Karnataka High Court
Nair Coal Services Limited, Nagpur And ... vs Karnataka Power Corporation Limited, ... on 15 February, 2002
Equivalent citations: ILR2002KAR2575, 2002(3)KARLJ101
ORDER Chandrashekaraiah, J.
1. These two petitions can be disposed off by a common order as common question is involved in both the cases.
2. In these petitions the petitioners seek to challenge the tender notification dated 8-6-2001 (Annexure-A) inviting tenders from persons to work as Coal Transportation Agency for movement of coal from Singarani Collieries, Western Coal Fields and Mahanadi Coal Fields to Raichur Thermal Power Station and the clarification dated 14-6-2001.
3. The brief facts in these cases are as follows.-
Respondent 1-Government company issued a tender notification inviting tenders from reputed coal transport agencies for the purpose of awarding contract for a period of three years for the movement of coal from three collieries, viz., Singarani Collieries (SCCL), Western Coal Fields (WCL) and Mahanadi Coal Fields (MCL) to Raichur Thermal Power Station (RTFS) by all rail mode. As per the notification, the bidders have the option to apply for the contract for movement of coal from one or more of the three collieries. Pursuant to this notification, petitioners have submitted their tender applications.
4. The grievance of the petitioners in these petitions is with regard to prescription of pre-qualification in the tender notification insofar as it relates to experience in pre-payment of freight charges by self-financing and also the mode of transportation by all rail mode. The tender notification stipulates several pre-qualifying requirements for selection which read as follows.-
"Clause 5(1).--(a) Should have previous experience of three years in supervising loading of coal rakes at pitheads/collieries in India and monitoring the movement of coal rakes to thermal power station or any industrial unit by rail and should have handled a minimum quantity of five million tonnes of thermal coal/coke to not more than two customers, in each of the past three years (i.e., 1998, 1999 and 2000).
Eligibility for the work of SCCL : 30.00 Lakhs MT.
Eligibility for the work of WCL : 10.00 Lakhs MT.
Eligibility for the work of MCL : 10.00 Lakhs MT.
The bidder may apply for one or more work by producing the quantity handled certificate as indicated above.
(b) Should have experience in coordinating with Railways at pitheads/collieries and also in payment of railway freight on behalf of industrial units/power utilities. They should have remitted on their own, the railway freight payment (per year) in the last three years for booking of coal rakes at pitheads/collieries, as indicated below:
Eligibility for the work of SCCL: Rs. 30.00 Crs.
Eligibility for the work of WCL: Rs. 15.00 Crs.
Eligibility for the work of MCL: Rs. 15.00 Crs.
Experience in mere remittance of freight through demand drafts/pay orders/advance payments received from principals or operating L/C or bank guarantees of principals shall not. be counted.
The bidder may apply for one or more work by producing the freight remittance certificate as indicated above.
The above criteria can be summarized as hereunder:
Pre-payment criteria (by way of Supply criteria self-finance) For SCCL Rs. 30 crores 3 Million tonne per year For WCL Rs. 15 crores 1 Million tonne per year For MCL Rs. 15 crores 1 Million tonne per year Apart from the above the bidder must also provide with a solvency certificate or a letter of commitment from any Nationalized Bank/Scheduled or Foreign Bank".
5. The petitioners in both these petitions are mainly aggrieved of the requirement of experience in pre-payment of freight charges by way of self-financing. According to the petitioners, most of the State Electricity Boards follow the practice of tender for handling of freight payment and do not require that the bidders finance themselves. The further case of the petitioners is that respondent 1-Corporation has also prior to the impugned notification issued tender notification for liason and supervision of coal movement only and has never floated tender for freight pre-payment. The prescription of experience in pre-payment of freight charges by self-financing as one of the pre-qualifications is to favour respondents 3, 4 and 5 and to eliminate the rest of the bidders. The further case of the petitioners is that the prescription of pre-qualification is tailor-made to limit the zone of consideration to few selected companies such as respondents 3 and 4.
6. The case of the petitioner in W.P. No. 32949 of 2001 in addition to the point referred to above is that requiring the tenderer to have experience exclusively in the rail mode is arbitrary as it is with a view to eliminate the petitioner-company from the zone of consideration. This contention need not be considered in view of the fact that the respondent in its statement of objections has stated that there is no requirement that it should be "all rail mode".
