Karnataka High Court
Boskails Westminster Deadging By ... vs New Mangalore Port Trust on 25 November, 1994
Equivalent citations: ILR1995KAR224
Author: R.V. Raveendran
Bench: R.V. Raveendran
ORDER
Raveendran, J
1. This Writ Petition relates to the award of a Civil Engineering Contract known as 'CONTRACT C-3 : Capital Dredging' by New Mangalore Port Trust (the first Respondent herein, also referred to as NMPT) to HAM DREDGING Co., on 23.9.1994. The Trustees of the first respondent have passed Resolution No. 43 dated 23.9.1994 according approval to accept the recommendations of its Tender Committee and approve the award of the Contract C-3 Capital Dredging, under Section 34(1) of the Major Port Trusts Act, 1963 in favour of M/S HAM DREDGING CO., at the lowest evaluated cost of Rs. 106,93,78,780/- (based on 70% of the contract amount payable in Foreign Currency calculated at Rs. 1=0.06 DFI to be firmed up in Indian Rupees as on the date of issue of letter of Acceptance based on the Exchange Rates to be notified by the State Bank of India, Mangalore, on that date, any increase or decrease in cost due to Statutory change in Rupee value against US Dollars, by the Government of India, being to the Account of NMPT).
The petitioner has sought a direction restraining the respondent from accepting the bid of any tenderer in pursuance of its said Resolution or taking any steps to award the work of Contract C-3 to any tenderer in pursuance of the said Resolution or otherwise. Petitioner also seeks a direction to the first respondent to consider all the tenders submitted to it in regard to the works of Contract C-3, affording equal opportunity to all and not to make any unfair and arbitrary distinction based on irrelevant consideration in favour of any tenderer. The petitioner further seeks a direction to restrain the first respondent from proceeding to award the contract except after considering fairly, the tenders submitted by the petitioner and other tenderers.
2. FACTS OF THE CASE:
2.1. The First Respondent has taken up three major Civil Engineering works for creation of Port facilities for the proposed Refinery at Mangalore. Contract C-1 relates to construction of New Crude Oil Berth and strengthening of the existing Oil Jetty. Contract C-2 relates to Extension of Northern and Southern Break-waters. Contract C--3, with which we are concerned in this Petition, relates to Capital Dredging. Contract C-1 and C-2 have already been awarded and the works are in progress.
2.2. Based on pre-qualification applications, eight contractors were pre-qualified for Contract C-3. Among them, only six submitted their tenders. Out of the six, M/s Dredging Corporation of India, was the only Indian Contractor. The other five were Foreign Contractors. The Tenderers were required to submit their tenders in two parts, of which Part-I was the Technical Bid (Relating to technical aspects of the project) and Part-It was the Price Bid (relating to the Price at which the work was to be done). On 3.12.1993, the technical bids were opened. After considering them, clarification was sought from the Tenderers. Wherever the clarifications involved financial implications, the Tenderers were given an opportunity to submit revised price bids, if necessary, to conform to the tender requirements. Only one tenderer (M/s Jan De Nul, Belgium), gave a revised price bid. The others only submitted clarifications. On 12.4.1994, the final bids were opened. The prices quoted by the six tenderers (after correcting arithmetical errors) were as follows:
"SI. No. Name of Tenderer Price quoted (Rupees in Crores)
(i) BALLAST NEDAM 134.253
(ii) BOSKALIS (Petitioner) 128.673
(iii) DREDGING INTERNATIONAL 218.119
(iv) HAM DREDGING 136.851
(v) JAN DE NUL 127.343
(vi) D.C.I. 149.095 2.3. The price quoted by Dredging International was found to be very high and not considered for further evaluation. The five foreign tenderers had added certain conditions/stipulations in their price bids, even though NMPT had clearly instructed that bids should be clear and unconditional. As the conditions/stipulations imposed by the tenderers had financial implications, it became necessary to quantify the same by either adding or deducting the quantified amount from the quoted price, so as to bring all tenders at par or to a position of equality, to enable the evaluation of the lowest bid. This may be illustrated by the following two examples :
(a) Let us say the first Tenderer had quoted 'x' as the total price; and the second tenderer had quoted 'y' as the total price but also imposed a condition that Income-tax payable would be extra; then for the purpose of ascertaining which is the lowest tender, figures 'x' and 'y' alone cannot be taken; the income-tax payable by the second tenderer had to be quantified and added to the figure of 'y' quoted by him. as in his case the actual bid will not be 'y', but 'y' plus income-tax.
(b) Let us say that a tenderer had quoted 'M' as the tender price and states that the tender price is inclusive of Sales-tax payable by him to the State Government for the work; but in fact there is no Sales-tax liability at all in law in regard to the work; then the tenderer has to be instructed to deduct the Sales Tax component from the bid amount of 'M' to arrive at the actual bid amount.
2.4. The conditions/stipulations incorporated by the foreign tenderers which came in the way of evaluation of the bids, related to sales-tax, turnover-tax, customs duty, income-tax, payment of foreign exchange component at a fixed rate, interest free mobilisation advance, additional mobilisation charges and other conditions which affected the tender cost. NMPT also found that some of the conditions specified by the tenderers were not exactly quantifiable and slightest difference in interpreting the conditions changed the inter-se ranking of tenderers in terms of their bid. Hence the first respondent requested its consultants, [M/s Consulting Engineering Services (India) Private Ltd]., to evaluate the Bids. The said Consultants evaluated the tenders and recommended the award of the work after conducting negotiations with the three lowest tenderers namely (1) Boskalis West Minister Dredging (petitioner herein); (2) M/s Ham Dredging; and (3) M/s Ballast Nedam, on the following three points:
(i) Reconfirmation of foreign exchange component;
(ii) Clarification regarding taxes and duties provided in the tender; and
(iii) Reconfirmation of the programme work in view of the delay in the sanction/award of the work.
