Case BriefsHigh Courts

Bombay High Court: The Division Bench of Dipankar Datta, CJ and G.S. Kulkarni, J., addressed an issue in light of the principles of judicial review explained that the Government must have freedom of contract.

 “…fair play in the joints is a necessary concomitant for an administrative body, functioning in an administrative sphere or quasi-administrative sphere.”

Factual Matrix

Petitioner was awarded a contract by the respondent – Navi Mumbai Municipal Corporation for a period of 5 years of the work of mechanized housekeeping and multi-purpose services in its health centres, which came to be terminated in 2017 due to non-satisfactory performance.

Issue in the Writ Petitions 

  • Fresh Tender issued for the same work but with a pre-qualification criterion that an eligibility condition providing that “the contractors whose work contract is terminated due to unsatisfactory services or are blacklisted would not be eligible to participate in the tender”

Arbitration Proceedings

On being aggrieved with the termination of contract, arbitration proceedings by the petitioner were initiated against the Corporation.

Petitioner’s Case

Petitioner’s case that if the petitioner is held to be ineligible by application of the said note in Clause 4(g) of the pre-qualification criteria, it would lead to a consequence that the petitioner cannot participate in such contracts of the Corporation although the petitioner is not blacklisted or debarred and yet is being prohibited to participate in such re-tender.

Discussion and Conclusion

Question that falls for determination in the present matter are:

(I) Whether the Municipal Corporation is entitled in law to impose a pre-qualification criterion as contained in Condition 4(g) (supra) to the effect that ‘the contractors whose work contract is terminated due to unsatisfactory services are not eligible to participate in the tender’?

(II) Whether imposing such impugned condition would amount to blacklisting of the petitioner?

In the present matter, while considering the facts and circumstances of the case, Bench discusses some vital points with respect to:

  • legal principles on the authority of the State and its instrumentalities to enter into contracts and
  • Principles of Judicial Review.

Power of Judicial Review is exercised to rein in unbridled executive functioning.

It is not the function of the Court to act as a super board, or with the zeal of a pedantic school master substituting its judgment for that of the administration. The duty of the court is to confine itself to the question of legality of the tender process on the touchstone of Article 14 of the Constitution.

It is not for the Court to determine whether a particular policy or particular decision taken in the fulfillment of that policy is fair. The only concern should be with the manner in which such decision have been taken.

On what grounds is the Judicial Review classified:

Firstly, Illegality: This means the decision-maker must understand correctly the law that regulates his decision-making power and must give effect to it;

Secondly Irrationality, namely, Wednusbury unreasonableness, that is when a decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at. The decision is such that no authority properly directing itself on the relevant law and acting reasonably could have reached it.;

Thirdly Procedural impropriety. The Court does not sit as an appellate authority over the tendering authority, but merely reviews the manner in which the decision was made.

Bench in view of the above-stated expressed that the terms of the invitation to tender cannot be open to judicial scrutiny as an invitation to tender is in the realm of contract.

Further, it was added that the Government must have freedom of contract. Principles laid above are enunciated in the Supreme Court decision of Tata Cellular v. Union of India, (1994) 6 SCC 651.

With respect to taking a review of the authorities and more particularly on the prescription and adherence of essential conditions has laid down principles of judicial review in the Supreme Court decision of BSN Joshi &. Sons Ltd. v. Nair Coal Services Ltd., (2006) 11 SCC 548.

High Court elaborating more, added that the freedom to arrive at legitimate terms and conditions in inviting public offers cannot in any manner be taken away.

Cherished principles of free play in the joints and the liberty to choose a contractor, on terms and conditions fixed by the tendering authority in public interest, cannot be taken away.

Court would not have any expertise to sit in appeal over the tender conditions, the role of the Court is triggered only qua the decision-making process.

Moving forward, Bench examined whether Corporation acted either malafide or arbitrarily with material illegality in having a condition to restrict participation of a bidder whose contract is terminated due to unsatisfactory services?

 It was noted that the said condition was applicable to all the bidders and not just to the petitioner. The corporation made it clear with its condition that it did not desire a party whose work was unsatisfactory in the past to get onboard again, hence in Court’s opinion, the said condition became imperative, considering the nature of the contract.

