Abstract

Judicial Review of the administrative process and decision making that goes into government procurement is a divisive issue. While a set of judgments by the Hon’ble Courts suggest that if the tendering process is so malafide and unfair so as to be in violation of the principles of reasonability, court interference becomes necessary. However, another paradigm is suggestive of a rather controversial approach which lays down the principle that public interest takes precedence over arbitrary and unreasonable awards of tenders. The Supreme Court has time and again advised lower courts to be very cautious while entertaining petitions challenging government tenders because it ultimately delays the execution of big infrastructure projects and impedes the execution of projects of public interest. This in turn hampers the government’s duty to ensure the welfare of the state. Therefore, the High Courts should be extremely careful and vigilant in exercise of its discretion while entertaining such petitions and/or while granting stay in such matters. In pursuance of this reasoning, the Supreme Court has further held that even in cases where the High Court is of the prima facie view that the administrative decision was perverse, biased, malafide or arbitrary, the High Court must intimate the petitioner that if they lose, and there is a delay caused thereof, they may be encumbered with damages arising out of such delay. Furthermore, the Supreme Court in another judgement held that in matters where a prima facie case of unreasonableness is made, the court should not stay the project or issue fresh tenders, instead it should give damages to such a bidder. These approaches seem lopsided and do not answer the question of the opportunity cost that the bidder incurs. It further, discourages bidders from filing cases against perverse government tendering in fear of having to pay damages caused by any delay in execution of such projects.

Introduction

The tendering process is one of the most prominent procedures used by the Indian Government agencies to purchase products and services. This is mostly because public bodies, as state machineries, do not have complete discretion in such procurement and are required to ensure a high standard of transparency with respect to public funds. While inviting tenders, state agencies have the freedom to set their own terms and even engage in discussions before determining whether or not to accept one of the offers made to them. They can also grant any concession for legitimate grounds if the tender conditions allow it. This tendering process is expected to be fair and reasonable. However, over years there have been consistent cases of the bidder and contractors having grievances with the tendering process. Often the tendering process has been alleged to be malafide, corrupt, biased or arbitrary. Such claims, when taken to the courts of law have resulted in stay orders, injunctions, or declaring the tendering process illegal and void. The outcome of such judicial pronouncements leads to fresh tenders being rolled out and the government incurs huge losses. In view of delayed infrastructure projects, public money being lost, and government incurring damages, a new trend of Supreme Court judgements have laid down a rather controversial principle, that, even if the tendering process is prima facie malafide and arbitrary, the courts should refrain from interfering. In pursuance to this, the blog seeks to address whether the Supreme Court, vide its judgments, has been able to balance the rights of the private parties and the greater public good?

The Process of Tendering in Construction & Infrastructure Projects

The process of tendering for public works contracts starts with the publishing of the tender document by the different wings of Government of India by way of which private/public companies are invited to submit their bids. These tender documents and the conditions therein are governed by the guidelines published by the government in order to reduce the scope of subjectivity in the tendering process. In 2006, the Department of Expenditure had prepared a set ofthree Manuals on Policies and Procedures for Procurement of Goods, Works and hiring of Consultants, in conformity with the General Financial Rules (GFR), 2005.

The aforesaid manuals have been amended from time to time to incorporate changing technologies and increase transparency and reduce cost. To this effect, the Government of India has launched the Central Public Procurement Portal (CPPP) as an e-Procuring System which enables procurement electronically. This has been done toreduce the time taken in the tendering process and enhance transparency. It further reduces certain costs involved in tendering process. 

Despite the measures taken by the government to ensure transparency in the tendering process, the tenders as well as the tendering process is subjected to judicial review by various disgruntled bidders/tenderers. It is not entirely the fault of the tenderers who challenge these public procurement tenders before the court of law. They are forced to do so due to the fault of the authorities who have been declared by the Supreme Court to be “the best judge of the tender documents and conditions”.

The tendering authorities reject tenders without providing reasons to the tenderers and bidders which is against the general principle of natural justice. However, the Hon’ble Supreme Court in various decisions has held that since the authorities are the best judge of the tender conditions, they do not always need to provide reasons for disqualifying the bids submitted. After all, only one tenderer/bidder would be successful in the end. 

Once the tenders are subject to judicial review, there is an inordinate delay in the completion of contracts resulting in loss to the public. The projects, especially those relating to the upgradation of infrastructure for bettering the standard of living of the citizens of India, suffer great economical loss if the tendering process is challenged before a High Court or the Supreme Court. Once a prima facie case has been established by the petitioner challenging the tendering process, the Courts are inclined to grant a stay on the entire tendering process so that the same can be evaluated by the Courts for malafide and arbitrariness. Once the stay is granted on the tendering process, then the authorities are bound by the decision of the court and cannot proceed with the execution of the infrastructure projects. 

