Delhi High Court
M/S. Nex Tenders (India) Private ... vs Ministry Of Commerce & Industry & ... on 2 April, 2009
Author: Vipin Sanghi
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 25.07.2008
% Judgment delivered on: 02.04.2009
+ W.P. (C) No. 6574 of 2007 & C.M. Nos.12416/2007,
5651/2008 & 8457/2008
M/s. Nex Tenders (India) Private Limited ..... Petitioner
Through: Mr. V. P. Singh, Senior
Advocate with Ms. Taslima
Ahmadi and Ms. Sarifa
Chowdhury, Advocates
versus
Ministry of Commerce & Industry & Ors. .....Respondents
Through: Mr. P.P. Malhotra, ASG with
Ms. Sonia Mathur, Advocate
for respondents 1 to 3.
Mr. Vinay Bhasin, Senior
Advocate with Mr. Muneesh
Malhotra, Advocate for
respondent no.4.
CORAM:
HON'BLE MR. JUSTICE A.K.SIKRI
HON'BLE MR. JUSTICE VIPIN SANGHI
1. Whether the Reporters of local papers may Yes
be allowed to see the judgment?
2. To be referred to Reporter or not? Yes
3. Whether the judgment should be reported Yes
in the Digest?
VIPIN SANGHI, J.
1. The Petitioner has filed the present Writ Petition under Article
226 of the Constitution of India primarily praying for writ of mandamus
to direct the termination of the contract between the Government of
India, Ministry of Commerce & Industry acting through the Directorate
General of Supplies & Disposals (DGS&D) and Respondent No.4 C-1
India Pvt. Ltd. whereunder Respondent No.4 is providing services for
the conduct of e-tendering/e-procurement process to Respondent No.2.
The petitioner also seeks to challenge the extension and amendment
thereof, which has the effect of widening the scope of the contract to
offering the e-tendering solution/software of respondent no.4 to other
State Government Agencies/Public Sector Undertakings etc. by using
the good offices of DGS&D.
2. The Petitioner is a company incorporated under the
Companies Act having its registered office at Mumbai. The Petitioner
claims to be in the business of providing application software solutions
and services, particularly electronic procurement software solution and
services to the Government and semi Government agencies.
Respondent No. 1 i.e. the Ministry of Commerce & Industry,
Government of India, has been appointed as the Nodal Agency for the
implementation of the initiatives in setting up electronic procurement
and electronic tendering system in Government procurement
organizations as part of the long term e-governance plan of the Central
Government. Respondent No.2 DGS&D is the Central Purchase
Organization of the Government of India, and is responsible for
establishing rate contracts through tenders for common items required
by various agencies of the Government. On receiving indents from
Government Departments/Agencies, the DGS&D invites tenders from
time to time for a large number of items, in response to which
suppliers/bidders from all over the country respond. Respondent No. 3,
Department of Expenditure is a department under the ministry of
Finance and is responsible for laying down the procedures to be
followed for undertaking financial transactions by the agencies of the
Government of India. The private respondent No. 4 is a company
incorporated under the Companies Act, having its registered office at
New Delhi, and is a competitor of the Petitioner and deals in software
solutions and services. Respondent no.4 was awarded the E-tendering
service provider contract by respondent nos. 1 to 3 for providing an e-
tendering software solution and service for the use of DGS&D on
16.4.2004. This contract, it appears became effective on 01.04.2005
and was valid for an initial period of 3 years i.e upto 31.03.2008. It has
been extended for another period of 2 years and vide amendment
dated 22.05.2007 has been amended in a few material terms.
3. The petitioner states that Electronic tendering (e-tendering) is
an internet based software service which allows government agencies
to migrate from the conventional manual/paper tendering process to
an electronic, internet based platform. The advantages of the
electronic internet based tendering system can be greater efficiency,
lower costs of projects, increased transparency, wider reach and
access for suppliers, reduction/elimination of cartelization and
corruption, and lower transaction costs. The objective for introducing
e-tendering system, stated by the respondent DGS&D in its Request
For Proposal (RPF) is to streamline and automate the tendering process
of DGS&D to build efficiencies in the process, cut down the total time
to tender, and build a data base of suppliers bids for data mining and
trend analysis by adopting leading procurement practices.
4. The petitioner further states that the e-tendering/e-
procurement software and related services is highly complex and
technical and the implementation of such a system for government
agencies can be extremely challenging, time consuming and
expensive. Consequently, most government agencies that have
availed of the said system/software have opted for the model of
appointing an Application Service Provider (ASP) with a commercial
model at "no costs to Government". In this business model, the
customer (the DGS&D in this case) rents and outsources the
development and management of the software and service to the ASP.
The ASP provides the software (computer programme) and the related
hardware to implement the system. The ASP implements the system,
trains the resource and provides supports and maintenance for the
software to the customer. By adopting the ASP model the customer
saves time and money that it would incur in buying the software. The
risk associated with the software/services implementation is passed on
to the ASP. The customer is assured of latest software upgrades and
costly installations, as well as service and maintenance of the
software/hardware. So far as the ASP is concerned, he derives no
income directly from the customer. The revenue generation for the ASP
comes from a compulsory registration fee charged from the
prospective bidders/suppliers, who wish to participate in the e-
tendering/bidding process in response to the procurement tenders
floated by the customer i.e. DGS&D. It is stated that this model is
similar to the popular Built-Own-Operate (B-O-O) toll collection model
for highways and bridges construction where the service provider,
namely, the contractor building the road or the bridge invests all the
funds for construction and subsequent maintenance, and in return the
Government agency grants the contractor the concession to extract a
toll or charge from the public using the road or the bridge for a
guaranteed period of time.
5. The petitioner further states that under the National e-
Governance Programme of the Government of India various projects
known as Mission Modes Projects have been identified. One of the main
Mission Modes Projects is e-procurement which is considered as an
integrated project because of its need for multiple implementations at
the Central and State levels in order to cater to each government
agency‟s requirements and business rules.
6. The petitioner states that respondent nos.1 and 2 claim to
have issued a RFP for an e-tendering system with the stated objective
of streamlining and automating its tendering process and to build
efficiencies in its tendering process. It is further stated that the so-
called RFP did not bear any date. It has various "blanks"- meaning
thereby, it was incomplete in respect of the specifications and
conditions to which it was subject. The petitioner has placed on record
a copy of the said RFP stated to have been procured by it under the
Right to Information Act (RTI Act). The petitioner further states that
apparently a letter of intent was issued to respondent no.4, and
thereafter acceptance of tender was issued in favour of respondent
no.4 on 16.04.2004 by respondent nos.1 & 2, awarding the contract for
providing e-Tender software and service, to respondent no.4. A copy
of the contract awarded to respondent no. 4, obtained under the RTI
Act has also been placed on record.
7. The petitioner submits that the fact that e-tendering contract
was awarded by respondent nos.1 and 2, to respondent no.4 as the
service provider, came to its notice only after the said portal was
launched publicly by respondent no.2. The petitioner states that at
that point of time it was assumed that the award of contract to
respondent no. 4 was done in a legal manner. The petitioner further
states that as per its information, the period of contract was three
years and it was expected that upon the expiry of the contract in late
2006/early 2007, the respondent nos. 1 and 2 would invite fresh
tenders for procuring e-tendering software solutions and that the
petitioner would be able to participate in such process. The petitioner
states that upon inquiry being made by it with regard to the contract
awarded to respondent no.4, the petitioner learnt that the procedure
adopted by respondent no.1 and 2 while awarding the contract to
respondent no. 4 in the year 2004 was irregular. All binding norms
were flouted. The petitioner also expressed the apprehension that the
respondent authorities are proceeding to renew the contract with
respondent no.4. The petitioner further states that the said move
would not only cause unimaginable loss to the exchequer and the
suppliers/bidders of goods and commodities to the Government of
India, but also result in unjust and unfair enrichment of respondent no.
4. It would create an illegal monopoly in favour of respondent no. 4
and be violative of Central Vigilance Commission (C.V.C.) Directives
and the General Financial Rules of the Government.
8. The petitioner, along with the writ petition moved C.M.
12416/2007 to seek a restraint against respondent nos. 1 and 2 from
continuing with the renewed/extended contract with respondent no. 4
and also to seek a restraint against respondent nos. 1,2 and 4 from
representing to any State Government Department / Ministries /
Government Agencies that they are able to offer the e-tendering, e-
procurement solution or services, without being selected through a
proper competitive tender selection process. Further interim reliefs in
aid of the aforesaid reliefs were also sought by the petitioner.
