Page 1

1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

SPECIAL LEAVE PETITION (C) NO.32507 OF 2013

Pathan Mohammed  Suleman Rehmatkhan … Petitioner

Versus

State of Gujarat & Ors. … Respondents

O R D E R

K.S. Radhakrishnan, J.

1. The  State  of  Gujarat,  it  is  seen,  in  the  year  2005  

thought of developing an International Financial Services  

City at Ahmedabad at par with the globally benchmarked  

financial centres such as Sinjuku-Tokyo, Lujiazui-Shanghai,  

La  Defense  Paris,  London  Dockyard,  having  offshore  

banking  facilities.   The  State  conducted  detailed  study  

through its  wholly  owned company called Gujarat  State  

Financial Services Limited (GSFSL).   The study report was  

prepared in February 2006 which strongly recommended

Page 2

2

for execution of the project after undertaking a feasibility  

study.   Since the project was first of its kind in the country  

and  involved  commercial  risk,  the  State  Government  

thought  of  undertaking  the  project  of  a  public-private  

partnership so that the responsibility and the risk, if any,  

could be shared.  

2. The  State  organized  the  “Vibrant  Gujarat  Urban  

Summit”  in  the  year  2007.   The  third  respondent,  

Infrastructure  Leasing  &  Financial  Services  Ltd.  (ILFS)  

showed its commitment for development of the national  

financial  services  centre  and  a  Memorandum  of  

Understanding was signed with the State Government on  

16.2.2007.  On 15.5.2007, a joint venture agreement was  

executed between the State represented by the Gujarat  

Urban  Development  Company  Limited  (GUDC)  and  the  

third  respondent  for  forming  a  50:50  joint  venture  

company in  the  name of  Gujarat  International  Financial  

Tech City Limited i.e. GIFT Company Ltd. on 22.3.2011 and  

7.6.2011 the State Government issued and allotted 412  

acres of land to the fourth respondent i.e. GIFT Company

Page 3

3

Ltd. and 250 acres of land to its wholly owned subsidiary  

i.e.  GIFT  SEZ  Limited  with  a  right  to  mortgage  while  

retaining ownership thereof with the State Government.   

3. On 18.8.2011,  the fifth  respondent,  Government  of  

India, issued a notification under Special Economic Zones  

Act,  2005,  for  the  area  of  261  acres  of  land  for  

development, operation and maintenance of the project.  

The  Government  of  India  on  27.12.2011,  accorded  

approval  to  the  GIFT  SEZ  Limited  for  setting  up  of  an  

International Financial Services Centre.   Facts reveal, by  

April  2013, out of the estimated investment of Rs.9,700  

crore for the entire proposed project, an amount of Rs.450  

crore  has  already  been  spent  by  fourth  respondent  

towards development expenses in creating infrastructure.  

Fourth  respondent  has already constructed around 12.8  

kms. of roads in the township.   The fourth respondent has  

also constructed a water treatment plant and sewerage  

treatment plant having respective capacity of 3 MLD and  

2.2 MLD and distict cooling system, including power sub-

station for  66 KV,  utility tunnel  of around 2.2 kms. and

Page 4

4

automated waste collection system for load of around 5  

TPD.   The  fourth  respondent  has  also  constructed  an  

artificial water body known as “Samriddhi Sarovar” having  

circumference of 1.5 kms, and a water pumping station at  

Nabhoi and a pipeline of almost 12 kms. has been laid to  

provide  water  from  Narmada  canal  to  the  township.  

Various other activities are also going-on on a war-footing.  

