Yash Flour Mill (P) Ltd. Hardoi ... vs Union Of India Thru Secretary ...
2011 Latest Caselaw 953 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD, LUCKNOW BENCH
 
 

Court No. 1
 

 
Writ Petition No. 3332 (MB) of 2011
 
Yash Flour Mill (P) Ltd. and others
 
Vs.
 
Union of India and another.
 

 

 
Hon'ble Pradeep Kant, J. 

Hon'ble Vedpal, J.

Heard learned counsel for the petitioners Sri Mohd. Arif Khan, Senior Advocate, assisted by Sri Mohd. Aslam Khan and Sri Alok Mathur for the respondents.

The petitioners are small scale industries engaged in manufacture of Atta (flour) by grinding wheat. They are aggrieved by the tender specifications issued for the purpose of registration as Army Service Corps (ASC) contractors, by the opposite party no. 2.

Sri Mohd. Arif Khan, with usual vehemence, has argued the case at great length urging that the conditions imposed for such a registration are per se bad and arbitrary, which have no nexus with the object which is sought to be achieved and, in fact, they have been tailored to give advantage to a few manufactures of branded Atta, which is also evident by the fact, that in the earlier tender notice, there was no requirement of being registered as ASC contractor.

The first condition which offends the petitioners is that all such manufacturers of Atta must get registration with Army Headquarters as ASC contractors and qualitative requirement (QR) for registration prescribes that for regional level participation, the vendors already marketing registered brand of wheat Atta confirming to the ASC specifications with an average annual turn over of 30000 MT with average annual sales of approximate Rs. 45 crores of wheat atta, would be considered for registration, which excludes the small scale industries though they are otherwise fully eligible to supply wheat Atta.

In response, Sri Alok Mathur, learned counsel for the respondents submitted that a policy decision has been taken for supply of wheat Atta from the manufacturers having a minimum annual turn over of 30000 MT with average annual sales of approximate Rs. 45 crores of wheat Atta, with a view to have constant supply with maintenance of quality.

He further submitted that so far the registration as ASC contractor is concerned, it was by mistake that in one of the tender notice, applications were invited from both registered and unregistered contractors and on realising that such a mistake has been committed, the said tender was cancelled.

Submission is that it is the policy decision taken by the Army Headquarters that only those contractors who are registered with ASC would be allowed to participate and such a decision cannot be said to be faulty nor it takes away any right of any such manufacturer of Atta who is not registered as no one can claim that his Atta must be purchased by the Army.

We have considered the arguments raised from both the sides.

The requirement of getting oneself registered with ASC for being a contractor with Army cannot be said to be arbitrary or illegal in any manner. It is common knowledge that in many departments of the government, contractors are empanelled and are registered and when the contract is to be awarded, only such registered/empanelled contractors are allowed to participate. This adds a sense of responsibility upon the contractors, who are registered and whose identity stands established, which in turn gives a better opportunity, information and control to the department in offering contract to the contractors so registered and empanelled. Registration of contractor, also maintains a minimum level of standards of the contractors, who can be considered for the award of contract.

The requirement of registration thus, cannot be faulted with, moreso, when the registration is open for all, who fulfil the eligibility conditions, as may be prescribed by the Army Headquarters.

In regard to the plea regarding laying down of qualitative requirement (QR) for registration in a manner which excludes the petitioners who are small scale industries, it will have to be considered, whether the determination of these conditions has been done with an oblique motive or it is a policy decision taken by the Army Headquarters, which does not suffer from any irregularity or arbitrariness.

Wednesbury principle would have to be examined while making a judicial review of the tender specifications or in other words, the eligibility conditions prescribed by the government or Army in the instant case.

This consequently, would also require us to deal with the issue of judicial review in such a matter and as propounded by the Supreme Court in the case of Tata Cellular v. Union of India 1994 SCC (6) 651.

Learned counsel for the petitioners in support of his plea that action of the respondents in putting a condition for registration is arbitrary, also drew the attention of the Court to the tender notice dated 17.3.2011 and also the tender notice dated 30.11.2010.

The petitioners had filed a writ petition bearing number 12463 (MB) of 2010 challenging the QR requirement and that writ petition was dismissed on 21.12.2010 on the statement given by the counsel for the respondents that the said tender notice has been cancelled.

Submission of the learned counsel for the petitioners is that once the tender was cancelled, during pendency of the earlier writ petition, issuance of the tender notice with the same terms and conditions of QR is a mala fide act and this time they have not only reiterated the QR but have also ousted the unregistered manufacturers from the field of eligibility.

Sri Alok Mathur, on the basis of instructions, has already explained, that since in the earlier tender notice, unregistered contractors were also allowed to participate in the tender process for supply of Atta, which was a mistake committed and, therefore, the said mistake was corrected and the tender notice was cancelled.

