Gauhati High Court
M/S Utkal Galvanizers Ltd vs The State Of Arunachal Pradesh & Ors on 7 September, 2012
Equivalent citations: AIR 2013 GAUHATI 72, (2012) 5 GAU LT 775, (2013) 3 GAU LR 326, (2013) 3 BANKCAS 307
Author: A. K. Goel
Bench: A. K. Goel, S. Talapatra
IN THE GAUHATI HIGH COURT AT GUWAHATI
(THE HIGH COURT OF ASSAM, NAGALAND, MEGHALAYA,
MANIPUR, TRIPURA MIZORAM AND ARUNACHAL PRADESH)
WP(C) No.3538 of 2012
Petitioner :
M/S Utkal Galvanizers Ltd.,
Having its registered Head Office at
Plot No.232 Saheed Nagar,
Bhubaneswar, Orissa - 751 007,
Through its duly authorised representative,
Shri Tsering Dhondup.
By Advocates :
Mr. A. Choudhury, Advocate.
-versus-
Respondents:
1. The State of Arunachal Pradesh, Represented by the Secretary (Power), Government of Arunachal Pradesh, Itanagar, Arunachal Pradesh.
2. The Chief Engineer (Power), Western Electrical Zone, Department of Power, Government of Arunachal Pradesh, Itanagar, Arunachal Pradesh.
WP(C) No.3538 of 2012 Page 1 of 13. The Chief Engineer (Planning, Transmission & Monitoring, Department of Power, Itanagar, Arunachal Pradesh.
4. The Superintending Engineer (E), AP Electric Circle No.IV, Department of Power, Dirang, West Kameng District, Arunachal Pradesh.
5. The Executive Engineer (E), Department of Power, Tawang Electric Division, Tawang, Arunachal Pradesh.
By Advocate:
Mr. A. M. Buzarbaruah, Govt. Advocate, Arunachal Pradesh.
BEFORE HON'BLE THE CHIEF JUSTICE MR. A. K. GOEL THE HON'BLE MR. JUSTICE S. TALAPATRA Date of hearing : 04.09.2012.
Date of Judgment : 07.09.2012.
WP(C) No.3538 of 2012 Page 2 of 2
JUDGMENT AND ORDER (CAV)
(A. K. Goel, CJ.)
1. This petition seeks quashing of order dated 17.04.2012
issued by the Executive Engineer, Tawang Electrical Division, Arunachal Pradesh, on the basis of the letter dated 19.03.2012 issued by the Chief Engineer (Power), Government of Arunachal Pradesh, rejecting the bid of the petitioner and initiating steps for fresh tender process.
2. Case of the petitioner is that NIT dated 25.08.2011 was issued by the Executive Engineer (Electrical), Tawang Electrical Division, Government of Arunachal Pradesh, for turnkey (Supply & erection) execution of construction of 132 KV Single Circuit Transmission Line from Khuppi to Tawang including 132/33 KV Sub-
Station at Bomdila and Tawang with C/o 132 KV Bay (NEEPCO Extension at Khuppi) (Sub-Head : C/o 4 x 5 MVA, 132/33 KV Sub-
Station each at Tawang and Bomdila with 1 No.132 KV Bay (NEEPCO Extension at Khuppi), at an estimated cost of Rs.32.87 Crores. The petitioner submitted its bid on 25.10.2011 and on evaluation of technical bids of four tenderers, who had submitted their bids, the Superintending Engineer (Electrical), Dirang, accorded approval to the opening of the price bids of three WP(C) No.3538 of 2012 Page 3 of 3 bidders including the petitioner. On 22.11.2011, the price bids were opened in presence of all the representatives of the bidders and the petitioner was found to be the lowest bidder. The price quoted by the petitioner was 32.54 crores approximately while the price quoted by the other two bidders were 40.49 and 47.47 crores approx. respectively. However, the work was not awarded to the petitioner and vide letter dated 17.4.2012 the petitioner was informed that the tender process had been cancelled and the technically qualified bidders were asked to collect their bid guarantees. A fresh NIT was issued on 09.05.2012 increasing the estimated cost to Rs.101.30 crores and the Bank guarantee has been increased from 57.87 to 111.30 crores due to increase in estimated cost. According to the petitioner, order dated 17.04.2012 rejecting the lowest bid of the petitioner was arbitrary, based on factually incorrect finding. Even though the State could take its own decision, it could not act arbitrarily. The letter dated 19.03.2012 to the effect that the tender opening committee had found all the bidders to be not qualified for the opening of the price bids and thus opening of price bids was contrary to the tender conditions was not based on facts.
