Judicial Restraint in Tender Matters: A Perspective

Introductory remarks

Inviting open tenders is widely regarded as the most suitable method of public procurement and allocation of State largesse because it encourages competition among interested parties, promotes fair play, and reduces the likelihood of corruption in the process. However, it has been widely observed that tender processes are frequently abused in several circumstances.

Contracts by the State, its corporations, instrumentalities, and agencies must normally be granted through public auction/public tender by inviting tenders from eligible persons, and the notification of the public auction or inviting tenders must be advertised in well-known dailies with wide circulation in the locality with all relevant details such as date, time, and place of auction, subject-matter of the auction, technical specifications, etc. There exists a large variety of tender and auction processes, each one with its own nuances and the rightful choice would assure maximisation of revenue returns, irrespective of whether the means adopted should technically and correctly be described as tender, tender-cum-auction, or auction.¹ The purpose of awarding government contracts through public auction/public tender is to ensure transparency in public procurement, maximise economy and efficiency in government procurement, promote healthy competition among tenderers, provide fair and equitable treatment of all tenderers, and eliminate irregularities, interference, and corrupt practices by the authorities involved. This aforesaid rule is required by Article 14² of the Constitution. This normal rule may be deviated from in rare and exceptional cases, such as during natural calamities and declared emergencies; where procurement is possible from a single source only; where the supplier or contractor has exclusive rights in respect of the goods or services and no reasonable alternative or substitute exists; where the auction was held on several dates but there were no bidders or the bids offered were too low, and so on.

When there is an involvement of State agencies or its instrumentalities, public authorities and they are parties in a contract, the legal and constitutional mandates have to be observed upon, consequently such authorities cannot act in an arbitrary manner while awarding the contract and they are bound to comply proper procedural fairness, legality, and constitutionality. The matter of concern which ascends in the minds of people that what would be the role of judiciary if such requirements are not complied with by the State or its authorities concerned? What is the scope of judicial review if a party is aggrieved by the decision of public authority while awarding the contract?

Doctrine of judicial review

Judicial review is a “remedy of last resort”. The origin of the power of judicial review of legislative action may be very traced from the classic enunciation of the principle by John Marshall, C.J. of the US Supreme Court in William Marbury v. James Madison³. Broadly speaking, judicial review in India comprises three aspects: judicial review of legislative action, judicial review of judicial decisions and judicial review of administrative action.⁴ “The study of constitutional law may be described in general terms as a study of the doctrine of judicial review in action”.⁵ Judicial review means that the judiciary can declare a law or legislation unconstitutional if it is beyond the competence of legislature according to the distribution of powers under Article 246⁶ of the Constitution of India, or it is in contravention of fundamental rights or any of the mandatory provisions of the Constitution under Articles 301⁷ and 304⁸ of the Constitution of India. Even in the absence of such express constitutional provisions, the Court can invalidate a law which contravenes any right or is ultra vires, inasmuch as power of judicial review follows from the very nature of the constitutional law. The “reasonable restrictions” in the case of fundamental rights are subject to court's supervision. Judicial review is thus “the interposition of judicial restraint on the legislative as well as executive organs of the Government”. The Supreme Court has characterised judicial review as a “basic feature of the Constitution”⁹. Judicial review involves determination not only of the constitutionality of the law but also of the validity of administrative action. The actions of the State public authorities and bureaucracy are all subject to judicial review; therefore, they are accountable to the courts for the legality of their actions.

Foreign prospective: Other jurisprudence

The English approach to the justiciability of government contracting decisions is as complex as the New Zealand approach. The English courts’ approach has a tendency to confound two distinct propositions. The first is the rejection of judicial review in cases where the claim is purely contractual but is being pursued under public law. The second claim is that, in a contractual setting, even if “fundamental public law principles” should apply, they are precluded by the contractual context. The English courts have tended to allow judicial review only in relation to decisions which contain a “public law element”.¹⁰ However, it paints a rather hazy picture of what constitutes an element of public law. The public law element has been found in the following decisions: the decision to terminate an individual’s common law right to be a stallholder; a local authority’s failure to adhere to a specific policy relating to the retention or disposal of certain types of land; and a legal aid board’s failure to use a fair tender process in relation to a matter of significant public importance.

