Karnataka High Court
Mahendra Labs Private Limited vs Karnataka State Medical Supplies ... on 26 March, 2024
Author: M. Nagaprasanna
Bench: M. Nagaprasanna
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Reserved on : 01.03.2024
Pronounced on : 26.03.2024
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 26TH DAY OF MARCH, 2024
BEFORE
THE HON'BLE MR. JUSTICE M. NAGAPRASANNA
WRIT PETITION No.5790 OF 2023 (GM-TEN)
BETWEEN:
MAHENDRA LABS PRIVATE LIMITED
(A PRIVATE LIMITED COMPANY INCORPORATED
UNDER THE COMPANIES ACT, 1956)
NO. 371 AND 372, 10TH CROSS
4TH PHASE, PEENYA INDUSTRIAL AREA
BENGALURU - 560 058
REPRESENTED BY ITS DIRECTOR
MR. MADANRAJ NAHAR.
... PETITIONER
(BY SRI. JAYAKUMAR S.PATIL, SENIOR ADVOCATE FOR
SRI. PIYUSH KUMAR JAIN D., ADVOCATE)
AND:
KARNATAKA STATE MEDICAL
SUPPLIES CORPORATION LIMITED
PHI BUILDING, K.R.CIRCLE
SESHADRI ROAD, BENGALURU - 560 001.
REPRESENTED BY ITS MANAGING DIRECTOR
... RESPONDENT
(BY SMT. SUMANA BALIGA M., ADVOCATE)
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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE
ENDORSEMENT BEARING NO.HFW/KSMSCL/TND/DRU/TAB/01/
2022-23 DTD 20.02.2023 ISSUED BY THE RESPONDENT VIDE
ANNX-A BY DECLARING THAT ACTION OF THE RESPONDENT IN
CANCELLING THE TENDER NOTIFICATION BEARING
NO.HFW/KAMSCL/TND/DRUGS/TABLETS/01/2022-23 (IND-947)
DTD 16.05.2022 IN RESPECT OF THE PARACETAMOL 500 MG
TABLETS (ITEM CODE 01.03.2019) VIDE ANNX-B AS ILLEGAL.
THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS ON 01.03.2024, COMING ON FOR PRONOUNCEMENT
THIS DAY, THE COURT MADE THE FOLLOWING:-
ORDER
The petitioner is before this Court calling in question an Endorsement dated 20-02-2023 and to declare the action of the respondent in cancelling the tender notification dated 16-05-2022 qua purchase of Paracetamol 500 mg Tablets as illegal and seeks a consequent direction by issuance of writ in the nature of mandamus to accept the tender of the petitioner.
2. Heard Sri Jayakumar S.Patil, learned senior counsel appearing for the petitioner and Smt. Sumana Baliga M., learned counsel appearing for the respondent.
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3. The facts adumbrated are as follows:-
The petitioner claims to be a small scale industry meeting all the requirements of Micro, Small and Medium Enterprises ('MSME' for short) in terms of law. It is the case of the petitioner that under the industrial policy for 2020-2025 as notified by the State on 13-08-2020, the policy envisaged 15% of price preference to micro and small enterprises. The respondent issues a notice inviting tender on 16-05-2022 and the petitioner finding itself eligible to be considered under the category of Small Scale Industry/Enterprise submits its bid insofar as it concerns Paracetamol 500 mg Tablets.
The bids of all the firms were evaluated and six of them were found to be technically qualified. The financial bids of all the technically qualified tenderers were opened and it is the case of the petitioner that the petitioner's financial bid was the lowest, not ipso facto but on granting of 15% price preference. The petitioner then submits a representation on 28-07-2022 to the Tender Inviting Authority seeking extension of price preference of 15% in terms of the policy relating to Paracetamol 500 mg Tablets.4
4. The petitioner, on apprehension that its price preference would not be granted, knocked at the doors of this Court in Writ Petition No.15598 of 2022. The writ petition comes to be disposed of by an order dated 20-10-2022. The disposal was on account of an amendment being brought into the Karnataka Transparency in Public Procurements Rules, 2000 (hereinafter referred to as 'the Rules' for short). Rule 25 was amended to provide 15% price preference to all registered MSMEs in terms of the aforesaid industrial policy. The petitioner then communicates to the Tender Inviting Authority that it is entitled to 15% benefit in terms of the amendment. This was not granted. The petitioner then moved an application seeking clarification of the order. On interlocutory application for such clarification, this Court on 23-11-2022 clarified by referring to clause 17.3 of the tender and observing that the tender itself recognizes the change in policy and directed that the case of the petitioner will have to be considered in terms of the amendment which implements the new industrial policy.