3. Reply has been filed by the Executive Engineer (Electrical), Power Department of the Government of Arunachal Pradesh at WP(C) No.3538 of 2012 Page 4 of 4 Tawang Division, opposing the writ petition. It has been stated that the tender conditions required furnishing of undertaking from the manufacturers for guarantee, quality, timely supply, performance and warrantee and obligations for the equipments.
The Divisional Tender Opening Committee found that the petitioner had not furnished the said undertaking as required but approval was granted for opening of price bids by the Superintending Engineer. The competent authority to take the decision was the Chief Engineer who vide letter dated 19.03.2012 informed the Superintending Engineer that the petitioner and other bidders were not qualified. Accordingly, the bids were rejected and the bid guarantee was returned. Though in the letter of the Chief Engineer dated 19.03.2012 mention was made of decision of award being given to Power Grid Corporation, a Government of India Company, the said decision was subsequently revised. The work had to be done during September to December before the heavy rainfall and therefore the tender process had to be completed before August for which new tender process was initiated. The estimated cost now was Rs.101.30 crores against the earlier estimated cost of Rs.103 crores and thus the estimated value of the project was lesser than the earlier tender.
WP(C) No.3538 of 2012 Page 5 of 54. On 31.07.2012 following order was passed :
"Main contention on the basis of which this writ petition has been filed challenging notice inviting tender is that in the earlier tender process, the writ petitioner emerged as the lowest bidder.
Stand taken on behalf of the State is that even though the petitioner may have been found to be the lowest bidder, there were shortcomings in its bid, inasmuch as the bidder had not furnished the undertakings from the manufacturer, as required, and also had not furnished the requisite bank certificate. On this ground, decision was taken not to proceed with the earlier tender process. Initially, it was contemplated to give the work to Power Grid Corporation Limited, but since the charges of the Power Grid Corporation Limited were exorbitant, fresh tender process has been initiated. The last date for submission of bid is upto today and the petitioner can also participate. Thereafter, the bids are to be evaluated.
Learned counsel for the petitioner submits that it had earlier furnished the undertaking and the bank certificate. However, we find that the proceedings of the meeting of the Tender Opening Committee shows that such certificate had not been furnished. The Committee recommended that for speedy implementation of the project, the defects may be removed, instead of resorting to re-tendering.
In above circumstances, as suggested by learned counsel for the petitioner, without prejudice to its rights and contentions, the petitioner may give its bid in the fresh process and after due evaluation the State may indicate its stand to the Court.WP(C) No.3538 of 2012 Page 6 of 6
Learned counsel for the parties jointly suggest that the matter may be listed again on August 14, 2012 for further consideration.
In view of the above, we defer the hearing, as proposed."
5. Learned counsel for the State has submitted that in the fresh tender process except the petitioner no other person has participated and the State proposes to again invite a fresh process in the matter.
6. We have heard learned counsel for the parties.
7. Learned counsel for the petitioner submits that the petitioner being the lowest bidder in the earlier tender process and being the only bidder in the present process, could not be denied consideration on non-existent grounds and such a course will not only be against interest of the petitioner but also against public interest. Even, according to the stand of the State, the project was of urgent nature requiring installation of high tension transmission lines. Reliance has been placed on judgment of the Hon'ble Supreme Court in HARMINDER SINGH ARORA VS. UNION OF INDIA AND OTHERS, (1986) 3 SC 247, laying down that once the Government decides to award contract on the basis of bids by tender, it must abide by the terms of the tender and cannot WP(C) No.3538 of 2012 Page 7 of 7 reject the most suitable offer of a contractor in contravention of terms of the tender.
8. Learned counsel for the State submitted that the petitioner was not eligible and the State was entitled to take its decision in the matter.
