the total exclusion of the private manufacturers including the members of the petitioner Association. Similarly, no decision has been taken on the tenders submitted by the members of the petitioner Association for the supply of drugs/medicines on the directions of respondent 2 on the plea that the policy or purchase of drugs/medicines was under review. Resultantly, the drugs/medicines are being purchased only from respondents 4 to 9,
10. The executive power of the State Government extends to the carrying of any trade, the purchase and sale of property and making of contracts for any purpose. While dealing with individuals in transactions of sale and purchase of goods, the State cannot arbitrarily deny any individual opportunity to trade with it and the individual is entitled to a fair and equal treatment with others. The exercise of the executive functions in the matter of trade and making of contracts in subject to Part III of the Constitution. In the matter of making public contracts, the State has to provide equality of opportunity. While exercising the right to trade and enter into contracts, the State is under an obligation to observe equality, whereas ordinary citizens are free to choose not to deal with any person whom they don't like. The State has duty to observe equality in such matters. Whileentering into contracts, it cannot arbitrarily choose to exclude persons and discriminate against them. Indeed, the State can enter into contracts with any person it chooses and nobody has a fundamental right to insist that the Government must enter into a contract with it. Yet, citizens have a right to claim equal treatment with others to offer tenders and quotations for the purchase or sale of goods and the democratic form of Government demands equality and absence of arbitrariness and discriminations in such transactions. The State may not enter into any contract with anyone, but if it does so, it must do so fairly without discrimination and without unfair procedure. This view fully comports with the ratio of the decision of the final Court in Erusian Equipment and Chemicals Ltd v. State of West Bengal, AIR 1975 SC 266, wherein it was observed :
' 14. The State can enter into contract with any person it chooses. No person has a fundamental right to insist that the Government must enter into a contract with him. A citizen has a right to earn livelihood and to pursue any trade. A citizen has a right to claim equal treatment to enter into a contract which may be proper, necessary and essential to his lawful calling.
17. The Government is a government of laws and not of men. It is true that neither the petitioner nor the respondent has any right to enter into a contract but they are entitled to equal treatment with others who offer tenders or quotations for the purchase of the goods. This privilege arises because it is the Government which is trading with the public and the democratic form of Government demands equality and absence of arbitrariness and discrimination in such transactions. Hohfeld treats privileges as a form of liberty as opposed to a duty. The activities of the Government have a public element and, therefore, there should be fairness and equality. The State need not enter into any contract with any one but if it does so, it must do so fairly without discrimination and without unfair procedure. Reputation is a part of person's character and personality. Blacklisting tarnishes one's reputation.
18. Exclusion of a member of the public from dealing with a State in sales transactions has the effect of preventing him from purchasing and doing a lawful trade in the goods in discriminating against him in favour of other people. The State can impose reasonable conditions regarding rejection and acceptance of bids or qualifications of bidders. Just as exclusion of the lowest tender will be arbitrary, similarly exclusion of a person who offers the highest price from participating at a public auction would also have the same aspect of arbitrariness.'
