The National Radio & Electric Co. ... vs Union Of India (Uoi)
2003 Latest Caselaw 114 Del

JUDGMENT

Badar Durrez Ahmed, J.

1. This writ petition is directed against the award of contract for the "design, manufacture, testing, supply, erection and commissioning of an Integrated Communication System" (hereinafter referred to as the Integrated Communication System) to the respondent No. 4 (TCIL) by the respondent No. 2 (GAIL) as a part of its Petro Chemical Complex project known as the Uttar Pradesh Petro Chemical Complex at Pata near Auraiya in District Etawah, State of Uttar Pradesh.

2. At the commencement of the hearing Mr. Arvind Nigam, learned Counsel for respondents 1 to 3 informed the Court that the Integrated Communication System has already been set up by respondent No. 4 (TCIL) in the said Petro Chemical Complex and is functioning to the satisfaction of the respondent No. 2 (GAIL). He contended that, as such, nothing now survives in this Petition.

3. In response Mr. S.C. Dhanda, Learned Counsel for the petitioner, while not denying the factum of the completion of the works by respondent No. 4 (TCIL), drew our attention to orders of this Court dated 20.8.1996 and 16.10.1996 whereby it was made clear that the award of the contract, in any case, shall be subject to the ultimate decision in this Petition. The Counsel for the petitioner contends that although the clock cannot be turned back and the Award cannot now be cancelled as prayed for in the Writ Petition, if he is able to demonstrate that the circumstances warranted a cancellation, his client would be entitled to relief in the form of compensation and, therefore, the merits of the petition would have to be gone into and cannot be dismissed merely as having become a fait accompli.

4. It is in these circumstances that we proceeded to hear the matter on merits.

5. The two questions that arise for consideration in this Petition are :

  (1)    Whether the award of the contract for the Integrated Communication System to the respondent No. 4 (TCIL) by the respondent No. 2 (GAIL) was liable to be quashed and/or cancelled?  
 

 (2)    What relief and/or compensation would petitioner be entitled to in the event the answer to the preceeding question was in the affirmative particularly in the light of the fact situation where the works under the contract in question have already been carried out and are functioning satisfactorily?  
 

 6. In order to answer the aforesaid questions, it would be necessary to give a resume of the facts involved which are as under:-  
 

 7. Respondent No. 3 (EIL), on behalf of respondent No. 2 (GAIL) published a global notice inviting bids for the said Integrated Communication System. The due dates for the receipt of bids which was originally set at 7th August, 1995 was extended to 28th August, 1995.  
 

8. Respondent No. 3 (EIL) was appointed as consultant for evaluating the bids by respondent No. 2 (GAIL). Prior to the issuance of the notice inviting tenders respondent No. 2 (GAIL) had consulted the consultant i.e. respondent No. 3 (EIL) to obtain a fair assessment of the costs involved for the works covered in the Integrated Communication System. The opinion of respondent No. 3 (EIL) was that the works required to be done would be in the order of about Rs. 3,00,00,000/- (Rs. three crores only).

9. Four bids were received by respondent No. 3 (EIL) namely:

 (1)    ITI Ltd. (a Government of India Undertaking).  
 

 (2)    Siemens. 
 

 (3)    Petitioner (NELCO).  
 

 (4)    Respondent No. 4 (TCIL) (A Government of India Undertaking).  
 

10. The bids were to be in three separate parts. Part 1 contained all technical and commercial details other than price. Part 2 contained price details and Part 3 contained the financial packages. Part 1 of the bids were opened on 28.8.1995 in the presence of the bidders and the price bids (i.e. Part 2) were kept in sealed envelopes by the Consultant i.e. respondent No. 3 (EIL). Thereafter, respondent No. 3 (EIL) scrutinised the four bids and considered the offer of ITI Limited as being technically unacceptable. The bids of the other three i.e the petitioner, Siemens and respondent No. 4 (TCIL) were considered as being technically acceptable bids. However, the Consultants i.e. respondent No. 3 after scrutinising the entire Part 1 bids came to the conclusion that there were deviations to the commercial conditions in the bids of Siemens and respondent No. 4 (TCIL) and accordingly, the respondent No. 3 (EIL) recommended to the respondent No. 2 (GAIL) that the bids of Siemens and respondent No. 4 (TCIL) may be rejected.

11. Accordingly, respondent No. 3 (EIL) opened the second part i.e. the price bid of the petitioner alone on 23.2.1996 and by a communication dated 19.3.1996 forwarded its recommendation for placing the order on the petitioner for the said Integrated Communication System valued at Rs. 5,04,98,744/-.

