Kerala High Court
Cambatta Aviation Ltd. And Ors. vs Cochin International Airport Ltd. And ... on 29 March, 1999
Equivalent citations: AIR1999KER368, AIR 1999 KERALA 368, (1999) 1 KER LJ 789
Author: Ar. Lakshmanan
Bench: Ar. Lakshmanan
JUDGMENT Sankarasubban, J.
1. This writ appeal is filed by the petitioners in O.P. 25560/ 1998. First appellant is Cambatta Aviation Ltd., a Company incorporated under the Companies Act and the second appellant is Burjor Nicholson, a shareholder of the first appellant Company. First respondent in the appeal is the Cochin International Airport Limited, which is a Company incorporated under the Indian Companies Act and which has been formed for the purpose of setting up International Airport at Nedumbassery near Cochin. The second respondent is the State of Kerala and the third respondent is the Air India Limited. Respondents 4 and 5 in the appeal got themselves impleaded as additional respondents in the writ petition. The forth respondent is P.S.M. Aviation (Private) Limited and the fifth respondent is the Air India Employees' Guild.
2. The first appellant (hereinafter referred to as 'the Cambatta Aviation Limited') is a Company incorporated under the Indian Companies Act and is providing ground handling services to various airlines and has been operating as such at Mumbai and Delhi Airports for more than three decades. Cochin International Airport Limited, hereinafter referred to as 'the CIAL', is a public sector undertaking having many public sector undertakings and the State of Kerala as the shareholder. The Chairman of the first respondent is the Chief Minister of the State of Kerala. The CIAL has been established for setting up a new International Airport at Cochin. It is functioning under the pervasive control of the Government of Kerala. The Original Petition has been filed challenging the decision of respondents 1 and 2 to award the contract for ground handling services at the Airport at Nedumbasserry to the third respondent and for a writ of mandamus directing the first and second respondents to award the same to the first appellant and for other reliefs.
3. As already stated, the first respondent, the CIAL was formed for setting up the International Airport at Nedumbassery. With regard to the ground handling services in the Airport, the first respondent initially wrote letters to experts in the field of ground handling. Thus, letters were issued to the first appellant, viz., Cambatta Aviation Limited, and seven others. In those letters, the CIAI had briefly intimated the conditions for granting the contract for ground handling services in the Nedumbassery Airport. In reply to the above letter, the first appellant and others intimated their proposals to the first respondent. Subsequently, by Ext. P5 dated 13-7-1998, the CIAL informed the first appellant and other similar establishments to whom letters were sent previously to give the final offers. A perusal of Exhibit P5 shows that the Board of Directors of the CIAL considered the proposals submitted by various agencies on the establishment and management of ground handling of aircrafts at Nedumbassery Airport at a meeting held on 29th June, 1998. The Board decided that the CIAL proposes to engage a suitable agency for the above services on "Licence Fee" basis on Gross Turnover. The letter further states that since a few new agencies had submitted their offers recently, it was decided to provide a fair opportunity to all the eligible agencies, one final chance to give their best offers before taking a final decision. The contract period will be for ten years. The letter requested the first appellant to offer its best terms for undertaking ground handling services at Cochin International Airport on the following terms :
(1) Quantum of Equity Contribution/Interest Free Deposit.
(2) Annual Licence Fee to CIAL on percent-age basis of gross turnover.
(3) The contract period would be for 10 years.
Exhibit P5 further went on to state that the selected agency was expected to provide all new equipments sufficient to meet the operational requirements. The total management of ground handling operations including manpower will be the responsibility of the selected agency. Negotiations with airlines for determining the fees will be by CIAL in association with the selected agency. The CIAL would provide the GSE building on rental basis for workshop, office and parking of vehicles, etc. The first appellant was requested to forward its best offer so as to reach the CIAL on or before 1700 hours on 29th July, 1998.
4. On receiving Exhibit P5, the first appellant sent its proposal. The proposal is contained in Exhibit P6 dated 28th July, 1998. We will deal with the details in Exhibit P6 later. For the present, we would like to state that the first appellant had by Exhibit P6 informed the CIAL that it was interested in subscribing to the equity of CIAL to the tune of Rs. 16 crores. Regarding payment of licence fee, it submitted licence fee ranging from 15 to 20% in accordance with the year of operations. Further, it was stated that the first appellant would like to offer additional bonus licence fee at 2% if the frequency at CIAL exceeds the limit prescribed in Exhibit P6. Pursuant to Exhibit P5, the Air India Limited, viz., the third respondent, also sent its proposal, which is produced as Ext. R3(e). In Ext. R3(e), it" was stated that the Board of Directors of Air India at its 46th meeting held on 10th July, 1998 at Delhi approved in principle an investment of Rs. 5 crores in the equity of CIAL. It further stated that the aspect of payment of an annual licence fee representing a percentage of the gross turnover has been accepted by the Board of Air India, According to the proposal, for the first year of operation 11% of the revenue will be paid as licence fee. Further, thereafter from the second year to 10th year licence fee at table rate has been given ranging from 11.5% to 15%. The proposal further contained a note, which consisted of five points. Second point in the note states that the handling agency will be entitled to delegate any of the agreed services to sub-contractors with the carriers'/CIAL consent. The third point states that the rent to be charged for office space, rent on space required for parking vehicles/equipments on the Apron to be exempted. The 4th point states that the handling agent was required to provide technicians to assist the Engineers the costs of which will be included in the handling revenue and the fifth point states that the above offer was open for negotiation.
