Delhi High Court

National Highways Builders ... vs The National Highways Authority ... on 3 November, 2008

Author: Manmohan

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

+                      W.P.(C) 566/2008

                                  Reserved on: October 24th, 2008

%                        Date of Decision: November 3rd, 2008

NATIONAL HIGHWAYS
BUILDERS FEDERATION               ..... Petitioner
                  Through:        Mr. V.P. Singh, Sr. Adv.with
                                  Mr. Manoj Kumar, Mr. Sushant
                                  Kumar and Ms. Arti Ahuja, Advs.
                                  for NHBF.

                                  Dr. A.M. Singhvi, Sr. Adv. with
                                  Mr. Mahesh Agarwal, Mr. Rishi
                                  Agarwal, Ms. Rohma Hameed
                                  and Mr. Akshay Ringe, Advs. for
                                  Reliance Infrastructure Ltd.
                                  Mr. Arun Jaitley and Mr. Rajiv
                                  Nayyar, Sr. Advs. with Mr. Arunabh
                                  Chowdhury, Mr. Arijit Bhaumik,
                                  Mr. Atul Sharma, Mr. Ravi Varma,
                                  Mr. Sarojanand Jha, Advs. for GMR
                                  Infrastructure Ltd.

                                  Mr. C.A. Sundaram and Mr. Rajiv
                                  Nayyar, Sr. Advs. with Mr. Arunabh
                                  Chowdhury and Mr. Arijit Bhaumik,
                                  Mr. Jeevesh Nagrath and Mr. Mohit
                                  Chadha, Advs. for Madhucon
                                  Projects Pvt. Ltd.

                             Versus
THE NATIONAL HIGHWAYS
AUTHORITY OF INDIA & ORS ..... Respondents

                       Through:   Mr. Dushyant Dave and Mr. Ramji
                                  Srinivasan, Sr. Advs. with
                                  Mr. Krishan Kumar, Mr. Sumit Gupta,
                                  Mr. Mukesh Kumar and Ms. Madhuri
                                  Diwan, Advs. for NHAI.
                                  Mr. P.P. Malhotra, ASG with
                                  Mr. Dalip Mehra and Mr. Rajiv
                                  Ranjan, Advs. for UOI.


W.P.(C) No. 566/2008                                     Page 1 of 37
 CORAM:
HON'BLE MR. JUSTICE MUKUL MUDGAL
HON'BLE MR. JUSTICE MANMOHAN

1. Whether the Reporters of local papers may be allowed to see the judgment? Yes
2. To be referred to the Reporter or not?                                   Yes
3. Whether the judgment should be reported in the Digest?                   Yes




                               JUDGMENT

MANMOHAN, J

1. The National Highways Builders Federation, which is a

Society registered under Andhra Pradesh Societies Registration

Act, 2001, has filed the present writ petition seeking quashing of

Clause 3.5.2 introduced in December, 2007 by National Highway

Authority of India (hereinafter referred to as NHAI) in the Request

for Qualification with respect to highway tenders. Clause 3.5.2 in

the Request for Qualification, hereinafter referred to as RFQ,

reads as under:-

"3.5.2 The Applicants shall then be ranked on the basis of their respective Aggregate Experience Score and short-listed for submission of Bids. The Authority expects to short-list upto 5 (five) pre-qualified Applicants for participation in the Bid Stage. The Authority, however, reserves the right to extend the number of short-listed pre-qualified Applicants ("Bidders") upto 6 (six)"

2. The effect of the above tender condition is that although a

party may technically pre-qualify, it can only enter the second

phase of the tender, namely, the Request for Proposal or price

bid stage, if it is one of the six highest scorers. Therefore, in a

given case there may be a large number of technically pre-

qualified bidders but as they had not been shortlisted amongst

the first six bidders, they would not be entitled to participate at

the price bid stage.

3. It is pertinent to mention that Clause 3.5.2 was introduced

by the Government of India in all infrastructural projects and

consequently was incorporated in the tender by NHAI. However,

the Minister for Road Transport and Highways vide his letter

dated 7th April, 2008 requested the Finance Minister for deletion

of Clause 3.5.2 The Competent Authority vide its letter dated

22nd September, 2008 on the basis of the recommendation of the

Inter-ministerial Group decided to delete Clause 3.5.2

prospectively for road projects only. But in sixty tenders where

RFQ bids had already been received, evaluated and shortlisted

by NHAI, the tender process was to be taken forward on the

existing model RFQ document which includes Clause 3.5.2.

4. Some of the bidders for the sixty highway tenders, who

have not been permitted to file their price bids, have filed

independent writ petitions challenging their non-shortlisting. In

some of these petitions, the bidders have also challenged the

legality and validity of Clause 3.5.2 of the RFQ. Consequently,

we allowed the learned counsel for the bidders to advance their

arguments with regard to Clause 3.5.2 and have, with their

consent, dealt with the same in this order. However, the writ

petitions filed by the bidders shall be separately disposed of on

merits.

5. Dr. Abhishek Manu Singhvi, learned Senior Advocate

appearing for Reliance Infrastructure Limited submitted that

Clause 3.5.2 of the RFQ document is violative of Article 14 and

19(I)(g) of the Constitution of India and same deserves to be set

aside. He contended that the shortlisting of six applicants is

totally arbitrary and has no nexus to the object sought to be

achieved, namely, „awarding of a contract regarding construction

and maintenance of roads‟. He submitted that once a bidder

meets the threshold criteria, then creation of an artificial sub-

class within the pre-qualified bidders would amount to equals

being treated unequally. He submitted that this condition is

discriminatory, arbitrary and has no nexus to the object sought to

be achieved, because the other bidders who were not shortlisted

may give a better price bid to NHAI. According to him, it will be a

loss to public exchequer if other pre-qualified bidders are

prevented from bidding in the project.

