Judicial Review vis-à-vis Public Tender Process and Award of Government Contracts

“It is not the function of the Court to act as a super board, or with the zeal of a pedantic school master substituting its judgment for that of the administration. The duty of the Court is to confine itself to the question of legality of the tender process on the touchstone of Article 14 of the Constitution.”¹

Introduction

The Central Government of India, various State Governments and their respective agencies, corporations, and instrumentalities (public authorities) are constitutionally and statutorily allowed and empowered to enter into contracts with private entities for undertaking commercial activities. The public authorities award contracts to private entities by floating tenders issuing tender documents (containing terms and conditions) and inviting bids/ tenders. The rationale underlying the aforesaid practice is very aptly expressed by the Supreme Court of India (Supreme Court) in Ram and Shyam Co. v. State of Haryana², wherein it has categorically observed that:

“The law is well settled that contracts by the State, its corporations, instrumentalities, and agencies must be normally granted through public auction/public tender by inviting tenders from eligible persons and the notification of the public auction or inviting tenders should be advertised in well-known dailies having wide circulation in the locality with all relevant details.… The award of government contracts through public auction/public tender is to ensure transparency in the public procurement, to maximise economy and efficiency in Government procurement, to promote healthy competition among the tenderers, to provide for fair and equitable treatment of all tenderers, and to eliminate irregularities, interference and corrupt practices by the authorities concerned.”³

The public authorities are governed by the “rule of law”. Consequently, such authorities are constitutionally obligated to maintain complete fairness and transparency during the completion of the tender process and in taking decisions to award government contracts to successful bidders/tenders after considering the bids/tenders submitted by all the bidders/tenderers (said administrative actions and decisions). Judicial audit and scrutiny play a key role in ensuring that the public authorities do not act in an unreasonable manner. In view of the same, the Supreme Court has consistently opined that the manner, method, and motive with which the public authorities undertake said administrative actions and decisions may be tested upon certain grounds if and when unsuccessful bidders/tenderers challenge their exclusion, by such authorities, vide writ petitions under Article 226⁴ of the Constitution of India⁵ (the Constitution). However, at the same time, the Supreme Court has cautioned that whilst entertaining such writ petitions, the implications of the judicial intervention on commercial activities and projects undertaken by public authorities and in turn the interests of the citizens of India, for the benefit of whom such activities and projects are undertaken, ought to be given due consideration by the courts. Therefore, over the years, the Supreme Court has made great efforts to strike the right balance between the private interests (based on constitutional rights) of unsuccessful bidders and the larger public interest of the citizens of India to ensure that the latter is not truncated at the cost of the former.

In the foregoing background, this article seeks to discuss and analyse the grounds and scope of judicial review and the extent of the discretion of the public authorities in the said administrative actions and decisions especially in light of certain recent developments in this area.

Grounds and scope of judicial review

The necessity of judicial review of the said administrative actions and decisions, as a mechanism of checks and balances, was emphatically voiced by the Supreme Court in Star Enterprises v. City and Industrial Development Corpn. of Maharashtra Ltd.⁶ in the following words:

10. As the State has descended into the commercial field and giant public sector undertakings have grown up, the stake of the public exchequer is also large justifying larger social audit, judicial control and review by opening of the public gaze; these necessitate recording of reasons for executive actions including cases of rejection of highest offers.… Looking for reasons in support of such action provides an opportunity for objective review in appropriate cases both by the administrative superior and by the judicial process.

However, such power of judicial review cannot be unbridled. Consequently, in Tata Cellular v. Union of India⁷ (Tata Cellular), the Supreme Court pointed out that there are certain inherent limitations to the power of judicial review of the said administrative actions and decisions so as to ensure that judicial scrutiny does not get converted into judicial restraint. The court held that the tender process and administrative decisions of the public authorities can be controlled by judicial review only if the decision-making public authority (i) has exceeded its powers; (ii) has abused its powers; (iii) has committed breach of the principles of natural justice; and (iv) is guilty of illegality, irrationality (Wednesbury unreasonableness), mala fides or procedural impropriety.⁸ The Court ultimately came to the conclusion that:

94. … (4) The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract.…

(5) The Government must have freedom of contract. In other words, a fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness (including its other facts pointed out above) but must be free from arbitrariness not affected by bias or actuated by mala fides.

The decision in Tata Cellular⁹ has been followed by the Supreme Court in City and Industrial Development Corpn. of Maharashtra Ltd. v. Shishir Realty (P) Ltd.¹⁰ as well as Mihan India Ltd. v. GMR Airports Ltd.¹¹ wherein the Court has reiterated that the right to equality under Article 14¹² of the Constitution “abhors” arbitrariness and therefore the public authorities ought to ensure that the said administrative actions and decisions are free from bias or favouritism.