5. Similarly some other agencies also gave their proposals. Thereafter, by Exhibit P7 letter dated 5-8-1998, the first respondent CIAL informed the first appellant and others that the Board of CIAL had decided that a more detailed study of offers was required before taking a final decision, as the subject matter was very crucial for the successful operation of the Airport. The Board of Directors had decided to obtain a Bank Guarantee from all participants to the value of 10% of their equity/interest free/deposit offered valid for six months so as to make the offers binding till a decision was taken by CIAL. If the selected agency backs out any time from their commitment, that amount would be forfeited. Pursuant to Exhibit P7, the first appellant gave a Bank Guarantee for Rs. 16 crores, which is evidenced from Exhibits P10 and P11. Similarly, the Air India Limited had also furnished a Bank Guarantee.
6. The Board of Directors of the first respondent CIAL constituted a committee to go into the proposals made by various agencies and to give its recommendations to the Board of Directors. That committee was called 'High Level Committee'. The committee consists of the Chief Secretary to Government of Kerala, Private Secretary to the Chief Minister of Kerala and the Managing Director of the CIAL. The report of the High Level Committee is produced as Exhibit Rl(i). From Ext. R1(i), it can be seen that the proposals of five agencies came for consideration before the High Level Committee. The agencies are (1) M/s. Cambatta Aviation, Bombay (2) M/s. Dnata, Dubai (3) M/s. Air India, Mumbai (4) M/s. Ogden Aviation Services, Hong Kong, and (5) M/s. P S M Aviation Private Limited. The Committee perused the various offers given by the five agencies. The report further states that the expert opinion regarding the financial suitability of the various proposals received was obtained from Shri. Venugopal C. Govind, Senior Partner, Varma & Varma, Chartered Accountants, Ernakulam. The Committee took note of the report of the Chartered Accountant. As per the evaluation of the Committee, it gave Cambatta Aviation as the first position and Air India was given as the fifth position. It was further observed that Cambatta Aviation, Dnata, Air India and Ogden Aviation Services were having technical competence, organisational capability, past experience in ground handling. Further, it was of the view that Cambatta Aviation and Air India are Indian organisations operating mainly in India and have better proven adaptability for operating in Indian conditions. Considering all these aspects, the Committee decided to recommend the first appellant Cambatta Aviation for undertaking the ground handling services at Nedumbassery International Airport on the terms mentioned in the report. Ext. R l(i) further shows that the Chairman slated that it would be for the Board of Directors to consider whether any negotiation should be held that the qualified agencies.
7. The report of the High Level Committee came for consideration before the Board of Directors at the meeting held on 7-11-1998. The minutes of the meeting held on 7-11-1998 is produced as Ext. R1(f). From Ext. Rl(f), it is clear that the Board of Directors took note of the minutes of the High Level Committee on 30-7-1998 and the opinion received from Venugopal C. Govind. The Board took note of the recent letter received from Air India. The minutes further states that the Air India, being the national carrier and being a public sector undertaking, the Board decided that a final decision in this respect can be taken after a detailed discussion in the subject matter with M/s. Air India. It was also decided to invite the Managing Director, Air India for giving a presentation before the Board on 27-11-1998 on which date the 22nd meeting of the Board of Directors was scheduled at Government Guest House, Ernakulam. The letter received from the Air India mentioned in the minutes is letter dated 29-10-1998, which is produced as Exhibit R3(f). Exhibit R3(f) letter was sent by Mr. M. P. Mascarenhas, Air India to the Chief Minister of Kerala. Thereafter it appears that the Board of Directors met at the Guest House, Ernakulam on 27-11-1998. At that meeting the representatives of the Air India were heard. Subsequently, by letter dated 12th December, 1998, which is produced as Exhibit R1(d), the Board of Directors decided to appoint the Air India as the sole agency for establishment and management of ground handling of Aircrafts operating into and out of Cochin International Airport at Nedumbassery on the basis of the conditions prescribed in Ext. Rl(d).
8. According to the appellants, they did not know anything about the award of the contract to the third respondent till they came to know from the press report Ext. P12 that a meeting was held on 27th November, 1998 by the Board of Directors and at that meeting the Managing Director of the third respondent was present and that the third respondent agreed to accept the amount fixed by the Chief Minister. The appellants further contended that it was because of the influence exerted by the Air India as well as the influence exerted by Sri. P.V. Jayakrishna, Secretary on the Ministry of Civil Aviation that the contract was awarded to the third respondent. It was contended in the Original Petition that the offer given by the first appellant was the highest and the first appellant had fulfilled all the conditions in Ext. P5. The offer given by the Air India did not come anywhere near the offer made by the first appellant. The complaint of the appellants was that the first respondent, being a State under Article 12 of the Constitution of India, had to act impartially and that the decision taken by it had to be judged in terms of Article 14 of the Constitution of India. According to the appellants, the award of contract in favour of the third respondent was arbitrary and mala fide. It was further suggested that if the appellants had been called as the Air India was called, the appellants would have been able to establish that the Air India had not fulfilled any of the conditions mentioned in Ext. P5 and further that the Air India, was not financially sound. It was also further stated that if an opportunity had been given to the appellants for negotiations, it would have given even higher offers. Thus, the case of the appellants is that the selection of Air India for the proposal made in Ext. P5 was arbitrary, biased, mala fide and violative of Article 14 of the Constitution of India.
