C.G.H.S. Chemist Association ... vs Ministry Of Health And Family ...
2008 Latest Caselaw 804 Del

JUDGMENT

T.S. Thakur, J.

1. Central Government Health Scheme provides comprehensive medical care facilities to central government employees, pensioners and few other categories of individuals. The scheme envisages, among other benefits, free supply of medicines and drugs to the patients. With a view to ensuring timely supply of such medicines and drugs to the beneficiaries of the scheme, the Government empanels local chemists found eligible to make the supplies on the stipulated terms and conditions.

2. Bids for empanelment of chemists for supply of medicines and drugs to CGHS dispensaries situated in Delhi, Noida, Gurgaon, Faridabad and Ghaziabad were invited by the Additional Director (MSD), CGHS, New Delhi from chemists eligible to do so. Aggrieved by the terms and conditions stipulated in the tender document, the petitioners have filed the present writ petitions for a writ of certiorari quashing some of the terms incorporated in the same. The challenge primarily proceeds on the ground that the conditions stipulated in the tender document are excessively onerous and have the effect of excluding from the bidding process chemists who are otherwise eligible to be empaneled for making the supplies to the dispensaries in question. The petitioners allege that the conditions are tailor-made to suit the requirements of a handful of the suppliers by an unfair and arbitrary exclusion of others thereby violating the guarantee contained in Article 14 of the Constitution.

3. Appearing for the petitioner-association in W.P.(C)583/2008, Mr. Lahoty, learned Counsel strenuously argued that one of the conditions of eligibility prescribed in the tender document was an annual turnover of Rs. 1 crore for chemists seeking empanelment in the Delhi area during the last 3 financial years. That requirement for the previous years did not, however, exceed Rs. 25 lacs per annum which was, according to Mr. Lahoty, arbitrarily raised to Rs. 1 crore per annum with the oblique motive of favoring some and excluding others from bidding for empanelment. The stipulation was, according to the learned Counsel, unfair and arbitrary and could, therefore, be struck down as unconstitutional.

4. The requirement of an earnest money deposit was in the past limited to Rs. 25,000/-, which has now been raised to Rs. 2 lacs in terms of Clause 5.01(a) of the tender document. Even this increase was, according to Mr. Lahoty, unwarranted and aimed at excluding eligible bidders from competition. So also the requirement of "Bar Code Scanning Facilities" in terms of para 5.01(b)(j) was an unnecessary infliction, according to the learned Counsel, and intended to serve the very same purpose of unfairly excluding eligible bidders from competition. Mr. Lahoty also found fault with the stipulation contained in the bid document which required the bidders to offer a discount of no less than 10%. According to him, the petitioners were entitled to a maximum discount of 16% from the manufacturers out of which if the Government were to demand a discount of 10%, the entire business arrangement between the chemists and the Government would be rendered financially unviable.

5. Mr. Lahoty also questioned the wisdom behind Clause 5.07 of the tender document which stipulates a performance security guarantee of Rs. 5 lacs and Clause 10 in Section II of the document which provides for levy of a penalty upon the chemists if the supplies are delayed beyond the permissible period. The learned Counsel argued that some of the conditions stipulated were vague in nature and therefore, made it impossible for any serious bidder to make a serious and workable offer. The respondents had, according to Mr. Lahoty, failed to provide the requisite clarification despite a request made to them, which according to the learned Counsel made the entire exercise impracticable and illusory aimed at benefiting some hand picked chemists only while excluding the rest.

6. Appearing for the petitioner in W.P.(C)832/2008 Mr. Hazarika while adopting the submissions made by Mr. Lahoty contended that the petitioner had been making supplies to CGHS dispensaries even when its turnover was less than Rs. 1 crore for the stipulated period of past three years. His performance as an empaneled chemist was, according to the learned Counsel, found satisfactory. So much so that on account of the failure of another enlisted chemist the supplies for the dispensaries assigned to that chemist were also entrusted to the petitioner and satisfactorily made by him. This, according to learned Counsel, established that the turnover of a chemist was in no way relevant to his efficiency or his capacity to make the supply of medicines. Fixing an unduly high benchmark as a condition of eligibility, thus, violated the constitutional guarantee contained in Article 14 of the Constitution. Support for their contentions was drawn by M/s Lahoty & Hazarika from the decisions of the Supreme Court in Association of Registration Plates v. Union of India (UOI) and Ors. , Reliance Airport Developers Pvt. Ltd. v. Airports Authority of India and Ors. , Reliance Energy Limited and Anr. v. Maharashtra State Road Development Corporation Ltd. and Ors. . Reliance was also placed upon the decisions of the Supreme Court in Air India Ltd. v. Cochin International Airports Ltd. and Ors. and the decision of this Court in Dhingra Construction Co. v. Municipal Corporation of Delhi and Ors. .

