Jammu & Kashmir High Court
A.B.C. Enterprises vs Bodh Raj Charan Singh And Ors. on 22 May, 1995
Equivalent citations: AIR1996J&K57, AIR 1996 JAMMU AND KASHMIR 57
JUDGMENT Khan, J.
1. It is about a contract allotted to the appellant by the India, Oil Corporation (IOC) to carry and handle High Speed Diesel (HSD) to the second Gas Turbine unit (PDC Unit-II) set up by the State Power Development Corporation at Pampon: ' Kashmir). The contract was ordered to be quashed by the writ Court in OWP- Nos. 602/94 and 649/94 filed by respondents 1 to 47 herein, by a common judgment dated 14-11-1994 with a further direction to the IOC to allot the contract by floating public tenders.
2. The present appeal is taken against this judgment and the principal question that falls for determination is whether the action of allotting contract is bona fide, fair, reasonable and in tune with the public interest or whether it smacks of some bias, favouritism or arbitrariness affecting such interests in the process?
3. The matter is engulfed in a jungle of facts, though some of the facts relevant for our purpose are undisputed. Both the appellants and respondents 1 to 47 (writ-petitioners) are carriage contractors registered with the IOC. They were all carrying on smoothly and executing their carriage contracts allotted to them by the IOC for transportation of oil to various stations in the region after floating public tenders. The handling of the supplies, however, was being done by the employees of the IOC. This position seems to have continued in respect of Gas Turbine Unit No. 1 (PDC-I) till November, 1990, when due to outbreak of the militancy in Kashmir valley, IOC employees expressed their inability to carry on the handling operations at the site of the Unit. The IOC says that it informed the contractors about the situation and enquired from them if they could undertake handling opertions but none of them, except the appellant, came forward and consequently its composite offer of undertaking the transportation as well as handling operations in respect of PDC Unit-I was accepted culminating in awarding of carriage contract to it for two years with effect from 24-4-1991. The contract was extendable for one year from 24-4-1993 on the same terms and conditions and the appellant was to be paid Rs. 5,000 per month on account of handling charges and 78 paise per Kilo litre/per Kilometer (KL/KM). It is also borne by the record that this contract expired on 23-4-1994 and was later extended by six months up to 23-10-1994. Meanwhile the contract was processed for rendering and was ultimately allotted 10 the lowest bidder at the rate of 48 paise per KL/ Per KM. There is no dispute about this contract on which dust has settled down after it was awarded pursuant to the floating of public tenders.
4. It transpires that while controversy was raging about the allotment of contract to the appellant in respect of PDC Unit-I, without resort to tenders and with the writ-petitioners agitating the matter before the authorities of the IOC, the second Gas Turbine Unit (PDC-II) was completed in November, 1993. Upon this some of the carriage contractors amongst the writ-petitioners, formed a separate group styled as "Kashmir Valley Carriers" and offered to undertake carriage work at the rate of 64 paise per KL/ per KM. It is not known as to how their offer was dealt with but the IOC, acting on the offer of the appellant dated 22-6-1993 and 21-12-1993 proceeded to allot this contract also to the appellant at the rate of 64 paise for three years vide communication dated 10-12-1994.
5. This was challenged by respondents 1 to 47 herein in OWPs Nos. 602/94 and 649/ 94 filed on 23-8-1994 and 7-9-1994 respectively. The case of the writ-petitioners was that the IOC had discriminated between the similarly situated registered carriage contractors by awarding contract to the appellant to the exclusion of others and without inviting offers from them thereby violating the principle of equality enshrined in Article 14 of the Constitution. The action of awarding of contract for 3 years without floating tenders, was termed unreasonable, arbitrary and contrary to the public interest conferring undue benefit on the appellant and causing a loss to ths public exchequer by enabling it to charge 78 paise per KL/per KM in case of first contract and 64 paise per KL/per KM in case of second contract when transportation of HSD was to be made to the same destination.
