Delhi High Court
M/S. Nex Tenders (India) Private ... vs Ministry Of Commerce & Industry & Ors. on 2 April, 2009
Author: Vipin Sanghi
Bench: A.K.Sikri, Vipin Sanghi
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 25.07.2008
% Judgment delivered on: 02.04.2009
+ W.P. (C) No. 6574 of 2007 & C.M. Nos.12416/2007,
5651/2008 & 8457/2008
M/s. Nex Tenders (India) Private Limited ..... Petitioner
Through: Mr. V. P. Singh, Senior
Advocate with Ms. Taslima
Ahmadi and Ms. Sarifa
Chowdhury, Advocates
versus
Ministry of Commerce & Industry & Ors. .....Respondents
Through: Mr. P.P. Malhotra, ASG with
Ms. Sonia Mathur, Advocate
for respondents 1 to 3.
Mr. Vinay Bhasin, Senior
Advocate with Mr. Muneesh
Malhotra, Advocate for
respondent no.4.
CORAM:
HON'BLE MR. JUSTICE A.K.SIKRI
HON'BLE MR. JUSTICE VIPIN SANGHI
1. Whether the Reporters of local papers may Yes
be allowed to see the judgment?
2. To be referred to Reporter or not? Yes
3. Whether the judgment should be reported Yes
in the Digest?
VIPIN SANGHI, J.
1. The Petitioner has filed the present Writ Petition under Article 226 of the Constitution of India primarily praying for writ of mandamus to direct the termination of the contract between the Government of India, Ministry of Commerce & Industry acting through the Directorate W.P.(C) No.6574/2007 Page 1 of 85 General of Supplies & Disposals (DGS&D) and Respondent No.4 C-1 India Pvt. Ltd. whereunder Respondent No.4 is providing services for the conduct of e-tendering/e-procurement process to Respondent No.2. The petitioner also seeks to challenge the extension and amendment thereof, which has the effect of widening the scope of the contract to offering the e-tendering solution/software of respondent no.4 to other State Government Agencies/Public Sector Undertakings etc. by using the good offices of DGS&D.
2. The Petitioner is a company incorporated under the Companies Act having its registered office at Mumbai. The Petitioner claims to be in the business of providing application software solutions and services, particularly electronic procurement software solution and services to the Government and semi Government agencies. Respondent No. 1 i.e. the Ministry of Commerce & Industry, Government of India, has been appointed as the Nodal Agency for the implementation of the initiatives in setting up electronic procurement and electronic tendering system in Government procurement organizations as part of the long term e-governance plan of the Central Government. Respondent No.2 DGS&D is the Central Purchase Organization of the Government of India, and is responsible for establishing rate contracts through tenders for common items required by various agencies of the Government. On receiving indents from Government Departments/Agencies, the DGS&D invites tenders from W.P.(C) No.6574/2007 Page 2 of 85 time to time for a large number of items, in response to which suppliers/bidders from all over the country respond. Respondent No. 3, Department of Expenditure is a department under the ministry of Finance and is responsible for laying down the procedures to be followed for undertaking financial transactions by the agencies of the Government of India. The private respondent No. 4 is a company incorporated under the Companies Act, having its registered office at New Delhi, and is a competitor of the Petitioner and deals in software solutions and services. Respondent no.4 was awarded the E-tendering service provider contract by respondent nos. 1 to 3 for providing an e- tendering software solution and service for the use of DGS&D on 16.4.2004. This contract, it appears became effective on 01.04.2005 and was valid for an initial period of 3 years i.e upto 31.03.2008. It has been extended for another period of 2 years and vide amendment dated 22.05.2007 has been amended in a few material terms.
3. The petitioner states that Electronic tendering (e-tendering) is an internet based software service which allows government agencies to migrate from the conventional manual/paper tendering process to an electronic, internet based platform. The advantages of the electronic internet based tendering system can be greater efficiency, lower costs of projects, increased transparency, wider reach and access for suppliers, reduction/elimination of cartelization and corruption, and lower transaction costs. The objective for introducing W.P.(C) No.6574/2007 Page 3 of 85 e-tendering system, stated by the respondent DGS&D in its Request For Proposal (RPF) is to streamline and automate the tendering process of DGS&D to build efficiencies in the process, cut down the total time to tender, and build a data base of suppliers bids for data mining and trend analysis by adopting leading procurement practices.
4. The petitioner further states that the e-tendering/e- procurement software and related services is highly complex and technical and the implementation of such a system for government agencies can be extremely challenging, time consuming and expensive. Consequently, most government agencies that have availed of the said system/software have opted for the model of appointing an Application Service Provider (ASP) with a commercial model at "no costs to Government". In this business model, the customer (the DGS&D in this case) rents and outsources the development and management of the software and service to the ASP. The ASP provides the software (computer programme) and the related hardware to implement the system. The ASP implements the system, trains the resource and provides supports and maintenance for the software to the customer. By adopting the ASP model the customer saves time and money that it would incur in buying the software. The risk associated with the software/services implementation is passed on to the ASP. The customer is assured of latest software upgrades and costly installations, as well as service and maintenance of the W.P.(C) No.6574/2007 Page 4 of 85 software/hardware. So far as the ASP is concerned, he derives no income directly from the customer. The revenue generation for the ASP comes from a compulsory registration fee charged from the prospective bidders/suppliers, who wish to participate in the e- tendering/bidding process in response to the procurement tenders floated by the customer i.e. DGS&D. It is stated that this model is similar to the popular Built-Own-Operate (B-O-O) toll collection model for highways and bridges construction where the service provider, namely, the contractor building the road or the bridge invests all the funds for construction and subsequent maintenance, and in return the Government agency grants the contractor the concession to extract a toll or charge from the public using the road or the bridge for a guaranteed period of time.
5. The petitioner further states that under the National e- Governance Programme of the Government of India various projects known as Mission Modes Projects have been identified. One of the main Mission Modes Projects is e-procurement which is considered as an integrated project because of its need for multiple implementations at the Central and State levels in order to cater to each government agency‟s requirements and business rules.
6. The petitioner states that respondent nos.1 and 2 claim to have issued a RFP for an e-tendering system with the stated objective of streamlining and automating its tendering process and to build W.P.(C) No.6574/2007 Page 5 of 85 efficiencies in its tendering process. It is further stated that the so- called RFP did not bear any date. It has various "blanks"- meaning thereby, it was incomplete in respect of the specifications and conditions to which it was subject. The petitioner has placed on record a copy of the said RFP stated to have been procured by it under the Right to Information Act (RTI Act). The petitioner further states that apparently a letter of intent was issued to respondent no.4, and thereafter acceptance of tender was issued in favour of respondent no.4 on 16.04.2004 by respondent nos.1 & 2, awarding the contract for providing e-Tender software and service, to respondent no.4. A copy of the contract awarded to respondent no. 4, obtained under the RTI Act has also been placed on record.
7. The petitioner submits that the fact that e-tendering contract was awarded by respondent nos.1 and 2, to respondent no.4 as the service provider, came to its notice only after the said portal was launched publicly by respondent no.2. The petitioner states that at that point of time it was assumed that the award of contract to respondent no. 4 was done in a legal manner. The petitioner further states that as per its information, the period of contract was three years and it was expected that upon the expiry of the contract in late 2006/early 2007, the respondent nos. 1 and 2 would invite fresh tenders for procuring e-tendering software solutions and that the petitioner would be able to participate in such process. The petitioner W.P.(C) No.6574/2007 Page 6 of 85 states that upon inquiry being made by it with regard to the contract awarded to respondent no.4, the petitioner learnt that the procedure adopted by respondent no.1 and 2 while awarding the contract to respondent no. 4 in the year 2004 was irregular. All binding norms were flouted. The petitioner also expressed the apprehension that the respondent authorities are proceeding to renew the contract with respondent no.4. The petitioner further states that the said move would not only cause unimaginable loss to the exchequer and the suppliers/bidders of goods and commodities to the Government of India, but also result in unjust and unfair enrichment of respondent no.
4. It would create an illegal monopoly in favour of respondent no. 4 and be violative of Central Vigilance Commission (C.V.C.) Directives and the General Financial Rules of the Government.
8. The petitioner, along with the writ petition moved C.M. 12416/2007 to seek a restraint against respondent nos. 1 and 2 from continuing with the renewed/extended contract with respondent no. 4 and also to seek a restraint against respondent nos. 1,2 and 4 from representing to any State Government Department / Ministries / Government Agencies that they are able to offer the e-tendering, e- procurement solution or services, without being selected through a proper competitive tender selection process. Further interim reliefs in aid of the aforesaid reliefs were also sought by the petitioner. W.P.(C) No.6574/2007 Page 7 of 85
9. When the present writ petition came up before the Court on 07.09.2007, the aforesaid submissions of the petitioner were taken note of and the Court directed that "any action taken in the meanwhile shall be subject to further orders that will be passed in this application".
10. Respondents have filed their counter affidavits/replies, in opposition to the Writ Petition. All allegations of illegality and favoritism have been denied. The respondents state that the contract between respondent nos. 2 and 4 stands extended and amended on 22.05.2007 i.e. prior to the filing of the present Writ Petition. Petitioners submissions
11. The submissions of Mr. V.P. Singh, learned senior counsel for the petitioner are in two parts: (a) He firstly attacks the initial grant of the e-tendering contract to respondent No.4, primarily on the ground of irregularity of procedures in the process adopted by respondent Nos.1 to 3 while awarding the said contract to respondent No. 4. (b) Then he attacks the extension and amendment of the contract. He submits that since the initial grant itself was illegal, arbitrary and irregular, its extension is also illegal, and arbitrary. He attacks the extension and amendment of the contract on various other grounds as well.
W.P.(C) No.6574/2007 Page 8 of 85
12. We may, at this stage itself clarify that since the initial contract was awarded to respondent no.4. on 16.4.2004 and the present writ petition was filed on or about 06.09.2007, we are not inclined to entertain the prayer made by the petitioner to seek the quashing of the initial award of contract to respondent no.4. Consequently, there is no question of setting aside the initial grant of the contract to respondent no.4 which was to be effective for a period of three years from the date which the e-tendering solution became operational. As would be noticed a little later, the e-tendering solution became operational on 01.04.2005. Therefore, the initial contract period of three years expired during the pendency of this petition on 31.3.2008. Consequently, its extension by two years i.e. upto 31.03.2010 and its amendment done on 22.05.2007 are aspects which require our consideration. As the initial grant constitutes the bed-rock of the extension and amendment of the contract, and one of the primary challenge to the extension of the contract is founded upon the alleged irregularity and illegality in the award of the initial contact, for the limited purpose of examining the said challenge, we think it necessary to examine the submissions of the petitioner to impugn the initial grant in favour of respondent no.4.
13. First, we may note the submissions of Mr. V.P.Singh, Senior Advocate for the petitioner with regard to the grant of the initial contract to respondent No.4. Mr. Singh argues that the DGS&D did not W.P.(C) No.6574/2007 Page 9 of 85 maintain any transparency while entering into a contract with the respondent No.4. The guidelines and procedural safeguards, which binds the respondent DGS&D were given a go bye. He relies upon the General Financial Rules, 2005 to attack the initial grant as well as the extension and amendment of the contract awarded to respondent No.4. Rule 150 (i) provides that the method of invitation of tenders by advertisement should be used for procurement of goods of estimated value of Rs.25 Lacs and above. Advertisement in such a case should be given in the Indian Trade Journal (ITJ) published by the Director General of Commercial Intelligence and Statistics, Kolkata and at least in one national daily having wide circulation. Rule 150 (ii) further provides that an organization having its own website should also publish all its advertised tender enquiries on the website, and provide a link with NIC website. He submits that considering the fact that the respondent DGS&D at the relevant time had about 10,000 suppliers of goods and commodities, it was obvious that the transaction in question for procurement of e-tendering solution and service was valued at well above the amount of Rs.25 Lacs, since the revenue generation for the service provider would be expected to run into crores of rupees. Consequently, the RFP/NIT should have been publicized in at least one national daily having wide circulation. However, this was not done by respondents only with a view to favour the respondent No.4. In support of this submission he relies on (2006) 13 SCC 382 "Nagar Nigam, Meerut v. Al Faheem Meat Exports (P) Ltd. & Ors.". He W.P.(C) No.6574/2007 Page 10 of 85 refers to the reply given by DGS&D to the queries of the petitioner under the RTI Act. The petitioner had sought the names of all the bidders who had participated in the tender process. To this, DGS&D had replied by stating that "as the players in the field of e-tendering were not fully known to DGS&D, initially an insertion was made in the Monthly Bulletin of DGS&D for three months. Based on the request made to M/s NASSCOM they circulated our requirements and provided us with two lists containing (i) companies that make software packages for Electronic Tendering (20 firms) and (ii) companies that have offered to make customized solutions specially to suit our needs (52 firms). On the basis of this information, 87 firms (72 firms provided by NASSCOM and 15 firms noted from 1-15 July, 2000 issue of "Computers Today") were addressed to furnish reply to a questionnaire to enable us shortlist the firms meeting our requirements. Later four firms namely Ms. ITI, M/s Electronic Tendering, M/s Commerce One India and M/s Oracle India Ltd. were short listed who were provided with the tender set. Out of these, three firms M/s ITI, Electronic Tendering, and Commerce One participated in the two bid tender."