5. After the order was passed, it appears that the tender in which the petitioner had submitted its bid supra was cancelled and 5 a fresh tender notification was issued on 24-11-2022 incorporating Government policy of price preference. The petitioner claims that it has not participated in the said tender as its rights had been crystallized in the earlier tender. On 25-11-2022 and 29-11-2022 the petitioner communicates orders passed by this Court on 20-10- 2022 and the clarification. Based upon all the aforesaid communications, it appears that the Tender Accepting Committee after detailed deliberations, resolved to cancel the said tender - the second one dated 24-11-2022. The reason for cancellation also was communicated by the Tender Scrutiny Committee. The petitioner then invokes the contempt jurisdiction of this Court by filing C.C.C.No.1160 of 2022 alleging that the aforesaid order and the order on I.A. had been violated.
6. During the pendency of the contempt proceedings, an endorsement is issued communicating to the petitioner about cancellation of the tender in which it had participated on 16-05-2022. On 21-02-2023, since all the aforesaid tenders were cancelled, a fresh tender was notified for procurement of drugs including Paracetamol Tablets. The petitioner participates in the 6 said tender but is declared unsuccessful and the lowest bidder is one Vivek Pharmachem Limited. This tender also could not be taken forward by the respondent as the price quoted was higher than the market value. This leads to calling of fresh tender on 04-05-2023 again for procurement of various drugs including Paracetamol. The petitioner participates in this tender and the petitioner's tender was again rejected and M/s Hindustan Laboratories was found to be the lowest bidder at a price of 41.93 per unit. The petitioner files the subject writ petition on 13-03-2023. An interim order was sought and granted that the respondent shall not precipitate the matter, which is in operation till the date the matter was reserved for orders.
7. The learned senior counsel appearing for the petitioner would vehemently contend that the action of the respondent in issuing an endorsement dated 20-02-2023 is illegal, as the petitioner was entitled to price preference in the first tender and that tender has to be taken to its logical conclusion. In the subsequent tenders, it is the submission of the learned senior counsel, that the petitioner has not participated as it was entitled to 7 price preference and if price preference had been granted it would be that the petitioner could have emerged as the lowest bidder in the first tender itself. He would submit that the petitioner had not participated in the subsequent tenders as its right being crystallized. It is the further submission of the learned senior counsel that Section 14 of the Karnataka Transparency in Public Procurement Act, 1999 permits the Tender Inviting Authority for general rejection of tenders and it cannot be arbitrarily used when a successful tenderer is available without offering contracts to it. He would submit that there was no reason for the respondent to cancel the tender and float a fresh tender on every occasion.
8. Per-contra, the learned counsel Smt. Sumana Baliga.M. representing the Tender Inviting Authority would vehemently refute the submissions to contend that the petitioner whenever it participated it had not emerged as the successful bidder. The first tender had to be called off as the price quoted was way higher than the market price. If the tender had been awarded to the petitioner, it would have resulted in funds shortage and, therefore, the tender comes to be cancelled. On every occasion the tender had been 8 cancelled quoting valid reasons that prices being way higher than the market price. As procurement of Paracetamol tablets would be necessary in bulk, public interest should not suffer by quoting higher price which would be passed on to the general public. She would submit that, what the petitioner is now challenging is a tender notified on 16-05-2022. Four tenders have been called after the said tender. The petitioner has participated in every tender and in every tender its tender has been rejected and it now wants to put the clock back and challenge the tender that was awarded at the first instance. She would submit that the petition be dismissed with exemplary costs, as the petitioner has not divulged in the petition that it has participated in all the tenders that are called after the impugned tender.
9. I have given my anxious consideration to the submissions made by the respective learned counsel and have perused the material on record.
