The law on a challenge to the award of tenders and the scope of scrutiny that is available to the courts is now well settled. Tenders called for by the Public Authorities do not enjoy the latitude of complete liberty in their selection of contractual partners.
The Supreme Court in the case of Erusian Equipment & Chemicals Ltd vs State Of West Bengal (1975 AIR 266), had opined that the "functions in trade" by the state are part of its executive function and come under the purview of Part Ill of the Constitution of India. In the said judgment, the Court, while striking down the award of tender by the state for being arbitrary, held that as matters of public contracts are subject to the requirement of providing equal opportunity to all, any arbitrariness in the process would render the actions of the State to be bad in law. Thereafter, in the case of Ram and Shyam Company v. the State of Haryana and Ors, the Supreme Court held that the aim of the process by which an award of Government contract is made is to "ensure transparency in the public procurement, to maximise economy and efficiency" as well as to "provide for fair and equitable treatment of all tenderers".1
Based on judicial pronouncements on this subject, it can be said that while public authorities can grant tenders to successful bidders following due process, the High Courts have often utilized their powers under Article 226 of the Constitution of India to intervene in the tender process to ensure fair and equitable treatment.
Recently, one such intervention by the Hon'ble High Court under Article 226 was appealed before the Hon'ble Supreme Court in the case National High-Speed Rail Corporation Limited vs Montecarlo Limited & Anr,2 and the Hon'ble Supreme court overturned the decision of the High Court calling for special consideration in matters related to foreign sovereign funded projects.
FACTS OF THE CASE
The subject matter of the present case consists of the tender floated by National High Speed Rail Corporation Limited ("Appellant") on 22.10.2020, for the construction of the Mumbai-Ahmedabad High Speed Railway on a 'Design Build Lump Sum Price' Basis.
At the stage of technical evaluation, the bid made by Montecarlo Limited ("Respondent"), along with other four other bidders, was declared unsuccessful vide its communication dated 27.04.2021 on grounds of being 'unresponsive'. On a request made by the Respondent to provide the reasons for rejection of its bid, a second communication the Appellant noted that as per the Instruction to Bidders ('ITB'), any debriefing seeking reasons for rejection of a bid shall only be made after the grant of the Tender award.
The aforementioned communications, as well as the rejection of the bid, were challenged by the Respondent before the Hon'ble High Court of Delhi ("Delhi HC"). The Delhi HC allowed the petition while quashing the communications dated 27.04.2021 and 28.04.2021 respectively as it found the bid made by the Respondents to be substantially responsive and in compliance with the terms and conditions of the Bid document. The Delhi HC further noted that the provisions of the ITB as released by the present Appellants would amount to depriving the bidders of being able to approach the court knowing the reasons for their rejection.
The present appeal arises out of the aforementioned order.
THE PROCEEDINGS IN THE HON'BLE SUPREME COURT
The Appellant relied on the railway project, which formed the subject matter of the dispute, being funded by a foreign Sovereign. The Appellant argued that the tender contract was not funded by the Consolidated Fund of India but rather by the Japan International Cooperation Agency ("JICA") which made its nature entirely distinct. The Apex Court was further informed that as per the Memorandum of Understanding ("MoU"), the process of bidding as well as the subsequent decisions are being vetted by the JICA.
The Hon'ble Apex Court noted that the MoU rested on diplomatic considerations and represented the Republic of India's position in the community of nations. The bid documents were settled by the JICA as per their International Guidelines, and thus, the Hon'ble Apex Court opined that it was for the JICA to ultimately decide on whether any bid submission complied with the technical terms and conditions of the same. Absent specific allegations of mala fide on part of the Appellant, the issue did not fall under scrutiny by the High Court, in the exercise of its powers under Article 226 of the Constitution of India.
The Apex Court agreed with the contention of the Appellant that the nature of the foreign-funded railway project was distinct and therefore, required special consideration. The Apex Court emphasized and reiterated the principles laid down by it in the case of Tata Cellular vs. Union of India'3, which were to be kept in mind by the courts in these contexts:
"94. The principles deducible from the above are:
- The modern trend points to judicial restraint in administrative action.
- The court does not sit as a court of appeal but merely reviews the manner in which the decision was made.
- 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.
- 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.
- 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.
- Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure."
mala fides, they should consider putting to the notice of the parties that, that if the petitioner loses, they may be saddled with the damages caused due to delay in execution of such projects.
The primary impact of the Hon'ble Supreme Court decision in the case of Erusian Equipment & Chemicals Ltd vs State Of West Bengal4 was the substantial increase in the number of writs against the award of public tenders. Thereafter, the consistent position of the Hon'ble Supreme Court has been that of promoting judicial restraint. The Hon'ble Apex Court in the case of Tata Cellular has made it clear that the scope of scrutiny by High Courts does not permit them to utilize their judgment as a substitute for the decision of the relevant authority5.
The judgment of National High Speed Rail Corporation Limited vs Montecarlo Limited & Anr discussed herein takes the line of thought in the decision in the Tata Cellular case forward. The Hon'ble Supreme Court, in this case, highlighted that it becomes even more crucial for High Courts to follow the restraints laid down in the Tata Cellular case, in cases where the subject matter involves projects funded by foreign countries. This decision is a step towards ensuring that frivolous litigation does not hinder the projects involving India's contractual agreements with other states and, in turn, makes the country a friendlier place for investment.
1 Ram and Shyam Company v. State of Haryana and Ors, 2005(1)CTC81
2 Dated 31.01.2022; Civil Appeal No. 6466 of 2021
3 1994 6 SCC 651
4 Erusian Equipment & Chemicals Ltd vs State Of West Bengal, 1975 AIR 266; Sachidananda Pandey vs State Of West Bengal, 1987 AIR 1109
5 Tata Cellular v. Union of India, 1994 6 SCC 651
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