2.5. On account of the difficulties in interpreting the conditions/stipulations in the tenders, the first respondent decided, after deliberations and consultations with the Ministry, to seek clarification, regarding Customs Duty, Sales Tax/Turnover Tax and Income Tax from the tenderers. Accordingly NMPT wrote to the tenderers on 11.7.1994 asking them to furnish the particulars of the amounts included in the Tender on those three components. The clarifications received from the tenderers were forwarded to the consultants. The consultants, by their letter dated 22.7.1994 (Annexure R-3) concluded that the bid of the petitioner was the lowest and recommended that petitioner and DCI may be called for negotiations to seek confirmation regarding various duties and taxes, revised construction programmes etc., before considering award of the contract.
2.6. The Tende, Committee which consisted of four Senior officials of the NMPT and two outside members Senior Officials of other Port Trusts) met on 21st and 22nd July 1994 and after evaluation of the tenders, recommended obtaining of further clarifications from the petitioner. The petitioner appeared before the Tender Committee on 4.8.1994 and furnished some clarifications. The petitioner prepared a Note/Record in regard to the clarifications furnished on 4.8.1994 and sent it to the first respondent under cover of its letter dated 5.8,1994 (Annexure-D). After considering the clarifications given by the petitioner at the meeting dated 4.8.1994, the Tender Committee felt that it was still not possible to make an evaluation on a common basis as they had not agreed to some of the tender conditions relating to Foreign Exchange variation, cost of transfer of money, reduction of avoidable Mobilisation/Demobilisation charges due to changed programme, etc. Hence the Tender Committee, by its proceedings of the Meeting held on 4th to 6th August 1994 (Annexure-R5) came to the conclusion that there were only the following two alternatives to resolve the difficult situation:
(a) To close all the tenders received and recommend limited fresh tenders;
(b) To invite all the tenderers for an in-camera discussion and inform them to withdraw all conditions and submit their firm price bids during the in-camera discussion itself in a sealed cover one by one and open all the sealed covers and carry out the evaluation afresh.
The Tender Committee opined that it is preferable to go in for the Second alternative to save time and to get a clear unambiguous price bid.
2.7. In pursuance of the said recommendation, NMPT wrote a letter dated 10.8.1994 to all the six tenderers. The letter is extracted fully for ready reference :
"Please refer to your tender for the above work and subsequent clarifications. Since the submission of the above tender, there have been certain changes in the work scenario. Some of the tenders have specified certain conditions which are having financial implications and cannot be quantified for the purpose of evaluation. You are requested to depute your authorised representative who will be able to take financial and technical decisions during the in-camera discussions for submitting a firm offer in BOQ form and revised Methods Statement and Activity Chart without attaching any conditions thereon taking the following factors into account, at 10 A.M. on Tuesday the 23rd Aug. 1994 at the above address.
1. The Clause No. 9 - Section III - Para-11 Conditions of particular Application and addendum in the above clause may be treated as deleted. It is further clarified that Sales/Turnover tax on works contract is not applicable for this work as clarified by the Sales Tax Authorities. Hence, you need not load your tender for this liability.
2. The customs duty liability has to be fully borne by you.
3. Payment of Income-tax is your liability and NMPT will not take any responsibility towards this except deducting tax at source at the rates as may be specified by the IT, tax authorities from time to time.
4. You may revise the Method Statement and active chart taking the following factors into consideration:
-- The letter of acceptance is likely to he issued during October/November 1994.
-- The Jetty contract has been awarded on 1st July 1994 with a completion period of 17 months. You should reschedule your sequence of work to confirm to the above requirement as indicated in Clause 6 and 7 - vol.2-General Particulars and Requirements. The entire work should be completed by May 1996.
-- You should include the post monsoon maintenance dredging of 1994 and 1995 for the quantities already indicated in the BOQ duly incorporating required mob and de-mob charges in the BOQ.
5. The disposal of the dredged material under item No. 3-Bill No. 11 of BOQ shall be at area No. 1 and no alternative will be considered.
6. A purchase preference of 10% of the lowest price is permissible to Dredging Corporation of India as per rules.
7. 75% of the Contract price to foreign contractors and 10% to DOI will be payable in foreign currency at a fixed exchange rate of Rs. 1=0.056 dfl. The Exchange variation if any will be borne by NMPT.
8. The Tenderers shall note that alternative or qualifying conditions or clarifications in any form will be treated as non-responsive and such tenders have liable for rejection.
Kindly acknowledge receipt and confirm."
2.8. This was followed by NMPT's letter dated 14.8.1994 to all tenderers modifying the earlier letter dated 10.8.1994 in the following manner:
"Taking into account the present day Sales Tax/Turnover Tax, Income-Tax Customs Duty and Foreign Exchange Regulations and any other conditions, you are requested to submit in a sealed cover at 10-00 a.m. on Tuesday on 23rd August 1994, the total concessions you will be offering over your quoted price indicated in the original price bid."
2.9. Again a further letter dated 19.8.1994 was issued by NMPT to the tenderers in continuation of its earlier letters dated 18.8.1994, 14.8.1994 clarifying the requirements as follows:
"(i) No fresh or revised offers will be entertained.
(ii) Only the amounts which have already been quoted by you in your original offer against the items of Sales Tax, Turnover Tax, Income Tax, Customs duty and Foreign Exchange Regulations and other conditions which have been entailed addition of sums of money can now be deducted from the Original offer.
(iii) The final price will be arrived at after deducting these amounts (which have already been quoted in the original offer) from the Original offer.
(iv) The clarifications shall be submitted in a sealed cover at 10.00 A.M. on Tuesday, the 23rd August, 1994, It may please be noted that there will be no in camera discussions."