The Canadian courts do not appear to have fared much better; “the law governing judicial review of procurement decisions in Canada is still in a state of turmoil or confusion.” While not all government contracting decisions are procurement decisions, many of the issues raised in a procurement context apply equally to other forms of government contracting. Air Canada v. Toronto Port Authority¹¹ adopted an approach to the question of whether a matter is public, thus warranting judicial review, or private and thus excluded from judicial review.

Suggestive views were that the courts can resolve the issue by drawing on values in common to both public and private law which will be capable of bridging the divide, or by developing a “law of public contracts”. However, the New Zealand courts are still a long way from getting there. Although the justiciability of government contracting decisions is a contentious issue, it is now widely accepted in South Africa that at the very least, the decision to award a public tender and the subsequent procurement process constitute administrative action. Consequently, the Supreme Court of Appeal confirmed recently that: “Ordinarily, where there has been a reviewable irregularity in the award of the tender, an unsuccessful tenderer would be entitled to call for the award to be set aside”.¹²

In South Africa, public procurement disputes are resolved in the ordinary courts, primarily the High Court, with appeals to the Supreme Court of Appeal. Because public procurement regulation is based on Section 217¹³ of the South African Constitution, such disputes may eventually end up in the Constitutional Court.¹⁴ As a result, there is no separate or special court or tribunal tasked with enforcing public procurement rules. This has played an important role in the development of South African public procurement law, as suppliers have relied on general remedies in contract and administrative law in procurement disputes, and ordinary courts have granted relief using general civil remedies. Litigation on public procurement disputes is fairly common in South Africa, as Nugent, JA noted in South African Post Office v. De Lacy¹⁵: “Cases concerning tenders in the public sphere are coming before the courts with disturbing frequency.” Recourse to courts in public procurement disputes can be categorised into three main areas, viz. interim relief, judicial review, and damage claims.

Doctrine of judicial restraint: A boon or bane

As a result, there has been a significant increase in the scrutiny of tenders in writ proceedings under Article 226¹⁶ of the Indian Constitution, and it appears that almost every tender, no matter how small or large, is now routinely challenged through writ petitions. However, the Supreme Court has repeatedly held that judicial review is equivalent to judicial restraint in these cases. The manner in which the decision was made is being scrutinised, not the decision itself. The writ court lacks the expertise to correct such decisions by substituting its own decision for the authority’s decision. This was clearly held in the well-known case of Tata Cellular v. Union of India¹⁷, which stated as under:

94. The principles deducible from the above are:

(1) The modern trend points to judicial restraint in administrative action.

(2) The court does not sit as a court of appeal but merely reviews the manner in which the decision was made.

(3) 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.

(4) 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 process of negotiations through several tiers. More often than not, such decisions are made qualitatively by experts.

(5) 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 (including its other facts pointed out above) but must be free from arbitrariness not affected by bias or actuated by mala fides.

(6) Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure.

Our Courts have consistently held that judicial intervention in the tender process should be kept to a bare minimum in order to preserve institutional autonomy. One of the principles outlining the powers and duties of the State and its agents was stated in Tata Cellular case¹⁸:

“The Government must have freedom of contract. In other words, fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere.”

Moreover, in Michigan Rubber (India) Ltd. v. State of Karnataka¹⁹, the Supreme Court held that if State or its instrumentalities acted reasonably, fairly and in public interest in awarding contract, interference by Court would be very restrictive since no person could claim fundamental right to carry on business with the Government. Therefore, the Courts would not normally interfere in policy decisions and in matters challenging award of contract by State or public authorities.