6. Dr. Singhvi submitted that a party which meets the

technical prequalification criteria is qualified for all purposes

including that to submit a price bid. According to him, there is

neither any justification nor any rationale in fixing the number of

eligible bidders to six. He pointed out that by way of a

clarificatory reply from the Respondent, the number of short-

listed bidders was increased from six to ten, but subsequently by

way of another addendum the number of short-listed bidders was

reverted back to six. Therefore, Dr. Singhvi contended that

fixation of number was affected by the whim of the Authority and

was unconstitutional. He stated that increase in the number of

bidders in infrastructural projects would only impart competition

as only a few bidders exist in this field.

7. Dr. Singhvi further submitted that a term of a tender can

always be challenged by way of a writ petition on the ground that

it is violative of Fundamental Rights. In this context he referred

to and relied upon judgment of Hon‟ble Supreme Court of India in

Ramana Dayaram Shetty Vs. International Airport Authority

of India and Ors. reported in 1979 (3) SCC 489 wherein it has

been held as under :-

"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 licences or granting other forms of largess, 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, licences 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."

(emphasis supplied)

8. Dr. Singhvi further relied upon the judgment of the Apex

Court in LIC of India and Anr. Vs. Consumer Education &

Research Center and Ors. reported in 1995 (5) SCC 482

wherein it has been held as under :-

"29................The actions of the State, its instrumentality, any public authority or person whose actions bear insignia of public law element or public character are amenable to judicial review and the validity of such an action would be tested on the anvil of Article 14. While exercising the power under Article 226 the Court would be circumspect to adjudicate the disputes arising out of the contract depending on the facts and circumstances in a given case. The distinction between the public law remedy and private law field cannot be demarcated with precision. Each case has to be examined on its own facts and circumstances to find out the nature of the activity or scope and nature of the controversy. The distinction between public law and private law remedy is now narrowed down. The actions of the appellants bear public character with an imprint of public interest element in their offers regarding terms and conditions mentioned in the appropriate table

inviting the public to enter into contract of life insurance. It is not a pure and simple private law dispute without any insignia of public element. Therefore, we have no hesitation to hold that the writ petition is maintainable to test the validity of the conditions laid in Table 58 term policy and the party need not be relegated to a civil action."

(emphasis supplied)

9. Dr. Singhvi contended that if the intent is to have a highly

experienced contractor to bid then the contract should have

stipulated a higher technical criteria. He submitted that

restricting the right of a pre-qualified bidder to participate only on

the basis of quantum of comparative experience score is

unreasonable for a governmental authority.

10. Dr. Singhvi relied upon the statement made by the

Government of India in its affidavit and the observations of NHAI

before the Planning Commission to contend that Clause 3.5.2 is

violative of Article 14 and has been found inconvenient even by

the Authorities for choosing the best person and for executing

contract of road building. In this context he referred to para 12 of

the Government of India‟s affidavit filed on 17th October, 2008

which reads as follows:-

"12. That though the above mentioned new procedure was totally transparent, objective and systematic yielding exact mathematical numbers for each of the bidders, it was quite complex involving evaluation of voluminous documents furnished by the bidders in support of their experience of past five years. Considering these difficulties and other factors relevant

to road project, this Department had taken up the matter with the Ministry of Finance that any restrictions on the shortlisting of applicants would lead to the possibility of cartelization among the new select bidders, and thereby deprive other small and medium eligible bidders. Further, restrictions would reduce competition among eligible applicants and may be disadvantageous to the concerned organisation as well as the Government. It was further indicated that the process should not turn out to be detrimental to Indian players and those who have had specific experience in the Highways sector and have executed projects successfully in the recent past. It was, therefore, strongly recommended that in the interest of promoting healthy competition, transparency and to encourage small and medium bidders who have requisite experience and capacity to execute these projects, and that the clause 3.5.2 in the model RFQ document which restricts the number of bidders who could have pre-qualified may be done away with. All the bidders who meet specified technical requirements above a threshold level may be permitted to be shortlisted. As such, it was at the initiative of this Department that the deletion of clause 3.5.2 was sought from the Ministry of Finance in April 2008 when the bidding process was only in its initial stage in a few projects."

11. Dr. Singhvi also referred to the minutes of the IMG meeting

dated 12th July, 2008 which reads as follows :-

"3. Chairman, NHAI stated that NHAI has been consistent in its stand that the model RFQ document is not suitable for the road sector with regard to the stipulation for shortlisting of bidders. The RFQ document may, however, be useful for complex projects where the experience of collaborators is very crucial for executing world class projects. He stated that the road projects are largely standard projects and that there is limited scope for any innovation that a concessionaire could carry out. As a result, there is not much value addition in selecting a concessionaire with a very high experience record. Domestic companies have proved to be adequate to take up several BOT projects which have been undertaken by NHAI in recent years.

Technical and financial pre-qualification criteria will adequately serve the purpose, without any need for further shortlisting. A „pass-fail‟ criterion based on technical and financial pre-qualification is strongly advisable, as it is simpler to execute."

12. Dr. Singhvi submitted that once the Clause is found to be

arbitrary and irrational by the Government itself, the same is

liable to be declared as unconstitutional. He submitted that the

consequence of this declaration cannot justify its application

prospectively as once it is found that a provision is

unconstitutional, it is required to be declared as void for all

periods of time.

