Karnataka High Court
M/S. Esteco Coal Services Limited vs The Karnataka Power Corporation ... on 30 July, 1996
Equivalent citations: AIR1997KANT220, AIR 1997 KARNATAKA 220
Author: P. Vishwanatha Shetty
Bench: P. Vishwanatha Shetty
ORDER
1. The petitioner, in this petition is a private limited company, registered under the provisions of the Companies Act, 1956, and having its registered office at Bombay. It is the case of the petitioner that it is the largest coal importers, suppliers and handling agents undertaking about 1.5 million tons of coal annually by road, rail and road-cum-sea route; and it is the pioneer in the movement of coastal coal from Paradip Port to Gujarat and other ports situated on the western coast of India on their own chartered vessels.
2. The 1st respondent is the Karnataka Power Corporation Limited (hereinafter referred to as the 'Corporation') which is an instrumentality of the State of Karnataka, and respondents 3 and 4 are the officials of the 1st respondent Corporation.
3. The petitioner in this petition has challenged the validity of sub-clauses (a) and (b) of clause 4 of the Tender Notification No. A1 M1 B3/II/RSR December, 1995, issued by the 1st respondent, pursuant to the invitation to Tender, issued by it by means of paper publication dated 24th December, 1995; and also has prayed for a direction to respondents 1 and 2 to cancel the said Tender Notification and invite fresh quotations by floating a separate tender without the conditions 4(a) and 4(b) set out in the Tender Notification referred to above, issued by it. The copy of the Tender Notification referred to above has been produced as Annexure-M to this petition.
4. The petitioner has sought for the reliefs, referred to above, in this petition mainly on two grounds : Firstly, on the ground that sub-clauses (a) and (b) of clause 4 of the Tender Notification Annexure-M, are illegal, arbitrary, highly unreasonable and violative of the right guaranteed to the petitioner under Article 14 of the Constitution of India. Secondly, the procedure followed in the matter of issuing Tender Notification Annexure-M, which ultimately resulted in submission of the tender by the 5th respondent for the purpose of movement of coal by rail-sea-rail route from Mahanadi.
Coal-fields Limited, Talchcr in Orissa to Raichur Thermal Power Station in Karnataka is vitiated on account of mala fides on the part of respondents 1 to 4. The petitioner has set out in detail the facts and sequence of events to substitute the contention regarding the mala fides alleged by it against the respondents.
5. The 1st and 5th respondents have filed their statements of objections and all the respondents resisted the claim made by the petitioner. It is asserted by the respondents that the clauses impugned, in this petition are valid and they do not violate the rights guaranteed to the petitioner under Art. 14 of the Constitution of India and there is also no truth or basis for the allegations of mala fides made against the respondents. According to the respondents, the petition is liable to be dismissed as one without any merit.
6. Before, 1 proceed to consider the contentions advanced by the learned counsel for the parties, it is necessary to refer to sub-clauses (a) and (b) of clause 4 of the Tender Notification/document, Annexure-M, which read thus:
"4. Minimum Qualifying Requirement.
Tenderer should have the following qualifying requirements:
a) minimum 5 years experience as handling agent in movement of coal to large thermal power stations. ,
b) should have supplied one lakh tonnes of coal per month to a thermal power station by the rail-sea-rail route."
7. Though elaborate arguments were addressed by the learned counsel for the petitioner Sri Udaya Holla in regard to the allegations of mala fides sought to be made out by the petitioner against respondents 1 to 4, which ultimately lead to submission of tender documents only by the 5th respondent, and the learned counsel for the respondents seriously refuted the allegations of mala fides made against the respondents and submitted to the Court that absolutely there is no basis or truth in the allegations of mala fides made against the respondents, I am of the opinion that it is unnecessary for me to consider the contention regarding the mala fides advanced by the learned counsel for the petitioner since at the conclusion of hearing of the petition, the learned counsel for the petitioner, on instructions from the petitioner, had fairly submitted that the petitioner would give up his challenge in respect of the work regarding the movement of coal by rail-sea-rail route from Mahanadi Coalfields Limited, Talcher in Orissa to the Raichur Thermal Power Station, in view of the memo filed by the respondents that the said work would be entrusted to the 5th respondent only for a period of one year, strictly in accordance with the terms of the Tender conditions; and the petitioner would be satisfied if this Court decides the validity of sub-clauses (a) and (b) of clause4 of the Tender Notification/document, Annexure-M. It is also relevant to point out that in view of the said submissions made by the learned counsel for the petitioner on the basis of the memo filed by the respondents, this Court vacated the interim order earlier granted on 8th April, 1996, and permitted the 1st respondent to finalise the contract with the 5th respondent strictly in terms of the decision of the Board dated 22nd January, 1996, and also in terms of the tender conditions. Therefore, the only question that would fall for my consideration would be with regard to the validity of sub-clauses (a) and (b) of clause 4 of the Tender Notification/ document Annexure-M, extracted above.