6. The writ petition was resisted by the appellant taking the stand that it was barred by laches and that it raised disputed questions of fact which the writ Court was not competent to adjudicate. It was also submitted that the allotment of contract to the appellant could not be challenged at a belated stage after it had made huge investments for its execution. On merits it was submitted that the appellant had" a good track record as transporter and handling contracts. Some of its members were dealers and owned about 300 lorries which comprised 50 per cent, of the total fleet available for the supply of oil to the region. It was also pleaded that the question of discrimination did not arise because none of the writ-petitioners had made any composite offer for transportation and handling of HSD at PDC Units and that its offer was considered better and superior by the IOC leading to the award of contract.
7. The IOC also took, by and large, a similar stand in its objections. It explained that after its employees had failed to handle the supplies at PDC Unit-I, it informed all the approved contractors / transporters about the situation and had enquired from them if they could undertake both transportation as well as handling of the material at the site but none came forward except the appellant who had a good track record and who made a composite offer of undertaking both the transportation as well as handling operation of the material at the site leading to award of contract to it in respect of PDC Unit-I for two years on 26-4-1991 which was extended for further one year.
R. In respect of the contract relating to PDC Unit-II it was stated that the IOC explored the possibility of effecting an arrangement with the appellant first. Enquiries were also made about the competitive rates from other approved contractors and the appellant first made an offer on 22-6-1993 which was found on the higher side as compared to the offer received from some other operators who had quoted 64 paise per KL/per KM for a period of one year up to 31-8-1994. But, since, the IOC was interested in awarding a composite contract of both transportation and handling, it asked the appellant to tone down its offer and to bring it at par with the offer made by other operators i.e., 64 paise per KL/per KM. The appellant agreed and made its new offer vide letter dated 21-12-1993 which was found superior for the reason that it was for 3 years and contained composite offer for carriage and handling as well. In nutshell, it was pleaded that the offer of appellant was superior as against the offer made by the "5 / 7 individuals (some of the writ-petitioners)" and it was asserted that the action was rational, reasonable, in public interest and based on the merits of the case.
9. On consideration of the matter it was ruled by the writ Court that the allotment of handling and carriage contract in respect of PDC Unit-II was patently violative of Article 14 of the Constitution as no public tenders were floated and as other eligible contractors were excluded from consideration. It was also held that the appellant had been given a favourable treatment by discriminating against the other eligible intending contractors. The contract was accordingly ordered to be quashed and the IOC directed to resort to public tender for its allotment. Hence this appeal.
10. The case of the contesting parties has proceeded on the expected lines in a repeat exercise. Mr. Bhagotra, learned counsel for the appellant argued before us that the impugned contract in respect of PDC Unit-II was concluded upon negotiations alter according consideration to the offer made by the writ-petitioners also. This was not a case where the writ-petitioners had been excluded from consideration but a case where they had participated in the process and were beaten by a superior offer. No arbitrariness or unfairness could be read in or attributed to the action and the question of infraction of the principle laid down in Article 14 did not arise. He urged that the challenge to the, contract emanated from the business rivalry and was patently mala fide inasmuch as writ petitions were filed about 8 months after the allotment of the contract when meanwhile the appellant had changed his position to his detriment by making huge investments to the tune, of Rs. 50 lacs for executing the contract. He contended lastly that the tendering of a contract was only one of the modes and not the only mode for allotting a contract and that the writ-petitioners had not explained how and in what manner any loss was caused to the public exchequer rendering the allotment invalid. As such there was no occasion for the writ Court to quash the contract moreso on the ground that it was violative of the principle laid down in Article 14. He placed reliance on AIR 1979 SC 1628 and 1651, AIR 1988 SC 157 and AIR 1987 SC 251.
11. Mr. D. D. Thakur, on the other side, submitted that the approach and conduct of the IOC was surrounded by suspicion from the day one as it had resorted to different means and tactics to confine the benefit of contract to the appellant without making any effort whether there was any other carriage contractor wilting to undertake the contract. It dilly dallied in tendering the contract in respect of PDC Unit-I first till it was forced to resort to public tender in that case and refusing to learn from this, it proceeded to allot the contract to the appellant in respect of PDC Unit-II at the back of all other eligible contractors and to the detriment of the public interest. Had it resorted to floating of tenders in this case, it would have received as low an offer as 44 paise per KL/ per KM as in the first contract. Therefore, by accepting a surreptitious offer of the appellant at the rate of 64 paise per KL/per KM, it had only caused loss to the public exchequer and to the public interest.
