Delhi High Court: In a case wherein five inter-connected petitions were filed to challenge the eligibility criteria enumerated in the Notice Inviting Tenders (‘NITs’) floated by the three leading Oil Marketing Companies (‘OMCs’), namely, Hindustan Petroleum Corporation Limited (‘HPCL’), Bharat Petroleum Corporation Limited (‘BPCL’), and Indian Oil Corporation Limited (‘IOCL’) and the petitioners’ grievance was that the eligibility conditions unduly curtailed the capacity of each manufacturing unit owned by them, to independently participate in the tender process, the Division Bench of Satish Chandra Sharma, C.J., and Sanjeev Narula, J.*, opined that in the present case, the ‘conflict of interest’ clause did seem to have a rational basis rooted in the realities of the LPG cylinder market and given the overarching objective of equitable distribution in the face of plummeting demand, the introduction of the impugned clause did not appear to be arbitrary or unreasonable. Instead, it was a calibrated measure to adapt to the changing dynamics of the market while ensuring fairness and broad-based participation. The Court thus dismissed the petitions and held that the challenges faced by the petitioners in adapting to these changes did not constitute sufficient grounds for this Court to intervene in the matter.
Background
The petitioner, Silica Udyog India (P) Ltd. and its sister concerns, namely, Silica InfoTech (P) Ltd., and Amarpali Cylinders (P) Ltd, were recognized ‘small enterprises’ under the
The special preferences outlined in the 2017, NITs fostered a genuine expectation among potential vendors, such as the Petitioners, who anticipated that OMCs would remain consistent with their policy. Driven by this belief, the petitioners secured loans from financial institutions to establish additional manufacturing units and even secured BIS and PESO licenses for each of these units. The petitioner was incorporated on 26-02-2019, with an intent to secure supply orders under the tenders floated by OMCs. In 2019, OMCs released NITs containing the special provisions which were initiated in 2017. However, the aforesaid NITs were unexpectedly cancelled, resulting in substantial losses for the petitioner.
Subsequently, on 31-03-2023, the OMCs released fresh tenders for procurement of high tensile strength LPG cylinders weighing 14.2 kilograms (‘March 2023 NITs’). Under the eligibility criteria enumerated in these NITs, all manufacturing units having common business ownership or management, including sister companies, must quote a single bid. Therefore, vendors like the petitioners were effectively barred from submitting bids separately through each manufacturing unit. Aggrieved by this, the petitioner along with the sister concerns, filed writ petitions seeking quashing of the aforesaid eligibility criteria.
Analysis, Law, and Decision
The Court observed that the primary tenet of any public procurement process was to ensure fair competition. The Court noted that the impugned clause, aimed at levelling the playing field, did not bar any entity from participating; instead, it limited the number of bids that they could submit. The Court opined that these restrictions seek to prevent a single entity or entities with common ownership or management from unduly benefiting by submitting multiple bids and thus, monopolizing the market.
The Court observed the supply-demand ratio of LPG cylinders and opined that the data underscores a dwindling demand for LPG cylinders over recent years. The Court opined that “this decline was particularly highlighted by the disparity between the number of units tendered and the bids actually received, painting a clear picture of an oversupply situation. This waning demand provided crucial context for the introduction of the ‘conflict of interest’ clause in the March and August 2023 NITs. It would potentially mitigate the risk of market monopolization by entities capable of inundating the tender process with multiple bids from distinct manufacturing units or affiliated entities. In such a situation, if multiple units under the same ownership or management were allowed to bid separately, it could disproportionately benefit them, thereby defeating the principles of fair competition and equitable distribution”.
The Court opined that the impugned clause safeguarded the interests of the market, rather than selected a few entities and this approach aligned with the broader principle of maintaining market integrity and ensuring the welfare of all participants. There was thus, considerable merit in the OMCs decision to introduce the restriction. The Court further opined that the “impugned clause, although a departure from previous policies, was not arbitrary or unreasonable. Its intent was to promote fair competition and ensure diversified participation in the bidding process, while adapting to the current market dynamics. This eligibility condition was a protective measure for newer and smaller manufacturers. By restricting larger entities with multiple manufacturing units from flooding the tender with numerous bids, the clause provided newer entities a fair shot at securing the tender”. Thus, the Court held that it did not find the impugned clause to be unreasonable or arbitrary.
The Court opined that the petitioners’ proposition to cap allotments as a means of ensuring equitable distribution presented another viable alternative, however, it was crucial to recognize that achieving equity in market participation could be accomplished through various mechanisms. The Court further opined that it was not within the purview of this Court to substitute its judgment for that of the OMCs unless their decision was found to be arbitrary or capricious. Therefore, unless proven otherwise, it was for the OMCs to establish the conditions under which the tendering process operates, ensuring that it remains competitive, efficient, and resilient against potential market cornering by a limited set of major players.
The Court also opined that in the present case, the ‘conflict of interest’ clause did seem to have a rational basis rooted in the realities of the LPG cylinder market and given the overarching objective of equitable distribution in the face of plummeting demand, the introduction of the impugned clause did not appear to be arbitrary or unreasonable. Instead, it was a calibrated measure to adapt to the changing dynamics of the market while ensuring fairness and broad-based participation. The Court dismissed the petitions and held that the challenges faced by the petitioners in adapting to these changes did not constitute sufficient grounds for this Court to intervene in the matter.
[Silica Udyog India (P) Ltd. v. Union of India, 2023 SCC OnLine Del 5632, decided on 13-09-2023]
*Judgment authored by: Justice Sanjeev Narula
Advocates who appeared in this case :
For the Petitioner: Parag P. Tripathi, Jayant K. Mehta, Senior Advocates; Aman Nandrajog, Sumeer Sodhi, Varun Tankha, Srinivasan Ramaswamy, Umang Gupta, Tarang Gupta, Vansh Kapoor, Advocates
For the Respondents: Sandeep Sethi, Rajshekhar Rao, Raman Kapoor, Senior Advocates; Ravi Prakash, Asheesh Jain, CGSC; Hardik Bedi, Vedansh Anand, Prajesh Vikram Srivastava, GP; T. Sundar Ramanathan, Vivek Pandey, Sukanya Viswanathan, Shreya Sethi, Vikram Singh Dalal, Riya Kumari, Dushyant Kaul, Digvijay Singh, Biyanka Bhatia, Farman Ali, Usha Jamnal, Aman Rewaria, Yasharth Shukla, Astu Khandelwal, K. D. Sharma, T. Sundar Ramanathan, Vivek Pandey, Sukanya Viswanathan, Biyanka Bhatia, Gaurav Kumar, Ankita Kedia, Praveen Mahajan, Abhinav, Kuna, Advocates
