Madras High Court
Sharavathy Petro Chemicals (P) Ltd. ... vs Tamil Nadu Electricity Board ... on 30 July, 1993
Equivalent citations: (1993)2MLJ647
ORDER Srinivasan, J.
1. Petitioner is a private limited company having registered office and factory in the State of Karnataka. The petitioner is manufacturing transformer oil as per Indian Standard 335 -1983 for the past 22 years, the petitioner is supplying transformer oil to most of the Electricity Boards in India besides transformer manufacturers. Insofar as the Tamil Nadu Electricity Board, who is the first respondent herein is concerned, the petitioner has been supplying oil since 1985 on orders placed by the first respondent. In the year 1991 the transformer oil supplied to the first respondent by the petitioner has been certified to be the best for electrical characteristics by Central Power Research Institute, Bangalore. The first respondent issued an advertisement in the newspapers on 26.10.1991 calling for tenders for the supply of new transformer oil and the total value of the tender was approximately Rs. 3.5 crores. The petitioner participated in the tender and offered to supply the oil at the rate of Rs. 21,591-60 per kilo litre by their offer dated 13.11.1991. Finally the rate was reduced by the petitioner to Rs. 20,775. The last date for closing and opening the tender was 25.11.1991. There were seven participants. The highest offer was made by one Columbia Petro Chemicals Bombay, at Rs. 24,713. The second highest was made by the second respondent herein, namely Messrs. Raj Lubricants, Madras, at Rs. 24,397.72. Later the second respondent reduced the rate to Rs. 22,230. The other five offers were all higher than that of the petitioner. Even though the petitioner was the lowest offerer, the first respondent accepted the tender of the second respondent and rejected the petitioner's offer. Consequently, the contract was awarded to the second respondent by the first respondent on 21.9.1992 for the supply of the entire quantity of transformer oil. It is stated that approximately the total consumption of the transformer oil of the first respondent in a year was 1,100 kilo litres. According to the petitioner, this quantity was being apportioned among five suppliers including the petitioner and the second respondent. The present writ petition has been filed for a declaration that the action of the first respondent in accepting the tender of the second respondent for the supply of transformer oil is illegal and unconstitutional and consequently a direction to the first respondent to accept the tender of the petitioner.
2. Three contentions are urged by learned Counsel for the petitioner.
(1) First respondent has accepted the tender of the second respondent on the basis of a Government order that at price preference should be given to the manufacturing units in Tamil Nadu. The fact that such price preference should be given is not mentioned in the tender notice and it is not open to the first respondent to deviate from the conditions set out in the tender notice and accept the tender of the higher tenderer rejecting the lower one of the petitioner;
(2) First respondent being a public body ought to have acted in the best interests of the Electricity Board and the larger interests of the members of the public and is bound to give reasons for rejecting the lower offer and accepting a higher offer. First respondent ought to have communicated such reasons to the petitioner herein; and (3) There is no bona fide in the action of the first respondent in accepting the tender of the second respondent and it has deviated from the practice which has been prevailing in the previous years since 1985.
3. In support of the first contention, learned Counsel for the petitioner placed reliance on the judgment of the Supreme Court in Harminder Singh v. Union of India . The following passage is referred to by learned Counsel, It was next contended that the conditions contained in the tender notice did not contemplate of giving 10 per cent price preference to Government undertakings yet 10 per cent price preference was given to the Government illegally and the policy of the Government to give 10 per cent price preference to Government undertaking was discriminatory and violative of Articles 14 and 16 of the Constitution. The State policy places respondent No. 4 above the appellant without any basis or reasonable classification. In the absence of any such stipulation in the contract such price preference was unjustified."
"If the terms and conditions of the tender have been incorporated in the tender notice itself and that did not indicate any preference to the Government undertakings of giving 10 per cent price preference to Government undertaking, the authority concerned" acted arbitrarily in allowing 10% price preference to respondent No. 4. The only facility provided to the Government undertakings was provided in paragraph 19 which contemplates that the Central or State Government Departments or purely Government concerns need not pay tender forms fees and earnest money. This was the only concession available to the Central/State Government or to the purely Government concerns, and no other concession or benefit was contemplated under the terms of the tender notice. If the appellant had known that 10 per cent price preference to Government undertaking was to be given to respondent No. 4 the appellant would have taken every precaution while submitting the tender.