10. The afore-narrated facts are not in dispute. The issue in the lis is tender versus tender or tender after tender. The first 9 tender was notified by the respondent/Tender Inviting Authority - Karnataka State Medical Supplies Corporation Limited ('the Corporation' for short) on 16-05-2022. The tender was for supply of drugs - Paracetamol 500 mg Tablets for health institutions. Therefore, it was procurement for the hospitals run by the State. Prior to issuance of tender notification, Government of Karnataka had notified a new industrial policy on 13-08-2020 which gave 15% price preference to MSMEs. Implementing the said policy, amendment comes to be notified to the Rules on 25-07-2022. The petitioner then prefers W.P.No.15598 of 2022 seeking benefit of the amendment. This Court in terms of its order dated 20-10-2022 disposed of the writ petition by the following order:
"2. The petition is filed for issuance of a writ in nature of mandamus directing the 1st respondent to extend the benefit of 15% price preference to the petitioner in terms of the Government Order bearing No.CI-199-SPI-2018, Bengaluru, dated 13.08.2020 vide Annexure-B.
3. Learned Senior Counsel appearing for the petitioner would submit that the Rules i.e., Rule 25 of the Karnataka Transparency in Public Procurement Rules, 2000 has since been amended and the amendment reads as follows:
"1. Title and Commencement.- (1) These rules may be called Karnataka Transparency in Public Procurements (Amendment) Rules, 2022.10
(2) They shall come into force from the date of their publication in the Official Gazette.
2. Amendment of rule 25.- In the Karnataka Transparency in Public Procurements Rules, 2000 (herein after referred to as the said rules) in rule 25, in sub-rule (2), in clause (e) for the first proviso, the following shall be substituted, namely:-
"Provided that Goods manufactured by Micro and Small Enterprise located in the State shall be given fifteen percent price preference against the large and Medium Industries of the State and Industries of other States during Government Departments purchases, up to 31.08.2025, subject to the following conditions, namely:-
1. An enterprise shall be registered with the Ministry of Micro, Small and Medium Enterprises, Government of India on Udyam Registration portal as a Micro or Small Enterprise under Micro, Small and Medium Enterprises Development Act, 2006 (Central Act 27 of 2006); and
2. An enterprise shall produce a certificate obtained from Udyam Registration Portal as a Micro or Small Enterprise."
3. Amendment of rule 27.- In rule 27 of the said rules, in sub-rule (2), in the proviso, for the words "Directorate of Information Technology, Government of Karnataka" the words "Department of Personnel and Administrative Reforms (e-Governance), Government of Karnataka" shall be substituted."
In the light of the amendment so made to the Rule 25, price preference as sought for by the petitioner will have to be granted in terms of the aforesaid Rule.
4. The grievance of the petitioner would not survive for consideration as Rule itself is amended and would be entitled to a price preference in the subject tender.
5. For the aforesaid reasons, the petition is disposed as having become unnecessary for any consideration at this juncture.
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6. In the light of the Rules so amended, it is needless to observe that the respondent would adhere to the Rules and grant such price preference.
Ordered accordingly."
The petitioner is said to have communicated the order passed by the Court on 20-10-2022 to the Corporation. It is averred in the petition that the Corporation declined to grant 15% price preference on the ground that it was prospective and the subsisting tenders would not get the benefit. This led the petitioner to file an interlocutory application for clarification. The I.A. seeking clarification is entertained and disposed of by the following order: "ORDER on I.A.No.1/2022
The learned counsel for the petitioner has filed this application seeking clarification of the order dated 20.10.2022, passed by this Court.
This Court while disposing of the matter took note of the amendment rules, which can be gathered from paragraph No.6. The observed made in the order, reads as follows:
"In the light of the amendment so made to the Rule 25, price preference as sought for by the petitioner will have to be granted in terms of the aforesaid Rule.
Xxxxx
6. In the light of the Rules so amended, it is needless to observe that the respondent would adhere to the Rules and grant such price preference."12
Sri Reuban Jacob, learned senior counsel for the petitioner would now submit that the respondents are not considering the case of the petitioner, in the light of the observations made at paragraph No.6.
Therefore, I deem it appropriate to accept the application and clarify the position as the tender notification itself recognises the fact of change in the industrial policy for the period from 2021-25, which would be subject to issue of notifications. Clause 17.3 of the notification reads as follows:
"17.3. Price/Purchase preference to MSME Units:
Purchase preference will be given to MSME's unit of Karnataka against New Industrial Police of GOK for the period 2021-25, subject to issue of notifications / amendments / Circular Guidelines from Government for the KTPP Act/Rules."
In the light of the tender notification itself recognising the change in the industrial policy, the case of the petitioner will have to be considered in terms of the amendment, which implement the new industrial policy.
