Delhi High Court
Rusan Pharma Ltd. vs Union Of India & Anr on 30 August, 2017
Bench: S. Ravindra Bhat, S.P.Garg
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 02.08.2017
Pronounced on: 30.08.2017
+ W.P.(C) 5596/2016
RUSAN PHARMA LTD. ..... Petitioner
Through: Mr. Arvind K. Nigam, Sr. Adv.,
Mr. Rajiv Bansal, Sr. Adv. with Ms. Bindu
Saxena, Mr. Shailendra Swarup and Ms. Aparajita
Swarup, Advs.
versus
UNION OF INDIA & ANR ..... Respondents
Through: Mr. Anurag Ahluwalia, CGSC with
Ms. Nidhi Parashar, GP for R-1.
Mr. Ashish Kumar Kushwaha, Consultant (Proc.),
Procurement Div. for UOI.
Mr. Divij Soni, Adv. for Mr. Rohit Goel, Adv. for
R-2.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE S.P.GARG
MR. JUSTICE S. RAVINDRA BHAT
%
Facts
1. The Petitioner questions the award of contract/tender to the second respondent (hereafter referred to in brief as "Verve") by the Union of India in the Ministry of Health & Family Welfare, National AIDS Control Organization, the first respondent ("NACO" hereafter). NACO published a W.P.(C) No.5596/2016 Page 1 of 20 tender being IFB No. RITES/MSM/NACP/I5/2014 ("Tender") involving international competitive bidding for procurement of tablets Buprenorphine 2mg and 0.4mg calling for offers from interested parties. The Petitioner had been declared as an L2 in the process. Its grievance is that procurement from L3, Verve, should not be resorted to. This petition, consequently, claims appropriate directions to quash the award of contract to Verve, and further directions that NACO should procure the quantities of the subject medication from the Petitioner.
2. The tender for procurement of the product, 2mg and 0.4 mg. Buprenorphine tablets, which is a part of the AIDS treatment range of pharmaceuticals, was issued in October, 2014. The tender called for bids in respect of a quantity of 9,67,25000 tablets. Three bids were received in response to the Tender and opened on 02.12.2014. The bidders were
(a) Mann Pharmaceuticals Ltd, Ahmedabad; (b) Rusan Pharma Ltd., Mumbai; and (c) Verve. The Tender for 2mg Buprenorphine tablets was awarded to Mann Pharmaceuticals; the Petitioner was declared L2 and Verve, declared as L3. As far as the Tender for 0.4mg Buprenorphine tablets is concerned, it was awarded to the Petitioner as L1 on 08.01.2015. In February/March 2015, it transpired that Mann Pharmaceuticals Ltd. had been blacklisted/debarred by certain State health authorities during the pendency of the Tender period, a fact that it had required to disclose in terms of the Tender (Sl. No. 10 of Checklist at pg. 205-206 of the Bid Documents). As a consequence, the first respondent, placed a Purchase Order dated 10.07.2015 on the Petitioner (who was L2 in the Tender for 2mg tablets) for supply of 1,50,00,000 (1.5 Crore) tablets of 2mg Buprenorphine at ` 2.97/- per unit totaling ` 4,67,77,500/- inclusive of W.P.(C) No.5596/2016 Page 2 of 20 taxes. Accordingly, 1,50,00,000 (1.5 Crore) tablets of 2mg Buprenorphine were supplied by the Petitioner to NACO in 2015.
3. After the completion of the above supply of 2mg tablets on or about19.04.2016, NACO again approached the Petitioner for further procurement of 1,50,00,000 (1.5 Crore) tablets of 2mg Buprenorphine and enquired, inter alia, whether the Petitioner was able to match the L1 price of the Tender opened on 02.12.2014 or offer lower than the price offered by the L1 bidder (Mann Pharmaceuticals). In response, the query, by its letter dated 20.04.2016 confirmed, inter alia, that it would supply Buprenorphine Tablets 2mg and match the L1 price of the Tender and that it accepted the terms and conditions of the Tender opened on 02.12.2014 for supply and payment. NACO by its letter dated 21.04.2016 acknowledged receipt of letter, dated 20.04.2016 of the Petitioner. In response to said letter dated 21.04.2016 of NACO, the Petitioner submitted the requisite Affidavit dated 21.04.2016. Subsequently, on or about May 24, 2016, on enquiry from NACO the Petitioner was told that the order has been placed on Verve, the third respondent, who was L3 in the original bidding process.