Learned Counsel for the respondents contend that the above ruling of the Supreme Court will not apply to the present case inasmuch as the relevant Government orders were in existence from 1959 and the Government orders had been followed strictly by the first respondent Board, all these years. It is also contended that the petitioner was quite aware of the long standing practice of giving price preference to manufacturing units in the State. It is further contended that there is a presumption under Section 11 of the Indian Evidence Act that the petitioner knows the price preference.
4. I am unable to accept the contentions urged by learned Counsel for the respondents. No doubt G.O.Ms. No. 110, dated 31.1.1977 directed that Small Scale Industries registered in Tamil Nadu will be given price preference of 15% in respect of purchase by Government Departments, Public Sector Enterprises, Autonomous bodies, Municipalities and Local Bodies. That Government order in turn refers to an earlier Government order in G.O.Ms. No. 633, Industries (Special) Industries, Labour and Co-operation, dated 31.3.1959 as well as G.O.Ms. No. 831, Industries (Special) Industries, Labour and Housing, dated 1.3.1968. Yet another order was passed on 3.5.1991 in G.O.Ms. No. 330, Finance (BPE) Dept. As per that Government order also, whenever products/services cannot be supplied by institutions listed therein, open tender system shall be followed and in adopting open tender system the price preference as set out therein will operate. It is stated that small scale units including tiny sector units registered in Tamil Nadu will continue to be given 15% preference vis-a-vis medium/large industrial units and small scale industries units registered in other states.
5. However it cannot be denied that at least from 1985, the first respondent has been awarding contracts to more than one manufacturing units including the petitioner herein. The Government orders had not been followed strictly and other manufacturing units in Tamil Nadu had taken part in the tenders. A statement is filed by the first respondent itself in this writ petition containing the details of the orders given to the petitioner-company. It reads thus:
_______________________________________________________________________________ Sl. No. Name of the Company Year and Date Qty.
_______________________________________________________________________________
1. M/s. Sharavathi Petro Chemicals Ltd., 9-3-1988 100 kls.
Bangalore 13-1-1989 300 kls.
25-9-1990 360 kls.
13-4-1991 250 kls.
20-8-1991 250 kls.
2. M/s. Raj Laboratories, Madras 16-12-1988 525 kls.
3-5-1991 120 kls.
7-12-1990 350 kls.
20-8-1991 332 kls.
_______________________________________________________________________________ That statement shows that from 1988, the petitioner was awarded continuously contracts for supply of transformer oil and the second respondent was also given such contracts. Hence there is no point in the respondents' contention that the petitioner has been all along aware of the price preference and there was no necessity to mention the same in the tender notice. Inasmuch as the first respondent decided to deviate from the above practice prevailing for the past five years and more, it should have indicated in the advertisement calling for tenders that price preference will be given to the manufacturing units in the State of Tamil Nadu. As the first respondent failed to do so, the ruling Harminder Singh's case A.I.R. 1989 S.C. 1527, will apply and the first respondent's acceptance of the tender given by the second respondent is unsustainable.
6. With reference to the second contention, learned Counsel for the petitioner places reliance on the Judgment of the Supreme Court in Star Enterprises v. C.I.D.C. of Maharashtra Limited (1990)3 S.C.C. 230. It is held that reasons should be recorded for rejecting the best offer and the relevant passage in the judgment reads thus:
The question which still remains to be answered is as to whether when the highest offer in response to an invitation is rejected would not the public authority be required to provide reasons for such action? Mr. Dwivedi has not asked us to look for a reasoned decision but has submitted that it is in the interest of the public authority itself, the State and everyone in the Society at large that reasons for State action are placed on record and are even communicated to the persons from whom the offers came so that the dealings remain above board; the interest of the public authority is adequately protected and a citizen knows where he stands with reference to his offer. What this Court said in State of U.P. v. Raj Narain , may be usefully recalled here: (S.C.C. 453, para. 74) "In a Government of responsibility like ours, where all the agents of the public must be responsible for their conduct, there can be but few secrets. The people of this country have a right to know every public act, everything that is done." In a public way, by their public functionaries. They are entitled to know the particulars of every public transaction in all its bearing. The right to know which is deprived from the concept of freedom of approach, though not absolute, is a factor which should make one wary, when secrecy is claimed for transactions which can, at any rate, have no transactions which can, at any rate, have no repercussion on public security. To cover with veil of secrecy, the common routine business, is not in the interest of the public.