13. Dr. Singhvi submitted that Clause 3.5.2 is severable and by

deleting the limitation on the number of eligible bidders, no delay

would be caused as nothing had been finalized as yet. He stated

that deletion of Clause 3.5.2 would subserve public good as it

would allow pre-qualified candidates to put in their price bids and

the public exchequer would benefit by acceptance of the lowest

price bid.

14. Dr. Singhvi lastly referred to para 4 of the Government of

India‟s letter dated 3rd October, 2008 which recommended

deletion of Clause 3.5.2 prospectively. The said para reads as

follows:-

"... any restrictions on the shortlisting of the applicants would lead to the possibility of cartelization among the few selected bidders and thereby deprive the small and medium eligible bidders. Further, restrictions would reduce competition among eligible applicants and may be disadvantageous to the concerned organization as well as the Government. It is further indicated that the process should not turn out to be detrimental to Indian players and those who have had specific experience in the Highway sector and have executed projects successfully in the recent past. It was, therefore, strongly recommended that in interest of promoting healthy competition, transparency and to encourage small and medium bidders who have the requisite experience and capacity to execute these projects, and that clause 3.5.2 in the model RFQ document which restricts the number of bidders who could have pre- qualified may be done away with. All the bidders who meet specified technical requirements above a threshold level may be permitted to be shortlisted".

15. Mr. V.P. Singh, learned Senior Advocate who appeared on

behalf of the Petitioners i.e. National Highways Builders

Federation as well as on behalf of M/s. Larsen & Toubro Limited,

(hereinafter referred to as „L&T‟), stated that Clause 3.5.2 ought

to be deleted as it lays down conditions which favour foreign

companies on account of discrepancies in weightages assigned

to project development and construction experience. According

to him, these conditions have resulted in an imbalance in favour

of foreign companies which clearly prejudices Indian companies,

even of the stature and size of M/s L&T, and denies them a level

playing field, to which they are entitled to.

16. Mr. Singh further submitted that the Respondents

themselves having deleted the said Clause for future road

contracts could not have retained them for the present sixty road

projects. He also laid emphasis on para 4 of the Government of

India‟s letter dated 3rd October, 2008 as according to him it

contains an admission by the Respondents themselves that the

said Clause is detrimental to Indian players even though they

have specific experience in the Highway sector and have

successfully executed projects in the recent past.

17. Mr. Singh submitted that his client M/s. L&T has also

impugned the introduction of an additional condition namely

Clause 2.1.18 vide letter dated 28th August, 2008 in the RFP

document after receipt of RFQ document way back in June 2008

on the ground that it tantamounts to „changing the rules of the

game midway‟.

18. Clause 2.1.18 is reproduced hereinbelow for ready

reference:-

Clause 2.1.18:

" A Bidder shall not be eligible for bidding hereunder if the Bidder, its Member or Associate was, during a period of 2 (two) months preceding the Bid Due Date, either by itself or as member of a consortium:

(i) pre-qualified and short-listed by the Authority for the Bid Stage comprising RFP in relation to 8 (eight) or more projects for the Authority; or

(ii) declared by the Authority as the selected bidder for undertaking 4 (four) or more projects of the Authority; of

(iii) unable to achieve financial close, for 2 (two) or more projects of the Authority, within the period specified in the respective concession agreements entered into with the Authority.

Provided that in the event the Bidder, its Member or Associate, as the case may be, shall have, within one week of receiving a note of pre- qualification and short-listing for the Bid Stage o any such project, withdrawn from the bid process thereof and notified the Authority of the same, the project so notified shall be excluded from the purview of this Clause 2.1.18."

19. He further stated that the additional condition set out in

Clause 2.1.18 was introduced as a consequence of allegation of

cartelization resulting from introduction of Clause 3.5.2 of RFQ.

But as the said Clause 3.5.2 has been deleted, the consequential

condition set out in Clause 2.1.18 should also be deleted.

20. Mr. Singh further contended that none of the projects have

attained finality since as a consequence of introduction of Clause

2.1.18 there is a moving window of projects wherein upon the

shortlisted bidders withdrawing from the project, the next in the

waiting list is called upon to either withdraw or submit his RFP.

He stated that the respondents were only at the first stage

presently and there would be no change in the time lines if all

those eligible to bid are allowed to submit their RFP documents.

According to him, the same would be just expedient and would

not jeopardize the whole process.

21. Mr. Arun Jaitley, learned Senior Counsel who appeared for

GMR Infrastructure Ltd., submitted that Clause 3.5.2 vested

discretion with the Government to "play around with". He

submitted that possibility of cartelization as well as possibility of

restricting the competition cannot be ruled out. He, therefore,

submitted that this Clause be set-aside by this Court.

22. Mr. C.A. Sundaram, learned Senior Counsel appearing for

M/s. Madhucon Projects Pvt. Ltd. submitted that the decision to

delete Clause 3.5.2 prospectively is vitiated with malice and

malafides as the said Clause has still been applied to sixty

projects worth about Rs. 50,000 crores. He contended that the

Government in its counter-affidavit as well as correspondence

having admitted that Clause 3.5.2 creates arbitrariness,

discrimination, lack of transparency and cartelization could not

have decided to include sixty projects which would be visited by

the ill-effects of the said Clause. He further submitted that in law,

such a Clause cannot be retained even on the ground of

expediency. He further contended that there would be no delay

in Hyderabad Vijayawada Project if Clause 3.5.2 is deleted as

the said Project is still at an evaluation stage. He further

submitted that the said Clause should have been deleted for all

road projects including the Hyderabad - Vijayawada Highway

Project and having not done so, the decision to prospectively

delete it is self-discriminatory, arbitrary, whimsical and actuated

by malice.