2.10. In response to the said three letters, the petitioner sent a reply dated 23.8.1994 informing the first respondent that the issues raised in the said three letters were already clarified by the petitioner during the meetings held on 4th and 5th August 1994 and which was duly confirmed in the petitioner's two letters dated 5.8.1994. Thus, in response to the three letters, seeking clarifications and particulars, the petitioner did not choose to give any fresh clarifications or details, but referred to the clarifications and particulars given in the two letters dated 5.8.1994. When the said clarifications were taken note of the tender price of petitioner became Rs. 123.526 crores (as against the original tender price of Rs. 128.673 crores.) 2.11. Another tenderer by name Ham Dredging Company gave a reply dated 21.8.1994 giving the deductions in connection of their tender bid, as required in NMPT's letters dated 10.8.1994, 14.8.1994 and 19.8.1994. After the said deductions, their offer price became Rs. 106.937 crores (as against the original tender price of 136.850 crores.) 2.12. The clarifications received from the tenderers were again evaluated by the Tender Committee on 23rd and 24th August 1994 and the Tender Committee found that the offer of Ham Dredging Company was the lowest as detailed below:
Name of tenderer Original Tender Price Concessions Offered Price Final offer (all in crores) Ballast Nedam 1 34.253 2.685 131.568 Boskalis (Petr.) 128.673 5.147 123.526 HAM Dredging 136.851 29.913 106.938 JAN DE NUL 127.343 0.887 126.456 DCI 149.096 24.000 125.096(*) (* The DCI Price was subject to a purchase preference on account of which, the bid was evaluated as Rs. 114.402 crores.) Hence the Tender Committee recommended the acceptance of lowest offer of Ham Dredging at Rs. 106.938 crores subject to confirmation of acceptance of (a) firm prices in Rupees Terms, (b) Revised work schedule, (c) Liability on account of Taxes and duties; and (d) Revised Bill of quantities for finally agreed Price. Ham Dredging gave the required confirmations by their letter dated 12.9.1994. The Tender Committee at its meeting on 11th and 12th September 1994, recommended acceptance of the offer of HAM Dredging. In pursuance of it, the proposal to award work to HAM Dredging was placed before the Board of Trustees of NMPT on 23.9.1994 and the Trustees by Resolution No. 43 accorded their approval for acceptance of the recommendation of the Tender Committee and award of Contract No. C-3 Capital Dredging to HAM Dredging. The said Resolution is questioned in this Writ Petition.
3. CONTENTIONS OF PETITIONER :
3.1. Sri G. Ramaswamy, learned Senior Counsel appearing for the petitioner submitted that when the tenders received were opened and evaluated, the offer of the petitioner was found to be the lowest. The Consultants of NMPT also recommended acceptance of petitioner's tender subject to obtaining certain clarifications. NMPT sought some clarifications and deductions by its letters dated 10.8.1994 14.8.1994 and 19.8.1994 and called upon the tenderers to give clarifications strictly in accordance with the said three letters. The petitioner sent a reply dated 23.8.1994 stating that the issues raised in NMPT's letters have already been clarified at the Meetings on 4th and 5th August, 1994 duly confirmed in the two letters dated 5.8.1994. Hence it did not give any fresh clarification or deduction other than what was offered on 4th and 5th August 1994. On the other hand, HAM Dredging, another tenderer, took undue advantage of the opportunity given by NMPT and by letter dated 21.8.1994 gave large deductions, thereby making its offer the lowest. This action of HAM Dredging amounted to giving a fresh offer and was contrary to NMPT's letters dated 10th, 14th and 19th August 1994. Therefore NMPT ought to have rejected the HAM's letter dated 21.8.1994. But instead of rejecting the deductions offered by HAM Dredging, NMPT chose to act upon it and accepted the offer of HAM Dredging.
3.2. The learned Counsel for the petitioner contended that the first respondent being a Statutory body, has a duty to act fairly and give equal opportunity to all the tenderers. Having decided to invite tenders and having decided to seek clarifications, NMPT ought to have ascertained whether the clarifications given were strictly in accordance with the instructions and ought not to have accepted any deductions which were given contrary to its instructions. Failure to do so, put the petitioner, who was the lowest tenderer, at a disadvantageous position and resulted in the contract making process being vitiated by unfairness and illegality. While obtaining the lowest offer was important to NMPT, adopting fairness in its dealings with the tenderers was equally important. The end achieved (obtaining a lower offer) did not justify the means adopted (acceptance of deductions given contrary to the instructions of first respondent). Therefore, the acceptance of the offer of HAM Dredging was illegal and therefore the first respondent should be directed to adopt a fair and correct procedure by giving equal opportunity to all tenderers and accept the tender of the petitioner. He relied on the Decisions of the Supreme Court in RAM & SHYAM CO. vs. STATE OF HARYANA ; KASTURI LAL LAKSHMI REDDY vs. THE STATE OF J & K ; UNION OF INDIA vs. HINDUSTAN DEVELOPMENT CORPORATION and FOOD CORPORATION OF INDIA vs. KAMDHENU CATTLE FEED INDUSTRIES .
4. CONTENTIONS OF FIRST RESPONDENT
4.1. The learned Advocate General appearing for the first respondent contended that NMPT adopted a fair and open procedure and there was no procedural illegalities or irregularities in the contract making process. Having received the tenders, to evaluate them, it was necessary to seek clarifications and it treated all tenderers equally and gave equal opportunity to all the tenderers to give clarifications and the clarifications received were evaluated and the offer that was the lowest, has been accepted. NMPT acted in a fair manner, without discriminating against any tenderer, and without favouring any tenderer and accepted the lowest tender, resulting in saving of considerable revenue, When NMPT sought clarifications, and deductions, petitioner did not choose to give certain deductions and cannot blame NMPT for the consequences. Acceptance of the lowest tender cannot be challenged by a tenderer who gave a higher offer, when he also had an opportunity, to reduce the offer price. The process of decision making adopted by NMPT being fair, reasonable and free from bias or discrimination, the decision is not open to question. No malafides are alleged against NMPT and the decision of NMPT had resulted in a enormous saving, as petitioner's offer was higher than the accepted offer, by Rs. 16 crores.
4.2. The learned Advocate General also submitted that the decision of NMPT as per Resolution dated 23.9.1994 was referred to the Central Government for its approval and subsequent to the filing of this Petition, the Central Government has also accorded its approval subject to the final decision in this Writ Petition. The learned Counsel for second respondent confirmed this fact.
4.3. He also emphasised that the work related to creation of port facilities for Mangalore Refinery and Petro Chemical Ltd. which was a time-bound project. Any delay in finalisation of the acceptance of the offer or any fresh proposal to invite fresh tenders will prejudicially affect, not only this contract, but the entire time bound project leading to enormous losses.