7. The contention of the 1st respondent as found in its statement of objections is that the relief claimed in these petitions cannot be granted in exercise of writ jurisdiction owing to the legal proposition laid down by the Supreme Court in a catena of cases that the terms of invitation to tender are not subject to judicial review and cannot be altered, modified or changed. It is further stated that how a tender should be structured is the prerogative of the employer/purchaser in view of the various commercial considerations that come into play. The main contention of the 1st respondent is that in order to avoid the loss during transport of coal by rail and as the delay in making the payment attract 15% surcharge on the cost, the Corporation felt certain changes need to be introduced in order to minimise the loss in supply of coal to RTPS and at the same time make one agency responsible for all three acts, namely, ensuring quality, quantity and payment of railway freight. Accordingly, a note was prepared in the office of the Superintending Engineer disclosing the facts relating to the nature of loss and the remedial measures to be undertaken. The said office note was placed before the 119th Meeting of the Technical Committee. The Technical Committee, after going through the said remedial measures approved various proposals and pre-qualification criteria and suggested to issue tender notification for appointment of coal transportation agency for the supply of coal. Accordingly, in terms of the recommendation made by the Technical Committee an advertisement was issued in certain papers inviting tenders. Insofar as the prescription of pre-qualification regarding experience in pre-payment of freight charges, it is stated that on one occasion where there was a delay of one day in payment of freight charges due to the negligence of the Bank, made the Railways to levy 15% surcharge which comes to Rs. 85,00,000/-.
8. After issuance of the tender notification the petitioners have made several representations to relax certain pre-qualifications prescribed in the notification. Thereafter, the 1st respondent issued clarification and has rejected the request for relaxation regarding experience in pre-payment of freight charges.
9. The impugned tender notification was furnished to 15 firms. Out of 15 firms, only 9 firms requested for issuance of tender documents. Out of 9 only two firms viz., respondents 3 and 5 qualified for all the three works, whereas respondent 4 qualified for two works and all other ten-
derers including the petitioners were disqualified from offering their bid. This has made the petitioners to come to this Court.
10. After hearing the arguments of the learned Counsels for the parties, the only point that arises for consideration is.-
"Whether the terms and conditions of a tender notification prescribing pre-qualifications is amenable to judicial review? If so, under what circumstances?''
11. In the statement of objection of the 1st respondent-Corporation it is stated that the 1st respondent-Corporation has suffered heavy loss in supply of coal to RTPS owing to poor quality and quantity checks, loss during transit, delay in payment of the freight charges. In order to overcome this loss, on the basis of the office note of the Superintending Engineer, the matter was referred to the Technical Committee. The Technical Committee after going through the proposal proposed the following pre-qualifications.
"929.07. The following pre-qualification requirements are proposed:
The bidder
(i) Should have previous experience of three years in supervising loading of coal rakes at pitheads/collieries in India and monitoring the movement of coal rakes to thermal power station or any industrial unit by rail and should have handled a minimum quantity of five million tonnes of thermal coal/rake to not more than two customers, in each of the past three years (i.e., 1998, 1999 and 2000).
(ii) Should have experience in liasoning with Railways at pitheads/collieries and also in payment of railway freight on behalf of industrial units/power utilities. They should have remitted on their own, the railway freight payment in the last three years for booking of coal rakes at pitheads/collieries, as indicated below:
Eligibility for the work of SCCL : Rs. 30 crores (per year) Eligibility for the work of WCL : Rs. 15 crores (per year) Experience in mere remittance of freight through Demand Drafts/Pay Orders/Advance payments received from principals or operating L/C or Bank guarantees of principals shall not be reckoned.
The bidder may apply for one or more work by producing the "Freight remittance certificate" as indicated above.
(iii) The agency should be financially sound and capable of executing high value contracts. As a proof of their financial capacity they should produce a solvency certificate or letter of commitment from any nationalised bank/scheduled bank branches or foreign banks in India valid for minimum three years as indicated below, to meet the fund requirement for pre-payment of railway freight and other payments relating to the contract:
Eligibility for the work of SCCL : Rs. 40 crores Eligibility for the work of WCL : Rs. 20 crores The bidder may apply for one or both works by producing the "solvency certificate" or letter of commitment from any nationalised bank/scheduled bank as indicated above".