4. The  project  picked  up  momentum  and  nobody  

challenged the joint venture agreement or the decisions  

taken by the State Government to allot lands to the fourth  

respondent  for  creating  infrastructure  for  development  

and operation of the project.   The Comptroller and Auditor  

General  of  India  (CAG),  however,  had  made  certain  

remarks in his report no.2 of 2013 for the year ending on  

31st March,  2011,  stating  that  the  performance  audit  

revealed a number of system and compliance deficiencies  

and the State Government did not adopt a uniform policy  

in alienation and allotment of land.  Further, it was also  

stated  that  the  delay  in  finalization  has  resulted  in  

blocking up of revenue of the Government and there was

Page 5

5

no  mechanism  for  review  and  correction  of  incorrect  

orders  issued  by  the  subordinate  officers  to  safeguard  

Government  revenue  and  that  no  proper  monitoring  

system existed in the Department to ascertain and vacate  

encroachment cases.  Relevant portion of the CAG report  

reads as follows :-

“3.5.13 Inconsistent  decision to allot  land at token  amount  

Gujarat  Urban  Development  Company  Limited  (GUDC), a Government Company was authorised by  Government in May 2007 to undertake the Gujarat  International Finance City project (GIFT city) in a joint  venture  with  Infrastructure  Leasing  &  Financial  Services Ltd. (IL&FS) for setting up an International  Finance City. Subsequently, a Company called GIFT  Company Ltd, (the Company) was formed by IL&FS  and GUDC as a joint venture.  

As per the direction of the Government in Revenue  Department,  Collector,  Gandhinagar  handed  over  advance  possession  of  Government  land  admeasuring  26,77,814  sq.mt.  valued  by  the  DLVC/SLVC  during  September  2007  to  December  2008  at  Rs.500  crore  situated  at  fourteen  survey  numbers of  four Talukas of  Gandhinagar district  to  GUDC  for  setting  up  the  GIFT  city.  The  GUDC  proposed (June 2007) to Government for relaxation in  payment  of  occupancy  price  for  the  land.  Chief  Secretary,  Principal  Secretaries  of  Revenue  Department, Finance Department and UDUHD opined  that the land shall be allotted at market value as per  the extant policy on valuation of Government land.  However,  moratorium period of  two years  shall  be  allowed for payment of 50 per cent of the value of  land and remaining 50 per  cent  payable  as  a  soft

Page 6

6

loan. Meanwhile, Ministry of Commerce and Industry,  Govt. of India accorded a formal approval in January  2008 to GIFT Company Ltd., for the proposed Multi  Services SEZ covering an area of 10,11,750 sq.mt.  (250 acres).  

As per GR dated 22.11.2004, if the allotment could  not be made within completion of two years from the  date of DLVC's valuation, it was to be refixed afresh.  The  land  was  allotted  in  April/June  2011  by  Government  to  the  Company  after  expiry  of  two  years  from the  date  of  valuation  of  DLVC,  though  fresh  valuation  was  not  done.  Scrutiny  of  Cabinet  note  indicated  that  Collector,  Gandhinagar  had  stated  that  the  value  of  the  allotted  land  was  approximately  Rs.2,760  Crore.  However,  Cabinet  allotted 10,11,744 sq.mt.  of land to GIFT SEZ Ltd.,  and 16,66,070 sq.mt.  to  GIFT Company Ltd.,  for  a  nominal  price of rupee one with the condition that  during  the  first  phase  of  the  project,  the  surplus  amount received by the developers shall be divided  between  Government  and  the  two  Companies  in  50:50  ratio.  During  the  execution  of  subsequent  phases, the surplus amount, which may be received  over and above the base cost of the project shall be  divided between Government and the GIFT Company  Ltd., in 80:20 ratio.  

We  noticed  that  land  was  allotted  without  ascertaining  its  value as on the date of  allotment.  Advance  possession  of  land  was  given  to  an  organisation other than Boards/ Corporations/ SEZ in  contravention  of  the Government  policy.  Land was  allotted negating the views of Finance Department,  Revenue Department and UDUHD without collecting  occupancy  price  to  a  minimum  extent  of  Rs.500  crore as on the dates of advance possession of land.

After  this  was pointed out,  the Government  stated  (July 2012) that it  was a Public  Private Partnership  (PPP) project and development rights were only given  and ownership rights  vested with the Government.  The reply is not acceptable as the Government land  is allotted at new and restricted tenure wherein the

Page 7

7

allottee is not entitled to sell, transfer or mortgage  the  land  without  the  permission  of  the  Collector.  However,  in  this  case,  the  Government  authorised  the  allottee  to  mortgage/lease  the  land  without  seeking permission from the Collector/Government.  Further,  the  State  Government  has  produced  no  records to indicate that allotment for the GIFT city  was  on  the  basis  of  PPP.  The  State  Government  despite repeated requests did not produce to audit  the  Joint  Venture  Agreement  signed  between  Government/GUDC and IL&FS. Non production of the  records  to  audit  has  the  consequential  effect  of  limiting the scope of audit.  