It is a well-established legal principle that under Article 226 of the Constitution, an aggrieved party may challenge the tender inviting authority’s decision on limited grounds, such as arbitrariness and mala fide. Therefore, in the present case, without doubting the constitutional power of Supreme Court in order to mould the relief, one fails to understand how the Supreme Court can uphold and award a contract even it is vexed with arbitrariness and mala fide manner. To that extent the Court should somewhat adopt its earlier dictum in Tata Cellular case²⁰, that the Courts must “refrain from interfering in the grant of tender but instead relegate the parties to seek damages for the wrongful exclusion rather than to injunct the execution of the contract.”  In fact, in Tata Cellular case²¹, the Supreme Court had observed that although a Court does not sit in appeal over a decision made by the tender authority, however, such a “decision must not only be tested by the application of Wednesbury principle of reasonableness … but must be free from arbitrariness not affected by bias or actuated by mala fides.”

Further, there are two limitations of the approach as adopted by the Supreme Court in this case. For starters, calculating or assessing damages after a party has been wrongfully excluded from a tender will be extremely difficult. Tender awarded construction projects are typically those with national and/or commercial significance. As a result, these projects require significant investment and take years to complete. In such a case, calculating the damages to which an aggrieved/wrongfully excluded party is entitled will be extremely difficult. Second, fighting a court battle to recover damages will be unfair to the party who was wrongfully excluded from a tender.

As a result, where the evidence suggests that the awarding of the tender was tainted by mala fide or arbitrariness, the High Courts must stay the project’s execution until final adjudication. Because this could jeopardise the project, the Supreme Court has correctly suggested in this case that tender disputes be heard directly by the Division Bench. Furthermore, Parliament/judiciary may consider imposing a time-limit on the resolution of disputes arising from the award of a tender.

In technical matter: Even narrower scope of review 

If the approach is arbitrary or malicious, or if the procedure is designed to favour one, judicial review is required. The decision-making process should clearly demonstrate that the aforementioned maladies are kept at bay. But where a decision is taken that is manifestly in consonance with the language of the tender document or subserves the purpose for which the tender is floated, the court should follow the principle of restraint. Technical evaluation or comparison by the court would be impermissible. The principle that is applied to scan and understand an ordinary instrument relatable to contract in other spheres has to be treated differently than interpreting and appreciating tender documents relating to technical works and projects requiring special skills. The owner should be allowed to carry out the purpose and there has to be allowance of free play in the joints.²² Just because a project might have national importance or is in the public interest, the tender inviting authority must not be permitted to get away with an arbitrary or mala fide action. When it comes to projects having national/public importance, the law must strictly prevent arbitrary or mala fide actions of the State and ensure that only the rightful party gets awarded. This is simply because these projects mostly become the showpiece of a nation's economy and highlight the development of a country. Awarding such contracts to non-deserving parties would thus be a step in the wrong direction. For example, construction of a highway connecting multiple States would undoubtedly have national and public importance. In such cases, it is extremely important that the awarding of tender is not vitiated by mala fide or bias. This is so because if such projects are not completed on time or are poorly executed, the country's economy suffers.

In Afcons Infrastructure Ltd. v. Nagpur Metro Rail Corpn. Ltd.²³, it was held that:

13. … a mere disagreement with the decision-making process or the decision of the administrative authority is no reason for a constitutional court to interfere. The threshold of mala fides, intention to favour someone or arbitrariness, irrationality or perversity must be met before the constitutional court interferes with the decision-making process or the decision.

* * *

15. … It is possible that the owner or employer of a project may give an interpretation to the tender documents that is not acceptable to the constitutional courts but that by itself is not a reason for interfering with the interpretation given.

Further, the Supreme Court in the judgment in Silppi Constructions Contractors v. Union of India²⁴, held as follows:

19. …This Court is normally loathe to interfere in contractual matters unless a clear-cut case of arbitrariness or mala fides or bias or irrationality is made out. One must remember that today many public sector undertakings compete with the private industry. The contracts entered into between private parties are not subject to scrutiny under writ jurisdiction…. The courts must realise their limitations and the havoc which needless interference in commercial matters can cause. In contracts involving technical issues the courts should be even more reluctant because most of us in Judges’ robes do not have the necessary expertise to adjudicate upon technical issues beyond our domain. As laid down in the judgments cited above the courts should not use a magnifying glass while scanning the tenders and make every small mistake appear like a big blunder. In fact, the courts must give “fair play in the joints” to the government and public sector undertakings in matters of contract. Courts must also not interfere where such interference will cause unnecessary loss to the public exchequer.

