Miaect Pvt. Ltd vs Hindustan Computers & Ors
2010 Latest Caselaw 283 Bom

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            IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                          APPELLATE SIDE




                                                                                        
                       WRIT PETITION NO.8548 OF 2010




                                                                
    MIAECT Pvt. Ltd.                                 ...Petitioner.
                            Vs.




                                                               
    Hindustan Computers & Ors.                       ...Respondents.
                                    ....
    Mr.Shriram S.Kulkarni  for the Petitioner.
    Mr.Ashutosh   Kumbhakoni   with   Mr.Tejas   D.Deshmukkh     for 




                                                  
    Respondent No.1.
    Mr.Vijay D.Patil, AGP for Respondent Nos.2 to 6.
                                  
                                    .....

                                    CORAM : DR.D.Y.CHANDRACHUD AND 
                                 
                                                   ANOOP V. MOHTA,  JJ.

December 13, 2010.

ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) :

Rule; by consent returnable forthwith. With the

consent of Counsel and at their request the Petition is taken up for

hearing and final disposal.

2. In these proceedings under Article 226 of the

Constitution, the Petitioner challenges a Government Resolution of

18 August 2010 and an order of 31 August 2010 by which a

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contract of a total value of Rs.31.86 crores for the supply of

computer hardware and for imparting training to students in 271

Government Hostels across the State has been awarded without

inviting tenders.

3. In the State of Maharashtra, 271 hostels are conducted

for students belonging to the backward classes by the State

Government. The hostels are administered by the Director of

Social Welfare. On 4 July 2003, the Social Welfare Department

issued a Government Resolution in order to make provision for

amenities to students of those hostels. Included in those amenities,

was a provision for four computer sets for each hostel. According

to the Government, though computers were made available to the

hostels, they remained unused or were underutilised in the absence

of adequate training to students. The First Respondent unilaterally

submitted a proposal on 30 March 2010 for imparting computer

training to hostel students. On 26 April 2010, the Desk Officer

forwarded the proposal to the Director of Social Welfare, informing

him that the Government has received a proposal for creating a

Computer Section on a build, operate and transfer (BOT) basis for

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Government Hostels and for imparting computer training. The

Director of Social Welfare scrutinized the proposal and submitted

his report. The Director of Social Welfare while evaluating the

proposal was categorically of the view that the State Government

should issue a public advertisement and invite offers from

interested bidders. By a letter dated 21 June 2010, the Desk Officer

informed the Director of Social Welfare to submit any other

proposals that he may receive, to the Department. According to

the Government, three other institutions submitted their proposals

to the Director which were forwarded by him to the Principal

Secretary in the Social Welfare Department on 28 June 2010. The

proposals were evaluated. On 17 August 2010, a decision was

taken at a meeting convened by the Minister, (Social Justice and

Special Assistance Department) at which it was decided that from

the proposals which had been received from the Director of Social

Welfare, a contract should be awarded to the bidder who had

offered the lowest rate. Accordingly, on 18 August 2010, a GR was

issued by which a contract for the supply of computers on a BOT

basis for providing computer training for 2010-11, 2011-12 and

2012-13 was awarded to the First Respondent. The total outlay for

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2010-11 is Rs.14.23 crores, whereas the outlay for the subsequent

two years is Rs.8.81 crores per annum.

4. The award of the contract has been challenged by the

Petitioner who claims that on 23 July 2010, it had submitted a

proposal to the Third Respondent. According to the Petitioner, the

contract was awarded without considering the proposal of the

Petitioner. Broadly speaking, the challenge which has been

preferred before the Court by the Petitioner, is based on the

following submissions:

Firstly, it is urged that no tenders were invited for the

award of the contract. This itself, it is urged, is arbitrary and

violative of Article 14;

Secondly, it has been submitted that there was no

compelling necessity to deviate from the normal rule of the award

of public contracts by inviting tenders. In this case, despite a

specific recommendation that tenders should be invited, the State

Government chose to award the contract without publishing a

notice and without inviting tenders;

Thirdly, it has been submitted that the entire process

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adopted by the State Government is arbitrary. The Government, it

is urged, had not laid down any specifications of what courses

should be prescribed for imparting computer training to backward

class students staying in hostels. No criteria were laid down in

respect of (i) credentials, (ii) financial capacity; (iii) man power;

(iv) expert teachers; (v) past experience; and (vi) specifications;

infrastructure or the quality of training. As a result, the award of

the contract is based on an offer submitted by the First Respondent

and three other offers alleged to have been received by the State

Government; and

Fourthly, the Petitioner submits that in any event, the

offer which has been made by the Petitioner and which was on the

file of the Government, has not been considered before the award

of the contract.