9. When the present writ petition came up before the Court on
07.09.2007, the aforesaid submissions of the petitioner were taken
note of and the Court directed that "any action taken in the meanwhile
shall be subject to further orders that will be passed in this
application".
10. Respondents have filed their counter affidavits/replies, in
opposition to the Writ Petition. All allegations of illegality and
favoritism have been denied. The respondents state that the contract
between respondent nos. 2 and 4 stands extended and amended on
22.05.2007 i.e. prior to the filing of the present Writ Petition.
Petitioners submissions
11. The submissions of Mr. V.P. Singh, learned senior counsel for
the petitioner are in two parts: (a) He firstly attacks the initial grant of
the e-tendering contract to respondent No.4, primarily on the ground
of irregularity of procedures in the process adopted by respondent
Nos.1 to 3 while awarding the said contract to respondent No. 4. (b)
Then he attacks the extension and amendment of the contract. He
submits that since the initial grant itself was illegal, arbitrary and
irregular, its extension is also illegal, and arbitrary. He attacks the
extension and amendment of the contract on various other grounds as
well.
12. We may, at this stage itself clarify that since the initial
contract was awarded to respondent no.4. on 16.4.2004 and the
present writ petition was filed on or about 06.09.2007, we are not
inclined to entertain the prayer made by the petitioner to seek the
quashing of the initial award of contract to respondent no.4.
Consequently, there is no question of setting aside the initial grant of
the contract to respondent no.4 which was to be effective for a period
of three years from the date which the e-tendering solution became
operational. As would be noticed a little later, the e-tendering solution
became operational on 01.04.2005. Therefore, the initial contract
period of three years expired during the pendency of this petition on
31.3.2008. Consequently, its extension by two years i.e. upto
31.03.2010 and its amendment done on 22.05.2007 are aspects which
require our consideration. As the initial grant constitutes the bed-rock
of the extension and amendment of the contract, and one of the
primary challenge to the extension of the contract is founded upon the
alleged irregularity and illegality in the award of the initial contact, for
the limited purpose of examining the said challenge, we think it
necessary to examine the submissions of the petitioner to impugn the
initial grant in favour of respondent no.4.
13. First, we may note the submissions of Mr. V.P.Singh, Senior
Advocate for the petitioner with regard to the grant of the initial
contract to respondent No.4. Mr. Singh argues that the DGS&D did not
maintain any transparency while entering into a contract with the
respondent No.4. The guidelines and procedural safeguards, which
binds the respondent DGS&D were given a go bye. He relies upon the
General Financial Rules, 2005 to attack the initial grant as well as the
extension and amendment of the contract awarded to respondent
No.4. Rule 150 (i) provides that the method of invitation of tenders by
advertisement should be used for procurement of goods of estimated
value of Rs.25 Lacs and above. Advertisement in such a case should
be given in the Indian Trade Journal (ITJ) published by the Director
General of Commercial Intelligence and Statistics, Kolkata and at least
in one national daily having wide circulation. Rule 150 (ii) further
provides that an organization having its own website should also
publish all its advertised tender enquiries on the website, and provide
a link with NIC website. He submits that considering the fact that the
respondent DGS&D at the relevant time had about 10,000 suppliers of
goods and commodities, it was obvious that the transaction in question
for procurement of e-tendering solution and service was valued at well
above the amount of Rs.25 Lacs, since the revenue generation for the
service provider would be expected to run into crores of rupees.
Consequently, the RFP/NIT should have been publicized in at least one
national daily having wide circulation. However, this was not done by
respondents only with a view to favour the respondent No.4. In
support of this submission he relies on (2006) 13 SCC 382 "Nagar
Nigam, Meerut v. Al Faheem Meat Exports (P) Ltd. & Ors.". He
refers to the reply given by DGS&D to the queries of the petitioner
under the RTI Act. The petitioner had sought the names of all the
bidders who had participated in the tender process. To this, DGS&D
had replied by stating that "as the players in the field of e-tendering
were not fully known to DGS&D, initially an insertion was made in the
Monthly Bulletin of DGS&D for three months. Based on the request
made to M/s NASSCOM they circulated our requirements and provided
us with two lists containing (i) companies that make software packages
for Electronic Tendering (20 firms) and (ii) companies that have offered
to make customized solutions specially to suit our needs (52 firms).
On the basis of this information, 87 firms (72 firms provided by
NASSCOM and 15 firms noted from 1-15 July, 2000 issue of "Computers
Today") were addressed to furnish reply to a questionnaire to enable
us shortlist the firms meeting our requirements. Later four firms
namely Ms. ITI, M/s Electronic Tendering, M/s Commerce One India and
M/s Oracle India Ltd. were short listed who were provided with the
tender set. Out of these, three firms M/s ITI, Electronic Tendering, and
Commerce One participated in the two bid tender."
14. Mr. Singh submits that in case the respondent DGS&D was not
aware, as to who are the prospective service providers for e-tendering
solution, the natural and obvious thing for the DGS&D to do was to
give wide publicity in the media, including in national dailies to invite
all e-tendering solution providers. The reasons given by the DGS&D for
not doing so is wholly absurd. He also submits that the respondent
DGS&D chose to rely on a stale issue of "Computers Today" of 01st to
15th July 2000, even though the RFP was prepared and circulated
sometime in July 2001. Mr. Singh submits that for high value or
complex/technical project, Rule 152 of the General Financial Rules is
relevant and applicable and the same reads as follows:-
"Rule 152. Two bid system: For purchasing
high value plant, machinery etc. of a complex
and technical nature, bid may be obtained in
two parts as under:-
(a) Technical bid consisting of all technical
details alongwith commercial terms and
conditions; and
(b) Financial bid indicating item-wise price for
the items mentioned in the technical bid.
The technical bid and the financial bid should
be sealed by the bidder in separate covers duly
superscribed and both these sealed covers are
to be put in a bigger cover which should also
be sealed and duly superscribed. The technical
bids are to be opened by the purchasing
Ministry or Department at the first instance and
evaluated by a competent committee or
authority. At the second stage financial bids of
only the technically acceptable offers should
be opened for further evaluation and ranking
before awarding the contract."
15. He submits that the RFP allegedly circulated by respondents 1
and 2 did not have a commercial bidding round or a competitive price
discovery procedure. The registration fee proposed to be charged by
the ASP from the registrant suppliers/bidders ought to have been an
essential factor in determining the value of the contract for the ASP.
He submits that in the present case, the value of the contract comes to
a staggering six crores per annum considering the fact that respondent
no.2 admittedly has about 10,000/- suppliers/bidders and the
ASP/respondent no.4 offered to charge Rs.6,000/- per annum for each
registration. The petitioner further states that even before the
contract in question was awarded to respondent no.4, various e-
tendering/e-procurement contracts had been awarded by various
government agencies throughout the country to the lowest technically
qualified/responsive bidder following a two bid process that included a
competitive commercial round. The petitioner has tabulated a sample
list of e-tenders/e-procurement contracts awarded by two bid tender
process in Annexure G which reads as follows:-
Name of Year Winning Bidder Financial Model
Customer Tender/RFP (ASP or
released License)
Government of 2002 Respondent no.4 in ASP
Andhra Pradesh consortium
PWD- 2003 Petitioner ASP
Chhattisgarh
Northern 2003 HCL ASP+License
Railway
PWD-Assam 2004 Petitioner in ASP
consortium
Municipal 2004 Wipro ASP
Corporation of
Delhi
BEST Mumbai 2004 Petitioner in ASP
consortium
National 2005 Respondent no.4 in License
Informatics consortium
Centre
MPLUNL 2005 Respondent no.4 in ASP
consortium
Punjab National 2005 Petitioner in License
Bank consortium
Government of 2006 HP ASP
Karnataka
Government of 2006 Petitioner in ASP
Chhattisgarh consortium
Government of 2006 Petitioner in ASP
Madhya Pradesh consortium
16. It is also submitted that the RFP does not even state the
criteria for award of the bid to the lowest responsive bidder, which is
required as per Rule 160(ix) of the General Financial Rules. The said
Rule reads as follows:-
"Rule 160(ix): Criteria for determining
responsiveness of bids, criteria as well as
factors to be taken into account for evaluating
the bids on a common platform and the criteria
for awarding the contract to the responsive
lowest bidder should be clearly indicated in the
bidding documents."
17. It is argued that contrary to the General Financial Rules and
the CVC directives, in the RFP/tender, respondents 1 and 2 stated in
clause 12.11:
"DGS&D is not bound to disclose the details of
then evaluation process, evaluation criteria, or
scores".
18. In response to the petitioner‟s query under the Right to
Information Act, respondent no.2 has stated that:
"Award to C1 India was made on the
recommendation of the evaluation committee
in terms of the RFP."