8. Sri Udaya Holla, learned counsel for the petitioner, challenged the validity of sub-clauses (a) and (b) of clause 4 of the Tender Notification/document, Annexure-M, on two grounds : First, on the ground that the stipulation in sub-clause (a) of clause 4 of the Tender Notification to the extent it insists that the handling agent should have 5 years experience in movement of coal to "large thermal power stations" and sub-clause (b) of clause 4 to the extent it insists that the handling agent should have supplied one lakh tonnes of coal per month to "a thermal power station by the rail-sea-rail route", are wholly illegal and liable to be struck down as being highly unreasonable, arbitrary and violative of the right guaranteed to the petitioners and others under Art. 14 of the Constitution of India, Elaborating this submission, Sri Holla submitted that sub-clause (a) of clause 4 to the extent it imposes a condition that the handling agent should have experience in movement of coal to large thermal power stations has absolutely no nexus with the object sought to be achieved. He submitted that while the minimum five years experience as an handling agent in movement of coal may be relevant and has nexus with the object sought to be achieved, the insistence that the handling agent should have the handling experience of "movement of coal to large thermal power stations" is totally irrelevant and has absolutely no nexus with the object sought to be achieved. According to the learned counsel, what is required to be satisfied by the 1st respondent in the matter of entrusting the work relating to the movement of coal from Mahanadi Coalfields Limited, Talcher in Orissa to Raichur Thermal Power Station, is the capacity of the handling agent to handle the work as an handling agent in the matter of movement of coal to the thermal power station at Raichur; and whether the handling agent, who offers to submit his tender documents to carry-out the work relating to the movement of coal, possesses the requisite experience and infrastructures in the matter of movement of coal from one place to another covering a long'distance; and whether it is for the thermal power station or any other station or a industrial unit or place of work, it is totally extraneous and irrelevant to determine the competency and capability of the handling agent. Therefore, according to the learned counsel, the condition which provides "to large thermal power stations" requires to be struck down as illegal and void in law. Sri Holla further submitted that while the insist-
ence that the handling agent should have supplied one lakh tonnes of coal per month may be reasonable and justifiable, the insistence that the handling agent should have such an experience of supplying one lakh tonnes of coal per month to "a thermal power station by rail-sea-rail route" is totally illegal and violative of the right guaranteed to the petitioner and others under Art. 14 of the Constitution of India. He submitted that the insistence that the handling agent should have the experience of supplying one lakh tonnes of coal to a thermal power station by rail-sca-rail route has absolutely no nexus with the object sought to be achieved. He further submitted that what is required is that one should have the experience of handling huge quantity of coal and whether it is to a thermal power station or some other industrial unit to whom the supply is made, does not make any difference; and having regard to the nature of the work involved and also having regard to the route in question, it may be reasonable to expect the handling agent to possess experience in movement of coal either by rail-sea or sea-rail route, but there cannot be any justification to insist that one should have the experience of movement of coal through rail-sea-rail route only; and the agent who has experience of movement of coal either through the rail-sea or sea-rail route, would be able to move or transport the coal through rail-sea-rail route; and therefore, the stipulation contained in sub-clause (b) of clause 4 of the Tender Notification/document that one should have the experience of movement of coal through rail-sea-rail route, is illegal.
9. In this connection, the learned counsel for the petitioner brought to my notice the scope of the work provided under clause 3 of the Tender Notification/document, An-nexure-M, which reads thus :
"Scope of Work :
3. RTPS has four units of 210 MW. The Linkage Committee have allotted one lakh tonnes of coal per month at present for moving coal from MCL, Talcher coal fields to RTPS by Rail-Sea-Rail route.
The main scope of the work comprises as follows :
a) Follow up with various agencies viz., Coal Controller, Railways and coal fields of all works relating to execution of linkage by the respective collieries through Paradip Port.
b) Monitoring loading of coal at the pitheads (Talcher).
c) Monitoring movement to Paradip Port by Rail.
d) Payment to coal companies, Railways, Ships, Port authorities are paid under prepaid system.
e) Monitoring arrival of wagons at Paradip Port.
f) Unloading of coal from wagons at the , Paradip Port.
g) To arrange ship, loading into ship, movement to Madras Port, and unloading and stocking at Madras Port.
h) Loading into wagons at Madras Port and book the same to RTPS and to pay freight on pre-paid system.
i) Payments are made by the tenderers to the Coal Companies directly for the coai supplies."
Relying upon the scope of work extracted above, Sri Holla submitted that the stipulations provided under sub-clause (a) and (b) of clause 4 of the Tender Notification/document, Annexure-M, are incorporated not in the interest of work and also not in the public interest, but they have been incorporated only with a view to exclude all other contractors or handling agents, including the petitioner, from submitting their tender document and competing with the 5th respondent. In this connection, the learned counsel for the petitioner submitted that in the Tender Notification issued in the month of August, 1995, the conditions similar to the conditions impugned in this petition were incorporated and on the representation made by the petitioner, the respondents by means of a corrigendum dated 18th October, 1995, the copy of which has been produced as An-nexure-E to the petition, modified the condition that the tenderer should have the . experience of supplying the coal to a thermal power station etc. and therefore, the 1st respondent having been satisfied that it is not necessary to insist on the conditions impugned in this petition at one stage, has seriously erred in law again introducing the same conditions while issuing the Tender Notification, Annexure-M.
10. In support of his contentions, Sri Holla relied upon the decisions of the Supreme Court in the case of Ramanna_ Dayaram Shetty v. The International Airport Authority of India ; Sterling Computers Ltd. v. M/s. M & N Publications Ltd. ; Ajay Hasia v. Khalid Mujib Sehravardi ; Union of India Hindustan Development Corporation re-
ported in . He also relied upon the decisions in the case of Mahendra Labs Pvt. Ltd. v. State of Karnataka ; M/s. Dhar Cement Ltd. v. State of M.P. through Secretary, Ministry of Irrigation, Government of M.P., Bhopal ;
Union of India v. Rizwan International
; and
Electronic Enterprises v. Karnataka Power
Corporation Ltd. reported in 1LR 1994 Kant
125.
11. Sri Udaya Shankar, learned Additional Government Advocate appearing for the 2nd respondent, Sri K. G. Raghavan, learned counsel appearing for respondents 1, 3 and 4, Sri K. Balakrishna, learned counsel appearing for the 5th respondent, submitted that the conditions imposed in the tender document are valid, legal and not liable to be struck down by this Court on the grounds urged by the learned counsel for the petitioner. They submitted that the clauses impugned have been incorporated in the Tender Notification/document prescribing the eligibility for an handling agent to submit his tender in the interest of work to be executed and in public interest.
