Delhi High Court
Dhingra Construction Co. vs Municipal Corporation Of Delhi And Ors. on 3 December, 2004
Equivalent citations: AIR2005DELHI247, 2005(1)CTLJ57(DEL), 116(2005)DLT232, 2005(79)DRJ383, AIR 2005 DELHI 247, (2005) 79 DRJ 383 (2005) 116 DLT 232, (2005) 116 DLT 232
Author: S. Ravindra Bhat
Bench: D.K. Jain, S. Ravindra Bhat
JUDGMENT S. Ravindra Bhat, J.
1. Rule issued. With consent of parties, the matters have been finally heard.
2. These petitions under Article 226 raise common question of law, hence they were heard and are being disposed by this common judgment.
3. The petitioners question conditions spelt out in the "Expression of interest for execution of dense carpet works on annual rate basis" (hereafter called "the impugned policy" within jurisdiction of the Municipal Corporation of Delhi ("MCD") for 2004-05. The impugned policy was published on 20th May, 2004. It is attacked on ground of arbitrariness and unreasonableness and that the MCD is estopped, by its previous conduct from insisting upon the eligibility criteria framed in the policy.
4. All petitioners are registered contractors with the MCD who claim to have worked for MCD over several years, and successfully executed several dense carpeting contracts (i.e. works in relation to roads and bridges involved in Bituminous Macadam, Asphaltic etc.) The petitioners aver that as per the prevailing practice in the MCD, contractors are registered in separate categories for specific durations and are permitted to bid/tender for different kind of works. The petitioners are registered as class-I contractors on the basis of their past performance and are eligible for submitting tenders. It is averred that in 2001, officials of MCD studied the equipment and premises of various contractors, executing dense carpet works and required them to address certain concerns about their equipment specifically hot-mix plants. Consequently the petitioners upgraded their plants and machinery taking into consideration the specifications issued by the Central Ministry of Surface Transport. The respondent MCD, through its circular, in March 2001, had put the petitioners and all other contractors to notice that only contractors having Hot-mix plants, pavers, three wheel rollers, tandem rollers, vibratory/pneumatic tyred rollers as per the Central Government specifications would be permitted to tender, in future.
5. The MCD issued the impugned policy on 20th May, 2004, inviting expression of interest from reputed technically and financially sound contractors/companies/firms and individuals. The impugned policy essentially spells out pre-qualification conditions for works to be executed under the ages of the MCD. The conditions are:
(i) Requirement of registration with MCD, Central Public Works Department, Delhi PWD or Ministry Engineering Service (MES) in Class-I (un-limited for dense carpet work);
(ii) Requirement of turn over of at lease 3.60 crores for similar works from each of the financial years, of dense carpet works;
(iii) The third requirement can be classified into three parts. The first part contains specifications with regard the equipment such as hot-mix plant; two sensor paver finishers; two vibratory rollers; weigh bridge near hot-mix plant; a technical laboratory equipped with all testing materials; experienced personnel to maintain the laboratory. The second part (clauses vi and vii) relates to employment of experienced qualified technical personnel for the laboratory and two full time Civil Engineering Graduates with three years experience. The third condition (contained in clause-(viii) is extracted below:
"viii) Must have satisfactory performed at least three similar completed works during the last three years not less than Rs. 480 lakhs each;
or Two similar completed works costing not less than the amount Rs. 600 lacs;
or One similar work costing not less than Rs. 960 lakhs.
Note: Similar works means works of Dense carpeting on Roads and bridges i.e Bituminous Macadam, Asphaltic concrete wearing curse and semi dense bituminous macadam and Mix seal surfacing."
6. The petitioners are aggrieved by the eligibility spelt out by para 3(viii) reproduced above. In the petition they have also impugned the condition with regard to the kind of hot-mix plants required to be maintained; however during the course of hearing that ground of challenge was not pressed. The petitioners also allege that the impugned policy is designed to favor a select few and that five concerns have been short-listed for executing the dense carpeting work of whom two are not even Class-I contractors, registered with the agencies specified in the impugned policy. In the light of these, it is alleged that respondents have acted in a mala fide and arbitrary manner.