11. Even if it be granted to the respondents that respondents 4 to 8 being public sector undertakings of the Government of India and respondent 9 being a joint sector company in which the PSIDC, a Punjab Government undertaking, held 50 per cent equity, could be separately classified and preferential treatment could be extended to them, the action of respondents 1 and 2 in creating a monopoly in favour of respondents 4 to 9 amounts to discrimination and denial of the guarantee pf equal protection of law. In Mannalal Jain v. State of Assam, AIR 1962 SC 386, Clause 5 of the Assam Food Grain (Licensing and Control) Order, 1961, which enabled the Licensing Authority to give preference to a co-operative society in the matter of grant of licence for dealing in rice and paddy was not held to be bad because it did not create the monopoly in favour of the co-operative society. Private dealers in rice and paddy were still eligible for applying for a licence. But the State Government had issued executive instructions creating a right of monopoly procurement of paddy in favour of co-operative society and had directed that no licences should be granted to individual dealers other than co-operative societies. The licensing authority complying with the executive instructions declined licence to the private dealers and granted licences in favour of the cooperative societies alone. This order was struck down being violative of the petitioner's rights guaranteed under Articles 14 and 19 of the Constitution, It was observed: --
'10. XX XX XX XX XX XX XXIn other words, the discrimination that hasbeen made by the licensing authority is reallyin the administration of the law. It has beenadministered in a discriminatory manner andfor the purpose of achieving an ulterior object,namely, the creation of a monopoly in favourof co-operatives, an object which, clearlyenough, is not within Sub-clause (e) of Clause 5 of theControl Order, 1961. We have quoted earlierthe various orders which the licensingauthority had passed. Those orders clearlyshow that the licensing authority refused alicense to the petitioner not on groundsreferred to in Sub-clauses (a) and (b) of Clause 5 buton the ground that the State Governmenthad decided to introduce a right of monopolyprocurement of paddy in favour of cooperative sockies and, therefore, no licensesshould be granted to individual dealers otherthan co-operative societies. Judged againstthe background of facts to which we naveearlier referred in this judgment, the impugnedorder dt. April 11, 1961 appears to us to havebeen based on the same ground, namely, thecreation of a monopoly in favour of cooperatives, even though the order refers toexisting licenses and the quantity of foodgrains available in the locality.'
12. In the case in hand also, by the policy decisions of the Government and orders of respondent 2, the members of the petitioner-Association have been excluded from sending quotations and tenders for the supply of drugs/medicines. A virtual monopoly has been created in favour of respondents 4 to 9. The principles enunciated in Manna Lal Jain's case (AIR 1962 SC 386), (supra) were reiterated by a Constitution Bench of the final Court in Rasbihari Panda v. State of Orissa, AIR 1969 SC 1081, wherein it was observed by their Lordships :--
'18. The classification based on the circumstance that certain existing contractors had carried out their obligations in previous year regularly and to the satisfaction of the Government is not based on any real and substantial distinction bearing a just and reasonable relation to the object sought to be achieved, i.e. effective execution of the monopoly in the public interest. Exclusion ofalt persons interested in the trade, who were not in the previous year licensees is ex facie arbitrary, it had no direct relation to the object of preventing exploitation of pluckers and growers of Kendu leaves, nor had it any just or reasonable relation in the securing of the full benefit from the trade to the State.'
13. It is manifest from the above decision that restricting the invitation to submit tenders to a limited class of persons was held to be violative of the equality clause. The standard of norm laid down by the Government by entering into contract for sale of Kendu leaves with third parties was discriminatory and could not stand the scrutiny of Article 14 and hence the scheme was held to be invalid The sweep and scope of Article 14 in the matter of public contracts has been brought out in the felicitous formulation of Justice Bhagwati (as his Lordship then was) in Ramana Dayaram Shetty v. International Airport Authority of India, AIR 1979 SC 1628, wherein it has been laid down:
'12......It must, therefore, be taken to bethe law that where the Government is dealing with the public, whether by way of giving jobs or entering into contracts or issuing quotas or licences or granting other forms of largess, the Government cannot act arbitrarily at its sweet will and, like a private individual deal with any person it pleases, but its action must be in conformity with standard or norm which is not arbitrary, irrational or irrelevant. The power or discretion of the Government in the matter of grant of largess including award of jobs, contracts quotas, licences etc., must be confined and structured by rational, relevant and non-discriminatory standard or norm and if the Government departs from such standard or norm in any particular case or cases, the action of the Government would be liable to be struck down, unless it can be shown by the Government that the departure was not arbitrary, but was based on some valid principle which in itself was not irrational, unreasonable or discriminatory.'