Hence, Corporation’s condition was in no manner arbitrary and illegal. Therefore, Corporation was entitled in law to impose pre-qualification criteria as it did.

Second Question

 Imposing of impugned condition resulted in blacklisting the petitioner from participating in the tender in question?

Bench in light of the above question noted that a contractor cannot be blacklisted for having breached the terms and conditions of the contract unless a fair hearing was accorded to the party being blacklisted in due adherence to the principles of natural justice.

In Court’s Opinion, the present case is not the one wherein the petitioner can be said to be blacklisted by the Corporation.

In fact, the petitioner’s case is of an implied blacklisting by the Corporation by prescribing of a pre-bid criteria that a contractor whose work contract is terminated due to unsatisfactory performance is not eligible to participate in the tender.

Hence, present case is not of blacklisting.

It is also fallacious for the petitioner to label such condition as a condition of an implied blacklisting of the petitioner in future tenders to be issued by the Corporation. This is only a presumption of the petitioner. 

Concluding with the decision, High Court held that the petitions failed and were accordingly rejected. [BVG India Ltd. v. State of Maharashtra, 2021 SCC OnLine Bom 412, decided on 19-03-2021]


Advocates before the Court:

Mr. V. A. Thorat, Senior Advocate with Mr. Ashutosh M. Kulkarni and Mr. Sarthak S. Diwan for the Petitioner.

Mr. Sandeep Marne, for the Respondents.

Mr. P. P. Kakade, Government Pleader with Ms .R.A. Salukhe, AGP for State.

Case BriefsHigh Courts

Jammu and Kashmir High Court: Javed Iqbal Wani, J., had heard the instant petition challenging inaction on the part of respondent regarding allotment of auctioned property. The Bench stated,

“The right to refuse the lowest or any other tender is always available to the government and even if a public auction had been completed and a person found to be highest bidder, no right accrued to the highest bidder till the confirmation letter is issued to him.”

 The petitioner had submitted his bid along with relevant documents including registration fee in response to notification for allotment of a shop No. 5, in Sector No. 1, at Housing Colony Channi Himmat, Jammu issued by the respondent, J&K Housing Board. The petitioner contended that he had submitted a bid for the shop in question for an amount of Rs. 5,00,500 as against minimum reserved bid of Rs 4,75,000. A demand draft of Rs 72,000 i.e., 15% of the total bid amount was also stated to had been pledged in the name of the Financial Advisor of the Board.

The grievance of the petitioner was that, despite being the lone highest bidder, as such was required to had been allotted the shop in question by the respondent-Board which, however, was not have been done by the respondent-Board. As the petitioner alleged that the respondent intended to allot the shop in question to his blue eyed person and urged that the failure of the respondents was bad in law and violative of Article 14 of the Constitution, besides being arbitrarily and tainted with malice.

Contrary to that the respondent submitted that the petitioner was the lone bidder necessitating recalling the process of bidding, in that as per the norms for such kind of bid at least three tenderers/bidders must participate in the process of bidding. It was being stated in the objections that the respondent –Board was a public organization and for auctioning of public property was governed by the principle based on public policy.

Reliance was placed by the Court on Rishi Kiran Logistics Pvt. Ltd. v. Board of Trustees of Kandla Port Trust, (2015) 13 SCC 233 wherein the Supreme Court had held that, “The right to refuse the lowest or any other tenderer is always available to the Government. But the principles laid down in Article 14 of the Constitution have to be kept in view while accepting or refusing a tender. There can be no question of infringement of Article 14 if the government tries to get the best person or the best quotation. The right to choose cannot be considered to be an arbitrary power.”