4.4. Relying on the Decisions of the Supreme Court in G.J. FERNANDEZ vs. STATE OF KARNATAKA , STERLING COMPUTERS LTD. vs. M & N. PUBLICATIONS LTD. and the Decisions of this Court in INDIAN HUME PIPES CO. LTD. vs. BWS & SB and ELECTRONIC ENTERPRISES vs. KARNATAKA POWER CORPORATION LTD. , the respondent's Counsel contends that the procedure adopted by NMPT was fair and reasonable and therefore, its decision to accept the offer of HAM Dredging, should be upheld.
POINTS FOR CONSIDERATION :
5. On these facts and contentions, the Points that arise for Consideration are :
(i) Whether the procedure adopted by NMPT in processing the tenders and deciding to award the work to HAM Dredging is fair and reasonable?
(ii) If the answer to the first Point is in the affirmative, whether NMPT should be directed to reconsider the tenders by giving further opportunity to all tenderers?
Re : Points (i) & (ii) :
6. Let me first set out the principles relating to consideration and acceptance of Tenders by Statutory Bodies and the scope of interference by Courts in such matters garnered from the several Decisions relied on by the petitioner and respondents;
(i) If a tenderer does not fulfil the eligibility criteria or fails to comply with the conditions of tender, his tender has to be excluded from consideration. If any condition or requirement of the tender Notification is to be relaxed or waived, such relaxation or waiver should not be opposed to public interest; and should not be intended to favour any particular tenderer/s. Doctoring or tailoring the conditions of eligibility of tenders (by adding requirements not germane to the subject matter of tender) with a view to discourage free participation of tenderers and intending to give advantage to particular tenderer/s, is impermissible.
(ii) The Authority, while processing the tenders and awarding the contract, must act in a rational, relevant and non-discriminatory manner. If the Authority deviates from accepted/prescribed standards/norms, resulting in substantial prejudice to any tenderer, the action is liable to be struck down unless the Authority shows that the deviation is not arbitrary or opposed to public interest, but based on some valid principle, which in itself is not irrational, unreasonable or discriminatory.
(iii) To meet contingencies and changed or unforeseen circumstances, deviations from accepted or prescribed norms and conditions and adopting suitable alternative procedures for processing and accepting tenders, is permissible, provided the Authority acts reasonably, fairly and in public interest and the altered procedure is applied or extended to all tenderers, without discrimination.
(iv) The duty to act with fairness and reasonableness should be tested in the light of Authority's concern for public interest, namely, to get the work executed in a proper and efficient manner with speed and promptness at the lowest possible cost. The duty to be fair and reasonable is never intended to be extended to illogical and exasperating levels, so as to jeopardise public interest.
(v) In relation to commercial contracts, an Authority will have the discretion to assess the overall situation, relevant factors and circumstances and take a decision as to whom the contract is to be awarded and on what terms, In the absence of malafides and arbitrariness, such action is not open to challenge.
(vi) Where the action is fair and bonafide and is in public interest and free from arbitrariness, mere infractions of some norms or procedural deviations will not be sufficient to justify interference by Courts. This is on the principle that while examining the validity of executive action, certain measure of freedom of 'play in the joints' has to be granted to the Authority. Courts are ill-equipped to take over the functions of Technical Consultants and Advisers, Quality Controllers, Work Assessors and Supervisors. Nor will Courts assess what the technical requirements are or whether there is compliance with technical requirements. These are matters best left to the persons qualified and experienced in the field of Engineering, Courts, as it is repeatedly said, examine the decision making process and not the correctness of the decision.
(vii) As any action taken by any Authority is presumed to be reasonable and in public interest, it is for the complainant to make out that the action is unreasonable or opposed to public interest. Such burden is a heavy one and has to be discharged to the satisfaction of the Court by production of proper and adequate material.
6.1 Non-arbitrariness, fair-play and safeguarding the public interest are the essential requisites of a valid State action. In the context of inviting, processing and acceptance of tenders in Commercial Contracts or Engineering Contracts, the effect of these requisites are :
Non-arbitrariness and fair-play would mean - (a) acting in accordance with the accepted and prescribed norms/standards/conditions, in a rational, relevant and non-discriminatory manner; (b) giving equal opportunity to all tenderers; (c) considering eligible tenderers and ignoring ineligible tenderers; and (d) duly considering the legitimate expectations of the tenderers.
Safeguarding public interest will include - (a) obtaining the best of terms in regard to quality, quantity and value; this means striving for the highest price or cost if the Authority is the seller or provider of goods or service and striving for the lowest price or cost if the Authority is the buyer or recipient of goods or service; (b) and where necessary taking note of factors like pollution, effect of environment, maximum utilisation and benefit to public etc. 6.2. Apart from the above principles, particular reference may be made to a few Decisions. In MANAGING DIRECTOR, ECIL Vs. B. KARUNAKAR the Supreme Court observed thus, with reference to principles of Natural Justice:
"They are not incantations to be invoked nor rites to be performed on all and sundry occasions. Whether in fact, prejudice has been caused to the employee or not on account of the denial to him of the report, has to be considered on the facts and circumstances of each case. Where, therefore, even after the furnishing of the report, no different consequence would have followed, it would be a perversion of justice to permit the employee to resume duty and to get all the consequential benefits. It amounts to rewarding the dishonest and guilty and thus to stretching the concept of justice to illogical and exasperating limits. It amount to an "unnatural expansion of natural justice which in itself is antithetical to justice,"
The same principle will apply in regard to any attempt to stretch the requirement of fairplay and reasonableness to unnatural lengths.
6.3. In STERLING COMPUTERS case, the Supreme Court observed:
"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. In contracts having commercial element, some more discretion has to be conceded to the authorities 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, so that they may enter into contracts with persons, keeping an eye on the augmentation of the revenue. 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. But even in such matters they have to follow the norms recognised by courts while dealing with public property, though the decisions taken in bona fide manner although not strictly following the norms laid down by the Courts, are upheld on the principle laid down by Justice Holms, that Courts while judging the constitutional validity of executive decisions must grant certain measure of freedom of "play in the joints" to the executive....