5. The State Government has filed an affidavit in reply in

these proceedings. The reply, besides adverting to the facts which

have been narrated earlier, states that apart from the proposal of

the First Respondent, Government received four other proposals

which were scrutinized. A submission was prepared together with

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a comparative statement of all the proposals and it was placed

before the Minister. In pursuance of the directions of the Minister,

a meeting was held on 17 August 2010 when a decision was taken

to approve the proposal at the lowest rate. The Government has

submitted that while the Petitioner has contended that he had

submitted a proposal on 23 July 2010, by that time submissions

were already made by the Section Officer on 8 July 2010. The

proposal of the Petitioner was almost identical, with slight changes,

to the proposal of the First Respondent. The State Government has

admitted in its affidavit that in the present case, tenders were not

invited. However, five proposals which were received by the

Government, were scrutinized and the proposal of the First

Respondent was selected since it was the lowest. In the present

case, imparting of training to students of Government hostels was

taken up on experimental basis and it is only after the receipt of the

proposal that the process of providing such training was started.

The concept of providing training was received from the First

Respondent.

6. The First Respondent, who is the selected bidder, has

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submitted in his affidavit in reply that it was the First Respondent

who for the first time, came out with an innovative idea of

imparting training to inmates of Government hostels. According to

the First Respondent, monetarily the difference between the

proposal of the Petitioner and the First Respondent is marginal or

almost nil. The First Respondent states that in pursuance of the

work order that was issued on 31 August 2010, steps have been

taken to supply the infrastructure to all the concerned Government

hostels located throughout the State of Maharashtra and the First

Respondent together with its partner, Hinduja International

Pvt.Ltd. has incurred an expenditure of approximately Rs.5.88

crores. The submissions which have been urged for and on behalf

of the First Respondent are two fold. Firstly, it has been submitted

that the First Respondent has taken steps for the purpose of

implementing the contract that was entered into with the State

Government and has incurred substantial investment.

Consequently, it is urged that the interference of this Court under

Article 226 of the Constitution is not warranted at the present

stage. Secondly, it is urged that inviting of tenders is an invariable

but not an inflexible rule and there was valid reason for the

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Government not to invite tenders. Learned Counsel also submitted

that though the Petitioner claims to have submitted a proposal on

23 July 2010, it is a matter of issue as to whether that proposal was

even placed on the file of the Government prior to September 2010

when the work order was awarded to the First Respondent.

7. While dealing with the merits of the rival contentions,

the first aspect which needs to be emphasized is that Article 14 of

the Constitution mandates that the State when it awards public

contracts must conduct itself fairly and transparently. The award

of Government contracts involves disbursement of substantial

benefit. Article 14 of the Constitution militates against any notion

of an unrestricted largesse which the State can award at its whims

and fancies. The State Government when it decides to award

contracts must ordinarily prescribe the specifications which an

intending bidder must fulfill. These specifications include the

laying down of credentials, experience, financial capacity and other

like facets. The consequence of these norms is that a bidder, who

enters into a contract with the Government, must have a

demonstrable capacity to fulfill the requirements of the contract in

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terms of technical qualifications and financial commitment.