14. Mr. Singh submits that in case the respondent DGS&D was not aware, as to who are the prospective service providers for e-tendering solution, the natural and obvious thing for the DGS&D to do was to give wide publicity in the media, including in national dailies to invite all e-tendering solution providers. The reasons given by the DGS&D for W.P.(C) No.6574/2007 Page 11 of 85 not doing so is wholly absurd. He also submits that the respondent DGS&D chose to rely on a stale issue of "Computers Today" of 01st to 15th July 2000, even though the RFP was prepared and circulated sometime in July 2001. Mr. Singh submits that for high value or complex/technical project, Rule 152 of the General Financial Rules is relevant and applicable and the same reads as follows:-
"Rule 152. Two bid system: For purchasing high value plant, machinery etc. of a complex and technical nature, bid may be obtained in two parts as under:-
(a) Technical bid consisting of all technical details alongwith commercial terms and conditions; and
(b) Financial bid indicating item-wise price for the items mentioned in the technical bid.
The technical bid and the financial bid should be sealed by the bidder in separate covers duly superscribed and both these sealed covers are to be put in a bigger cover which should also be sealed and duly superscribed. The technical bids are to be opened by the purchasing Ministry or Department at the first instance and evaluated by a competent committee or authority. At the second stage financial bids of only the technically acceptable offers should be opened for further evaluation and ranking before awarding the contract."
15. He submits that the RFP allegedly circulated by respondents 1 and 2 did not have a commercial bidding round or a competitive price discovery procedure. The registration fee proposed to be charged by the ASP from the registrant suppliers/bidders ought to have been an essential factor in determining the value of the contract for the ASP. W.P.(C) No.6574/2007 Page 12 of 85 He submits that in the present case, the value of the contract comes to a staggering six crores per annum considering the fact that respondent no.2 admittedly has about 10,000/- suppliers/bidders and the ASP/respondent no.4 offered to charge Rs.6,000/- per annum for each registration. The petitioner further states that even before the contract in question was awarded to respondent no.4, various e- tendering/e-procurement contracts had been awarded by various government agencies throughout the country to the lowest technically qualified/responsive bidder following a two bid process that included a competitive commercial round. The petitioner has tabulated a sample list of e-tenders/e-procurement contracts awarded by two bid tender process in Annexure G which reads as follows:-
Name of Year Winning Bidder Financial Model
Customer Tender/RFP (ASP or
released License)
Government of 2002 Respondent no.4 in ASP
Andhra Pradesh consortium
PWD- 2003 Petitioner ASP
Chhattisgarh
Northern 2003 HCL ASP+License
Railway
PWD-Assam 2004 Petitioner in ASP
consortium
Municipal 2004 Wipro ASP
Corporation of
Delhi
BEST Mumbai 2004 Petitioner in ASP
consortium
National 2005 Respondent no.4 in License
Informatics consortium
Centre
MPLUNL 2005 Respondent no.4 in ASP
consortium
Punjab National 2005 Petitioner in License
Bank consortium
W.P.(C) No.6574/2007 Page 13 of 85
Government of 2006 HP ASP
Karnataka
Government of 2006 Petitioner in ASP
Chhattisgarh consortium
Government of 2006 Petitioner in ASP
Madhya Pradesh consortium
16. It is also submitted that the RFP does not even state the criteria for award of the bid to the lowest responsive bidder, which is required as per Rule 160(ix) of the General Financial Rules. The said Rule reads as follows:-
"Rule 160(ix): Criteria for determining responsiveness of bids, criteria as well as factors to be taken into account for evaluating the bids on a common platform and the criteria for awarding the contract to the responsive lowest bidder should be clearly indicated in the bidding documents."
17. It is argued that contrary to the General Financial Rules and the CVC directives, in the RFP/tender, respondents 1 and 2 stated in clause 12.11:
"DGS&D is not bound to disclose the details of then evaluation process, evaluation criteria, or scores".
18. In response to the petitioner‟s query under the Right to Information Act, respondent no.2 has stated that:
"Award to C1 India was made on the recommendation of the evaluation committee in terms of the RFP."
19. It is, therefore, argued that not only the RFP was in violation of the GFR and the directives of the CVC, the same had been W.P.(C) No.6574/2007 Page 14 of 85 deliberately constructed to ensure that no competitive bidding takes place even if someone other than respondent no.4 were to bid for the e-procurement contract. The RFP lacked transparency, economic viability and legitimacy. The purpose was to favour respondent no.4 in the distribution of the State‟s largesse.
20. Mr. Singh submits that as per Clause 12.11 of the RFP, there was no commercial bid. However, respondent Nos.1 to 3 in their reply to C.M. No.12417/2007 have stated "subsequently, the commercial bid was open and, thereafter, negotiations were held and finally contract was awarded to respondent No.4 at annual registration fee of Rs.6,000/- per supplier". He submits that the stand of the respondent authorities is unreliable and untrue and lacks transparency in the manner in which the respondent No.4 was chosen for the purpose of providing the e-tendering solution. Mr. Singh also referred to Office Order No.44/9/03 dated 04.09.2003 issued by the Central Vigilance Commission (CVC), Government of India. Paragraph 2 of this communication reads:
"2. It should be ensured that pre-qualification criteria, performance criteria and evaluation criteria are incorporated in the bid documents in clear and unambiguous terms as these criterion very important to evaluate bids in a transparent manner. Whenever required the departments/organizations should have follow two-bid system, i.e. technical bid and price bid. The price bids should be opened only of those vendors who were technically qualified by the Deptt./Organisation. The Commission would W.P.(C) No.6574/2007 Page 15 of 85 therefore advise that the Deptt./Organization may issue necessary guidelines in this regard for future tenders."
21. He submits that this requirement laid down by the CVC was given a go bye by the DGS&D while floating the RFP and awarding the contract to respondent No.4.
22. By reference to Clause 12.10 of the RFP, which lays down the eligibility criteria for the bidders, and provides that "Only vendors with an off-the-shelf Electronic Tender (E-Tender) application are eligible to bid. The E-Tender application should be easy and ready to deploy with a 5% to 10% customization. Bids for software development will not be entertained.", Mr. Singh submits that the e-tender solution should have been readily available with the ASP and the RFP contemplated that only some amount of customization would be required, by the ASP to meet the specific needs of DGS&D to make the same operational. However, para (J) of the reply of respondent No.4 shows that the e- tendering solution was not ready when it was granted the contract on 16.04.2004. In para (J) respondent No.4 states:
"J. ............... It is submitted that at the initial stage of any tender require specifically investment to meet the specific requirement of the client software and the software required is not "off the shelf" product and required specific in training, development, customization to meet the specific requirement of the customer. In the present case also certain gestation period was envisaged by the respondent no.1 to 3 and only thereafter it becomes operational......"W.P.(C) No.6574/2007 Page 16 of 85
23. He submits that even though DGS&D has about 10,000 suppliers of products and commodities, only about 1200 had registered with respondent No.4 up to March 2007. This shows that the e-tender solution developed by respondent No.4 was entirely developed only after the award of the contract to it on 16.04.2004.
24. He also relies on the acknowledgment in the amended contract granted to respondent No.4 dated 22.05.2007, that the e- tendering solution provided by respondent No.4 became fully operational on 01.04.2005. On this basis he argues that the initial award of the contract in favour of respondent No.4 itself was illegal. He submits that when the initial contract period itself was only three years, customization period could not have been such a high fraction thereof i.e. one year or 33%.
25. Mr. Singh points out that the stand of the respondent Nos.1 to 3 in reply to C.M. No.12417/2007, inter alia, is that the terms and conditions of contract with respondent No.4 did not envisage transfer of technology (e-tendering solution software) to DGS&D. Even before respondent No.4 undertook the work of customizing its tendering solution software for DGS&D, various related software modules had already been developed by NIC officers attached to DGS&D. Respondent No.4 was only required to customize their software so that the integration was possible with the DGS&D‟s existing software. W.P.(C) No.6574/2007 Page 17 of 85 Consequently, there was no justification for the respondent no. 4 to take nearly a year to make the e-tendering operational.
26. Mr. Singh submits that DGS&D has violated its own purchase manual. Clause 8.1 of this Manual deals with the methods of purchase by DGS&D of articles and commodities. The same can be done by invitation of tenders by (a) advertisement, (b) limited tender (c) single tender. It states that invitation to tender by advertisement should be used as a general rule, in all cases. This may be dispensed with by a competent purchase officer, as an exception to the general rule; for reasons to be recorded and in its place any other recognized mode of purchase may be adopted as may be warranted by the circumstances of the case. Where the estimated value of demand is Rs.2 Lacs and above, as a general rule Advertise Tender Inquiry (ATI) should be followed. The method of limited tender inquiry could be adopted only in cases where the estimated value of the orders is less than Rs.2 Lacs. In other cases where the estimated value is more than Rs. 2 Lacs, the method of limited tender inquiry may also be adopted in the following situations:
"(a) When sufficient reasons exist which indicate that it is not in the public interest to call for tenders by advertisement. In every such case the reasons must be recorded.
(b) When the indenting officer certifies that the demand is urgent and any additional expenditure involved by the elimination of open competition must be incurred. In all such cases the Identing Officer must place on record the nature of urgency and why the W.P.(C) No.6574/2007 Page 18 of 85 demand could not be anticipated.
(c) When the source of supply are definitely known and possibility of fresh source beyond those being tapped is remote. In all such cases approval of the competent authority to dispense with advertisement should be taken."
27. Mr. Singh argues that none of the above conditions were satisfied in the facts of this case. Therefore, it was wholly impermissible for the respondent DGS&D to have violated the guidelines in its own manual, and in a most casual and informal manner to have contrived to limit the competition by keeping out all other service providers, who were in a position to offer e-tendering solution and service to DGS&D.
28. By reference to Clause 9.20 of the DGS&D manual, he submits that the offer made by the respondent No.4, in any event, could not have been entertained since there was lack of competition, as the number of acceptable offers was less than three. The said clause reads:
"9.20 LACK OF COMPETITION Lack of competition exists if the following factors intervened;
a) Number of acceptable offers are less than
three;
b) Ring prices have been quoted by all the
tenderers (Cartel formation);
c) The product of only one manufacturer has been
offered by all the tenderers irrespective of number of quotations;W.P.(C) No.6574/2007 Page 19 of 85
d) Store under purchase is chronically in short supply against which a number of acceptable offers never exceed two."
29. He further submits that the material terms of the RFP were altered at the time of the award of the contract to respondent No.4. Clause 3.1 of the RFP, which dealt with the revenue model, inter alia, provided that:
A transaction fee shall be charged from the suppliers by DGS&D. Suppliers will be charged a nominal amount for registration on the portal.
A nominal amount will be charged to the suppliers as the tender cost.
These revenues will be collected by DGS&D on behalf of the service provider. The revenues will be transferred by DGS&D to the service provider.
Clause 12.26 of the RFP further provided:
Additionally, the Vendor will be required to enter into a Service Level Agreement (SLA) with DGS&D: the exact terms and conditions of which are to be discussed and mutually agreed upon at an appropriate time.
30. However, when the contract was eventually awarded to respondent No.4, the aforesaid terms were materially altered and the contract provided that respondent No.4 shall directly charge the annual registration fee from the suppliers/bidders. Reference is made by the petitioner to the notification put up by respondent No.4 on its website which deals with the procedure for enrolment of the W.P.(C) No.6574/2007 Page 20 of 85 suppliers/bidders of respondent No.2. The same provides that payment in form of demand draft has to be made in favour of respondent No.4. The petitioner further states that no service level agreement appears to have been executed between respondent Nos.2 & 4 in breach of the terms of the RFP. Failure to enter into such an agreement means that there is no binding obligation on the part of the respondent No.4 to guarantee the provision of a minimum quality of service and there is no provision for aspects such as "minimum uptime", resources and support to be provided, software and hardware performance standards to be adhered to, penalties for breach of service levels etc. It is a standard requirement in such contracts to address these and other aspects, safeguard the interests of the customers. The petitioner submits that the contract has been tailor made only to promote the interests of respondent No.4 and the interests of respondent No.2 have been a completely forgotten.
31. The petitioner submits that such e-tendering/e-procurement software solution and service contracts were not unknown even at the time when respondent No.2 awarded the contract to respondent No.4. It cannot, therefore, be said that respondent No.2 was not aware of the terms and conditions that it ought to have set out in the contract to safeguard its own interest. In any event, respondent No.2 ought to have structured the contract to safeguard the interest of the Government and the public. He submits that in such like contracts W.P.(C) No.6574/2007 Page 21 of 85 revenues are first paid to the Government agency, who in turn releases the same to the ASP, or it is held in an escrow account and then released, or the same is released on certain milestone based instalments, or over a period of time. This is to ensure that the ASP fulfills its continuing and ongoing obligations under the contract and meets the minimum acceptable service levels that are set out in the contract.