9. Question for consideration is whether in the facts and circumstances any interference is called for.
10. The minutes of the meeting of the Divisional Tender Opening Committee (DTOC) dated 25.10.2011 are as follows :
"3. M/S UTKAL GALVANIZERS LTD, BHUBANESWAR Documentation in fulfilment of qualifying requirements placed by the bidder also has two shortcomings.
(a) As per Clause No.1.1(ii) of the qualifying requirements, the bidder if not a manufacturer, requires to submit legally enforceable undertaking from the manufacturers. The bidder did not furnish such a undertaking.
(b) In fulfilment of Clause No.1.4 of qualifying requirements a bank certificate stating the availability of liquid asset on availability of credit facility submitted by the bidder is not in order as the certificate does not speak of the unit of the currency whether the amount so indicate is in WP(C) No.3538 of 2012 Page 8 of 8 thousands/lakhs/crores. Clarification from the bank is being sought.
Apart from the above shortcomings all the documents submitted are found to be in order.
In the meanwhile this office had confirmed from the banks who had issued bank guarantee as a part of bid guarantee on behalf of all the above three bidders were confirmed on telephone and some of them by FAX. Telephonical confirmations have been obtained from the banks of the three bidders. Further written confirmation has also been sought from the banks of which SBI Commercial Branch, Bhubaneswar, Orissa had been confirmed by FAX of issuing bank guarantee on behalf of M/s Utkal Galvanizers Ltd, Bhubaneswar.
Coming back to the technical bids of the above bidders the committee unanimously opted to recommend to qualify all the three bidders as rejection and disqualification would lead to either re-tendering or make it less competitive. In both the cases it shall be detrimental to the successful implementation of the project and timely completion as re-tendering will take so much of time and by the time when the tender is again submitted the cost of the material in the market would have escalated to a high level. This unanimous opinion of the committee has routed from the reasons that so many valuable time have already passed on account of cancellation of earlier tender for the same work. Further, even though in some point the bidders do not expressively match the qualifying requirements in ditto, it can be felt and understood that all the three bidders are qualified enough to execute the WP(C) No.3538 of 2012 Page 9 of 9 work. If more bidders are allowed to participate in the commercial bid it is expected to bring better competition in the tender. This opinion of the committee is however without undermining the authority and without any prejudice to the prerogative of the SE(E) to take decision on the issue. This submission is only in good gesture and faith so that the tender gets through and the work implemented in time in most competitively and competently."
11. The above proceedings show that the shortcomings pointed out in the tender of the petitioner were only of technical nature and not of any substance. On confirmation from the Bank giving of bank guarantee was duly confirmed. The committee found that the rejection of the bid was detrimental to public interest having regard to the delay and the escalation of the cost. Moreover, in additional affidavit filed on 31.7.2012, in para 4 it has been stated that it was wrongly assumed that the petitioner had not furnished undertaking from the manufacturers. Copies of the undertaking given has been annexed as Annexure-A series to the affidavit dated 31.07.2012. The State has not rebutted this aspect. A copy of tender documents has also been shown containing documents of experience of the petitioner in executing such projects.
WP(C) No.3538 of 2012 Page 10 of 1012. In view of this material on record, stand of the State that the petitioner was not technically qualified does not appear to be based on application of mind, particularly in view of recommendation of the evaluation committee. In these circumstances, the matter may require fresh consideration at an appropriately higher level and decision may need to be taken having regard to following or any other relevant factors :
(i) Need for getting the work executed expeditiously in public interest;
(ii) Escalation in cost on account of delay;
(iii) Available options for execution of the work;
(iv) Capacity of the petitioner to execute the work and viability of terms offered.
13. We may now deal with legal position in the matter. While it is true that in judgment of the Hon'ble Supreme Court in Harminder Singh Arora relied upon on behalf of the petitioner it has been observed that if tenders are invited, the State must go by the result of the tenders and give contract to the person offering lowest cost or highest price. However, the observations are in the context of checking arbitrariness. It cannot be understood to have been laid down that a writ of mandamus will mechanically issue to accept the highest bid.