Public authorities are essentially different from those of private persons. Even while taking decision in respect of commercial transactions a public authority must be guided by relevant considerations and not by irrelevant ones. If such decision is influenced by extraneous considerations, which it ought not to have taken into account, the ultimate decision is bound to be vitiated, even if it is established that such decision had been taken without bias. There is nothing paradoxical in imposing legal limits on such authorities by Courts even in contractual matters because the whole concept of unfettered discretion is inappropriate to a public authority, who is expected to exercise such powers only for public good.
By way of judicial review the Court is not expected to act as a court of appeal while examining an administrative decision and to record a finding whether such decision could have been taken otherwise in the facts and circumstances of the case. 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." 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. 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 at the same time the Courts can certainty examine whether "decision-making process" was reasonable, rational, not arbitrary and violative of Article 14. Once the procedure adopted by an authority for purpose of entering into a contract is held to be against the mandate of Article 14, 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.
It is a matter of common experience that whenever applications relating to awarding of contracts are entertained for judicial review of the administrative action, such applications remain pending for months and in some cases for years. Because of the interim orders passed in such applications, the very execution of the contracts, are kept in abeyance. The cost of different projects keep on escalating with passage of time apart from the fact that the completion of the project itself is deferred. This process not only affects the public exchequer but even the public in general who are deprived of availing the facilities under different projects. As such, while exercising the power of judicial review in connection with contractual obligations, Courts should be conscious of the urgency of the disposal of such matters, otherwise the power which is to be exercised in the interest of the public and for public good in some cases become counter-productive by causing injury to the public in general."
6.4. In Food Corporation of India v. Kamadhenu Cattle Feed Industries, the Supreme Court held that non-arbitrariness, fairness in action and due consideration of legitimate expectation of affected party are essential requisites for a valid state action. But the Authority has a right to ignore the highest bid (or the lowest bid, as the case may be) and instead negotiate with all tenderers by giving them equal opportunity to revise their tenders and such action would be non-arbitrary, fair and in consonance with the requirements of giving due weight to the legitimate expectation of the affected party. The relevant portions are extracted below:
"In contractual sphere as in all other State actions, the State and all its instrumentalities have to conform to Article 14 of which non-arbitrariness is a significant facet. There is no unfettered discretion in public law : A public authority possesses powers only to use them for public good. This imposes the duty to act fairly and to adopt a procedure which is 'fairplay in action'. Due observance of the obligation as a part of good administration raises a reasonable or legitimate expectation in every citizen to be treated fairly in his interaction with the State and its instrumentalities, with this element forming a necessary component of the decision-making process in all State actions. To satisfy this requirement of non-arbitrariness in a State action, it is, therefore, necessary to consider and give due weight to the reasonable or legitimate expectations of the persons likely to be affected by the decision or else that unfairness in the exercise of the power may amount to an abuse of excess of power apart from affecting the bona fides of the decision in a given case. The decision so made would be exposed to challenge on the ground of arbitrariness. Rule of law does not completely eliminate discretion in the exercise of power, as it in unrealistic, but provides for control of its exercise by judicial review.
The mere reasonable or legitimate expectation of a citizen, in such a situation, may not by itself be a distinct enforceable right, but failure to consider and give due weight to it may render the decision arbitrary, and this is how the requirement of due consideration of a legitimate expectation forms part of the principle of non-arbitrariness, a necessary concomitant of the rule of law. Every legitimate expectation is a relevant factor requiring due consideration in a fair decision-making process. Whether the expectation of the claimant is reasonable or legitimate in the context is a question of fact in each case. Whenever the question arises, it is to be determined not according to the claimant's perception but in larger public interest wherein other more important considerations may out-weigh what would otherwise have been the legitimate expectation of the claimant. A bona fide decision of the public authority reached in this manner would satisfy the requirement of non-arbitrariness and withstand judicial scrutiny, The doctrine of legitimate expectation gets assimilated in the rule of law and operates in our legal system in this manner and to this extent.
Even though the highest tenderer can claim no right to have his tender accepted, there being a power while inviting tenders to reject all the tenders, yet the power to reject all the tenders cannot be exercised arbitrarily and must depend for its validity on the existence of cogent reasons for such action. The object of inviting tenders for disposal of a commodity is to procure the highest price while giving equal opportunity to all the intending bidders to compete. Procuring the highest price for the commodity is undoubtedly in public interest since the amount so collected goes to the public fund. Accordingly, inadequacy of the price offered in the highest tender would be a cogent ground for negotiating with the tenderers giving them equal opportunity to revise their bids with a view to obtain the highest available price. The inadequacy may be for several reasons known in the commercial field and would be a question of fact in each case. Retaining the option to accept the highest tender, in case the negotiations do not yield a significantly higher offer would be fair to the tenderers besides protecting the public interest. A procedure wherein resort is had to negotiations with the tenderers for obtaining a significantly higher bid during the period when the offers in the tenders remain open for acceptance and rejection of the tenders only in the event of a significant higher bid being obtained during negotiations would ordinarily satisfy this requirement. This procedure involves giving the weightage to the legitimate expectation of the highest bidder to have his tender accepted unless outbid by higher offer, in which case acceptance of the highest offer within the time the offers remain open would be a reasonable exercise of power of public good.
In the present case the respondent's highest tender was superseded only by a significantly higher bid made during the negotiations with all tenderers giving them equal opportunity to compete by revising their bids. The fact that it was a significantly higher bid obtained by adopting this course is sufficient in the facts of the present case to demonstrate that the action of the appellant satisfied the requirement of non-arbitrariness, and it was taken for the cogent reason of inadequacy of the price offered in the highest tender, which reason was evident to all tenderers invited to participate in the negotiations and to revise their bids."