7. The petition was heard on 5th October, 2004 when, upon being satisfied that the pre-qualification conditions imposed were prima facie arbitrary, an interim order was made directing the respondents not to finalize any tender. That order was continued; the MCD filed its response and also produced the files relating to framing of the impugned policy as well as other documents, pertaining to evaluation of various tenders.
8. The MCD in its affidavit has denied that the impugned policy is arbitrary or un-reasonable. It avers that enlistment of a contractor implies entitlement for consideration for issue of tender paper; it does not confer any right for award of work. The MCD states that the issue of inviting tenders for execution of dense carpet work and mastic asphalt sheeting was discussed in a meeting of the Chief Secretary and Principal Secretary, Urban Development, NCT of Delhi in March, 2004, where it was decided that to invite an expression of interest in the beginning of the financial year to avoid a lengthy tendering procedure and to have competitive rates at the outset of the financial year. The MCD avers that the notice for expression of interest in question was initiated having regard to the quantum of work under each of the five Chief Engineers in the MCD. Accordingly, the pre-qualification criteria based upon annual work, estimated at Rs. 12 crores per Chief Engineer was fixed. The basis for further spelling out the eligibility criteria, as per para 3(viii), is the office memorandum dated 17th December, 2002, issued by the Central Vigilance Commission(CVC).
9. The office memorandum of CVC, (No. 12.02.1 CTE-6 dated 17th December 2002) appears to have been framed as a result of certain complaints in regard to discriminatory pre-qualification criteria adopted in tendering processes. After observing that pre-qualification criteria is either not clearly specified or made very stringent/very lax to restrict/ facilitate the entry of bidders, the CVC formulated the parameters to be followed. Relevant extracts of the circular are extracted below:
"2. The pre-qualification criteria is a yardstick to allow or disallow the firms to participate in the bids. A vaguely defined PQ criteria results in stalling the process of finalizing the contract or award of the contract in a non-transparent manner. It has been noticed that organizations, at times pick up the PQ criteria from some similar work executed in the past, without appropriately amending the different parameters according to the requirements of the present work. Very often it is seen that only contractors known to the officials of the organization and to the Architects are placed on the select list. This system gives considerable scope for malpractices, favoritism and corruption. It is, therefore, necessary to fix in advance the minimum qualification, experience and number of similar works of a minimum magnitude satisfactorily executed in terms of quality and period of execution.
3. Some of the common irregularities/lapses observed in this regard are highlighted as under:-
i) For a work with an estimated cost of Rs. 15 crores to be completed in two years, the criteria for average turnover in the last 5 years was kept as Rs. 15 crores although the amount of work to be executed in one year was only Rs. 7.5 crores. The above resulted in pre-qualification of a single firm.
ii) One organization for purchase of Computer hardware kept the criteria for financial annual turn over of Rs. 100 crores although the value of purchase was less than Rs. 10 crores, resulting in disqualification of reputed computer firms.
iii) In one case of purchase of Computer hardware, the pre-qualification criteria stipulated was that the firms should have made profit in the last two years and should possess ISO Certification. It resulted in disqualification of reputed vendors including a PSU.
iv) In a work for supply and installation of AC Plant, retendering was resorted to with diluted pre-qualification criteria without adequate justification to favor selection of particular firm.
v) An organization invited tenders for hiring of DG Sets with eligibility of having 3 years experience in supplying D.G. Sets. The cut off dates regarding work experience were not clearly indicated. The above resulted in qualification of firms which had conducted such business for 3 years, some 20 years back. On account of this vague condition, some firms that were currently not even in the business were also qualified.
vi) In many cases, "Similar works" is not clearly defined in the tender documents. In one such case, the supply and installation of A.C. ducting and the work of installation of false ceiling were combined together. Such works are normally not executed together as A.C. ducting work is normally executed as a part of A.C. Work while false ceiling work is a part of civil construction or interior design works. Therefore, no firm can possibly qualify for such work with experience of similar work. The above resulted in qualification of A.C. Contractors without having any experience of false ceiling work although the major portion of the work constituted false ceiling work.