12. Sri Raghavan, learned counsel, submitted that admittedly the work in question relates to movement of coal from Mahanadi Coalfields Limited, Talcher at Orissa to Raichur Thermal Power Station, covering a long distance by rail-sea-rail route, and under these circumstances, the 1st respondent in the interest of prompt execution of the work and public interest and also having regard to the fact that there is a severe shortage of power in the State of Karnataka and any dislocation in the movement of coal and collection of coal would result in dislocation of work at the Raichur Thermal Power Station, imposed the conditions providing that the handling agent should have the experience of movement of coal to large thermal power stations and he also should have the experience in the movement of coal to large thermal power stations through rail-sea-rail route. According to the learned counsel, such a stipulation cannot he termed as either arbitrary or unreasonable or violative of the rights guaranteed to the petitioner or any other persons, under Art. 14 of the Constitution of India. He further submitted that though the 1st respondent is the instrumentality of the State, just like any other person who is interested in getting his work executed by the handling agent without any default, it has in its discretion, in the interest of the work and the interest of the general public, had incorporated the conditions impugned in the Tender Notification/document, Annexure-M, and it is not permissible for the petitioner to challenge the validity of the same before this Court; and it is also not permissible for this Court to strike down the said conditions on the ground that they are violative of the rights guaranteed to the petitioner under Art. 14 of the Constitution of India. According to the learned counsel, incorporation of the conditions in question is a matter of policy decision taken by the 1st respondent and this Court in exercise of its powers under Art. 226 of the Constitution cannot go into the validity of the policy decision of the 1st respondent, merely because this Court can take a different view from the one taken by the 1st respondent. The learned counsel further submitted that the State of Karnataka being severely power deficit State, and of the 3580 MW installed capacity, 77% is in the Hydel and only 23% is Thermal, and the only thermal power station in the State of Karnataka is the 840 MW capacity thermal power station located at Raichur known as Raichur Thermal Power Station (RTPS); and having regard to the failure of rains and consequent reduction in the reservoir levels at the hydel projects, the only option for the State is to maximise the generation of power through Raichur Thermal Power Station and the major raw-material required for generating power in the Thermal Power Station is coal, and to operate four units of Raichur Thermal Power Station with Plant load factor of 80% per day, 14,000 Metric Tonnes of coal per day is required; and under these circumstances, the 1st respondent wanted to ensure prompt and efficient work by the handling agent to be appointed for the purpose of transport of coal from Mahanadi Coalfields Limited, Talcher in Orissa to the Raichur Thermal Power Station; and therefore, the impugned conditions have been provided in the Tender Notification/document prescribing the eligibility. He also drew my attention to paragraphs 45, 46 and 47 of the Statement of Objections, wherein the 1st respondent had justified the incorporation of the impugned conditions. It is useful to extract the relevant portion of the Statement of Objections set out in paragraphs 45, 46 and 47, which read as follows :
"45. The task of moving coal over a distance of nearly 1900 kms. from Talcher to Raichur is extremely complicated and logistically intricate. Resides liaisoning with various organisations such as the ports and railways, there is an added problem of moving substantially large quantities of coal each month for specific use in a Thermal Power Station. This task requires that the agency selected possess dedicated infrastructure in the form of mechanical equipment, loaders, dumpers, reclaimers, bull-dozers for purposes of loading and unloading coal to railway wagons and stacking at ports. The large quantities of coal to be so mobilised and moved is a unique feature of supply to a power plant. This is not the case for other industrial applications such as cement and paper, where the volumes handled are significantly less. The monthly quantity of 1 lakh tonnes of coal from Talcher to Raichur is the equivalent of nearly 2000 railway wagons. A ship can berth between 10000 to 35000 tons of coal. It is submitted that these orders of magnitude warrant the Corporation to impose the original condition of moving coal to large Thermal Power Stations. In fact, the 1st respondent's apprehension was that by modifying the conditions in the first tender, a sense of complacence gripped the agencies who had quoted, leading to the price war, which led the first tender being cancelled.
It is respectfully submitted that the previous experiences of the Corporation in appointing handling agents solely on the basis of their quoted offers, for moving coal from Singareni and Nagpur to Raichur Thermal Power Station, by the all rail route was not successful. These agencies could not ensure the allotted linkage from the collieries to the Thermal Power Station. When the handling agents failed to perform in a far less demanding environment as the all rail route, it stands to reason that the condition imposed on moving coal to large Thermal Power Stations was reasonable and bona fide.
46. .... Specifying 1 lakh tonnes per month on the rail sea rail route has two major justifications. This is essential since coal has to be transported on the different legs of the rail sea rail route from Talcher to Raichur respectively. Prevalence of extensive infrastructure is necessary both at the coal head and the ports. A high degree of co-ordination is required with the colliery authorities at Talcher, the Port authorities at Paradeep and Madras and again with the railway authorities at both Talcher and Madras respectively. Turn around time for rakes, availability of ship at Paradeep and adequate berthing facility at Madras are some of the complex tasks which require execution. Hence, the specificity of the condition : "experience of the rail sea rail route." The second justification is related to the quantities to be moved. As submitted earlier, the quantity of 1 lakh tonnes each month is the equivalent of 33 railway rakes or 2000 wagons respectively. To move coal of this magnitude, the agency should possess substantial infrastructure and understanding of the fuel requirements of the power plant, in particular the problems of coal composition in loading and unloading, especially of shale and fineness. The practice in Indian Power Plants, as at Raichur, is to use coal directly from the rake to the boiler in view of the existing precarious storage levels. The agency is, therefore required to pay close attention to loading coal at pit head and, thereafter, unloading and loading at both the ports respectively. Under these circumstances, condition 4(b) was stipulated to make doubly sure that the selected agency has the capacity to perform, adequate infrastructure and organisational resolve to move the said I lakh tons of coal each month on a sustained basis.
47. In stipulating the conditions 4(a) and 4(b), it is respectfully submitted that the first respondent is required to balance the staggering requirements of the job and the logistics involved on the one side, and its many complexities with a need for openness and encouragement of competition. That the Corporation was well aware of the nature and impact of these conditions becomes obvious from the note which was submitted at the Board of Directors meeting held on 22-1-1996. In highlighting the stringency of the conditions, it was noted : "it will be noticed that the above qualifying requirements are quite stringent. On the previous occasion when the tenders were called, experience in supplying coal by rail sea rail route to any utility apart from supply to Thermal Power Stations was also included as a sufficient conditions. However, in the present instance, experience in supply to only Thermal Power Stations has been insisted upon. Though it was recognised that such qualifying requirements would have the effect of limiting the scope of obtaining competitive offers, it was felt that these requiremenis had to be imposed in order to ensure that only parties of proven track record would be eligible to participate in the tender process."
13. In support of their contentions referred to above, the learned counsel for the respondents relied upon the decisions in the case of State of U.P. v. Vijay Bahadur Singh, ; Puru-
shottoma Ramanata Quenim v. Makan Kalyan Tandel, ; M/s. G. J. Fernandez v. State of Karnataka, ; Ram Gajadhar Nishad v. State of U.P., ; Union of India v. Hindustan Development Corporation, ; G. B. Mahajan v. Jalgaon Municipal Council and Mugaji Laxman Padule (deceased by LRs.) v. Trimbak Wasudeo Kulkarni, .