14. In Madhya Pradesh Ration Vikreta Sangh Society v. State of Madhya Pradesh, AIR 1981 SC 2001, it was held that consumers'co-operative societies form a distinct class by themselves. Benefits and concessions granted to' them ultimately benefits persons of small means and promote social justice in accordance with the directive principles. There is an intelligible differentia between the retail dealers who are nothing but traders and consumers' co-operative societies. The position would have been different if there was a monopoly created in favour of the latter. The scheme only envisages a rule of preference. The formulation of the scheme does not exclude the retail traders from making an application for appointment as agents. It was held that the scheme was not violative of Articles 14 and 19 of the Constitution. The principle that preference to be given to co-operative societies in the matter of being appointed as retail dealers for essential commodities, in preference to private retail dealers, but the latter were not excluded from applying for the licences and no monopoly had been created in favour of the co-operative-societies. In this context, their Lordships observed that the position would have been different if there was a monopoly created in favour of the co-operative societies. In Partap Rosin & Turpentine Factory, Hoshiarpur v. State of Punjab, AIR 1966 Punj 16, a Division Bench of this Court had struck down a Government Order sanctioning sale of entire Resin from Government stock to a cooperative society, because the order had created a virtual monopoly in favour of the co-operative society and had violated the petitioner's right to get Resin for their business and the violation was not in the interest of general public. The order was in violation of the provisions of Articles 14 and 19(1)(g) of the Constitution.
15. In a recent decision of the final Court in Shri Harminder Singh Arora v. Union of India AIR 1986 SC 1527, the action of the Government in accepting a higher tender for supply of milk of the Government Milk Scheme in preference to the appellant's tender, which was lowest, was struck down being arbitrary and capricious and violative of Article 14 of the Constitution.
16. In fairness to the learned counsel for the respondents, it may be stated that they had tried to justify the monopoly in favour of respondents 4 to 9 by reference to Sub-clause (ii) of Clause (6) of Article 19 of the Constitution. It was contended that because of this constitutional provision a monopoly can be created in favour of the State or a Corporation owned or controlled by the State. It was submitted that respondents 4 to 9 would squarely fall within the expression 'Corporation owned or controlled by the State' used in the abovesaid Sub-clause (ii). We are not impressed. Under Article 19(6)(ii) of the Constitution, the State can make any law imposing in the interest of general public, restrictions on the exercise of the rights conferred by Sub-clause (g) of Clause (1) of Article 19, i.e. freedom to practice any profession or carry on any occupation, trade or business and, in particular, nothing therein shall prevent the State from making any law relating to carrying on by the State, of any trade or by a Corporation owned or controlled by the State of any trade, business, industry, or service, whether to the exclusion, complete or partial, of citizens or otherwise. Simply put, it means that the State Government can make any law which may impose, in the interests of the general public, reasonable restrictions on the right to practice any profession or carry on any occupation, trade or business, whether to the exclusion, complete or partial, of citizens. The State can create a monopoly in the public interest in relation to any trade, business or industry even to the exclusion of citizens, by making law. Admittedly, the State Legislature has not passed any Act authorising the State Government to restrict the purchase of drugs from approved sources only. It is also conceded that no statutory rules have been framed for this purpose. The policy decisions have been taken in exercise of the executive powers of the State. The expression 'law' as understood in Article 19(6)(ii) of the Constitution is a statute enacted by a competent legislature or statutory rules framed thereunder. The expression 'law' herein does not encompass mere administrative or executive orders/ instructions. (See in this connection, State of Kerala v. P. J. Joseph, AIR 1958 SC 296, andH. C. Narayanappa v. State of Mysore, AIR1960 SC 1073). The departmental instructionsare neither law nor are they procedureestablished by law. (See in this connection,Raj Kumar Narsing Partap Singh Deo v. Stateof Orissa, AIR 1964 SC 1793; Kharak Singhv. State of U.P., AIR 1963 SC 1295; Smt.Ujjam Bai v. State of Uttar Pradesh, AIR1962 SC 1621; Mannalal Jain v. State of Assam,AIR 1962 SC 386; Raman and RamanLtd. v. The State of Madras, AIR 1959 SC694; Sri Dwarka Nath Tewari v. State of Bihar,AIR 1959 SC 249; and Edward Mills Co. Ltd.,Beawar v. State of Ajmer, AIR 1955 SC 25.The impugned instructions cannot infringeor curtail the fundamental rights granted byArticles 14 and 19(1)(g) of the Constitution. Inthis view we are also fortified by a recentDivision Bench decision of the AndhraPradesh High Court in Mahindra andMahindra Ltd., Bombay v. State of AndhraPradesh, AIR 1986 Andh Pra 332, and adecision of the Orissa High Court inHrudananda Patra v. Revenue DivisionalCommissioner Central Division, Cuttack, AIR1979 Orissa 13.