WP(C) No.3538 of 2012 Page 11 of 1114. The State, unlike a private person, may not be free to act whimsically as it is bound by principles of fairness as well as protecting interest of public revenue. While it must have free play in joints in exercise of discretion for upholding larger public interest over any private interest, it cannot act arbitrarily to promote any individual interest or otherwise prejudicing public interest by ignoring relevant considerations. The Court, though observes restraint in absence of its expertise in dealing with the issue and also to avoid interference with the administrative functioning, has to step in to uphold public interest and constitutional norms when decision making process is vitiated by arbitrariness. Law on the point has been clearly laid down in several decisions. Reference to few will suffice:
15. In Tata Cellular vs. Union of India (1994) 6 SCC 651, it was observed:
"70. 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 WP(C) No.3538 of 2012 Page 12 of 12 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.
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 would 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 :
WP(C) No.3538 of 2012 Page 13 of 13(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".
92. In Sterling Computers Limited v. M&N Publications Ltd. (1993) 1 SCC 445, this Court observed thus : (SCC p. 455, para 12) "In contracts having commercial element, some more discretion has to be conceded to the authorities so that they may enter into contracts with persons, keeping an eye on the augmentation of the revenue. But even in such matters they have to follow the norms recognised by courts while dealing with public property. It is not possible for courts to question and adjudicate every decision WP(C) No.3538 of 2012 Page 14 of 14 taken by an authority, because many of the Government Undertakings which in due course have acquired the monopolist position in matters of sale and purchase of products and with so many ventures in hand, they can come out with a plea that it is not always possible to act like a quasi- judicial authority while awarding contracts. Under some special circumstances a discretion has to be conceded to the authorities who have to enter into contract giving them liberty to assess the overall situation for purpose of taking a decision as to whom the contract be awarded and at what terms. If the decisions have been taken in bona fide manner although not strictly following the norms laid down by the courts, such decisions are upheld on the principle laid down by Justice Holmes, that courts while judging the constitutional validity of executive decisions must grant certain measure of freedom of 'play in the joints' to the executive."
94. The principles deducible from the above are :
(1)The modern trend points to judicial restraint in administrative action.
(2)The court does not sit as a court of appeal but merely reviews the manner in which the decision was made.
(3)The court does not have the expertise to correct the administrative decision. If a review of the WP(C) No.3538 of 2012 Page 15 of 15 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 fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness (including its other facts pointed out above) but must be free from arbitrariness not affected by bias or actuated by mala fides. (6)Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure.
Based on these principles we will examine the facts of this case since they commend to us as the correct principles."
WP(C) No.3538 of 2012 Page 16 of 1616. Same view has been reiterated in subsequent decisions.
In New Horizons Ltd. v. Union of India, (1995) 1 SCC 478, it was observed:
"17. At the outset, we may indicate that in the matter of entering into a contract, the State does not stand on the same footing as a private person who is free to enter into a contract with any person he likes. The State, in exercise of its various functions, is governed by the mandate of Article 14 of the Constitution which excludes arbitrariness in State action and requires the State to act fairly and reasonably. The action of the State in the matter of award of a contract has to satisfy this criterion. Moreover a contract would either involve expenditure from the State exchequer or augmentation of public revenue and consequently the discretion in the matter of selection of the person for award of the contract has to be exercised keeping in view the public interest involved in such selection. The decisions of this Court, therefore, insist that while dealing with the public, whether by way of giving jobs or entering into contracts or issuing quotas or licences or granting other forms of largesse, 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 the standards or norms which are not arbitrary, irrational or irrelevant. It is, however, recognised that certain measure of "free play in the joints" is necessary for an administrative body functioning in an administrative WP(C) No.3538 of 2012 Page 17 of 17 sphere [See : Ramana Dayaram Shetty v.
International Airport Authority of India (1979) 3 SCC 489: (1979) 3 SCR 1014 (SCR p. 1034 : SCC pp. 505-06, para 12); Kasturi Lal Lakshmi Reddy v. State of J & K (1980) 4 SCC 1: (1980) 3 SCR 1338 (SCR p. 1355 : SCC pp. 11-12, para 11); Fasih Chaudhary v. Director General, Doordarshan (1989) 1 SCC 89: 1988 Supp (3) SCR 282 (SCR p. 286 : SCC p. 92,); Sterling Computers Ltd. v. M & N Publications Ltd (1993) 1 SCC 445; Union of India v. Hindustan Development Corpn. (1993) 3 SCC 499 (at p. 513)].