The Bench opined that the method to be adopted for disposal of public property must be fair and transparent as also to protect the financial interest of the State as the government being the guardian of the finances of the State. But, “The right to refuse the lowest or any other tender is always available to the government and even if a public auction had been completed and a person found to be highest bidder no right accrued to the highest bidder till the confirmation letter is issued to him.” The Bench further expressed, the respondents seemingly had found it reasonable and fair not to proceed with the process of bidding with only one responsive bid. The said process manifestly, had been followed in order to generate healthy competition and ultimately good revenue for the respondent-organization. Hence, the petition was dismissed as no indefeasible right qua the shop in question had be said to have occurred to the petitioner.[Ashu Deep Kohli v. State of J&K, 2021 SCC OnLine J&K 90, decided on 22- 02-2021]


Kamini Sharma, Editorial Assistant has put this story together

Case BriefsHigh Courts

Allahabad High Court: Dr Kaushal Jayendra Thaker, J., addressed a matter with regard to stamp duty.

Respondents invited a tender to repair different roads in District Mathura. Petitioner’s tender was accepted.

Stamp Act

Further, the respondent issued a letter of acceptance with a clause that total security along with stamp duty should be deposited within 10 days. Petitioner wrote to the respondents that he is supposed to pay stamp duty as per Article 57(b) Schedule 1 B of the Stamp Act and for a period of 8 months, no work order was passed.

Bench on perusal of the facts and circumstances of the present matter stated that it is covered by the decision of this Court and further waste of time would cause loss to the public and Exchequer.

Despite the previous decisions in Strong Construction v. State of U.P., Civil Misc. WP No. 35096 of 2004 and Kishan Traders v. State of U.P., Writ C No. 52385 of 2015, authorities have demanded from petitioner what is known as stamp duty.

Further, the Court added that though the petition is belated, this Court has not been made aware whether the contract has already been executed or not.

With regard to the stamp duty, Court stated that it has been covered by the Division Bench of this Court in Kishan Traders v. State of U.P., Writ C No. 52385 of 2015, wherein Writ of Mandamus was issued which read as follows:

“We also issue a Writ of Mandamus commanding the respondents not to compel the Petitioners and similarly situate persons, whether they have filed writ petition or not, to pay Stamp Duty on security deposit in question treating as ‘mortgage deed’ and further to charge Stamp Duty on such ‘securities’ as provided under Article 57 (b) Schedule 1 B of the Stamp Act.”

Hence in view of the above, bench held that the petitioner would be liable to pay stamp duty as per Article 57(b) Schedule 1 B of the Stamp Act.

In view of the above, the petition was allowed. [Yogendra Kumar v. State of U.P., 2020 SCC OnLine All 1024, decided on 07-09-2020]

Case BriefsSupreme Court

Supreme Court: In the case where a Notice Inviting Tender had a clause asking the parties invoking arbitration to furnish a “deposit-at-call” for 10% of the amount claimed, the bench of RF Nariman and Vineet Saran, JJ struck down the said clause on the premise that:

“Deterring a party to an arbitration from invoking this alternative dispute resolution process by a pre-deposit of 10% would discourage arbitration, contrary to the object of de-clogging the Court system, and would render the arbitral process ineffective and expensive.”

The Court was hearing the matter where the Punjab State Water Supply & Sewerage Board Bhatinda had issued notice inviting tender for extension and augmentation of water supply, sewerage scheme, pumping station and sewerage treatment plant for various towns mentioned therein on a turnkey basis. Clause 25(viii) of the Notice inviting Tender was challenged before the Court which read

“It shall be an essential term of this contract that in order to avoid frivolous claims the party invoking arbitration shall specify the dispute based on facts and calculations stating the amount claimed under each claim and shall furnish a “deposit-at-call” for ten percent of the amount claimed, on a schedule bank in the name of the Arbitrator by his official designation who shall keep the amount in deposit till the announcement of the award.”

Noticing that a 10% deposit has to be made before any determination that a claim made by the party invoking arbitration is frivolous, the Court said that such a clause would be unfair and unjust and which no reasonable man would agree to.

The Court said that since arbitration is an important alternative dispute resolution process which is to be encouraged because of high pendency of cases in courts and cost of litigation, any requirement as to deposit would certainly amount to a clog on this process. It also said:

“it is easy to visualize that often a deposit of 10% of a huge claim would be even greater than court fees that may be charged for filing a suit in a civil court.”

Striking down the said clause, the Court said that unless it is first found that the litigation that has been embarked upon is frivolous, exemplary costs or punitive damages do not follow.