23. On the other hand, Learned Senior Counsel for NHAI,

Mr. Dushyant Dave stated that the tender in question involves a

two stage bid process. While the first stage involves a Request

for Qualification, the second stage involves Request for Proposal

or financial bid stage. He stated that the model RFQ document

prescribes a threshold technical and financial capacity of bidders

who could submit their application for being shortlisted. He

stated that all those who wanted to bid for the tender were

entitled to apply for the RFQ document. Thereafter all those who

fulfilled the techno-economic eligibility criteria are evaluated in

the form of an experience score and the bidders are ranked

according to their experience. He stated that the practice of

selecting few of the pre-qualified bidders during the pre-

qualification process is known as shortlisting. According to him,

the general practice across the world is to shortlist a few firms

and engage with them for the final stage of bidding. The model

RFQ document in the present case specifies that 5 or 6 pre-

qualified firms could be shortlisted on the basis of their respective

scores in evaluation.

24. Mr. Dave submitted that the process of shortlisting is

adopted because, unlike a normal bid for sale of goods and

services against payment, a PPP (Public Private Partnership

such as Build, Operate and Transfer) Project involves large

private investments as well as transfer of commercial and

construction risks to the successful bidder for a considerable

period say 15 to 30 years. Consequently, the bidders are

required to invest significant time and cost in making a PPP bid

and these bidders do not find it worth their while to compete if the

number of shortlisted bidders is large and includes firms with a

significantly lower track record as that virtually amounts to

competition amongst unequals. He stated that it is in this

background that the Government of India decided to seek high

qualified bidders by restricting pre-qualification to a limited

number of firms that have a reasonably uniform capacity.

25. According to him, pre-qualification of a large number of

firms could imply that smaller firms with a comparatively lower

capacity may get included and offer lower financial bid to get

selected even when significantly better and larger firms are also

competing. The smaller firms usually possess lower levels of

technical experience, equipment, staff, resources, quality

assurance system and they can often undercut and quote lower

bids as compared to their better qualified counterparts. He

stated that this at times could compromise public interest

because a potentially lower level of service could well be the

outcome of selecting a firm with lower capacity. He stated that

though minimum performance standards are specified in the

project agreement, the quality of service may often differ

according to the capacity and track record of the selected firm.

26. He stated that firms with greater capacity are likely to

provide more reliable services as they are better equipped to

manage the project risks which are typically assigned to the

successful party in PPP Projects. Greater assurance of

successful delivery of infrastructural projects is certainly a public

policy objective that needs to be kept in mind while devising the

selection process. Evidently shortlisting has the inherent

advantage of choosing amongst the very best for providing a

public service.

27. Mr. Dave admitted that the process of shortlisting can at

times lead to a monopoly where a single large firm may be able

to capture large number of contracts. However, he stated that in

the present case this apprehension has been taken care of by

inserting Clause 2.1.18 which specifies quantitative restrictions to

obviate monopolies.

28. Mr. Dave submitted that classification in the present case

brought about by shortlisting the six best technically qualified

persons is entirely reasonable and bears a rational nexus to the

object sought to be achieved namely to get the most technically

competent party to carry out the task of Highway building which

undoubtedly is a matter of public and national importance. He

contended that it is impossible to predict in advance the kind of

response that a particular tender would attract and therefore, it

was thought necessary by the Government and the Planning

Commission in its expert wisdom to first fix a tentative threshold

limit for attracting a large catchment area of bidders and then to

shortlist the best technically qualified parties from within them.

He stated that it is not possible for the Government to anticipate

in advance the response to the tender and if there is too much of

disparity between those who have pre-qualified by crossing the

threshold limit, then it is possible that even a relatively

inexperienced party will be able to make a financial bid even

where there may be several parties who are much more

technically qualified on the experience score board.

29. Mr. Dave submitted that economic policy decisions

specially those taken at highest level after due and detailed

deliberations as borne out by minutes of interministerial group

should not be easily interfered with by a Court in its writ

jurisdiction. He submitted that the Government has a right to

adopt the „trial and error method‟ in matters of economic policies

and the executive has to be given a reasonable „play in the

joints‟.

30. He also submitted that several vested rights had been

created by following the shortlisting process under Clause 3.5.2

in several projects. According to him, there can be no question

whatsoever of affecting these vested rights which have accrued

to these shortlisted parties.

31. Mr. Dave further laid great emphasis on the fact that the

individual members of the Petitioner Association having

unconditionally participated in various tenders for different

projects and having unconditionally submitted to Clause 3.5.2

have forfeited any right to assail the same. Mr. Dave submitted

that all the bidders having participated in the tender without

demur, are now not entitled to raise the plea that Clauses 3.5.2

and 2.1.18 are unconstitutional, illegal and arbitrary.

32. Mr. P.P. Malhotra, learned Additional Solicitor General

appearing for the Union of India not only adopted the arguments

of Mr. Dave but pointed out that the Government had taken ten

months to shortlist the bidders in some of the sixty highway

tenders and deletion of any Clause of the tender would result in

delay of the same amount of time as the process shortlisting of

bidders would have to be redone. He stated that public interest

requires that infrastructural projects be completed at the earliest.

He further submitted that in the present case, the doctrine of

prospective over-ruling had been applied. He submitted that the

doctrine of prospective over-ruling is well known and the Hon‟ble

Supreme Court had applied it in a number of cases while striking

down many legislative provisions or executive actions by

directing that the judgment of the Apex Court would operate

prospectively and would not affect the decision already taken and

implemented.

33. We are of the view that even though some of the bidders

had participated in the tender, they would still be entitled to

challenge the constitutionality of Clause 3.5.2 on the ground that

it is violative of Articles 14 and 19 (1)(g) of the Constitution. It is

well settled that a fundamental right can never be waived and

even a concession made by a petitioner in a legal proceeding

that he will not enforce his fundamental right cannot create an

estoppel against him. The Apex Court in Basheshar Nath Vs.