With the aforesaid observations, the order dated 20.10.2022 is thus, clarified."
After the clarification, but before the clarification could reach the respondent, the respondent calls for a fresh tender on 24-11-2022 incorporating the price preference of the Government in clause 17.3 of the said tender. This notification of fresh tender dated 24-11-2022 has not been completely produced by the petitioner. What is produced is only a relevant extract of the tender. After the notification of the tender, it appears that the petitioner 13 communicates the orders passed by this Court including the order on the application. On 30-11-2022 the Tender Scrutiny Committee again meets and resolves to cancel the tender and call for fresh tender. The reason for cancelling the tender and calling for fresh tender is as follows:
".... ..... ....
With reference to the department of finance notification No.FD S37Exp-12/2021 dated 25-07-2022 M/s Mahendra Labs requested to issue a purchase order to them based on price preference. Hence, a clarification has sought with the Finance Department in this regards of price preference, but Finance Department has clarified that the opportunities in the notification are not applicable to tender, which have been called before dated 28-07-2022 and the process of tender has been completed. At this stage M/s Mahendra Labs Pvt. Ltd. has filed a writ petition (15598/2022) in High Court of Karnataka to get price preference, perhaps the total quantity is 34,70,732 for which if M/s Vivek Pharmachem India Ltd., L1 bidder have been issued a purchase order at a rate of Rs.52.04/- which results the total cost of the drug is Rs.18,06,16,893/- whereas if MSME unit issued an purchase order at rate of Rs.58.80/- which results in the total cost of Rs.20,40,79,041/- which in turn results in fund shortage of Rs.2,34,62,149.
The price in GEM portal and M/s Vivek Pharmachem India Limited. The amount of price difference for 1 unit is Rs.1.62/-.
If the purchase would have done other than GEM Portal, there is an increase of Rs.1.62/- per unit for the total quantity of 34,70,732 which in turn increases to a total of Rs.56,22,585/-.
Due to direct purchase in GEM Portal, Government exchequer Rs.56,22,585/- loss can be prevented. 14 After detailed deliberation and discussion due to the above mentioned reasons and due to shortfall of Rs.2,34,62,149/- the TAC Committee has decided to cancelled this tender and to Re-call the fresh tender considering the Hon'ble High Court directions and as per FD orders No: FD 537 Exp-12/2021 dated 25-07-2022." The reasons were that the petitioner had quoted `58.80 per unit whereas the lowest rate on the GEM portal was `52.04. The price difference of `1.62 between L1 bidder and the petitioner would have incurred a loss of `34,70,732/- and would have resulted in severe fund shortage to process the tender. On the aforesaid reason, the tender is cancelled. The petitioner insists on the earlier tender to be taken to its logical conclusion by invoking the contempt jurisdiction of this Court by filing C.C.C.No.1160 of 2022. After issuance of notice comes the impugned endorsement dated 20-02-2023 cancelling the entire tender dated 16-05-2022 and rejecting all the tenders since the quoted price by the tenderers was far higher than the market price.
11. After the aforesaid events that took place comes a new tender on 21-02-2023 as the endorsement was issued on 20-02-2023, for procurement of various drugs including 15 Paracetamol Tablets as was done earlier. The said document is placed along with the statement of objections. The petitioner participates in the said tender unsuccessfully and the Tender Accepting Authority recognized another tenderer M/s Vivek Pharmachem to be the lowest bidder at `45.15 per unit for Paracetamol Tablets. Though the petitioner did not emerge successful in the said tender, the tender itself comes to be cancelled as M/s Vivek Pharmachem had quoted a price which was higher than the market price. The third tender then comes to be issued on 04-05-2023 in which the petitioner participates. The petitioner's bid is rejected in the tender on the ground that he had quoted a higher price than the lowest bidder M/s Hindustan Laboratories at `41.93 per unit. But, the subject writ petition has been preferred on 13-03-2023 and on 28-03-2023 an application is preferred seeking a restraint against the Tender Inviting Authority to issue work order in favour of the successful bidder for Paracetamol Tablets. Interim order was granted and was in subsistence till the matter was reserved.