12. On 18.4.1996 the Tender Committee of respondent No. 2 (GAIL) comprising three senior officials of Projects, Finance and Contracts Sections considered the recommendations of the Consultant i.e. respondent No. 3 (EIL) After considering the recommendations and the relevant documents the Tender Committee was of the view that the bid of Siemens should have also been opened and evaluated after due loading. It was felt by the Tender Committee that as the main project, i.e., the setting up of a Petro Chemical Complex, was in an advanced stage of completion, re-bidding would adverse affect the schedule of the overall Project and that any delay would result a loss of crores of rupees in terms of production loss and loss of profit. The Tender Committee also felt that there was a huge gap between the original estimate of the consultant i.e. respondent No. 3 (EIL) for the works covered by the tender for the Integrated Communication System which was earlier indicated to be about Rs. 3,00,00,000 /- and the quotation of the petitioner which was in excess of Rs. 5,00,00,000 /-. In these circumstances, the Tender Committee felt that the price bid of Siemens be also opened and in case the same was found to be lower than the price bid of the petitioner a chance should also be given to the petitioner to match the price of Siemens.

13. Insofar as TCIL (respondent No. 4) was concerned, the Tender Committee was of the view that as the deviations of respondent No. 4 (TCIL) relating to additional costs to be borne by the respondent No. 2 (GAIL) towards customs duty, CVD, Octroi, etc. were being insisted upon by respondent No. 4 (TCIL), the offer of respondent No. 4 (TCIL) may not be considered for opening.

14. Consequently, pursuant to the recommendations of the Tender Committee dated 18.4.1996 the offer of Siemens was opened for evaluation on 26.4.1996 which disclosed that their quotation was of Rs. 3,49,69,600/- which upon correction of computational errors was computed at Rs. 2,86,10,252/- after loading and deductions of the computational errors.

15. Accordingly, on 16.5.1996 a communication/fax was sent to the petitioner, inter alia, to the following effect:

"we hereby offer a price of Rs. 2,86,10,252 /- (Rupees two crore eighty six lacs ten thousand two hundred fifty two only) FOR Site inclusive of excise duty, sales tax, works contract tax, installation, testing and commissioning of equipments as per tender conditions. The total scope of supply, technical conditions and commercial conditions of your offer shall remain unchange. ......... Please confirm your acceptance latest by 20th May, 1996 to enable us finalise order."

16. The petitioner, in response, sent a letter dated 20th May, 1996 expressing surprise on receiving the communication/fax message dated 16.51996 as it considered itself to be the only techno-cum-commercially acceptable bidder. However, the petitioner requested respondent No. 2 (GAIL), in order to enable it to decide efficiently, to discuss the basis for the amount (Rs. 2,86,10,252 /-) mentioned with a complete break-up of the said price showing excise duty, taxes, etc. and hoped that the break-up would be conveyed to the petitioner by the evening of 24th May, 1996. By the same letter the petitioner also extended the validity of its bid till 30th June, 1996. Thereafter, by another letter dated 22nd May, 1996 the petitioner, not having received any reply to its earlier letter of 20th May, 1996, requested respondent No.2 (GAIL) to expedite the same so that they could take the decision in the matter. This is the last communication from the petitioner to respondent No. 2 (GAIL) and vice versa.

17. In the meanwhile, by a communication dated 20th May, 1996, which was apparently received by respondent No. 2 (GAIL) on 22nd May, 1996, respondent No. 4 (TCIL) confirmed their acceptance of all their (i.e. respondent No. 2's) terms and conditions in entirety and gave up their insistence on the deviation towards various commercial conditions mentioned before.

18. Representatives of Siemens discussed the matter regarding discrepancies in their bid with respondent No. 2 (GAIL) on 22nd May, 1996 and on 23rd May, 1996 Siemens requested for another round of discussions regarding their price. On 27th May, 1996 respondent No. 4 (TCIL) which is also a Government of India undertaking reiterated its compliance to the commercial terms and conditions as stipulated in the tender documents and also clarified that for the purpose of learned Counsel, Essentiality Certificate, etc. it would abide by the provisions/clauses given in the tender documents. By the same letter the respondent No, 4 (TCIL) extended the validity of its offer till 30th June, 1996.