The Commissioner of Income-tax, Delhi & Rajasthan and

Anr. reported in 1959 Supp (1) SCR 528 has held as under :-

"15. Such being the true intent and effect of Article 14 the question arises, can a breach of the obligation imposed on the State be waived by any person ? In the face of such an unequivocal admonition administered by the Constitution, which is the supreme law of the land, is it open to the State to disobey the constitutional mandate merely because a person tells the State that it may do so ? If the Constitution asks the State as to why the State did not carry out its behest, will it be any answer for the State to make that "true, you directed me not to deny any person equality before the law, but this person said that I could do so, for he had no objection to my doing it." I do not think the State will be in any better position than the position in which Adam found himself when God asked him as to why he had eaten the forbidden fruit and the State's above answer will be as futile as was that of Adam who pleaded that the woman had tempted him and so he ate the forbidden fruit. It seems to us absolutely clear, on the language of Article 14 that it is a command issued by the Constitution to the State as a matter of public policy with a view to implement its object of ensuring the equality of status and opportunity which every welfare State, such as India, is by her Constitution expected to do and no person can, by any act or conduct, relieve the State of the solemn obligation imposed on it by the Constitution. Whatever breach of other fundamental right a person or a citizen may or may not waive, he cannot certainly give up or waive a breach of the fundamental right that is indirectly conferred on him by this constitutional mandate directed to the State.

(emphasis supplied)

34. In Olga Tellis and Ors. Vs. Bombay Municipal

Corporation and Ors. reported in 1985 (3) SCC 545 , the Apex

Court has further held as follows :-

"28.........No individual can barter away the freedoms conferred upon him by the Constitution. A concession made by him in a proceeding, whether under a mistake of law or otherwise, that he does not possess or will not enforce any particular fundamental right, cannot create an estoppel against him in that or any subsequent proceeding. Such a concession, if enforced, would defeat the purpose of the Constitution. Were the argument of estoppel valid, an all-powerful state could easily tempt an individual to forego his precious personal freedoms on promise of transitory, immediate benefits. Therefore, notwithstanding the fact that the petitioners had conceded in the Bombay High Court that they have no fundamental right to construct hutments on pavements and that they will not object to their demolition after October 15, 1981, they are entitled to assert that any such action on the part of public authorities will be in violation of their fundamental rights. How far the argument regarding the existence and scope of the right claimed by the petitioners is well-founded is another matter. But, the argument has to be examined despite the concession."

(emphasis supplied)

35. Consequently, in our opinion it is open to the Petitioners to

challenge the validity of Clause 3.5.2 on the ground that it is

violative of Articles 14 and 19(1)(g) of the Constitution.

36. Before we advert to the merits of Clause 3.5.2, it may be

relevant to first advert to the legal position in cases where tender

terms are challenged on the ground that they are violative of

Articles 14 and 19 (1)(g) of the Constitution. It is well settled that

fundamental rights guaranteed under Article 19 of the

Constitution are not absolute and the same are subject to

reasonable restrictions. The reasonableness of a restriction is to

be determined in an objective manner with reference to

circumstances relating to trade/business in question.

37. A tender norm or policy decision would be struck down as

violative of Article 14 of the Constitution only if the same is

demonstrably capricious or arbitrary and not informed by any

reason, whatsoever. In this context, it may be relevant to refer to

the observations of the Hon‟ble Supreme Court in Krishnan

Kakkanth Vs. Government of Kerala & Others (1997) 9 SCC

495, wherein it has been held as under:-

"26. After giving our careful consideration to the facts and circumstances of the case and submissions made by the learned Counsel for the parties, it appears to us that the fundamental right for trading activities of the dealers in pump sets in the State of Kerala as guaranteed under Article 19(1)(g) of the Constitution has not been infringed by the impugned circular. Fundamental rights guaranteed under Article 19 of the Constitution are not absolute but the same are subject to reasonable restrictions to be imposed against enjoyment of such rights. Such reasonable restriction seeks to strike a balance between the freedom guaranteed by any of the clauses under Article 19(1) and the social control permitted by

the Clauses (2) to (6) under Article

19.....................

29. It may be indicated that where a right is conferred on a particular individual or group of individuals to the exclusion of others, the reasonableness of restrictions has to be determined with reference to the circumstances relating to the trade or business in question. Canalisation of a particular business in favour of specified individual has been held reasonable by this Court where vital interests of the community are concerned or when the business affects the economy of the country............

32. It may be indicated that although a citizen has a fundamental right to carry on a trade or business, he has no fundamental right to insist upon the Government or any other individual for doing business with him. Any government or an individual has got a right to enter into contract with a particular person or to determine person or persons with whom he or it will deal............

36. To ascertain unreasonableness and arbitrariness in the context of Article 14 of the Constitution, it is not necessary to enter upon any exercise for finding out the wisdom in the policy decision of the State Government. It is immaterial whether a better or more comprehensive policy decision could have been taken. It is equally immaterial if it can be demonstrated that the policy decision is unwise and is likely to defeat the purpose for which such decision has been taken. Unless the policy decision is demonstrably capricious or arbitrary and not informed by any reason whatsoever or it suffers from the vice of discrimination or infringes any statute or provisions of the Constitution, the policy decision can not be struck down. It should be borne in mind that except for the limited purpose of testing a public policy in the context of illegality and unconstitutionality, court should avoid "embarking on uncharted ocean of public policy."