4. The Petitioner approached this court, aggrieved by the Purchase Order issued by NACO to Verve (the second respondent) for procurement of 1,50,00,000 tablets of 2 mg Buprenorphine and has prayed for quashing this order. It is contended that once NACO offered to purchase the quantities of the medication at a cost lower than that of L1, Mann Pharmaceuticals, NACO's action in proceeding to place the order on L3 in the original bidding process, i.e., Verve, is arbitrary, illogical and discriminatory.
5. Mr. Arvind Nigam, learned counsel submits that the order for procurement of 1,50,00,000 (1.5 Crore) 2mg Buprenorphine tablets from the W.P.(C) No.5596/2016 Page 3 of 20 second respondent, Verve, who was L3 in the tender for 2mg Buprenorphine tablets (the "2mg Tablets") opened on 02.12.2014; in breach of express condition of the Tender. The submission is premised on two clauses of the ITB of the said Tender:
"40.2 Failure of the successful Bidder to comply with the requirement of ITB Clause 39 or ITB Sub-Clause 40.1 shall constitute sufficient grounds for the annulment of the award and forfeiture of the bid security, in which event the Purchaser may make the award to the next-lowest evaluated bid submitted by a qualified Bidder or call for new bids."
And "34.3 An affirmative post-qualification determination will be a prerequisite for award of the contract to the lowest evaluated Bidder. A negative determination will result in rejection of the Bidder's bid, in which event the Purchaser will proceed to the next-lowest evaluated Bidder to make a similar determination of that Bidder's capabilities to perform satisfactorily."
6. Mr. Nigam argued that since tender conditions of the bid, opened on 02.12.2014 were still subsisting, and since L1 was disqualified, the conditions mentioned stipulated, applied and the Petitioner had be awarded the contract. This submission is premised on the fact that the intimation from NACO, for the procurement of the pills stated that the tender terms and conditions, applied for the procurement.
7. Mr. Nigam drew attention of the court to the offer by NACO, dated 19thApril, 2016, which did not materialize, to say that the terms and conditions applicable to the original tender (which was opened on 2 December 2016) applied. Such being the case, NACO as a State instrumentality, was bound to offer the contract for supply of the second W.P.(C) No.5596/2016 Page 4 of 20 quantity of 150,000 tablets to the petitioners and no one else. It was argued that there was no principle or legal justification to support the award of the second emergency supply to Verve, once the petitioner had offered competitive rates, at rates matching those offered by the original L1 bidder, Mann (who was disqualified from the contract due to non disclosure of a material fact) though such rates were about 2 years later than the original bid.
8. It was submitted that negotiation and award of contract, through private treaty, as it were, is contrary to the basic principles underlying Article 14 in relation to public procurement of goods and services. For healthy growth of industry and in the larger interest of protecting public moneys, procurement through a bidding procedure is deemed most appropriate. Even in cases of urgent situations, wherever possible, the State or its agency should resort to some form of bidding, to secure the best price for goods or services that are to be made available to the users and citizens. In the present case, the procedure adopted of offering emergency procurement to the original qualified bidders cannot be faulted. However, in proceeding to award the contract to the original L3 in the teeth of the condition, governing the later emergency supply offer (i.e., that the old tender conditions would prevail) is plainly arbitrary.
9. Mr. Nigam further argued that NACO's defense, that it was compelled to award the quantities to Verve, is flimsy, since the arbitration award cannot be sustained as it directed procurement based on irrelevant considerations. It is also argued that if the procurement is to be done, in the manner resorted to, NACO would be taking supplies from the original batch of medication, which is past its shelf life. This would undermine public W.P.(C) No.5596/2016 Page 5 of 20 health and public interest. It was also argued that NACO has now admitted that the World Bank (under whose aegis the scheme for procurement was framed and which was providing funding) is no longer providing financial support. The respondents should not therefore, be hastily resorting to emergency procurement as in this case.
10. NACO submits that the tender for inter alia 2mg Buprenorphine tablets (the "2mg Tablets") opened on 02.12.2014, stands closed. The submission is based on the premise that the disqualification of L1, was made after the award was granted and L1 had supplied the initial quantity of the procurement. Moreover, the closure of the tender, is evidenced by the fact that the bid bond was returned to each of the participants.