The extracts of the meeting of the Technical Committee are produced along with the statement of objections which are marked as Annexures-R1 and R2.
12. Sri R.N. Narasimha Murthy, learned Senior Counsel and Sri Basavaprabhu S. Patil, learned Counsel appearing for one of the petitioners submit that the prescription of pre-qualification regarding prepayment of freight charges by way of self-financing is unreasonable and arbitrary and it is with a view to favour respondents 3 and 4 and to eliminate all other tenderers and therefore, it is amenable for judicial review. In support of this contention they relied upon the decision of the Supreme Court in Rasbihari Panda v. State of Orissa, . In this case, the Government instead of inviting tenders, offered to certain known contractors the option to purchase Kendu leaves. This action was held to be bad on the ground, it is violative of the fundamental right of the petitioners under Articles 19(1)(g) and 14 of the Constitution of India as it gave rise to monopoly in the trade in Kendu leaves to certain traders and single out other traders for discriminatory treatment. It is further held that the classification based on the circumstances that certain existing contractors had carried out their obligations in the previous year regularly and to the satisfaction of the Government, is not based on any real and substantial distinction bearing a just and reasonable relation to the object sought to be achieved.
13. In the instant case, there is no discrimination or unreasonableness in restricting the zone of consideration to the persons who fulfil the pre-qualifications prescribed. As seen from the facts of this case, in the statement of objections filed by the 1st respondent it is stated that the circumstance which made the Corporation to prescribe the experience of pre-payment of freight charges, is the heavy loss suffered by it due to levy of Rs. 85,00,000/- as surcharge by the Railways for delay of even one day in payment of freight charges. The Technical Committee is also of the opinion that pre-qualification is necessary in order to avoid the loss. The object of imposing the pre-qualification is with a view to avoiding loss in future and therefore it cannot be said the restriction if any will not satisfy the test of Article 19(6) of the Constitution. The zone of consideration though limited to the persons who fulfil the pre-qualification, it does not result in discrimination as the persons who are similarly situated are not excluded from consideration. If that is so, the above said judgment is of no assistance to the petitioners.
14. Nextly, the learned Counsels for the petitioners submit that the 1st respondent-Government company while dealing with the largess of the State cannot act arbitrarily at its sweet will unlike a private individual. In support of this proposition they relied upon the decision in the case of Ramana Dayaram Shetty v. The International Airport Authority of India and Ors., . In that case, in the tender notification the qualification prescribed was five years' experience for putting up and running a II class restaurant and two snack bars at the Airport for a period of three years'. But the contract awarded in the said case was to a person who did not fulfil the said qualifications. This awarding of the contract was the subject-matter in this case. The Supreme Court after considering the rival contentions has held as follows.-
"12. We agree with the observations of Mathew, J., in V. Punnan Thomas v. State of Kerala, , that: "The Government, is not and should not be as free as an individual in selecting the recipients for its largess. Whatever its activity, the Government is still the Government and will be subject to restraints, inherent in its position in a democratic society. A democratic Government cannot lay down arbitrary and capricious standards for the choice of persons with whom alone it will deal", The same point was made by this Court in Erusian Equipment and Chemicals Limited v. State of West Bengal, , where the question was whether blacklisting of a person without giving him an opportunity to be heard was bad? Ray, C.J., speaking on behalf of himself and his colleagues on the Bench pointed out that blacklisting of a person not only affects his reputation which is in Poundian terms an interest both of personality and substance, but also denies him equality in the matter of entering into contract with the Government and it cannot, therefore, be supported without fair hearing. It was argued for the Government that no person has a right to enter into contractual relationship with the Government and the Government, like any other private individual, has the absolute right to enter into contract with any one it pleases. But the Court, speaking through the learned Chief Justice, responded that the Government is not like a private individual who can pick and choose the person with whom it will deal, but the Government is still a Government when it enters into contract or when it is administering largess and it cannot, without adequate reason, exclude any person from dealing with it or take away largess arbitrarily. The learned Chief Justice said that when the Government is trading with the public, "the democratic form of Government demands equality and absence of arbitrariness and discrimination in such transactions.... The activities of the Government have a public element and, therefore, there should be fairness and equality. The State need not enter into any contract with anyone but if it does so, it must do so fairly without discrimination and without any unfair procedure". This proposition would hold good in all cases of dealing by the Government with the public, where the interest sought to be protected is a privilege. It must, therefore, be taken to be the law that 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 other forms of largess, the Government cannot act arbitrarily at its sweet will and, like a private individual, deal with any person it pleases, but its action must be in conformity with standard or norm which is not arbitrary, irrational or irrelevant. The power or discretion of the Government in the matter of grant of largess including award of jobs, or contracts quotas, licences etc., must be confined and structured by rational, relevant and non-discriminatory standard or norm and if the Government departs from such standards or norm in any particular case or cases, the action of the Government would be liable to be struck down".