17. The object of creating a monopoly in favour of respondents 4 to 9 may be laudable. The authorities may be impelled by the desire that middlemen may not prosper at the cost of the tax-payers. However, in a society ruled by Rule of Law, even measures for achieving laudable objects have to conform to the constitutional mandates and other laws of the land. In a democratic system means do not justify the ends. By the impugned orders the Government may have been able to eliminate the traders who operate with only the profit motive, but for achieving that end, the Government has to act in accordance with the Constitution. They could have achieved this object by making valid laws and not by issuing only executive instructions.
18. We are of the considered view that by the impugned policy decisions of the Government and the impugned orders passed by respondent 2, a monopoly has xbeen created in favour of respondents 4 to 9 and themembers of the petitioner-Association have been denied the equality of opportunity in making quotations and submitting tenders for the supply of drugs/medicines to the State Tenders (it is not clear from the pleadings of the parties at all for what drugs they related) invited by the Controller of Stores, Punjab (respondent 3) were also not finalised, firstly because of the non-co-operation and then under the orders of respondent 2. Resultantly, medicines or substantial part thereof continued to be purchased for respondents 4 to 9. The action of respondents 1 and 2 was wholly arbitrary and discriminatory. The policy decisions of the Government and the impugned orders of respondent 2 are violative of Articles 14 and 19(1)(g) of the Constitution.
19. In view of what has been stated above,there was no justification in law in dispensingwith the tender system which was in vogueearlier.
20. We have carefully perused the pleadings of the parties and have heard Mr. Sarin at length. We are, however, not persuaded to hold that the approval of Japson Pharmaceuticals (Punjab) Ltd. was tainted by legal mala fides. It is, indeed, true that the members of the family of S. Surjit Singh Barnala, who was Chief Minister of Punjab at the material time, were the promoters of this Company; but that in itself does not lead to the conclusion that the authorities while declaring this Company as an approved source have not acted bona fide.
21. The policy in this behalf had been changed and amongst others, all the joint sector companies in which the Punjab State Industrial Development Corporation held equity of at least 50 per cent and which were Manufacturing various articles used by the Government Departments were made eligible for consideration for declaration as the approved sources for the supply of those articles by the Administrative Department concerned. This policy was confined only to the joint sector Companies manufacturing drugs and pharmaceutical. It encompassed all joint sector companies in which P.S.I.D.C. has 50 per cent shares. The Managing Directorof the PSIDC had moved the Administrative Department to grant approval to all the three joint sector Companies manufacturing drugs/pharmaceuticals for being declared as approved sources. The Director of Health & Family Welfare, Punjab (respondent 2) had also made a similar recommendation. No material has been brought on the file to show that any favour had been shown to respondent 9 in this behalf or the claim of any deserving applicant had been wrongly turned down.
22. For the foregoing reasons, we allow this writ petition and quash the policy decisions of the Government dated Oct. 29, 1984 (Annexure R-I) and dated February 12 1987(Annexure R-III) and the orders dt. Aug. 5, 1985 (Annexure P-2) and dated March 2, 1987 (Annexure P-6) passed by respondenti and direct respondents 1 to 3 to make purchases of drugs/medicines in accordance with law. No Costs.