9. Counter-affidavits have been filed on behalf of the first respondent and on behalf of the third respondent. The first respondent, CIAL, in the counter-affidavit, stated that it was left to the discretion of the Government that the Government organisations were to choose the best persons considering financial interest and implications and the first respondent was expected to protect its interest since the Government of Kerala holds substantial shares in the respondent Company. The first respondent had not invited any tenders. It had only invited offers. The object of inviting offers was to get the terms and conditions of the respective Companies for consideration by the Board of Directors and to select the best suited in the interest of the respondent. Being a new project implemented by raising finance from various sources all efforts were made to make the project viable. Individual offers were assessed considering the background and infrastructure of the Companies, their financial capacity, experience and future benefits that may accrue to the first respondent. The third respondent-Air India is a public sector unit and the national carrier under the Government of India had already offered support in a big way for the new Airport informing that they will be taking up the matter regarding equity participation in their Board Meeting. The Air India informed the first respondent by Ext. Rl(b) that a decision was arrived at by the Air India to invest Rs. 20 crores in equity participation. Taking into account the fact that the third respondent as the national carrier and a public sector undertaking under the Ministry of Civil Aviation stands on different footing the proposal sent by them will have to be given preference. It was under these circumstances that the offers made by the appellants as well as the third respondent were scrutinised and finally decided to award the contract to the third respondent. On a comparison analysis of both offers, the offer made by the third respondent stood as most attractive. The counter-affidavit further compared the offers made by the first appellant and the third respondent. In paragraph 9 of the counter-affidavit, it was stated that Cambatta Aviation Limited was not an airline operator which was an additional advantage so far as the Air India was concerned and therefore, Cambatta's expertise and interest will be limited to ground handling alone. In paragraph 12 of the counter-affidavit, it was stated that after comparing the offers received pursuant to Ext. P5, it was felt that the Air India was an appropriate choice as an agency to operate ground handling services in the Airport. Nevertheless, since by that time the financial offers received from other parties were higher than what Air India had offered, it was felt that an opportunity should be given to see whether Air India would increase its offer so as to get the maximum benefit to the first respondent, particularly because at the initial stage in 1995 itself, Air India had expressed their willingness to offer Rs. 20 crores. Since the Air India willingly offered to match the highest financial offer, there was no question as to which of the party to be chosen. In paragraph 13 of the counter-affidavit, it was stated that the procedural aspect of selection cannot supersede the substantial and prime consideration in making the choice.
10. Additional affidavit was filed on behalf of the first respondent. In paragraph 3 of the additional affidavit, it was stated that the offer made by the Air India was not only the best offer in terms of initial monetary terms, viz., equity/ interest free deposit and licence fee, but also the long term interest of the Company for improving the revenue by increasing the Air Traffic through Cochin Airport. The consequential benefit of operation of more aircraft will naturally give additional licence fee ground handling services, passenger service fees, terminal entry fee and car parking revenue. In paragraph 7, it was stated that the Board of Directors of the first respondent had never empowered the High Level Committee to finalise the contract. The Committee was formed to study the offers in detail and make suitable recommendations only to facilitate the Board to take a decision. In para 9, it was stated that the discussion of the third respondent's Managing Director with the Chief Minister does not in any way vitiate, since the third respondent had initially offered to contribute Rs. 20 crores.
11. In paragraph 4 of the counter-affidavit filed by the third respondent, it was stated that the contract in question was awarded in favour of the third respondent only after a detailed evaluation of the offers received from various parties. The entire case of the appellants was based on the fact that they had initially given the highest financial offer and as seen from the counter-affidavit of the first respondent on a complete misapprehension that the financial offer was the prime consideration. The Air India was chosen based on overall operational capabilities and the enduring benefits that would accrue to the first respondent. In paragraph 6 it was contended that the case at hand was not one arising out of a tender. It was further stated that compelling the Air India to improve its terms does not constitute a post tender negotiation. There is no arbitrariness or unreasonableness or illegality in the decision to award the contract to the Air India. In paragraph 14 of the counter-affidavit, it was admitted that a letter dated 19-10-1998 was written to the Chief Minister in his capacity as Chairman of the first respondent to furnish additional information about Air India's project. In paragraph 16, it was stated thus:
"What is pertinent to note is that, as already stated above, the further discussions between the 1st respondent and this respondent on the issue of raising the financial offer was one made after having in any case chosen this respondent for the award of contract".
Some additional affidavits are also seen filed by the parties, both the appellants and the third respondent.
12. After hearing both parties, the learned single Judge dismissed the Original Petition.
Various decisions had been cited before the learned single Judge. After considering those decisions, the learned single Judge went on to hold that a judicial review is always possible in the sphere of awarding of contract by the State or its instrumentalities. But the scope of judicial review is limited to see whether the selection of a particular tenderer is arbitrary or whether the selection has been made with mala fide intention. The Court is also entitled to dissect the process of decision making to satisfy itself whether any arbitrariness or discrimination has crept in the above process. Beyond that a Court cannot travel and analyse the matters in order to find out that a particular award of contract is liable to be interfered on the ground that the tender submitted by a particular person is more superior or beneficial than the tender accepted by the authorities. The learned single Judge had held that on a comparison of both the offers in the matter of experience, expertise, infrastructure and financial capability, the offer of the third respondent was found to be superior than that of the first appellant. Hence, there was no illegality, arbitrariness or unreasonableness in the decision making process. So far as mala fide is concerned, the learned single Judge held that the pleading to that effect is very feeble.