The above observations made in the contest of obtaining a higher bid, where the Authority is a Seller, are equally applicable to the attempts made by an Authority to obtain a lower bid in case where it is a buyer or recipient of goods or services :-
6.5. In INDIAN HUME PIPE case this Court observed:
"The object of the judicial examination is to see whether the public interest would suffer, by the transaction in question, and the State has failed to play fairly while entering into the transaction. Court's jurisdiction is invoked usually by one of the parties, who made the tender offering to purchase the public property or articles put up for sale at a price which he asserts as the highest, or offering to supply goods or works to the Government or State instrumentality, at a rate which he asserts as the lowest. In such a situation, Court is not concerned as to how far, the party's interest suffered, by non-acceptance of his tender. The judicial review is permitted, in order to safe-guard the public interest."
7. Before examining the facts with reference to the above principles, let me exclude the grounds which do not exist. The complaint is not that an ineligible tenderer is considered or that an eligible tenderer has been ignored. Nor is it the case that the public interest has suffered or that loss is caused to NMPT by acceptance of the offer of HAM. Nor is it contended that NMPT acted arbitrarily or unreasonably or with malafides. Nor is it contended that the action of NMPT is intended to benefit a particular tenderer. The only ground or grievance is that NMPT acted unfairly in accepting the offer of HAM.
8. I have earlier referred to the facts leading to the the acceptance of offer of HAM, in detail, only to examine whether the action of NMPT is informed with reason and fairness. Let me again briefly refer to the procedure adopted by NMPT. Tenders are invited. An outside Consultant is asked to evaluate the tenders. When it is found that the tenders could not be brought to a common denominator on account of stipulation of conditions, great pains are taken to get clarifications from every one so that the tenders could be reduced to a position of equality for purposes of evaluation. A Tender Committee is appointed consisting of not only the Chief Engineer, Chief Mechanical Engineer, Financial Advisor and Chief Accounts Officer and Deputy Conservator of NMPT as also two outsiders namely Chief Engineer of Madras Port Trust and FA & CAO of Marmagoa Port Trust. All tenderers are given an equal opportunity to give deductions by seeking identical clarifications and by giving identical instructions. Whenever there is a change in procedure, either in regard to submission of particulars or meeting, all are informed. All tenderers are treated equally and without discrimination. All tenderers were called upon to deduct or reduce components wrongly added to the tender price. The response from tenderers is again evaluated by the Tender Committee and their recommendation to accept the lowest tender, is accepted. NMPT took care to act openly, reasonably and in public interest, that is to reduce the project cost. There is no arbitrariness, no unreasonableness or unfairness. There is no lacuna or error in the decision making process adopted by NMPT.
9. The only action found fault with, is that NMPT accepted the large deduction offered by HAM, when such deduction was not contemplated in response to the clarifications sought by NMPT. The petitioner contends that, while it gave a correct response to the letters dated 10th, 14th and 19th of August 1994, HAM gave an improper response by giving a large deduction which virtually amounted to a fresh or revised offer and NMPT accepted the deduction instead of rejecting it. It is pointed out that NMPT, while seeking clarification regarding deduction had clearly stated that no fresh or revised offers will be entertained vide para (i) of its letter dated 19.8.1994. In short, the complaint is more against the action of HAM rather than the action of NMPT. The petitioner contends that the deduction offered by HAM being improper, it should have been rejected out-right or at least NMPT ought to have instructed HAM to give deductions strictly in accordance with the instructions contained in its letters dated 10.8.1994, 14.8.1994 and 19.8.1994 and its failure to adopt such a course would amount to violation of principles of fairplay. I do not find any basis for such a contention.
10. Let me examine the responses of petitioner and HAM in reply to the letters dated 10th, 14th and 19th August 1994, to find out whether the response of HAM was improper. It has already been noted that when the petitioner was called upon to give the deductions by the said three letters, it replied on 23.8.1994, enclosing the clarifications/deductions earlier given in its letters 5.8.1994. On the other hand HAM gave the deductions by its letter dated 21.8.1994. It should also be noted that in response to NMPT's earlier letter dated 11.7.1994 (Annexure-B) for information, petitioner gave a reply dated 15.7.1994 and HAM gave a reply dated 13.7.1994.
10.1. Sales Tax and Turnover Tax:
The petitioner had stated in its letter dated 15.7.1994 that it had included a sum of Rs. 5,14,70,000/- in the Tender Price towards Sales Tax/Turnover Tax. HAM has stated in its letter dated 13.7.1994 that it had included a sum of Rs. 9,23,74,425/- in the Tender Price towards Sales Tax/Turnover Tax @ Rs. 6.75% of the turnover. By its letter dated 10.8.1994, NMPT clarified that there was no sales tax or turnover tax for the work, on the basis of confirmation by the Sales Tax Authorities and therefore the tenderers should deduct it from tender cost. Again in its letter dated 19.8.1994 NMPT sought deduction of Sales Tax/Turnover tax.
Petitioner replied on 23.6.1994 (read with letters dated 5.8.1994) that will deduct Rs. 5,14,70,000/- as a rebate subject to NMPT assuring that there would be no Sales Tax liability.
HAM, in its reply dated 21.8.1994, gave a deduction of Rs. 9,22,37,000/- on account of Sales Tax/Turnover Tax that had been included in its tender price. It may be mentioned, that petitioner does not dispute that this deduction is in accordance with NMPT's instructions.
10.2. Income-Tax:
When NMPT by letter dated 11.7.1994 called upon the tenderers to disclose the amount/component in the tender price quoted, towards Income Tax, petitioner sent its reply dated 15.7.1994, merely confirming that Income-tax will be its own responsibility and did not indicate the amount provided for in the tender price, to meet its Income Tax liability. On the other hand, HAM, in its letter dated 13.7.1994, had stated that it had provided in the tender price, a sum equivalent to 65% of its intended taxable profits to meet its Income Tax liability as per their Chartered Accountant's advice. By letter dated 10.8.1994, NMPT informed all the tenderers that will have to bear the Income Tax liability. By letter dated 19.8.1994, NMPT requested the tenderers to deduct any amount wrongly included in the tender price towards Income Tax. In response, petitioner replied on 23.8.1994 (read with letters dated 5.8.1994) that Income-tax will be its own liability.