4. The above list is illustrative and non exhaustive. While framing the pre-qualification criteria, the end purpose of doing so should be kept in view. The purpose of any selection procedure is to attract the participation of reputed and capable firms with proper track records. The PQ conditions should be exhaustive yet specific. The factors that may be kept in view while framing the PQ Criteria includes the scope and nature of work, experience of firms in the same field and financial soundness of firms.
5. The following points must be kept in view while fixing the eligibility criteria:-
A) For Civil/Electrical Works
i)Average Annual financial turnover during the last 3 years, ending 31st March of the previous financial year, should be at least 30% of the estimated cost.
ii)Experience of having successfully completed similar works during last 7 years ending last day of month previous to the one in which applications are invited should be either of the following:-
a) Three similar completed works costing not less than the amount equal to 40% of the estimated cost.
OR
b) Two similar completed works costing not less than the amount equal to 50% of the estimated cost.
Or
c) One similar completed work costing not less than the amount equal to 80% of the estimated cost.
iii) Definition of `Similar work' should be clearly defined. In addition to above, the criteria regarding satisfactory performance of works personnel establishmente plant, equipment etc., may be incorporated according to the requirement of the project.
******* ******** *******
6. It is suggested that these instructions may be circulated amongst the concerned officials of your organization for guidance in fixing pre-qualification criteria. These instructions are also available on CVC's website/http//cvc.in."
10. The MCD avers that the fixing of pre-qualification eligibility conditions, based upon the CVC circular cannot be characterized as arbitrary or un-reasonable. It is also averred that the eligibility condition about similar work was laid down after due consultation within the MCD; that in response 8 concerns tendered, of whom only 5 fulfillled the criteria. Though, all five were issued with tender documents yet only two firms finally showed interest in carrying out the work and have quoted their rates.
11. The file discloses that the issue of Expression of interest was discussed by MCD, with the Government of National Capital Territory (NCT) in March, 2004; where it was decided to adopt a pre-qualification process, to avoid lengthy tendering procedure. A note, dated 8-4-04 drew attention to the CVC guidelines, and enclosed a copy of those guidelines. At the same time, the procedure adopted in the CPWD Manual was also indicated, and it was noticed that as per Para 16.1, pre-qualification could be resorted to when the Estimated cost of the work is up to Rs. 5 crores, or when it is more than Rs. 2 crores, up to Rs. 5 crores, with a discretion to the Additional Director General ( ADG) CPWD to pre-qualify contractors. A draft notice for publication was called for and the same was put up for consideration on 26th April, 2004. This draft contained the impugned condition; it was approved the Expression of Interest, as appearing in the impugned policy, was subsequently published on 20th May, 2004.
12. After the publication of the impugned policy outlining pre-qualification procedures, expressions of interest (hereafter" responses") were received; and an Evaluation Committee consisting of seven officers was constituted, on 9-6-04. That committee fixed certain parameters for considering and evaluating the expression of interest received from various contractors. The parameters included marks for financial strength; experience in similar works; performance on works; quality; personnel and establishment and Plant and Equipment , in respect of each tenderer.
13. The Evaluation committee considered all the tenders, and concluded that only three firms fulfillled the pre-qualification conditions; that though two other firms had the required experience in similar works, etc, they were ineligible since they were not registered as per the impugned policy. The Minutes of meeting, of the committee, dated 16th July, 2004 further states as follows:
"From the above it is seen that the only three firms have qualified as mentioned above. Looking to the quantum of Dense carpet work to be executed in MCD during 2004-05, it may not be possible for these firms to work in four zones each at a time.
Recently an office memorandum from Central Vigilance Commission bearing No. 12-02-1-CTE-6 dated 7.5.04 has been received, which reads as:
"Guidelines were prescribed in this office OM of even number dated 17.12.2002 on the above cited subject to ensure that the pre-qualification criteria specified in tender document should neither be made very stringent nor very lax to restrict facilitate the entry of bidders. It is clarified that the guidelines issued are illustrative and organizations may suitable modify these guidelines for specialized jobs/works, if considered necessary. However it should be ensured that the PQ criteria are exhaustive yet specific and there is fair competition. It should also ensure that the PQ criteria are clearly stipulated in unambiguous terms in the bid documents."