7. On behalf of the respondents, it was argued by Mr. Mehra that the scope of judicial review of the terms and conditions of a tender notice was very limited. He submitted that the Courts have conceded considerable 'play at the joints' to the Government in the matter of stipulating terms of tender notices. Interference with such terms would, therefore, be permissible only if the same were found to be arbitrary, discriminatory or vitiated by malafides. The present was not, according to Mr. Mehra, one such case where the impugned terms and conditions could be said to be irrelevant, discriminatory, arbitrary or malafide in the least. The whole object underlying the stipulation of the conditions of eligibility, earnest money, performance guarantee and penalties was meant to ensure that the enlisted chemists made supply of medicines indented to them within a reasonable time to avoid any inconvenience or prejudice to the beneficiaries of the scheme. So also on-line connectivity with the dispensary and 'Bar Code Scanning Facilities' were intended to make the entire system of supply of medicines and billing quick and efficient. Stipulation of such requirements did not have the effect of excluding chemists who had the capacity to make the supplies and the resources to satisfactorily meet the demands placed upon them. Similarly, there was nothing arbitrary about the turnover prescribed as a condition of eligibility which was a relevant consideration for determining whether the chemists have the capacity and resources to make the supply of medicines indented with them. Reliance was placed by Mr. Mehra upon the decision of the Supreme Court in Tata Cellular v. Union of India (1994) 6 SCC 651, Air India Ltd. v. Cochin International Airports Ltd. and Ors. , Monarch Infrastructures (P) Ltd. v. Commissioner, Ulhasnagar Municipal Corporation , Directorate of Education And Ors. v. Educomp Datamatics Ltd. And Ors. .

8. We have given our careful consideration to the submissions made at the bar. The scope of judicial review of administrative action has been examined by the Supreme Court in a large number of cases in the past decade or so. In Tata Cellular v. Union of India (1994) 6 SCC 651, the Court reviewed the entire case law on the subject and laid down the following principles for application to cases involving judicial review in contractual matters.

94. The principles deducible from the above are:

(1) The modem 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.

9. The issue came up once again in Air India Limited v. Cochin International Airport Limited where one of the questions that fell for determination was whether the Government can stipulate its own terms for invitation of tenders and whether the same are open to judicial scrutiny. Answering the first part of the question in the affirmative and the latter in the negative, their lordships declared that the state can fix its own terms for invitation of tenders which are not open to judicial scrutiny unless they are found to be vitiated by malafides, unreasonableness and arbitrariness. The Court observed 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. It can enter into negotiations before finally deciding to accept one of the offers made to it. Price need not always be the sole criterion for awarding a contract. It is free to grant any relaxation, for bona fide reasons, if the tender conditions permit such a relaxation. It may not accept the offer even though it happens to be the highest or the lowest. But the State, its corporations, instrumentalities and agencies are bound to adhere to the norms, standards and procedures laid down by them and cannot depart from them arbitrarily. Though that decision is not amenable to judicial review, the court can examine the decision-making process and interfere if it is found vitiated by mala fides, unreasonableness and arbitrariness.

10. The decision of the Supreme Court in Monarch Infrastructures (P) Ltd. v. Commissioner, Ulhasnagar Municipal Corporation , also favors a cautious approach while judicially reviewing a tender notice and the terms and conditions stipulated therein. To the same effect is the decision of the Supreme Court in Directorate of Education And Ors. v. Educomp Datamatics Ltd. and Ors. where their lordships have reiterated that the Government must have a free hand in stipulating the terms of the tender and that it must have reasonable play at the joints concomitant necessary for an administrative body in administrative sphere. The Court observed:

12. 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.

11. The Court held that while exercising the power of judicial review of the terms of the tender notice it cannot be said that the terms of the earlier tender notice would have served the purpose sought to be achieved better than the terms of tender notice under consideration and direct a change in them. The Court in that case was examining a tender notice which stipulated a turnover of Rs. 20 crores as a condition of eligibility and held that the same was in no way arbitrary or discriminatory.