14. After giving my anxious consideration to the submissions made by the learned counsel and the decisions cited at the Bar, I am of the view that the sub-clauses (a) and (b) of Cl. (4) of the Tender Notification/document, Annexure-M, to the extent it is challenged before this Court and indicated in the course of this order is liable to be declared as illegal and unenforceable, for the reasons set out hcreunder.
15. The 1st respondent is admittedly an instrumentality of the State and therefore all its actions whether it be in the matter of prescribing qualifications to submit tender for awarding contract or selection of contractors for awarding contract or distribution of largess in any other form must be fair, reasonable and should conform to the requirements of guiding principles underlying Art. 14 of the Constitution. It is no doubt true that in the matter of policy decision taken by the State or its instrumentalities or in the matter of choice of a contractor for the purpose of entrusting the contract in respect of the work to be executed on behalf of the State or its instrumentalities for valid and good reasons, cannot be interfered with by this Court in exercise of its power under Art. 226 of the Constitution of India. However, it is well settled that if any condition imposed prescribing the qualification is either arbitrary, unreasonable or discriminatory in nature; and, if it is liable to be struck down when tested from the touchstone of Art. 14 of the Constitution, this Court will not hesitate to strike it down or declare the said conditions as illegal and unenforceable in law as being violative of the rights guaranteed to a person under Art. 14 of the Constitution of India, on the ground that the decision taken by the State or its instrumentalities is in the nature of a policy decision taken for the purpose of executing, the contract. I am of the view that it is the primary duty of this Court, whenever a grievance of discrimination or violation of the right guaranteed to a person under Art. 14 or the right to carry on business or profession guaranteed under Art. 19(1)(g) of the Constitution is made out against the State or its instrumentality, to examine the same in the larger interest of the public and preservation of rule of law, in exercise of its power under Art. 226 of the Constitution of India and set right the illegalities.
16. This view of mine is supported by the several decisions cited at the Bar. Now, let me examine some of the decisions cited.
17. In the case of Mahendra Labs Pvt. Ltd. v. State of Karnataka (supra) relied upon by Sri Holla, this Court took the view that where a tender form for supply of drugs to Government establishments imposed a condition about possession of three years of manufacturing experience by the tenderer, who is already holding manufacturers licence, was held ultra vires and invalid. In the case of M/ s. Dhar Cement Ltd. v. State of M.P. through Secretary, Ministry of Irrigation, Govt. of M.P. Bhopal (supra) relied upon by Sri Holla, the Division Bench of Madhya Pradesh High Court look the view that the condition incorporated in the tender notice that those who can file tenders should have the production capacity of 400000 Metric Tonnes per year was arbitrary and unreasonable on the ground that there is absolutely no rational or nexus between the supply of 4000 Metric Tonnes and the production capacity of 400000 Metric Tonnes per year, imposed in the tender. The relevant portion of the said judgment at paragraph 8 reads thus :
"..... Thus the respondents in fact did not oppose the petition on the ground of difference in quality but merely wanted to resist the petition by saying that it is left to them to put a condition to choose major producers of cement. This precisely is the point where the condition suffers from arbitrariness in the facts stated above because there is absolutely no rational nexus between the demand of 4000 Metric Tonnes made in the tender and the condition of production capacity of 400000 Metric Tonnes per annum imposed in the tender. The condition being arbitrary cannot be allowed to stand and has to be quashed."
(Emphasis supplied) This Court in the case of Electronic Enterprises v. Karnataka Power Corporation (AIR 1994 Kant. 125) (supra), has taken the view that the scope of the eligibility restriction should not be stringent to reduce the area of competition and the Courts discourage a restriction which reduces the competition and deprives opportunity to qualified persons from competing in tender proceedings. The observations made by the Court in the case referred to above at paragraph 9 reads thus :
"9. It is quite clear that reference to the experience in at least two different thermal stations, in the NIT (Notice Inviting Tender) -- (Annexure-A) was by way of guidance only and not as a qualification. The nature of the work itself indicates that, it was to design, manufacture, etc., and instal a Public Address System. Reference to the Thermal Stations was necessary to indicate the peculiar condition under which the PAS shall have to function. If a tenderer had an experience of designing and installing such PAS in any other place, under conditions similar to that of a Thermal Power Station, there is no reason to disqualify such a tenderer. In fact, the scope of the eligibility restriction should not be stringent to reduce the area of competition. Courts discourage a restriction which reduce the competition and deprives opportunity to qualified persons from competing in the tender proceedings. It is in the are as where special expertise is required or the nature of the work is such that only a particular experience has to be Insisted upon as a qualification, restriction as to eligibility is technically adhered to. Further, if from the NIT, tender forms, and other stipulations, it is revealed that a class of persons are denied eligibility to submit tenders, but, while considering the tenders, the said restriction is ignored the resultant decision to award the contract would be vitiated by unfairness and unreasonableness, because, there will be a denial of opportunity to several others who could have equally competed for the contract along with the person who was awarded the contract ultimately. Here, those who did not submit the tenders are prevented from submitting the tenders by the language of the NIT, tender form or other announced stipulations."
(Emphasis supplied) In the case of Union of India v. Rizwan International (supra), the Division Bench of the Madras High Court, while considering the validity of new export policy, which prohibited export of red sanders wood in any form, observed at paragraph 17 of the judgment as follows:
"17. Now, let us consider the other contention of the learned counsel for the respondent that the new policy is unreasonable and arbitrary in so far as it relates to red sanders wood already cut and converted into parts of musical instruments and which are kept ready for export. It is seen from the counter-affidavit filed on behalf of the appellants herein in the writ petition that, issue of licence for export of musical instruments parts and koto-parts made out of red sanders wood is not possible as the present policy bans export of any product made out or red sanders as an ecological conservation measure. It is further stated in the counter-affidavit that in order to make the conservation measure totally effective, the Government has banned the export of chips and powder of red sanders wood also. It must be pointed out that there is nothing on record to show that cutting of red sanders wood has been banned by the Government or any authority at any time. Therefore, as rightly pointed out by the learned single Judge, if the cutting of the red sanders tree is not banned, and the citizens are permitted to manufacture musical instruments parts, out of the cut trees, there is no substance in the contention that export of musical instruments parts or the export of red sanders wood in any form has been banned, after the trees are cut and converted into parts of musical instru-
ments, as an ecological conservation measure. In view of the specific case of the respondent that the necessary manufacturing processes have been completed and that the musical instruments parts made out of the red sanders wood are kept ready for export, it is not known how the refusal to issue licence for the export of the finished goods will help in maintaining or conserving the ecological balance in the area. In the above circumstances, we have no hesitation in accepting the contention of the learned counsel for the respondent that the new policy in so far as it prohibits export of finished goods which are ready for export is unreasonable and arbitrary and it has no nexus whatever with the proclaimed object of the new policy."