In Jagdish Mandal v. State of Orissa, (2007) 14 SCC 517, it was observed:
"21.4. In Air India Ltd. v. Cochin International Airport Ltd. (2000) 2 SCC 617 this Court summarised the scope of interference as enunciated in several earlier decisions thus: (SCC pp. 623-24, para 7) "7. ... 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 considerations which are 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 WP(C) No.3538 of 2012 Page 18 of 18 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 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."
(emphasis supplied) WP(C) No.3538 of 2012 Page 19 of 19 21.5. In Assn. of Registration Plates v. Union of India (2005) 1 SCC 679 this Court held: (SCC p. 700, para 43) "43. ... Article 14 of the Constitution prohibits the Government from arbitrarily choosing a contractor at its will and pleasure. It has to act reasonably, fairly and in public interest in awarding contract. At the same time, no person can claim a fundamental right to carry on business with the Government. All that he can claim is that in competing for the contract, he should not be unfairly treated and discriminated, to the detriment of public interest."
21.6. In B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd. (2006) 11 SCC 548 (2006) 11 Scale 526 this Court observed: (SCC p. 568, para 56) "56. It may be true that a contract need not be given to the lowest tenderer but it is equally true that the employer is the best judge therefor; the same ordinarily being within its domain, court's interference in such matter should be minimal. The High Court's jurisdiction in such matters being limited in a case of this nature, the Court WP(C) No.3538 of 2012 Page 20 of 20 should normally exercise judicial restraint unless illegality or arbitrariness on the part of the employer is apparent on the face of the record."
22. Judicial review of administrative action is intended to prevent arbitrariness, irrationality, unreasonableness, bias and mala fides. Its purpose is to check whether choice or decision is made "lawfully" and not to check whether choice or decision is "sound". When the power of judicial review is invoked in matters relating to tenders or award of contracts, certain special features should be borne in mind. A contract is a commercial transaction. Evaluating tenders and awarding contracts are essentially commercial functions. Principles of equity and natural justice stay at a distance. If the decision relating to award of contract is bona fide and is in public interest, courts will not, in exercise of power of judicial review, interfere even if a procedural aberration or error in assessment or prejudice to a tenderer, is made out. The power of judicial review will not be permitted to be invoked to protect private interest at the cost of public interest, or to decide contractual disputes. The tenderer or contractor with a grievance can always seek damages in a civil court. Attempts by unsuccessful tenderers with imaginary grievances, wounded pride and WP(C) No.3538 of 2012 Page 21 of 21 business rivalry, to make mountains out of molehills of some technical/procedural violation or some prejudice to self, and persuade courts to interfere by exercising power of judicial review, should be resisted. Such interferences, either interim or final, may hold up public works for years, or delay relief and succour to thousands and millions and may increase the project cost manifold. Therefore, a court before interfering in tender or contractual matters in exercise of power of judicial review, should pose to itself the following questions:
(i) Whether the process adopted or decision made by the authority is mala fide or intended to favour someone;
OR Whether the process adopted or decision made is so arbitrary and irrational that the court can say: "the decision is such that no responsible authority acting reasonably and in accordance with relevant law could have reached";
(ii) Whether public interest is affected.
If the answers are in the negative, there should be no interference under Article 226. Cases involving blacklisting or imposition of penal consequences on a tenderer/contractor or distribution of State largesse (allotment of WP(C) No.3538 of 2012 Page 22 of 22 sites/shops, grant of licences, dealerships and franchises) stand on a different footing as they may require a higher degree of fairness in action."