32. The petitioner further points out that the performance security for the contract in question was fixed at only Rs.50,000/- against expected revenue of the ASP of Rs.6 crores per annum, considering the fact that the respondent had 10,000 suppliers/bidders who were dealing with respondent No.2 for various articles and commodities procured by it and respondent No.4 was permitted to charge Rs.6,000/- per annum towards annual registration fee. As per Rule 158(1) of the General Financial Rules, the performance security should be for an amount ranging between 5% to 10% of the estimated value of the contract, which in the present case ought to have been Rs.30 Lacs to Rs.60 Lacs per annum.
33. Now we summarize the submissions of Mr. Singh in support of his challenge to the extension and amendment of the contract in favour of respondent No.4 on 22.05.2007. Mr. Singh submits that the contract entered into on 16.04.2004 with respondent No.4 by the DGS&D was limited in its scope i.e. for providing e-tendering solution W.P.(C) No.6574/2007 Page 22 of 85 and services to enable DGS&D to procure supplies of various articles and commodities by it. Mr. Singh submits that the stated object of the RFP circulated by the respondent DGS&D was to streamline and automate its tendering process by introducing electronic tender (e- tender) process. To achieve this objective, DGS&D desired to utilize new technologies and applications to create a suitable e-tendering solution to meet its requirements. The intention of DGS&D was to implement e-tendering solution, which could be utilized by its zonal offices across India. Mr. Singh emphasizes that the object of the RFP was not to enable the successful tenderer to market its e-tendering solution with active support and backing of DGS&D to other organizations and procurement agencies like the DGS&D. Reference in this regard is made to clause 2.1 of the RFP circulated by the DGS&D, which reads: -
"2.1 Objective:
The objective of DGS&D Electronic Tender (E- Tender) initiative is to streamline and automate it's tendering process to build efficiencies in the process and cut down on the total time to tender and build a database of supplier bids for data mining & trend analysis by utilizing leading procurement practices. In order to achieve the objective, DGS&D desires to utilize new technologies and applications to create a suitable E-Tender solution that meets their requirements DGS&D intends to implement an E-Tender solution, which can be utilized, by its zonal offices across India."
W.P.(C) No.6574/2007 Page 23 of 85
34. The scope of work reflected in the RFP that the ASP was expected to provide, inter alia, reads as follows:-
"SCOPE OF WORK The ASP needs to procure, design, customize and implement the E-tender solution as per the requirements of the DGS&D.The required specifications for the proposed solution are detailed in this document. The ASP is required to procure and install all hardware, networking and communications equipment necessary to operate the market place at his end........"
35. However, by the impugned extension and amendment of the contract, a completely different contract has been entered into between the DGS&D and respondent No.4 whereunder respondent No.4, with the active participation and support of DGS&D and under the banner of DGS&D is enabled to offer its e-tendering software solution and service to other agencies like DGS&D, State Governments and Public Sector Undertakings. Clause 4.1.1(i) of the amendment dated 22.05.2007 provides that:
"DGS&D will extend its e-procurement platform to Government Organizations for their procurement activities, publication of tender notices, publication of tender enquiries, bid submission, bid opening, bid evaluation and award of tender/contracts for goods/materials/works/services etc. required by them. C1 India will extend full support both with regard to customization of software, developing full functionality of e-tendering and e-procurement beginning from publication of tender notice till award of contract. In case, additional functionalities are required, these would be finalized by mutual discussions on case to case basis. DGS&D shall not pay C1 W.P.(C) No.6574/2007 Page 24 of 85 India for undertaking development and operationalization of e-procurement platform as described above. C1 India, however, will charge registration/subscription fee from the Vendors as per agreement."
36. Mr. Singh argues that it is not the function of the DGS&D to itself enter into commercial contracts for the purposes of marketing its products. In fact, the e-tendering solution being provided by respondent No.4 is not even a product of DGS&D. It is, therefore, a misnomer to say that DGS&D is extending its e-procurement platform to Government organizations. In fact, DGS&D is merely a front which is being exploited for marketing the e-tendering solution and service of respondent No.4, and the real beneficiary in this process is respondent No.4 and none else. DGS&D is exploiting the fact that it is a central purchase organization of the Government of India and a procurement specialist and that it has the mandate to offer its own services to Government agencies to assist them in their procurement activities. Respondent no. 2 is, in fact, trying to provide backdoor empanelment for respondent no. 4, on the lines of an exclusive monopoly rate contractor/registered supplier, to all the Ministries and Departments of the Central and the State Governments, at exorbitant annual registration fee, without resort to competitive bidding or open tendering process. DGS&D is also taking advantages of Rule 147(1) of the General Financial Rules which provide that other Government agencies may avail of the rate contracts with the registered suppliers of DGS&D without inviting their own tenders. By now claiming W.P.(C) No.6574/2007 Page 25 of 85 ownership of the software, (which is untrue), under the amended contract, DGS&D is now seeking to market the e-tendering software solution and service of respondent No.4 to the bidders/suppliers of other organizations who may be compelled to adopt the e-tendering solution of respondent No.4. Reference in this regard is made to the response of respondent No.2 in response to RTI application made by the petitioner. DGS&D has, inter alia, stated:
"DGS&D may extend the e-procurement/e- tendering platform to other departments."
"DGS&D platform can be utilized by other Government Organization in terms of Ministry of Finance instructions."
37. The petitioner refers to an Office Memorandum dated 10.01.2007 issued by the Ministry of Finance, Department of Expenditure, on the subject: Introduction of Mandatory e-procurement which, inter alia, provides:
"In respect of all goods covered under the rate contracts (RC) concluded by the Director General (Supplies and Disposal) (DGS&D), the Ministries should commence placing orders through the website of DGS&D as soon as feasible. This practice would become mandatory for supply orders to be placed w.e.f. April 1, 2007. DGS& D is making all necessary arrangements for assisting the procurement officials in this regard and they would be issuing more detailed guidelines in this matter."
38. Mr. Singh submits that the respondents have deliberately misrepresented the scope of the Office Memorandum dated 10.01.2007. He submits that the true interpretation of the said O.M. is that the Government departments should approach the DGS&D where W.P.(C) No.6574/2007 Page 26 of 85 they wish to procure items which are covered by rate contracts. However, where other goods or services are required to be procured by other Ministries/Departments they should make their own arrangements. He specifically makes reference to Clause (viii) and (ix) of the said Office Memorandum which read as follows:
"viii. Both the Director General (Supplies and Disposal) and the Director General, National Informatics Centre have volunteered to assist the Ministries/Departments in e-procurement in respect of items not covered under the rate contract. Both the organizations are creating help desks and nominating nodal officers and detailed operational guidelines from them are under issue.
ix. Additionally, Ministries and Departments with sufficiently large procurements can develop or procure and customize their own platforms for e-procurement which should conform to the requirements spelt out in the Detailed Project Design Guideline (referred to at Para 4 above)."
39. He further submits that said Office Memorandum also provides in Clause (IV) that the common regulatory framework with decentralized procurement as provided by the General Financial Rules, 2005 has to be maintained.
40. He submits that the respondent authorities are seeking to nominate respondent no.4 as the ASP for providing the e-procurment system to other government organizations/PSUs. It is argued that if respondent No.4 is interested in offering its e-tendering solution services to any other organization/State Government, it could do so on W.P.(C) No.6574/2007 Page 27 of 85 its own since it had developed its own e-tendering solution software. There is no necessity or justification for DGS&D to throw in its weight behind respondent No.4, and by doing so respondent No.4 is being given preferential treatment by DGS&D. Mr. Singh further submits that if the DGS&D were desirous of offering an e-tendering solution to other government organizations, it should have given other contenders, like the petitioner, a chance to participate by inviting tenders. The petitioner is also an established e-tender solution service provider and its services are being offered by the petitioner at much lower rates than that being charged by respondent No.4. It is also argued that the attitude of the DGS&D of not showing any concern with regard to the charges being levied by respondent No.4, on the ground that it does not cost DGS&D whatever be the annual charges levied by respondent No.4 is to be deprecated. Firstly whatever costs are incurred by the suppliers of goods and commodities, inter alia, towards subscription/registration charges to the ASP are added on to the costs of the commodities/articles offered to the DGS&D or Government organizations, who invite e-tenders. Secondly, it is argued that the respondent DGS&D being a public body cannot shut its eyes to the facts that e-tendering solutions are being offered on much lower and highly competitive rates, even when the number of registrants is not comparable to the registrants with DGS&D. In matters of grant of state largess, the State is obliged to ensure a level playing field and also to maintain complete transparency. The petitioner has placed on record W.P.(C) No.6574/2007 Page 28 of 85 the communication dated 19.04.2007 issued by the DGS&D to the Director, Information Technology, Chandigarh Administration, offering the DGS&D e-tendering platform. The said communication reads as follows:
"This is to inform that Ministry of Commerce & Industry/DGS&D has been declared as nodal department for E-procurement under integrated services category of Mission Mode Projects identified by Govt. of India.
2. A copy of officer memorandum No.8(5)/E.II(A) 2006 data 05.07.2006 from ministry of finance dept of expenditure is enclosed for information with respect to threshold limit to be fixed by your organization for initiating E-procurement.
3. Please find enclosed the Annexure A contains a brief note about the DGS&D Platform for e-procurement/e-tendering. The platform will be made available to intending users on a nominal charge, details of which are at Annexure B.
4. A copy of the draft MOU to be signed between DGS&D and Chadigarh Administration is enclosed for perusal and examination.
This is without any commitment as to the outlined terms and conditions at present."
41. Annexure-A to this communication contains the brief note including conditions. This brief note states that the e-tendering platform being offered by the DGS&D is designed and developed by the ASP i.e. respondent No.4 nominated by DGS&D "exclusively for DGS&D". He points out that the e-tendering platform which the DGS&D sought to offer is not even owned by it. The ownership in the said platform/e-tendering solution software resides in respondent No.4. W.P.(C) No.6574/2007 Page 29 of 85 Annexure-B to this communication contains the fee/charges for utilizing "DGS&D e-procurement/e-tendering platform". Apart from the nominal fee being charged by DGS&D, Annexure-B records that the bidders who are not registered with the nominated ASP i.e. respondent No.4, will have to pay an annual transaction fee of Rs.6,000/- to the ASP. Mr. Singh submits that from the aforesaid it is evident that the respondents are deliberately misrepresenting to other government/ government agencies/PSUs with a view to convert the e-tendering/e- procurement software solution of respondent No.4 into a rate contract product to be exclusively obtained only from respondent No.4 on a deliberate misreading of the aforesaid office memorandum dated 10.01.2007.
42. The petitioner submits respondent No.4 itself has been awarded procurement contract by a State Government PSU, called Madhya Pradesh Laghu Udyog Nigam Limited (MPLUNL). This organization establishes rate contracts for the Government of Madhya Pradesh, in particular when dealing with the small scale industries sector. MPLUNL performs functions similar to respondent No.2, DGS&D, however, on a much smaller scale and limited to the State of Madhya Pradesh. The contract was awarded to respondent No.4 on the basis of a competitive two bid process, wherein respondent No.4 had bid Rs.800/- per supplier per annum as its registration fee compared to the fee of Rs.6,000/- per supplier per annum permitted to be charged by respondent No.2 under the impugned contract. W.P.(C) No.6574/2007 Page 30 of 85 Moreover, the contract with MPLUNL provides that respondent No.2 can, at most, earn revenue of Rs.33,80,000/- in a year and any additional revenues flow into the coffers of MPLUNL. However, there is no similar provision in the impugned contract between respondent Nos.2 and 4 and the entire revenue collected on account of annual registration fee is appropriated by respondent No.4. The aforesaid brings out a clear disparity between the market rates for provision of such like services and those being charged by respondent No.4 due to the discriminatory, arbitrary and illegal connivance of respondent No.2. He submits that respondent no. 4 did not furnish the aforesaid material information to respondent no. 1 to 3 at any point of time much less when the said respondents purported to take a decision to extend the term of the contract by two years. This is evident from the reply given by respondent nos. 1 to 3 to the petitioner‟s application under RTI Act. He makes reference to the replies furnished by respondent nos. 1 to 3 on 11.05.2007 and in particular to the reply to query at Serial No. 4 (d) to 4 (f) which reads:
(d) Whether DGS&D is aware that several government No. departments and/or PSUs in India operate on a similar "no-cost basis" model for their e-tendering/e-
procurement services and have obtained prices through competitive tenders at rates substantially lower than being charged to DGS&D supplier by M/s. C1 India?
(e) Whether DGS&D is aware that in November 2005 No. M/s C1 India was awarded similar e-procurement contract tendered by Madhya Pradesh Laghu Udyog Nigam Ltd ("MPLUNL"), which is the Stores Purchase nodal agency of the State Government of Madhya Pradesh?
W.P.(C) No.6574/2007 Page 31 of 85
(f) Whether DGS&D is aware that M/s C1 India quoted No. Rs. 800/- as the annual fee to be paid by suppliers of MPLUNL to C1 India, which is 1/7th the fee charged to DGS&D suppliers, despite MPLUNL handling a fraction of the procurement that DGS&D does and having a fraction of the registered suppliers compared to DGS&D. He submits that the decision to extend the contract is, therefore, mindless.
