It is a well-settled principle of law that the government has freedom of contract. In the 1991 landmark Srilekha Vidyarthi judgment, the Supreme Court held that a court cannot interfere with the government's freedom of contract, invitation to tender and refusal of any tender which pertain to policy matters. A court's inquiry must be limited to whether the government's decision-making process is vitiated by arbitrariness, unfairness, illegality or the administrative law principle of Wednesbury unreasonableness i.e., when the decision is such as no reasonable person upon proper application of mind could take. The court noted that, during the subsistence of the contract, the state has a duty to act fairly, justly and reasonably as required under Article 14 of the Constitution and such duties coexist with principles of contract. However, the court did not state that, during the subsistence of thecontract, the parties have no freedom to amend its terms. On the contrary, the Supreme Court found that principles of contract law and reasonableness in Article 14 of the Constitution coexist. Therefore, applying basic principles of contract law, the parties, by mutual consent, can amend a contract's terms.

The principle that the government must have freedom of contract was reiterated by the Supreme Court in the 1994 judgment in Tata Cellular vs Union of India. Evoking the words of Justice Holmes, the Supreme Court opined that, "A fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere." In other words, a court cannot examine the details of the terms of the contracts which have been entered into by the public bodies. The Supreme Court noted that the right to choose itself is not an arbitrary power. This means that the government's choice of entering into a contract and subsequently modifying the same is not per se arbitrary and illegal. If thecontract has been entered into after an objective consideration of different options available taking into account the interest of the state and the public, then the court cannot substitute its opinion for that of the government in respect of the selection made in entering into the contract.

In a 1996 judgment in Delhi Science Forum vs Union of India, the Supreme Court held that courts should be reluctant to interfere with the selection made by a statutory authority in granting a license. The scope of judicial review must be limited to inquiry whether the statutory authority acted arbitrarily or unreasonably. The principle that the government has freedom of contract was reiterated by the Supreme Court in the 1996 judgment in Sterling Computers vs M&N which stands for the proposition that a court cannot examine the details of the terms of the contract which have been entered into by public bodies or the state. Once again, the court held that if the contract has been entered into after an objectiveconsideration of different options available taking into account the interests of the state and the public, then the court cannot substitute its opinion for that of the government.

The petitioner has further contended that since the telecom licenses were granted following receipt of competitive bids and the grant of the license is akin to the auction of public property, the licenses cannot be modified without calling for fresh tenders. However, it is well-settled that, while one of the methods of securing the public interest is to sell state-owned property by public auction or by inviting tenders, this rule is not invariable. There may be situations where there are compelling reasons necessitating departure from the rule.

This principle was reiterated by the Supreme Court in the Sterling Computers case which is similar to the instant case in that it also involved amendment of a governmental contract entered into on the basis of competitive bidding without calling for fresh tenders. The MTNL had granted acontract to print yellow pages for five years after inviting tenders for competitive bids, however, the contractor failed to publish the directories. The MTNL decided to enter into a supplemental agreement with the contractor under which the original contract was extended for five more years without inviting any tenders for the supplemental agreement. As in this case, it was alleged that the supplemental agreement had been entered into to benefit the parties who were defaulters and the MTNL's decision not to invite fresh tenders was also challenged. Although the court found that the MTNL had taken irrelevant factors into consideration in reaching its decision, the principle remains that there may be situations where there are relevant reasons and circumstances which justify amendment of government contracts without inviting fresh tenders.

Therefore, the contention that the government cannot modify any of the terms of statutory license, even with the consent of the licensee, and must terminate the same isnot supported by law. Therefore, the contention that the telecom operators cannot shift to a revenue-sharing regime without once again calling for competitive bids is also not a sustainable proposition of law.

The author is a Delhi-based advocate