A three judge bench of the Supreme Court of India laid down a series of principles in Tata Cellular v. Union of India,^[3] viz. the importance of judicial restraint in administrative action; an exercise of jurisdiction under Article 226 of the Constitution of India does not permit the Court to act as a Court of Appeal but only permits review of the manner in which the decision is made; the Court is not permitted to substitute its own decision for that of those with the necessary expertise; that the terms of the invitation to tender exist in the contractual realm and cannot be open to judicial review; that the Government should have freedom of contract and can be tested on the grounds of Wednesbury Reasonableness and arbitrariness, bias and mala fides; and that quashing decision impose heavy administrative burden and lead to increased governmental expenditure.^[4]

In Air India Ltd. v. Cochin International Airport Ltd.,^[5] the Supreme Court held that the State could choose its own method to arrive at a commercial decision and that the terms of a tender are not open to scrutiny. Even when there are defects in the decision making process, the Court must only interfere in public interest and with great caution.

Twelve years after Air India, the Supreme Court in Michigan Rubber v. State of Karnataka,^[6] further limited judicial review. First, that there must be fairness in State action, and non-arbitrariness. The State must act in a reasonable manner and not for any ulterior purpose, and in the overarching interest of national priorities. Second, that the scope of interference of the Courts is particularly limited and that the fixation of terms of tender is within the purview of the executive. Courts are not to substitute their judgement for that of the Executive. Third, greater latitude is to be afforded to the State unless the action of the tendering authority is malicious and a misuse of its statutory powers. Fourth, the conditions laid down in tenders are primarily to ensure that the contractor has the capacity and resources to execute the work. Fifth, where the State acts reasonably fairly and in public interest, interference by Court is restrictive. No person has a Fundamental Right to carry on business with the State.^[7]

The Supreme Court in Nabha Power Limited v. Punjab State Power Corporation (hereinafter “Nabha Power Limited”),^[8] sought to provide certain boundaries within which review of the decision-making process in tenders may occur. The Court observed that it cannot look into the implied terms of the contract as the making of a contract is a highly technical matter. A contract should be read in accordance with its express terms and judicial review should be restricted to an analysis of the reasonableness/arbitrariness of the procedure specified in these express terms.^[9]

In a number of other decisions, including Jagdish Mandal v. State of Orissa,^[10] Silppi Constructions Contractors v. Union of India & Ors,^[11] National High-Speed Rail Corpn. Ltd. v. Montecarlo Ltd (hereinafter, “Montecarlo Ltd.”),^[12] Uflex Ltd. v. Government of Tamil Nadu (hereinafter “Ufelx”),^[13] Galaxy Transport Agencies v. New J.K. Roadways,^[14] and more recently, in M/s. N.G. Projects Limited v. M/s Vinod Kumar Jain & Ors.^[15] and Airport Authority of India v. Centre for Aviation Policy, Safety & Research & Ors.,^[16] the Hon’ble Supreme Court has refused to interfere with the decision-making process in relation to Tenders.

It is therefore clear that the Supreme Court has refrained from interfering in the terms of Tenders. The Supreme Court has routinely emphasized the importance of leaving such decisions to the commercial and technical wisdom of the Authority in question.

In contrast, High Courts from across the country have interfered with the decision-making process in Tenders, based on the principals of law laid down by the Supreme Court. The Supreme Court has tended to overturn these decisions of the High Courts. In the subsequent chapter, we look into the facts of recent decisions and the rationale of the Supreme Court in taking a contrary view to those of the respective High Courts.