Till recently, if the tendering process was found to be vitiated with malafide and arbitrariness, the Court set aside the tendering process. Further, directions were issued either to award the tender to the petitioner whose bid would be liable to qualify, or to re-conduct the tendering process by issuing fresh tender documents. Reconducting the entire process by taking out fresh tender puts a stress on the public exchequer. To remedy this, the Hon’ble Supreme Court of India in the case ofM/S. N.G. Projects Limited v. M/S. Vinod Kumar Jain & Ors. held that even if the tendering process is found to be vitiated with malafide and arbitrary, the Courts should avoid granting an ad-interim injunction on the tendering authorities from proceeding with the completion of the project with whoever they found most suitable. Furthermore, instead of reconducting the entire tendering process, the petitioner should be compensated for the loss suffered as result of losing the tender bid. In the next section we demonstrate how the court has always refrained from interpreting the tender conditions and has set out specific conditions for allowing judicial review in the process of tendering.

Judicial Pronouncements over the Years 

In the recent Supreme Court judgment ofM/S. N.G. Projects Limited v. M/S. Vinod Kumar Jain & Ors., the court held that a contract of public service must not be interfered with, without caution since issuing interim orders could potentially derail the entire process of a service which was meant for the larger public good. In this case, the respondent’s bid was declared unresponsive due to discrepancy in the format of bank guarantee submitted by him. Subsequently, the tender was given to another contractor who then went ahead and completed a major part of the project. The Supreme Court had reversed the Jharkhand High Court judgment which granted relief to the contractor and held that the tendering process was arbitrary. 

The nature of Public Contracts is different from Private Contracts. Public procurement contracts have an inherent quality of ‘public interest’. Since these contracts facilitate the development of infrastructure and utilities which will ultimately serve the public, courts have taken a ‘minimal interference approach’ while dealing with such contracts. In2016 an expert committee was constituted to examine the Specific Relief Act, 1963 which submitted its Report to Union Law & Justice Minister. The committee concluded that Public Utility Contracts should be classified as a separate class, considering the underlying public interest that should be dealt with in the Act. Any public project must be completed without delay. This necessitates arguing whether a court’s involvement in infrastructure projects should be limited. The courts’ responsibility in this exercise is to meddle as little as possible so that government infrastructure projects are not hampered or halted. 

The Courts have followed varied reasoning on this subject matter. While some judgments have given precedence to the ‘arbitrary’ and ‘mala-fide’ process of procurement, while others have chosen to not interfere owing to the inherent public interest that the projects carry. 

In the case ofRam and Shyam Company v. State of Haryana and Ors, the state government of Haryana had issued a notification for auctioning a quarry. The appellant offered the highest bid which was accepted by the presiding officer. The government however did not confirm the bid and instead gave the bid to another party. The appellant then challenged the same. The court held that, unlike an ordinary person, the government cannot deal with every person in an absolute fashion. However, if the government does deal with a person it must do so ‘fairly’. Though the government is not bound to accept the highest bid, it must choose to do by providing valid considerations and reasons. The court also laid emphasis on the manner in which the government should invite public tenders in a fair manner. Firstly, such an invitation should be advertised in well-known dailies with every necessary detail. Secondly, the government must ensure transparency to promote efficiency in government procurement and facilitate a fair and equitable tendering process. The court further mentioned that conditions must be met since they are the requirements of Article 14 of the Constitution of India.   

InTata Cellular v. Union of India, the Hon’ble Supreme Court laid down principles pertaining to the scope of judicial review while dealing with matters of administrative processes during tendering. The court pointed out that the Supreme Court is not a court of appeal for such matters and only sits to review the manner in which the decision was made by the government authority, because it does not have the expertise to correct such administrative decisions.  The court further held that since the terms of invitation of tender fall under the realm of contract, it cannot be open to judicial scrutiny. The government, as well, should practice fair play while entering such contracts and should be bound by the contours of Wednesbury’s principle of reasonableness, and should be free of arbitrariness and bias. Lastly, the court also mentioned that quashing such decisions taken by government authorities would result in huge costs incurred therefore, this factor should also be kept in mind while dealing with matters of such nature. 

InB.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd, the Maharashtra State power General Co. Ltd invited tenders for its thermal power station, and the appellant’s tender was accepted. The respondent challenged the acceptance on the premise that the appellant failed to fulfil the qualification contained under the notice of invitation. The court held that in cases where an appropriate authority, after due consideration of the tender documents, has taken a decision to allot the tender to a party, then the court may not interfere with such a decision. 