13. On behalf of the appellants, we heard Shri. P. K. Kurian, Senior Advocate, on behalf of respondents 1 and 2, we heard Advocate General Shri, M. K. Damodaran assisted by Advocate Shri. N. N. Sugunapalan, on behalf of the third respondent, we heard Shri. Krishnamoorthy, Senior Advocate from Madras assisted by Advocate Shri. Joseph Kodiathara and on behalf of the fourth respondent, we heard Advocate Shri Ramesh Chander. Counsel on both sides, reiterated the same contentions as were urged before the learned single Judge.
14. Before we deal with the contentions raised by the appellants in this case, we have to consider the objections raised by the respondents to the effect that there was no public tender. According to the first respondent, even though by Ext. P1 letter offers were invited from the appellants with regard to ground handling services at Cochin that does not compel the first respondent to consider the offer. In paragraph 4 of the counter-affidavit of the first respondent, it was stated thus :
"The object of inviting their offers was only to get the terms and conditions of the respective companies for consideration by the Board of Directors of this respondent and to select the best suited to the interest of this respondent. Being a new project implemented by raising finance from various sources all efforts were made to make the project viable. Hence when Ext. Rl(a)letter was sent inviting offers the paramount consideration was to get the best offer for the benefit of the 1st respondent. There was no minimum estimated amount or other conditions for acceptance and rejection like the usual tender procedure".
To the same effect, the third respondent had also raised a contention. Even though the above contention appeared in the pleadings, it does not appear that it was argued before the learned single Judge. Hence, we could have rejected the above argument by stating that it was not argued before the learned single Judge. But we feel that on merits also, there is no substance in the contention. If the offers were made only pursuant to Ext. Rl(a) probably the respondents would have a good case. But according to us, it is Ext. P5 that forms the basis. In Ext. P5, it is categorically stated by the CIAL that it was decided to provide a fair opportunity to all the eligible agencies, one final chance to give their best offer before taking a final decision. The contract period will be for a period of 10 years. Ext. P5 requested the tenderers to quote their offers with regard to ground handling services with the following conditions: (1) Quantum of equity contribution/interest free deposit (2) Annual licence fee to CIAL on percentage basis of gross turnover and (3) The contract period would be for 10 years. Ext. P5 further states that the offers should reach on or before 1700 Hours on 28th July, 1998. Besides, the tenderers were also directed to give Bank Guarantee by Ext. P7 dated 5-8-1998. Ext. P7 letter states thus :
"The Board of Directors have decided to obtain a Bank Guarantee from all participants to a value of 10% of their Equity/Interest Free Deposit offered, valid for 06 months so as to make the offers binding till a decision is taken by CIAL. If the selected agency backs out at any time from their commitment, this amount will be forfeited".
The tenderers were also requested to furnish the list of equipments and audited statement of accounts for the past three years. This clearly shows that the first respondent was not mainly gathering information from various persons as the offers which they can make. On the other hand, the statement in Ext. P5 coupled with the direction to give Bank Guarantee with forfeiture clause clearly show that Ext. P5 is a public tender. Hence, we are of the view that the contention raised by the respondents that they can reject any offers without any reason, cannot be countenanced.
15. The main question that arises for consideration in this case is whether the award of contract in favour of the third respondent by Ext. Rl(d) dated 12-12-1998 is legal and valid. We have already stated that it was by Ext. P5 that the tenders were invited. There were five tenders. Since the fight here is between the first appellant and the third respondent, for the purpose of this case, it is enough to go through the offers made by the above parties. Those offers have been very clearly stated in Ext. Rl(i), which is the minutes of the meeting of the committee constituted for the evaluation of offers. Both parties have no dispute with regard to the assessment of qualifications mentioned in Ext. Rl(i). The conditions of offers received from Air India are as follows :
"(a) Equity participation proposed in CIAL Rs. 5 crores.
(b) Licence fee -- 11% of the gross turnover in the first year and the same will be increased by 0.5% every year up to 10 years.
(c) others
(i) They must be given the right to sub contract the ground handling services.
(ii) The licence fee payable shall be on the gross turnover after deducting the rent paid to CIAL for the premises".
With regard to Cambatta Aviation Limited, the conditions of offers are as follows :
"(a) Equity participation proposed in CIAL -- Rupees sixteen crores.
(b) Licence fee-- 15% of the annual turnover with an annual increase of 0.5% every year.
(c) Others -- bonus licence fee If the flight frequency exceeds: Bonus licence fee 2% International -- 15 per day 1 Domestic -- 20 per day On the basis of the financial benefit to CIAL by way of cash inflow on account of licence fee and savings in the cost of borrowings arising from additional equity contribution, the Cambatta. Aviation was rated as the highest and the Air India was guided as the fifth position. The evaluation committee also found that the Cambatta Aviation, DNATA, Air India and Ogden Aviation Services are on par as far as technical competence, organisational capacity and past experience in ground handling. So far as Cambatta Aviation and Air India are concerned, they have proved adaptability for operating in Indian conditions. No doubt, the committee decided to recommend Cambatta Aviation for undertaking the ground handling services. Thus, we find that the evaluation committee had considered all aspects of the tenderers with regard to the purpose for which the tenders were invited and after considering the entire matter, the committee was of the view that the first appellant was the most competent person to be awarded the contract.