In recent times, judicial review of administrative action has become expensive and is becoming wider day by day. The traditional limitations have been vanishing and the sphere of judicial scrutiny is being expanded. State activity too is becoming fast pervasive. As the State has descended into the commercial field and giant public sector undertakings have grown up, the stake of the public exchequer is also large justifying larger social audit, judicial control and review by opening of the public gaze; these necessitate recording of reasons for executive.
"actions including cases of rejection of highest offers. That very often involves large stakes and availability of persons for actions on the record assures credibility to the action, disciplines public conduct and improves the culture of accountability. Looking for reasons in support of such action provides an opportunity for an objective review in appropriate cases both by the administrative superior and by the judicial process. The submission of Mr. Dwivedi, therefore, commends itself to our acceptance, namely, that when highest offers of the type in question are rejected reasons sufficient to indicate the stand of the appropriate authority should be made available and ordinarily the same should be communicated to the concerned parties unless there be any specific justification not to do so.
7. As per the said ruling, the first respondent ought to have recorded its reasons for rejecting the offer of the petitioner which quoted the lowest price for the supply of transformer oil and communicated the same to the petitioner.
8. With regard to the third contention, I have already referred to the fact that the prior practice has been to award contracts to more than one manufacturing unit including the petitioner herein. I will refer to the relevant judgments as furnished by the first respondent. Section 18 of the Electricity (Supply) Act enjoins the electricity board to arrange for supply of electricity in the most efficient and economical manner. As stated earlier, the offer of the petitioner was the lowest at Rs. 20,779 per kilo litre. The offer of the second respondent is the second highest at Rs. 22,230 per kilo litre. The difference in the total price will be about Rs. 26 Lakhs and it will be a loss to the first respondent, if the price quoted by the second respondent is accepted. There is no justification for putting the Board to such loss and consequently pass on the same to the consumers of electricity by way of consumption charges. Hence, the third contention of the petitioner is also well founded.
9. Learned Counsel for the first respondent refers to the Ruling of a Division Bench of this Court in Chokhani International Limited v. Board of Trustees of the Port of Madras 1987 Writ L.R. 529. The Division Bench on the facts of the case held that the decision of the Board of Trustees of the Port Trust rejecting the tender cannot be described as so unreasonable as to be called 'Arbitrary' and they were ill-advised in accepting the post tender offer. But while discussing the proposition of law, the Division Bench held that the decision of the instrumentality of the State not to give a contract or to reject all tenders must be fair and just and it should be informed by reason. It is also noticed that judicial scrutiny of such a decision in the exercise of writ jurisdiction cannot be shut out merely on the ground that there was power in Government or the public authority to reject all tenders and in exercise of this power all tenders had been rejected. It was held that the petitioner before them was entitled to invoke the writ jurisdiction of the Court to contend that the rejection of his tender was arbitrary. The ruling does not help the first respondent in the present case in view of the facts stated already. Reliance is placed on the judgment of Kerala High Court in South India Corporation Limited v. Hindustan Newsprint Limited . The decision actually turned on the facts of that case. But, while enunciating the principles of law, the Court has relied upon the Judgment of the Supreme Court has relied upon the judgment of the Supreme Court in R.D. Shetty v. International Airport Authority of 'India , as well as the judgment in Star Enterprises' case (1990)3 S.C.C. 288, already referred to by me. After quoting the passage from the earlier judgment of the Supreme Court, the court observed that the requirement is that the State or its instrumentality has to act in accordance with the conditions laid down in the tender notice and also fairly without showing any preference or bias towards any person and the choice of persons must be dictated by public interest and must not be unreasonable or unprincipled. Even if that principle is applied to the present case, the award of contract to the second respondent cannot be sustained. The ruling as such does not help the first respondent herein.