InJagdish Mandal v. the State of Orissa, it was stated that the purpose of judicial review is to check whether the decision was lawful and not to check if it was ‘sound’. Since matters relating to tendering and award are contractual matters and thus fall under the realm of commercial functions, the principles of natural justice and equity would stay at bay. If the decision relating to the tender is ‘bonafide’ and ‘in the public interest’, the court would not interfere even if a case of procedural aberration or prejudice is made out. The Court held that

“The power of judicial review will not be permitted to be invoked to protect private interest at the cost of public interest, or to decide contractual disputes”.

The court also laid great emphasis on public good and public interest and held that if it’s prima facie established that the tender is in such interest, then the court shall not interfere with the decision. 

The same principle was relied upon by courts inMunicipal Corporation, Ujjain v. BVG India Ltd. It was stated that the government being the guardian of the finances of the state puts a limitation on the scope of judicial review in administrative decisions. The government is expected to protect the financial interest of the state and has the right to refuse tenders in pursuance of such interest. As opposed to the Ram & Shyam Company judgment, the court held that there can be no question of infringement ofArticle 14 of the Constitution since the Government’s right to choose cannot be termed as arbitrary power. The government has a right to choose or refuse the lowest tender or any tender. This right should fall under the contours of Article 14, however, if the government tries to get the best person or the best quotation, such an act would not be considered in violation of Article 14. The caveat being, if the power is exercised for any collateral purpose, it shall be struck down.

InSilppi Constructions Contractors v. Union of India, the respondents issued notice for inviting tenders. The petitioner uploaded its bid which was rejected by the respondents on the ground that the signatures were not verified digitally. The court in this case held that the court is duty-bound to interfere when there is arbitrariness, irrationality, malice, and bias. However, the courts must also practice great restraint while exercising the power of judicial review in contractual matters. Thus, the court should only interfere in matters where it could be prima facie made out that it is a case of arbitrariness, mala-fide, and irrationality. The same ratio was applied by the Court inBharat Coking Coal Ltd. v. AMR Dev Prabha to reach the decision that the lower court must not have interfered. 

Conclusion

The judgments of the Hon’ble Supreme Court lay down the principles to be followed in case of evaluating the process of grant of tender. They also elaborate on a need to refrain upon interfering with the tender conditions as the author of the tender document is the best judge of the technicalities involved therein.  However, under the circumstances where the tender condition itself is not clear the courts are forced to allow re-evaluation of the bids submitted by the tenders, else directions are issued to carry out the tendering process from the beginning by issuing fresh tenders. In both circumstances, it is the public who is affected due to delay in execution and completion of the projects. Even though, the Supreme Court has always tried to keep the public interest in mind while entertaining contractual disputes pertaining to grant of tender, at the end of the day it is the public which is affected by such disputes. 

The recent decision of the Apex Court inM/S. N.G. Projects Limited v. M/S. Vinod Kumar Jain & Ors. fails to lay down a mechanism to compensate the bidder who has lost out on the opportunity of carrying out business thereby hampering their Constitutional right to freedom of trade guaranteed underArticle 19(1)(g) of the Constitution of India. How does the loss to the tenderer who lost the bid due to no-fault of his own be calculated? The Supreme Court also fails to clarify as to who bears the cost of such arbitrariness that permeates the tendering process. If the compensation to the petitioners challenging the tendering process will be paid through the public exchequer, then ultimately it is the taxpayers’ money which is being spent due to the devious and fraudulent behaviours of the officers involved in the tendering process. It is, therefore, imperative that the process of grant of tenders be carried out with utmost care and diligence. Any negligence or corruption on the part of the tendering authorities or the officers involved in such process is bound to affect the rights of the citizen of this country.

About the Authors 

Ms. Upasna Agarwal is an Advocate at the High Court of Judicature at Allahabad.

Ms. Harshita Tyagi is a 2nd Year Law Student at SVKM’s Pravin Gandhi College of Law, Mumbai. She is also an Associate Editor at IJPIEL.

Editorial Team 

Managing Editor: Naman Anand 

Editors-in-Chief: Jhalak Srivastav and Muskaan Singh 

Senior Editor: Gaurang Mandavkar 

Associate Editor: Harshita Tyagi

Junior Editor: Manav Gajapathy

Preferred Method of Citation  

Upasna Agarwal and Harshita Tyagi, “The Scope of Judicial Interference in Arbitrary and Mala-fide Award of Tenders” (IJPIEL, 13 May 2022) 

<https://ijpiel.com/index.php/2022/05/13/the-scope-of-judicial-interference-in-arbitrary-and-mala-fide-award-of-tenders/>