“Clearly, therefore, a “deposit-at-call” of 10% of the amount claimed, which can amount to large sums of money, is obviously without any direct nexus to the filing of frivolous claims, as it applies to all claims (frivolous or otherwise) made at the very threshold.”

[ICOMM Tele Ltd. v. Punjab State Water Supply & Sewerage Board, 2019 SCC OnLine SC 361, decided on 11.03.2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI): This reference was filed before Ashok Kumar, Chairperson and  Augustine Peter and U.C. Nahta, Members by the Chief Materials Manager/Sales, Eastern Railway i.e. informant under Section 19(1)(b) of the Competition Act, 2002 against Laxven Systems and Medha Servo Drives (P) Ltd., alleging contravention of provisions of Section 3 of the Competition Act.

Facts of the case were that informant floated a tender for procurement of Microprocessor Control and Fault Diagnostics System for Electric Locos as per Research Designs and Standard Organisation. As per the information brought before Commission, there were initially 4 approved vendors but an amendment was brought in the criteria for selection due to which 2 vendors were delisted. Laxven did not participate in the impugned tender due to which by default, Medha won the tender who quoted a high rate. Negotiation by informant were not accepted and they were forced to accept the high rate quoted by Medha thus, Laxven was alleged for non-participation as a result of bid suppression and formation of a cartel.

Commission observed the fact that Laxven had not participated in other tenders conducted in the 3 Railway Zones and the reason being that they had not developed a Prototype for the required System. Thus, the allegation of bid suppression and cartelization was unsubstantiated. The high rate quoted by Medha was found to be justified due to the improved system which was to be supplied to the informant. Commission on finding no contravention of Section 3 of the Act directed the information to be closed in terms of Section 26(2) of the Act. [Chief Material Manager v. Laxven Systems, 2019 SCC OnLine CCI 1, dated 02-01-2019]

Case BriefsHigh Courts

Patna High Court: A Division Bench comprising of Amreshwar Pratap Sahi and Anjana Mishra, JJ. rejected a letters patent appeal arising from an order in a writ petition wherein a tender process was held to be vitiated.

Respondent herein had filed a writ petition challenging tender for placement of security guards at Sadar Hospital on the ground that he was not intimated about the opening of the technical or financial bid which was an essential condition of tender as a result whereof prejudice had been caused to him. The said petition was allowed by the learned Single Judge, and aggrieved thereby the instant appeal was filed by the winner of the bid.

The Court noted that, in the writ petition, the appellant had filed a document containing recording of minutes of the technical bid which did not bear the signature of the second member, namely District Sales Tax Officer. Whereas the technical bid opening document filed by the respondent 2 State along with its counter affidavit was signed by District Sales Tax Officer and had an interpolated date thereon.

The State submitted that the document filed with counter affidavit was the correct document, and appellant’s counsel Mr Arup Kumar Chongdar had no explanation as to how and from did he receive the document filed by him.

In view of the above, it was opined that the recording of technical bid was doubtful and manipulation in the opening of technical bid was evident. In relation to the financial bid, there was no evidence of service of notice on the respondent. Thus, the Court discredited the entire procedure relating to opening of technical bid and participation of respondent in technical bid or financial bid. [Spider Protection Services Pvt. Ltd. v. Imperishable Security Services Pvt. Ltd., 2018 SCC OnLine Pat 2264, decided on 20-12-2018]

Case BriefsHigh Courts

Madhya Pradesh High Court: This petition was filed before a Single Judge Bench of Atul Sreedharan, J., against the order passed by respondents where petitioner-firm were restricted from participating in any tender floated by respondents for 3 years. Further, registration of petitioner-firm with the respondents was also cancelled on the ground that while participating in a tender they had given wrong turnover for the Financial Years 2008-09 and 2010-11.

Issue before the court was whether the order of blacklisting was disproportionate to the misdemeanor caused to respondents.

It was contended by the petitioner that they were declared ineligible from participating in the tender without adequate reasons. Further, no loss ever occurred to the respondents. In addition to that respondent could not have blacklisted petitioner according to Clause 7.3 of the tender document given by respondents thus, impugned order was bad in law. Whereas respondent contended that the ban was a business ban put on the petitioner and not blacklisting.