As a result, the Supreme Court has consistently held that judicial intervention in public authority decisions relating to contract award should be limited, and contracts entered into between private parties should not be scrutinised by courts using their writ jurisdiction. However, because public authorities are involved, the courts do allow for intervention in terms of how a decision, action, or process was reached. To be successful, the challenging party must show that the public authority’s decision, action, or process was (a) arbitrary, irrational, mala fide, whimsical, or contrary to law; (b) done to favour someone; or (c) done with an ulterior motive; (d) an abuse of statutory powers; or (e) harming the public interest. Furthermore, the challenging party could show that the condition for which non-compliance is being claimed was essential or non-essential. It is now well established that the courts can scrutinise the award of contracts by the Government or its agencies in order to prevent arbitrariness or favouritism.

Hands off: Foreign funded project

If we analyse one of the judgments passed by Supreme Court of India in National High Speed Rail Corpn. Ltd. v. Montecarlo Ltd.²⁵stated as follows:

46. It is always to be borne in mind and as observed by this Court in Asia Foundation & Construction Ltd. v. Trafalgar House Construction (I) Ltd.²⁶, it is difficult for a developing country to go ahead with such a high-cost project unless the developed country grant loan/subsidy and/or ready to fund such high-cost projects, which are very important projects for developing country, more particularly, when the developed country is ready to fund a huge amount at a minimal concessional rate of interest and on suitable terms and conditions of repayment. It is also to be noted that any delay in execution of such a mega project, which is very important project for the developing country like India may not be in the larger public interest and in the nation's interest. Such an interference by the courts midway and delay in the projects like these which is funded by the foreign countries on bilateral mutual understanding/agreement by the developed country to a developing country may affect the future investments/funding.

47. Many a times, such a delay in the execution of the project due to the intervention by the courts may have cascading effect on the project cost and ultimately may increase the project cost and may impose heavy financial burden and lead to increased and unbudgeted expenditure. Therefore, while exercising the writ jurisdiction challenging the tender process midway and/or while entertaining the writ petition challenging the award of contract with respect to such mega projects, more particularly, when such mega projects are funded by the foreign countries, the courts have to bear in mind the … principles laid down by this Court in Tata Cellular v. Union of India²⁷.

The courts, generally, do not interfere in the actions and decisions taken by the government bodies without giving a second thought. Only when there exists arbitrariness, foul play, and favouritism then only the power of judicial review is invoked. Even then the court does not indulge in the decision or on what grounds such a decision had been made but on the principles of illegality, irrationality, and procedural impropriety.

Court's approach: The epilogue

Jurisprudence in this matter is mature enough that the sanctity of such matter will not be interfered except in rare or exceptional case but the scrupulous and frivolous litigations by the unsuccessful parties to the tender process with their imaginary grievances is a matter of concern of the overburdened courts. This issue was recognised in Uflex Ltd. v. State of T.N. wherein it was stated that:

“3. … attempts by unsuccessful tenderers with imaginary grievances, wounded pride, and business rivalry, to make mountains out of molehills of some technical/procedural violation or some prejudice to self and persuade courts to interfere by exercising power of judicial review, should be resisted.”²⁸

Moreover, let us look further towards the view adopted in Uflex case²⁹as prescribed herein below:

1. The enlarged role of the Government in economic activity and its corresponding ability to give economic “largesse” was the bedrock of creating what is commonly called the “tender jurisdiction”. The objective was to have greater transparency and the consequent right of an aggrieved party to invoke the jurisdiction of the High Court under Article 226 of the Constitution of India …, beyond the issue of strict enforcement of contractual rights under the civil jurisdiction. However, the ground reality today is that almost no tender remains unchallenged. Unsuccessful parties or parties not even participating in the tender seek to invoke the jurisdiction of the High Court under Article 226 of the Constitution. The public interest litigation (PIL) jurisdiction is also invoked towards the same objective, an aspect normally deterred by the Court because this causes proxy litigation in purely contractual matters.