16. As rightly stated by counsel for the respondents, Ext. Rl (i) has only a recommendatory value so far as the Board of Directors are concerned. It is not necessary that the Board of Directors should accept the recommendation of the report of the High Level Committee.
17. The next question for consideration is on what basis the Board of Directors preferred the Air India. After the report of the evaluation committee the Board of Directors met on 7-11-1998 and the minutes of the meeting is Ext. Rl(f). It is to the following effect:
"Board took note of the minutes of the High Level Committee constituted by the Board of Directors in their 20th meeting held on 30-7-98 for deciding on the above subject and the opinion received from Shri. Venugopal C. Govind in this respect.
Board also took note of the recent letter received from M/s. Air India. Air India being the national carrier and being a central public sector undertaking, Board decided that a final decision in this respect can be taken after a detailed discussion is the subject matter with M/s. Air India. It was also decided to invite the Managing Director Air India for giving a presentation before the Board on 27-11-98 on which date the 22nd meeting of the Board of Directors is scheduled at Govt. Guest House, Ernakulam".
A perusal of the above minutes shows that even though the Board of Directors were appraised of the contents of the committee's report, they did not take a final decision on the matter. On the other hand, the Board of Directors were of the view that a final decision can be taken only after discussions with M/s. Air India. The Board of Directors took into account the letter received from M/s. Air India. It also decided to invite the Managing Director for giving a presentation before the Board on 27-11-1998 on which date the 22nd meeting of the Board of Directors was scheduled at Government Guest House, Ernakulam. The letter mentioned in Ext. R1(f) is the letter dated 29-10-1998, which is produced as Ext. R3(f). It is a letter from Shri. M.P. Mascarenhas, Managing Director of Air India to Shri. E. K. Nayanar, Chief Minister of Kerala. In that letter, the Managing Director mentions the advantages that will accrue to the CIAL, if the contract is awarded to them. It states that if the contract is awarded to the Air India, particular importance will be given to attract large number of International Flights to a number of foreign destinations. It further highlights the role of Air India in granting air traffic rights which are within the purview of the Ministry of Civil Aviation and are generally finalised on the recommendations of Air India. The letter further states that they have been in the field for the past 40 years and that it has got sophisticated training facilities in its Training College at Mumbai. The letter also states that the Air India was prepared to increase its equity participation. Thereafter, we find that another letter was sent from the Air India to the first respondent, which is produced as Ext. R3(j), Ext. R3(j) is signed by the Managing Director of Air India. It is dated 1-12-1998 and is addressed to the Managing Director of the first respondent. It refers to the opportunity given to Air India at the meeting of the Board of Directors at Cochin on 27-11-1998. According to this letter, the presentation enabled the Air India to outline in detail Air India's ground handling capabilities, the package of services which they wish to offer and other relevant including the financial details of a partnership which they proposed to the CIAL.
Thereafter, in paragraph 3 the conditions under which they accepted the offer are stated. The above letter shows that after the meeting of the Board of Directors on 7-11 -1998 another meeting took place on 27-11 -1998 when the representative of the Air India was heard.
18. Subsequently, we find that the first respondent issued Ext. Rl(d) letter dated 12-12-1998 to the third respondent. In that letter, it was stated that the Board of Directors of CIAL had decided to appoint Air India as the sole agency for establishment and management of ground handling of aircrafts operating into and out of Cochin International Airport at Nedumbassery on the conditions mentioned therein. The conditions are that the period of contract will be 10 years, the third respondent should invest Rs. 5 crores in the equity capital of the first respondent, it should provide an interest free security deposit of Rs. 11 crores within 30 days, it should give an undertaking that it will carry out the entire ground handling services for passenger and cargo on their own and they will not sublease or subcontract all or any part of the work. A licence fee of 15% should be paid on their gross turnover from ground handling services at Cochin International Airport with an escalation of 0.5% for every year up to the 10th year. The third respondent should bring in and use new machineries.
19. If we analyse the process up to Ext. R1 (d), the following things emerge: (1) On the terms of Ext. P5, the offer made by the first appellant-Cambatta Aviation Limited was more advantageous financially than that offered by the Air India (2) The High Level Committee found that on technical aspect both the Air India and Cambatta Aviation Limited are on a par with each other (3) By letter dated 27-1-1998 -- Ext. R3(d) -- the Air India informs the Board of Directors through the Chief Minister that if the contract is given to them, they will be able to see that more Flights are landed at the International Airport and further the Air India has got a pivotal role in the landing of Flights, since the Civil Aviation Department consults it before granting permission. (4) The Board of Directors at its meeting held on 27-11-1998 takes into account the above letter and decides to invite the representative of the Air India to present its case before the Board of Directors (5) The representation of the Air India was present at the meeting of the Board of Directors on 27-11-1998 and had discussions with the Board of Directors (6) Subsequent the Managing Director of the Air India by its letter dated 1-12-1998 -- Ext. R3(j) --agrees to the conditions put to them by the Board of Directors at the meeting held on 27-11-1998 (7) By letter dated 12-12-1998 -- Ext. R1(d) --the first respondent informs the third respondent about the decision of the Board of Directors to award the contract. Neither the first respondent nor the second respondent has placed before us the decision of the Board of Directors awarding the contract to the third respondent. Hence, we are in the dark in so far as the reasons which prompted the Board of Directors to award the contract to Air India. Of course, in the counter-affidavit filed by the first respondent, it has given certain reasons, which according to it, were the reasons to award the contract to Air India.