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12. On all these factors what would unmistakably emerge is, that for procurement of Paracetamol Tablets the Tender Inviting Authority has gone on issuing tender notifications till it got the successful tenderer with the lowest price. The petitioner has participated in every one of the tenders. The writ petition is preferred on 13-03-2023 challenging the endorsement dated 20-02-2023 after which, there are three tenders notified and the petitioner participated in all the three tenders. But, vaguely it avers in the petition that it has not participated in the tenders as its rights had been crystallized earlier. The statement of objections and the documents appended thereto clearly demonstrate that the petitioner has participated in all the tenders, its bids are rejected; those rejections are after filing of the petition and the petition is preferred on 13-03-2023 without divulging any of the facts that had happened prior to the filing of the petition and during the submissions it does not make any whisper about participation in events subsequent to the filing of the petition.
13. On perusal of the statement of objections, this Court is of the considered view that there were substantive reasons for 17 cancellation of tender and issuing fresh tender notification. This Court would not sit in the arm chair of experts to scrutinize at what price Paracetamol Tablets should be procured. The challenge in the petition should necessarily fail on the score that it is wanting this Court to put the clock back to a tender dated 16-05-2022, notwithstanding the fact that there are four tenders notified later and the petitioner has participated in all the tenders and has emerged as L1 in a few and its bids had been rejected in a few. Therefore, the Court would not entertain a petition which in fact wants to put the clock back in a matter of this nature, that too at the instance of the petitioner who had not divulged complete facts. The petitioner also has not filed a rejoinder to the detailed statement of objections filed by the Corporation to assert that those facts are untrue.
14. Now it becomes apposite to refer to the judgments of the Apex Court which place embargo at the hands of this Court, save in exceptional circumstances, of entertaining a petition and evaluating 18 the tenders. The Apex Court in the case of JAGDISH MANDAL v. STATE OF ORISSA1 has held as follows:
".... .... ....
22. Judicial review of administrative action is intended to prevent arbitrariness, irrationality, unreasonableness, bias and mala fides. Its purpose is to check whether choice or decision is made "lawfully" and not to check whether choice or decision is "sound". When the power of judicial review is invoked in matters relating to tenders or award of contracts, certain special features should be borne in mind. A contract is a commercial transaction. Evaluating tenders and awarding contracts are essentially commercial functions. Principles of equity and natural justice stay at a distance. If the decision relating to award of contract is bona fide and is in public interest, courts will not, in exercise of power of judicial review, interfere even if a procedural aberration or error in assessment or prejudice to a tenderer, is made out. The power of judicial review will not be permitted to be invoked to protect private interest at the cost of public interest, or to decide contractual disputes. The tenderer or contractor with a grievance can always seek damages in a civil court. Attempts by unsuccessful tenderers with imaginary grievances, wounded pride and business rivalry, to make mountains out of molehills of some technical/procedural violation or some prejudice to self, and persuade courts to interfere by exercising power of judicial review, should be resisted. Such interferences, either interim or final, may hold up public works for years, or delay relief and succour to thousands and millions and may increase the project cost manifold. Therefore, a court before interfering in tender or contractual matters in exercise of power of judicial review, should pose to itself the following questions:
(i) Whether the process adopted or decision made by the authority is mala fide or intended to favour someone;
OR 1 (2007) 14 SCC 517 19 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 a 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.
The Apex Court later in a case of STATE OF JHARKHAND v. CWE- SOMA CONSORTIUM2 has held as follows:
".... .... ....
22. The Government must have freedom of contract. In Master Marine Services (P) Ltd. v. Metcalfe & Hodgkinson (P) Ltd. [Master Marine Services (P) Ltd. v. Metcalfe & Hodgkinson (P) Ltd., (2005) 6 SCC 138], SCC in para 12 this Court held as under: (SCC p. 147) "12. After an exhaustive consideration of a large number of decisions and standard books on administrative law, the Court enunciated the principle that 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 Government must have freedom of contract. In other 2 (2016) 14 SCC 172 20 words, 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 principles of reasonableness but also must be free from arbitrariness not affected by bias or actuated by mala fides. It was also pointed out that quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure. (See para 113 of the Report, SCC para 94.)"
The Court does not have the expertise to correct the administrative decision as held in Laxmikant v. Satyawan [Laxmikant v. Satyawan, (1996) 4 SCC 208], the Government must have freedom of contract."
15. In the light of the unequivocal facts narrated hereinabove and the judgments rendered by the Apex Court (supra), the petition does not merit any entertainment and is accordingly, rejected.
Consequently, pending applications if any, also stand disposed.
Sd/-
JUDGE bkp CT:SS