The Supreme Court and High Courts in India enjoy the powers of judicial review of administrative actions and this is recognised as one of the basic features of the Constitution. It is settled law that a public authority cannot act arbitrarily even in the matter of awarding contracts, or distributing largesse. There is a public element in all its activities and it must conform to the mandates of Constitution and observe tenets of equality and the principle of fair action. It cannot be denied that the principles of judicial review would apply to the exercise of contractual powers by Government bodies in order to prevent arbitrariness or favouritism. However, it must be noted that there are inherent limitations in the exercise of that power of judicial review.
Even in the matter relating to State’s contract with the private parties, fair play in action must be the basis of the policy. State for good and sufficient reasons has the right not to accept the lowest tender of all the tenders, but it is obligatory upon the Government to act fairly and at any rate, it cannot act arbitrarily. The Government while granting a contract is not free like an ordinary individual to deal with any person it pleases.
Similarly, the exercise of contractual power by the Government or its authority is subject to judicial review for being tested by the application of Wednesbury principle of reasonableness, and for ensuring that it is free arbitrariness, favouritism, irrationality, illegality etc.
Scope of Judicial Review
While exercising the power of judicial review, in respect of a contract entered on behalf of the State, the court is concerned primarily as to whether there has been any infirmity in the “decision-making process”. By way of judicial review, the court cannot examine the details of the terms of the contract which have been entered into by the public bodies or the State. Courts have inherent limitations on the scope of any such enquiry. But at the same time, the courts can certainly examine whether “decision-making process” was reasonable, rational, not arbitrary and violative of the principles of equality enshrined in the Constitution. If the contract has been entered into without ignoring the procedure which can be said to be basic in nature and after an objective consideration of different options available taking into account the interest of the State and the public, then court cannot act as an appellate authority by substituting its opinion in respect of selection made for entering into such contract. But once the procedure adopted by an authority for purpose of entering into a contract is held to be against the mandate of the Constitution, the court cannot ignore such action saying that the authorities concerned must have some latitude or liberty in contractual matters and any interference by court amounts to encroachment on the exclusive rights of the executive to take such decision.
Lord Scarman in Nottinghamshire county Council v. Secretary of State for the Environment  AC 240 proclaimed:
Judicial review is a great weapon in the hands of the judges, but the judges must observe the constitutional limits set by our parliamentary system upon the exercise of this beneficent power. Judicial review is concerned with reviewing not the merits of the decision in support of which the application for judicial review is made, but the decision-making process itself. Judicial review does not mean the court should take over the contracting powers.
Judicial review is not intended to take away from those authorities the powers and discretions properly vested in them by law and to substitute the courts as the bodies making the decisions. It is intended to see that the relevant authorities are exercising their powers in a proper manner.
When Courts can review administrative actions
Generally, courts do not interfere with the policy decisions of the state or its authorities. They are also loath to interfere with the State’s freedom to contract including the laying down of the conditions of the tender and the notice inviting tenders. But where the action of the policy decision of the Government is vitiated by arbitrariness, unfairness, illegality and irrationality, courts can interfere in its jurisdiction.
The Court could interfere in the following three categories of cases:
- Administrative, for example, price fixing;
- Award of contracts.
The parameters for interference in such matter would be:
- Mala fide;
- Arbitrariness to the extent of perversity.
If none of these is present, the court may not interfere. The government is the guardian of the finances of the State. It is expected to protect the financial interest of the State. Judicial quest in administrative matters has been to find that right balance between the administrative discretion to decide matters and the need to remedy any unfairness.
Restriction on Courts power of judicial review
In Chief Constable of the North Wales Police v. Evans  3 All ER 141 Lord Brightman said:
Judicial review, as the words imply, is not an appeal from a decision, but a review of the manner in which the decision was made. Judicial Review is concerned, not with the decision, with the decision-making process. Unless that restriction on the power of the court is observed, the court will, under the guise of preventing the abuse of power, be itself guilty of usurping power.
The duty of the court is to confine itself to the question of legality. Its concern should be:
Whether a decision-making authority:
- exceeded it’s powers?
- committed an error of law;
- committed a breach of the rules of natural justice;
- reached a decision which no reasonable tribunal would have reached; or
- abused its powers.
Therefore, it is not for the court to determine whether a particular policy or particular decision taken in the fulfilment of that policy is fair. It is only concerned with the manner in which those decisions have been taken. The extent of the duty to act fairly will vary from case to case, shortly put, the grounds upon which an administrative action is subject to control by judicial review can be classified as under :
- Illegality: This means the decision-maker must understand correctly the law that regulates his decision-making power and must give effect to it.
- Irrationality, namely, Wednesbury unreasonableness;
- Procedural impropriety.
A decision of a Public authority will be liable to be quashed or otherwise dealt with by an appropriate order in judicial review proceedings where the Court concludes that the decision is such that no authority properly directing itself on the relevant law and acting reasonably could have reached it (Associated Provincial Picture Houses Limited v. Wednesbury Corporation  1 K.B. 223; 2 All E.R. 680, Lord Green M.R.)
It is open to the court to review the decision maker’s evaluation of the facts. The court will intervene where the facts taken as a whole could not logically warrant the conclusion of the decision-maker. If the weight of facts pointing to one course of action is overwhelming, then a decision the other way cannot be upheld. A decision would be regarded as unreasonable if it is biased and unequal in its operation as between different classes.
There has been considerable development and tremendous changes in the administrative law. It can be seen that the Courts have now set certain principles for judicial review, which are:
- The modern trend points to judicial restraint in administrative action.
- The Court does no sit as a court of appeal but merely reviews the manner in which the decision was made.
- The Court does not have the expertise to correct the administrative decision. If a review of the administrative decision is permitted it will be substituting its own decision, without the necessary expertise which itself may be fallible.
- The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract. Normally speaking, the decision to accept the tender or award the contract is reached by a process of negotiations through several tiers. More often than not, such decisions are made qualitatively by experts.
- The Government must have freedom of contract. In other words, a fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness but must be free of arbitrariness, not affected by bias or actuated by malafides.
- Quashing decisions may impose a heavy administrative burden on the administration and lead to increased and unbudgeted expenditure.