20. It is clear from the counter-affidavit that the main thing which weighed with the Board of Directors to award the contract to Air India was : (1) If the Air India was awarded the contract, that will give rise to a number of International Flights landing at the Airport (2) Air India was handling ground facilities at more Airports than Cambatta Aviation (3) Air India is an airliner while Cambatta Aviation is not an airliner and (4) Air India is a public sector undertaking. It is also not disputed that the offer made by the Air India was lower than the offer made by the first appellant and it was only after persuasion from the Board of Directors at its meeting held on 27-11-1998 that the Air India agreed to enhance its investment to Rs. 16 crores and also enhance the licence fee from 15 % to 20%. Only Air India was invited for negotiations.
21. Counsel for the appellants submitted that the first respondent is an instrumentality of the State and hence, it cannot act arbitrarily in awarding contracts. He submitted that even though the first respondent was not bound to accept the highest offer when it had afforded an opportunity to the third respondent, the same opportunity should have been given to the first appellant also. He further contended that respondents 1 and 2 had persuaded the third respondent to enhance its offer to be in tune with that of the first appellant. But even now, the offer made by the third respondent is lower than that offered by the first appellant when the bonus commission offered by the appellant is taken into consideration. He further submitted that the assumption that the Air India is financially viable is not correct. Counsel quoted from the report of the disinvestment committee chaired by G. V. Ramakrishna. According to the counsel, the report has painted a dismal picture of the financial condition of Air India. Counsel further submitted that the assumption of the first respondent regarding the financial condition of the first appellant was wrong. The fact that the first appellant was able to give security of Rs. 16 crores shows the first appellant's financial viability. The statement that the Air India was a airliner and that it will be able to bring more Flights to be landed at Nedumbassery, counsel submitted, was not a relevant fact. The Air India was only taking advantage of the position given to it by the Civil Aviation Department to the detriment of others. Further, counsel contended that the first appellant has also received letters from various airlines including Gulf Airlines that it will offer more Flights from Cochin in case the appellant is given the contract of ground handling. Counsel therefore submitted that if an opportunity had been given to the appellant, these things would have been brought to the notice of the Board of Directors. He further contended that the Air India cannot be given a special privilege, since it is a national carrier in so far as Ext. P5 does not give such a preference.
22. Counsel for respondents 1 and 2 contended that even though the freedom of the Governmental Authority to award contracts is not unlimited, some play has to be given in the joints. Being the awarder of the contract, it has got the freedom to choose the best person in public interest. In this context, it was submitted that the respondents have got duty to see that the financial position of the first respondent is kept in good condition and in that view of the matter, it was very well within its right to accept the offer of the third respondent. It was further submitted that the Air India has got more experience in the field of ground handling services. Both sides cited various decisions for our consideration.
23. It is not disputed now that the freedom of the Government to enter into contracts is not unanalised or unrestricted, it is subject to the golden Rule under Article 14 of the Constitution of India. The Government has to act impartially and in accordance with the terms and conditions of the tender doubt, in accepting the contract, it is not always necessary to accept the highest offer. The choice of the person to whom the contract is granted has to be dictated by public interest and must not be unreasoned or unprincipled. The choice cannot be arbitrary or fanciful. It is also not in dispute now that if the Government chooses to invite tenders, the tender qualifications and conditions control the choice to be made. But the process of awarding a contract by inviting tenders can itself be altered by a change of policy.
24. In Harminder Singh v. Union of India, AIR 1986 SC 1527 the instrumentalities of the State invited tenders for the supply of fresh buffaloes and cows milk. The appellant who was eligible and had been supplying milk and was also on approved list submitted tenders. The General Manager of Govt. Milk Scheme filed tenders, but it was in respect of pasteurised milk and not fresh milk. The appellant's tender was the lowest, but the tender of Government Milk Scheme was accepted. The Supreme Court held that the acceptance of tender by authorities was illegal and quashed the same. In dealing with Chat contention, the Supreme Court held as follows (at page 1534 of AIR):
"In the instant case, the instrumentalities of the Stale invited tenders for the supply of fresh buffaloes and cows milk and, therefore, this case has to be decided on the basis of bid by the tenderers. There was no question of any policy in this case. It is open to the State to adopt a policy different from the one in question. But if the authority or the State Government chooses to invite tenders then it must abide by the result of the tender and cannot arbitrarily and capriciously accept the bid of respondent No. 4 although it was much higher and to the detriment of the State. The High Court, in our opinion, was not justified in dismissing the writ petition in limine by saying that the question relates to the contractual obligation and the policy decision cannot be termed as unfair or arbitrary. There was no question of any policy decision in the instant case. The contract of supply of milk was to be given to the lowest bidder under the terms of the tender notice and the appellant being the lowest bidder he should have been granted the contract to supply, especially, when he has been doing so for the last so many years."
With regard to Government's freedom to enter into a contract, the Supreme Court referred to the decision in Ramana Dayaram Shetty v. International Airport Authority of India, AIR 1979 SC 1628 and observed as follows :
"It is true that the Government may enter into a contract with any person but in so doing the State or its instrumentalities cannot act arbitrarily. In the instant case, tenders were invited and. the appellant and Milk Scheme submitted their tenders. The tenders were to be adjudged on their own intrinsic merits in accordance with the terms and conditions of the tender notice."