12. Mr. Thakur repelled the submission of the apellant that the writ petitions had been filed on mala fide considerations and were hit by laches. He was at pains to explain that the writ-petitioners had been going from pillar to post to seek redressal of their grievance but all their representations had gone unheeded. As such it could not be said that, they had acquiesced in the award of contract to the appellants. He refuted the charge that the writ-petitioners had participated in the negotiations for award of contract in respect of PDC Unit-11 and submitted that only 6 writ-petitioners had sought consideration which was not accorded to them. He also asserted that no composite contract of transportation and handling had ever been offered by the IOC and there was no proof of any such offer on record. Had any such offer been made public, any of the writ-petitioners could have come forward to undertake both the carriage and the handling at the site of PDC Unit-II.
13. Mr. M. H. Beg, representing the IOC, justified the action of the IOC, on considerations of exigency of administration and submitted that the allotment of the contract was made to an association of contractors and not any individual and, therefore, could not be said to be a mala fide action. He submitted that the writ Court had fallen in error by holding that the IOC had not adopted any recognised mode or procedure of awarding the contract and it was borne by the record that the contract had been concluded after the offer was made known to the appellant and some of the writ-petitioners; According to him, the handling part of the contract was known to the writ-petitioners also as is evident from the averments made in the writ petition and that they could not now feign any ignorance about it. He also pleaded that some of the remarks made by the writ Court against Mr. J. P. Singh, advocate, representing the IOC, were unnecessary and required to be expugned.
14. Lastly, Mr. D. C. Raina appearing for some of the writ-petitioners sought consideration of AIR 1986 SC 1571 (1572) to show that though a public authority can make a choice for allotment of a contract but such choice had to be dictated by public interest and should not be unreasoned or unprincipled. He also submitted that the appellant had not laid any foundation for the claim of having made huge investments for execution of the contract and, therefore, did not deserve any consideration in equity.
15. The principles governing the allotment of public contracts are more or less well established in a long line of judgments by the Supreme Court and by various High Courts. The legal position is thus, by and large, well settled and there is little scope for any disagreement or divergence of opinion on settled principles. The consideration to weigh in allotting a public contract are and have to be different than in the case of a private contract as it involves expenditure from public exchequer. The action of the public authorities in awarding such contracts is thus required to be in conformity with the standards and norms which are not arbitrary, Irrational or unreasonable and are based on and regulated by rational and non-discriminatory standards and norms. And wherever the authority departs from such standard or norm, the Courts intervene to uphold and safeguard the equality clause enshrined in Article 14 of the Constitution and strike down actions which are found arbitrary, unreasonable and unfair and prone to cause a loss to the public exchequer and injury to the public interest. Therefore, even when an award of contract may not be causing any loss to the public exchequer manifestly, it may still be liable to quashment for being unfair, unreasonable, discriminatory and violative of the guarantee contained in Article 14.
16. It is true that calling for tenders may not be the only recognised mode for allotting a contract but it is surely a general rule and departure whereof must be justified by the administrative compulsions and not expediency or compromise. While saying so we are only re-stating the well settled position and in support it would be advantageous to refer to some of the recent judgments of the Supreme Court cited by the rival counsel.
17. In the well known International Airport Authority's case, AIR 1979 SC 1628, the Apex Court laid down as under (at pp. 1637-
38):
"Where the Government is dealing with the public, whether by way of giving jobs or entering into contracts or issuing quotas or licences or granting forms of largess, Government cannot act arbitrarily at its sweet-will and like a private individual, deal with any person, it pleases. Its action must be in conformity with the standard or norms which is not arbitrary, irrational, or irrelevant. Power or discretion of the Government in the matter of grant of largess must be confined and structured by rational, relevant and non-discriminatory standard or norm and if the Government departs from such standard or norm in any particular case or cases the action of the Government would be liable to be struck down unless it can be shown by the Government that "the departure was not arbitrary but was based on some valid principle which in itself was not irrational, unreasonable or discriminatory."