In Meerut Development Authority v. Association of Management Studies, (2009) 6 SCC 171, it was observed:
"37. A large number of authorities have been cited before us in support of the submission that even in contractual matters the State or "other authorities" are bound to act within the legal limits and their actions are required to be free from arbitrariness and favouritism. The proposition that a decision even in the matter of awarding or refusing a contract must be arrived at after taking into account all relevant considerations, eschewing all irrelevant considerations cannot for a moment be doubted. The powers of the State and other authorities are essentially different from those of private persons. The action or the procedure adopted by the authorities which can be held to be "State" within the meaning of Article 12, while awarding contracts in respect of properties belonging to the State, can be judged and tested in the light of Article 14. Once the State decides to grant any right or privilege to others, then there is no escape from the rigour of Article 14. These principles are WP(C) No.3538 of 2012 Page 23 of 23 settled by the judgments of this Court in Ramana Dayaram Shetty v. International Airport Authority of India (1979) 3 SCC 489, Kasturi Lal Lakshmi Reddy v. State of J&K (1980) 4 SCC 1, Ram and Shyam Co. v. State of Haryana (1985) 3 SCC 267, Mahabir Auto Stores v. Indian Oil Corpn. (1990) 3 SCC 752, Sterling Computers Ltd. v. M&N Publications Ltd. (1993) 1 SCC 445 and ABL International Ltd. v. Export Credit Guarantee Corpn. of India Ltd. (2004) 3 SCC 553.
38. The executive does not have an absolute discretion, certain principles have to be followed, the public interest being the paramount consideration. It has been stated by this Court in Kasturi Lal case (1980) 4 SCC 1:
(SCC p. 13, para 14) "14. ... It must follow as a necessary corollary from this proposition that the Government cannot act in a manner which would benefit a private party at the cost of the State; such an action would be both unreasonable and contrary to public interest. The Government, therefore, cannot, for example, give a contract or sell or lease out its property for a consideration less than the highest that can be obtained for it, unless of course there are other considerations which WP(C) No.3538 of 2012 Page 24 of 24 render it reasonable and in public interest to do so."
(emphasis supplied)
39. The law has been succinctly stated by Wade in his treatise, Administrative Law:
"The powers of public authorities are therefore essentially different from those of private persons. A man making his will may, subject to any rights of his dependants, dispose of his property just as he may wish. He may act out of malice or a spirit of revenge, but in law this does not affect his exercise of his power. In the same way a private person has an absolute power to allow whom he likes to use his land, to release a debtor, or, where the law permits, to evict a tenant, regardless of his motives. This is unfettered discretion. But a public authority may do none of these things unless it acts reasonably and in good faith and upon lawful and relevant grounds of public interest. So a city council acted unlawfully when it refused unreasonably to let a local rugby football club use the city's sports ground, though a private owner could of course have refused with impunity. Nor may a local authority arbitrarily release WP(C) No.3538 of 2012 Page 25 of 25 debtors, and if it evicts tenants, even though in accordance with a contract, it must act reasonably and 'within the limits of fair dealing'. The whole conception of unfettered discretion is inappropriate to a public authority, which possesses powers solely in order that it may use them for the public good."
40. There is no difficulty to hold that the authorities owe a duty to act fairly but it is equally well settled in judicial review, the court is not concerned with the merits or correctness of the decision, but with the manner in which the decision is taken or the order is made. The court cannot substitute its own opinion for the opinion of the authority deciding the matter.
41. The distinction between appellate power and a judicial review is well known but needs reiteration. By way of judicial review, the court cannot examine the details of the terms of the contract which have been entered into by the public bodies or the State. The courts have inherent limitations on the scope of any such enquiry. If the contract has been entered into without ignoring the procedure which can be said to be basic in nature and after an objective consideration of different options available taking into account the interest of the State and WP(C) No.3538 of 2012 Page 26 of 26 the public, then the court cannot act as an appellate court by substituting its opinion in respect of selection made for entering into such contract. But at the same time the courts can certainly examine whether the "decision- making process" was reasonable, rational, not arbitrary and violative of Article 14. (See Sterling Computers Ltd. (1993) 1 SCC 445) In Tejas Constructions & Infrastructure (P) Ltd. v. Municipal Council, Sendhwa,(2012) 6 SCC 464, it was observed:
"17. In Raunaq International Ltd. v. I.V.R. Construction Ltd. (1999) 1 SCC 492 this Court reiterated the principle governing the process of judicial review and held that the writ court would not be justified in interfering with commercial transactions in which the State is one of the parties to the same except where there is substantial public interest involved and in cases where the transaction is mala fide. The Court observed: (SCC pp. 500-01, paras 10-11) "10. What are these elements of public interest? (1) Public money would be expended for the purposes of the contract. (2) The goods or services which are being commissioned could be for a public purpose, such as, construction of roads, public buildings, power plants or other public utilities. (3) The public would WP(C) No.3538 of 2012 Page 27 of 27 be directly interested in the timely fulfilment of the contract so that the services become available to the public expeditiously. (4) The public would also be interested in the quality of the work undertaken or goods supplied by the tenderer. Poor quality of work or goods can lead to tremendous public hardship and substantial financial outlay either in correcting mistakes or in rectifying defects or even at times in redoing the entire work--thus involving larger outlays of public money and delaying the availability of services, facilities or goods, e.g., a delay in commissioning a power project, as in the present case, could lead to power shortages, retardation of industrial development, hardship to the general public and substantial cost escalation.
