Public procurement refers to the process by which public authorities, such as central and state government departments or local authorities, procure goods, services and works from the private sector. In practice, the power of the government to enter into contracts with the private sector is exercised through various ministries, departments, and agencies. These contracts can range from small-scale procurements to large infrastructure projects, public-private partnerships, service agreements, procurement of weapons to commissioning of key public services in the education, healthcare sector, and to buying sundry goods and commodities.
Public procurement is a crucial pillar of services delivery for governments. Since it accounts for a large share of the taxpayers' money, governments are expected to carry it out efficiently and with high standards of integrity to ensure the quality-of-service delivery and safeguarding of public interest.
Public tenders are a vital mechanism through which the government procures goods, services, and works. These tenders ensure transparency, competition, and value for money in public procurement. However, the process can sometimes be marred by disputes and irregularities, necessitating judicial intervention. The judiciary plays a critical role in maintaining the integrity of public tenders by ensuring adherence to the principles of fairness, transparency, and non-discrimination.
Legal Framework Governing Public Procurement
The power of the Union of India or the state government to enter into contracts with the private sector is derived from Article 299 of the Constitution of India, which specifies that all contracts entered into by the Union government or the state government in exercise of its executive power will be done in the name of the President of India or the Governor of the state, respectively. This ability is crucial for the government to engage with the private sector in procurement of goods services and works that require collaboration with the private sector.
While there is no over-arching legislation governing procurement in India, at the central level public procurement is governed by myriad rules, directives and regulations, including the General Financial Rules, 2017 (GFR), the Delegation of Financial Powers Rules, 1978, the Central Vigilance Commission (CVC) guidelines. In addition to the GFR, the Manual for Procurement of Goods, 2017 (MPG), Manual for Procurement of Services, 2017 (MPS) and Manual for Procurement of Works, 2019 (MPW) (collectively referred to as “Manuals for Procurement”) are the broad guidelines for procurement by central government instrumentalities. The above rules and guidelines are applicable to inter alia Central Government Ministries, Departments and Central Public Sector Enterprises (CPSE). There are separate state level procurement laws that are applicable to procurement by state government.
For procurement of works in diverse infrastructure sectors, a number of model concession agreements (MCA) have been issued by government authorities like Airport Authority of India, National Highways Authority of India, Ministry of Ports and Shipping, Railways etc., that establish the standard contractual framework for public-private partnerships.
The primary objectives of these laws are to promote competition, ensure transparency, and prevent corruption. Since the Government does not enjoy the absolute discretion to enter into contract with the private sector arbitrarily, the burden is on the Government to choose the party in a fair, transparent and non-discriminatory manner. The state is obligated to act fairly while selecting the private partner by affording equal opportunity to all contenders and examining their claims fairly. Every activity of the Government has a public element in it and it must be guided by public interest.
Extent of Judicial Intervention in Tender Process
Several landmark judgments have shaped the landscape of judicial intervention in public tenders in India. Some notable cases include:
Tata Cellular v. Union of India (1994)1: In this case the Supreme Court of India laid down the principles governing judicial review of administrative actions in public tenders. The court emphasized that while the judiciary should not interfere in administrative decisions unless there is arbitrariness, mala fide, or violation of statutory provisions, it must ensure that the decision-making process is fair and reasonable. The following 6 principles were laid down in this judgement:
(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.
Down the years the Supreme Court continued to reiterate its stand on judicial restraint in administrative action. In the case of Jagdish Mandhal vs State of Orissa and ors2 the SC held that a court before interfering in tender or contractual matters in exercise of its power of judicial review, should pose to itself the following questions:
(1) Whether the process adopted or decision made by the authority is mala fide or intended to favor someone;
OR
Whether the process adopted or decision made is so arbitrary and irrational that the court can say: "the decision is such that no responsible authority acting reasonably and in accordance with relevant law could have reached";
(ii) Whether public interest is affected.
If the answers are in the negative, there should be no interference under Article 226. Cases involving blacklisting or Imposition of penal consequences on tenderer/contractor or distribution of State largesse (allotment of sites/shops, grant of licences, dealerships and franchises) stand on a different footing as they may require a higher degree of fairness in action."
Judicial Restraint Over the Years
In Reliance Airport Developers (P) Ltd. vs. Airports Authority of India and Others,3 Supreme Court of India identified- illegality, irrationality and third procedural impropriety as the grounds on which administrative action is subject to judicial review.