In the case of Ramana Dayaram Shetty v.
International Airport Authority of India the Supreme Court following the earlier decisions in the case of
E. P. Royappa v. State of Tamil Nadu, and Maneka Gandhi v. Union of India; held that Art. 14 of the Constitution strikes at arbitrariness in State action and ensures fairness and equality of treatment. It is useful to quote paragraph 21 of the judgment, which reads thus :
"This rule also flows directly from the doctrine of equality embodied in Art. 14. It is now well settled as a result of the decisions of this Court in E. P. Royappa v. State of Tamil Nadu and Maneka Gandhi v. Union of India that Art. 14 strikes at arbitrariness in State action and ensures fairness and equality of treatment. It requires that State action must not be arbitrary but must be based on some rational and relevant principle which is non-discriminatory; it must not be guided by any extraneous or irrelevant consideration, because that would be denial of equality. The principle of reasonableness and rationality which is legally as well as philosophically an essential element of equality or non-arbitrariness is projected by Art. 14 and it must characterise every State action, whether it be under authority of law or in exercise of executive power without making of law. The State cannot.
therefore act arbitrarily in entering into relationship, contractual or otherwise with a third party, but its action must conform to some standard or norm which is rational and non-discriminatory. This principle was recognised and applied by a Bench of this Court presided over by Ray, C.J., in Erusian Equipment and Chemicals Ltd. v. State of West Bengal, (supra) where the learned Chief Justice point out that the State can carry on executive function by making a law or without making a law. The exercise of such powers and functions in trade by the State is subject to Part III of the Constitution. Article 14 speaks of equality before the law and equal protection of the laws. Equality of opportunity should apply to matters of public contracls. The State has the right to trade. The State has there the duty to observe equality. An ordinary individual can choose not to deal with any person. The Government cannot choose to exclude persons by discrimination. The order of blacklisting has the effect of depriving a person of equality of opportunity in the matter of public contract. A person who is on the approved list is unable to enter into advantageous relations with the Government because of the order of blacklisting -- A citizen has a right to claim equal treatment to enter into a contract which may be proper, necessary and essential to his lawful calling. It is true that neither the petitioner nor the respondent has any right to enter into a contract but they are entitled to equal treatment with others who offer tender or quotations for the purchase of the goods. It must, therefore follow as a necessary corollary from the principle of equality enshrined in Art. 14 that though the State is entitled to refuse to enter into relationship with any one, yet if it does so, it cannot arbitrarily choose any person it likes for entering into such relationship and discriminate between persons similarly circumstanced, but it must act in conformity with some standard or principle which meets the test of reasonableness and non-discrimination and any departure from such standard or principle would be invalid unless it can be supported or justified on some rational and non-discriminatory ground."
(Emphasis supplied) In the case of Union of India v. Hindustan Development Corporation (AIR 1994 SC 788) (supra), the Supreme Court has observed that the Government while entering into contracts, or issuing quotas is expected not to act like a private individual but should act in conformity with certain healthy standards and norms, and such actions should not be arbitrary, irrational or irrelevant. At paragraph 7 of the judgment, it is observed thus :
"7. It is true, as it is today, that the Government in a welfare State has the wide powers in regulating and dispensing of special services like leases, licences, and contracts etc. The magnitude and range of such Governmental function is great. The Government while entering into contracts or issuing quotas is expected not to act like a private individual but should act in conformity with certain healthy standards and norms, Such actions should not be arbitrary, irrational or irrelevant. In she matter of awarding contracts inviting tenders is considered to be one of the fair ways. If there are any reservations or restrictions then they should not be arbitrary and must be justifiable on the basis of sonic policy or valid principles which by themselves are reasonable and not discriminatory."
Further, at paragraph 11 of the said judgment, the Supreme Court has observed thus :
"11. Therefore, the avowed policy of the Government particularly from the point of view of public interest is to prohibit concentration of economic power and to control monopolies so that the ownership and confrol of the material resources of the community are so distributed as best to subserve the common good and to ensure that while promoting industrial growth there is reduction in concentration of wealth and that the economic power is brought about to secure social and economic justice."
In the case of Sterling Computers Ltd. v. M/s. M. & N. Publications Ltd. (supra), the Supreme Court in paragraphs 12, 19 and 20 of the judgment has observed thus :
"12. At times it is said that public authorities must have the same liberty as they have in framing the policies, even while entering into contracts because many contracts amount to implementation or projection of policies of the Government. But it cannot be overlooked that unlike policies, contracts are legally binding commitments and they commit the authority which may be held to be a Slate within the meaning of Art. 12 of the Constitution in many cases for years. That is why the Courts have impressed that even in contractual matters the public authority should not have unfettered discretion. In contracts having commercial element, some more discretion has to be conceded to the authorities so that they may enter into contracts with persons, keeping an eye on the augmentation of the revenue. But even in such matters they have to follow the norms recognised by Courts while dealing with public property. It is not possible for Courts to question and adjudicate every decision taken by an authority, because many of the Government undertakings which in due course have acquired the monopolist position in matters of sale and purchase of products and with so many ventures in hand, they can come out with a plea that it is not always possible to act like a quasi-judicial authority while awarding contracts. Under some special circumstances a discretion has to be conceded to the authorities who have to enter into contract giving them liberty to assess the overall situation for purpose of taking a decision as to whom the contract be awarded and at what terms. If the decisions have been taken in bona fide manner although not strictly following the norms laid down by the Courts, such decisions are upheld on the principle laid down by Justice Holmes, that Courts while judging the constitutional validity of executive decisions must grant certain measure of freedom of "play in the joints" to the executive.
19. While exercising the power of judicial review, in respect of contracts entered into on behalf of the State, the Court is concerned primarily as to whether there has been any infirmity in the "decision making process." In this connection reference may be made to the case of Chief Constable of the North Wales Police v. Evans (1982) 3 All ER 141, where it was said that "The purpose of judicial review"
"..... is to ensure that the individual receives fair treatment and not to ensure that the authority, after according fair treatment reaches on a matter which it is authorised or enjoined by law to decide for itself a conclusion which is correct in the eyes of the Court."