19. It is, therefore, argued that not only the RFP was in violation
of the GFR and the directives of the CVC, the same had been
deliberately constructed to ensure that no competitive bidding takes
place even if someone other than respondent no.4 were to bid for the
e-procurement contract. The RFP lacked transparency, economic
viability and legitimacy. The purpose was to favour respondent no.4 in
the distribution of the State‟s largesse.
20. Mr. Singh submits that as per Clause 12.11 of the RFP, there
was no commercial bid. However, respondent Nos.1 to 3 in their reply
to C.M. No.12417/2007 have stated "subsequently, the commercial bid
was open and, thereafter, negotiations were held and finally contract
was awarded to respondent No.4 at annual registration fee of
Rs.6,000/- per supplier". He submits that the stand of the respondent
authorities is unreliable and untrue and lacks transparency in the
manner in which the respondent No.4 was chosen for the purpose of
providing the e-tendering solution. Mr. Singh also referred to Office
Order No.44/9/03 dated 04.09.2003 issued by the Central Vigilance
Commission (CVC), Government of India. Paragraph 2 of this
communication reads:
"2. It should be ensured that pre-qualification
criteria, performance criteria and evaluation
criteria are incorporated in the bid documents
in clear and unambiguous terms as these
criterion very important to evaluate bids in a
transparent manner. Whenever required the
departments/organizations should have follow
two-bid system, i.e. technical bid and price bid.
The price bids should be opened only of those
vendors who were technically qualified by the
Deptt./Organisation. The Commission would
therefore advise that the Deptt./Organization
may issue necessary guidelines in this regard
for future tenders."
21. He submits that this requirement laid down by the CVC was
given a go bye by the DGS&D while floating the RFP and awarding the
contract to respondent No.4.
22. By reference to Clause 12.10 of the RFP, which lays down the
eligibility criteria for the bidders, and provides that "Only vendors with
an off-the-shelf Electronic Tender (E-Tender) application are eligible to
bid. The E-Tender application should be easy and ready to deploy with
a 5% to 10% customization. Bids for software development will not be
entertained.", Mr. Singh submits that the e-tender solution should
have been readily available with the ASP and the RFP contemplated
that only some amount of customization would be required, by the ASP
to meet the specific needs of DGS&D to make the same operational.
However, para (J) of the reply of respondent No.4 shows that the e-
tendering solution was not ready when it was granted the contract on
16.04.2004. In para (J) respondent No.4 states:
"J. ............... It is submitted that at the
initial stage of any tender require specifically
investment to meet the specific requirement of
the client software and the software required is
not "off the shelf" product and required
specific in training, development,
customization to meet the specific requirement
of the customer. In the present case also
certain gestation period was envisaged by the
respondent no.1 to 3 and only thereafter it
becomes operational......"
23. He submits that even though DGS&D has about 10,000
suppliers of products and commodities, only about 1200 had registered
with respondent No.4 up to March 2007. This shows that the e-tender
solution developed by respondent No.4 was entirely developed only
after the award of the contract to it on 16.04.2004.
24. He also relies on the acknowledgment in the amended
contract granted to respondent No.4 dated 22.05.2007, that the e-
tendering solution provided by respondent No.4 became fully
operational on 01.04.2005. On this basis he argues that the initial
award of the contract in favour of respondent No.4 itself was illegal.
He submits that when the initial contract period itself was only three
years, customization period could not have been such a high fraction
thereof i.e. one year or 33%.
25. Mr. Singh points out that the stand of the respondent Nos.1 to
3 in reply to C.M. No.12417/2007, inter alia, is that the terms and
conditions of contract with respondent No.4 did not envisage transfer
of technology (e-tendering solution software) to DGS&D. Even before
respondent No.4 undertook the work of customizing its tendering
solution software for DGS&D, various related software modules had
already been developed by NIC officers attached to DGS&D.
Respondent No.4 was only required to customize their software so that
the integration was possible with the DGS&D‟s existing software.
Consequently, there was no justification for the respondent no. 4 to
take nearly a year to make the e-tendering operational.
26. Mr. Singh submits that DGS&D has violated its own purchase
manual. Clause 8.1 of this Manual deals with the methods of purchase
by DGS&D of articles and commodities. The same can be done by
invitation of tenders by (a) advertisement, (b) limited tender (c) single
tender. It states that invitation to tender by advertisement should be
used as a general rule, in all cases. This may be dispensed with by a
competent purchase officer, as an exception to the general rule; for
reasons to be recorded and in its place any other recognized mode of
purchase may be adopted as may be warranted by the circumstances
of the case. Where the estimated value of demand is Rs.2 Lacs and
above, as a general rule Advertise Tender Inquiry (ATI) should be
followed. The method of limited tender inquiry could be adopted only
in cases where the estimated value of the orders is less than Rs.2 Lacs.
In other cases where the estimated value is more than Rs. 2 Lacs, the
method of limited tender inquiry may also be adopted in the following
situations:
"(a) When sufficient reasons exist which indicate
that it is not in the public interest to call for tenders by
advertisement. In every such case the reasons must be
recorded.
(b) When the indenting officer certifies that the
demand is urgent and any additional expenditure
involved by the elimination of open competition must be
incurred. In all such cases the Identing Officer must
place on record the nature of urgency and why the
demand could not be anticipated.
(c) When the source of supply are definitely known and
possibility of fresh source beyond those being tapped is
remote. In all such cases approval of the competent
authority to dispense with advertisement should be
taken."
27. Mr. Singh argues that none of the above conditions were
satisfied in the facts of this case. Therefore, it was wholly
impermissible for the respondent DGS&D to have violated the
guidelines in its own manual, and in a most casual and informal
manner to have contrived to limit the competition by keeping out all
other service providers, who were in a position to offer e-tendering
solution and service to DGS&D.
28. By reference to Clause 9.20 of the DGS&D manual, he submits
that the offer made by the respondent No.4, in any event, could not
have been entertained since there was lack of competition, as the
number of acceptable offers was less than three. The said clause
reads:
"9.20 LACK OF COMPETITION
Lack of competition exists if the following factors
intervened;
a) Number of acceptable offers are less than
three;
b) Ring prices have been quoted by all the
tenderers (Cartel formation);
c) The product of only one manufacturer has been
offered by all the tenderers irrespective of number of
quotations;
d) Store under purchase is chronically in short
supply against which a number of acceptable offers
never exceed two."
29. He further submits that the material terms of the RFP were
altered at the time of the award of the contract to respondent No.4.
Clause 3.1 of the RFP, which dealt with the revenue model, inter alia,
provided that:
A transaction fee shall be charged from the
suppliers by DGS&D.
Suppliers will be charged a nominal amount
for registration on the portal.
A nominal amount will be charged to the
suppliers as the tender cost.
These revenues will be collected by DGS&D on
behalf of the service provider. The revenues
will be transferred by DGS&D to the service
provider.
Clause 12.26 of the RFP further provided:
Additionally, the Vendor will be required
to enter into a Service Level Agreement (SLA)
with DGS&D: the exact terms and conditions of
which are to be discussed and mutually agreed
upon at an appropriate time.
30. However, when the contract was eventually awarded to
respondent No.4, the aforesaid terms were materially altered and the
contract provided that respondent No.4 shall directly charge the
annual registration fee from the suppliers/bidders. Reference is made
by the petitioner to the notification put up by respondent No.4 on its
website which deals with the procedure for enrolment of the
suppliers/bidders of respondent No.2. The same provides that
payment in form of demand draft has to be made in favour of
respondent No.4. The petitioner further states that no service level
agreement appears to have been executed between respondent Nos.2
& 4 in breach of the terms of the RFP. Failure to enter into such an
agreement means that there is no binding obligation on the part of the
respondent No.4 to guarantee the provision of a minimum quality of
service and there is no provision for aspects such as "minimum
uptime", resources and support to be provided, software and hardware
performance standards to be adhered to, penalties for breach of
service levels etc. It is a standard requirement in such contracts to
address these and other aspects, safeguard the interests of the
customers. The petitioner submits that the contract has been tailor
made only to promote the interests of respondent No.4 and the
interests of respondent No.2 have been a completely forgotten.
31. The petitioner submits that such e-tendering/e-procurement
software solution and service contracts were not unknown even at the
time when respondent No.2 awarded the contract to respondent No.4.
