Recently, on 18.05.2022 the Hon'ble Supreme Court (Supreme Court) in Jai Bholenath Construction vs. Chief Executive Officer1 deliberated on the exercise of the Court's Constitutional Power in the matter of Tender and observed in the facts of the case that the Bombay High Court's decision2 directing to award the tender in favour of a previously disqualified bidder would be a flagrant violation of principles of natural justice and fairness, in the process of determining the eligibility of the tenderers.
The deliberations involved in the matter lead us to the questions:
- the extent of courts' power of Judicial Review while interpreting tender documents and tender process, and
- in under what circumstances can the courts exercise the principles of Judicial Review on the contractual powers of government bodies in allocating tenders, and
- power of courts to act as appellant authority over decisions of the State in awarding the tender.
In order to understand the same, the authors have discussed certain landmark decisions of the Supreme Court in this regard, to carve out answers for the above-posed questions.
Court rulings on the power of Judicial Review of the court in interpreting the award of tender and tender documents
The Supreme Court in Tata Cellular vs. Union of India3 held that 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 favoritism. However, there are inherent limitations to the exercise of the power of judicial review. Since the government is the guardian of the finance of the State, the right to refuse the lowest or any other tender is always available to the government. There can also be no question of infringement of Article 14 of the Constitution of India if the government tries to get the best person or the best quotation for the contract. Therefore, the right to choose cannot be considered an arbitrary power, provided the said power is not exercised for any collateral purpose, which would strike at the root of the exercise of said power.
The Supreme Court further elaborated that the Court's concern should be whether a decision-making authority: exceeded its powers? or committed an error of law? or breached rules of natural justice? or reached a decision which no reasonable tribunal would have reached? or abused its powers?4
The Supreme Court, therefore, held that the terms of the invitation of tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract. The government must have freedom of contract but be free from arbitrariness and not affected by bias or actuated by mala fides.5
Further, the Supreme Court in Central Coalfields Limited and another vs. SLL-SML (Joint Venture Consortium) and others6 held that if courts take over the decision-making functions of the employer and make a distinction between essential and non-essential terms contrary to the intention of the employer and thereby re-writing the arrangement, it could lead to all sorts of problems. Hence, when there is a condition that any bid not accompanied by an acceptable Bank Guarantee shall be rejected by the employer as non-responsive, then the High Court holding such a condition as non-essential has impermissibly rewritten the condition since the same was an ex-facie mandatory condition for the employer.
In Afcons Infrastructure Limited vs. Nagpur Metro Rail Corporation Limited and another7 the Supreme Court held that the owner of the project having authored the tender documents, is the best person to understand and appreciate its requirements and interpret its documents, and a constitutional court needs to appreciate the tender documents, unless there is mala fide or perversity in the understanding of the terms of the tender conditions.
Thereafter, in Silppi Constructions Contractors vs. Union of India and others8 the Supreme Court held that the courts should not use a magnifying glass while scanning the tenders and make every small mistake appear like a big blunder. Courts must realize the havoc and loss to the public exchequer that needless interference in commercial matters can cause.
In National High-Speed Rail Corporation Limited vs. Montecarlo Limited9 the Supreme Court observed that while entertaining a writ or granting stay which ultimately may delay the execution of the mega projects, it must be remembered that it may seriously impede the execution of the projects of public importance and disables the State or its agencies from discharging the constitutional and legal obligation towards the citizens.
The Supreme Court in Jagdish Mandal vs. State of Orissa10 categorically held that the judicial review of contractual matters had its own limitations. The court is intended to prevent arbitrariness, irrationality, unreasonableness, bias and mala fides, and the court is not there to check whether the choice of awarding of tender is sound or not. Here parties are governed by principles of commercial prudence and to that extent the principles of equity and natural justice have to stay at a distance.
Further, in Uflex Limited vs. Government of Tamil Nadu11 the Supreme Court held that in commercial tender matters there is obviously an aspect of commercial competitiveness, as for every succeeding party who gets a tender there may be a couple or more parties who are not awarded the tender as there can be only one L-1. Therefore, the objective is not to make the court an appellate authority for scrutinizing to whom tender should be awarded.
Thereafter, in Galaxy Transport Agencies vs. New J.K. Roadways12 the Supreme Court held that if the decision related to the award of the contract by tender is bona fide and in the public interest, then the courts will not exercise the power of judicial review would interfere, even if a procedural aberration or error in assessment or prejudice to a tenderer is made out. As the power of judicial review cannot protect private interest at the cost of public interest.
Further, recently on 21.03.2022 the Supreme Court in the case of M/S. N.G. Projects Limited vs. M/S. Vinod Kumar Jain and others13 observed that, the satisfaction whether a bidder satisfies the tender condition is primarily upon the authority inviting the bids. The Supreme Court further observed that when it is not the case of the writ petitioner, whose bid was not accepted by the tender authority, that action of the tender authority was actuated by extraneous considerations or was malafide, then, only because the view of the tender authority was not to the liking of the writ petitioner, such decision does not warrant a court for interference in a grant of the contract to a successful bidder.
The Supreme Court stated that the writ court should refrain itself from imposing its decision over the decision of the employer as to whether or not to accept the bid of a tenderer. Since the court does not have the expertise to examine the terms and conditions of the present-day economic activities of the State, and therefore should be even more reluctant in interfering with contracts involving technical issues as there is a requirement of the necessary expertise to adjudicate upon such issues.14
Even if the court finds that there is total arbitrariness or that the tender has been granted in a malafide manner, still the court should 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. As the injunction of tender leads to additional costs on the State and is also against public interest.15
Bombay High Court misreading the law
Bombay High Court in the case of Jai Bholenath Construction vs. The Chief Executive Officer and others16 granted ad-interim relief and stayed the tender authority from issuing the work order to any party.