43. Reference is made to DGS&D Manual (effective from 01.10.1999). Chapter 1 which deals with organization and structure defines the scope and functions of DGS&D. Clause 1.2 (i) is relied upon which reads as follows:
"1.2 SCOPE AND FUNCTIONS: Directorate General of Supplies and Disposals is entrusted with the responsibility of;
(i) Purchase and or/inspection of stores for Central Government Ministries/Departments including their attached and subordinate offices and Union Territories other than the items of purchase and inspection of stores which are delegated to other authorities by general or special order. With implementation of decentralization policy, procurement against adhoc indents was transferred from the DGS&D to the indenting Ministries/Departments and procurement of common user items on Rate Contract basis continues to be done by the DGS&D."(emphasis supplied)
44. Mr. Singh submits that even according to respondents 1 to 3, respondent No.4 was selected as the ASP on the basis of an "adhoc tender". He submits that with the implementation of the decentralization policy procurement against adhoc indents stands W.P.(C) No.6574/2007 Page 32 of 85 transferred from DGS&D to the indenting Ministries/Departments. He argues that since the contract was awarded on adhoc basis, there is no justification for the respondent DGS&D to promote the interest of respondent No.4, which had been selected only through an adhoc tender. He submits that the contract between respondent no.s 2 and 4 is not a rate contract. But even in respect of rate contracts established by respondent no.2, it is obliged to provide a choice of suppliers for rate contracts for limited period of 1 to 3 three years, which may be availed of by all other ministries/agencies through limited tender enquiry. He places reliance on Rules 142(I), 142(III) and 160 (xiii) of the GFR and submits that the General Financial Rules do not envisage giving a monopoly to any one supplier for a particular rate contract.
The endeavour of respondent Nos.1 and 2 to empanel respondent No.4 as an exclusive "rate contractor" of DGS&D would, therefore, be illegal. He further submits that there is no provision either in the original RFP or the contract for:
"(i) empanelling or otherwise establishing Respondent no.4 as a "registered supplier"
within the meaning of Respondent No. 2‟s legislative/legal mandate as well as the General Financial Rules.
(ii) extending the E-Tendering system of Respondent No.2 (provided for by Respondent No.4) to other agencies of the Government/State Governments/PSUs.
(iii) granting a monopoly status to Respondent No.4.
(iv) allowing or permitting Respondent No.4 to obtain contracts without tender from other W.P.(C) No.6574/2007 Page 33 of 85 Government agencies by misrepresenting its so-called „empanelled‟ status with Respondent No.2."
45. Mr. Singh has also relied upon a memorandum of understanding dated 12.07.2007 entered into between M/s Balmer Lawrie & Co. Ltd. and DGS&D, placed on record along with C.M. No.5651/2008. He submits that a perusal of the MOU would show that DGS&D has taken upon itself practically all the obligations to be performed thereunder and the respondent No.4, the ASP, has been relegated to the background. The lion‟s share of the consideration to be paid by M/s Balmer Lawrie & Co. Ltd. is to be pocketed by the respondent no.4 at the rate of Rs.6,000/- per registrant He further argues that the said MOU has been entered into for a period of 5 years beginning July, 2007, which makes the same valid uptil 2012. The contract between the DGS&D and respondent No.4 itself is not even valid for that period. This, according to him establishes the bias in favour of respondent no.4 and demonstrates the intention of respondent no.2 to perpetuate and promote the interest of respondent no.4. Mr. Singh submits that by using aforesaid modus operandi in fact Balmer Lawrie & Co. which is a public sector undertaking has entered into a contract with respondent no. 4, primarily for the benefit of respondent no. 4 without even going through the transparent mechanism of notifying tenders and permitting the public at large to participate in that process. Similarly, by using the façade of DGS&D, respondent no. 4 is seeking to enter into similar contracts with other W.P.(C) No.6574/2007 Page 34 of 85 Government/semi-Government entities and PSUs while keeping out the competition at exorbitant rates. He submits that the initial period of the contract was three years, though extendable by two years, and the initial period was since long over. He submits that the respondents are falsely claiming that the e-Tendering procurement solution provided by respondent no. 4 became operational only w.e.f. 01.04.2005 by reference to the news report published in business line on 29.09.2004. It is stated that the e-procurement solution of respondent no. 14 had gone live on or about the said date. The gist of the news report reads as follows:
"C1 India goes live with e-tendering platform Our Bureau NEW DELHI: E-Procurement solutions provider C1 India, said it has gone live with the e- procurement platform of Directorate General of Supplies and Disposals (DGS&D).
"The platform will allow DGS&D to raise public tenders and streamline purchase processes using a Web-enabled platform,"
The URL of the site is dgsnd.govtprocurement.com"
46. He further submits that even if the stand of the respondents that the e-Tendering solution became operational w.e.f. 01.04.2005 is accepted, the period of 3 years expired on 31.03.2008. Instead of inviting a fresh tender for the purpose of selecting a more competitive service provider, DGS&D has not only sought to extend the term of the contract, but also to enter into an amended agreement whereunder it W.P.(C) No.6574/2007 Page 35 of 85 is acting as the marketing agent of respondent No.4 to sell the e-
tendering solution of respondent No.4 to other procurement agencies throughout the country. In this manner, the DGS&D is giving a huge unfair advantage to respondent No.4 exclusively. He submits that the extension of the contract period could not be automatic. The same is dependent on the performance of the service provider. The reasons for extension of the contract should be available on the concerned file of the Government. There has to be a positive act of extension with due application of mind to the issue, whether a case for extension is made out or not. As a matter of fact, there is no communication issued by the Government extending the period of the contract during its original period of currency i.e upto 31.3.2007. He also argues that factors such as the rapid growth in the field of e-tendering solution, the emergence of other entities offering the same solutions/services and the rates at which such solutions/services are being offered by other competitors should have gone into the decision making process while considering the issue whether extension of contract of the petitioner for two years should be granted or not. However, the respondent authorities have deliberately shut their eyes to this reality. In support of the aforesaid submission, Mr. Singh also relied on AIR 2001 SC 3887 "Union of India & Ors. v. Dinesh Engineering Corporation & Anr." Lastly, the petitioner has sought to throw doubts on the claim of the respondents that the amendment agreement was executed on 22.5.2007. The petitioner submits that on 29.6.2007 before the C.I.C, W.P.(C) No.6574/2007 Page 36 of 85 the DGS&D had undertaken to supply to the petitioner all the agreements it had executed with respondent no.4. On 13.4.2007, DGS&D provided the petitioner with the original agreement, but not the amendment agreement purportedly executed on 22.5.2007. It is submitted that had the said agreement been in existence, the same would have been provided to the petitioner.Submissions of respondent Nos.1 to 3
47. The stand of respondent nos. 1 to 3 in their counter affidavit is that a high level committee was constituted for the guidance of DGS&D at various stages in development of software and providing the network to connect various offices of DGS&D and the suppliers. This committee included Professor Anshul Kumar, IIT, Delhi, Dr. Gulshan Rai, Director ERNET, Dr. Mukul Sinha, M.D., Expert Software Consultant. It is stated that at the relevant time the concept of e-
Tendering was relatively new and not many firms were known to have been successful in that field. With a view to tap all the firms in the field of development of software and considering the sensitivity of e-
tendering system, a letter was written to NASSCOM on 29.5.2001 since NASSCOM has the membership of most of the firms engaged in the development of software. NASSCOM circulated the requirements of respondents 1 to 3 to its member firms and sought their response.
After obtaining the responses from the companies and going through W.P.(C) No.6574/2007 Page 37 of 85 the brochures submitted by the companies, NASSCOM furnished the following two lists of firms.
(i) List of companies that make the software packages for electronic tendering.
(ii) List of companies that offered to make customize solution to the needs of the DGS&D.
48. There were in all 72 firms details of which were provided by NASSCOM. The list covered all regions of India. In the list of NASSCOM, top software companies including IBM, WIPRO, INFOSYS, SATYAM computers and others were included. Additionally, DGS&D also made its independent endeavors to find out prospective companies in the similar field through references and computer magazines. Fifteen firms were identified on the basis of list of firms noted from the magazine "Computer today" issued for period 1-15 July 2000. Letters were issued to the 87 firms to obtain their suggestions for e-tendering module. In response thereto, 17 firms gave their proposals. On the basis of this preliminary discussions, 4 firms were selected for the final tendering process to draft the specifications, tender requirement and questionnaire, a committee was formed which was assisted by a consultant. A pre-bid conference meeting was held with the above firms on 14.1.2003 followed by another meeting on 13.2.2003. On the basis of the feed-back received during the discussion in the meeting, the draft bid document was modified. W.P.(C) No.6574/2007 Page 38 of 85
Thereafter, the decision to invite bids under the two bids system was arrived at. The technical bid was opened on 17.3.2003 and the evaluation process was carried out on 28.3.2003 and 4.4.2003 which was followed by mock trial on two days during the month of June 2003. On scrutiny, respondent No. 4 was found to be only company who fulfilled the eligibility criteria as envisaged in the tender inquiry. Commercial bid was opened and after negotiations the contract was awarded to respondent No. 4 at annual registration of Rs.6000/- per supplier. Therefore, the tender was awarded by following procedure, and there was no illegality. It is also submitted that while the answering respondent had initiated the process of identifying the suppliers of E-tendering solution in February 2001 itself, the Petitioner had developed its software only in December 2002 and therefore was left out.
49. It is submitted that contract had been awarded to respondent no.4 for a period of three years, further extendable for a period of two years in terms of tender document. The period of contract was to be reckoned from the date the e-Tendering process became fully operational for one product/item, which in this case was 01.04.2005. The respondents further submit that the period of the contract is five years, with a review after three years from the date the e-tendering becomes fully functional. DGS&D had stipulated a period of three years initially to watch performance of respondent No.4 before a W.P.(C) No.6574/2007 Page 39 of 85 decision for extension could be taken in this regard. The performance of C1 has been considered as satisfactory and, therefore, DGS&D is inclined to allow the agreement to run for the stipulated period of five years. The period of contract entered into by the petitioner with the Government of Chhattisgarh is also for five years. The security audit of the e-tendering platform offered by respondent no.4 has been done by an independent agency namely STQC (Software Testing & Quality Control) under Ministry of Information Technology in 2004 before operation of the e-tendering system. Further, security audit has been undertaken by STQC during 2008. As per clause No.(x) of DGS&D amendment letter dated 22.05.2007, respondent no.4 is obliged to get DGS&D e-Procurement platform audited for security by STQC every year.
50. The respondents state that the RFP was a preliminary document on which the internal discussions were held and relevant changes were incorporated. In this document the respondents had stated that the e-Tendering application (software) should be ready to deploy with 5% to 10% customization. However, in the Tender Enquiry, which was finalized on 14.01.2003, and circulated on 11.02.2003, clause for readiness to deploy the application with 5% to 10% customization had not been included.
51. The respondents also state that the tender in question was not a Rate Contract (RC) tender, but an adhoc tender to select as ASP W.P.(C) No.6574/2007 Page 40 of 85 for providing e-tender solution to DGS&D. The contract between DGS&D and respondent No.4 is not a rate contract. To meet the allegations about non-compliance of GFR in the process of awarding the contract to respondent No.4, the respondents state that there is no cost to the DGS&D for inviting the tender, apart from stating that the GFR came into force in 2005 and are not applicable for purchase of service only. To meet the allegations of non-compliance of the DGS&D‟s own manual, it is stated that the same is applicable to award of rate contracts, and not to award of the contract in question.
52. It is pleaded that it has taken considerable time since the initiation of the tendering process, to arrive at a module and stabilize the platform for the e-tendering solution, and a change in the ASP will adversely effect the working of the e-procurement system. Submissions of respondent No.4
53. Respondent No.4 firstly states that the present petition deserves to be dismissed on account of delay and latches. The process for the tender in question was started in the year 2001. This writ petition is filed on 06.09.2007. No cogent explanation has been furnished by the petitioner for the belated filing of the petition.
54. It is also submitted that the petitioner has no locus standi to challenge the award of the contract to respondent No.4 as they were not party to the tendering process at the initial stage. The petitioner W.P.(C) No.6574/2007 Page 41 of 85 company came into existence only in December 2002, whereas the tender process started on 19.04.2001. It is submitted that the term of the contract was five years, split into 3+2 year mode. The period commenced only upon the e-tendering process becoming fully operational for one product item. According to respondent no.4, the said period has not yet begun to run. In any event, the e-tendering service became fully operation on 01.04.2005. Respondent No.4 submits that respondent Nos.1 to 3 have found the services of the petitioner to be satisfactory, and there is no ground not to extend the period of the contract upto 31.03.2010 on the same terms and conditions as nothing further was left to be negotiated. It is submitted that since the initial contract was not challenged in the first three years, the petitioner has not right to challenge its extension for two years, which is in terms of the original contract.
55. To justify the initial award of the contract to it, respondent No.4 seeks to rely upon the stand of respondent Nos.1 to 3 and upon the involvement of various experts and high ranking officers in the high level committee which found only the petitioner suitable for award of the contract.