By way of judicial review the Court cannot examine the details of the terms of the contract which have been entered into by the public bodies or the State. Courts have inherent limitations on the scope of any such enquiry. But at the same time as was said by the House of Lords in the aforesaid case, Chief Constable of the North Wales Police v. Evans (supra), the Courts can certainly examine whether "decision making process" was reasonable; rational, not arbitrary and violative of Art. 14 of the Constitution.
20. If the contract has been entered into without ignoring the procedure which can be said to be basic in nature and after an objective consideration of different options available taking into account the interest of the State and the public, then Court cannot act as an appellate authority by substituting its opinion in respect of selection made for entering into such contract. But, once the procedure adopted by an authority for purpose of entering into a contract is held to be against the mandate of Art. 14 of the Constitution, the Courts cannot ignore such action saying that the authorities concerned must have some latitude or liberty in contractual matters and any interference by Court amounts to encroachment on the exclusive right of the executive to take such decision."
(Emphasis supplied) In the case of Kasturilal Laxmi Reddy v.
State of Jammu and Kashmir, , an order awarding contract by the Government to a party was questioned on the ground that it was arbitrary and mala fide and not in public interest and the same created monopoly in favour of that party and that the contract was awarded without affording an opportunity to others to compete and the same is not based on any rational or relevant principle and therefore was violative of Art. 14 of the Constitution and also the rule of administrative law which inhibits the arbitrary action by the State. In the said decision, the Supreme Court at page 1999, para 11 observed thus:
"Though ordinarily a private individual would be guided by economic considerations of self-gain in any action taken by him, it is always open to him under the Jaw to act contrary to his self-interest or to oblige another in entering into a contract or dealing with his property. But the Government is not free to act as it likes in granting largess such as awarding a contract or selling or leasing out its property. Whatever be its activity, the Government is still the Government and is, subject to restraint inherent in its position in a democratic society. The constitutional power conferred on the Government cannot be exercised by it arbitrarily or capriciously or in an unprincipled manner; it has to be exercised for the public good. Every activity of the Government has a public element in it and it must therefore, be informed with reason and guided by public interest. Every action taken by the Government must be in public interest;
the Government cannot act arbitrarily and without reason and if it does, its action would be liable to be invalidated. If the Government awards a contractor leases out or otherwise deals with its property or grants any other largess, it would be liable to be tested for its validity on the touchstone of reasonableness and public interest and if it fails to satisfy either test, it would be unconstitutional and invalid."
(Emphasis supplied) On the question of Courts interference in an action taken by the Government, at paragraph 14 of the judgment, it is laid down as follows :
"But one basic principle which must guide the Court in arriving at its determination on this question is that there is always a presumption that the Governmental action is reasonable and in public interest and it is for the party challenging its validity to show that it is wanting in reasonableness or is not informed with public interest. This burden is a heavy one and it has to be discharged to the satisfaction of the Court by proper and adequate material. The Court cannot lightly assume that the action taken by the Government is unreasonable or without public interest because, as we said above, there are large number of policy considerations which must necessarily weigh with the Government in taking action and therefore the Court would not strike down governmental action as invalid on this ground, unless it is clearly satisfied that the action is unreasonable or not in public interest But where it is so satisfied, it would be the plainest duty of the Court under the Constitution to invalidate the govern mental action. This is one of the most impor tant functions of the Court and also one of the most essential for preservation of the rule_of jaw."
(Emphasis supplied).
In the case of State of U.P. v. Vijay Bahadur Singh, (supra) relied upon by Sri Raghavan, learned Counsel, the Supreme Court has observed that the Government has right to change or refuse its policy from time to time, according to the demands of the time and situation and in the public interest. It is useful to extract the relevant portion in paragraph 3 of the Judgment which reads thus :
"3. It appears to us that the High Court had clearly misdirected itself. The conditions of auction made it perfectly clear that the Government was under no obligation to accept the highest bid and that no rights accrued to the bider merely because his bid happened to be the highest. Under condition No. 10 it was expressly provided that the acceptance of bid at the time of auction was entirely provisional and was subject to ratification by the competent authority, namely, the State Government. Therefore, the Government had the right, for good and sufficient reason, we may say, not to accept the highest bid but even to prefer a tenderer other than the highest bidder, the High Court was clearly in error in holding that the Government could not refuse to accept the highest bid except on the ground of inadequacy of the bid. Condition No. 10 does not so restrict the power of the Government not to accept the bid. There is no reason why the power vested in the Government to refuse to accept the highest bid should be confined to inadequacy of bid only. There may be a variety of good and sufficient reasons, apart from inadequacy of bids, which may impel the Government not to accept the highest bid. In fact, to give an antithetic illustration, the very enormity of a bid may make it suspect. It may lead the Government to realise that no bona fide bidder could possibly offer such a bid if he meant to do honest business. Again the Government may change or refuse its policy from time to time and we see no reason why change of policy by the Government, sub- sequent to the auction but before it confirmation, may not be a sufficient justification for the refusal to accept the highest bid. It cannot be disputed that the Government has the right to change its policy from time to time, according to the demands of the time and situation and in the public interest. If the Government has the power to accept or not to accept the highest bid and if the Government has also the power to change its policy from time to time, it must follow that a change or revision of policy subsequent to the provisional acceptance of the bid but before its final acceptance is a sound enough reason for the Government's refusal to accept the highest bid at an auction,"
(Emphasis supplied) In the case of M/s. G. J. Fernandez v. State of Karnataka, (supra), Sri Raghavan invited my attention to paragraph 15 of the Judgment which reads thus:
". . . .If a party has been consistently and bona fide interpreting the standards prescribed by it in a particular manner, we do not think this Court should interfere though it may be inclined to read or construe the conditions differently. We are, therefore, of opinion that the High Court was right in declining to interfere."