The Supreme Court in Tata Cellular¹³, has also cautioned that the High Courts, for want of necessary technical expertise to understand and appreciate the conditions of the tender documents, are to merely review the manner in which the said administrative decisions are made by the public authorities and ought not correct such decisions by substituting and imposing its own decisions.¹⁴ In view of the same, the Court has consistently held and reiterated in Afcons Infrastructure Ltd. v. Nagpur Metro Rail Corpn. Ltd.¹⁵, Silppi Constructions Contractors v. Union of India¹⁶ and Galaxy Transport Agencies v. New J.K. Roadways¹⁷ that the author of the tender document/authority which floats the tender i.e. the owner or the employer of the project, is the best person to understand and appreciate its requirements and therefore the courts must refrain from second guessing the interpretation thereof. Even if more than one such interpretation is possible, the interpretation of the author must be accepted by the Courts.

Interestingly, the power and scope of judicial review of the said administrative actions and decisions as interpreted in Tata Cellular¹⁸, seem to have been diluted by the Supreme Court in Jagdish Mandal v. State of Orissa¹⁹ (Jagdish Mandal). In the said decision, the Court observed that considering the contractual and commercial nature of the administrative actions and decisions of the public authorities with respect to awarding government contracts, the Courts must not exercise the powers of judicial review to interfere on the grounds of equity and natural justice “even if a procedural aberration or error in assessment or prejudice to a tenderer, is made out. 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”.²⁰. In view of the same, the Supreme Court has laid down the following two-prong test to determine the extent of judicial interference in such matters:

(i) Whether the process adopted, or decision made by the authority is mala fide or intended to favour someone.

OR

Whether the process adopted, or decision made is so arbitrary and irrational that the court can say: the decision is such that no responsible authority acting reasonably and in accordance with relevant law could have reached.

(ii) Whether public interest is affected.

If the answers are in the negative, there should be no interference under Article 226.²¹

Extent of discretion of public authorities in the said administrative actions and decisions

The Supreme Court, in Tata Cellular²², has also observed that it is the constitutional duty of the public authorities to keep in mind the principles of Article 14 of the Constitution whilst accepting or rejecting a bid/tender in response to tender notices issued by them.²³ Therefore, such authorities have to be very cautious whilst exercising their discretion in the said administrative actions and decisions.

In view of the above, the Supreme Court in B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd.²⁴, has made certain material observations and culled out certain important principles with respect to the discretionary power of the public authorities to award government contracts to successful bidders and to relax essential conditions stipulated in the tender document (being the prerequisites) for considering any bid/tender submitted by a bidder/tenderer. The Court held that if the administrative decision of a public authority is based purely on the consideration of public interest and/or after the due consideration of the bids/tenders submitted by all bidders/tenderers, such authority has come to conclusion that the successful bidder has substantially complied with the “purport and object” with which the essential conditions have been laid down in the tender document, then such decision must not be interfered with by the courts ordinarily.²⁵

Thereafter, the Supreme Court also considered and relied upon its holdings in Master Marine Services (P) Ltd. v. Metcalfe & Hodgkinson (P) Ltd.²⁶ and in G.J. Fernandez v. State of Karnataka²⁷ and held that generally the essential conditions stipulated in a tender document shall be strictly adhered to, more so when such document does not empower the public authority to relax such conditions. However, if the tender conditions permit relaxation of essential conditions thereof, the public authority issuing the tender document is free to grant any relaxation for any bona fide reasons and such relaxation shall be applicable to all the bidders/tenderers.²⁸

However, in Union of India v. Dinesh Engg. Corpn.²⁹, the Supreme Court has explained the manner in which the public authorities are obligated to use their abovementioned discretionary power by observing that:

16. … a public authority even in contractual matters should not have unfettered discretion and in contracts having commercial element even though some extra discretion is to be conceded in such authorities, they are bound to follow the norms recognised by courts while dealing with public property.… Therefore, merely because the authority has certain elbow room available for use of discretion in accepting offer in contracts, the same will have to be done within the four corners of the requirements of law especially Article 14 of the Constitution.³⁰

Recent developments

The Supreme Court in Uflex Ltd. v. State of T.N.³¹ (Uflex Ltd.), has very astutely observed that although the objective of the “tender jurisdiction” of the High Courts under Article 226 of the Constitution was to ensure greater transparency in the said administrative actions and decisions, today, the ground reality is that almost no tender document issued by a public authority remains unchallenged by unsuccessful bidders/tenderers. The Court, relying upon Jagdish Mandal³², observed that a tenderer or a contractor aggrieved by an alleged breach of tender conditions by a public authority always has the statutory remedy of seeking damages before a civil court. Consequently, the Court held:

