Court case(1979) 3 SCC 489

The Airport Authority invited tenders for running a second-class restaurant and two snack bars at Bombay airport; the notice required bidders to be registered second-class hoteliers with at least five years' experience. The highest tender came from a party who did not satisfy this condition, yet it was accepted. Shetty, who had not tendered at all, challenged the acceptance under Article 226 and then in the Supreme Court as arbitrary and violative of Article 14.

Bhagwati J held that the Authority is 'State'. He formulated the factors that indicate an instrumentality: the entire share capital held by government; financial assistance so large as to meet almost the whole expenditure; a monopoly status conferred or protected by the State; deep and pervasive State control; functions of public importance closely related to governmental functions; and the transfer of a government department to a corporation. He further held that the government, when giving largesse such as contracts, licences and jobs, cannot act arbitrarily at its sweet will; it must act fairly and by a standard that is not arbitrary. On the facts, however, relief was refused: the petitioner had not himself tendered, was not eligible, and had approached the court late.