11. It is further submitted by counsel for the respondents, Mr. Anurag Ahluwalia, that after the process of tender was completed and all the formalities, if in mid of the tender, the successful bidder is unable or black listed due to some reasons, the tender is deemed to be cancelled and a new tender has to be flouted and the process loss of the Government is to be compensated from the PBG (Performance Bank Guarantee) submitted by the successful bidder.
12. The respondents submit that the initial tender was closed, and the procurement thereafter was done on an urgent basis, whereby the terms and conditions of the initial tender were to be met and on the basis of that, Verve who had a lower bid than the Petitioner was awarded the order for urgent procurement and the tender thereafter. In this regard, the respondents rely on the terms of the NIT, particularly Clause 18.1 (of the Bid sheet), to say that the bid tenure had expired. Mr. Ahluwalia also reiterated the contentions made in the counter affidavit that the original tenderer, Mann W.P.(C) No.5596/2016 Page 6 of 20 Pharmaceuticals Ltd, had supplied 72,00,000 tablets before its contract was cancelled on account of concealing that it had been blacklisted by a state agency. It is submitted that the World Bank no doubt terminated its aid; however domestic demand for the Buprenorphine 2mg product in large quantities remains unfulfilled.
13. NACO argues that the Petitioner was no doubt awarded the first emergency procurement for 150,00,000 (1.5 crore) of Buprenorphine 2mg tablets in the first instance. However, that was not in terms of the original tender; rather it was because there was urgent need. The government was careful not to place orders for large quantities. When a similar demand arose later, both L2 and L3 in the last bid were asked to match the L1 bidder's price (i.e Mann Pharmaceuticals). The Petitioner's bid was priced at ` 3.12 per tablet (`2.97 plus local tax @ `0.15) tablet whereas that of Verve was priced at ` 3.09 per tablet (` 2.94 plus local tax @ ` 0.15). The Petitioner could not therefore, complain of arbitrariness.
14. NACO underlined the essentiality of the drug that had to be procured, stating that it has to be available in the Opinoid De Addiction centers at all times. Therefore, it had to resort to emergency/SOS procurement in the present case. It is also stated that Mann Pharmaceuticals had made a grievance with respect to the cancellation of its bid and resorted to arbitration. NACO was a party to the arbitration proceedings. A three member tribunal, by a unanimous award, held the cancellation (of contract) to be illegal, directed NACO to accept the batch of 83,00,000 Buprenorphine 2mg tablets and fix a schedule for acceptance of the balance quantities. It was submitted that NACO accepted the award, on 27 March, 2017 and communicated that the said 83 lakh tablets would be accepted, W.P.(C) No.5596/2016 Page 7 of 20 subject to the medications' shelf life and fix a schedule for acceptance of the balance quantities.
Analysis and Findings:
15. The law with respect to award of tenders and public contracts as well as distribution of State largesse and privileges is well settled. It would be useful to recollect established principles in relation to judicial review in matters concerning tender invitations by public authorities. In Michigan Rubber (India) Ltd. v. State of Karnataka, (2012) 8 SCC 216, after reviewing a number of its previous decisions, the Supreme Court noted:
"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 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"; and (ii) Whether the public interest is affected. If the answers to the above questions are in negative, then there should be no interference under Article 226."
16. In the seminal case of Tata Cellular v. Union of India, (1994) 6 SCC 651, the law on this point was exhaustively reviewed and the Supreme Court noted that in relation to public contracts and tenders, the following principles are discernible from the plethora of decisions:
1) "The modern trend points to judicial restraint in administrative action.
2) The Court does no sit as a court of appeal but merely reviews the manner in which the decision was made.W.P.(C) No.5596/2016 Page 8 of 20
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 fairplay 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) hut must be free 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."