In the case of G. B. Mahajan v. The Jalgaon Municipal Council, (supra), with regard to the scope of interference by the Courts in the field of trade and commerce and of the range of economic and commercial enterprises of Government and its instrumentalities, the Supreme Court at paragraph 14 has observed thus:
"14. The criticism of the project being 'unconventional' does not add to or advance the legal contention any further. The question is not whether it is unconventional by the standard of the extent practices, but whether there was something in the law rendering it impermissible. There is, no doubt, a degree of public accountability in all governmental enterprises. But, the present question is one of the extent and scope of judicial review over such matters. With the expansion of the State's presence in the field of trade and commerce and of the range of economic and commercial enterprises of Government and its instrumentalities there is an increasing dimension to governmental concern for stimulating efficiency, keeping costs down improved management methods, prevention of time and cost over-runs in projects, balancing of costs against time-scales, quality-control, cost-benefit ratios etc. In search of these values it might become necessary to adopt appropriate techniques of management of projects with concomitant economic ex pediencies. These are essentially matters of economic policy which lack adjudicative dis position, unless they violate constitutional or legal limits on power or have demonstrable pejorative environmental implications or amount to clear abuse of power. This again is the judicial recognition of administrator's right to trial and error, as_long as both trial and error are bone fide and within the limits of authority."
(Emphasis supplied) In State of Madhya Pradesh v. Nandlal Jaiswal , it is observed thus:
"We must not forget that in complex economic matters every decision is necessarily empiric and it is based on experimentation or what one may call 'trial and error method' and, therefore, its validity cannot be tested on any rigid a 'priori' considerations or on the application of any strait-jacket formula. The Court must while adjudging the constitutional validity of an executive decision relating to economic matters grant a certain measure of freedom or play in the 'joints' to the executive.
xxx xxx xxx xxx xxx xxx xxx The Court cannot strike down a policy deci sion taken by the State Government merely because it feels that another policy decision would have been fairer or wiser or more scientific or logical. The Court can interfere only if the policy decision is patently arbi trary, discriminatory or mala fide. It is against the background of these observations and keeping them in mind that we must now proceed to deal with the contention of the petitioners based on Article 14 of the Consti tution".
(Emphasis supplied)
18. From the various decisions referred to above, it is clear that the Courts will not interfere with regard to the policy decision taken by the State and its instrumentalities and substitute its views; and that the public body invested with statutory powers must take care either not to exceed or reduce its power. It must keep within the limits of the authority committed to it and it must act in good faith and reasonably, and if such a principle is not adhered to and there is a transgression of its powers either in the matter of imposition of eligibility while inviting tenders or in the process of selection, it is the plain duty of the Court to examine such executive actions and nullify such actions, if the actions which are challenged suffer from vices of unreasonableness, arbitrariness or discriminatory in nature and is violative of the rights guaranteed io a person under Article 14 of the Constitution of India and the right to carry on profession or business guaranteed to a citizen under Article 19(1)(g) of the Constitution, and the Courts cannot ignore such an action saying that the authorities concerned must have some latitude or principle in contractual matters or they must have discretion to "play in the joints" and any interference by the Courts amounts to encroachment on the exclusive right of the executive to take such a decision.
19. In the light of the decisions referred to above, if the validity of the clause impugned is examined, 1 am of the view that the sub-clauses (a) and (b) of Clause 4 of the Tender Notification/document. Annexure-M, are plainly unconstitutional as being violative of the right guaranteed to the petitioner under Article 14 of the Constitution of India. The object of inviting the tenders and entrusting the work are three fold. Firstly, to locate or select highly proficient and competent handling agent, who will be able to execute the work as per the terms and conditions of the Tender Notification/ document to the satisfaction of the 1st respondent without causing any delay or default in execution of the work; and secondly, to get the work done at a reasonably low cost, and to the best advantage of the 1st respondent and the State. Thirdly, to give an opportunity to all the eligible persons or intending tenderers to submit their tenders. These three objectives can be achieved, if the range of competition to execute the work is wider, and so long as, in the process the capability or the professional skill of a transport or handling agent is not sacrificed. Clause 3 of the Tender Notification/ document, Annexure-M, referred to above, sets out the main scope of the work. The nature of the work in substance to be entrusted to the handling agent relates to transport of coal from Mahanadi Coalfields Limited, Talcher at Orissa to Raichur Thermal Power Station. Therefore, the qualification or the eligibility required to be prescribed for inviting the tenders must point out with regard to the capability, competency, availability of proficient man power and other infrastructure, and experience of transporting the coal to a long distance. Such a prescription which would ensure that the transporting or handling agent is capable of executing the work of transporting the coal, is certainly be valid and cannot be charged as either arbitrary or unreasonable, and it is not permissible for this Court to interfere against the such decision taken by the 1st respondent.
20. On the question as to whether the insistence that the handling agent or the transporter or the tenderer should have the experience of transporting the coal to a "large thermal power station" is relevant and has nexus with the object sought to be achieved, to my mind it appears that the said qualification or the eligibility prescribed for the tenderer that he should have the experience as an handling agent in the movement of coal to a "large thermal power station" is plainly arbitrary, unreasonable and violative of the right guaranteed to the petitioner and other similarly situated persons- who satisfy the minimum five years of experience as handling agents in movement of coat, under Article 14 of the Constitution. Whether a tenderer has a minimum of five years experience as an handling agent in movement of coal to a large thermal power stations or to any other industrial unit, is immaterial, and the place of transport or the unit to which the experience has been claimed over the years is totally irrelevant and has absolutely no nexus or rationale with the object sought to be achieved. The object of prescribing the eligibility or qualification to a tenderer is to ensure the selection of highly qualified and capable tenderer who is in a position to move the coal from Mahanadi Coalfields, Talcher at Orissa to Raichur Thermal Power Station. Therefore, I am unable to accept the contentions of the learned counsel for the respondents that the tenderer should have experience as an handling agent in the movement of coal to a "large thermal power station" is purely a policy decision and if is not permissible for this Court to interfere against the said policy decision, which has been incorporated in the Tender Notification/ document, Annexure-M. None of the decisions referred to by the learned Counsel for the respondents support the contentions advanced, by them. On the other hand, the decisions relied upon by the petitioners, and referred to above, would plainly support the view I have taken. Iam also unable to accept the submissions of the learned Counsel for the respondents that the conditions impugned are either reasonable or fair and not arbitrary. The capability of the handling agent in the movement of coal does not depend upon the industrial unit to which he has to transport the coal. It depends upon the various factors like his experience in the field of movement of coal, infrastructure he possess, the man power he commands, mechanical equipments, railway wagons, his past experience in executing similar work etc.