The Supreme Court in Association of Registration Plate Manufacturers v. Union of India,^[17] had to examine certain clauses of the Motor Vehicles (New High Security Vehicle Registration Plates) Order, 2001. The clauses in question mandated that the manufacturer or vendor selected by the State Transport Department may be for the whole or any region of the State, essentially creating a monopoly in favour of a single private operator for a period of 15 years. The State sought to defend the policy on the ground that the Scheme for supply of the High Security Number Plates in question could not be implemented if several people were supplying the same, and that it would defeat the purpose of security that was sought to be achieved.^[18]

Justice G.P. Mathur observed that while the Rule in question permitted a license plate manufacturer with approval from the Central Road Research Institute to supply the High Security Number Plates, the amendment to the said Rule required a tenderer or bidder to have a turnover of over 50 Crore in the immediately preceding year and at least 25% of the same had to come from license plates. Moreover, prior experience in 3-5 countries was a must. This being the case, he observed that all Indian companies would be ousted even though they may be technically competent, and^[19] the eligibility condition therefore deserved to be quashed.^[20] Due to a deadlock between the judges on the Bench, the matter was referred to a 3 Judge Bench.

The 3 judge bench disagreed with Justice Mathur’s reasoning. The Court was of the opinion that even technically and financially, competent indigenous manufacturers were mostly involved in joint ventures with foreign companies. The Court held that tender conditions based on foreign collaborations could not be held to be discriminatory, in light of the nature of the contract and the magnitude of the investment. The Court also held that there could be no conclusion that this involved a deliberate attempt to exclude Indian companies and that there was nothing on record to conclude that there was some mala fide design on part of the State.^[21]

The Delhi High Court in Montecarlo Ltd., was called upon to consider whether the ‘non-responsive’ bid submitted by the Petitioner was justifiably rejected by the authority.^[22] The bidding process was such that only after notification of the award could reasons be assigned to unsuccessful applicants and no information could be disclosed till the information was communicated to all bidders.^[23]

The High Court held that the impugned clauses of the tender were illegal to the extent that they curtailed the rights of the bidder to challenge the rejection at the earliest and would thus be illegally ousted from the bidding process. The Court observed that a tender, being a public document, is open to scrutiny and any mechanism giving unfettered powers to the authority and disenfranchising bidders from questioning acts and omissions which would otherwise be considered whimsical, arbitrary, and biased would be illegal.^[24]

On Appeal, the Supreme Court put to itself two questions, First, as to whether the process adopted or the decision arrived at by the Authority was mala fide, arbitrary or intended to favour a particular bidder; and second, whether the public interest was affected. The Court held that it was not open for the High Court to interpret the contract on its own and hold that where the writ petitioner was not given the opportunity to rectify its defects, such action would be arbitrary.^[25] The Court held that the terms were fixed at the discretion of the Authority and that the clause under challenge did not curtail the legal remedy. The purpose of the clause was to prevent delay and the consequent additional financial burden. The Court held that the High Court ought to have appreciated that no interference was needed till after the award, and therefore a foreign funded agency was justified in providing clauses to prevent a challenge to the process midway.^[26] It appears that the Supreme Court was swayed by the foreign funded, nature of the project as a mega-project. The Court further directed the High Courts to look to the larger public interest and the national interest involved in such cases.^[27] This focus on public interest is often supplemented by a refusal to interfere with the commercial prudence of the Authority in question.

The decision of the Supreme Court in Uflex is instructive in this regard. The Division Bench of the High Court of Himachal Pradesh had allowed the Writ Appeals filed by two unsuccessful bidders for the project in question. The rationale of the High Court revolved around the fact that the conditions requiring minimum supply to a State Excise Department in the previous three years along with certain technical specification had the impact of eliminating all but two bidders, and were “tailor made to favour Uflex and Montage.”^[28]

The Supreme Court proceeded to quash the decision of the High Court on the ground that merely because a company is more efficient, obtains better technology, makes more competitive bids and therefore succeeds cannot be a reason to deprive the company of the tender.^[29] The Court observed that it could not sit in judgement over the required technical specification required for an entity to participate.^[30] Merely because there is less participation than necessary, it cannot be said that it was done to favour some party.^[31]

The Supreme Court’s insistence on establishing mala fides of the State, essentially grants the government a free hand in setting Tender Conditions it deems fit, without any consideration of the actual requirements of the project and enables the State to impose conditions that may favour certain parties, as long there are no ex faciemala fides.