12. Let us now examine the conditions sought to be assailed by the petitioners in the present writ petitions in the light of the above authoritative pronouncements of the Apex Court. First and the foremost of the contentions urged by the petitioners is that the enhancement in the annual turnover of the chemists from Rs. 25 lacs per annum to Rs. 1 crore per annum was unjustified and arbitrary. We do not think so, for two precise reasons. Firstly, because the turnover of a chemist cannot for purposes of determining his eligibility be said to be an irrelevant factor. From the turnover of the chemist is evident his resourcefulness to make the supplies. It is noteworthy that neither Mr. Lahoty nor Mr. Hazarika denied the relevance of turnover in the context of the purpose for which the same was being made essential. What was contended was that enhancement of the amount from Rs. 25 lacs to Rs. 1 crore per annum was arbitrary and excluded a large number of chemists from the bidding process. That contention does not stand closer scrutiny when we see it in the light of Mr. Lahoty's candid admission that out of 37 members of the petitioner/association as many as 29 had a turnover of more than Rs. 1 crore per annum for the past 3 year. Generality of the chemists, were therefore, qualified and could indeed have submitted their bids. According to Mr. Mehra, counsel for the respondent, notwithstanding their eligibility to do so only 10 of the chemists had come forward and submitted their bids. It was not, therefore, the turnover which was the real reason for those abstaining from participation in the tender process. The real issue, according to Mr. Mehra, was that the other conditions stipulated in the tender document were not acceptable to them. Turnover was only a pretext for abstaining from the bidding process. Be that as it may, there is nothing mala fide, arbitrary or discriminatory about the turnover prescribed by the respondents nor has any foundation been laid for the argument that the said requirement was prescribed for extraneous reasons and intended to benefit any one or more chemists.

13. Secondly, because the turnover of Rs. 1 crore per annum has to be seen in the context of the total purchases which the Government dispensaries would make from the empaneled chemists. From the figures made available by Mr. Mehra, it is evident that during the financial year 2005-06 the Government have purchased medicines to the tune of Rs. 50 crores which has risen to Rs. 54.43 crores during the year 2006-07. The Government purchases running into crores of rupees is just a part of the business which the empaneled chemists carry on apart from their private business of sale of drugs and medicines to the general public and Government and non-Government agencies. The stipulation of an annual turnover of Rs. 1 crore in a scenario where the Government spends such a huge amount for providing drugs and medicines to the beneficiaries of the scheme can by no standard be said to be so excessively onerous as to be described as arbitrary or unfair.

14. This is true even in regard to the requirement of earnest money of Rs. 2 lacs and performance guarantee of Rs. 5 lacs stipulated in the tender document. If the purchases have to run into tens of crores from each chemist who are empaneled a performance guarantee of Rs. 5 lacs or an earnest money of Rs. 2 lacs can also not be described to be unreasonably high as to be called arbitrary or discriminatory in nature.

15. That brings us to the question whether the stipulation that the chemist must offer a minimum discount of 10% is in any way unreasonable or discriminatory in nature. The petitioners have themselves conceded that they have a minimum of 16% discount from other manufacturers. Mr. Lahoty was fair in accepting that manufacturers chemists/dealers were free to negotiate any higher percentage of discount also. That being so the stipulation that the chemists must offer a discount of not less than 10% does not appear to us to be in any way discriminatory or unreasonable to warrant our interference. Similarly the stipulations regarding "Bar Code Scanning facility" and "on-line connectivity" are measures that have been introduced in the tender document to make the system quick, efficient and free from hassles. No chemist keen to do business with the Government can find fault with requirements that are now common place in every other sphere of life and are bound to help in quick dispensing of medicines billing, reducing or cutting red tape to a great extent. The fact that the respondents have prescribed penalties for delayed supplies or default in making of the supplies also cannot be said to be arbitrary especially when any such delay or default is likely to affect the interest of the beneficiaries of the scheme. The argument that penalties may be levied unjustifiably or arbitrarily has also not impressed us. The mere possibility of one of the parties to the contract acting in a manner that is unjustified would not render the stipulation of the condition illegal especially when the tender document itself provides for a mechanism for adjudication of any dispute between the parties by way of arbitration.

16. That leaves us with the question whether the petitioners are entitled to any clarification sought by them. To put the record straight Mr. Mehra has handed over in the Course of hearing to counsel for the petitioners a copy of the communication received by him from the Chief Medical Officer(P) giving certain clarifications which the petitioners had demanded on the previous dates of hearing. Those clarifications, in our opinion, answer the queries of the petitioners and should, therefore, suffice.

17. In the result, these petitions fail and are hereby dismissed but in the circumstances without any order as to costs.