It cannot, therefore, be said that respondent No.2 was not aware of the
terms and conditions that it ought to have set out in the contract to
safeguard its own interest. In any event, respondent No.2 ought to
have structured the contract to safeguard the interest of the
Government and the public. He submits that in such like contracts
revenues are first paid to the Government agency, who in turn releases
the same to the ASP, or it is held in an escrow account and then
released, or the same is released on certain milestone based
instalments, or over a period of time. This is to ensure that the ASP
fulfills its continuing and ongoing obligations under the contract and
meets the minimum acceptable service levels that are set out in the
contract.
32. The petitioner further points out that the performance
security for the contract in question was fixed at only Rs.50,000/-
against expected revenue of the ASP of Rs.6 crores per annum,
considering the fact that the respondent had 10,000 suppliers/bidders
who were dealing with respondent No.2 for various articles and
commodities procured by it and respondent No.4 was permitted to
charge Rs.6,000/- per annum towards annual registration fee. As per
Rule 158(1) of the General Financial Rules, the performance security
should be for an amount ranging between 5% to 10% of the estimated
value of the contract, which in the present case ought to have been
Rs.30 Lacs to Rs.60 Lacs per annum.
33. Now we summarize the submissions of Mr. Singh in support of
his challenge to the extension and amendment of the contract in
favour of respondent No.4 on 22.05.2007. Mr. Singh submits that the
contract entered into on 16.04.2004 with respondent No.4 by the
DGS&D was limited in its scope i.e. for providing e-tendering solution
and services to enable DGS&D to procure supplies of various articles
and commodities by it. Mr. Singh submits that the stated object of the
RFP circulated by the respondent DGS&D was to streamline and
automate its tendering process by introducing electronic tender (e-
tender) process. To achieve this objective, DGS&D desired to utilize
new technologies and applications to create a suitable e-tendering
solution to meet its requirements. The intention of DGS&D was to
implement e-tendering solution, which could be utilized by its zonal
offices across India. Mr. Singh emphasizes that the object of the RFP
was not to enable the successful tenderer to market its e-tendering
solution with active support and backing of DGS&D to other
organizations and procurement agencies like the DGS&D. Reference in
this regard is made to clause 2.1 of the RFP circulated by the DGS&D,
which reads: -
"2.1 Objective:
The objective of DGS&D Electronic Tender (E-
Tender) initiative is to streamline and
automate it's tendering process to build
efficiencies in the process and cut down on the
total time to tender and build a database of
supplier bids for data mining & trend analysis
by utilizing leading procurement practices. In
order to achieve the objective, DGS&D desires
to utilize new technologies and applications to
create a suitable E-Tender solution that meets
their requirements
DGS&D intends to implement an E-Tender
solution, which can be utilized, by its zonal
offices across India."
34. The scope of work reflected in the RFP that the ASP was
expected to provide, inter alia, reads as follows:-
"SCOPE OF WORK
The ASP needs to procure, design, customize
and implement the E-tender solution as per the
requirements of the DGS&D.The required
specifications for the proposed solution are
detailed in this document. The ASP is required
to procure and install all hardware, networking
and communications equipment necessary to
operate the market place at his end........"
35. However, by the impugned extension and amendment of the
contract, a completely different contract has been entered into
between the DGS&D and respondent No.4 whereunder respondent
No.4, with the active participation and support of DGS&D and under
the banner of DGS&D is enabled to offer its e-tendering software
solution and service to other agencies like DGS&D, State Governments
and Public Sector Undertakings. Clause 4.1.1(i) of the amendment
dated 22.05.2007 provides that:
"DGS&D will extend its e-procurement platform
to Government Organizations for their
procurement activities, publication of tender
notices, publication of tender enquiries, bid
submission, bid opening, bid evaluation and
award of tender/contracts for
goods/materials/works/services etc. required
by them. C1 India will extend full support both
with regard to customization of software,
developing full functionality of e-tendering and
e-procurement beginning from publication of
tender notice till award of contract. In case,
additional functionalities are required, these
would be finalized by mutual discussions on
case to case basis. DGS&D shall not pay C1
India for undertaking development and
operationalization of e-procurement platform
as described above. C1 India, however, will
charge registration/subscription fee from the
Vendors as per agreement."
36. Mr. Singh argues that it is not the function of the DGS&D to
itself enter into commercial contracts for the purposes of marketing its
products. In fact, the e-tendering solution being provided by
respondent No.4 is not even a product of DGS&D. It is, therefore, a
misnomer to say that DGS&D is extending its e-procurement platform
to Government organizations. In fact, DGS&D is merely a front which
is being exploited for marketing the e-tendering solution and service of
respondent No.4, and the real beneficiary in this process is respondent
No.4 and none else. DGS&D is exploiting the fact that it is a central
purchase organization of the Government of India and a procurement
specialist and that it has the mandate to offer its own services to
Government agencies to assist them in their procurement activities.
Respondent no. 2 is, in fact, trying to provide backdoor empanelment
for respondent no. 4, on the lines of an exclusive monopoly rate
contractor/registered supplier, to all the Ministries and Departments of
the Central and the State Governments, at exorbitant annual
registration fee, without resort to competitive bidding or open
tendering process. DGS&D is also taking advantages of Rule 147(1) of
the General Financial Rules which provide that other Government
agencies may avail of the rate contracts with the registered suppliers
of DGS&D without inviting their own tenders. By now claiming
ownership of the software, (which is untrue), under the amended
contract, DGS&D is now seeking to market the e-tendering software
solution and service of respondent No.4 to the bidders/suppliers of
other organizations who may be compelled to adopt the e-tendering
solution of respondent No.4. Reference in this regard is made to the
response of respondent No.2 in response to RTI application made by
the petitioner. DGS&D has, inter alia, stated:
"DGS&D may extend the e-procurement/e-
tendering platform to other departments."
"DGS&D platform can be utilized by other
Government Organization in terms of Ministry
of Finance instructions."
37. The petitioner refers to an Office Memorandum dated
10.01.2007 issued by the Ministry of Finance, Department of
Expenditure, on the subject: Introduction of Mandatory e-procurement
which, inter alia, provides:
"In respect of all goods covered under the rate contracts
(RC) concluded by the Director General (Supplies and
Disposal) (DGS&D), the Ministries should commence
placing orders through the website of DGS&D as soon as
feasible. This practice would become mandatory for
supply orders to be placed w.e.f. April 1, 2007. DGS& D
is making all necessary arrangements for assisting the
procurement officials in this regard and they would be
issuing more detailed guidelines in this matter."
38. Mr. Singh submits that the respondents have deliberately
misrepresented the scope of the Office Memorandum dated
10.01.2007. He submits that the true interpretation of the said O.M. is
that the Government departments should approach the DGS&D where
they wish to procure items which are covered by rate contracts.
However, where other goods or services are required to be procured by
other Ministries/Departments they should make their own
arrangements. He specifically makes reference to Clause (viii) and (ix)
of the said Office Memorandum which read as follows:
"viii. Both the Director General (Supplies and
Disposal) and the Director General, National
Informatics Centre have volunteered to assist
the Ministries/Departments in e-procurement in
respect of items not covered under the rate
contract. Both the organizations are creating
help desks and nominating nodal officers and
detailed operational guidelines from them are
under issue.
ix. Additionally, Ministries and Departments
with sufficiently large procurements can develop
or procure and customize their own platforms for
e-procurement which should conform to the
requirements spelt out in the Detailed Project
Design Guideline (referred to at Para 4 above)."
39. He further submits that said Office Memorandum also
provides in Clause (IV) that the common regulatory framework with
decentralized procurement as provided by the General Financial Rules,
2005 has to be maintained.
40. He submits that the respondent authorities are seeking to
nominate respondent no.4 as the ASP for providing the e-procurment
system to other government organizations/PSUs. It is argued that if
respondent No.4 is interested in offering its e-tendering solution
services to any other organization/State Government, it could do so on
its own since it had developed its own e-tendering solution software.
There is no necessity or justification for DGS&D to throw in its weight
behind respondent No.4, and by doing so respondent No.4 is being
given preferential treatment by DGS&D. Mr. Singh further submits that
if the DGS&D were desirous of offering an e-tendering solution to other
government organizations, it should have given other contenders, like
the petitioner, a chance to participate by inviting tenders. The
petitioner is also an established e-tender solution service provider and
its services are being offered by the petitioner at much lower rates
than that being charged by respondent No.4. It is also argued that the
attitude of the DGS&D of not showing any concern with regard to the
charges being levied by respondent No.4, on the ground that it does
not cost DGS&D whatever be the annual charges levied by respondent
No.4 is to be deprecated. Firstly whatever costs are incurred by the
suppliers of goods and commodities, inter alia, towards
subscription/registration charges to the ASP are added on to the costs
of the commodities/articles offered to the DGS&D or Government
organizations, who invite e-tenders. Secondly, it is argued that the
respondent DGS&D being a public body cannot shut its eyes to the
facts that e-tendering solutions are being offered on much lower and
highly competitive rates, even when the number of registrants is not
comparable to the registrants with DGS&D. In matters of grant of state
largess, the State is obliged to ensure a level playing field and also to
maintain complete transparency. The petitioner has placed on record
the communication dated 19.04.2007 issued by the DGS&D to the
Director, Information Technology, Chandigarh Administration, offering
the DGS&D e-tendering platform. The said communication reads as
follows:
"This is to inform that Ministry of Commerce &
Industry/DGS&D has been declared as nodal
department for E-procurement under
integrated services category of Mission Mode
Projects identified by Govt. of India.