17. In Air India Ltd. v. Cochin International Airport, (2000) 2 SCC 617, the Supreme Court held:
"The award of a contract, whether it is by a private party or by a public body or the State, is essentially a commercial transaction. In arriving at a commercial decision consideration which are of paramount are commercial considerations. The State can choose its own method to arrive at a decision. It can fix its own terms of invitation to tender and that is not open to judicial scrutiny. It can enter into negotiations before finally deciding to accept one of the offers made to it. Price need not always be the sole criterion for awarding a contract. It is free to grant any relaxation, for bona fide reasons, if the tender W.P.(C) No.5596/2016 Page 9 of 20 conditions permit such a relaxation. It may not accept the offer even though it happens to be the highest or the lowest. But the State, its corporations, instrumentalities and agencies are bound to adhere to the norms, standards and procedures laid down by them and cannot depart from them arbitrarily. Though that decision is not amenable to judicial review, the Court can examine the decision making process and interfere if it is found vitiated by mala fides, unreasonableness and arbitrariness. The State, its corporations, instrumentalities and agencies have the public duty to be fair to all concerned. Even when some defect is found in the decision making process the Court must exercise its discretionary power under Article 226 with great caution and should exercise it only in furtherance of public interest and not merely on the making out of a legal point. The Court should always keep the larger public interest in mind in order to decide whether its intervention is called for or not. Only when it comes to a conclusion that overwhelming public interest requires interference, the Court should intervene."
Thus, ordinarily, the Court would defer to executive decision making processes in regard to State activities involving entering into and award of contracts. Courts would not interfere with the decision making process for award of tenders. The Government and the public authorities have freedom of contract and even if the Court finds some infirmity in the decision making process, unless there is illegality, patent arbitrariness, unreasonableness or malafides evident on the face of the record, the Court should in the larger public interest, not interfere with the process. Moreover, it is open to the tenderer to grant relaxation for bonafide purposes, or to insist on strict compliance of certain tender conditions, as long as the same is not done with a malafide or discriminatory intent.
18. The questions of law involved in the present matter, broadly deal with the ITB Sub Clauses 40.2 and 34.3 and their applicability; whether the W.P.(C) No.5596/2016 Page 10 of 20 tender (initially opened on 2 December 2014) was valid when the Petitioner approached this court and whether award of the quantities to L3, Verve, was valid. The effect of the award by the arbitral tribunal, in Mann's favour too has to be considered.
19. The first issue is with regard to the applicability of the ITB Clauses 40.2 and 34.3. The clauses are reproduced below and state:
"40.2 Failure of the successful Bidder to comply with the requirement of ITB Clause 39 or ITB Sub-Clause 40.1 shall constitute sufficient grounds for the annulment of the award and forfeiture of the bid security, in which event the Purchaser may make the award to the next-lowest evaluated bid submitted by a qualified Bidder or call for new bids."
In the present matter it has nowhere been submitted by the Petitioner and neither is evident that the L1 had failed to comply with the requirement of ITB Clause 39 or ITB Sub Clause 40.1. Pertinently, ITB Clause 39 stipulates that:
"39. Signing of Contract:39.1 Promptly after the Purchaser notifies the successful Bidder that its bid has been accepted, the Purchaser will send the Bidder Contract Form provided in the Bidding Documents, incorporating all agreements between the parties.
************ ********** 39.2 Within twenty-eight (28) days of receipt of the Contract Form, the successful Bidder shall sign and date the Contract Form and return it to the Purchaser."
ITB Sub Clause 40.1 states that:
"Within twenty-eight (28) days of the receipt of notification of award from the Purchaser, the successful Bidder shall furnish the performance security in accordance with the Conditions of Contract, using the Performance Security Form provided in the W.P.(C) No.5596/2016 Page 11 of 20 Bidding Documents, or in another form acceptable to the Purchaser."
20. In this case, the facts clearly reveal that L1 Mann Pharmaceuticals did not fail to qualify the above conditions and therefore the present case does not attract the application of ITB Sub Clause 40.2 and the Petitioner does not stand to benefit on the grounds.
21. The Petitioner had argued that ITB Sub Clause 34.3 is applicable in the present case. That condition reads as follows:
"An affirmative post qualification determination will be prerequisite for award of the contract to the lowest evaluated Bidder. A negative determination will result in rejection of the Bidder's bid, in which event the Purchaser will proceed to the next-lowest evaluated Bidder to make a similar determination of that Bidder's capabilities to perform satisfactorily."