The Supreme Court also quoted with approval the observations of Mathew, J. in V. Punnan Thomas v. State of Kerala, AIR 1969 Kerala 81 which state thus at page 90 :
"The Government is not and should not be as free as an individual in selecting the recipients for its largess. Whatever its activity, the Government is still the Government and will be subject to restraints, inherent in its position in a democratic society. A democratic Government cannot lay down arbitrary and capricious standards for the choice of persons with whom alone it will deal".
25. In Tata Cellular v. Union of India, (1994) 6 SCC 651: (1994 AIR SCW 3344) the Supreme Court had occasion to consider the scope of judicial review with regard to contractual matters and the Supreme Court in that decision prescribes certain principles. The Supreme Court said that the duly of the Court in such matters is to confine itself to the question of legality. Its concern should be:
"1. Whether a decision-making authority exceeded its power?
2. committed an error of law,
3. committed a breach of the rules of natural justice,
4. reached a decision which no reasonable tribunal would have reached or,
5. abused its powers."
Regarding the scope of judicial review, the Court observed in paragraph 70 as follows :--
"70. It cannot be denied that the principles of judicial review would apply to the exercise of contractual powers by Government bodies in order to prevent arbitrariness or favouritism. However, it must be clearly stated that there are inherent limitations in exercise of that power-of judicial review. Government is the guardian of the finances of the State. It is expected to protect the financial interest of the State. The right to refuse the lowest or any other tender is always available to the Government. But, the principles laid down in Article 14 of the Constitution have to be kept in view while accepting or refusing a tender. There can be no question of infringement of Article 14 if the Government tries to get the best person or the best quotation. The right to choose cannot be considered to be an arbitrary power. Of course, if the said power is exercised for any collateral purpose the exercise of that power will be struck down."
The following observations in Food Corporation of India v. Kamdhenu Cattle Feed Industries (1993) 1 SCC 71 : (AIR 1993 SC 1601) were quoted with approval (at page 1604 of AIR):--
"In contractual sphere as in all other State actions, the State and all its instrumentalities have to conform to Article 14 of the Constitution of which non-arbitrariness is a significant facet. There is no unfettered discretion in public law : A public authority possesses powers only to use them for public good. This imposes the duly to act fairly and to adopt a procedure which is 'fairplay in action'".
But so far as the right of the Government to accept or reject the lowest offer, the Court held that it should be on some rational and reasonable grounds. The Court referred to the following observations in Erusian Equipment & Chemicals Ltd. v. State of West Bengal, (1975) 1 SCC 70 : (AIR 1975 SC 266) at page 269 of AIR :
"When the Government is trading with the public, "the democratic form of Government demands equality and absence of arbitrariness and discrimination in such transactions". The activities of the Government have a public element and, therefore, there should be fairness and equality. The State need not enter into any contract with anyone, but if it does so, it must do so fairly without discrimination and without unfair procedure".
26. In Asia Foundation & Construction Ltd. v. Trafalgar House Construction (1) Ltd., (1997) 1 SCC 738, the Supreme Court held that when Government contracts are judicially reviewed, the Court must keep in mind that in case of high cost Government projects based on loan from international financial institutions acceptance of tender by Government in accordance with the specifications or opinion of such institution would not be arbitrary or illegal. In the absence of exercise of power for collateral purpose, ulterior motive, favouritism, malice or mala fides, Court's interference with the award of contract not called for. It was further held that the lowest bidder has no enforceable right to get the contract. Another decision cited was Premium Granites v. State of Tamil Nadu, AIR 1994 SC 2233 : (1994 AIR SCW 2048). In that case, the Supreme Court was considering the validity of Rule 39 of the Tamil Nadu Minor Mineral Concession Rules. That Rule enabled the Government to grant leases otherwise than in accordance with the Rules in interest of mineral development and in public interest is not per se obnoxious and cannot be held to be having contained unbridled, unguided and uncanalised discretionary power offending Article 14 of the Constitution. Repelling the contention it was observed by the Supreme Court as follows:
"The expression "public interest" finds place in the Constitution and in many enactments and considered by this Court in various decisions. The said expression is, therefore, a word of definite concept. Moreover, the guidelines need not be expressly found in the impugned provisions but such guidelines can be gathered from the setting of the Act and the rules framed thereunder. Further the exercise of power under the said Rule 39 cannot be made arbitrarily, capriciously and on subjective satisfaction of the concerned authority but the same is to be exercised within the parameters of "mineral development" and "in public interest" which are not vague and indefinite concepts. Such exercise of power must satisfy the reasonableness of State action before a Court of law...."
27. Manual Thomas v. State of Kerala, 1987 Ker LJ 70 : (AIR 1987 Ker 262) is a Division Bench decision of this Court, where the award of a building contract with respect to the construction of Legislative Assembly was in question. The contract was granted to the Kerala State Construction Corporation. The Construction was chosen in spite of the fact that its tender was not the highest. On the basis of the fact of that case the Court held that the award of contract to the Corporation was valid. Further in paragraph 17, the learned Judge held as follows at page 266 of AIR:--
"The decisions to be taken in respect of the contract were thus not left to one individual or to some officers, but to a very responsible group of top representatives of the people who had also the administrative and technical advice of the officers at the highest level. There was thus a policy formulated even at the outset, long before tenders were thought of, laying down reasonable and rational standards for entering into contracts for the construction of this Complex. The involvement of the Speaker, the Chief Minister and the leader of the opposition in the high level committee is itself a strong indication infusing confidence in the minds of the public that there shall be a fair deal at every stage of the contract. This important aspect thus stands out in our analysis of facts and our decision on the question whether there has been any discrimination as alleged."