2. A copy of officer memorandum
No.8(5)/E.II(A) 2006 data 05.07.2006 from
ministry of finance dept of expenditure is
enclosed for information with respect to
threshold limit to be fixed by your organization
for initiating E-procurement.
3. Please find enclosed the Annexure A
contains a brief note about the DGS&D
Platform for e-procurement/e-tendering. The
platform will be made available to intending
users on a nominal charge, details of which are
at Annexure B.
4. A copy of the draft MOU to be signed
between DGS&D and Chadigarh Administration
is enclosed for perusal and examination.
This is without any commitment as to the
outlined terms and conditions at present."
41. Annexure-A to this communication contains the brief note
including conditions. This brief note states that the e-tendering
platform being offered by the DGS&D is designed and developed by
the ASP i.e. respondent No.4 nominated by DGS&D "exclusively for
DGS&D". He points out that the e-tendering platform which the
DGS&D sought to offer is not even owned by it. The ownership in the
said platform/e-tendering solution software resides in respondent No.4.
Annexure-B to this communication contains the fee/charges for
utilizing "DGS&D e-procurement/e-tendering platform". Apart from the
nominal fee being charged by DGS&D, Annexure-B records that the
bidders who are not registered with the nominated ASP i.e. respondent
No.4, will have to pay an annual transaction fee of Rs.6,000/- to the
ASP. Mr. Singh submits that from the aforesaid it is evident that the
respondents are deliberately misrepresenting to other government/
government agencies/PSUs with a view to convert the e-tendering/e-
procurement software solution of respondent No.4 into a rate contract
product to be exclusively obtained only from respondent No.4 on a
deliberate misreading of the aforesaid office memorandum dated
10.01.2007.
42. The petitioner submits respondent No.4 itself has been
awarded procurement contract by a State Government PSU, called
Madhya Pradesh Laghu Udyog Nigam Limited (MPLUNL). This
organization establishes rate contracts for the Government of Madhya
Pradesh, in particular when dealing with the small scale industries
sector. MPLUNL performs functions similar to respondent No.2,
DGS&D, however, on a much smaller scale and limited to the State of
Madhya Pradesh. The contract was awarded to respondent No.4 on
the basis of a competitive two bid process, wherein respondent No.4
had bid Rs.800/- per supplier per annum as its registration fee
compared to the fee of Rs.6,000/- per supplier per annum permitted to
be charged by respondent No.2 under the impugned contract.
Moreover, the contract with MPLUNL provides that respondent No.2
can, at most, earn revenue of Rs.33,80,000/- in a year and any
additional revenues flow into the coffers of MPLUNL. However, there is
no similar provision in the impugned contract between respondent
Nos.2 and 4 and the entire revenue collected on account of annual
registration fee is appropriated by respondent No.4. The aforesaid
brings out a clear disparity between the market rates for provision of
such like services and those being charged by respondent No.4 due to
the discriminatory, arbitrary and illegal connivance of respondent No.2.
He submits that respondent no. 4 did not furnish the aforesaid material
information to respondent no. 1 to 3 at any point of time much less
when the said respondents purported to take a decision to extend the
term of the contract by two years. This is evident from the reply given
by respondent nos. 1 to 3 to the petitioner‟s application under RTI Act.
He makes reference to the replies furnished by respondent nos. 1 to 3
on 11.05.2007 and in particular to the reply to query at Serial No. 4 (d)
to 4 (f) which reads:
(d) Whether DGS&D is aware that several government No.
departments and/or PSUs in India operate on a similar
"no-cost basis" model for their e-tendering/e-
procurement services and have obtained prices
through competitive tenders at rates substantially
lower than being charged to DGS&D supplier by M/s.
C1 India?
(e) Whether DGS&D is aware that in November 2005 No.
M/s C1 India was awarded similar e-procurement
contract tendered by Madhya Pradesh Laghu Udyog
Nigam Ltd ("MPLUNL"), which is the Stores Purchase
nodal agency of the State Government of Madhya
Pradesh?
(f) Whether DGS&D is aware that M/s C1 India quoted No.
Rs. 800/- as the annual fee to be paid by suppliers of
MPLUNL to C1 India, which is 1/7th the fee charged to
DGS&D suppliers, despite MPLUNL handling a fraction
of the procurement that DGS&D does and having a
fraction of the registered suppliers compared to
DGS&D.
He submits that the decision to extend the contract is, therefore,
mindless.
43. Reference is made to DGS&D Manual (effective from
01.10.1999). Chapter 1 which deals with organization and structure
defines the scope and functions of DGS&D. Clause 1.2 (i) is relied
upon which reads as follows:
"1.2 SCOPE AND FUNCTIONS: Directorate
General of Supplies and Disposals is entrusted
with the responsibility of;
(i) Purchase and or/inspection of stores for
Central Government Ministries/Departments
including their attached and subordinate
offices and Union Territories other than the
items of purchase and inspection of stores
which are delegated to other authorities by
general or special order. With
implementation of decentralization policy,
procurement against adhoc indents was
transferred from the DGS&D to the
indenting Ministries/Departments and
procurement of common user items on
Rate Contract basis continues to be done
by the DGS&D."(emphasis supplied)
44. Mr. Singh submits that even according to respondents 1 to 3,
respondent No.4 was selected as the ASP on the basis of an "adhoc
tender". He submits that with the implementation of the
decentralization policy procurement against adhoc indents stands
transferred from DGS&D to the indenting Ministries/Departments. He
argues that since the contract was awarded on adhoc basis, there is no
justification for the respondent DGS&D to promote the interest of
respondent No.4, which had been selected only through an adhoc
tender. He submits that the contract between respondent no.s 2 and 4
is not a rate contract. But even in respect of rate contracts established
by respondent no.2, it is obliged to provide a choice of suppliers for
rate contracts for limited period of 1 to 3 three years, which may be
availed of by all other ministries/agencies through limited tender
enquiry. He places reliance on Rules 142(I), 142(III) and 160 (xiii) of the
GFR and submits that the General Financial Rules do not envisage
giving a monopoly to any one supplier for a particular rate contract.
The endeavour of respondent Nos.1 and 2 to empanel respondent No.4
as an exclusive "rate contractor" of DGS&D would, therefore, be illegal.
He further submits that there is no provision either in the original RFP
or the contract for:
"(i) empanelling or otherwise establishing
Respondent no.4 as a "registered supplier"
within the meaning of Respondent No. 2‟s
legislative/legal mandate as well as the
General Financial Rules.
(ii) extending the E-Tendering system of
Respondent No.2 (provided for by Respondent
No.4) to other agencies of the
Government/State Governments/PSUs.
(iii) granting a monopoly status to
Respondent No.4.
(iv) allowing or permitting Respondent No.4
to obtain contracts without tender from other
Government agencies by misrepresenting its
so-called „empanelled‟ status with Respondent
No.2."
45. Mr. Singh has also relied upon a memorandum of
understanding dated 12.07.2007 entered into between M/s Balmer
Lawrie & Co. Ltd. and DGS&D, placed on record along with C.M.
No.5651/2008. He submits that a perusal of the MOU would show that
DGS&D has taken upon itself practically all the obligations to be
performed thereunder and the respondent No.4, the ASP, has been
relegated to the background. The lion‟s share of the consideration to
be paid by M/s Balmer Lawrie & Co. Ltd. is to be pocketed by the
respondent no.4 at the rate of Rs.6,000/- per registrant He further
argues that the said MOU has been entered into for a period of 5 years
beginning July, 2007, which makes the same valid uptil 2012. The
contract between the DGS&D and respondent No.4 itself is not even
valid for that period. This, according to him establishes the bias in
favour of respondent no.4 and demonstrates the intention of
respondent no.2 to perpetuate and promote the interest of respondent
no.4. Mr. Singh submits that by using aforesaid modus operandi in fact
Balmer Lawrie & Co. which is a public sector undertaking has entered
into a contract with respondent no. 4, primarily for the benefit of
respondent no. 4 without even going through the transparent
mechanism of notifying tenders and permitting the public at large to
participate in that process. Similarly, by using the façade of DGS&D,
respondent no. 4 is seeking to enter into similar contracts with other
Government/semi-Government entities and PSUs while keeping out the
competition at exorbitant rates. He submits that the initial period of
the contract was three years, though extendable by two years, and the
initial period was since long over. He submits that the respondents are
falsely claiming that the e-Tendering procurement solution provided by
respondent no. 4 became operational only w.e.f. 01.04.2005 by
reference to the news report published in business line on 29.09.2004.