In Siemens Public Communication Networks vs. Union of India,4 the Supreme Court of India observed that when the power of judicial review is invoked in the matters relating to tenders or award of contracts, certain special features have to be considered. A contract is a commercial transaction and evaluating tenders and awarding contracts are essentially commercial functions. In such cases principles of equity and natural justice stay at a distance. If the decision relating to award of contracts is bona fide and is in public interest, Courts will not exercise the power of judicial review and interfere even if it is accepted for the sake of argument that there is a procedural lacuna.
In Afcons infrastructure Limited vs Nagpur Metro Rail Corporation,5 The Supreme Court while upholding the judgements in the Tata Cellular and the Jagdish Mandhal cases held that 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.
Montecarlo Ltd vs NTPC ltd 6 - It was held that the exercise of power of judicial review would be called for if the approach is arbitrary or mala fide or procedure adopted is meant to favor one. The decision-making process should clearly show that the said 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.
Silppi Constructions Contractors v. Union of India,7 - The Court held that in all the aforesaid decisions it has cautioned time and again that courts should exercise a lot of restraint while exercising their powers of judicial review in contractual or commercial matters. This Court reiterated that normally it refrains from interfering in contractual matters unless a clear-cut case of arbitrariness or mala fides or bias or irrationality is made out. It held that courts will only interfere to prevent arbitrariness, irrationality, bias, mala fides or perversity. The court stressed on the essence of the law laid.
Tata Motors Limited v The Brihan Mumbai Electric Supply & Transport Undertaking (Best) And Ors.8 - The Bench noted that the judges do not possess the necessary expertise to adjudicate technical issues beyond their domain. Restraint must be practiced in cases where the Courts are aware that their interference in technical commercial matters would incur loss to the public exchequer.
The SC further held that a writ court should refrain from imposing its decision over the employer with respect to whether or not to accept the bid of a tenderer, unless something very gross or palpable is pointed out. The Bench held as under: “The court ordinarily should not interfere in matters relating to tender or contract. To set at naught the entire tender process at the stage when the contract is well underway, would not be in public interest. Initiating a fresh tender process at this stage consume lot of time and also loss to the public exchequer to the tune of crores of rupees. The financial burden on the public exchequer that the State may have to meet with if the Court directs issue of a fresh tender notice, should be one of the guiding factors that the Court should keep in mind.”
Judicial Scrutiny
Indicating a departure from the characteristic judicial restraint in interfering with the tender process, the Supreme Court in Subodh Kumar Singh Rathour Versus Chief Executive Officer, Civil Appeal No. 6741 of 2024 made a scathing observation on the practice of cancelling of tenders by public authorities in an arbitrary and unreasonable manner.
The SC observed that "Cancellation of a contract deprives a person of his very valuable rights and is a very drastic step, often due to significant investments having already been made by the parties involved during the subsistence of the contract. Failure on the part of the courts to zealously protect the binding nature of a lawful and valid tender, would erode public faith in contracts and tenders. Arbitrary terminations of contract create uncertainty and unpredictability, thereby discouraging public participation when private parties perceive that their contractual rights can be easily trampled by the State, they would be dissuaded from participating in public procurement processes which may have a negative impact on such other public-private partnership ventures and ultimately it is the public who would have to bear the brunt thereby frustrating the very object of public interest”.
The Court in as many words cautioned the public authorities to be circumspect in disturbing or wriggling out of its contractual obligations through means beyond the terms of the contract in exercise of their executive powers. It added that file notings and internal discussions that are a part of the decision-making process could come under judicial review if such notings were a part of the decision making involved in cancelling the tender.
Over a period of time the courts have recognized the crucial role of judicial oversight in preventing the abuse of power by the State. Courts have developed various doctrines and principles to guide their review, such as the principles of natural justice, reasonableness and proportionality. These principles ensured that the administrative actions are not arbitrary, discriminatory or capricious.
Footnotes
1. 1.Tata Cellular vs. Union of India (1994) 6 SCC 651
2. Jagdish Mandhal vs State of Orissa and ors, (2007) 14 SCC 517.
3. Reliance Airport Developers (P) Ltd. vs. Airports Authority of India and Others, (2006) 10 SCC 1.
4. Siemens Public Communication Networks vs. Union of India, AIR 2009 SC 1204.
5. Afcons infrastructure limited vs Nagpur Metro Rail Corporation, (2016) 16 SCC 818.
6. Montecarlo Ltd vs NTPC ltd (2016) 15 SCC 272.
7. Silppi Constructions Contractors v. Union of India, ( 2020 )16 SCC 589.
8. Tata Motors Limited v The Brihan Mumbai Electric Supply & Transport Undertaking (Best) And Ors. 2023 SCC OnLine SC 671.
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