19. Further discussions were held with Siemens and with respondent No. 4 (TCIL). On 31.5.1996 the Tender Committee of respondent No. 2 (GAIL) met again to review the matter and also to consider the matter in the light of the acceptance of all terms and conditions by respondent No. 4 (TCIL). The Tender Committee was of the view that the price bid of respondent No. 4 (TCIL) i.e. Part 2 of the bid had not been opened earlier on account of insistence of TCIL on certain deviations pointed out above. However, as respondent No. 4 (TCIL) had withdrawn all such insistence and had accepted the terms, it was decided to open the price bid of respondent No. 4 (TCIL) particularly in view of the fact that (a) respondent No. 4 (TCIL) was a Government of India Undertaking; (b) subsequent developments had taken place particularly with regard to the Siemens offer; (C) the price bid of the petitioner was exorbitantly high; and (d) ensuring the most competitive price would be in the best interest of respondent No. 2 (GAIL).

20. Accordingly, the Tender Committee recommended that :

 (1)    The price bid of respondent No. 4 (TCIL) which was a Government of India Undertaking be opened; and  
 

 (2)   Order be passed on the lowest offer after considering the clarification of price bid given by Siemens.  
 

 21. The price bid of respondent No. 4 (TCIL) was also opened and evaluated and was found to be of Rs. 3,16,08,129.25.  
 

22. On 3.6.96 and 4.6.96 the Tender Committee of the respondent No. 2 (GAIL) after deliberating the matter came to the conclusion that the petitioner's original offer of Rs. 5.04 cores was highly excessive and the petitioner had not positively responded to the offer made by respondent No. 2 (GAIL) on 16.5.1996 and accordingly did not appear to be interested in reducing the price to the extent as required by respondent No. 2 (GAIL). As regards the offer of Siemens and the alternative suggested by it on 29-30th May, 1996 the Tender Committee was of the view that as Siemens had not agreed to abide by the original bid their offer could not be considered any further.

23. However, on 12th June, 1996 Siemens withdrew its earlier communication of 29/30th May, 1996 and on the basis of such withdrawal its offer was evaluated to be of the order of Rs. 2,98,10,252/-. As, the price bid of Siemens became lower after the communication of Siemens dated 12.6.1996 was taken into consideration, therefore the Tender Committee considered it prudent to ask respondent No. 4 (TCIL) to match their price with the Siemens price, i.e. Rs. 2,98,10,252/-.

24. On 25.6.1996 respondent No. 4 (TCIL) confirmed the acceptance for the order on the reduced offer of Rs. 2,98,10,252/- all inclusive and ultimately a detailed Purchase Order was issued to respondent No. 4 (TCIL) on 6.8.1996.

25. From the aforesaid sequence of events, which culminated in awarding of the Contract to respondent No. 4 (TCIL), for the setting up of the Integrated Communication System at the value of Rs. 2,98,10,252/-, it is abundantly clear that: firstly, by this process respondent No. 2 had been able to reduce the price by over Rs. 2 crores as the price bid of the petitioner was approximately Rs. 5.04 crores; secondly, the Contract has been awarded to a Public Sector Undertaking, which is entitled to a preference as indicated in the Bid Documents themselves at page 42 of the Petition which reads as follows:

"Amongst Indigenous Bidders, Central Government Public Sector Undertakings shall be entitled to purchase preference as per Govt. of India guidelines applicable in that respect from time to time"; and thirdly, apart from the two communications dated 20th May, 1996 and 22nd May, 1996 the petitioner did not evince any interest in the tender perhaps on the realisation that it would not be able to match the price of Rs. 2,86,10,252/- initially offered to it by respondent No. 2 (GAIL) vide their communication dated 16.5.1996.

26. Mr. Dhanda, who appeared on behalf of the petitioner, after taking us through relevant clauses of the bid documents urged that the contract was awarded to respondent No. 4 (TCIL) behind their back and that the petitioner was not permitted to partake in the negotiations. He also urged that as Respondent No.3 (EIL) had recommended only the name of the petitioner, the petitioner alone should have been considered and awarded the contract. In this context he referred to the decision of a Division Bench of this Court in the case of Paharpur Cooling Towers Limited and Anr. v. Bongaigaon Refinery and PetroChemicals Limited and Ors., . He drew our attention to Paragraph 28 of the said report and in particular to the last sentence thereof which reads as under :

"There appears to be no reason to deny the contract to the petitioner merely on the specious plea that only the petitioner would be left in the field."

27. Reference to the aforesaid decision is of no help to the petitioner as, in the fact situation in the present case, the petitioner is not being denied the contract on the mere ground that he was the only bidder left in the field.