It is true the Government company while dealing with the largess shall not act arbitrarily at its sweet will like a private individual. Whatever action is taken either by the Government or by the Government company, should satisfy the test of Article 14 of the Constitution of India. The Court, after considering various aspects of the case, has held the prescription of five years experience in running the second class restaurant and two snack bars at the Airport as valid holding such prescription cannot be said to be arbitrary or violative of Article 14 of the Constitution.
15. In the case on hand also, keeping in view the interest of the company in particular and public interest in general, with a view to avoiding loss that may be incurred, respondent 1 has prescribed pre-qualification of experience in pre-payment of freight charges by self-financing. The prescription of such a pre-qualification is with a view to knowing the credentials, capacity and capability of managing the payment. Therefore, it cannot be said that the prescription of pre-qualification cannot be said to be arbitrary.
16. In the case of Monarch Infrastructure (Private) Limited v. Commissioner, Ulhasnagar Municipal Corporation and Ors., , the Supreme Court has held as follows.-
"10. There have been several decisions rendered by this Court on the question of tender process, the award of contract and evolved several principles in regard to the same. Ultimately what prevails with the Courts in these matters is that while public interest is paramount there should be no arbitrariness in the matter of award of contract and all participants in the tender process should be treated alike. We may sum up the legal position thus:
(i) The Government, is free to enter into any contract with citizens but the Court may interfere where it acts arbitrarily or contrary to public interest;
(ii) The Government cannot arbitrarily choose any person it likes for entering into such a relationship or to discriminate between persons similarly situate;
(iii) It is open to the Government to reject even the highest bid at a tender where such rejection is not arbitrary or unreasonable or such rejection is in public interest for valid and good reasons.
11. Broadly stated, the Courts would not interfere with the matter of administrative action or changes made therein unless the Government's action is arbitrary or discriminatory or the policy adopted has no nexus with the object it seeks to achieve or is mala fide".
From this it is seen the Courts would not interfere with the matters of administrative action unless the Government's action is arbitrary or discriminatory or the policy adopted has no nexus with the object it seeks to achieve or is mala fide.
17. The Supreme Court in the case of Food Corporation of India v. Kamdhenu Cattle Feed Industries, , has held that in contractual sphere as in all other State actions, the State and all its instrumentalities have to conform to Article 14 of which non-arbitrariness is a significant facet. The mere reasonable or legitimate expectation of a citizen, in such a situation, may not by itself be a distinct enforceable right, but failure to consider and give due weight to it may render the decision arbitrary, and this is how the requirement of due consideration of a legitimate expectation forms part of the principle of non-arbitrariness, a necessary concomitant of the rule of law. Every legitimate expectation is a relevant factor requiring due consideration in a fair decision-making process. Whether the expectation of the claimant is reasonable or legitimate in the context is a question of fact in each case. Whenever the question arises, it is to be determined not according to the claimant's perception but in larger public interest wherein other more important considerations may outweigh what would otherwise have been the legitimate expectation of the claimant. A bona fide decision of the public authority reached in this manner would satisfy the requirement of non-arbitrariness and withstand judicial scrutiny. The doctrine of legitimate expectation gets assimilated in the rule of law and operates in our legal system in this manner and to this extent.