2. The judicial review of such contractual matters has its own limitations. It is in this context of judicial review of administrative actions that this Court has opined that it is intended to prevent arbitrariness, irrationality, unreasonableness, bias, and mala fides. The purpose is to check whether the choice of decision is made lawfully and not to check whether the choice of decision is sound. In evaluating tenders and awarding contracts, the parties are to be governed by principles of commercial prudence. To that extent, principles of equity and natural justice have to stay at a distance.

Freedom of contract

When inviting tenders, public authorities have the freedom to set their own terms and even engage in negotiations before deciding to accept one of the offers made to them. They are also free to grant any relaxation for legitimate reasons if the tender is allowed. However, in order to ensure the fairness of public procurement procedures in India, the Supreme Court of India in B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd.³⁰, laid down certain checks and balances as hereunder:

(a) If there are essential conditions, they must be followed.

(b) If there is no such power of general relaxation, it should not be used, and the principle of strict compliance should be pragmatic where all parties can fully comply with all such conditions.

(c) If, however, a deviation is made in relation to all the parties in regard to any of these conditions, a power of relaxation may be held to exist once more.

(d) The parties who have benefited from such relaxation should not ordinarily be allowed to take a different stand in relation to compliance with another part of the tender contract, particularly when he was also unable to fully comply with all the tender conditions, unless the court otherwise finds relaxation of a condition which, being essential in nature, could not be relaxed and thus the same was wholly illegal and without jurisdiction.

(e) When the appropriate authority makes a decision based on due consideration of the tender document submitted by all tenderers on their own merits, and it is ultimately determined that successful bidders substantially complied with the purport and object for which essential conditions were laid down, the decision may not ordinarily be interfered with.

(f) The contractors are not permitted to form a cartel. If, despite this, their bids are considered and they are given an offer that matches the rates quoted by the lowest tenderer, the public interest will take precedence.

(g) When a decision is made solely in the public interest, the Court should normally exercise judicial restraint.

Conclusion

Judicial review is the inherent power of the higher courts to look over or review the decision or action taken by a public authority. It is done to check the correctness and lawfulness of a decision, but the correctness does not mean that in the manner relevant to facts and circumstances of a case but in the sense that the decision is taken keeping in view of the laws laid down and the constitutional provisions. Any decision taken should not be arbitrary or unreasonable in nature as established in a plethora of judgments given by the Supreme Court. Thus, to check any misuse of power this right is given to the higher judiciary. Thus, it can also be said that judicial reviews are a challenge to the way in which a decision has been made, rather than the rights and wrongs of the conclusion reached. When the tender condition itself is unclear, the courts are forced to allow re-evaluation of the bids submitted by the tenders, or else directions are issued to restart the tendering process by issuing new tenders. In both cases, the public is harmed as a result of delays in project execution and completion. Even though the Supreme Court has always tried to keep the public interest in mind when hearing contractual disputes pertaining to tender award, such disputes ultimately affect the public.

While scope of judicial review, being a dynamic concept requires flexibility in its application in exact facts and circumstances of a particular case which may land before a particular court. However, emanating from recent emphasis on hand-off approach in commercial matters and the recently articulated liberal interference by the courts in commercial matters have to be somewhat treated in accordance with the sentiments of Indians thus, the Supreme Court needs to trickle down to the High Courts below. The emerging restraint is a welcome trend and the said judicial trends of the courts should inculcate this trend to respect the sanctity of tender process. This assumes further significance raised by scholars in view of criticisms regarding different intervention of court in the economic, financial, policy matters and its consequent adverse impact on the economy as a whole.