In the document titled as 'invitation to tender and instructions to tenderers', which lays down the eligibility and other criteria for award of contract for supply of wheat Atta, clause 5 speaks about registration of the vendors and clause 6 deals with quality requirement.

Clause 5 and 6 are being quoted below:

5.Registration of the Vendors : The Wheat Atta will be procured from reputed vendors who have bonafide and quantifiable establishment inventory and turnover to supply the contracted quantities in an uninterrupted manner. The registration of reputed carried out by the Directorate General of Supplies (ST-3/4). The registered vendors will only be allowed to participate in the tendering process at Hqs Command. An effort will be made to register as many vendors within the initial time frame of 90 days. Registration of the vendors shall remain a dynamic and ongoing process. The registration of the vendors will be renewed every five years based on a performance appraisal system.

6.QRs.for Registration: The following Qrs will be considered for registration.

(a) Vendors already marketing registered brand of wheat Atta conforming the ASC specificaltion(s) with an average annual turnover of Wheat Atta during the last three financial years as under:-

(i) Regional participation

(Upto two Commands)

Average annual turnover of 30000 MT with average annual sales of approx. Rs. 45 crores of Wheat Atta

(ii) All India participation

(More than two Commands)

Average annual turnover of 70000 MT with average annual sales of approx. Rs. 100 crores of Wheat Atta.

(b) Assured Supply Commitment:- The Vendor should hold adequate inventory of Wheat/Wheat Atta meeting the ASC specifications during the currency of the contract to ensure assured and uninterrupted supply of the Wheat Atta. The vendor will certify that he will always maintain a holding inventory based on a reducing scale for the balance of period of contract (Not less than 15% of the balance quantity). The inventory holding will be subject to joint verification if required by the Army Authorities and the Vendor.

(c) The Vendor should have own integrated milling packing and storage facilities or procure wheat Atta from least/out sourced flour mills and packaging facilities. The facilities should meet the following requirements:

(i)All the facilities and processes involved should be inspected for fitness at the prescribed intervals by the Civil medical/Health authorities for the past three years.

(ii)The facilities should be in operation and production of Wheat Atta for the last one year.

(d) Certification:- The flour mill(s)/packaging and Storage facilities will be accredited Hazard Analysis Critical Control Point (HACCP) Certified for IS/ISO 22000-2005.

(e) Wheat Atta Brand:- The Wheat Atta brand name will be registered and patent and should have been available in commercial market as branded Wheat Atta for a minimum of last three years.

A perusal of the aforesaid instructions makes it clear that on a conscious decision taken by the respondents, wheat Atta was to be procured from reputed vendors who have bona fide and quantifiable establishment inventory and turnover to supply the contracted quantities in an uninterrupted manner. It also provides for assured supply commitment and says that the vendor should hold adequate inventory of wheat/wheat Atta meeting the ASC specifications during the currency of the contract to ensure assured and uninterrupted supply of the wheat Atta. The vendor will certify that he will always maintain a holding inventory based on a reducing scale for the balance of period of contract (not less than 15% of the balance quantity). There are certain other conditions also but the cumulative effect of all such conditions is that the respondents wish that they should have quality Atta of prescribed standards with a smooth supply which should not be interrupted and that there should be a assured supply commitment.

In this background, they have put the qualitative requirement for registration and provided that for being registered as a contractor with ASC at regional level, the manufacturer must have average annual turnover of 30000 MT with average annual sales of approximate Rs. 45 crores of what Atta. This is the requirement upto two Commands.

On a query being made, it has been clarified by the learned counsel for the respondents that one command, namely, Central Command has 26 stations and so is the case with other commands also. The supply is to be made for all the stations of all the commands and, therefore, it is a supply which in aggregate would be much more than Rs. 45 crores.

The plea of the petitioners that Atta is to be supplied at various stations and the tender notice for supply of Atta which has been brought on record dated 1.12.2010 and of course, notice dated 17.3.2011, both indicate that there are separate stations where Atta is to be supplied of the quantity which is much less than the total minimum requirement of Rs. 45 crores of annual turnover.

The argument, therefore, is that if the total supply is less than Rs. 45 crores, the requirement of such manufacturer for being registered as ASC contractor with minimum turnover of Rs. 45 crores, as given in the tender notice, is per se illegal and arbitrary and has no nexus with the objects sought to be achieved,

The petitioners have also submitted that previously also, they were engaged in the business of grinding wheat and they have been supplying grinded wheat Atta for the last ten years or so.

It cannot be lost sight of, that the requirement of Atta is in all the stations which are covered under the different commands. What the respondents require is that the contractors should be registered and must be having annual sales, approximately of Rs. 45 crores and average annual turn over of 30000 MT. The quality and quantity of uninterrupted supply of Atta is the main consideration for making such a policy.