3. … attempts by unsuccessful tenderers with imaginary grievances, wounded pride, and business rivalry, to make mountains out of molehills of some technical/procedural violation or some prejudice to self and persuade courts to interfere by exercising power of judicial review, should be resisted.³³

In National High Speed Rail Corpn. Ltd. v. Montecarlo Ltd.³⁴ (National High Speed Rail Corpn. Ltd.), the Supreme Court cautioned the High Courts whilst dealing with writ petitions and/or granting stay with respect to decisions of public authorities in awarding government contracts pertaining to “mega projects”. The Supreme Court held that:

48. …the High Courts should be extremely careful and circumspect in exercise of its discretion while entertaining such petitions and/or while granting stay in such matters. Even in a case where the High Court is of the prima facie opinion that the decision is as such perverse and/or arbitrary and/or suffers from mala fides and/or favouritism, while entertaining such writ petition and/or pass any appropriate interim order, High Court may put to the writ petitioner’s notice that in case the petitioner loses and there is a delay in execution of the project due to such proceedings initiated by him/it, he/they may be saddled with the damages caused for delay in execution of such projects, which may be due to such frivolous litigations initiated by him/it.³⁵

In furtherance of the decisions in Uflex Ltd. and National High Speed Rail Corpn. Ltd., the Supreme Court, in N.G. Projects Ltd. v. Vinod Kumar Jain³⁶ (N.G. Projects Ltd.), has held that the High Courts, whilst exercising the said “tender jurisdiction” must bear in mind the provisions of clause (ha) of Section 41³⁷ of the Specific Relief Act, 1963³⁸, inserted in pursuance of the report dated 20-6-2016 submitted by the Expert Committee set up for the examination of the said legislation, which demonstrates the intention of the legislature to ensure that infrastructure projects should not be stayed. Consequently, the High Courts, under Article 226 of the Constitution, ought to refrain from granting stay upon construction of infrastructure projects especially.³⁹ The Court went to the extent of stating that even if the High Court comes to the conclusion that there is total arbitrariness in the manner which the government contract has been awarded by the public authority, it must refrain from interfering and must relegate the parties to the civil court where an unsuccessful bidder/tenderer may claim damages for wrongful exclusion from such authority. This ought to be done because injunctions on or interferences in public projects increases the burden of additional costs on the State and deprives the citizens from the infrastructure on which the public authorities are expected to work.⁴⁰

Conclusion

The public authorities have a discretionary power to award government contracts to the successful bidder/tender if he/they have “substantially complied” with the essential conditions of the tender document issued by such authority. However, the said power is not unfettered and must be exercised by the public authorities within the four corners of Article 14 of the Constitution. The “tender jurisdiction” is vested in the High Courts under Article 226 of the Constitution so as to ensure greater accountability, credibility, and transparency on the part of such authorities. The caveat is that the High Courts can interfere on very limited grounds upon the anvil of Article 14 of the Constitution, that is to say, only if the said administrative action and/or decision of the public authority under consideration is arbitrary, biased, irrational, mala fide or unreasonable. Procedural irregularities or errors in assessment, which may be trumped by the consideration of public interest, are no grounds for such interreference. Further, the High Courts ought not embark upon making technical analysis of the tender document – the same falls within the exclusive domain of the author thereof.

Recent trends show that the “tender jurisdiction” of the High Courts has resulted in opening the floodgates to frivolous litigation, almost every tender floated by the public authorities is challenged before the High Courts. Therefore, the Supreme Court, from Tata Cellular⁴¹ to Jagdish Mandal⁴² to N.G. Projects Ltd.⁴³, has consistently diluted the powers of the High Courts from injuncting and/or interfering with the said administrative actions and decisions of public authorities, especially when they are undertaken in relation to public/infrastructure projects. Recent developments also indicate that the High Courts are empowered to make the unsuccessful writ petitioners (bidders/tenderers) liable for the damages for delay in executing public projects if the litigation is ultimately found to be frivolous. Further, the Supreme Court in N.G. Projects Ltd.⁴⁴, has unequivocally indicated that it would be better if the High Courts, in appropriate cases, refrain from exercising their “tender jurisdiction” and instead direct the unsuccessful bidders to pursue alternate remedy before the civil court so that the public project and interests of citizens of India do not suffer at the cost of private vendetta.