22. A plain interpretation of the above condition is quite clear on its applicability. The Clause can be invoked at a pre contractual stage, whereby the bids are still at a premature stage and no final decision is taken or indicated. In the present matter L1 was awarded the tender and it had satisfied all the tender conditions. Therefore, the question of post- qualification determination was already satisfied. It is therefore clear that the Petitioners submissions in reference to the application of the ITB Clauses are redundant in the present matter. The Petitioner does not in any way benefit from these conditions.
23. The second question deals with the status of the tender. The Petitioners have based their submissions on the premise that the intimation made by the Tendering Agency with regards to the Urgent Procurement was set on the terms and conditions of the initial tender and prospectively, the W.P.(C) No.5596/2016 Page 12 of 20 Procurement in contention was a part of the initial bid, wherein the Petitioners were L2. In this regard, and due to the cancellation of the contract with L1, the Petitioners were in a position to be awarded the tender. They also state that the awarding of the tender to Verve, was again in reference to match the bid by L1 in the original tender, which further strengthens their contention that the tender was still subsisting.
24. NACO's submission and argument, in the opinion of this court stands on a stronger footing. This is because it is admitted by all the parties that the bid bonds or the security given by all the bidders was returned to them. In the present matter, the fact of the security being returned is concrete evidence that the tender was closed. It is expedient for us to conclude that the bidding process had lapsed. Moreover, the fact that the urgent procurement was set on the terms and conditions of the tender in contention is in no way a strong proposition which gives effect to that fact that the tender was still subsisting. Sequentially, it has been proven that the initial tender was closed and the procurement in question (even though on the lines of the previous tender) was on an Urgent Basis. This court is also fortified in its conclusions, by Clause ITB 18.1 of Bid Data Sheet which reads as follows:
"Bids shall remain valid for 150 days after the date of bid submission viz. upto 23-Apr-2015. A bid valid for a shorter period shall be rejected by the purchaser as non-responsive."
25. This court also notes that the Petitioner had sought urgent interim orders to restrain procurement through the second respondent, by NACO, in these proceedings. The application, however, was turned down on 20 June, 2016, when the court expressed the following view:
W.P.(C) No.5596/2016 Page 13 of 20"25. It may be noticed that the covering letter to the communication dated 19.4.2016 has been placed on record by respondent no.2. The email dated 19.4.2016, which has also been placed on record referred to urgent procurement of tablet Buprenorphine. We may also notice that the communication addressed to the petitioner dated 19.4.2016, which we have reproduced hereinabove gives reference of the IFB No.RITES/MSM/NACP/15/2014 opened on 2.12.2014 in Clause 2 which reads as under:
"2. The terms and conditions of IFB No.RITES/MSM/NACP/15/2014 opened on 02.12.2014 will be applicable for supply and payment."
26. In response, the communication dated 19.4.2016 which has been extracted in para 6 would also show that petitioner had to accept the terms and conditions of IFB No.RITES/MSM/NACP/15/2014 which would show that it was also understood by the petitioner that these terms and conditions were to apply only for the purpose of supply and payment. Neither the communications nor the covering letter of the email dated 19.4.2016 or the response of the petitioner at any point would show that this procurement was in continuation of the earlier tender. There is no element of doubt that the earlier tender stood closed and security deposits of all the bidders stand returned which is not disputed by the petitioner. In our view clauses 34.3 and 40.2 of the earlier tender would not apply to the present procurement.
27. We are also informed that substantial supplies already stand made arising out of the tender dated 2.12.2014 and in fact even the bank guarantees provided by the petitioner stand returned.
28. The terms of the tender dated 2.12.2014, which were extracted in the order dated 6.6.2016, in our view, do not come to the rescue of the petitioner in any way and the terms of the tender do not show that any subsequent procurement is to be placed only on the petitioner.
29. Learned counsel for the petitioner has also submitted that in fact there was no emergency and the procedure followed W.P.(C) No.5596/2016 Page 14 of 20 by the respondent is also not in accordance with law neither it is transparent. This submission is without any force all we can say for present is that if there was no urgency, repeated tenders would not have been floated.
30. Prima facie for the purpose of deciding the present stay application, we do not find that respondent no.1 has not followed the proper procedure. However, this aspect would require a detail hearing and the objection is kept open. For the reasons aforesaid, we find no merit in the application for stay. The interim order dated 6.6.2016 stands vacated."