The High Court of Delhi in Centre for Aviation Policy, Safety & Research v. Union of India,^[32] sought to deal with issues relating to the tender for engaging agencies to provide Ground Handling Services (GHC) at certain airports. As explained by the Court, the bidding process for the Airports were split into groups – A, B, C, D1 and D2. Certain changes were introduced to the D1 category from the historical process, while all other categories remained the same. In relation to D1 airports, the technical specifications indicates that 36 months’ experience was required in the preceding 7 years in providing GHS to schedule airports. Moreover, bidding would be for all airports in the D1 category in one go, and not to each airport, thereby increasing the investment required and therefore the minimum capacity as per the technical specifications.^[33]

These conditions were challenged as being arbitrary and discriminatory, and intended to favour some parties to the detriment of others. The policy was sought to be justified by the State on the ground that it eased administrative burdens on the State and increased efficiencies.^[34]

The High Court considered the National Civil Aviation Policy, 2016, the Airports Authority of India (Ground Handling Services) Regulations, 2018 and the Requests for Proposal under challenge, and observed that no distinction could be drawn between scheduled and non-scheduled airlines in any of the Regulations.^[35] As such, for all intents and purposes, prior experience in either had to be seen on an equal footing. The Court went on to observe that while this condition did not find mention in the body of the RFP, it was provided in the self-certification form in an Annexure to the RFP, which to the Court appeared to have been done surreptitiously. The Court observed that this, in combination with the other technical specifications was designed to virtually prohibit the participation of micro enterprises and thus deserved to be struck down.^[36]

On Appeal, the Supreme Court quashed the decision of the High Court on the grounds that the terms and conditions of the Invitation to tender are within the executive domain and not open to judicial review unless arbitrary, discriminatory or mala-fide.^[37] On consideration of the authorities on the point, the Court was of the opinion that the clauses/conditions of the tender were not arbitrary of mala fide, and that it was for the AAI to decide its own criteria.

However, the Court did not deal with the findings of the High Court that the criteria were arbitrary to the extent that they virtually prohibited the participation of an entire class of tenders, on the point that there exists no factual distinction between scheduled and non-scheduled airlines for the purpose of GHS. This is particularly important in light of the fact that the Supreme Court, dealt with all other contentions raised before it including the points of the clustering of airports, the criteria for evaluation and financial capacity. The rationale provided by the AAI was that the nature of work involved in scheduled and non-scheduled flights was wider. However, the same was not borne out from any documents, and the Supreme Court did not consider these contentions.

This decision is particularly troubling as the Court chose not to consider the question of whether the decision of an authority would be biased, arbitrary and discriminatory, if it barred the participation of a class of persons, who would otherwise be eligible to participate.

In conclusion, we are forced to look beyond the generally accepted set of principles as borne out from the precedent on the point and look to the nature of the contracts. This is where the decision of the Supreme Court in Montecarlo Ltd comes to our assistance. It appears that in contracts that have an impact on public interest, the Courts are reluctant to interfere.

The administrative burden imposed by the quashing of a tender on the public exchequer directs the decision – making process of the Court in most instances. This is also borne out from the decision of the 3 Judge Bench in Association of Registration Plate Manufacturers where, in essence, the Supreme Court held that anti-competitiveness does not fall foul of Article 14 in light of the overwhelming public interest in the contract. In such cases, the Authority is best placed to determine the terms of the tender.

In Centre for Aviation Policy, Safety & Research, a class of Indian Companies were excluded. As such, while the conclusion of the Delhi High Court as to the arbitrariness of the distinction between Scheduled and non-Scheduled Airports remains uncontroverted, the real issue isn’t that of actual arbitrariness, but rather State or Public Interest. In Uflex, the Supreme Court refused to look into the commercial prudence of the Authority setting the terms of the tender further observing that the authority is best placed to determine the needs of the project in question.