HAM in its letter dated 21.8.1994, stated that it had included 65% of estimated profits towards income-tax, that the rate of income-tax had been reduced from 65% to 55% and therefore they were deducting the difference amounting to Rs. 4,07,94,310/- from the tender price. That is, HAM deducted 10% (65% less 55%) of its estimated profits from the tender price as a consequence of reduction in the rate of income-tax. Petitioner challenges this deduction on the ground that such deduction was excessive and not permissible. It is however seen that NMPT was all along concerned with income-tax component in the tender price and made two things clear, that is, (a) it will not bear the income-tax liability of the Contractor in addition to the tender price; and (b) that if excess provision had been made in the tender price, towards income-tax, it should be reduced. It is seen that HAM, in its letter dated 13.7.1994 (long before NMPT's letters of 10th and 19th of August 1994) had stated that it had provided for 65% of the profits towards income-tax liability in the tender price and had also enclosed Certificate dated 12.7.1994 from a Chartered Accountant (Walter, Chandiok & Co., New Delhi) confirming that rate of tax in regard to business profits earned by foreign companies was 65% during the financial year ended 31.3.1994 (assessment year 1994-95) and for the financial year ended 31.3.1995 (assessment year 1995-96) the rate of tax had been reduced to 55%. Hence if HAM had made a larger provision for income-tax while giving its quotation and the rate of income-tax was reduced even before the tenders were finalised and NMPT called upon them to adjust the quoted price on account of any excess provision made towards income-tax, HAM was fully justified and in fact expected to give the deduction on account of the excess provision made. Thus the contention that the deduction given by HAM made it virtually a fresh tender is without basis. A faint attempt was made to show that even if the deduction was permissible on that account, what was offered as deduction was large. This is not a matter that can be gone into. What profit margin a tenderer will keep is a matter that is in the discretion of the tenderer. When the petitioner has failed to indicate the profit margin in its letter dated 15.7.1994, it cannot find fault with HAM for keeping a margin, which according to petitioner is large.
10.3. RE. Customs Duty :
There is no complaint regarding customs duty. Both petitioner and HAM had confirmed that they had provided for customs duty in their tender prices and they will bear the customs duty. Neither petitioner nor HAM offered to reduce the tender price on account of any excess provision for customs duty. Petitioner had however agreed that it had provided for Rs. 3,20,91,000/- towards customs duty, that if the customs duty exceeded that amount, it will bear the excess also, but if customs tax liability by any change was less than Rs. 3,29,91,000/- it will permit deduction to that extent. But no deduction was quantified and offered by petitioner for being reduced from the tender cost, as it must have thought that any reduction on that account was remote.
10.4: RE: Deduction on account of foreign exchange variation, change in programme and commencement of work etc. 10.4.1: In its letter dated 10.8.1994, NMPT informed all tenderers that letter of acceptance was likely to be issued in October/November, 1994, that as the Jetty contract had already been awarded on 1.7.1994 with a completion period of 17 months, the tenderer should reschedule the work programme so as to complete it by May 1996, and that the tenderers should include the post monsoon maintenance dredging of the 1994 and 1995 for quantities already indicated in the Bill of quantities by duly incorporating required Mobilisation and demobilisation charges in the Bill of quantities. On account of the change in programme and period of work, it was evident that there will be considerable reduction in the mobilisation and demobilisation expenses and NMPT therefore expected a substantial reduction in that behalf. In its letter dated 19.8.1994, NMPT therefore requested the tenderers to make deductions from the tender price on account of "other conditions which have been entailed addition of sums of money."
10.4.2: At the Meeting of 4.8.1994, this was apparently a major issue. NMPT pointed that there will be considerable saving in the Mobilisation and Demobilisation charges. Petitioner had provided for mobilisation and demobilisation of plant and equipment a sum of Rs. 17,57,74,000/- in the Tender cost [vide items 7 and 8 and 10(i) of Bill No. 1 of Bill of quantities]. Petitioner refused to give any deduction or concession on this account, for the reasons recorded in the Record Note of Meeting dated 4.8.1994 enclosed with its letter dated 5.8.1994 and in another letter dated 5.8.1994. They are extracted below:
Extract from Record note of 4.8.1994 meeting issued by petitioner.
BKI affirmed that it was possible to revise its program. However due to worldwide commitment of its spread, it might become necessary to replace may be a dredger or any other plant item without interruption to the actual works by some other dredger of plant item. As a result expenses/costs might become necessary due to these revisions that need to be considered. It is anticipated and hoped that these will be balanced by other costs savings arising out of such revisions in plant items, dredger type, size, number, etc. It was particularly discussed that full mob-demob charges would become payable even if only two trailers were mobilized for reasons mentioned in para above. NMPT proposed that no amount shall become payable under mobilisation costs if mobilisation does not take place for whatsoever reason."
Extract from Petitioner's letter No. JKK/MMPT/MLDAE/002 dated 5.8.1994.
"......... All items (Bill No. 1, items 7 plus 8 plus 10(i)) of mobilisation and demobilisation as submitted in our offer becomes payable irrespective of actual number of mobilisations -demobilisations that may occur ...........
Please note and appreciate that the above rebate (towards Sales Tax) is being offered despite considerable additional site, mobilisation and other costs arising out of the Revised schedule. We hope that payment of full mobilisation - demobilisation cost as envisaged will offset some, if not all of the additional costs mentioned above."
Thus even though petitioner was aware that there will be substantial savings in the amounts provided for mobilisation - demobilisation costs provided in the tender and NMPT requested for deduction/concession in that behalf, the petitioner refused to give any deduction and reiterated this position in its letter dated 23.8.1994.
10.4.3: In regard to foreign exchange component, the petitioner did not want to show any concession or benefit to NMPT, even though in its letter dated 10.8.1994, NMPT stated that 75% of the contract price will be paid to the Foreign Contractors in foreign currency at a fixed exchange rate of Rs. 11 = 0.056 d.fl. and the Exchange variation will be borne by NMPT. Its stand in this behalf, recorded in the Record of the meetings dated 4.8,1994 annexed to its letter No. JKK/NMPT/MLORE/001 dated 5.8.1994 and reiterated in its letter dated 23.8.1994 is extracted below : (BKI refers to petitioner):
"F4. BKI affirmed that as a contractor it could not and was not able to take any exchange rate risks. Therefore, it had provided for a fix rate of exchange for 75% of its contract for the duration of the contract.