Technical qualifications are decided on the basis of the availability

of infrastructure, qualified personnel and experience in handling

similar contracts of at least a particular value in the past. Financial

parameters ensure that the Government, when it awards a

contract, deals with a bidder who would have the wherewithal to

fulfill the requirements of Government. The award of public

contracts is part of the process of governance by which the

Government provides facilities and amenities to society at large

and in certain cases, such as the present, to a particular segment of

the society. The inviting of tenders is a salutary norm which

ensures transparency in dealings of the Government. The inviting

of tenders is significant not only from the perspective of making

available to Government the best possible rates but also ensures

that the wide publicity that is ensured by advertising a proposal,

results in Government being able to evaluate the merits of a large

body of rival bidders. Secrecy in the award of Government

contracts is liable to result in the worst possible abuses by

excluding a large segment of the community who may have no

knowledge of the fact that Government is likely to disburse benefits

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in the form of a particular public contract. Consequently, while

Courts have recognized that the award of public contracts by

inviting tenders is the norm, exceptions have been noted in

compelling situations. The exception, however, cannot be allowed

to become the rule. One such exception was carved out by the

Supreme Court in Kasturi Lal Lakshmi Reddy vs. State of

Jammu and Kashmir,1 where the State Government was

proceeding to award a tapping contract to a party who was

prepared to set up a factory for the manufacturing inter alia of

rosin and turpentine oil. The Supreme Court noted that the

purpose of the contract was not tapping simpliciter, but to

encourage the process of industrialization within the State. In

Netai Bag vs. State of W.B.,2 the Supreme Court once again

reiterated that where the State was conferring a largesse recourse

must be had to a public auction or to a public tender. However, an

exception would not in all cases make the exercise of executive

power arbitrary. However, an exception to the general rule has to

be justified by the State if it is challenged in an appropriate

proceedings. The same principle was reiterated in a judgment of a

1 (1980) 4 SCC 1 2 (2000) 8 SCC 262

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Division Bench of this Court delivered by the Chief Justice, the

Hon'ble Mr. Justice Swatanter Kumar (as His Lordship then was) in

Vijay Kumar Gupta vs. State of Maharashtra.3 The Division

Bench emphasized that it is only in a case of the compelling

necessity that a breach from the norms of inviting tenders can be

justified.

8.

In the present case, the entire process which has been

adopted by the State Government for the award of a large public

contract for the supply of computer infrastructure and for

imparting training in the 271 Government Hostels is fundamentally

defective. Firstly, there is nothing on the record to indicate that

the Government had even applied its mind to what courses should

be imparted for training to the backward class students. No criteria

were laid down by the Government specifying the credentials,

financial capacity, past experience or expertise which bidders

would have to meet. Government seems to have been moved only

on the receipt of proposals from the First Respondent and by a few

other bidders. The Director of Social Welfare had, in his noting on

3 2008 (4) Mh.L.J. 370

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the file, expressly cautioned the Government of the necessity of

inviting tenders by publishing an advertisement. There is, in our

view, absolutely no reason or justification why, before proceeding

to award a contract of a total value in excess of Rs.31 crores, the

Government considered it appropriate not to invite tenders. The

Court has been moved undoubtedly in the present case, by a

bidder, who complained that his proposal was not considered.

The issue before the Court is not as to whether the Petitioner is

entitled to the award of the contract. Indeed, if as the Court is

inclined to hold, the correct course of action for the Government

was to invite tenders, it may well be that the Petitioner would not

be entitled to relief in terms of the award of the contract in these

proceedings. The fundamental point, however, is that there is

absolutely no justification offered on the part of the State

Government, in the reply, for deviating from the normal rule of

inviting tenders for awarding a contract. A cursory reference has

been made to the fact that the Government had received the

concept of providing training from the First Respondent. The State

Government has stated in its affidavit that it had also received a

proposal from NIIT on 30 June 2010. But in the course of

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arguments, the learned Government Pleader fairly stated that the

proposal was received from NIIT in October 2009. There is nothing

novel about a proposal to set up computer infrastructure and

impart training to students in the Government Hostels. The

Government has stated that it was intending to impart training to

students of hostels on an experimental basis and it was only after

the receipt of the proposal from the First Respondent that the

process of providing such training was started. Even assuming that

the idea of imparting training to students of the Government Hostels

was mooted by the First Respondent, there was no reason or

justification for the Government not to invite tenders and to allow

all bidders an equal opportunity to submit bids for the award of the

contract. The Government has failed to do so. There is merit in

the submission that the entire decision making process has been

flawed and has been violative of Article 14 of the Constitution.