56. According to respondent no.4, even the initial contract was wide enough in its scope to include the offering of its software and service to other government/semi-government organizations and PSU‟s, and the amendment is only clarificatory. Respondent No.4 W.P.(C) No.6574/2007 Page 42 of 85 submits that even in the initial contract, clause 1.1.2 of the Specifications and Technical Requirements provided that the software should support multiple agencies i.e. multiple purchasing organizations with separate work flows and administration modules which should be configurable. Clause 1.1.3 of the Specifications and Technical Requirements further provides:
"The solution should support sectionwise/ datewise/office wise/organization wise reporting structure."
57. Reliance is also placed on clause 1.1 of the "Terms and Conditions" of the contract which provides that respondent No.3 is the exclusive agency entrusted with the responsibility of providing procurement and inspection support to the:
A. Central Government Departments and their attached & subordinate offices;
B. Union Territories;
C. State Govt.
D. Public Undertakings and E. Others-viz Autonomous bodies, Quasi Public bodies, etc. who desired to avail its services for variety of items required by them.
58. Therefore, it is argued that there is no change in the scope of the original contract. DGS&D is merely fulfilling its responsibilities of providing procurement support to the various government departments & other autonomous bodies. If in that process, along with W.P.(C) No.6574/2007 Page 43 of 85 the other softwares/programmes, the software and service of the petitioner comes to be adopted by other agencies, no objection can be raised by the petitioner, who is a competitor. It is further submitted that the amendment dated 22.5.07 is only an enabling contract which obligates respondent no.4 to provide its services and software to the various other bodies, State Govt. etc. with whom DGS&D enters into contract. Respondent No.4 denies the charge that respondent Nos.1 to 3 are supporting a monopoly in favour of respondent No.4. With regard to the contract with MPLUNL, respondent No.4 states that it is charging Rs.1990/- plus other charges from the registrants. The scope of work in the two organizations viz. DGS&D and MPLUNL is different, as the work of DGS&D is more voluminous. It is lastly contended that this Court should exercise restraint in interference with the contract which the Government has entered into in exercise of its executive power. The contract has been entered into through a process of negotiation through several tiers and decision has been made qualitatively by experts. The Government enjoys freedom of contract and that freedom ought not to be curtailed easily. It is submitted that the present petition is an abuse of the process of this Court and should be dismissed with costs. Reliance is placed on Master Marine Services (P) Ltd. V. Metcalfe & Hodgkinson (P) Ltd & Anr, (2005) 6 SCC 138.
59. It is also stated that it is not mandatory for other Government agencies to avail of the e-tendering process of DGS&D and the OM W.P.(C) No.6574/2007 Page 44 of 85 dated 10th January 2007 has been misread. The DGS&D is only seeking to provide assistance to the other agencies in the e-procurement process until the time they are able to have their own arrangement. Discussion on Merits
60. The respondent DGS&D issued the Request For Proposal for e- tender software solution system. The purpose of issuance of the RFP, as the name itself suggests (and as evidenced from its objective stated in Clause 2.1 of the RFP), was to make known to all concerned that the respondent DGS&D has set out to introduce e-tender initiatives to streamline and automate its tendering process to build efficiencies and cut down on the total time to tender, and build a database of suppliers bids for data mining and analysis by utilizing leading procurement practices. DGS&D stated that to achieve the aforesaid objective it desired to utilize new technologies and applications to create a suitable e-tender solution that meets its requirements. It further stated that it intended to implement the e-tendering solution so that the same could be utilized by its zonal offices across the country. The scope of work that the proposed tenderers were expected to perform was also delineated in Clause 4.0 of the RFP. The eventual bidders were expected to procure, design, customize and implement the e- tender solution as per the requirements of the DGS&D. The required specifications in the proposed solution were detailed in Clauses 5.0 to 11.0 of the RFP. The eventual service provider was expected to procure and install all hardware, networking and communications W.P.(C) No.6574/2007 Page 45 of 85 equipment to operate the market place. The key services expected from the service provider were also set out in Clause 4.1 of the RFP. The RFP also indicated the business model that was proposed to be adopted. In Clause 3 of the RFP, it was stated that the business model for the e-tendering portal would be Application Service Provider (ASP) based. The revenue model was also explained in Clause 3.1 of the RFP.
61. From a reading of the RFP it is evident that the same was not, and was never intended to serve as a notice inviting tender. The purpose of issuance of the RFP was to get the interested entities to interact for evolving the acceptable terms and conditions, standards and specifications for eventually formulating the Notice Inviting Tender for procuring e-tender solutions. The purpose was to invite the interested and competent entities to come forward to inform and educate the DGS&D about what to expect from the bidders and to enable the DGS&D to formulate detailed specifications. It was really to enable the DGS&D to learn as to what are the practices in the field of e-tendering solution, the possibilities and limitations in the e- tendering solution system and other relevant information, so that the specifications on which the notice inviting tenders would eventually be issued, could be evolved. This is also evident from the counter affidavit of respondent nos.1 to 3. In their counter affidavit they have stated in para 3:
W.P.(C) No.6574/2007 Page 46 of 85
"It is submitted that Request for Proposal (RFP) was a preliminary document on which internal discussions were held and relevant changes were incorporated resulting into the elaborate Tender Terms and Conditions document. The RFP, therefore, cannot be taken as complete tender document."
62. The manner in which the RFP was circulated amongst the concerned entities and software solution providers by the DGS&D appears to be rather curious and unconventional. According to the respondent, the concept of e-tendering was relatively new and there were not many firms known to have been successful in that field. The respondents have stated that with a view to tap all the firms in the field of development of software and considering the sensitivity of e- tendering system, a letter was written to NASSCOM on 29.05.2001 to elicit the names of the firms involved in the filed of offering e-tendering system. NASSCOM apparently provided a list of 72 firms. DGS&D claims to have also made its independent endeavours to find out prospective companies on the basis of list of firms noted from a magazine "Computer Today", issued from the period 1st to 15th July, 2000. It is stated that 87 firms were issued letters to obtain their suggestions for e-tendering module. Though the respondents claimed to have addressed communications to 87 firms to respond to the RFP there is nothing on record to substantiate this statement of the respondents. Only 17 firms are stated to have given their proposals. The mechanism adopted by the respondent DGS&D defies common sense and rationality. It is not explained as to why the respondents did W.P.(C) No.6574/2007 Page 47 of 85 not adopt the obviously transparent mechanism of publishing the RFP in leading national dailies. When the process of identifying entities to whom RFP could be issued was itself undertaken sometime in May, 2001, it is also not understood as to why a stale issue of "Computer Today" a fortnightly magazine for the period 01st to 15th July, 2000 was picked up by the respondents to gather names of entities to whom the RFP could be issued.
63. Pertinently, the RFP did not state that only those prospective bidders, who respond to the RFP and participate in the process of finalization of specifications for award of the e-tendering solution contract, would be considered by the respondents in a limited tender process to follow, for the award of the e-tendering solution and service. Consequently, eligible and competent e-tendering solution providers who may not have responded to the RFP but could have nevertheless offered the e-tendering solution on the specifications eventually laid down by the respondents were kept out of the tendering process, as the respondents themselves state that from out of those 17 firms, who gave their proposals in response to the RFP, four firms were selected for limited tendering process. Therefore, suddenly without any prior notice inviting tender, the respondents sought to shortlist only four firms for a close tender process, keeping out scores of other e- tendering solution providers.
W.P.(C) No.6574/2007 Page 48 of 85
64. The stand taken by the respondent authorities that these four were the only firms known "from all the possible sources...........at that time" is patently incorrect. Merely because only seventeen firms had responded to the RFP stated to have been circulated to 87 firms, it does not follow that only the four shortlisted from these seventeen firms could be said to be "known sources" and that the possibility of fresh sources beyond these four were remote. Had the respondents stated upfront in the RFP that only those firms, who respond to the RFP would be eligible for participation in a limited tender enquiry, possibly many more out of the 87 firms, to whom the RFP is stated to have been issued, would have responded. Once the specifications and terms and conditions had been finalized, the fair and reasonable course of action for the respondent authorities to adopt would have been to issue a NIT with wide publicity, to invite all those entities who are in business in the relevant field, to make their respective offers.
65. The admitted position as disclosed from the affidavit of the respondent authorities is that on the basis of the feedback received during discussion in the meeting held with the four short-listed firms on 14.01.2003 and 13.02.2003, the draft bid document was modified. Consequently, even if the RFP is assumed to have been a notice inviting tender, which it was not, even so upon a modification of the terms of the RFP it was incumbent on the respondent authorities to have circulated the NIT with the modified terms to the public at large to invite all eligible and competent players in the field to participate in W.P.(C) No.6574/2007 Page 49 of 85 the tender process so as to create a healthy competition amongst all the suppliers which would have led to the best services being offered at most competitive rates. However, curiously the respondent authorities appeared to have gone about the process of short-listing e- tendering solution providers in the most arbitrary manner.
66. One cannot lose sight of the fact that the respondent authorities, while undertaking the process of selecting the e-tendering solution provider as an ASP, were undertaking a process of distribution of State largesse since they were involved the selection of an ASP, who would generate revenues for itself for the contractual period on account of being so selected by the respondents. While distributing State largesse it is well settled that the State cannot discriminate and act in an arbitrary and whimsical manner. It is bound to act with transparency, giving equal opportunity to all eligible entities and persons to participate in a competitive process so that the State can take a transparent and informed decision to choose the most appropriate and competent entity/person at the most competitive rates. This is in larger public interest since it is the public exchequer, which is sought to be burdened whenever the State contracts to buy and procure products and services for itself.
67. We may at this stage itself deal with the submission of the respondents that the petitioner has no locus standi to challenge the grant of contract to respondent No.4, as the petitioner was not even in W.P.(C) No.6574/2007 Page 50 of 85 existence when the initial contract was awarded. As per the respondent authorities, the bid document was finalized only on 12.02.2003. The petitioner was in existence, and it had developed its software for offering e-tendering solution in December, 2002. Consequently, had the respondent authorities adopted the transparent manner of award of the tender by duly publicizing the NIT once it was finalized in February, 2003, the petitioner too could have participated in the tendering process. Failure on the part of the respondent authorities to do so certainly gave the petitioner a cause of action to agitate against the same, as and when the petitioner became aware of the aforesaid arbitrariness and illegality in the tendering process adopted by the respondent authorities. However, as we have already clarified, we are not inclined to accede to the petitioner‟s prayer to set aside the initial grant of the contract at this belated stage. The averment of the petitioner that it became aware of the illegalities committed by the respondent authorities in the matter of award of contract to respondent no.4 in late 2006/early 2007 has not been controverted with any seriousness. Consequently, we reject this preliminary objection of the respondents and hold that the petitioner has the locus standi to maintain the present petition.
68. As noted hereinabove, from the submissions of petitioner it is evident that the respondent authorities materially altered the terms of the RFP when the contract was initially awarded to respondent No.4. This is also admitted by the respondent authorities who state in their W.P.(C) No.6574/2007 Page 51 of 85 counter affidavit in para 10(II) (a) that "A pre-bid conference meeting was held with the above firms on 14.1.2003. On the basis of feedback received during the discussions in the meeting, the draft bid document was modified...................As is evident from the above that extensive and intensive deliberations on the technical and commercial issues had to be undertaken before the technical bids, specifications and commercial terms and conditions were finalized." (emphasis supplied) inter alia, in relation to the payment terms under the contract. While Clause 3.1 of the RFP provided that the registration charges would be collected by the DGS&D and then made available to the ASP, but under the finalized contract, it is provided that the revenue generated from the registration charges from the registrants/bidders would be directly collected by the ASP. Moreover, while the RFP provided in Clause 12.10 that only those vendors who have an off-the-shelf Electronic Tender Application should respond, and the e-tender application should be easy and ready to deploy with 5 to 10% customization, admittedly, this condition too was altered and not adhered to, as respondent No.4 did not have a ready to deploy off-the- shelf Electronic Tender Application, which required only 5 to 10% customization. In fact respondent No.4, admittedly, developed e- software solution only after the award of the contract which is evidenced from the stand of the respondents that even though the contract was entered into between respondent Nos.1 to 3 on the one W.P.(C) No.6574/2007 Page 52 of 85 hand and respondent No.4 on the other on 16.04.2004, it became operational only w.e.f. 01.04.2005.
69. Thus, if the respondent authorities had made known to the concerned entities in the trade that they would be entertained for award of the e-tendering software solution service contract even if they did not have the e-tendering solution ready to use off-the-shelf and that the payment terms would be altered and made more favourable to the bidders, as subsequently done, it is likely that many more entities would have got interested in the tender in question. However, by proclaiming one thing to the public at large, and by quietly altering the material terms thereof, the respondent authorities have clearly not maintained transparency in the entire process of award of contract to respondent No.4. The respondent authorities have, by adopting such non-transparent modus operandi curbed fair competition between all the eligible and competent players in the relevant field.