18. Keeping this in view, and in the light of the decision of the Supreme Court in the case of Tata Cellular v. Union of India, (1994)6 SCC 651, I propose to consider under what circumstances, the Court can exercise its discretionary power in the matter of administrative action. It is useful to extract certain paragraphs of the judgment of the Supreme Court in Tata Cellular's case, supra.
Para 70 reads as follows.-
"It cannot be denied that the principles of judicial review would apply to the exercise of contractual powers by Government bodies in order to prevent arbitrariness or favouritism. However, it must be clearly stated that there are inherent limitations in exercise of that power of judicial review. Government is the guardian of the finances of the State. It is expected to protect the financial interest of the State. The right to refuse the lowest or any other tender is always available to the Government. But, the principles laid down in Article 14 of the Constitution have to be kept in view while accepting or refusing a tender. There can be no question of infringement of Article 14 if the Government tries to get the best person or the best quotation. The right to choose cannot be considered to be an arbitrary power. Of course, if the said power is exercised for any collateral purpose the exercise of that power will be struck down".
Para 74 reads as follows.-
"74. Judicial review is concerned with reviewing not the merits of the decision in support of which the application for judicial review is made, but the decision-making process itself.
Para 77 reads as follows.-
"77. The duty of the Court is to confine itself to the question of legality. Its concern should be:
(1) Whether a decision-making authority exceeded its powers?
(2) Committed an error of law, (3) Committed a breach of the rules of natural justice, (4) Reached a decision which no reasonable Tribunal have reached or, (5) abused its powers.
Therefore, it is not for the Court to determine whether a particular policy or particular decision taken in the fulfilment of that policy is fair. It is only concerned with the manner in which those decisions have been taken. The extent of the duty to act fairly will vary from case to case. Shortly put, the grounds upon which an administrative action is subject to control by judicial review can be classified as under;
(i) Illegality.--This means the decision-maker must understand correctly the law that regulates his decision-making power and must give effect to it.
(ii) Irrationality, namely, Wednesbury unreasonableness.
(iii) Procedural impropriety.
The above are only the broad grounds but it does not rule out addition of further grounds in course of time. As a matter of fact, in R. v. Secretary of State for the Home Department, ex Brind, (1991) 1 AC 696, Lord Diplock refers specifically to one development, namely, the possible recognition of the principle of proportionality. In all these cases the test to be adopted is that the Court should, "consider whether something has gone wrong of a nature and degree which requires its intervention"
Para 85 reads as follows.-
"85. In Universal Camera Corporation v. National Labour Relations Board, 340 US 474, 95 L.Ed. 456 (1950) Justice Frankfurter stated:
"A formula for judicial review of administrative action may afford grounds for certitude but cannot assure certainty of application. Some scope for judicial discretion in applying the formula can be avoided only by falsifying the actual process of judging or by using the formula as an instrument of futile casuistry. It cannot be too often repeated that Judges are not automata. The ultimate reliance for the fair operation of any standard is a judiciary of high competence and character and the constant play of an informed professional critique upon its work. Since the precise way in which Courts interfere with agency findings cannot be imprisoned within any form of words, new formulas attempting to rephrase the old are not likely to be more helpful than the old. There are no talismanic words that can avoid the process of judgment. The difficulty is that we cannot escape, in relation to this problem, the use of undefined defining terms" ".
From a reading of the above said judgment, it is clear that judicial review is permissible in case of decision making process but not on the merits of the decision. Further it is also not permissible for this Court to substitute its views in place of the expert body.
19. As seen from the judgment of the Supreme Court in G.B. Mahajan v. Jalgaon Municipal Council, , it is not appropriate to insist upon strict compliance with each and every tender document. In the case of Poddar Steel Corporation v. Ganesh Engineering Works, , the Supreme Court has upheld the waiver of technical, literal compliance of the tender conditions.
20. Keeping in view the law as declared by the Supreme Court, in the above said cases, it is not appropriate for this Court to interfere with the area of contract or commerce until and unless it is shown to be unrea-
sonable or arbitrary. The 1st respondent-Corporation, after referring the matter to the Technical Committee and on the basis of the proposal suggested by the Technical Committee, issued notification inviting tenders incorporating the pre-qualifications as suggested by the Technical Committee. The Technical Committee has also taken note of the prevailing circumstances which had resulted in incurring loss before suggesting the prescription of pre-qualifications. Therefore, it is not permissible for this Court to substitute its views in place of the views of the Technical Committee consisted of experts which was based on relevant materials.