26. After due consideration of the materials on record, particularly the letters written to the parties on 19 April, 2016, eliciting offers for emergency procurement this court is of the opinion that the above view reflects the correct position. The original tender and the bids had expired 150 days after the submission of the bids. The bid securities too had been refunded to the unsuccessful parties. Therefore, the reference to the tender conditions (of 2 December 2016) was only with respect to technical and other specifications, nor those relating to competitive bidding conditions. Interestingly the Petitioner had secured a similar emergency contract offer earlier, for an identical quantity (1.5 crore tablets) at the rate of ` 2.97 per tablet (totaling ` 4,67,77,500 inclusive of taxes). This order was placed on 10 July, 2015. If the Petitioner's contentions are to be accepted, this purchase offer should not have been issued, because no competitive process preceded it. It would appear that the said procurement did not even refer to the tender opened on 2 December, 2014. More importantly, there is material on record to show that the procurement order in 2016 - given to Verve, was purely because its price was lower than that of the Petitioner.
W.P.(C) No.5596/2016 Page 15 of 2027. The question as to whether award of tenders through open bidding is the most appropriate method, consistent with Article 14, has engaged the attention of the courts, often. The Supreme Court, in its five judge Bench decision in Natural Resources Allocation, in Re, Special Reference No.1 of 2012 In re, Special Reference No.1 of 2012 (2012) 10 SCC 1 considered its previous judgments. It took note of other previous rulings which had held that the government had flexibility in dispensing with the public mode of entering into contract, given certain exigencies (Sachidanand Pandey v State of WB 1987 (2) SCC 295; Haji TM Hassan Rawther v Kerala Financial Corporation 1988 (1) SCC 166) M.P. Oil Extraction &Anr v State of MP (1997) 7 SCC 592 and Natai Bag & Ors v State of WB (2000) 8 SCC 262). Indisputably, the court largely dealt with how natural resources are to be dealt with. Yet, the breadth of its inquiry concerned with and related to all public contracts. It was held that:
"129. Hence, it is manifest that there is no constitutional mandate in favour of auction under Article 14. The Government has repeatedly deviated from the course of auction and this Court has repeatedly upheld such actions. The judiciary tests such deviations on the limited scope of arbitrariness and fairness underArticle 14. and its role is limited to that extent. Essentially whenever the object of policy is anything but revenue maximization, the Executive is seen to adopt methods other than auction.
130. A fortiori, besides legal logic, mandatory auction may be contrary to economic logic as well. Different resources may require different treatment. Very often, exploration and exploitation contracts are bundled together due to the requirement of heavy capital in the discovery of natural resources. A concern would risk undertaking such exploration and incur heavy costs only if it was assured utilization of the W.P.(C) No.5596/2016 Page 16 of 20 resource discovered; a prudent business venture, would not like to incur the high costs involved in exploration activities and then compete for that resource in an open auction. The logic is similar to that applied in patents. Firms are given incentives to invest in research and development with the promise of exclusive access to the market for the sale of that invention. Such an approach is economically and legally sound and sometimes necessary to spur research and development. Similarly, bundling exploration and exploitation contracts may be necessary to spur growth in a specific industry.
131. Similar deviation from auction cannot be ruled out when the object of a State policy is to promote domestic development of an industry, like in Kasturi Lal's case, discussed above. However, these examples are purely illustrative in order to demonstrate that auction cannot be the sole criteria for alienation of all natural resources."
Ruling against the argument that even if the method of auction was not mandated under Article 14 it should nevertheless always be followed due to potential abuse of other methods, the court ruled that:
"135. Therefore, a potential for abuse cannot be the basis for striking down a method as ultra vires the Constitution. It is the actual abuse itself that must be brought before the Court for being tested on the anvil of constitutional provisions. In fact, it may be said that even auction has a potential of abuse, like any other method of allocation, but that cannot be the basis of declaring it as an unconstitutional methodology either. These drawbacks include cartelization, "winners curse" (the phenomenon by which a bidder bids a higher, unrealistic and unexecutable price just to surpass the competition; or where a bidder, in case of multiple auctions, bids for all the resources and ends up winning licenses for exploitation of more resources than he can pragmatically execute), etc. However, all the same, auction cannot be called ultra vires for the said reasons and continues to be an attractive and preferred means of disposal of W.P.(C) No.5596/2016 Page 17 of 20 natural resources especially when revenue maximization is a priority. Therefore, neither auction, nor any other method of disposal can be held ultra vires the Constitution, merely because of a potential abuse."