As explicitly outlined in Motecarlo Ltd., the Courts are guided more by questions of the public interest in high value contracts having implications on issues of security, international standing of the Country, foreign funding, and the size of the project in question. The Supreme Court has, more often than not, arrived at its decisions in light of the impact of its decisions on the public exchequer, the importance of the project, the delays and other impacts on the project as opposed to principled questions of Arbitrariness and Discrimination under Article 14.

As such, the Tender Jurisdiction of the Courts exists in a small corner of Article 14. Practically, the Supreme Court appears to follow a two-step process. The first question that the Supreme Court appears to look to is the nature and impact of the Tender in question, the impacts of quashing the decision of the Authority, and the overarching public interest involved in the decision. If it is found that there exists an overarching public interest, the Supreme Court has disapproved of any interference. However, where it is found that public interest is not necessarily being served by the actions of the Authority, the Supreme Court may be more inclined to consider a general Article 14 consideration of the facts and thus decide.

This being the case, it is clear that the Writ Jurisdiction in relation to Tenders is particularly restrictive. A much higher burden is placed on those impugning the tendering process, and such person is expected to show a failure to achieve the public interest in the process, over and above, the relevant tests under Article 14.

Footnote

[1] Airport Authority of India v. Centre for Aviation Policy, Safety & Research & Ors., Judgement dated 30.09.2022 in Civil Appeal Nos. 6615-6616/2022.

[2] Uflex Ltd. V. Government of Tamil Nadu & Ors., Judgement dated 17.09.2021 in Civil Appeal No. 4862-4863 of 2021 before the Supreme Court of India, para 2.

[3] AIR 1996 SC 11.

[4] Id, para 94.

[5] (2000) 2 SCC 617.

[6] (2012) 8 SCC 216

[7] Id, para 23.

[8] (2018) 11 SCC 508

[9] Id, para 73.

[10] (2007) 14 SCC 517.

[11] (2020) 16 SCC 489.

[12] (2022) 6 SCC 401.

[13] Uflex Ltd. V. Government of Tamil Nadu & Ors., Judgement dated 17.09.2021 in Civil Appeal No. 4862-4863 of 2021 before the Supreme Court of India.

[14] 2020 SCC Online SC 1090.

[15] 2022 6 SCC 127.

[16] Airport Authority of India v. Centre for Aviation Policy, Safety & Research & Ors, Judgement dated 30.09.2022 in Civil Appeal Nos. 6615-6616/2022.

[17] (2004) 5 SCC 364

[18] Id, para 3-4.

[19] Id, para 21

[20] Id, para 29.

[21] Id, para 38-42

[22] Montecarlo Ltd. v. National High Speed Rail Ltd, Judgement dated 23.08.2022 in W.P. (C) 5127/2021 before the High Court of Delhi.

[23] Id, para 10

[24] Id, para 2, 56.

[25] National High Speed Rail Corporation Ltd. vs Montecarlo Limited, (2022) 6 SCC 401, Para 8

[26] Id, para 14.

[27] Id, para 15

[28] Uflex Ltd. V. Government of Tamil Nadu & Ors., Judgement dated 17.09.2021 in Civil Appeal No. 4862-4863 of 2021 before the Supreme Court of India, Para 26.

[29] Id, para 40 – 47.

[30] Id, para 45

[31] Id, para 45

a href=”#_ftnref32″ name=”_ftn32″>[32] Centre for Aviation Policy, v. Union of India, Judgement dated 14.07.2021 in W.P. (C) No. 5722/2020 before the High Court of Delhi.

[33] Id, para 15-19.

[34] Id, para 20

[35] Id, para 35-38

[36] Id, para 52

[37] Airport Authority of India v. Centre for Aviation Policy, Safety & Research & Ors., 2022 SCC Online SC 1334, para 27.

This article was originally published in Mondaq on 24 October 2022 Co-written by: Karan Joseph, Partner; Dushyanth Narayanan, Associate. Click here for original article

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