In the instant case as only three firms have qualified, a fair competition may not be possible. In view of the above guidelines from CVC and quantum of work likely to be executed in 12 zones of MCD, we may need more than three firms for timely completion of work. Therefore committee recommends that the department may consider to relax the PQ conditions so that more contractors are able to participate in PQ?"
The file was put up for consideration of the Commissioner, with a note by the ME/ Engineer in Chief ( hereafter "EIC") that in respect of the two ineligible contractors, it would be in the interest of work that those with registrations in other states also be allowed to participate in the process, and a relaxation be made in that regard. The Commissioner queried as to the prevailing practice in other states, about permitting firms which were not registered with local bodies, and whether there was any resolution of the MCD. The ME/ EIC, by a note dated 27th July, 2004 indicated that this was being taken up for the first time. Accordingly, the relaxation in favor of the two firms was approved.
14. The process of issuing individual tenders appears to have been underway, when a note was put up, in August, 2004 that the estimated works to the tune of Rs. 30-40 crores would be taken up during the financial year, and that the pre-qualifying criteria fixed was on the higher side. Notice was also drawn to the Evaluation Committee's recommendation, and it was stated that the pre-qualifying criteria could be set at Rs. 4 crore per zone, instead of Rs. 12 crores. It was also stated that each work under the EOI was more than Rs. 2 lakhs and for execution of such works press publicity was required. On 20-9-04, after discussion with the EIC, a note was prepared, by Chief Engineer III. It inter alia stated as follows:
"Expression of interest was called on the basis of assumption that the work will cost Rs. 12 Crores for each zone accordingly qualifying criteria was fixed. Whereas as per actual requirement received from the zones up to 15/9/04 works amounting to Rs. 50 lacs to 660 lacs are to be carried out by different zones (requirement for dense works for Narela and CLZ is nil so far up to 15/9/04) As such fresh qualifying criteria needs to be fixed.
2. As per CPWD Circular No. DGW/MAN/111 dated 23/4/04, the existing system of pre-qualification of contractors prior to call of financial bids has been kept in abeyance for a period of two years. As such bids may be invited in two cover system, first cover containing technical bio-data of the tendering firm and financial bid shall be opened of those firms who fulfilll the minimum technical experience requirement to be decided and assessed by the committee already formed?"
15. The file indicates that after the above note the process of finalization of the works was undertaken, and the processing of financial bids of the firms was taken up. There is no further discussion of the Evaluation Committee's observations, or the note dated 20th September, 2004, about the need to consider review of the eligibility criteria.
16. Shri Arun Bhardwaj and Shri A. Maitri, learned counsel appearing for the petitioners submit that the impugned policy is arbitrary and is deliberately designed to keep out contractors who are otherwise eligible and qualified to undertake the works in question. Learned counsel submit that para 3 (viii) of the impugned policy was formulated without having regard to the quantum of work likely to be taken up or executed, by different zones of MCD. They submit that the fixation of pre-qualification criteria had to be done in a fair and reasonable manner, having regard to one of the principal objectives, namely selection of the best contractor, in the most competitive manner. The fixation of eligibility criteria of having undertaken "similar works,"[ i.e three similar completed works during the last three years not less than Rs. 480 lakhs; or worth Rs. 6 crores each for two years or worth Rs. 9.6 crore in any one year,] is unreasonable and arbitrary, according to learned counsel. They submit that the MCD itself has never awarded contracts of such size, and that even as per this policy, there is no indication that there would be any one, or group of contracts of that magnitude. Hence the question of insisting upon these criteria is arbitrary. Learned counsel also submit that the estimated value, upon which the criteria is based, is artificial. The total volume of work to be done in the year is to the tune of Rs. 60 crores. To demonstrate the lack of rational basis, it is submitted that even the total value has not been the basis. The estimation on which "similar works" is based in the present case is assailed as exaggerated, and destructive of the need to have a fair and competitive tendering process.
17. Learned counsel also submit that the action of MCD is arbitrary, and discriminatory as well, since it has considered the case of two parties, who, as per the impugned policy, were not eligible. These parties, it is submitted, did not fulfill the eligibility criteria of registration with MCD/ CPWD/ Delhi PWD or MES; they were registered with other states/ state agencies. In the absence of an exemption or corrigendum to the impugned policy, and the Expression of Intent, it was not permissible to relax these conditions, deemed essential. Doing so, it is submitted, abridges and violates the equality protection guaranteed by Article 14.