10. Learned Counsel for the first respondent invites my attention to the latest judgment of the Supreme Court in United India Periodicals (P) Limited v. M/s. M. & N. Publications Limited and Ors. Judgments To-day, 1993(1) S.C. 188. On the facts it was held that Mahanagar Telephones Nigam Ltd., a Government of India undertaking referred to as 'MINL' has applied irrelevant considerations while granting a fresh contract for a period of five years through the supplemental agreement dated 26th September, 1991, because it had failed to take into account considerations which were necessarily relevant i.e., following the rule of inviting tenders while granting the contract for a further period of five years on fresh terms and conditions and has taken into account irrelevant considerations that (1) if the contract is terminated and a decision is taken for a fresh tender, the United India Periodicals Private Limited, United Database (India) Private Limited, may put legal obstacles in retendering, (ii) the response for printing free of cost and also paving the royalty may be poor, and (iii) the concept of the yellow pages may suffer a big set back and may make it unattractive to the advertisers because of the less of confidence. Regarding the earlier judgments starting from R.D. Shetty v. The International Airport Authority of India and ending with Kumari Shrilekha Vidyarthi v. State of U.P. , the principle to be adopted in the matter of awarding contracts are reiterated by the Supreme Court. Ultimately the Court upheld the decision of the High Court setting aside the contract awarded by MINL. This ruling does not in any manner came to the aid of the first respondent in the present case.
11. Learned Counsel for the first respondent also relied on the judgment of the this Court in Danya Electric Company and three others v. The State of Tamil Nadu and others, 1992 Writ L.R. 429. The petitioners therein were small scale units manufacturing power distribution transformers, electrical equipments etc., and they challenged G.O.Ms. No. 330, dated 3.5.1991 issued by the Government of Tamil Nadu (first respondent) and the consequential resolution of the Tamil Nadu Electricity Board as ultra vires and unconstitutional as violative of Articles 14 and 19(1)(g) of the Constitution in so far as it related to the supply of transformers/conductors to the Tamil Nadu Electricity Board. The court upheld the validity of the Government order as well as that of the resolution passed by the Board. That has no relevance to the present case. Here, the validity of the Government Order is not challenged. What all is contended by the petitioner is that the tender notice ought to have made a reference to the Government order and the fact that the first respondent intends to give price preference to the manufacturing units in Tamil Nadu.
12. Learned Counsel for the second respondent invites my attention to the judgments of the Supreme Court in C.K. Achutan v. State of Kerala and Viklad Coal Merchant, Patiala v. Union of India . In the former case it was held that when one person is chosen rather than another, the aggrieved party cannot claim the protection of Article 14 because the choice of the person to fulfil a particular contract must be left to the Government. It was also held that the rights of the petitioner under Articles 14, 16(1), 19(1)(g), 31 and 32 of the Constitution of India, were not in any manner affected. This ruling has no bearing on the present case.
13. In the latter case Viklad Coal Merchant's case , the court upheld the validity of Sections 27-A and 28 of the Railways Act 9 of 1890, which gave priority to Central or State Government by orders issued therefor. The Court held that there was no violation of Article 14 of the Constitution of India. This ruling will not help the respondents herein, as the facts are entirely different.
14. There is no doubt that the acceptance of the second respondent's tender by the first respondent is arbitrary and unsustainable. Consequently, it has to be quashed.
15. However, it is brought to my notice that before the filing of the writ petition, the second respondent had supplied a quantity of 200 kilo litres of transformer oil and during the pendency of the writ petition, pursuant to the orders of this Court, another consignment of 200 kilo litres of oil has been supplied by the second respondent to the first respondent. In view of the said supplies, the contract awarded to the second respondent is not disturbed to the extent of the supplies already made. With regard to the balance quantity of 700 kilo litres, the first respondent shall issue a fresh advertisement and call for fresh tenders from the manufacturers, If the first respondent intends to apply G.O.Ms. No. 330, dated 3.5.1991 and give price preference to the manufacturing units in Tamil Nadu, it shall specifically mention the same in the said advertisement. The first respondent should take care to mention all the conditions upon which the tenders are being called for in the said advertisement. The first respondent shall not impose any condition apart from what is mentioned in the tender notice. I am unable to accept the contention of the petitioner that a direction should be given to the first respondent to accept the tender given by the petitioner and award the contract to the petitioner. Instead, I have given directions to call for fresh tenders. With the above directions, the writ petition is allowed to the extent indicated above. There will be no order as to costs.