The issue, which was framed before the Bombay High Court, was, that Jai Bholenath Constructions, the lowest bidder, did not receive the tender, and the tender was subsequently issued to M/s. L.D. Constructions, whose bid was not opened and was declared as ineligible for non-compliance of documents by the tender authority.
However, thereafter, behind the back of the other tenderers, the tender authority opened the bid of M/s. L.D. Constructions, 78 days after the bids of other tenderers were opened and their rates were exposed. It was the case of the tender authority and M/s. L.D. Constructions, that due to human error the documents already submitted by M/s. L.D. Constructions were overlooked. Hence, the tender issued to Jai Bholenath Constructions was revoked, and a corrigendum dated 24.11.2021 was issued by the tender authority by which the tender was issued to M/s. L.D. Constructions being the lowest bidder.
The Bombay High Court at first granted ad-interim relief and stayed the tender authority from issuing the work order to any party, vide order dated 15.12.2021. However, vide its final order dated 30.04.2022, the Bombay High Court dismissed the petition of Jai Bholenath Constructions, while relying on the decision of the Supreme Court in M/S. N.G. Projects Limited vs. M/S. Vinod Kumar Jain and others17 .
In this regard, when the matter reached before the Supreme Court, the Supreme Court in Jai Bholenath Construction vs. Chief Executive Officer18 after hearing both the parties and facts of the case, vide its order dated 18.05.2022 observed that the Bombay High Court has totally misread the judgment in the case of M/S. N.G. Projects Limited vs. M/S. Vinod Kumar Jain and others19. The Supreme Court held that declaring M/s. L.D. Constructions as eligible bidders is a flagrant violation of principles of natural justice and all fairness in the process of determining the eligibility of the tenderers. The Supreme Court observed that the bid of the M/s. L.D. Constructions was accepted despite the fact that at the time of opening of the technical bids, the same was disqualified. Therefore, the manner in which the bid has been accepted shows the arbitrary exercise of the power of the tender authority. Hence, the Supreme Court set aside the order of the Bombay High Court and directed the tender authority to process the matter further from the stage prior to the issuance of the corrigendum dated 24.11.2021.
The Supreme Court while dealing with issues arising out of the award of tender or tender documents, has kept a very clear approach of not interfering in the tender jurisdiction of the government bodies or tendering authorities, unless the court senses any disregard of principles of natural justice or presence of any arbitrariness or malafide process.
As, the judicial review of the award of tender or tender documents comes with its own sets of limitations, considering the fact that a contract is a commercial transaction, evaluating the tenders would also be a commercial function. In this regard, the author of the tender documents, that is the tender authority, therefore has been given leverage by the courts, being the best person to understand its requirements. Hence, a mere disagreement with the decision-making process of the tender authority is not a reason for a constitutional court to interfere with the same.
1 Jai Bholenath Construction vs. The Chief Executive Officer, Zilla Parishad, Nanded and others, Civil Appeal No. 4140 of 2022, dated 18.05.2022.
2 Jai Bholenath Construction vs. The Chief Executive Officer and others, W.P. No. 14156 of 2021, dated 30.03.2022.
3 Tata Cellular vs. Union of India, (1994) 6 SCC 651.
4 Tata Cellular vs. Union of India, (1994) 6 SCC 651.
5 Tata Cellular vs. Union of India, (1994) 6 SCC 651.
6 Central Coalfields Limited and another vs. SLL-SML (Joint Venture Consortium) and others, (2016) 8 SCC 622.
7 Afcons Infrastructure Limited vs. Nagpur Metro Rail Corporation Limited and another, (2016) 16 SCC 818.
8 Silppi Constructions Contractors vs. Union of India and others, 2019 SCC OnLine SC 1133.
9 National High-Speed Rail Corporation Limited vs. Montecarlo Limited, 2022 SCC OnLine SC 111.
10 Jagdish Mandal vs. The State of Orissa, (2007) 14 SCC 517.
11 Uflex Limited vs. Government of Tamil Nadu, (2022) 1 SCC 165.
12 Galaxy Transport Agencies vs. New J.K. Roadways, 2020 SCC OnLine SC 1035.
13 M/S. N.G. Projects Limited vs. M/S. Vinod Kumar Jain and others, Civil Appeal No. 1846 of 2022.
14 M/S. N.G. Projects Limited vs. M/S. Vinod Kumar Jain and others, Civil Appeal No. 1846 of 2022.
15 M/S. N.G. Projects Limited vs. M/S. Vinod Kumar Jain and others, Civil Appeal No. 1846 of 2022.
16 Jai Bholenath Construction vs. The Chief Executive Officer and others, Writ Petition No. 14156 of 2021.
17 M/S. N.G. Projects Limited vs. M/S. Vinod Kumar Jain and others, Civil Appeal No. 1846 of 2022.
18 Jai Bholenath Construction vs. The Chief Executive Officer, Zilla Parishad, Nanded and others, Civil Appeal No. 4140 of 2022, dated 18.05.2022.
19 M/S. N.G. Projects Limited vs. M/S. Vinod Kumar Jain and others, Civil Appeal No. 1846 of 2022.
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