37. The contention that the impugned circular suffers from hostile discrimination meted out to the farmers in northern region of the State

covered by the financial assistance under the governmental schemes, by fastening such assistance with an obligation to purchase pump sets only from two approved dealers, cannot be accepted in the facts of the case. The reasons for fastening the farmers of northern region with the obligation to purchase pump sets from the said two dealers have been indicated by Mr. Bhat and Mr. Gupta and, in our view, it cannot be held that such reasoning suffers from lack of objectivity. The law is well settled that even in the matter of grant of largesse, award of job contracts etc. the Government is permitted to depart from the general norms set down by it, in favour of particular group of persons by subjecting such persons with different standard or norm, if such departure is not arbitrary but based on some valid principle which in itself is not irrational, unreasonable or discriminatory...."

(emphasis supplied)

38. In Global Energy Ltd. v. Adani Exports Ltd. reported in

(2005) 4 SCC 435, at page 441 the Apex Court has observed as

follows:-

"10. The principle is, therefore, well settled that the terms of the invitation to tender are not open to judicial scrutiny and the courts cannot whittle down the terms of the tender as they are in the realm of contract unless they are wholly arbitrary, discriminatory or actuated by malice. This being the position of law, settled by a catena of decisions of this Court, it is rather surprising that the learned Single Judge passed an interim direction on the very first day of admission hearing of the writ petition and allowed the appellants to deposit the earnest money by furnishing a bank guarantee or a bankers‟ cheque till three days after the actual date of opening of the tender. The order of the learned Single Judge being wholly illegal, was, therefore, rightly set aside by the Division Bench."

(emphasis supplied)

39. In the present case, we find that Clause 3.5.2 was

introduced by NHAI pursuant to a policy decision taken at the

highest level by the Government of India after due and detailed

deliberations. The said Government of India‟s decision was

applied uniformly for all infrastructural projects, across the board.

40. The objective behind introducing Clause 3.5.2 was to

identify credible bidders who would provide world class

infrastructural services in India. This objective was sought to be

ensured by pre qualifying only high quality firms with best

available track record on the basis of an objective and

transparent criteria. As far as the rationale behind fixing the

number of shortlisted bidders as „six‟ is concerned, we are of the

view that a line has to be drawn somewhere. In case, the line

was drawn after twelve, the bidders below that level would have

raised the same argument. We are of the view that Clause 3.5.2

is based on international best practice, promotes competition and

weeds out non serious bidders.

41. Moreover, the Government has the power to classify

persons and/or entities. In our opinion, the Government by

introducing Clause 3.5.2 has attempted to ensure that there is

real competition between the best qualified firms so that world

class infrastructural services can be created in India.

Consequently, the Government has demonstrated that the said

classification is founded on an intelligible differentia and the

differentia has a rational relation to the object sought to be

achieved as stipulated in State of West Bengal Vs. Anwar Ali

Sarkar reported in 1952 SCR 284.

42. Though Dr. Singhvi submitted that this objective could have

been attained by stating a high threshold limit for pre qualification

purposes, in our view, it is very difficult for the Government to

pre-judge the bidder‟s response for any particular project and the

Government may in advance fix a threshold criteria that could

eventually turn out to be too high or too low. For example, as

pointed out by the Planning Commission‟s document, the list of

shortlisted bidders for Amritsar Airport scored about 28,000

points while for Udaipur Airport score was as low as 11,000

points. Thus there is no way the Government can anticipate in

advance a response to a tender. In our opinion, if pre

qualification of firms had been undertaken on the basis of

threshold alone, the Government could have either ended up

with a large number of pre qualified bidders or only one or two

bidders as pointed out by the Planning Commission‟s document

in the cases of Delhi and Mumbai Airports. It is also not for us to

state that the Government could have achieved the same

purpose by stipulating a higher threshold criteria. It is well settled

that while exercising the power of judicial review, the Courts

would not interfere where two views are possible and the

Government has accepted one of such two views. [Reliance

Airports Developers Ltd. Vs. AAI 2006 (10) SCC 1 at 52].

43. It is further settled law that the Government has to be given

„sufficient play in the joints‟ with regard to economic policy

decisions and the petitioners cannot require this Court to either

sit in an appeal over that decision or to go behind its wisdom. In

BALCO Employees' Union (Regd.) v. Union of India reported

in (2002) 2 SCC 333, at page 361 the Supreme Court has

observed as under :-

"46. It is evident from the above that it is neither within the domain of the courts nor the scope of the judicial review to embark upon an enquiry as to whether a particular public policy is wise or whether better public policy can be evolved. Nor are our courts inclined to strike down a policy at the behest of a petitioner merely because it has been urged that a different policy would have been fairer or wiser or more scientific or more logical.

47. Process of disinvestment is a policy decision involving complex economic factors. The courts have consistently refrained from interfering with economic decisions as it has been recognised that economic expediencies lack adjudicative disposition and unless the economic decision, based on economic expediencies, is demonstrated to be so violative of constitutional or legal limits on power or so abhorrent to reason,

that the courts would decline to interfere. In matters relating to economic issues, the Government has, while taking a decision, right to "trial and error" as long as both trial and error are bona fide and within limits of authority........

97. ........Courts are not intended to and nor should they conduct the administration of the country. Courts will interfere only if there is a clear violation of constitutional or statutory provisions or non-compliance by the State with its constitutional or statutory duties. None of these contingencies arise in this present case.

98. In the case of a policy decision on economic matters, the courts should be very circumspect in conducting any enquiry or investigation and must be most reluctant to impugn the judgment of the experts who may have arrived at a conclusion unless the court is satisfied that there is illegality in the decision itself."