3.5.14 Conclusion  

The performance audit revealed a number of system  and  compliance  deficiencies.  Government  did  not  adopt a uniform policy in alienation and allotment of  land. Delay in finalisation of valuation also resulted in  blocking  up  of  revenue  of  the  Government.  There  was  no  mechanism  for  review  and  revision  of  incorrect orders issued by the subordinate officers to  safeguard  Government  revenue.  No  proper  monitoring  system  exists  in  the  Department  to  ascertain and vacate encroachment cases.”

5. The petitioner herein filed a Public Interest Petition  

before  the  Gujarat  High  Court  primarily  based  on  the  

report of CAG seeking a declaration that the action of the  

State  Government  for  allotting  land  in  favour  of  the  

respondent company was illegal and void and sought for  

an  investigation  by  the  Central  Bureau  of  Investigation  

and also for other consequential reliefs.  The Gujarat High  

Court  after  hearing  all  the  parties  at  length  and,  after

Page 8

8

elaborately  considering the materials  on record,  framed  

the following questions :

“(i) Whether the report of the CAG by itself  can legally be made the basis for  the  reliefs claimed in the petition?

(ii) Whether  the  decision  of  the  State  Government to develop an international  finance service  city  on  the  basis  of  a  public private partnership model with a  social  objective  could  be  termed  as  arbitrary,  discriminatory and an act of  favouritism  and/or  nepotism  violating  the  sole  object  of  equality  clause  embodied  in  Article  14  of  the  Constitution of India?

(iii) Whether  the  petition  deserves  to  be  dismissed on the ground of delay and  laches?

6. The Gujarat High Court felt, though the Writ Petition  

could have been dismissed on the ground of delay,  the  

Court  still  examined  all  the  contentions  raised  by  the  

parties and recorded a clear finding on all the issues.  The  

High Court placed reliance on the judgment of this Court  

in  Arun Kumar Agrawal v. Union of India & others  

(2013) 7 SCC 1 and held that having regard to the powers  

conferred on the CAG, CAG is not entitled to question the  

merits of the policy objectives of the State Government.

Page 9

9

The Court also held that it cannot be said that the State  

Government had given largesse to an individual according  

to its  sweet will  and whims and took the view that the  

Government took a conscious commercial  decision after  

perusing the pros and cons of the entire matter and that  

the action of the respondent was not based on extraneous  

considerations or vitiated by malafide exercise of powers.  

Holding  so,  the  writ  petition  was  dismissed  by  the  

impugned order, against which this special leave petition  

has been preferred.    

7. We  heard  Shri  Y.N.  Oza,  learned  counsel  for  the  

petitioner  and  perused  the  records,  as  well  as  counter  

affidavit and reply affidavit filed by the parties before the  

Gujarat High Court.   The entire case of the petitioner is  

based  on  the  CAG  report.   The  applicability  and  the  

binding characteristics of such report were considered by  

the High Court.    In  Arun Agrawal’s  case (supra),  this  

Court held as follows:-

“We may, however, pointed out that since the  report  is  from  a  constitutional  functionary,  it  commands  respect  and  cannot  be  brushed  aside  as  such,  but  it  is  equally  important  to

Page 10

10

examine  the  comments  what  respective  Ministries  have  to  offer  on  the  CAG’s  Report.  The Ministry can always point out, if there is any  mistake  in  the  CAG’s  report  or  the  CAG  has  inappropriately appreciated the various issues.”