21. The learned Counsels for the petitioners submit that applying the principles of Wednesbury the denial of opportunity to the petitioners to offer their bid is bad in law. The Wednesbury principle also has no application to the facts of this case, since it is not possible to come to the conclusion the decision reached by the 1st respondent on the basis of the proposal by the expert committee, is either arbitrary or unreasonable. It is for the 1st respondent ultimately to decide to whom the contract has to be awarded on the basis of credentials, capacity and capability of executing the work keeping in view the best interest of the Corporation in particular and public interest in general. Therefore, if the Corporation introduces certain conditions, in the larger interest of the public the same cannot be said to be arbitrary.
22. It is nextly contended that the terms and conditions of the impugned notification have no nexus between the purpose of tender and the self-financing stipulation. The very object of stipulation of previous experience of self-financing is with a view to overcome the loss if any incurred on account of the delay in payment. The 1st respondent is a Government company. Therefore, keeping in view the public interest the said conditions have been imposed. If that is so, it cannot be said that the stipulation of such conditions have no nexus to the object to be achieved.
23. It is further contended that the eligibility criteria of experience in self-financing ought not to have been clubbed with the work of awarding contract for the movement of coal from the collieries to RTPS. The 1st respondent has stated that certain changes have been introduced by prescribing pre-qualification in one single tender since it makes one agency responsible for all the three acts namely, ensuring quality, quantity and payment of railway freight. From this it is seen the pre-payment of freight charges by the agent is incidental to the main work of transportation of coal from collieries. Therefore, I do not find anything wrong in imposing the condition of experience in self-financing in prepayment of freight charges in order to ascertain the capacity to perform the work to be entrusted.
24. Sri Raghavan, learned Senior Counsel for respondents 1 and 2 in W.P. No. 31148 of 2001 submits that the petitioner had not complied with the condition of producing the solvency certificate. As per the terms of the tender notification the tenderer is required to produce the solvency certificate or a letter of commitment from any Nationalised Bank.
Along with the application filed in the Court, the 1st respondent has produced the letter written by the Bank of India, Nagpur Corporate Banking Branch, dated 20-6-2001. The contents of the said letter read as follows.-
"If the contract for the said work is awarded to the company, we will be willing to consider working capital requirements of the company towards pre-payment of railway freight on the coal consignments to RTPS for three years, on merits of the case and on the terms and conditions that may be stipulated by the Bank and subject to the approval of the appropriate authorities".
This letter is issued without prejudice to our interests, rights and without any risk and responsibility on our part, in the aforesaid subject-matter and at the specific request of the customer.
From a reading of this letter, it appears that there is no positive commitment by the Bank. Therefore, even on this ground also the petitioner in this petition is not qualified to get the tender form.
25. Sri Basavaprabhu Patil, relying on the decision of this Court, in the case of Esteco Coal Services Limited v. The Karnataka Power Corporation Limited and Ors., , submits that the eligibility condition of prescribing five years' experience in pre-payment of freight charges by way of self-financing is unreasonable and bad in law. In the said decision the point that arose for consideration was whether the condition imposing minimum five years' experience as an handling agent in movement of coal to large Thermal Power Station is valid or not. The said decision was with reference to imposing the condition of movement of coal to Large Thermal Power Stations was relevant or not, and not with reference to five years' experience in the matter of movement of coal. Therefore, this decision is of no assistance to the petitioners. Further, in the said decision, the Court has not considered the scope of judicial review with reference to the decision by the Supreme Court in Tata Cellular's case, supra.
26. I take judicial notice of the fact that there is shortage of electricity in the State of Karnataka. When such being the case, it is also not appropriate for this Court to interfere in the area of contract in exercise of discretion assuming that there is some deviation from earlier practice in issuing tender notification, as it comes in the way of production of electricity which ultimately add to further injury.
27. For the reasons stated above, I am of the considered view that it is not a fit case which calls for interference by this Court under Article 226 of the Constitution of India.
Accordingly, writ petitions are rejected.
Rule issued is discharged.