18. Shri Ashok Bhasin, learned counsel for the MCD, submits that the impugned policy is neither arbitrary nor unreasonable; that the fixing of eligibility criteria was based upon valid and relevant considerations. Besides, he submits that the criteria impugned are based upon guidelines of CVC, which have general application. He further submits that nothing on record, either in the pleadings or the materials placed before the court, can lead to the inference that any discriminatory treatment or practice has been resorted to in the matter of fixation of eligibility criteria.
19. Learned counsel submits that the function of fixation of criteria in the present case cannot be faulted. The total estimated works were to the tune of Rs. 60 crores; however, having regard to the fact that there were five chief engineers, manning different zones, the figure of Rs. 12 crores (being one fifth of the said total of Rs. 60 crores) was determined as the basis for working out the eligibility. This, it is submitted, under no circumstances can be seen as arbitrary or irrational. Being in the realm of policy formulation, the MCD was of the view that having regard to the total quantum of work, it would be necessary to ensure that those with considerable financial standing and experience of having executed similar works of a large magnitude, were short listed. It is submitted that the work of dense carpeting is important and that the total estimated cost being Rs. 60 crores, only contractors with experience of similar works were to be considered.
20. Learned counsel further submits that the petitioners cannot complain of violation of any legitimate expectation nor can set up estoppel, against MCD. Their rights as enlisted or registered contractors merely enabled them to be considered in projects where such eligibility is deemed essential; however such enlistment or registration does not lead to the conclusion that in all works they are entitled to tender documents, regardless of the conditions spelt out there.
21. It is submitted that the impugned policy does not suffer from mala fides or "Wednesbury" unreasonableness so as to justify judicial review.
22. In Tata Cellular v. Union of India, the Supreme Court, re-stated the law in the realm of public contracts and policies that impact upon commercial or economic matters, after reviewing its previous position on the scope of judicial review. The relevant portion of the judgment, outlining the powers and duties of the State or its agencies, is reproduced below :
"(5) The Government must have freedom of contract. In other words, a fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness (including its other facts pointed out above) but must be free from arbitrariness not affected by bias or actuated by mala fides."
23. As to what precisely is " Wednesbury" unreasonableness or irrationality, was discussed in four paragraphs of Tata Cellular (supra). It would be useful to extract a quotation, (occurring in para 79 page 679, SCC reports of Tata Cellular), -describing the scope of such irrationality or unreasonableness from R. v. Tower Hamlets London Borough Council, ex p Chetnik Developments Ltd.:
"The Court is entitled to investigate the action of the local authority with a view to seeing whether or not they have taken into account matters which they ought not to have taken into account, or, conversely, have refused to take into account or neglected to take into account matter which they ought to take into account. Once that question is answered in favor of the local authority, it may still be possible to say that, although the local authority had kept within the four corners of the matters which they ought to consider, they have nevertheless come to a conclusion so unreasonable that no reasonable authority could ever have come to it. In such a case, again, I think the court can interfere?"
24. The Supreme Court, as well as this court, have been consistently following the decision in Tata Cellular, in cases involving award of tenders, policy formulation by the State or public agencies, etc. The effect of certain subsequent decisions may, therefore, be summarized as follows:
(a) Courts can interfere when the policy or the award of contract is arbitrary, or discriminatory, is mala fide or it has no nexus with the object it seeks to achieve, ( Ref Monarch Infrastructure (P) Ltd. v. Commissioner, Ulhasnagar Municipal Corpn; also Directorate of Education v. Educomp Datamatics Ltd.);
(b) The power of judicial review has to be used, to interdict state agencies' policies, or actions, in the realm of award of contracts, with great care and circumspection, and not merely because according to courts, the policy or measure is incorrect ( Ref MP Oil Extraction v. State of MP; Air India Ltd. v. Cochin International Airport Ltd.). In Air India Ltd. v. Cochin International Airport Ltd., it was held that judicial intervention would be warranted only when the overwhelming public interest so requires it.