The Supreme Court reiterated this position in Haji T. M. Hassan Rawther v. Kerala Financial Corporation, AIR 1988 SC 157, by holding (para 14):
"The public property owned by the State or by any instrumentality of the State should be generally sold by public auction or by inviting tenders. Observance of the rule not only fetches the highest price for the property but also ensures fairness in the activities of the State and public authorities, The State and the public authorities should undoubtedly act fairly. Their action should be legitimate. Their dealings should be above board. Their transactions should be without aversion, or affection. Nothing should be, suggestive of discrimination. Nothing should be done by them which gives an impression of bias, favouritism or nepotism. Ordinarily these factors would be absent if the matter is brought to public auction or sale by tenders. But that is not the only rule. There may be situations necessitating departure from the rule but then such instances must be justified by compulsions and not by compromise. It must be justified by compelling reasons and not by just convenience."
This position relating to the scope of judicial review in administrative matters, was affirmed in Tata Cellular v. Union of India, (1994) 3 Scale 477 : (1994 AIR SCW 3344), one of the latest judgments of the Supreme Court, observing thus (para 113 of AIR) :
"Terms of invitation to the tenders cannot be open to judicial scrutiny because the invitation to tender is in the realm of the contract. However, the decision must not only be tested by the application of Wednes-bury's principle of reasonableness but must be free from arbitrariness not affected by bias or actuated by mala fides .....
XX XX XX XX ..... But if the decision is within the confines of the reasonableness it is no part of the Court's function to look further into its merits....."
In Harminder Singh Arora's case, AIR 1986 SC 1527, it was held (para 22):
"It is true that the Government may enter into an agreement with any person but in so doing State or its instrumentality cannot act arbitrarily."
18. The present controversy before us has to be tested on the touchstone of the principles laid down in the judgments (supra) and it seems to us that it does not involve so much a question of loss of the public exchequer as it involves the issues of fairness and reasonableness of the action. Therefore, all that requires to be examined is: whether the action is unfair or unreasonable or arbitrary or biased and whether it confers any undue benefit to the appellant at the cost of public interest.
19. It requires to be pointed out at the very outset that we find many chinks in the armour of the appellant and many holes and gaps in the stand of the IOC. Considering the sequence of events leading to the allotment of two contracts, it is not difficult to see that the IOC had shied away from going public for reasons best known to the organisation. It seems to have dealt with the matter in a hush hush manner. It was as good as forced to resort to floating of the public tender in the case of the first contract in respect of PDC Unitl. Even so it refused to learn a lesson from it and proceeded to allot the second contract also in none too happy circumstances. We are unable to appreciate why it should have done so. This naturally raises doubts about the fairness and bona fides of its action.
20. The stand of the IOC that it had found "the offer of the appellant a superior offer, being a composite offer of both transportation and handling seems to us a mere alibi. There is nothing on record to show that any composite offer was invited from the registered contractors and as such there was no occasion for any one to make such composite offer. Had the offer been made public, there could have been many takers, for all one knows. The plea of composite offer, therefore, does not justify the action.
21. The next contention of the appellant that the contract was awarded after according due considerations to the offer of writ-petitioners, is also belied by the record. There is nothing to show that any offer was invited or elicited from any registered contractor including the writ-petitioners. The stand of the IOC that "5/6 persons" had quoted 64 paise per KL/per KM cannot be stretched to mean that due consideration was given to the offer of all eligible contractors or that the contract was concluded on negotiations with them. The so called negotiation appears to have been conducted with the appellant only in suspicious circumstances. It is not the case of the IOC that any such negotiation was conducted with some others also. If it be assumed that the contract was the result of some negotiation conducted, then it was required to be conducted with all similarly circumstanced. Where it is done in the case of one party only and that too have its rates at par with a rival offer, it is a manipulation and not negotiation intended to confer undue benefit on that party. Under these circumstances it is not possible to hold that any due ' consideration was accorded to the offer of all eligible contractors including the writ-petitioners and that the action was non-discriminatory or free from arbitrariness. On the contrary, it appears that the whole exercise was conducted to confine the contract to the appellant only and to the exclusion of all other eligible contractors.