11. When a writ petition is filed in the High Court challenging the award of a contract by a public authority or the State, the court must be satisfied that there is some element of public interest involved in entertaining such a petition. If, for example, the dispute is purely between two tenderers, the court must be very careful to see if there is any element of public interest involved in the litigation. A mere difference in the prices offered by the two tenderers may or WP(C) No.3538 of 2012 Page 28 of 28 may not be decisive in deciding whether any public interest is involved in intervening in such a commercial transaction. It is important to bear in mind that by court intervention, the proposed project may be considerably delayed thus escalating the cost far more than any saving which the court would ultimately effect in public money by deciding the dispute in favour of one tenderer or the other tenderer. Therefore, unless the court is satisfied that there is a substantial amount of public interest involved, or the transaction is entered into mala fide, the court should not intervene under Article 226 in disputes between two rival tenderers."
18. In Reliance Airport Developers (P) Ltd. v. Airports Authority of India (2006) 10 SCC 1, this Court held that while judicial review cannot be denied in contractual matters or matters in which the Government exercises its contractual powers, such review is intended to prevent arbitrariness and must be exercised in larger public interest.
19. Reference may also be made to Sterling Computers Ltd. v. M & N Publications Ltd. (1993)1 SCC 445 where this Court held that the power of judicial review in respect of contracts entered into on behalf of the State primarily involves examination of the question whether there was any infirmity in the decision-making process, and if such process was WP(C) No.3538 of 2012 Page 29 of 29 reasonable, rational and non-arbitrary, the Court would not interfere with the decision.
20. In Air India Ltd. v. Cochin International Airport Ltd. (2000) 2 SCC 617 this Court held that the award of contract was essential in commercial transactions which involves commercial consideration and results in commercial decision. While taking such decision the State can choose its own method on terms of invitation to tender and enter into negotiations. The following passage from the decision is apposite: (SCC pp. 623-24, para 7) "7. ... The award of 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 considerations which are 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 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 WP(C) No.3538 of 2012 Page 30 of 30 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. ... 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."
21. To the same effect is the decision of this Court in Master Marine Services (P) Ltd. v. Metcalfe & Hodgkinson (P) Ltd. (2005) 6 SCC 138 and Jagdish Mandal v. State of Orissa (2007) 14 SCC 517 where this Court laid down the following tests for judicial interference in exercise of power of judicial review of administrative action: (Jagdish Mandal case (2007) 14 SCC 517 , SCC p. 531, para 22) "22. ... Therefore, a court before interfering in tender or contractual matters in exercise of WP(C) No.3538 of 2012 Page 31 of 31 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'.
(ii) Whether public interest is affected.
If the answers are in the negative, there should be no interference under Article 226."
17. In view of above legal position, while we are not inclined to direct acceptance of bid of the petitioner, we cannot ignore the fact that even according to the State the work is urgent nature, price is escalating and there is no infirmity in the tender documents. These aspects show that outright rejection of bid of the petitioner which was lowest in earlier process and is the only bid in the fresh process is vitiated by non application of mind. In these circumstances, the Court directs that the State must WP(C) No.3538 of 2012 Page 32 of 32 reconsider the matter at an appropriate higher level preferably at the level of the Chief Secretary and take decision as far as possible within one month from the date of receipt of a copy of this order.
The petition is disposed of accordingly.
JUDGE CHIEF JUSTICE
TUC
WP(C) No.3538 of 2012 Page 33 of 33