25. Monarch Infrastructure (P) Ltd.,( supra) and Union of India v. Dinesh Engineering Corpn., are instances where the court intervened, in exercise of judicial review. In Dinesh Engineering Corpn.( supra) it was held as follows:
"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."
Bernard Schwartz, in Administrative Law, 2nd Edn., p.584 stated as follows:
"If the scope of review is too broad, agencies are turned into little more than media for the transmission of cases to the courts. That would destroy the values of agencies created to secure the benefit of special knowledge acquired through continuous administration in complicated fields. At the same time, the scope of judicial inquiry must not be so restricted that it prevents full inquiry into the question of legality. If that question cannot be properly explored by the judge, the right to review becomes meaningless. 'It makes judicial review of administrative orders a hopeless formality for the litigant. ... It reduces the judicial process in such cases to a mere feint.'
26. In the light of the above principles, it is necessary to examine whether the impugned policy is fair, reasonable and non-arbitrary.
27. The process of determining pre-qualifuing conditions was taken up in March 2004. The record discloses that the MCD went by the guidelines of CVC. Those guidelines indicate that pre qualifying conditions are to be fixed in such a manner as to ensure precision in the eligibility criteria on the one hand and facilitate fair and competitive participation of the various concerns on the other. The guidelines note that complaints were received that pre-qualification criteria are often either not clearly specified or are made very stringent/very lax to restrict/facilitate the entry of bidders. The CVC also noted that the pre qualification criteria are often formulated by merely following the criteria from some similar work executed in the past without appropriately amending different parameters according to the work at hand. The guidelines notice six illustrative instances where the formulation of pre qualification criteria led to elimination of competition or other irregularities. The illustration at para 3 (i) may be usefully noticed at this stage. It reads as follows :-
"3. Some of the common irregularities/lapses observed in this regard are highlighted as under:-
(i) For a work with an estimated cost of Rs. 15 crores to be completed in two years, the criteria for average turnover in the last 5 years was kept as Rs. 15 crores although the amount of work to be executed in one year was only Rs. 7.5 crores. The above resulted in pre-qualification of a single firm?"
The guidelines specifically notice that the purpose of any selection procedure is to attract the participation of reputed and capable firms with proper track records and pre-qualification conditions should be exhaustive and also specific. It also further states that while framing such criteria factors such as scope and nature of work, experience of firms in the same field and financial soundness have to be kept in mind. After noticing these the guidelines in respect of formulation of pre qualification for civil and electrical works have been spelt out in para 5 (A) .
28. The records of the MCD do not reveal any independent consideration of the nature of the work in the present case, namely, dense carpeting; the likely or estimated value of the contract and other factors which would be deemed necessary at the stage of formulating the pre qualifying conditions (i.e. April- May 2004). This was needed particularly, when a new system of tendering, through a pre-qualifying process was sought to be introduced. The entire thinking appears to have been to adopt the CVC guidelines and formulate the impugned policy on that basis.
29. After various parties and contractors gave responses, to the impugned policy, a committee of seven officers was set up in June 2004 for the purposes of evaluation. This Committee analysed the responses received, formulated its own marking system or evaluation mechanism. On 16.07.04, the Committee prepared a note/memorandum with regard to the evaluation criteria. The first part of that report notes that of the eight parties who had tendered, two had the experience but were not registered as per the impugned policy and that four tenderers did not fulfilll the required pre qualification criteria. It was further noted that only three firms had qualified. The Committee was of the view that looking at the quantum of dense carpet work to be executed during 2004-05, it would not be possible for those firms to work in four zones each at a time. The Committee also took note of a recent office memorandum of CVC dated 07.05.04 which had again cautioned against pre qualification criteria being formulated in very stringent or very lax manner. The committee then concluded that a fair competition may not be possible and that since there were 12 zones in the MCD where work had to be completed, it would be necessary to relax the pre qualification conditions to enable wider participation. This part of the note however has not been commented upon by the Competent Authority. It merely proceeded to sanction the proposal for relaxation of norms in the case of the two firms which were ineligible. Again, at the stage of processing of the cases of tenders, two notes were put up one on 31st August 2004 and the other on 20th September 2004. The note dated 20th September 2004 has an important bearing. It records that as per the actual requirements received from these zones up to 15.09.04, the figure of estimated value of works ranges between Rs. 50 lacs to Rs. 660 lacs. In the light of this, attention was drawn to the fact that the assumption of estimated work being Rs. 12 crores for each zone, was not accurate and that a fresh qualifying criteria needed to be fixed.