(emphasis supplied)

44. In our view, the Government has a right to enter into a

contract with particular class of companies/entities and although

a citizen/company has a fundamental right to carry on trade or

business, it has no fundamental right to insist upon the

Government for doing business with it. We are of the opinion

that with reference to the circumstances relating to the tenders in

question, the restriction of shortlisting of bidders, as initially

introduced by inserting Clause 3.5.2, is a reasonable one and

does not violate Article 19(1)(g) of the Constitution.

45. Moreover, the decision to shortlist is based on a policy

decision of the Government which is neither capricious nor

arbitrary or infringes any statute or provision of the constitution.

We are of the view that in fact the Government‟s policy decision

is based on a valid principle which is informed by reason.

Consequently, in our view, shortlisting of six bidders by

introducing Clause 3.5.2. does not, in any manner, violate the

tenants of equity or fair play as long as it is done in an honest

and transparent manner.

46. As far as Mr. V.P. Singh‟s argument that shortlisting would

throw the smaller Indian firms out of business is concerned, we

are of the view that the rationale behind pre qualification is meant

to select high quality firms and weed out the less competent

firms. The small firms, in any event, have the option to form a

consortium to bid for a larger project. But to our mind this

argument would apply even if the process of shortlisting is

substituted by a high threshold for pre qualification of bidders. In

any event as Clause 3.5.2 ensures that only the most suitable

firm is chosen for the project delivery, we do not find any infirmity

with the same.

47. We are also not impressed by the argument that

introduction of Clause 3.5.2. creates a monopoly and/or cartel.

After referring to various dictionary meanings, the Hon‟ble

Supreme Court in the case of Union of India v. Hindustan

Development Corpn. reported in (1993) 3 SCC 499, at page

529 defined the concept of cartel as under :-

"......The cartel therefore is an association of producers who by agreement among themselves attempt to control production, sale and prices of the product to obtain a monopoly in any particular industry or commodity. Analysing the object of formation of a cartel in other words, it amounts to an unfair trade practice which is not in the public interest. The intention to acquire monopoly power can be spelt out from formation of such a cartel by some of the producers. However, the determination whether such agreement unreasonably restrains the trade depends on the nature of the agreement and on the surrounding circumstances that give rise to an inference that the parties intended to restrain the trade and monopolise the same.....".

(emphasis supplied).

48. In the present case we do not find that the intent is to

exclude competition amongst the bidders. In fact, there is no

material on record to show, leave alone prove, that introduction

of such a clause would lead to cartelization. As stated

hereinabove, the Government by introducing Clause 3.5.2 has

attempted to ensure that there is real competition between the

best qualified firms so that world class infrastructural services

can be created in India.

49. In any event, Clause 2.1.18 takes care of any

apprehension of cartelization or monopoly being conferred upon

the „big players‟. Further we are of the opinion that it is not open

to the parties such as L&T to on the one hand challenge Clause

3.5.2 as being anti-competitive and in the same breath challenge

Clause 2.1.18 which is intended at curbing the apprehension of

monopoly complained of by them.

50. We are further of the opinion that it is not open to M/s. L&T

to challenge the validity of Clause 2.1.18 after having continued

to participate in the tender after insertion of the said Clause and

moreso, after having withdrawn from certain projects by relying

upon the said Clause. In this context we may refer to the

judgment of the Apex Court in New Bihar Biri Leaves Co. v.

State of Bihar reported in (1981) 1 SCC 537, at page 558

where it has held as under :-

"48. It is a fundamental principle of general application that if a person of his own accord, accepts a contract on certain terms and works out the contract, he cannot be allowed to adhere to and abide by some of the terms of the contract which proved advantageous to him and repudiate the other terms of the same contract which might be disadvantageous to him. The maxim is qui approbat non reprobat (one who approbates cannot reprobate). This principle, though originally borrowed from Scots Law, is now firmly embodied in English Common Law. According to it, a party to an instrument or transaction cannot take advantage of one part of a document or transaction and reject the rest. That is to say, no party can accept and reject the same instrument or transaction (Per Scrutton, L.J., Verschures Creameries Ltd. v. Hull & Netherlands Steamship Co.; see Douglas Menzies v. Umphelby; see also stroud‟s judicial dictionary, Vol. I, p. 169, 3rd Edn.).

49. The aforesaid inhibitory principle squarely applies to the cases of those petitioners who had by offering highest bids at public auctions or by tenders, accepted and worked out the contracts in the past but are now resisting the demands or other action, arising out of the impugned Condition (13) on the ground that this condition is violative of Articles 19(1)(g) and 14 of the Constitution. In this connection, it will bear repetition, here, that the impugned conditions though bear a statutory complexion, retain their basic contractual character also. It is true that a person cannot be debarred from enforcing his fundamental rights on the ground of estoppel or waiver. But the aforesaid principle which prohibits a party to a transaction from approbating a part of its conditions and reprobating the rest, is different from the doctrine of estoppel or waiver.

(emphasis supplied)

51. Averments in para 12 of the Government of India‟s affidavit

dated 17th October, 2008, para 3 of the IMG minutes dated 12th

July, 2008 and para 4 of the Government of India‟s letter dated

3rd October, 2008 are, in our view, concerns/shortcomings

pointed out by the Department of Road, Transport and Highways

while implementing Clause 3.5.2 in respect of Highway tenders.

These averments certainly do not constitute an admission on the

part of the Respondents that the initial policy of shortlisting when

introduced by insertion of Clause 3.5.2 was illegal and

unconstitutional. In our opinion, if certain shortcomings are

found in future while implementing an economic policy, it does

not make that economic policy illegal and void from its inception.