It is stated that the e-procurement solution of respondent no. 14 had
gone live on or about the said date. The gist of the news report reads
as follows:
"C1 India goes live with e-tendering platform
Our Bureau
NEW DELHI: E-Procurement solutions provider
C1 India, said it has gone live with the e-
procurement platform of Directorate General of
Supplies and Disposals (DGS&D).
"The platform will allow DGS&D to raise public
tenders and streamline purchase processes using a
Web-enabled platform,"
The URL of the site is
dgsnd.govtprocurement.com"
46. He further submits that even if the stand of the respondents
that the e-Tendering solution became operational w.e.f. 01.04.2005 is
accepted, the period of 3 years expired on 31.03.2008. Instead of
inviting a fresh tender for the purpose of selecting a more competitive
service provider, DGS&D has not only sought to extend the term of the
contract, but also to enter into an amended agreement whereunder it
is acting as the marketing agent of respondent No.4 to sell the e-
tendering solution of respondent No.4 to other procurement agencies
throughout the country. In this manner, the DGS&D is giving a huge
unfair advantage to respondent No.4 exclusively. He submits that the
extension of the contract period could not be automatic. The same is
dependent on the performance of the service provider. The reasons
for extension of the contract should be available on the concerned file
of the Government. There has to be a positive act of extension with
due application of mind to the issue, whether a case for extension is
made out or not. As a matter of fact, there is no communication issued
by the Government extending the period of the contract during its
original period of currency i.e upto 31.3.2007. He also argues that
factors such as the rapid growth in the field of e-tendering solution, the
emergence of other entities offering the same solutions/services and
the rates at which such solutions/services are being offered by other
competitors should have gone into the decision making process while
considering the issue whether extension of contract of the petitioner
for two years should be granted or not. However, the respondent
authorities have deliberately shut their eyes to this reality. In support
of the aforesaid submission, Mr. Singh also relied on AIR 2001 SC 3887
"Union of India & Ors. v. Dinesh Engineering Corporation &
Anr." Lastly, the petitioner has sought to throw doubts on the claim of
the respondents that the amendment agreement was executed on
22.5.2007. The petitioner submits that on 29.6.2007 before the C.I.C,
the DGS&D had undertaken to supply to the petitioner all the
agreements it had executed with respondent no.4. On 13.4.2007,
DGS&D provided the petitioner with the original agreement, but not
the amendment agreement purportedly executed on 22.5.2007. It is
submitted that had the said agreement been in existence, the same
would have been provided to the petitioner.
47. The stand of respondent nos. 1 to 3 in their counter affidavit is
that a high level committee was constituted for the guidance of
DGS&D at various stages in development of software and providing the
network to connect various offices of DGS&D and the suppliers. This
committee included Professor Anshul Kumar, IIT, Delhi, Dr. Gulshan
Rai, Director ERNET, Dr. Mukul Sinha, M.D., Expert Software
Consultant. It is stated that at the relevant time the concept of e-
Tendering was relatively new and not many firms were known to have
been successful in that field. With a view to tap all the firms in the
field of development of software and considering the sensitivity of e-
tendering system, a letter was written to NASSCOM on 29.5.2001 since
NASSCOM has the membership of most of the firms engaged in the
development of software. NASSCOM circulated the requirements of
respondents 1 to 3 to its member firms and sought their response.
After obtaining the responses from the companies and going through
the brochures submitted by the companies, NASSCOM furnished the
following two lists of firms.
(i) List of companies that make the software packages
for electronic tendering.
(ii) List of companies that offered to make customize solution
to the needs of the DGS&D.
48. There were in all 72 firms details of which were provided by
NASSCOM. The list covered all regions of India. In the list of
NASSCOM, top software companies including IBM, WIPRO, INFOSYS,
SATYAM computers and others were included. Additionally, DGS&D
also made its independent endeavors to find out prospective
companies in the similar field through references and computer
magazines. Fifteen firms were identified on the basis of list of firms
noted from the magazine "Computer today" issued for period 1-15 July
2000. Letters were issued to the 87 firms to obtain their suggestions
for e-tendering module. In response thereto, 17 firms gave their
proposals. On the basis of this preliminary discussions, 4 firms were
selected for the final tendering process to draft the specifications,
tender requirement and questionnaire, a committee was formed which
was assisted by a consultant. A pre-bid conference meeting was held
with the above firms on 14.1.2003 followed by another meeting on
13.2.2003. On the basis of the feed-back received during the
discussion in the meeting, the draft bid document was modified.
Thereafter, the decision to invite bids under the two bids system was
arrived at. The technical bid was opened on 17.3.2003 and the
evaluation process was carried out on 28.3.2003 and 4.4.2003 which
was followed by mock trial on two days during the month of June 2003.
On scrutiny, respondent No. 4 was found to be only company who
fulfilled the eligibility criteria as envisaged in the tender inquiry.
Commercial bid was opened and after negotiations the contract was
awarded to respondent No. 4 at annual registration of Rs.6000/- per
supplier. Therefore, the tender was awarded by following procedure,
and there was no illegality. It is also submitted that while the
answering respondent had initiated the process of identifying the
suppliers of E-tendering solution in February 2001 itself, the Petitioner
had developed its software only in December 2002 and therefore was
left out.
49. It is submitted that contract had been awarded to respondent
no.4 for a period of three years, further extendable for a period of two
years in terms of tender document. The period of contract was to be
reckoned from the date the e-Tendering process became fully
operational for one product/item, which in this case was 01.04.2005.
The respondents further submit that the period of the contract is five
years, with a review after three years from the date the e-tendering
becomes fully functional. DGS&D had stipulated a period of three
years initially to watch performance of respondent No.4 before a
decision for extension could be taken in this regard. The performance
of C1 has been considered as satisfactory and, therefore, DGS&D is
inclined to allow the agreement to run for the stipulated period of five
years. The period of contract entered into by the petitioner with the
Government of Chhattisgarh is also for five years. The security audit of
the e-tendering platform offered by respondent no.4 has been done by
an independent agency namely STQC (Software Testing & Quality
Control) under Ministry of Information Technology in 2004 before
operation of the e-tendering system. Further, security audit has been
undertaken by STQC during 2008. As per clause No.(x) of DGS&D
amendment letter dated 22.05.2007, respondent no.4 is obliged to get
DGS&D e-Procurement platform audited for security by STQC every
year.
50. The respondents state that the RFP was a preliminary
document on which the internal discussions were held and relevant
changes were incorporated. In this document the respondents had
stated that the e-Tendering application (software) should be ready to
deploy with 5% to 10% customization. However, in the Tender
Enquiry, which was finalized on 14.01.2003, and circulated on
11.02.2003, clause for readiness to deploy the application with 5% to
10% customization had not been included.
51. The respondents also state that the tender in question was
not a Rate Contract (RC) tender, but an adhoc tender to select as ASP
for providing e-tender solution to DGS&D. The contract between
DGS&D and respondent No.4 is not a rate contract. To meet the
allegations about non-compliance of GFR in the process of awarding
the contract to respondent No.4, the respondents state that there is no
cost to the DGS&D for inviting the tender, apart from stating that the
GFR came into force in 2005 and are not applicable for purchase of
service only. To meet the allegations of non-compliance of the
DGS&D‟s own manual, it is stated that the same is applicable to award
of rate contracts, and not to award of the contract in question.
52. It is pleaded that it has taken considerable time since the
initiation of the tendering process, to arrive at a module and stabilize
the platform for the e-tendering solution, and a change in the ASP will
adversely effect the working of the e-procurement system.
Submissions of respondent No.4
53. Respondent No.4 firstly states that the present petition
deserves to be dismissed on account of delay and latches. The
process for the tender in question was started in the year 2001. This
writ petition is filed on 06.09.2007. No cogent explanation has been
furnished by the petitioner for the belated filing of the petition.