21. For the same reason, I am of the view that the stipulation in sub-clause (b) of Clause 4 of the Tender Notification/document, Annexure-M, which insists that the tenderer should have supplied one lakh tonnes of coal per month "to a thermal power station by the rail-sea-rail route", is also highly unreasonable, arbitrary and violative of the right guaranteed to the petitioner under Article 14 of the Constitution. Further, while it is reasonable and relevant to prescribe the qualification that the tenderer should have the experience of moving transporting coat either by rail-sea or sea-rail route, the insistence that one should have the experience of moving the coal through rail-sea-rail route is arbitrary and unreasonable i.e. in addition to the experience of movement of coal through rail-sea route, he should also have the experience of transporting coal through sea-rail route. 1 am of the view that what is required is that the tenderer should have sufficient experience of transporting the coal both through rail and sea route (rail-sea) and he should have necessary man power and infrastructures for the said purpose. A tenderer who has the experience of transporting the coal or any other commodity through rail-sea route, would certainly be competent to move the coat if a portion of the route is also a sea-rail route, in addition to rail-sea route.
22. The object of prescribing any qualification while inviting tender, as stated above, is to ensure that the tenderer is capable of prompt and efficient management of the work, without committing any default or delay in the execution of the work, and to minimise the area of unhealthy competition, and not to prevent healthy competition by the qualified persons who are capable of executing the work. Therefore, merely because the movement of coal has to be made firstly through rail, secondly through sea and thereafter again through rail route, does not mean that one should have the experience in the movememt of coal only through rail-sea-rail route. Therefore, the stipulation in sub-clause (b) of Clause 4 of the Tender Notification/ document, Annexure-M, which insists the additional qualification that in addition to possessing the requisite experience in movement of coal through rail-sea route, the tenderer must also have the experience in movement of coal through rail-sea-rail route, is liable to be struck down as being highly arbitrary, unreasonable and violative of the right guaranteed to the petitioner under Article 14 of the Constitution.
23. It is also relevant to point out that if the conditions impugned are unreasonable and arbitrary, it would deny the rights to many eligible and competent persons, who arc in a position to execute the work efficiently, from submitting their tender. This would result in discrimination and violation of the rights guaranteed to them under Article 14 of the Constitution of India, apart from the fact that the scope of selection would be narrowed down.
24. Further, the facts of this case would demonstrate the area of choice in the matter of selection of the handling agent for movement of coal from Mahanadi Coalfields Limited, Talcher, to Raichur Thermal Power Station has become very narrow and it is limited only to the 5th respondent as the 5th respondent is stated to be the only tenderer who has satisfied the requirements of the impugned qualifications. Therefore, if the impugned qualifications are allowed to be imposed in the Tender Notification likely to be issued by the 1st respondent in future for similar work for the transport of coal from Mahanadi Coalfields Limited, Talcher, in Orissa to Raichur Thermal Power Staiion, Respondents-1 to 4 will be under the mercy of the 5th respondent as the 5th respondent alone is stated to have satisfied the qualifications required. In that situation, the area of selection will be limited only to the 5th respondent and the 1st respondent will be compelled to accept the rate or price to be quoted by the 5th respondent. Such a situation will be totally against the public interest and the revenue of the 1st respondent and the quality of the work to be executed. If the validity of the impugned qualification is judged from this point of view also, the same is liable to be quashed. As pointed by this Court in the case of Electronic Enterprises v. Karnataka Power Corporation Ltd., (supra), the scope of the eligibility restriction should not be stringent to reduce the area of competition and the Courts should discourage a restriction which reduces competition and deprives opportunity to qualified persons from competing in the tender proceeding. Therefore, I do not find any merit in the submissions made by the learned counsel for the respondents that the decision taken by the 1st respondent in the matter of prescribing the eligibility to submit the tender is purely a policy decision and it is neither arbitrary nor violative of the rights guaranteed under Article 14 of the Constitution of India. However, it is relevant to observe that if a Tender document to the extent it provides that a tenderer should have supplied one lakh tonnes of coal per month by rai!-sea route would be valid, and if the 1st respondent so desires, it is open to the 1st respondent to impose such a condition in the tender document to be issued hereinafter.
25. It is also necessary to observe that since the petitioner has given up its challenge at the hearing of this petition on Sth April, 1996, with regard to the tender submitted by the 5th respondent pursuant to the Notification Annexure-K, and tender document An-nexure-M, issued by the 1st respondent, and consequently the interim order earlier granted was vacated by me and the 1st respondent was permitted to finalise the tender submitted by the 5th respondent, it is made clear that the 5th respondent is entitled to complete the work and the 1st respondent shall permit the 5th respondent to execute the work strictly in terms of the order made by me on 8th April, 1996.
26. In view of my conclusion that the impugned qualifications are liable to be struck down as being highly arbitrary, unreasonable and violative of the right guaranteed to the intending tenderers under Article 14 of the Constitution of India, it is unnecessary for me to examine the contention urged by the learned counsel for the petitioner that the impugned qualifications have been prescribed by the 1st respondent totally on account of extraneous and irrelevant consid-
erations and only with a view to favour the 5th respondent by disqualifying all other eligible tenderers.
27. In view of my above conclusion, the sub-clauses (a) and (b) of Clause 4 of the Tender Notification/document. Annexure-M, to the extent indicated below arc liable to be declared as illegal and unenforceable. Accordingly, this petition is allowed to the extent indicated below. Rule issued is made absolute and the following order is made :
(1) It is declared that the words "to large thermal power stations" occurring in sub-clause (a) of Clause 4 of the Tender Notification/ document, Annexure-M, as unconstitutional, unenforceable and not valid in law.
(2) It is declared that the words occurring in sub-clause (b) of Clause 4 of the Tender Notification/document. Annexure-M. "to a thermal power station by the Rail-sea-Rail route" as unconstitutional, un-enforceable and not valid in law.
(3) The respondents-1 to 4 are directed not to impose the eligibility conditions referred to above, which have been declared as unconstitutional and not valid, in the Tender Notification/ document to be issued hereinafter.
(4) The contract already given to the 5th respondent pursuant to the Tender Notification, Annexure-M. is not affected in view of declaration that sub-clauses (a) and (b) of Clause 4 of the Tender Notification/document, to the extent indicated above as unconstitutional and not valid in law.
(5) The parties arc directed to bear their own costs.
28. Sri Udayashankar, learned Additional Government Advocate, is given four weeks' time to file his memo of appearance.
29. Order accordingly.