70. It is evident from the stand of the respondents that there was hardly any competition when the contract was awarded to respondent No.4. As per the stand of the respondent Nos.1 to 3, only four entities were short-listed out of 17, who responded to the RFP. Only these four entities were invited to participate in the limited tender process. Even from amongst those four entities, it was only respondent No.4 who was found to be fulfilling the eligibility criteria when the technical bid was W.P.(C) No.6574/2007 Page 53 of 85 opened on 17.03.2003 and a valuation process was carried out on 28.03.2003 and 14.04.2003. Consequently, there was no competition, which meant that respondent No.4 had a "free for all" and it quoted a high rate of Rs.6,000/- per registration per annum. Considering the fact that even according to respondent Nos.1 to 3, there are about 10000 suppliers/bidders who make supplies in response to DGS&D rate contracts, the annual registration charges come to a staggering amount of Rs.6,00,00,000/-.
71. By merely taking cover of a high level technical committee, which is said to have examined and evaluated the software solutions offered by the four shortlisted firms, the respondent authorities seek to save themselves from the charge of lack of transparency and fairness in the tender process in question. The technical committee was not involved in the mechanism adopted by respondent nos. 1 to 3 to shortlist the firms and to invite bids. They had been presented with only four offers to examine and evaluate. May be, within those four offers, the offer of respondent no.4 was the best in terms of technical soundness. However, the illegality and arbitrariness in action had already been perpetrated by respondent nos.1 to 3 by the time the expert committee was asked to evaluate the offers of four firms, as other firms in the same line of business, including the petitioner had been excluded from consideration.
W.P.(C) No.6574/2007 Page 54 of 85
72. We also find the stand of the respondent DGS&D to the effect that whatever be the annual registration charges, the same does not concern the DGS&D, since it is being recovered from the bidders/registrants and not from the DGS&D to be shocking and depricable. The indifference demonstrated by the respondents while accepting the charge of Rs.6,000/- per registration per annum quoted by the respondent No.4 shows complete lack of basic common sense and prudence on the part of the respondent authorities, and a breach of public faith and trust by them that the people of the country repose in them, and that they are obliged to uphold in larger public interest.
73. "There ain't no such thing as a free lunch" (with the acronym TANSTAAFL) is a well known adage which is also sometimes expressed as "there is no such thing as a free lunch". According to Wikipedia (a free encyclopedia on the internet), the aforesaid adage originated in the 1940s and was later popularized by science fiction writer Robert A. Aeinlein in his 1966 novel "The moon is a harsh mistress", which discussed the problems caused by not considering the eventual outcome of a common balanced economy. Wikipedia further reports: -
"TANSTAAFL, indicates an acknowledgment that in reality a person or a society cannot get "something for nothing". Even if something appears to be free, there is always a cost to the person or to society as a whole even though that cost may be hidden or distributed. For example, you may get complementary food at a bar during "happy hour", but the bar owner bears the expense of your meal and will attempt to recover that expense somehow.W.P.(C) No.6574/2007 Page 55 of 85
...........................................................................
TANSTAAFL demonstrates opportunity cost. Mankiw desribed the concept as:
"To get one thing that we like, we usually have to give up another thing that we like. Making decisions requires trading off one goal against another. The idea that there is no free lunch at the societal level applies only when all resources are being used completely and appropriately, i.e. when economic efficiency prevails. If not, a „free lunch‟ can be had through a more efficient utilization of resources. If one individual or group gets something at no cost, somebody else ends up paying for it. If there appears to be no direct cost to any single individual, there is a social cost. Similarly, someone can benefit for "free" from an externality or from a public good, but someone has to pay the cost of producing these benefits."
74. Merely because the DGS&D is not obliged to make payment of any amount directly to the ASP i.e. respondent No.4, it does not follow that there is no indirect cost incurred by the DGS&D. Obviously, the rate contract bidders would have to recover the annual registration charges that they incur and pay to respondent No.4 from their business transactions. They would, consequently have to mark up their bids / prices so as to not only recover their costs, including towards annual registration charges, but also to make a profit. Indirectly the registration charges being collected by respondent no.4 would be passed on to the respondent DGS&D and the indenters of the goods procured by DGS&D under rate contracts.
75. Apart from the aforesaid, the respondent Nos.1 to 3 are also obliged to ensure that they give a fair deal to their registrants/ bidders. W.P.(C) No.6574/2007 Page 56 of 85 Respondent Nos.1 to 3 cannot remain indifferent and unconcerned with the registration charges that the ASP may charge from its bidders, and permit the ASP to charge any amount that it likes. Such an attitude would not only increase the costs of procurement of goods and articles by the DGS&D, as explained hereinabove, but would also reduce healthy competition as some of the bidders may find the registration charges to be exorbitant and / or unreasonable and may, therefore, choose to keep away from the e-tendering system of the respondent DGS&D. The charge of Rs.6,000/- per month towards registration charges levied by respondent No.4 appears to be shocking, considering the fact that in other similar contracts, ASPs are charging much lesser amount even when the number of registrants are far less.
76. It is well known that in Economics of scale, there is a cost advantage that a business obtains due to expansion. A producer‟s average costs per unit falls, as output rises. The cost of developing e- tendering solution by the respondent No.4 would remain more or less the same whether there are 1,000 registrants/bidders, who may eventually register or there are 5,000 registrants/bidders who may eventually register. However, if there are a larger number of registrants, say, 5000, the same service can and ought to be offered by the ASP at much lower costs compared to the costs at which the service may be offered, if there are only 1,000 registrants. It is on the basis of this principle that with the expansion of, say, telecommunication networks and services, the costs of such services W.P.(C) No.6574/2007 Page 57 of 85 have drastically fallen over the years, as the member of subscribers have gone up many-fold.
77. The admitted position is that respondent No.4 itself has offered the e-tendering solution to Madhya Pradesh Laghu Udyog Nigam Limited on, more or less, the same business and revenue model only at Rs.800/- (or Rs.1990/- according to respondent No.4) per supplier per registration per annum even though the number of suppliers of MPLUNL is much smaller compared to the DGS&D. Under the said contract a cap on the annual revenue generated by the ASP i.e. respondent No.4 has been fixed at Rs.33,80,000/-. In contrast, under the contract in question Rs.6,000/- per annum per registrant is being charged by respondent No.4 when the number of registrants could be much larger and there is no cap on the revenue generated by respondent No.4.
78. To us it is clear that it is a complete sell out by the DGS&D and the DGS&D has not cared to protect its own interest, as also the interests of the bidders/registrants, its indentors and the public interest at large, while awarding the contract in question to respondent No.4.
79. The petitioner has relied upon various clauses of the General Financial Rules, 2005 to point out the glaring deviations in the conduct of the respondent authorities while awarding the contract to respondent No.4. No doubt, the General Financial Rules came into force in the year 2005, whereas the contract in question was awarded W.P.(C) No.6574/2007 Page 58 of 85 to respondent No.4 on 16.04.2004, when the General Financial Rules 2005 were not applicable. However, a perusal of the relevant rules relied upon by the petitioners would show that they merely incorporate basic principles of transparency, that ought to be maintained by public bodies while transacting business with the public at large. Even without the said rules being codified, the adherence to the general principles incorporated in these Rules, with a view to maintain transparency in the undertaking of financial transactions by the Stae and its instrumentalities have to be maintained while distributing State largesse in larger public interest. It is clear to us that the respondent DGS&D failed to maintain any level of transparency in the award of the contract to respondent No.4. Its decision to award the contract to respondent No.4 is mired in secrecy, and the entire process was such that no prudent person with average business and commonsense can justify.
80. The conduct of the respondent DGS&D appears to be even more suspect, considering the fact that it is a central purchase organization of the Government of India, and claims itself to be a procurement specialist. DGS&D is the business arm of the Government of India. One would, therefore, expect the DGS&D to drive a hard bargain in public interest. However, in the present case, it has acted contrary to its own purchase manual. The explanation given by the DGS&D to disregard its own purchase manual, by claiming that the said manual is required to be followed when it makes purchases W.P.(C) No.6574/2007 Page 59 of 85 under rate contracts and not otherwise, cannot be appreciated. Whether the purchase by the respondent DGS&D is under a rate contract or otherwise, the basic requirement of maintenance of transparency, and the preservation of public interest by inculcating fair and healthy competition are under lying principles which have to be adhered to. As noticed hereinabove, Clause 8.1 of the DGS&D manual deals with the method of produce by DGS&D of articles and commodities. The same can be done by invitation of tenders by: (a) advertisement; (b) limited tender; and (c) single tender. As a general rule, invitation to tender by advertisement has to be followed in all cases. If this is to be dispensed with, the competent authority should record its reasons, and even in those cases other recognized mode of purchase have to be followed, as may be warranted by the circumstances of the case. Where the estimated value of payment is Rs.2 Lacs and above, as a general rule, Advertisement Tender Inquiry (ATI) has to be followed. A limited tender inquiry can be adopted only where the estimated value of the order is less than Rs.2 Lacs. Where the estimated value is more than Rs.2 Lacs, limited tender inquiry method may also be adopted when sufficient reasons exist which indicate that it is not in public interest to call for tenders by advertisement. Reasons must be recorded in such a situation. The limited tender inquiry can be adopted where the demand is urgent or the source of supply are definitely known and possibility of fresh source beyond those being tapped is remote. In the present case, it is W.P.(C) No.6574/2007 Page 60 of 85 not the stance of the respondent DGS&D that there existed any reasons to say that in public interest tenders could not have been invited by advertisements. It is also not the case of the respondents that the demand was so urgent that the open competition method by inviting tenders could not have been adopted. Pertinently, limited tender inquiry method can be adopted where the source of suppliers is definitely known. The sequitor is, that where the source of suppliers is not known, as is admittedly claimed by the respondent DGS&D in the present case, a limited tender inquiry should not be followed and it is only logical that in such a situation wide publicity should be given while inviting the tenders. Admittedly, that was not done. Consequently, DGS&D has acted in defiance of basic common and business sense, which is reflected in Clause 8.1 of its own manual.
81. The DGS&D has also turned a blind to the fact that there was a complete lack of competition since respondent No.4 was the only player left in the field by the time its so called commercial bid was opened. In such a situation, the DGS&D ought to have undertaken a fresh process so as to inculcate competition from other suppliers and vendors. Pertinently, it is not that the respondent No.4 was the only entity dealing in the business of developing and offering E-tendering Software Solutions. Even according to the respondents, it had gathered names of 87 entities who were operating in the field of e- tendering solution. From the tabulation produced by the petitioner it is seen that the Government of Andhra Pradesh, PWD, Chattisgarh, W.P.(C) No.6574/2007 Page 61 of 85 Northern Railway and possibly few others had already awarded contracts for e-tendering solution prior to the award of the contract in favour of the respondent No.4 by DGS&D. It, therefore, does not stand to reason as to why the respondent DGS&D acted in the manner that it did, while negotiating the award of contract in question. There is no explanation given by the respondent DGS&D as to why it failed to follow Office Order No.44/9/03 dated 04.09.2003 issued by the CVC which required that pre-qualification criteria, performance criteria and evaluation criteria should be incorporated in the bid documents in clear and unambiguous terms and that the two bid system i.e. the technical bid system and the price bid system should be followed. We, therefore, conclude that grant of the initial contract in favour of respondent No.4 by the respondent Nos.1 to 3 was illegal and arbitrary and lacked transparency. The same was discriminatory against all other eligible bidders including the petitioner and other eligible bidders were not given a fair opportunity to participate in the tender process undertaken by the respondent DGS&D. Since the initial grant of the contract in favour of respondent No.4 itself has been found to be illegal and arbitrary, it follows that the extension and amendment of the same by the respondent DGS&D cannot be sustained.
82. We now proceed to consider the aspect of extension and amendment of the contract stated to have been undertaken on 22.05.2007.
W.P.(C) No.6574/2007 Page 62 of 85
83. The extension and amendment of the contact with respondent No.4 appears to be just as arbitrary and illegal as its initial grant. The scope of the initial contract, as is evident from the RFP and the original contract dated 16.04.2004 was limited to providing e-tendering solution and services to enable DGS&D to procure supplies of various articles and commodities by it. Thus, the initial contract was one between the DGS&D, a service recipient and respondent No.4 a service provider. Services were agreed to be provided by respondent No.4 to the DGS&D to enable DGS&D to undertake its task of entering into rate contracts more efficiently and expeditiously. However, the amendment of the contract dated 22.05.2007 seeks to transform the original contract into one establishing what one may loosely call, a joint venture to scout for fresh business. Clause 4.1.1(i) of the amended contract has already been noticed by us. The other relevant clauses from the amended contract dated 22.05.2007 may be extracted which clearly demonstrate the aforesaid position.
"4.1.1(v) e-Procurement platform would permit finalization and award of tender/contract. The hardware, system software, personnel etc. required in Govt. organization will be provided by the respective Govt. organizations as jointly decided by DGS&D and C1 India with them.
xx xx xx xx xx xx xx xx
(viii) C1 India shall position and/or depute its dedicated project manager on behalf of DGS&D at the e-Procurement cell to be created at the Government Organization as and when required for the purpose of operationalizing e-
Procurement module.