High Court was of the view that relevant aggravating circumstances against petitioner and mitigating circumstances in favour of petitioner were found. Court agreed with the fact that petitioner mis-stated its turnover in order to defraud the respondent. However, even after above observation, though the Court considered blacklisting to be appropriate but the period of three years was considered to be unduly harsh and the same was reduced to 18 months. [Fibretech v. BHEL,2018 SCC OnLine MP 875, order dated 30-11-2018]

Case BriefsHigh Courts

Madhya Pradesh High Court: The petitioner, who challenged the eligibility of Respondent 5 to participate in the Tender process, was left high and dry when the Division Bench comprising of Hemant Gupta, CJ and Vijay Kumar Shukla, J. held that the Court in exercise of judicial review, will not sit as a Court of appeal over the decision taken by a committee of experts.

The eligibility of the said respondent to participate in the Tender for upgradation of Raipur-Sitapur-Paani Road was challenged by the petitioner. The alleged ground for the challenge was that Respondent 5 did not meet one of the conditions to participate in the process, viz. execution of the contractual works of the specified quantity during the last 5 years. The Chief Engineer, PWD (Rewa Division) sought information from Respondent 5 regarding the same but even before his response, the decision declaring him eligible for participating in the tender process was taken. The petitioner submitted that the decision of the respondents was arbitrary, irrational and unsustainable.

The High Court heard the parties and found no infirmity in the decision taken by the respondents. The Court held that “The question: as to whether the bidder is technically qualified or not, is a decision taken by the experts. Since the experts have taken a decision that Respondent 5 is eligible to carry out the work advertised, therefore, this Court in exercise of judicial review will not sit as a court of appeal over the decision taken by the committee of experts.” The Court found no merit in the petition which was accordingly dismissed. [TBCL Shiv Shakti Construction Co. (Joint Venture) v. State of M.P.,2018 SCC OnLine MP 351, dated 14-5-2018]

Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India: The Commission recently dealt with an application that was filed by the Association of Registration Plates Manufacturers of India, under Section 19(1)(a) of the Competition Act, seeking information against the respondents collectively, alleging them of having contravened the provisions of the Act. The informants sought investigation into the anti-competitive manner that was being done through cartelisation of implementation of a mandatory “High Security Registration Plates” (HSRP) Policy in various States by the respondents. The informants had previously filed several cases in the High Courts for larger interest of competition and public interest for the implementation of the aforementioned policy. The HSRP Policy was promulgated in 2001 following Parliament attack and the objective behind it was to control the usage of counterfeit registration plates over vehicles. The respondents had got their companies type- approved on 3 consecutive days in the same year.

The applicant pointed out that the Supreme Court had held in Association of Registration Plates v. Union of India, (2005) 1 SCC 679 that the State shall have the power to select a certain manufacturer through notice inviting tender (NIT) and can impose tender conditions for the purposes of manufacturing, supplying or selling of HSRP. He argued that the conditions upon which the tender was issued was such that it proved cartelization amongst the respondent companies had taken place as the rates quoted by them were so high that it could only be secured if there did not exist any competition in the selection process. This was done by seeking assistance from officials of the Transport Department in creating a “tailor-made pre-eligibility criteria”. But when non-manipulated NITs were issued in other states, since the respondent companies could not control the market in those states, the HSRP rates saw a fall in them in such states. This acted as an impetus for the respondent companies to lower their own rates to unreasonably lower prices so as to again be able to eliminate competition.

The Commission held that a careful consideration of the facts of the case ruled out a specific case of bid rigging in any State post relaxation of norms since many previous contracts that the respondent companies had secured were cancelled subsequently and other companies formed contracts instead of the ones in question. The Court mentioned that this could at best be called a case wherein misconduct by public officials had taken place since they connived with the bidding entities. But it went on to acknowledge that CBI had already begun proceedings in that regard and hence, the Commission didn’t need to look into that matter any longer. [Association of Registration Plates Manufacturers of India v. Shimnit UTSCH India Private Limited; Case No. 58 of 2017, decided on 14.11.2017]

Case BriefsSupreme Court

Supreme Court: Stating that in a complex fiscal evaluation the Court has to apply the doctrine of restraint, the Court held that the courts cannot really enter into the said realm in exercise of power of judicial review as several aspects, clauses, contingencies, etc. have to be factored and these calculations are best left to experts and those who have knowledge and skills in the field.