30. The two notes which deal with the actual estimates based upon the figure supplied by the Planning Department were again put up before the EIC who appears to have convened a meeting with all the Chief Engineers to finalize the offer for short listing firms on 21 September 2004. His order dated 22nd September records that financial bids be received and processed from all five firms including the two firms determined to be ineligible, though their bids to be kept in sealed covers. The order of the EIC, nowhere discusses the notes put up in regard to the need to re-evaluate the pre qualification criteria.
31. The following features emerge from the above discussion:-
(i) The policy to short list certain firms after undertaking a pre-qualifying process, in respect of dense carpet works was conceived, for the first time in March 2004. Its purpose was to speed up the process of tendering and completion of works.
(ii) At the stage of formulation of pre qualifying eligibility criteria, there was no discussion on the file with regard to the estimated cost of the works likely to be undertaken, either, zone wise (since there are several zones of the MCD) or Division wise.
(iii) The pre qualifying eligibility conditions were published through the impugned policy on 20th May 2004, based upon the MCDs understanding and its adoption of, the CVC guidelines dated 17.05.2002.
(iv) The bids of eight concerns were considered. For this purpose a committee of seven officials was set up. That committee inter alia in its note dated 16.07.04 recorded that -
[a] the only three firms found eligible by it, in its opinion, would be unable to take up all the works;
[b] two firms had the experience but were ineligible on account of the registration criteria.
[c] in the light of the CVC circular dated 07.05.04 and in the interests of fair competition, it was necessary to consider relaxing the pre qualification criteria.
(v) The competent authorities of MCD proceeded to relax the case in respect of those two firms which were deemed ineligible. However, record does not disclose any consideration about the assessment made by the committee in regard to the need to redefine the eligibility/ relax criteria, generally for ensuring fair competition.
(vi) In August and September 2004, two nothings were made, in the light of figures made available subsequently. The sum and substance of these nothings is that the annual estimated value of the works would be in the range of 30-40 cores and that the estimate for each zone varied from Rs. 50 lacs to Rs. 660 lacs. The note dated 20.09.04 by the Chief Engineer (III) specifically sought for revision of the eligibility criteria on this score;
(vii) The subsequent nothings and decisions in the file are silent about consideration of the factors pointed out as being necessary to revise the eligibility criteria in the light of actual estimates made available.
32. The guidelines of the CVC itself notice the formulation of pre- qualifying criteria have to be both precise and based upon relevant considerations. The illustration contained in that document particularly, para 3(i) show that an exaggerated or artificial basis for fixing the estimate for similar works would result in eliminating fair competition. The object of any criteria fixing exercise is, two fold. First, ensuring that only those concerns which have a proven track record with sufficient experience and sound financial standing are permitted to bid. Second, ensuring fair competition. Both these considerations are of paramount importance as per the guidelines of the CVC, and to our mind, also as facets of reasonableness, fairness and non-arbitrariness in the context of the tendering process.
33. In the present case, what emerges from the pleadings and the records of MCD is that the total quantum of work for dense carpeting is to the tune of Rs. 60 cores. However, it is not the MC D's case that this total quantum is to be considered as the basis for defining the estimated cost. That was admittedly on some other consideration. The submission on behalf of MCD is that the three criteria outlined in (i.e. "similar works") in para 3(vii) of the impugned policy, is based upon a division wise calculation. In normal circumstances, we would have concurred with this submission. However, in the facts of the present case, we cannot ignore the factors indicated in para 31 (supra) namely, that at the stage of formulation of the criteria, there was no consideration as to what constituted a fair estimate. The impugned policy was published on the basis of the estimate being Rs. 12 crores. When the responses were being analysed, the committee itself was of the view that the tenderers would not be in a position to execute all the works. The committee recommended relaxation of the pre qualying criteria generally and specifically, in the case of two firms with regard to the registration conditions. It may be noticed that there is no clause or condition in the impugned policy which empowers MCD to relax such conditions. We have to bear in mind the fact that being a public body, the MCD cannot depart from the standards prescribed; they are equally binding upon it. (Ref West Bengal State Electricity Board v. Patel Engineering).