Undoubtedly, every economic policy has its own drawbacks and

shortcomings but that does not make the policy void ab initio. In

any event, as stated hereinabove, the State and its

instrumentalities are entitled to adopt a „trial and error method‟

with regard to economic policies and to have a reasonable play

in the joints.

52. As far as the challenge to Government of India‟s decision

to to only prospectively delete Clause 3.5.2. is concerned, we are

of the view that the reasons for the same have been succinctly

set out in the Ministry of Shipping, Road Transport and

Highways‟ letter dated 3rd October 2008. The relevant portion of

the said letter is reproduced hereinbelow for ready reference:-

"6. The Ministry of Finance while conveying the decision for deletion of clause 3.5.2 has already indicated that in case of all other projects (other than the sixty) the RFQ, if already issued, will be cancelled and a fresh RFQ will be issued. The decision to exclude the sixty cases in respect of which bids have already been received and the evaluation by NHAI has already been completed or is in final stage of completion is in the interest of ensuring early award of these projects to the successful bidders as the National Highways Development Project (NHDP) is a time bound flagship national programme of the Government. A lot of efforts have been made by the NHAI and the Government to bring these projects to such an advanced stage as the procedure for evaluation requires considerable time and due diligence. With the deletion of clause 3.5.2, all the prospective bidders with minimum threshold experience would become eligible to participate in the RFP stage as

against the erstwhile stipulation for shortlising only the best five/six bidders at the RFQ stage. Any retrospective deletion of clause 3.5.2 a this stage when the RFQ bids have already been received and have either been already evaluated or are in final stage of evaluation would necessitate cancellation of the entire bidding process so that all th bidders could take part in a fresh bidding. Therefore, in the interest of transparency and equity, it will not be correct to apply the clause 3.5.2 retrospectively restricting participation only to the bidders who have already responded to the ongoing RFQ tender process which is already closed in case of sixty projects.

7. The retrospective application of deletion of Clause 3.5.2 will be contrary to the process of transparency as many companies who may not have participated in RFQ in view of the restriction on number of bidders to five/six will have to be given full opportunity of participation by inviting the bids afresh. This will be given a setback to the entire process of completing the project in accordance with the given time frame with the resultant cost escalation and thereby extra cost to the NHAI. It is a well established principle of tendering/bidding process that any change in the bid document should be made only with a prospective effect. The decision of the Government to delete clause 3.5.2 has, therefore, been made applicable prospectively.

8. When this Ministry had taken up the matter initially with the Ministry of Finance recommending deletion of clause 3.5.2 in the Model RFQ document, the projects were still at the stage of preparation of RFQ documents. The sixty projects excluded from the purview of the Department of Expenditure OM dated 22nd September, 2008 are those projects in respect of which the RFQ process is already closed with the expiry of the last date for receiving the bids quite some time ago. All these projects have already reached the final stage and in many cases the RFP documents have also been issued to the shortlisted bidders seeking financial

bids. All these sixty projects are scheduled to be awarded over a period of next three months

9. I am directed to convey that the Government is against any retrospective application of the decision to delete clause 3.5.2 as it will not only be against the principles of transparency and equity but it will also result in a serious setback to a development programme of national importance."

53. In fact, the minutes of the Inter Ministerial Group held on

July 12, 2008 proves that Clause 3.5.2 is deleted with regard to

NHAI projects only on the ground that these projects are

relatively simple, standardized and do not involve complex,

interactive project development as envisaged in other large PPP

projects. The conclusions as recorded in the IMG Minutes dated

12th July, 2008 are reproduced hereinbelow for ready reference:-

"15. Summarizing the discussion, Additional Secretary (Exp) stated that from the views put forth by the various members of the IMG it was observed that a bulk of the problems relating to short-listing of bidders was being faced by NHAI. She pointed out that it has been brought out that the NHAI projects were largely of standard nature and the kind of complex, interactive project development, envisages in large PPP projects would not be involved for executing such projects. Hence the need to curtail the shortlist to a small number of five or six is not there. Therefore, the provisions specified in Clause 3.5.2 of the model RFQ document could be reviewed for NHAI projects. ............

17. Secretary (Exp) heard the views of all ministries based on their experience of one year. She stated that there is undoubtedly a need for

rigorous appraisal of projects and a need to recognize that best international practices must be brought in the road sector. However, considering the large number of projects involved and the standard size/scope of the projects, highways will have to be given a dispensation which ensures speed and efficiency. She recommended that the NHAI may be given a dispensation that they can follow the model RFQ document by excluding clause 3.5.2 for standard projects of NHAI. This special dispensation is being provided to the NHAI projects since they have a large number of projects in the pipeline and since their projects are relatively simple and standardized. Moreover, so far Department of Expenditure has received representations for removal of this clause only for NHAI projects.

18. The IMG recommended that this dispensation may be brought up for approval of the Committee on Infrastructure, at the earliest. This dispensation would imply that NHAI would have to modify the document by deleting this clause and apply the document for its BOT projects. If, however, the process of consultation and scrutiny of bid documents/shortlising of bidders, being carried on in DoRTH on a campaign basis, concludes with acceptable results to the satisfaction of DoRTH, this recommendation need not be taken further."

54. From the above extract it would be apparent that Clause

3.5.2. has still been retained for all infrastructural projects except

highway tenders and that too due to the fact that road projects

are relatively simple and standardized. If Clause 3.5.2. is deleted

retrospectively, as urged by the Petitioner, then it would lead to

initiation of a new tender process as deletion of the said Clause

would amount to changing the rules of the game midway. In our

view, any delay in award of Highway projects to the successful

bidder would constitute a serious setback to a development

programme of national importance and would be detrimental to

public interest. We are also of the view that several vested rights

have been created by following the shortlisting process under