28. On the other hand Mr. Nigam, who appeared for respondents 1 to 3 contended that there was no arbitrariness or unreasonableness attaching to the decision of the respondent No. 2 (GAIL) to award the contract for the Integrated Communication System to respondent No. 4 (TCIL) particularly in view of the fact that this resulted in the saving of over Rs. 2 crores and that the respondent No. 4 (TCIL) was also a Public Sector Undertaking. He further contended that there was no allegation of bias or mala fides contained in the Petition. In support of his contention upholding the validity of the award of the contract to respondent No. 4 (TCIL) he referred to two decisions of the Supreme Court: Ram and Shyam Company v. State of Haryana and Ors., and Tata Cellular v. UOI, . In Paragraph 11 of the decision in Ram and Shyam's case (supra) the Supreme Court observed that:

"This Court in Trilochan Mishra v. State ofOrissa, State of U.P. v. Vijay Bahadur Singh and State of Orissa v. Harinarayan Jaiswal held that the Government is under no obligation to accept the highest bid and that no rights accrue to the bidder merely because his bid happened to be the highest. The Court also observed that the Government had the right, for good and sufficient reason, not to accept the highest bid but even to prefer a tenderer other than the highest bidder." .

29. In Paragraph 12 of the same decision it is observed as under:

"In this connection we may profitably refer to Ramana Dayaram Shetty v. International Airport Authority of India in which Bhagwati, J. speaking for the Court observed: (SCC p. 506, para 12)

It must, therefore, be taken to be the law that where the Government is dealing with the public, whether by way of giving jobs or entering into contracts or issuing quotas or licenses or granting the forms of largesse, the Government cannot act arbitrarily at its sweet will and, like a private individual, deal with any person it pleases, but its action must be in conformity with standard or norms which is not arbitrary, irrational or irrelevant. The power or discretion of the Government in the matter of grant of largesse including award of jobs, contracts, quotas, licenses etc. must be confined and structured by rational, relevant and non-discriminatory standard or norm and if the Government departs from such standard or norm in any particular case or cases, the action of the Government would be liable to be struck down, unless it can be shown by the Government that the departure was not arbitrary, but was based on some valid principle which in itself was not irrational, unreasonable or discriminatory.

At another place it was observed that the Government must act in public interest, it cannot act arbitrarily or without reason and if it does so, its action would be liable to be invalidated. It was further observed that the object of holding the auction is generally to raise the highest revenue. The Government is entitled to reject the highest bid if it thought that the price offered was inadequate."

30. In the case of Tata Cellular v. Union of India (supra) while examining the scope and limitation of the powers of judicial review in respect of the contractual powers of Government Bodies the Supreme Court observed as under:

"It cannot be denied that the principles of judicial review would apply to the exercise of contractual powers by Government bodies in order to prevent arbitrariness or favoritism. However, it must be clearly stated that there are inherent limitations in exercise of that power of judicial review. Government is the guardian of the finances of the State. It is expected to protect the financial interest of the State. The right to refuse the lowest or any other tender is always available to the Government. But the principles laid down in Article 14 of the Constitution have to be kept in view while accepting or refusing a tender. There can be no question of infringement of Article 14 if the Government tries to get the best person or the best quotation. The right to choose cannot be considered to be an arbitrary power. Of course, if the said power is exercised for any collateral purpose the exercise of that power will be struck down."

31. After reviewing the case law the Supreme Court concluded thus :

"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."   
 

32. Applying the above principles to the facts and circumstances of the present case it is apparent that the present case does not fall within the parameters whereunder interference by this Court in the action of respondent No. 2 (GAIL) in awarding the contract to respondent No. 4 (TCIL) would be called for. There is no arbitrariness or favoritism. In fact, the process undergone by respondent No. 2 (GAIL) in awarding the contract to respondent No. 4 (TCIL) and not to the Petitioner has resulted in a saving of over rupees two crores. The petitioner itself did not appear to be interested in the tender after it was informed by respondent No. 2 (GAIL) to match the offer of Rs. 2,86,10,252/- for, apart from merely writing the two letters of 20th May, 1996 and 22nd May, 1996 the petitioner did not bother to make any further inquiries as regards the tender. The decisions taken by respondent No. 2 (GAIL) are not such that no authority properly directing itself in the relevant law and acting reasonably could not have reached. In other words, the actions and the decisions of respondent No. 2 (GAIL) do not fail the test of the "Wednesbury principle of reasonableness," nor are they arbitrary, biased or actuated by mala fides. It has been a well established principle that the Government must have freedom of contract and must have "free play in the joints as it were in contractual matters".

33. In these circumstances and in the position of law as indicated above, we feel that this is not a case calling for any interference on our part and, accordingly, we decide the first question in the negative. As such, the consideration of the second question does not arise.

34. Resultantly, the Petition is dismissed with no order as to costs.