NMPT proposed that BKI should seek forward cover, which BKI said would look into and also requested that NMPT should explore the same.
However, BKI affirmed that it is willing to consider any method of invoicing be it either a full rupee, part rupee or in any other currency at a fix rate of exchange, and with no transfer costs. Price to be paid to BKI in such a way that BKI can freely convert the said 75% into Dutch Florins and can freely transfer such Dutch Florins to its Bank account in the Netherlands at no costs to BKI.
NMPT also asked BKI to consider 70% as against 75% foreign exchange component in its price. BKI said it could not respond on this matter at this stage when the overall price for the contract is not finalised in relation to Indian costs such as Safes Tax, etc."
10.4.4: But when the very same opportunity was given to HAM and it was required to give deductions on account of foreign exchange and other conditions which entailed additions in the original tender price, HAM agreed to give substantial deductions. HAM had provided for a sum of Rs. 12,70,00,000/- towards Mobilisation and Demobilisation cost In its letter dated 21.8.1994 it agreed to give a deduction of Rs. 11,26,26,071/- on account of foreign exchange variations changes and other conditions like change of programme and commencement work and consequence thereof. The consequences of change in programme is saving in Mobilisation and Demobilisation cost.
10.4.5: On account of the, three deductions, that is Rs. 9,23,37,000/- (on account of sales tax/TOT) Rs. 4,07,94,310/-(towards income-tax) and Rs. 11,26,26,071/- (on account of variation/changes in programme and foreign exchange) aggregating to Rs. 24,56,57,381/- the tender cost of HAM stood reduced to Rs. 1,12,28,47,719/- from Rs. 136,85,05,100/-. HAM also confirmed that on account of payment of 70% of the contract amount in foreign exchange calculated at Rs. 1=0.66 D.FI., the Indian rupee price would stand amended to Rs. 106,93,78,780/- as the variations in foreign exchange rate will be absorbed by NMPT.
10.4.6: Thus it would be seen that HAM gave deductions in regard to very same items in regard to which petitioner was also given a chance to reduce the price. When equal opportunity was given to all tenderers and if one tenderer makes use of it and another tenderer does not make use of it, he has to blame himself and not the authority. Petitioner therefore cannot contend that HAM virtually gave a revised or fresh tender in response to NMPT's letter dated 10th, 14th and 19th of August, 1994. When deductions to an extent of Rs. 29.913 crores were given by HAM, NMPT cannot reject the deductions on the ground that the deductions were excessive. When the deductions are under the heads mentioned by NMPT, there is no reason why NMPT should ignore the rejections. If petitioner had also chosen to give suitable deductions on account of Mobilisation and Demobilisation charges, as a consequence of change in programme etc., and on account of 75% of the contract amount being offered to it at a firm rate, in foreign exchange, petitioner's tender would have been the lowest and would have been considered for acceptance, Interestingly when I put a question to the Counsel for the petitioner at the time of arguments as to whether petitioner was willing to giving further deductions now, to bring it at par with the price quoted by HAM, the answer was that petitioner at Netherlands had to be consulted. Not that it would have mattered at this stage, except to show that NMPT cannot be expected to ignore a large saving lawfully offered to it by another tenderer.
11. It was next contended that NMPT went on changing the mode of obtaining clarifications/deductions. The learned Counsel for petitioner pointed out that in its letter dated 10.8.1994, NMPT, invited the tenderers for in-camera discussions on 23.8.1994 for taking decision on the final price. In the next letter dated 14.8.1994, NMPT required the tenderers to submit the total concessions/deductions, in a sealed cover on 23.8.1994. In the next letter dated 19.8.1994, in-camera discussions were cancelled. But these procedural changes in obtaining the clarifications, in no way affect the fairness of the decision making process. The change was applied to all tenderers.
12. The grounds for unfairness are not there at all. The nature of work, the manner in which tenders were submitted by foreign tenderers with conditions/stipulations and the large impact of such conditions/stipulations on the tender price, made NMPT to adopt several procedures to arrive at a more balanced and correct rate. But while adopting such procedures, NMPT always acted fairly and gave equal opportunity to all tenderers. In a complicated tender like the one on hand, involving large sums of money, the authority cannot straightway accept the lowest tender, without examining the financial implication of stipulations, conditions and riders added by tenderers. A process of equivalisation by straightening the creases, which are in the tender, either in the form of wrongful additions or in the form of other stipulations/conditions having financial implications has to be resorted to. It should be said to the credit of NMPT that it has done it in the best possible manner under the circumstances.
13. It is not unfair or unreasonable for NMPT to expect deduction in the quoted price where (a) there is no Sales Tax/Turn-over Tax liability on the work, but the tenderers had wrongly provided for such liability in the tender cost, thereby increasing the tender cost; (b) higher provision has been made for income-tax when the rate of income-tax is lower; (c) on account of change in the programme of work and other circumstances there is a reduction in cost of mobilisation and demobilisation; and (d) NMPT assures payment of a large percentage of the contract value in foreign exchange at a fixed rate, thereby taking over the risk of fluctuations in foreign exchange rate. These are matters which will naturally tend to reduce the tender I price and there is nothing wrong in NMPT expecting deductions. If the petitioner refuses to give proper deductions, presumably, under the impression that it was already the lowest tenderer, but other tenderers give larger deductions, thereby making their tenders lower than that of the petitioner, NMPT is bound to accept the lowest tender after equivalisation and not the lowest tender before clarifications/ equivalisation.
14. Hence the findings on the two Points are:
(a) There is no arbitrariness, irregularity or unfairness on the part of the NMPT either in processing the tenders or in accepting the offer of HAM, in preference to that of petitioner.
(b) There is no ground to direct NMPT to reconsider the tenders by giving further opportunity to the tenders.
Petition is rejected accordingly.