54. It is also submitted that the petitioner has no locus standi to
challenge the award of the contract to respondent No.4 as they were
not party to the tendering process at the initial stage. The petitioner
company came into existence only in December 2002, whereas the
tender process started on 19.04.2001. It is submitted that the term of
the contract was five years, split into 3+2 year mode. The period
commenced only upon the e-tendering process becoming fully
operational for one product item. According to respondent no.4, the
said period has not yet begun to run. In any event, the e-tendering
service became fully operation on 01.04.2005. Respondent No.4
submits that respondent Nos.1 to 3 have found the services of the
petitioner to be satisfactory, and there is no ground not to extend the
period of the contract upto 31.03.2010 on the same terms and
conditions as nothing further was left to be negotiated. It is submitted
that since the initial contract was not challenged in the first three
years, the petitioner has not right to challenge its extension for two
years, which is in terms of the original contract.
55. To justify the initial award of the contract to it, respondent
No.4 seeks to rely upon the stand of respondent Nos.1 to 3 and upon
the involvement of various experts and high ranking officers in the
high level committee which found only the petitioner suitable for award
of the contract.
56. According to respondent no.4, even the initial contract was
wide enough in its scope to include the offering of its software and
service to other government/semi-government organizations and
PSU‟s, and the amendment is only clarificatory. Respondent No.4
submits that even in the initial contract, clause 1.1.2 of the
Specifications and Technical Requirements provided that the software
should support multiple agencies i.e. multiple purchasing organizations
with separate work flows and administration modules which should be
configurable. Clause 1.1.3 of the Specifications and Technical
Requirements further provides:
"The solution should support sectionwise/
datewise/office wise/organization wise reporting
structure."
57. Reliance is also placed on clause 1.1 of the "Terms and
Conditions" of the contract which provides that respondent No.3 is the
exclusive agency entrusted with the responsibility of providing
procurement and inspection support to the:
A. Central Government Departments and their attached &
subordinate offices;
B. Union Territories;
C. State Govt.
D. Public Undertakings and
E. Others-viz Autonomous bodies, Quasi Public bodies, etc. who
desired to avail its services for variety of items required by them.
58. Therefore, it is argued that there is no change in the scope of
the original contract. DGS&D is merely fulfilling its responsibilities of
providing procurement support to the various government
departments & other autonomous bodies. If in that process, along with
the other softwares/programmes, the software and service of the
petitioner comes to be adopted by other agencies, no objection can be
raised by the petitioner, who is a competitor. It is further submitted
that the amendment dated 22.5.07 is only an enabling contract which
obligates respondent no.4 to provide its services and software to the
various other bodies, State Govt. etc. with whom DGS&D enters into
contract. Respondent No.4 denies the charge that respondent Nos.1 to
3 are supporting a monopoly in favour of respondent No.4. With
regard to the contract with MPLUNL, respondent No.4 states that it is
charging Rs.1990/- plus other charges from the registrants. The scope
of work in the two organizations viz. DGS&D and MPLUNL is different,
as the work of DGS&D is more voluminous. It is lastly contended that
this Court should exercise restraint in interference with the contract
which the Government has entered into in exercise of its executive
power. The contract has been entered into through a process of
negotiation through several tiers and decision has been made
qualitatively by experts. The Government enjoys freedom of contract
and that freedom ought not to be curtailed easily. It is submitted that
the present petition is an abuse of the process of this Court and should
be dismissed with costs. Reliance is placed on Master Marine
Services (P) Ltd. V. Metcalfe & Hodgkinson (P) Ltd & Anr, (2005)
6 SCC 138.
59. It is also stated that it is not mandatory for other Government
agencies to avail of the e-tendering process of DGS&D and the OM
dated 10th January 2007 has been misread. The DGS&D is only seeking
to provide assistance to the other agencies in the e-procurement
process until the time they are able to have their own arrangement.
Discussion on Merits
60. The respondent DGS&D issued the Request For Proposal for e-
tender software solution system. The purpose of issuance of the RFP,
as the name itself suggests (and as evidenced from its objective stated
in Clause 2.1 of the RFP), was to make known to all concerned that the
respondent DGS&D has set out to introduce e-tender initiatives to
streamline and automate its tendering process to build efficiencies and
cut down on the total time to tender, and build a database of suppliers
bids for data mining and analysis by utilizing leading procurement
practices. DGS&D stated that to achieve the aforesaid objective it
desired to utilize new technologies and applications to create a
suitable e-tender solution that meets its requirements. It further
stated that it intended to implement the e-tendering solution so that
the same could be utilized by its zonal offices across the country. The
scope of work that the proposed tenderers were expected to perform
was also delineated in Clause 4.0 of the RFP. The eventual bidders
were expected to procure, design, customize and implement the e-
tender solution as per the requirements of the DGS&D. The required
specifications in the proposed solution were detailed in Clauses 5.0 to
11.0 of the RFP. The eventual service provider was expected to
procure and install all hardware, networking and communications
equipment to operate the market place. The key services expected
from the service provider were also set out in Clause 4.1 of the RFP.
The RFP also indicated the business model that was proposed to be
adopted. In Clause 3 of the RFP, it was stated that the business model
for the e-tendering portal would be Application Service Provider (ASP)
based. The revenue model was also explained in Clause 3.1 of the
RFP.
61. From a reading of the RFP it is evident that the same was not,
and was never intended to serve as a notice inviting tender. The
purpose of issuance of the RFP was to get the interested entities to
interact for evolving the acceptable terms and conditions, standards
and specifications for eventually formulating the Notice Inviting Tender
for procuring e-tender solutions. The purpose was to invite the
interested and competent entities to come forward to inform and
educate the DGS&D about what to expect from the bidders and to
enable the DGS&D to formulate detailed specifications. It was really
to enable the DGS&D to learn as to what are the practices in the field
of e-tendering solution, the possibilities and limitations in the e-
tendering solution system and other relevant information, so that the
specifications on which the notice inviting tenders would eventually be
issued, could be evolved. This is also evident from the counter
affidavit of respondent nos.1 to 3. In their counter affidavit they have
stated in para 3:
"It is submitted that Request for Proposal (RFP)
was a preliminary document on which internal
discussions were held and relevant changes
were incorporated resulting into the elaborate
Tender Terms and Conditions document. The
RFP, therefore, cannot be taken as complete
tender document."
62. The manner in which the RFP was circulated amongst the
concerned entities and software solution providers by the DGS&D
appears to be rather curious and unconventional. According to the
respondent, the concept of e-tendering was relatively new and there
were not many firms known to have been successful in that field. The
respondents have stated that with a view to tap all the firms in the
field of development of software and considering the sensitivity of e-
tendering system, a letter was written to NASSCOM on 29.05.2001 to
elicit the names of the firms involved in the filed of offering e-tendering
system. NASSCOM apparently provided a list of 72 firms. DGS&D
claims to have also made its independent endeavours to find out
prospective companies on the basis of list of firms noted from a
magazine "Computer Today", issued from the period 1st to 15th July,
2000. It is stated that 87 firms were issued letters to obtain their
suggestions for e-tendering module. Though the respondents claimed
to have addressed communications to 87 firms to respond to the RFP
there is nothing on record to substantiate this statement of the
respondents. Only 17 firms are stated to have given their proposals.
The mechanism adopted by the respondent DGS&D defies common
sense and rationality. It is not explained as to why the respondents did
not adopt the obviously transparent mechanism of publishing the RFP
in leading national dailies. When the process of identifying entities to
whom RFP could be issued was itself undertaken sometime in May,
2001, it is also not understood as to why a stale issue of "Computer
Today" a fortnightly magazine for the period 01st to 15th July, 2000 was
picked up by the respondents to gather names of entities to whom the
RFP could be issued.
63. Pertinently, the RFP did not state that only those prospective
bidders, who respond to the RFP and participate in the process of
finalization of specifications for award of the e-tendering solution
contract, would be considered by the respondents in a limited tender
process to follow, for the award of the e-tendering solution and service.
Consequently, eligible and competent e-tendering solution providers
who may not have responded to the RFP but could have nevertheless
offered the e-tendering solution on the specifications eventually laid
down by the respondents were kept out of the tendering process, as
the respondents themselves state that from out of those 17 firms, who
gave their proposals in response to the RFP, four firms were selected
for limited tendering process. Therefore, suddenly without any prior
notice inviting tender, the respondents sought to shortlist only four
firms for a close tender process, keeping out scores of other e-
tendering solution providers.