8. CAG is a key figure in the system of parliamentary  

control  of  finance  and  is  empowered  to  delve  into  the  

economy,  efficiency  and  effectiveness  with  which  the  

departmental  authorities or  other bodies had used their  

resources in discharging their functions.  CAG is also the  

final audit authority and is a part of the machinery through  

which  the  legislature  enforces  the  regulatory  and  

economy in the administration of public finance,  as has  

been  rightly  pointed  out  by  the  High  Court.    But  we  

cannot  lose  sight  of  the fact  that  it  is  the  Government  

which  administers  and  runs  the  State,  which  is  

accountable  to  the  people.   State’s  welfare,  progress,  

requirements  and  needs  of  the  people  are  better  

answered by the State, also as to how the resources are to  

be  utilized  for  achieving  various  objectives.    If  every  

decision taken by the State is tested by a microscopic and  

a suspicious eye, the administration will come to stand still  

and the decisions-makers will lose all their initiative and

Page 11

11

enthusiasm.  At hindsight, it is easy to comment upon or  

criticize  the  action  of  the  decision  maker.   Sometimes,  

decisions  taken  by  the  State  or  its  administrative  

authorities may go wrong and sometimes it may achieve  

the desired results.  Criticisms are always welcome in a  

Parliamentary  democracy,  but  a  decision  taken in  good  

faith,  with  good  intentions,  without  any  extraneous  

considerations, cannot belittled, even if that decision was  

ultimately proved to be wrong.  

9. We have extensively referred to these principles in  

Arun  Agrawal’s  case  (supra),  where  we  have  held  as  

follows:-

“This Court sitting in the jurisdiction cannot sit  in  judgment  over  the  commercial  or  business  decision  taken  by  parties  to  the  agreement,  after evaluating and assessing its monetary and  financial  implications, unless the decision is in  clear  violation  of  any  statutory  provisions  or  perverse or taken for extraneous considerations  or  improper  motives.  States  and  its  instrumentalities  can  enter  into  various  contracts which may involve complex economic  factors. State or the State undertaking being a  party  to  a  contract,  have  to  make  various  decisions  which  they  deem  just  and  proper.  There  is  always  an  element  of  risk  in  such  decisions,  ultimately  it  may  turn  out  to  be  correct  decision  or  a  wrong  one.  But  if  the  decision  is  taken  bona  fide  and  in  public  interest,  the  mere  fact  that  decision  has  ultimately proved to be wrong, that itself is not

Page 12

12

a ground to hold that the decision was mala fide  or taken with ulterior motives.”

10. Reference in this regard may also be made to the  

judgment  of  this  Court  in  Centre for  Public  Interest  

Litigation & Ors. v. Union of India & Ors. AIR 2012 SC  

3725, wherein it  was held that when the CAG report is  

subject to scrutiny by the Public Accounts Committee and  

the Joint Parliamentary Committee, it would not be proper  

to  refer  the findings and conclusions contained therein.  

The Court even went on to say that it is not necessary to  

advert to the reasoning and suggestions  made, as well.

11.    We have gone through the salient features of the  

Project  referred to  in  the various  orders  passed by the  

State  Government  and  the  resolutions  dated  22.3.2011  

and 7.6.2011 allotting lands to fourth respondent and also  

the notification dated 18.8.2011 issued under the Special  

Economic Zones Act, 2005, and we are in agreement with  

the High Court that it cannot be said that the State has  

acted against public interest. The Government has noticed  

the development and the employment opportunities that

Page 13

13

the project would bring into the State.  The decision taken  

by  the  Government  was  also  transparent  and  that  the  

Government has also got substantial stake in the Public-

Private Partnership and has also taken care of its interests  

while  entering  into  the  various  agreements.   Learned  

senior counsel fairly submitted that he is not attributing  

any motives  or  stating that  the  decision  was taken for  

extraneous reasons, but contended that the Government  

had, without any application of mind, parted with a large  

tracks of land worth crores of rupees to the private party,  

which is not in the interest of the State.   

12. We  are  of  the  view  that  these  are  purely  policy  

decisions taken by the State Government and, while so, it  

has examined the benefits the project would bring into the  

State and to the people of the State.  It is well settled that  

non-floating  of  tenders  or  absence  of  public  auction  or  

invitation alone is not a sufficient reason to characterize  

the  action  of  a  public  authority  as  either  arbitrary  or  

unreasonable  or  amounted  to  mala  fide or  improper  

exercise of power.  The Courts have always held that it is

Page 14

14

open to the State and the authorities to take economic  

and management decision depending upon the exigencies  

of  a  situation  guided  by  appropriate  financial  policy  

notified in public interest.  We are of the view that is what  

has been done in the instant case and the High Court has  

rightly held so.   We, therefore, find no reason to entertain  

this Special Leave Petition and the same is dismissed.   

   ..………………………J.    (K.S. Radhakrishnan)

   ………………………..J.    (A.K. Sikri)

New Delhi November 22, 2013