28. The urgency of the procurement in this case cannot be disputed. Since the earlier tender was cancelled due to the disqualification of L1, there was a natural vacuum and demand for these tablets. They are essential and are to be available at all times in NACO's De-addiction programmes. No doubt, the World Bank was involved initially (when the tender was published) as a funding agency; it later withdrew its aid. Nevertheless, the need and requirement for these medications has been stressed upon. NACO therefore had to make emergency procurements to fulfill these requirements since the original award to Mann Pharmaceuticals was cancelled. The Petitioner and Verve had both qualified in the original tender, it was a matter of expedient procurement the tendering agency, gave both the parties an equal opportunity to bid for the tender. The intimation was sent on 19.04.2016 to both the parties. The contention of the Petitioner in this regard is baseless and insubstantial. Its submissions regarding private negotiations between both the respondents are contrary to facts. The urgency of the situation in this regard can be taken as face value, as the cancellation of the award would have had to have an effect on the supply of these pills. The award, in favour of Verve, is not arbitrary or inequitable. It has been admitted by both the parties that the Verve's price bid in reference to the urgent procurement was less than the Petitioner's per unit cost- in its bid. It is indisputable that this is the most pivotal factor in consideration to hand out tenders. Therefore, in the present matter, which deals with awarding of tender to Verve or L3 in the W.P.(C) No.5596/2016 Page 18 of 20 original bid, the Petitioner's submissions and averments are both wrong in fact and in law.
29. An issue which arose after initiation of these proceeding, is the Arbitration Proceedings between the original L1, Mann Pharmaceuticals and the NACO. There is no need to get into the merits of the Arbitration. The award by Arbitrator was in favor of L1 and states:
"18. Looking to the facts and circumstances of the case we are inclined to pass the following award Oil the subject issue:
(a)Respondent's order no RITES/MSMINACPIl5/20 14 dated 14.5.2015whereby the subject contract was terminated after expiry of 14 days notice given therein, is quashed and set aside and the Claimant is allowed to complete the contract.
(b) Respondents are directed to accept the lot of 83,50,000 tablets which has been given dispatch clearance, if otherwise the same is in order
(c) Delivery period of the contract for the balance quantity should be suitably fixed taking into account the time consumed in present arbitration proceedings
(d) Since the Respondent did not give any notice to the Claimant before repurchasing the subject drug and also did not follow prescribed drill for repurchase they are not entitled to any claim expenses incurred by them towards making such re- purchase
(e) In view of the facts of the case and the legal position, as brought out in preceding paras, other claims of the Claimant and counter claims of the Respondents do not sustain and are therefore rejected
(f) Since the parties committed unintentional error, therefore neither party is Eligible to be awarded any cost or interest. The directions shall be implemented within 21daysfrom the date of receipt of award failing which the Respondents will be liable to pay interest @12% on the cost of 83,50,000 tablets lying W.P.(C) No.5596/2016 Page 19 of 20 ready with the Claimant from the date of receipt of award till the date of payment."
30. The entire contract and tender to supply the pills was for a cumulative duration of around two and a half years consisting of 9 lots. In the present matter the tender was closed and the awardee was disqualified before he could supply the second lot but subsequently the Arbitration Proceedings, awarded the contract back to L1 whereby the party would be allowed to complete his contract. The contract was a long-term contract and the Petitioners cause of action arose due to the disqualification of L1. But in the course of these proceedings, the Arbitrator held the disqualification to be ultra vires and awarded the contract in favor of L1. Since the remaining contract was spread over a larger period of time, and majority of the contract is yet to be completed it would be unfair and inappropriate for this court to comment on the merits of the award, or the decision of NACO to accept it. Having regard to the limited nature of the present challenge, which is with respect to the award of the emergency quantity (150,00,000 tablets) to the second respondent, Verve; which has to fail, the court is of opinion that no other finding can be given.
31. For the above reasons, the writ petition has to fail. It is therefore, dismissed, without order as to costs.
S. RAVINDRA BHAT
(JUDGE)
S.P. GARG
AUGUST 30, 2017 (JUDGE)
W.P.(C) No.5596/2016 Page 20 of 20