It is a different matter that the manufacturers who are registered would supply different quantities of Atta at different stations as may be required but that does not mean that every manufacturer of Atta who can supply such quantity at a particular station, must necessarily be registered or given a chance to supply Atta. This is the discretion of the respondents to include as many manufacturers of a given standard as they wish or they want.

In the case of Directorate of Education and others v. Educomp Datamatics Ltd. and others (2004) 4 SCC 19, a similar plea was raised regarding laying down the minimum requirement of Rs. 20 crorers as turnover to be in consonance with the requirement but the said plea was rejected.

In the said case, it was held that the government introduced the criteria of turnover of Rs. 20 crores to enable the companies with real competence having financial stability and capacity to participate in the tender particularly in view of the past experience.

A distinction is being sought to be made by the learned counsel for the petitioners in regard to the aforesaid dictum of the apex court as compared to the instant case, saying that there cost of the project was Rs. 100 crores and, therefore, if Rs. 20 crores was made the baseline of turnover, it cannot be said to be arbitrary, whereas in the instant case the supply at individual stations is much less than Rs. 45 crores.

The apex court in the aforesaid case also observed that as a matter of policy, the government took a conscious decision to deal with one firm having financial capacity to take up such a big project instead of dealing with multiple small companies which is a relevant consideration while awarding such a big project. Moreover, it was for the authority to set the terms of the tender. The courts would not interfere with the terms of the tender notice unless it was shown to be either arbitrary or discriminatory or actuated by malice.

The argument of the petitioners, if accepted, would mean, in other words, giving chance to multiple small scale manufacturers to supply Atta at different stations, and if this is permitted, it may become, well difficult to keep control over the quantity of Atta.

This apart, it is a policy decision consciously taken by the respondents, which unless found arbitrary and unreasonable, cannot be interfered with by the Court.

In view of the observations made by the apex court, as aforesaid, it is the discretion of the respondents to have the supply from big manufacturers who are capable of maintaining standards and quality with uninterrupted supplies from the contractors, who fulfil the eligibility criteria.

The Court would not interfere in such matters and would not substitute its own reasons or conditions as against those mentioned in the tender notice.

In the case of Tata Cellular (supra), the principles of judicial review in the matter of tender specifications, in Para 94 of the report, were summed as under:

"94. The principles deducible from the above are:

(1) The modern trend points to judicial restraint in administrative action.

(2) The court does not sit as a court of appeal but merely reviews the manner in which the decision was made.

(3) The court does not have the expertise to correct the administrative decision. If a review of the administrative decision is permitted it will be substituting its own decision, without the necessary expertise which itself may be fallible.

(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. Normally speaking, the decision to accept the tender or award the contract is reached by process of negotiations through several tiers. More often than not, such decisions are made qualitatively by experts.

(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.

(6) Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure."

In the case of Air India Ltd. v. Cochin International Airport Ltd. (2000) 2 SCC 617, it was observed that the award of a contract, whether it is by a private party or by a public body or the State, is essentially a commercial transaction. In arriving at a commercial decision considerations which are paramount are commercial considerations. The State can choose its own method to arrive at a decision. It can fix its own terms of invitation to tender and that is not open to judicial scrutiny.

In the case of Monarch Infrastructure (P) Ltd. v. Commr., Ulhasnagar Municipal Corpn, (2000) 5 SCC 287, it was held that terms and conditions in the tender are prescribed by the government bearing in mind the nature of contract and in such matters the authority calling for the tender is the best judge to prescribe the terms and conditions of the tender. It is not for the courts to say whether the conditions prescribed in the tender under consideration were better than the one prescribed in the earlier tender invitations.

In the case of Directorate of Education (supra) referring to the aforesaid decisions, the Court also observed as under:

"It has clearly been held in these decisions that the terms of the invitation to tender are not open to judicial scrutiny the same being in the realm of contract. That the government must have a free hand in setting the terms of the tender. It must have reasonable play in its joints as a necessary concomitant for an administrative body in an administrative sphere. The courts would interfere with the administrative policy decision only if it is arbitrary, discriminatory, mala fide or actuated by bias. It is entitled to pragmatic adjustments which may be called for by the particular circumstances. The courts cannot strike down the terms of the tender prescribed by the government because it feels that some other terms in the tender would have been fair, wiser or logical. The courts can interfere only if the policy decision is arbitrary, discriminatory or mala fide."

We thus, do not find that laying down of the conditions, as aforesaid, does in any way affect any of the rights of the petitioners. They cannot claim as a fundamental right or statutory right, the supply of Atta to the Army.

The petition is dismissed.

Dated: 8.4.2011

MFA