9. On behalf of the First Respondent, it has been submitted

that the Petition should be dismissed on the ground that there has

been an unexplained delay in moving the Court. The work order to

the First Respondent was awarded on 31 August 2010. A

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Memorandum of Understanding was entered into between the

State Government and the First Respondent on 24 September

2010. The Petition was lodged before this Court on 21 October

2010. By an interim order dated 25 October 2010, which was

passed by a Division Bench, after hearing Counsel appearing on

behalf of the First Respondent and the Learned Government

Pleader, the Division Bench clarified that any preliminary steps

being taken such as laying down electrical cables may continue, but

installation of computers shall not be allowed till 28 October 2010.

The interim order was thereafter continued. The Petitioner has, in

an affidavit filed in rejoinder in these proceedings, stated that after

the submission of his proposal on 23 July 2010 to the Secretary in

the Social Welfare Department, he has continuously followed up

the matter between July and September 2010. In September 2010,

the Petitioner met the Secretary in the Social Welfare Department.

On the proposal submitted by the Petitioner, the Secretary in the

Social Welfare Department made an endorsement on 9 September

2010 to the effect that the proposal should be put up along with

the main file. On this basis, it is urged on behalf of the Petitioner

that right until then, the Petitioner was led to believe that his

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proposal was under consideration. The work order that has been

issued to the First Respondent also states in condition 15 that in

the event that any dispute arises in relation to the contract

awarded to the First Respondent, the First Respondent would have

no claim as against the State Government. There is no delay on the

part of the Petitioner. Be that as it may, we are of the view that in

the present case, where the award of the contract has been effected

without complying with basic procedures consistent with the

requirement of Article 14, the intervention of the Court is

warranted. There is, in our view, no delay much less an

unexplained delay, on the part of the Petitioner in moving the

Court. The action of the Government is clearly arbitrary and

discriminatory as held by the Supreme Court in Monarch

Infrastructure (P) Ltd. vs. Commissioner, Ulhasnagar Municipal

Corporation,4 warranting the grant of relief.

10. For the reasons aforesaid, the Petition is allowed in terms

of prayer clause (a) by quashing the Government Resolution dated

18 August 2010 and the consequential work order dated 31 August

4 (2000) 5 SCC 287

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2010. In the event that the Government proposes to award a

contract for the installation of the computer infrastructure in the

271 Government Hostels and to impart training to students of the

hostels, the Government shall proceed in accordance with law, in

terms of the observations contained in this judgment.

11. While allowing the petition, we are of the view that the

equities that have intervened in the present case, prior to the date

of the interim order of this Court dated 25 October 2010 would

have to be balanced. It has been urged on behalf of the First

Respondent that even prior to the date of the interim order dated

25 October 2010, the First Respondent had supplied computer

infrastructure and paraphernalia to the Government Hostels after

the date of the work order. We are of the view that it would be

appropriate in the facts and circumstances of the case, to direct

that Government shall constitute a Committee consisting of the

Secretaries incharge of the (i) Social Justice and Special Assistance

Department; (ii) Finance Department; (iii) Information Technology

Department; and (iv) Law and Judiciary Department. The

Committee shall take a decision on whether (i) The computers and

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peripherals, if any, which have been supplied by the First

Respondent prior to the interim order dated 25 October 2010 meet

the requirements of the Government with reference to the

proposed setting up of infrastructure and imparting of training to

students of Government Hostels in the State; (ii) In the event that

the Committee comes to the conclusion that Computers and

peripherals were supplied by the First Respondent prior to the

interim order dated 25 October 2010 and are acceptable and meet

the requirements of the programme, the Committee shall proceed

to make a valuation of the equipment supplied by the First

Respondent at the rate applicable to the rate contracts of the State

Government. In that event, it would be open to the State

Government to offer to disburse to the First Respondent the

amount that is determined by the Committee subject to this being

acceptable to the First Respondent. In the event that the proposal

of the Committee is not acceptable to the First Respondent, it

would be open to the First Respondent to apply to the Committee

for removing the computers and peripherals which have been

supplied. This process shall be completed preferably within a

period of six weeks from today. The Director of Social Welfare

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shall assist the Committee in the completion of the aforesaid

exercise. The Petition shall stand disposed of with these directions.

There shall be no order as to costs.

( Dr.D.Y.Chandrachud, J.)

( Anoop V. Mohta, J.)