W.P.(C) No.6574/2007 Page 63 of 85
(ix) C1 India will keep the Source Code of its customized e-tendering Software in an Escrow Account. The terms and conditions relating to operation of Escrow Account shall be as per a separate Escrow Agreement, which shall be signed between DGS&D and C1 India.
xx xx xx xx xx xx xx xx
(xii) C1 India will ensure that the Uptime remains within the agreed value of 98% on an annual basis to the Government Organization except during the period between 8.00 P.M and 8.00 A.M, on all government holidays, scheduled down times and during Force Majeure conditions. During the period between 8.00 P.M and 8.00 A.M and all government holidays, C1 India will ensure system uptime of 90% on an annual basis. In the event of any shortfall in the above-mentioned Uptime calculated on an annual basis and any recovery being effected by the government Organizations on that account, the same shall be compensated by C1 India to DGS&D. However, the liability of C1 India in this regard shall be limited to 10% of DGS&D revenue from that Government Organization.
(xiii) For extending e-platform to government Organizations, the Business Model with regard to charging of registration/subscription fee from the vendors wil be the same as DGS&D e-
tendering Business Model i.e. the vendors quoting against the tenders issued by the Government Organizations shall pay an annual registration/subscription fee (Rs.6,000/-
excluding service tax and other statutory taxes/levies) to C1 India for participation in the e-Procurement platform. However, in case any vendor is already registered on DGS&D e-
Procurement platform for DGS&D empanelment, then that vendor will be treated as deemed registered provided the vendor‟s user-id and digital certificate is the same and its registration is valid. Applicable taxes and levies on the services rendered will be extra as applicable.
W.P.(C) No.6574/2007 Page 64 of 85
xx xx xx xx xx xx xx xx"
84. Thus, while entering into the amended contract, the roles of both the DGS&D and respondent No.4 got transformed. Under the amended agreement DGS&D evinced its intention and plans to offer its e-procurement platform to other government organizations involved in procurement activities, publication of tender notice etc. along with the E-tendering Software Solution of respondent no.4, and respondent No.4 agreed to extend its full support both with regard to customization of software, development of full functionality of e- procurement and e-tendering beginning from publication of tender notice till award of contract. Therefore, by the amended contract the roles of DGS&D and respondent No.4 changed from one of service recipient and service provider, respectively, to joint venture partners. A deeper scrutiny of the said amended agreement shows that the real beneficiary of the whole transaction is respondent No.4, inasmuch as, the DGS&D agreed to receive a paltry amount of Rs.25,000/- for each contract secured by it while respondent No.4 became entitled to pocket registration charges of Rs.6,000/- per registrant per annum, in respect of such government organization, who accepts the services offered by DGS&D under its own banner. Therefore, while the risks and third party claims associated and arising out of the contract with other government organizations would be shouldered by DGS&D, the lion‟s share of the revenue would be pocketed by respondent No.4. W.P.(C) No.6574/2007 Page 65 of 85
85. We find merit in the submission of Mr. Singh, learned Senior counsel for the petitioner, that it is not the function of the DGS&D to itself enter into commercial contracts for the purpose of marketing its products. In fact, the e-tendering solution being provided by respondent No.4 is not even a product of DGS&D. The DGS&D has no ownership in the e-tendering solution developed by respondent No.4 & DGS&D is merely a service recipient being provided by respondent No.4. To market its services to other government organizations, Respondent No.4 is seeking to piggy back on DGS&D by using the name and stature of DGS&D, and the privileges that it enjoys being a limb of the government by exploiting the fact that under the National e-Governance Plan, e-tendering is one of the mission mode projects. It is clear to us that the effect of the amendment of the contract between DGS&D and respondent No.4 is to change the very basis and fundamental character of the original contract which was a contract to procure e-tendering solution services for the DGS&D into one which is akin to a collaboration agreement between the DGS&D and respondent No.4 to offer the services of respondent No.4 to other government organizations. In our view, merely because respondent No.4 is the ASP qua the DGS&D, that cannot provide the justification for the respondent DGS&D to fundamentally amend its contract with respondent No.4 and transform it into a entirely different contract for a different purpose, and with different objectives. There are various other service providers in the field who are offering similar e-tendering W.P.(C) No.6574/2007 Page 66 of 85 software solution system in the country, the petitioner being one of them. Pertinently, even according to the amendment, the ASP i.e. respondent No.4 would have to customize the software for the government agency, who may agree to avail of the services offered by Respondent No.4 in collaboration with DGS&D. Consequently, any other service provider who is offering similar e-tendering system services in the country could well have fit the bill, and it is not as if the respondent No.4 alone is in a position to offer its services along with DGS&D to other government agencies for e-tendering solution. The amendment in the contract, therefore, clearly seeks to exclude all other similar e-tendering solution providers from offering their services under the overall umbrella of DGS&D to other government agencies. DGS&D has, therefore, denied a level playing field to all other competitors of Respondent No.4, which clearly demonstrates the fact that the respondent No.4 enjoys special preference with DGS&D. Even if it were to be granted that the DGS&D could have adopted the avtar of a consultant and service provider as it has ventured to do, in our view, before entering into the amendment dated 22.05.2007, it was incumbent for the DGS&D to comply with all the provisions of the GFR 2005, which admittedly, were applicable at the relevant time. In the garb of an amendment to the original contract what has been entered into is a totally new and a different contract, for a different purpose and a different objective. The same could not have been done without going through the transparent process of inviting tenders specifically W.P.(C) No.6574/2007 Page 67 of 85 for the purpose of marketing the e-software solution system of the ASP in collaboration with the DGS&D to the other government organizations and agencies.
86. The reliance placed by the respondents on the Office Memorandum dated 10.01.2007 issued by the Ministry of Finance, Department of Expenditure, on the subject of "Mandatory e- procurement" to justify the amendment in the contract with respondent No.4 also appears to be totally misplaced. The interpretation sought to be given to the said office memorandum by the DGS&D cannot be accepted. It is clear from the said office memorandum that only in respect of goods covered under rate contracts concluded by the DGS&D it is mandated that ministries should commence placing orders through the website of DGS&D. However, in respect of other goods, and procurement of works and services not covered by the DGS&D rate contracts, the ministries/department are mandated to make their own arrangements for switching over to mandatory e-procurement w.e.f. 01.04.2007. Pertinently, this office memorandum also provides that "the common regulatory framework with decentralized procurement as provided by General Financial Rules, 2005, has to be maintained." "Ministries and departments with sufficiently large procurements can develop and procure and customize their own platforms for e-procurements which should confirm to the requirements spelt out in the Detailed Project Design Guideline". Consequently, the office memorandum dated W.P.(C) No.6574/2007 Page 68 of 85 10.01.2007 by itself does not mandate the DGS&D to start offering the e-tendering solution developed by respondent No.4 to other government agencies, neither does it mandate other government agencies to accept the e-tendering solution adopted by DGS&D, much less on the same terms and conditions on which the DGS&D agreed to accept the services from the ASP.
87. We do not agree with the submission of the respondents that the scope of the contract as initially awarded to respondent no.4 was wide enough to include the offering of its software and services for E- tendering solutions to other government/semi-government organizations and that the amendment is only clarificatory. Reliance placed on clause 1.1.2 of the "Requirements" under the heading "Specifications & Technical Requirements" of the original contract which states that the software "should support multiple agencies i.e multiple purchasing organizations/Directorates/units with separate workflows and administration modules which should be configurable", projects organization in our view is of no avail. Similarly reliance placed on clause 1.1.1 of the "Terms & Conditions" of the contract, which records the fact that respondent no.3 DGS&D is the exclusive agency charged with the responsibility of providing procurement and inspection support to Central Government departments and their attached and subordinate offices, Union Territories, State Governments, Public Undertakings and other Autonomous Bodies and W.P.(C) No.6574/2007 Page 69 of 85 Quasi Public Bodies who desire to avail of these services, is also of no avail.
88. A perusal of the DGS&D Manual, and in particular clause 1.2 shows that the procurements against ad hoc indents was transferred from the DGS&D to the indenting ministries/departments and procurement of common user items on rate contract basis continue to be done by the DGS&D. This has been the position since the implementation of the decentralisation policy. The stand of the respondent DGS&D on record is that the original contract entered into with respondent no.4 was an ad hoc contract. Ad hoc purchases are for procurement of items not covered by rate contract which includes procurement of goods, works and services. Rate contract purchases on the other hand, are for procurement of common user items. Consequently DGS&D is only authorised to carry out procurement on rate contract basis of common user items on fixed price, for a specified period of time. Other government agencies place indents either directly or through the DGS&D on the registered rate contractors/ suppliers when they wish to purchase rate contracted items.
89. When admittedly, the contract in question was the result of an ad hoc tender, and not the result of a rate contract, we fail to understand how the contract between the DGS&D and respondent no.4 could be converted into, and treated like a rate contract enabling other government organisations to place orders on DGS&D and respondent W.P.(C) No.6574/2007 Page 70 of 85 no.4 directly, on the terms and conditions on which DGS&D had chosen to enter into the contract with respondent no.4 The aforesaid submissions of the respondents cannot be accepted also for the reason that a perusal of the original contract show that the same was aimed "to set up an electronic tendering portal where it intends to publish its tenders and invite suppliers to participate in the tenders by submitting their bids electronically online."
90. Clause 1.1.1 of the "Terms & Conditions" relied upon by respondent no.4 merely gives the background of DGS&D under the heading "Introduction". A perusal of Clause 1.1.2 of the "Requirements" under the heading "Specifications and Technical Requirements" shows that the contract talks only of DGS&D and no other organisation. Even the "Scope of Work" defined in clause 4.0 of the "Terms & Conditions" of the contract shows that the ASP was obliged to "procure, design, customize and implement the E-tender solution as per the requirements of the DGS&D". This shows that the contract did not envisage the provision of the aforesaid services as per the requirements of any other organisation. The "Specifications and Technical Requirements" no doubt state at serial no.1.1.2 and 1.1.3 that the "e-tender application should support multiple agencies i.e multiple purchasing organizations/Directorates/units with separate work flows and administration modules which should be configurable"
and that "The solution should support section wise/date wise/office wise/organization wise reporting Structure", but the aforesaid W.P.(C) No.6574/2007 Page 71 of 85 prescription in the "Specifications and Technical Requirements"
cannot mean that the parties, namely, respondent no.3 and 4 had contracted to act as collaborators to offer the E-tendering services and solutions to third parties. Undeniably DGS&D has its headquarters at New Delhi and regional offices in Kolkatta, Mumbai and Chennai. The purpose of laying down "Specifications and Technical Requirements"
above referred to merely enabled the use of the E-tendering software solution in different offices of the DGS&D. Such an important facet of an agreement, which transforms the original agreement from one providing for rendering of services by one party to the other, into one of a joint collaboration to offer services to outsiders cannot be culled out merely by reference to the specifications and technical requirements. Had that been the intention as argued by the respondents, the terms and conditions sought to be incorporated through wholesale amendment running into 27 pages, would have been incorporated in the original agreement itself. The original agreement does not contain any term to define the inter se rights and obligations of the DGS&D and respondent no.4 in case the E-tendering solution services are jointly offered by respondent nos. 3 and 4 to third parties. They have been sought to be incorporated only by resort to an amendment to the original contract. The scope of the initial contract is " as defined in the RFP (Annexure `A‟)", (clause 7 of the Original Contract dated 16.4.2003) Clause 2.1 of the RFP states that the objective of DGS&D E-tendering initiative is "to streamline and W.P.(C) No.6574/2007 Page 72 of 85 automate its tendering process........". In order to achieve the objective, DGS&D desires to utilize new technologies and applications to create the suitable E-tender solution that meets their requirements".
"DGS&D intends to implement a E-tender solution, which can be utlised by its zonal offices across India." The scope of work defined in the RFP in clause 4 also talks about the procurement, design, customization and implementation of E-tender solution "as per the requirement of the DGS&D."
91. The "Pricing and Payments" under the original contract were prescribed in Annexure-B to the contract. This Annexure only talks about the payment of Rs.6,000/- towards provision of the services enumerated viz:
Sl. Service Covered Annual Fees
No. (INR)
1 Annual Supplier Registration Fees Rs.6000
which gives access to edit its profile
2 Downloading of tender document
3 Alerts of tender notification by
emails and SMS
4 Training for suppliers along with
training kits
5 Access to Help desk
6 Bid submission, counter offer and
revised offer
7 Bid opening
8 Pre-bid meeting
92. We are therefore of the view that the scope of the original contract was limited only to the provision of E-tender solution and W.P.(C) No.6574/2007 Page 73 of 85 services to the DGS&D alone and not to any third party. We also find the conduct of the respondent DGS&D rather curious in entering into a memorandum of understanding on 12.7.2007 with M/s Balmer Lawrie & Co. Ltd. This MOU is stated to be valid for a period of five years from the date of signing thereof. Pertinently, respondent no.4 is only in the background in the framework of this MOU. It is the DGS&D, which is in the forefront. DGS&D has undertaken various obligations under the MOU under clause 5, which read as follows:-
"OBLIGATIONS OF DGS&D:
5.1 DGS&D shall position and/or depute purchase, Quality Assurance and other Officials/Experts/Consultants to 3-Procurement cell as and when required for the purpose of operationalising e-Procurement module. 5.2 DGS&D and their offices shall provide necessary inputs in e-procurement activity.
DGS&D shall also provide such additional information and clarifications as may be required by The First Party in this respect.