34. The recommendation of the committee about the need to relax the eligibility criteria to enable a fair competition was not considered. The subsequent notes focusing on the actual figures received from various zones reveal that the estimates varied between Rs. 50 lacs and Rs. 660 lacs. This, crucial information had a vital bearing on the decision making process. Equally, the note dated 31 August, 2004, indicating that the estimated total quantum of work for the year was Rs. 30- 40 crore, was of critical importance. The record however does not disclose any application of mind to these factors and all the authorities proceeded with the original decision and merely decided to finalize the response to specific tenders from the short listed tenderers. These, in our opinion, betray complete non application of mind.
35. As noticed earlier, the government or its agencies while acting in the contractual field have considerable latitude or elbow room in finalizing the "terms of engagement" if one could use that expression. However, equally the requirement of fairness and non arbitrariness cannot be lost sight of; there can be no lowering or compromise with those Constitutionally sanctioned standards. The fixation of an unrealistic or exaggerated threshold as the basis for estimating similar works, or eligibility criteria which has no reasonable co-relation with the value of the contract, in our view adversely impacts on the need to have fair and wide participation in a public tendering process. What has happened in the preset case is that the basis [of similar works] has not been on any objective material, or after consideration of any estimate. Even this is not borne out from the record; we are left to surmise this. When the actual figures were made available along with the fact that only five firms (of whom two could not be regarded as eligible) had the requisite experience as per the impugned policy, and that the three eligible firms in the opinion of the committee could not possibly execute the works, the MCD nevertheless decided to proceed with the process of finalizing tenders for different works.
36. After giving our anxious consideration, we cannot but hold that the impugned policy, in effect subverts rather than sub serves the purpose of fair competition based upon a reasonable estimate of what constitutes similar works. It effectively eliminates a wider participation, and keeps out parties who are otherwise eligible, on unreasonable considerations. By drawing a very high threshold or eligibility condition (contained in Para 3 (viii), i.e three similar completed works during the last three years not less than Rs. 480 lakhs; or worth Rs. 6 crores each for two years or worth Rs. 9.6 crore in any one year) the impugned policy is unreasonable and arbitrary.
37. The public interest, in a fair competition, in this case, in our view, based upon a reasonable and fair assessment of all factors that are relevant, and germane, far outweighs the interest of the state agency in being left alone to formulate its policies, with sufficient "elbow room". The considerations that seemed to weigh with MCD while fixing the criteria in the impugned policy, were based on non-existing, or irrelevant factors. This led to elimination of a large number of tenderers, even though the actual estimated work was far less than Rs. 12 crores. If the estimate for fixing similar works were based upon figures that had some semblance of relationship with the actual estimates, this result would not have ensued. The impugned condition in our view is based upon an assumption or conclusion so unreasonable which no reasonable authority or person could ever have come to having regard to the facts presented in this case. Accordingly, we hold that the overwhelming public interest requires our intervention, under Article 226 of the Constitution.
38. In the result of the foregoing discussion, we allow the petitions, in terms of the following directions:
(a)Para 3(viii) of the impugned policy, viz "Expression of interest for execution of dense carpet works on annual rate basis within jurisdiction of the Municipal Corporation of Delhi 2004-05" published on 20th May, 2004, by the first respondent is declared as arbitrary and unreasonable. An appropriate direction quashing that condition shall issue;
(b)The respondent Municipal Corporation of Delhi shall formulate, instead of the above condition, an appropriate eligibility clause which bears nexus with the actual estimate of work. The modality of working out or formulating such a criteria is left to the discretion of the Municipal Corporation of Delhi;
(c)The direction contained in (b) above shall be carried out within five weeks from today, after which the amended "Expression of interest for execution of dense carpet works on annual rate basis" may be published within two weeks thereafter.
39. In view of our above directions, all pending interlocutory applications are rendered infructuous, and are disposed off in the above terms. No costs.