In the case of Plantation Corporation Ltd. v. M/s. PL Agro Technologies Ltd., 1995 (2) Ker LJ 696 -- a Division Bench of this Court held as follows :
"The public authority should act fairly in granting assignment of its work, and unjust preference for entrusting the work is unsupportable in law. But public authority is not nailed to the option of choosing one of the tenderers merely because tenders were once invited. The authority has the right to entrust it to any one if that is found to be necessary to serve the best interest of it. Public interest should be the guiding principle".
Recently, the Supreme Court had occasion to consider the principles of Judicial review in the decision reported in Raunaq International Ltd. v. I.V.R. Construction Ltd., (1999) 1 SCC 492 : (AIR 1999 SC 393). The Supreme Court held as follows at page 398 of AIR :--
"Where the decision-making process has been structured and the tender conditions set out the requirements, the Court is entitled to examine whether these requirements have been considered. However, if any relaxation is granted for bona fide reasons, the tender conditions permit such relaxation and the decision is arrived at for legitimate reasons after a fair consideration of all offers, the Court should hesitate to intervene".
28. The above decisions clearly show that the State or its instrumentalities have to deal its power with regard to the award of contract in accordance with the principle enshrined in Article 14 of the Constitution of India. The process in awarding a contract can be judicially reviewed by this Court. But there are certain parameters so far as the scope of judicial review is concerned. This Court has got its limits with regard to considering whether the offer given by one party has to be accepted, since it has no expertise to adjudge the merit in the field. So far as the instant case is concerned, the contract is one with regard to the services for ground handling of aircrafts. The first respondent is the best person to adjudge as to the competency of the various tenderers to carry out the contract. If the first respondent had reached a conclusion in accordance with the principles of natural justice and in accordance with the terms and conditions of the tender offer, probably this Court would have refused to extend its jurisdiction to interfere with such a decision. But if what weighed with the first respondent is not the terms and conditions of the tender, then definitely this Court would investigate minutely as to the reasons which prompted the first respondent to award the contract to the third respondent.
29. From the narration of incidents which proceeded the decision to award the contract to the third respondent, it is quite clear that till the meeting on 7-11-1998, the qualifications of the first appellant were considered to be better than that of the third respondent. The minutes of the Board meeting do not give any reason as to why it was decided to invite Air India. The minutes do not disclose that the Board of Directors was attracted by the advantages to be gained, if the award of contract is to be given to Air India, nor it was satisfied that the terms and conditions offered by Air India was the best. The minutes also do not disclose that the Board of Directors was of the view that the first appellant was inferior to the third respondent in the field of ground handling services. The conditions are turned in favour of the third respondent because of a letter sent by the Managing Director of Air India to the Chief Minister, who is the Chairman of the first respondent. With respect to this letter, the Board of Directors took a view that before the contract is awarded to anybody, the Air India should be heard, so that the contract can be given to it. In this context, it is pertinent to note that the terms offered by Air India were not in consonance with the terms mentioned in Ext. P5. Subsequently what has happened was that the Board of Directors was impressed by the presentation given by the representative of the Air India on 27-11-1998 and the Board compelled the Air India to enhance their offer, so that it will match with the offer of the first appellant. Thus, the Board of Directors took a view to give an opportunity to Air India even before taking a decision on the soundness of the other tenderers. This clearly shows that the Board of Directors took the view, without considering the merits of the tenders to award the contract to Air India. Thereafter, the Air India was persuaded to give the offer so as to match with the offer given by the first appellant, so that it cannot be said that the offer made by the Air India was lower than that of the first appellant. We are of the view that this procedure adopted by the Board of Directors is clearly violative of the principles of natural justice. If the Air India could have been given an opportunity why can't the other tenderers be given an opportunity. We are even now in the dark to know what was the reason which prompted the Board of Directors to invite Air India alone. We are not impressed with the reasons given in the counter affidavit as it was well known that the reasons given in the counter affidavit cannot be accepted for what has happened at the time of acceptance of the offer. If the other tenderers had been also invited they would have also given whether they are willing to give higher offers and they will also have pointed out the demerits of the other tenderers besides projecting their own merits. We are also not able to appreciate the assertion that if the Air India is not given the contract, the International Airport at Nedumbassery will be bereft of Flights because the Air India will not allow the other Airlines to land at Nedumbassery Airport. We are very sorry that such a contention was taken by Air India. We are also not happy in what is stated in the counter affidavits that they got a pivotal role when the Ministry of Civil Aviation consults them with regard to the landing of Flights at Nedumbassery. The purpose is obvious that if the contract is not given to Air India, they will see that no other Airlines is granted permission to land at Nedumbassery. Probably, the Board of Directors were also carried away by this objection. Thus, on a perusal of the entire facts and circumstances of the case, we are of the view that the award of contract in favour of Air India is arbitrary, illegal and opposed to the principles of natural justice.
30. In the above view of the matter, we set aside the award of contract in favour of Air India and quash Ext. R1 (d) the communication of the decision taken by the Board of Directors to award the contract to Air India with regard to ground handling services at Nedumbassery Airport. We are of the view that we are not in a position to adjudge the merits of the tenderers. We direct the first respondent to reconsider the valid tenders once again and it" necessary, call all the persons, who have submitted valid tenders, for negotiation before finalising the contract. The Writ Appeal is allowed and the judgment of the learned single Judge is set aside.