5.3 Training by DGS&D will be provided free of cost to identified officials of the First Party and by Application Service Provider to all the suppliers who are registered with the Application Service Provider of DGS&D. 5.4 A separate sub-domain to the main domain name www.govtprocurement.com shall be created for the First Party‟s e-tendering home page. DGS&D shall also provide a hyperlink of the same on DGS&D home page."
93. The DGS&D has undertaken to perform the aforesaid obligations on the strength of its amended contract with respondent W.P.(C) No.6574/2007 Page 74 of 85 no.4. However the said contract itself would, in any event, have expired in the year 2010. In this view of the matter, one fails to understand how the DGS&D could have made a commitment for a period of five years to M/s Balmer Lawrie when, in any event, there could have been no certainty about the continuation of the contract, as amended, between DGS&D and respondent no.4 after 2010.
94. In Food Corporation of India v. M/s. Kamadhenu Cattle Feed Industries , AIR 1993 SC 1601, the Supreme Court observed as follows:-
"7. In contractual sphere as in all other State actions, the State and all its instrumentalities have to conform to Article 14 of the Constitution of which non-arbitrariness is a significant facet. There is no unfettered discretion in public law : A public authority possesses powers only to use them for public good. This impose the duty to act fairly and to adopt a procedure which is 'fairplay in action'. Due observance of this obligation as a part of good administration raises a reasonable or legitimate expectation in every citizen to be treated fairly in his interaction with the State and its instrumentalities, with this element forming a necessary component of the decision making process in all State actions. To satisfy this requirement of non-arbitrariness in a State action, it is, therefore, necessary to consider and give due weight to the reasonable or legitimate expectations of the persons likely to be affected by the decision or else that unfairness in the exercise of the power may amount to an abuse or excess of power apart from affecting the bona fides of the decision in a given case. The decision so made would be exposed to challenge on the ground of arbitrariness. Rule of law does not completely eliminate discretion in the exercise of power, W.P.(C) No.6574/2007 Page 75 of 85 as it is unrealistic, but provides for control of its exercise by judicial review.
8. 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."
95. In our view there is clear breach of duty cast upon the respondent authority to act fairly and to adopt a procedure which would display "fair play in action". The legitimate expectation of the petitioner and other eligible service providers to be considered and equally treated in the grant of State Largesse has been dashed on account of the arbitrary and unreasonable action of the respondent authorities.
W.P.(C) No.6574/2007 Page 76 of 85
96. In Air India Ltd. vs. Cochin International Airport Ltd., 2000(2) SCC 617, the Supreme Court summarized the scope of interference as enunciated in several earlier decisions thus:
"8..............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 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 W.P.(C) No.6574/2007 Page 77 of 85 public interest requires interference, the court should intervene." (emphasis supplied)
97. In Nagar Nigam Vs. Al FAheem Meat Exports (P) Ltd. (2006) 13 SCC 382 the Supreme Court was considering the challenge to an advertisement issued by the appellant notifying applications for granting a fresh contract for running the slaughter house, the High Court had allowed the writ petition filed by the respondent directing that the respondent no. 1 would be allowed to run the slaughter house for ten years on the terms and conditions stipulated by the Court. While allowing the appeal on the ground that the High Court had exceeded its jurisdiction in thrusting upon the Nagar Nigam a contract, the terms whereof were devised by the High Court, the Supreme Court reiterated the principles evolved by it with regard to the judicial review of grant of contracts by the government. In paragraphs 12 to 16 and 18, the Supreme Court observed as follows:
"12. In this case, however, we are concerned with a different question. It is now a well- settled principle of law that having regard to the provisions of Article 14 of the Constitution of India, a State within the meaning of Article 12 thereof cannot distribute its largesse at its own sweet will, vide Ramana Dayaram Shetty v. International Airport Authority of India (1979) 3 SCC 489. The court can ensure that the statutory functions are not carried out at the whims and caprices of the officers of the Government/local body in an arbitrary manner.
But the court cannot itself takeover these functions.
13. This Court time and again has emphasised the need to maintain transparency in grant of public contracts. Ordinarily, maintenance of transparency as also compliance with Article 14 of the Constitution would inter alia be ensured W.P.(C) No.6574/2007 Page 78 of 85 by holding public auction upon issuance of advertisement in the well-known newspapers.
That has not been done in this case. Although the Nagar Nigam had advertised the contract, the High Court has directed that it should be given for 10 years to a particular party (Respondent 1). This was clearly illegal.
14. It is well settled that ordinarily the State or its instrumentalities should not give contracts by private negotiation but by open public auction/ tender after wide publicity. In this case the contract has not only been given by way of private negotiation, but the negotiation has been carried out by the High Court itself, which is impermissible.
15. We have no doubt that in rare and exceptional cases, having regard to the nature of the trade or largesse or for some other good reason, a contract may have to be granted by private negotiation, but normally that should not be done as it shakes the public confidence.
16. The law is well settled that contracts by the State, its corporations, instrumentalities and agencies must be normally granted through public auction/public tender by inviting tenders from eligible persons and the notification of the public auction or inviting tenders should be advertised in well-known dailies having wide circulation in the locality with all relevant details such as date, time and place of auction, subject-matter of auction, technical specifications, estimated cost, earnest money deposit, etc. The award of government contracts through public auction/public tender is to ensure transparency in the public procurement, to maximise economy and efficiency in government procurement, to promote healthy competition among the tenderers, to provide for fair and equitable treatment of all tenderers, and to eliminate irregularities, interference and corrupt practices by the authorities concerned. This is required by Article 14 of the Constitution. However, in rare and exceptional cases, for instance during natural calamities and emergencies declared by the Government;
where the procurement is possible from a single source only; where the supplier or contractor has exclusive rights in respect of the goods or services and no reasonable W.P.(C) No.6574/2007 Page 79 of 85 alternative or substitute exists; where the auction was held on several dates but there were no bidders or the bids offered were too low, etc., this normal rule may be departed from and such contracts may be awarded through "private negotiations". (See Ram and Shyam Co. v. State of Haryana (1985) 3 SCC
267.) XXXXXXXXXXXXXXXXXXXXX
18. The law is, thus, clear that ordinarily all contracts by the Government or by an instrumentality of the State should be granted only by public auction or by inviting tenders, after advertising the same in well-known newspapers having wide circulation, so that all eligible persons will have an opportunity to bid in the bid (sic auction), and there is total transparency. In our opinion this is an essential requirement in a democracy, where the people are supreme, and all official acts must be actuated by the public interest, and should inspire public confidence."
98. In Dinesh Engineering Corporation (supra), the Indian Railways sought to deny the award of the contract for purchase of certain spare parts to the respondent bidder on the ground that the Railway Board had reviewed its policy decision to purchase DG-EDC Governor spares in the context of sophistication, complexity and high degree of precision associated with governors. The decision was challenged before the High Court successfully. While dismissing the appeal preferred by the Union of India, the Supreme Court observed:-
"12............ This policy proceeds on the hypothesis that there is no other supplier in the country who is competent enough to supply the spares required for the governors used by the Indian Railways without taking into consideration the fact that the writ petitioner W.P.(C) No.6574/2007 Page 80 of 85 has been supplying these spare parts for the last over 17 years to various Divisions of the Indian Railways which fact has been established by the writ petitioner from the material produced both before the High Court and this Court and which fact has been accepted by the High Court. This clearly establishes the fact that the decision of the Board as found in the letter dated 23.10.1992 suffers from the vice of non-application of mind................ There is no doubt that this Court has held in more than one case that where the decision of the authority is in regard to a policy matter, this Court will not ordinarily interfere since these policy matters are taken based on expert knowledge of the persons concerned and courts are normally not equipped to question the correctness of a policy decision. But then this does not mean that the courts have to abdicate their right to scrutinise whether the policy in question is formulated keeping in mind all the relevant facts and the said policy can be held to be beyond the pale of discrimination or unreasonableness, bearing in mind the material on record. It is with this limited object if we scrutinise the policy reflected in the letter dated 23.10.1992, it is seen that the Railways took the decision to create a monopoly on proprietary basis on EDC on the ground that the spares required by it for replacement in the governors used by the Railways required a high degree of sophistication, complexity and precision, and in the background of the fact that there was no party other then EDC which could supply such spares. There can be no doubt that an equipment of the nature of a spare part of a governor which is used to control the speed in a diesel locomotive should be a quantity which can adhere to the strict scrutiny/standards of the Railways, but then the pertinent question is : has the Board taken into consideration the availability or non- availability of such characteristics in the spare parts supplied by the writ petitioner or, for that matter, was the Board alive to the fact that like EDC the writ petitioner was also supplying the spare parts as the replacement parts for the W.P.(C) No.6574/2007 Page 81 of 85 GE governors for the last over 17 years to the various Divisions of the Railways. A perusal of the letter dated 23.10.1992 does not show that the Board was either aware of the existence of the writ petitioner or its capacity or otherwise to supply the spare parts required by the Railways for replacement in the governors used by it, an ignorance which is fatal to its policy decision. Any decision be it a simple administrative decision or a policy decision, if taken without considering the relevant facts, can only be termed as an arbitrary decision. If it is so then be it a policy decision or otherwise, it will be violative of the mandate of Article 14 of the Constitution."
99. It further held in para 16 as follows:-
"16. But then as has been held by this Court in the very same judgment that a public authority even in contractual matters should not have unfettered discretion and in contracts having commercial element even though some extra discretion is to be conceded in such authorities, they are bound to follow the norms recognised by courts while dealing with public property. This requirement is necessary to avoid unreasonable and arbitrary decisions being taken by public authorities whose actions are amenable to judicial review. Therefore, merely because the authority has certain elbow room available for use of discretion in accepting offer in contracts, the same will have to be done within the four corners of the requirements of law especially Article 14 of the Constitution. In the instant case, we have noticed that apart from rejecting the offer of the writ petitioner arbitrarily, the writ petitioner has now been virtually debarred from competing with the EDC in the supply of spare parts to be used in the governors by the Railways, ever since the year 1992, and during all this while we are told the Railways are making purchase without any tender on a proprietary basis only from the EdC which, in our opinion, is in flagrant violation of the constitutional mandate of Article 14. We W.P.(C) No.6574/2007 Page 82 of 85 are also of the opinion that the so-called policy of the Board creating monopoly of EDC suffers from the vice of non-application of mind. hence, it has to be quashed as has been done by the High Court."
100. We also fail to appreciate the submission of the respondent, DGS&D that since respondent no.4 has taken a great deal of time in developing the E-tendering solution for it, it is not possible to change the ASP from respondent no.4 to any other entity. If this argument of DGS&D were to be accepted, then it would mean that respondent no4. should be continued in perpetuity as the ASP for DGS&D. We find the aforesaid submission of DGS&D to be totally absurd and we reject the same. There cannot be a policy decision in the name of sophistication or precision to create a monopoly in favour of one entity to procure goods or services without an open tender.
101. Moreover, even if it were to be assumed that the DGS&D might be justified in seeking to continue with respondent no.4 as the ASP on a long term basis, that intention should have manifested itself in the original NIT which admittedly is not the case. The tenure of the contract even according to the respondents (on the assumption that it was legally entered into, which is in fact not the case) is only five years at the most. The same cannot, in any event, be sought to be continued in perpetuity. As aforesaid, the said original contract was vitiated by illegality and arbitrariness.
W.P.(C) No.6574/2007 Page 83 of 85
102. In view of our aforesaid discussion, we allow the present writ petition and declare that the original contract dated 16.4.2004 entered into between respondents 1 to 3 and respondent no.4 arising out of tender No.3/(7/2001/E-tendering/17) was arbitrary and illegal. However, since the term of the initial contract expired on 31.03.2008 we are not quashing the same, as a transaction under the initial contract is already concluded. However, we quash the extension of, and amendment to the original contract dated 22.5.2007 as the same materially and illegally alters the terms and conditions and scope of the original contract, which itself was entered into irregularly. We restrain respondents 1 to 3 from jointly marketing with respondent no.4, the E-procurement solution to other government/semi- government bodies and agencies in terms of the amended contract dated 22.5.2007. We direct the respondent authorities to immediately undertake a fresh tender process for appointing an Application Service Provider for undertaking E-procurement activities by DGS&D on clearly stated terms and conditions and specifications, and by issuing a notice inviting tender which should be duly published. The fresh tender process should be completed within a period of four months from today and the contract should be awarded to the newly appointed ASP within this period. We further direct respondent nos. 1 to 3 to adhere to the General Financial Rules in the matter of award of a fresh contract for E- tendering solutions.
W.P.(C) No.6574/2007 Page 84 of 85
103. Considering the fact that respondent no.4 is presently providing its services as the ASP to the DGS&D, we permit the continuation of the said services by respondent no.4 for a period of four months, or till the new ASP is in a position to render its services, whichever is earlier.
104. The writ petition is accordingly allowed in the aforesaid terms with costs quantified at Rs. One lakh. 50% of the cost shall be borne by respondents 1 to 3 and the remaining 50% by respondent no.4.
(VIPIN SANGHI) JUDGE (A.K. SIKRI) JUDGE April 02, 2009 as/rsk/dp W.P.(C) No.6574/2007 Page 85 of 85