22. The appellant's submission that it had adversely changed its position by making huge investments is again a cock and bull story. A generalised statement in this regard has been made' in the objections filed in reply to the petition without laying down any foundation how and in what manner such investment was made and to what extent. It seems to have struck the appellant first time in pointing out an imaginery figure of Rs. 50 lacs in the memo of appeal without specifying the areas in which this amount was invested for the purposes of executing the contract. Therefore, this projection had to be taken with a pinch of salt and represents a last ditch effort by the appellant to save the transaction. We are not, therefore, impressed and persuaded to accept this position and to draw any favourable inference in favour of the allotted contract of this kind.
23. It is true that tendering may not be the only recognised mode for allotment of a contract, but, that surely does not give a licence to the public authority to enter into any clandestine transaction while awarding public contracts. The mode of floating public tenders is a recognised mode and a general rule as held by the Supreme Court and any departure made from it has to be dictated by the administrative compulsions and exigencies. There may be cases where a contract allotted on negotiations may save public money and obviate the necessity to go for public tendering but that surely is not the case here. The advantage of the mode of resorting to public tendering is to- afford an equal opportunity to all eligibles to compete and to fetch a better price to the Government or to save a loss to the public exchequer. This is in tune with the principle of equality enshrined in Article 14 of the Constitution. Therefore, where an authority, as in the present case, gives a good-by to the well recognised mode of public tendering, it must come out with valid reasons for doing so and even those reasons must be rational and reasonable.
24. In the present case neither the IOC nor the appellant had furnished any reason in support of the allotment of the contract made somewhat surreptitiously at the back of other eligible contractors and excluding them from consideration. The action naturally becomes arbitrary, discriminatory, unfair and unreasonable. The reliance of the appellant on AIR-1970 SC 251 (sic) is rather misplaced. In this case the Supreme Court was dealing with an action predominant purpose of which was to set up new distillery with modern technology. It was in this context that the Court observed that the State was not required to invite public offers for setting up of such industry. The present case is not related to encourage the promotion or setting up of an industry but is to save the public money through a contract. Therefore, the IOC was duty-bound and obliged to take the Court into confidence by furnishing valid reasons for its action which was admittedly taken by way of an exception to the general rule.
25. We fail to understand what prevented the IOC to resort to the public tendering in the case of second contract and allot it to the appellant and that too for three long years at 64 paise per KL/per KM, when it had already decided to resort to public tendering in case of the first contract regarding PDC Unit-I which was admittedly allotted at the rate of 44 paise per KL/per KM. A cursory comparison leaves no manner of doubt that the impugned , action of allotting the second contract had undoubtedly caused a loss of 20 paise per KL/per KM to the public exchequer. This also goes to show that the action was allowed to confer undue favour to the appellant at the expense of public exchequer and the public interest.
26. We are also unable to accept the submission that the effort of the writ petitioners in filing the writ petitions emanated from their mala fide considerations and their business rivalry and was hit by laches inasmuch as they had filed their petitions 8 months after the event. Mr. Thakur "has explained that they were all along agitating their grievance and approaching one authority after another and had made numerous representations to persuade these authorities to see the reason. Therefore, it cannot be said that they had questioned the action impugned only because of expediency or had acquiesced in the award of contract. The fact remains that they had proved instrumental in bringing a wrong action to the notice of the Court and as such their petitions could not be thrown out on the pleas that these were hit by laches.
27. It is true that no mala fides of action were alleged against the IOC as contended by its counsel Mr. Beg. But, that does not detract from the fact that the impugned action suffers from arbitrariness, unfairness and is even biased in favour of the appellant which should be sufficient to strike it down.
28. In the circumstances we hold that the allotment of the second contract to the appellant in respect of PDC Unit-II, smacks of unfairness, unreasonableness and causes loss to the public exchequer when compared to the rates settled for the first contract and is biased in favour of the appellant and violative of the principles enshrined in Article 14 of the Constitution. Accordingly we uphold the impugned judgment of the writ Court, quash the allotment of contract to the appellant and direct the IOC to allot the contract after floating public tenders and by inviting offers from all eligible persons.