In the present case, before finalization of the financial bid submitted series of representations and seeing the silence of the owner it knocked at the doors of the Madras High court which directed for consideration of the representations. Stating that the High Court at that stage should have exercised caution, the Court said that if the courts would exercise power of judicial review in such a manner it is most likely to cause confusion and also bring jeopardy in public interest. An aggrieved party can approach the Court at the appropriate stage, not when the bids are being considered. Once the price bid was opened, a bidder could not have submitted representations on his own and seek a mandamus from the Court to take certain aspects into consideration. It is appreciable the owner in certain kind of tenders call the bidders for negotiations to show fairness transparently.

The Court also noticed that the issue pertaining to correctness of Consultant’s report has to be adjudged and scrutinized within the scope of limited power of judicial review in the obtaining factual score and in the present case the Consultant had analysed the offers regard being had to the tender conditions. Be it ingeminated that the analysis and determination made by the financial consultant has been carried out before receipt of any additional document from either side. The documents were called for by the owner from both the qualifying bidders in a transparent manner and the same have been considered at the time of evaluation by the Consultant.

The Bench of Dipak Misra and Shiva Kirti Singh, JJ held that Courts cannot sit in appeal over the financial consultant’s assessment. The financial computation involved, the capacity and efficiency of the bidder and the perception of feasibility of completion of the project have to be left to the wisdom of the financial experts and consultants. [Tamil Nadu Generation and Distribution Corporation Ltd. v. CSEPDI – Trishe Consortium, 2016 SCC OnLine SC 1150, decided on 18.10.2016]

 

Case BriefsSupreme Court

Supreme Court: In the controversy relating to bids invited by the Nagpur Metro Rail Corporation Limited for the design and construction of Metro Rail in the city of Nagpur, the Court held that M/s. Guangdong Yuantian Engineering Company (GYT) of China and M/s. TATA Projects Limited (TPL) as a Joint Venture (GYT-TPL JV) were not eligible to bid for the contract under consideration.

The issue arose in the light of one of the eligibility criteria specified by NMRCL where it was necessary that the bidder has satisfactorily completed a minimum number of similar contracts as a prime contractor, joint venture member during last 10 (ten) years i.e. up till 31.05.2016. According to GYT-TPL JV, it had executed the Pearl River Delta intercity high speed railway project in China, however, as per NMRCL, an inter-city high speed railway project did not meet the requirements of a metro civil construction work.

NMRCL has contended that there is a difference between an inter-city rail and a metro rail.  An inter-city rail is between two cities and the trains are usually high speed trains. A metro rail is intra-city, it has a dedicated right-of-way, normally it does not have high speed trains and the frequency of trains is much greater that of inter-city trains. A metro rail may extend, in some cases, to a suburb of a metropolitan city but it essentially remains an intra-city project. There is, therefore, a qualitative difference between an inter-city rail and a metro rail. By itself, this indicates a qualitative difference in a railway project that is inter-city and a railway project that is intra-city and the construction of a viaduct for a railway project that is inter-city and a railway project that is intra-city.

Considering the said difference highlighted by the he Court, hence, held that the fact that GYT-TPL JV made constructions in a metropolitan city or in a metropolitan area during the execution of the Pearl River Delta inter-city high speed railway project, does not make that project an intra-city metro rail project. It continues to be an inter-city railway project.

Regarding the interference with the decision of the owner or the employer in accepting or rejecting the bid of the tendered, the bench of Madan B. Lokur and R.K. Agrawal, JJ said that the owner or the employer of a project, having authored the tender documents, is the best person to understand and appreciate its requirements and interpret its documents. The constitutional Courts must defer to this understanding and appreciation of the tender documents, unless there is mala fide or perversity in the understanding or appreciation or in the application of the terms of the tender conditions. 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. [Afcons Infrastructure Ltd v. Nagpur Metro Rail Corporation Ltd, 2016 SCC OnLine SC 940, decided on 15.09.2016]