A two-judge bench of Justice L. Nageswara Rao and Justice S. Ravindra Bhat dismissed the appeals filed by the parties who had been accused of misappropriating the funds allotted for the development of housing for the economically backward section of the society while holding that, "In the present case, even if the public interest litigants' motives were ambiguous, or not immediately bona fide, that could not have led to dismissal of the writ petition, before the High Court. The objection as to lack of standing of the public interest litigants, therefore, is without merit". It was urged that the Petitioners in the PIL were councilors, and politically motivated.

In the case at hand, PILs were filed against the present Appellants for the alleged misappropriation of government funds in the implementation of the housing scheme in the municipality. The PIL Petitioners contended that the houses were not constructed in the stipulated time period. It was further submitted that the quality of work carried out was poor and that the work was not inspected or supervised, as prescribed by the Centre's Integrated Housing and Slum Development Programme.

Furthermore, the PIL Petitioners alleged that contrary to the directions issued by the Central and the State Governments, the Appellants had diverted the funds meant for the said development project, for other works.

Pursuant to an order of the Bombay High Court, the Divisional Commissioner of the Aurangabad Division constituted a committee for spot inspection. This committee subsequently, submitted its report where it found many irregularities. The Divisional Commissioner then directed the Chief Officer of the municipality to recover the funds that had been excessively paid. The Committee also suggested the initiation of criminal proceedings against those who had committed such irregularities. The High Court accordingly directed the Appellants to take steps in the light of the report as expeditiously as possible. The High Court disposed of the writ petition directing the Respondents to take steps in the light of the report.

Aggrieved with the outcome, the Appellants moved the Supreme Court for relief. Before the Court, the Appellants argued that those criminal proceedings have been initiated against them even though they were not heard in the public interest proceedings and that the judgment is vitiated on account of their non-participation. It was further contended that the PIL was filed with malafide intent as the Petitioners were politically motivated.

Coming to the issue of misappropriation of funds, the Respondents contended that though the construction work had stopped for over many years, yet amounts were withdrawn from the accounts allotted for the work, throughout the years, leading to the inference that funds were utilized elsewhere.

First and foremost, the Court noted that the time gap between the pronouncement of the order by the High Court and the operative part of the reasons is a year and over three months. In this regard, the High Court's conduct in not furnishing reasons, either at the time of pronouncement of the operative part of the judgment or before the commencement of the next working day (of the court) was strongly deprecated.

"In this case, the High Court incontestably should have furnished the reasons for the operative portion of its order. To that extent, the appellants' grievance is justified.", noted the Apex Court.

However, the Court further held that although the delay in furnishing the reasons might have caused prejudices, however, that should not be enough grounds to set aside the impugned judgment of the High Court

"This court is however reluctant to hold – having regard to the circumstances and the facts on the record - that the absence of reasons struck at the legitimacy of the impugned judgment. It caused prejudice no doubt, to the extent that the appellants were unable to furnish grounds on which their special leave petitions were based. However, that prejudice stood off-set with the interim orders of this court, which recognized the piquancy of the situation, and directed stay of further action against the appellants. In view of these special circumstances, the court is of the opinion that the impugned order should not be set aside.", held the Court.

Secondly, coming to the contention that the PIL Petitioners had initiated criminal proceedings against the Appellants with a personal motive, the Court held:

"The cause espoused by the said individuals was undoubtedly one of public interest, because it concerned housing for the economically disadvantaged sections of society, in such great numbers. The scheme was meant to benefit thousands of persons, and over a thousand housing units were to be constructed and allotted to the beneficiaries. In view of the inquiries and the reports, conducted and prepared during the proceedings, there could have been no manner of doubt that the initiation of public interest proceedings, were justified, having regard to the contents of such reports. In the present case, even if the public interest litigants' motives were ambiguous, or not immediately bona fide, that could not have led to dismissal of the writ petition, before the High Court. The objection as to lack of standing of the public interest litigants, therefore, is without merit."

The Court also noted that while the High Court took time to publish the reasoning for their order, there was no direction to prosecute the Appellants per se. "It merely required the Divisional Commissioner to take the necessary steps, which were not limited to the launching of criminal prosecution but also taking steps towards reconstruction of the flats for the intended beneficiaries.", observed the Court.

Coming to the matter of construction of the houses, the Court observed, "The main objective of providing housing to 1206 eligible and deserving families remains unfulfilled despite expenditure of substantial amounts. In the circumstances, the argument of the appellants that they ought to have been heard even before action was initiated, does not commend to this Court; it is not sound. "

Therefore, the Supreme Court dismissed these appeals. While concluding, the Court held, "However, it is made clear that the observations made by the High Court or the observations of this court, in the course of this judgment shall not be construed as precluding any argument or defences, the merits of any argument or defence that may be taken by the appellants in the course of the criminal proceedings."