64. The stand taken by the respondent authorities that these four
were the only firms known "from all the possible sources...........at that
time" is patently incorrect. Merely because only seventeen firms had
responded to the RFP stated to have been circulated to 87 firms, it
does not follow that only the four shortlisted from these seventeen
firms could be said to be "known sources" and that the possibility of
fresh sources beyond these four were remote. Had the respondents
stated upfront in the RFP that only those firms, who respond to the RFP
would be eligible for participation in a limited tender enquiry, possibly
many more out of the 87 firms, to whom the RFP is stated to have
been issued, would have responded. Once the specifications and
terms and conditions had been finalized, the fair and reasonable
course of action for the respondent authorities to adopt would have
been to issue a NIT with wide publicity, to invite all those entities who
are in business in the relevant field, to make their respective offers.
65. The admitted position as disclosed from the affidavit of the
respondent authorities is that on the basis of the feedback received
during discussion in the meeting held with the four short-listed firms on
14.01.2003 and 13.02.2003, the draft bid document was modified.
Consequently, even if the RFP is assumed to have been a notice
inviting tender, which it was not, even so upon a modification of the
terms of the RFP it was incumbent on the respondent authorities to
have circulated the NIT with the modified terms to the public at large
to invite all eligible and competent players in the field to participate in
the tender process so as to create a healthy competition amongst all
the suppliers which would have led to the best services being offered
at most competitive rates. However, curiously the respondent
authorities appeared to have gone about the process of short-listing e-
tendering solution providers in the most arbitrary manner.
66. One cannot lose sight of the fact that the respondent
authorities, while undertaking the process of selecting the e-tendering
solution provider as an ASP, were undertaking a process of distribution
of State largesse since they were involved the selection of an ASP, who
would generate revenues for itself for the contractual period on
account of being so selected by the respondents. While distributing
State largesse it is well settled that the State cannot discriminate and
act in an arbitrary and whimsical manner. It is bound to act with
transparency, giving equal opportunity to all eligible entities and
persons to participate in a competitive process so that the State can
take a transparent and informed decision to choose the most
appropriate and competent entity/person at the most competitive
rates. This is in larger public interest since it is the public exchequer,
which is sought to be burdened whenever the State contracts to buy
and procure products and services for itself.
67. We may at this stage itself deal with the submission of the
respondents that the petitioner has no locus standi to challenge the
grant of contract to respondent No.4, as the petitioner was not even in
existence when the initial contract was awarded. As per the
respondent authorities, the bid document was finalized only on
12.02.2003. The petitioner was in existence, and it had developed its
software for offering e-tendering solution in December, 2002.
Consequently, had the respondent authorities adopted the transparent
manner of award of the tender by duly publicizing the NIT once it was
finalized in February, 2003, the petitioner too could have participated
in the tendering process. Failure on the part of the respondent
authorities to do so certainly gave the petitioner a cause of action to
agitate against the same, as and when the petitioner became aware of
the aforesaid arbitrariness and illegality in the tendering process
adopted by the respondent authorities. However, as we have already
clarified, we are not inclined to accede to the petitioner‟s prayer to set
aside the initial grant of the contract at this belated stage. The
averment of the petitioner that it became aware of the illegalities
committed by the respondent authorities in the matter of award of
contract to respondent no.4 in late 2006/early 2007 has not been
controverted with any seriousness. Consequently, we reject this
preliminary objection of the respondents and hold that the petitioner
has the locus standi to maintain the present petition.
68. As noted hereinabove, from the submissions of petitioner it is
evident that the respondent authorities materially altered the terms of
the RFP when the contract was initially awarded to respondent No.4.
This is also admitted by the respondent authorities who state in their
counter affidavit in para 10(II) (a) that "A pre-bid conference meeting
was held with the above firms on 14.1.2003. On the basis of feedback
received during the discussions in the meeting, the draft bid
document was modified...................As is evident from the above
that extensive and intensive deliberations on the technical and
commercial issues had to be undertaken before the technical bids,
specifications and commercial terms and conditions were finalized."
(emphasis supplied) inter alia, in relation to the payment terms under
the contract. While Clause 3.1 of the RFP provided that the registration
charges would be collected by the DGS&D and then made available to
the ASP, but under the finalized contract, it is provided that the
revenue generated from the registration charges from the
registrants/bidders would be directly collected by the ASP. Moreover,
while the RFP provided in Clause 12.10 that only those vendors who
have an off-the-shelf Electronic Tender Application should respond, and
the e-tender application should be easy and ready to deploy with 5 to
10% customization, admittedly, this condition too was altered and not
adhered to, as respondent No.4 did not have a ready to deploy off-the-
shelf Electronic Tender Application, which required only 5 to 10%
customization. In fact respondent No.4, admittedly, developed e-
software solution only after the award of the contract which is
evidenced from the stand of the respondents that even though the
contract was entered into between respondent Nos.1 to 3 on the one
hand and respondent No.4 on the other on 16.04.2004, it became
operational only w.e.f. 01.04.2005.
69. Thus, if the respondent authorities had made known to the
concerned entities in the trade that they would be entertained for
award of the e-tendering software solution service contract even if
they did not have the e-tendering solution ready to use off-the-shelf
and that the payment terms would be altered and made more
favourable to the bidders, as subsequently done, it is likely that many
more entities would have got interested in the tender in question.
However, by proclaiming one thing to the public at large, and by
quietly altering the material terms thereof, the respondent authorities
have clearly not maintained transparency in the entire process of
award of contract to respondent No.4. The respondent authorities
have, by adopting such non-transparent modus operandi curbed fair
competition between all the eligible and competent players in the
relevant field.
70. It is evident from the stand of the respondents that there was
hardly any competition when the contract was awarded to respondent
No.4. As per the stand of the respondent Nos.1 to 3, only four entities
were short-listed out of 17, who responded to the RFP. Only these four
entities were invited to participate in the limited tender process. Even
from amongst those four entities, it was only respondent No.4 who was
found to be fulfilling the eligibility criteria when the technical bid was
opened on 17.03.2003 and a valuation process was carried out on
28.03.2003 and 14.04.2003. Consequently, there was no competition,
which meant that respondent No.4 had a "free for all" and it quoted a
high rate of Rs.6,000/- per registration per annum. Considering the
fact that even according to respondent Nos.1 to 3, there are about
10000 suppliers/bidders who make supplies in response to DGS&D rate
contracts, the annual registration charges come to a staggering
amount of Rs.6,00,00,000/-.
71. By merely taking cover of a high level technical committee,
which is said to have examined and evaluated the software solutions
offered by the four shortlisted firms, the respondent authorities seek to
save themselves from the charge of lack of transparency and fairness
in the tender process in question. The technical committee was not
involved in the mechanism adopted by respondent nos. 1 to 3 to
shortlist the firms and to invite bids. They had been presented with
only four offers to examine and evaluate. May be, within those four
offers, the offer of respondent no.4 was the best in terms of technical
soundness. However, the illegality and arbitrariness in action had
already been perpetrated by respondent nos.1 to 3 by the time the
expert committee was asked to evaluate the offers of four firms, as
other firms in the same line of business, including the petitioner had
been excluded from consideration.
72. We also find the stand of the respondent DGS&D to the effect
that whatever be the annual registration charges, the same does not
concern the DGS&D, since it is being recovered from the
bidders/registrants and not from the DGS&D to be shocking and
depricable. The indifference demonstrated by the respondents while
accepting the charge of Rs.6,000/- per registration per annum quoted
by the respondent No.4 shows complete lack of basic common sense
and prudence on the part of the respondent authorities, and a breach
of public faith and trust by them that the people of the country repose
in them, and that they are obliged to uphold in larger public interest.
73. "There ain't no such thing as a free lunch" (with the acronym
TANSTAAFL) is a well known adage which is also sometimes expressed
as "there is no such thing as a free lunch". According to Wikipedia (a
free encyclopedia on the internet), the aforesaid adage originated in
the 1940s and was later popularized by science fiction writer Robert A.
Aeinlein in his 1966 novel "The moon is a harsh mistress", which
discussed the problems caused by not considering the eventual
outcome of a common balanced economy. Wikipedia further reports: -
"TANSTAAFL, indicates an acknowledgment that
in reality a person or a society cannot get
"something for nothing". Even if something
appears to be free, there is always a cost to the
person or to society as a whole even though that
cost may be hidden or distributed. For example,
you may get complementary food at a bar during
"happy hour", but the bar owner bears the
expense of your meal and will attempt to recover
that expense somehow.
...........................................................................
TANSTAAFL demonstrates opportunity cost.
Mankiw desribed the concept as:
"To get one thing that we like, we usually have to
give up another thing that we like. Making
decisions requires trading off one goal against
another. The idea that there is no free lunch at
the societal level applies only when all resources
are being used completely and appropriately, i.e.
when economic efficiency prevails. If not, a „free
lunch‟ can be had through a more efficient
utilization of resources. If one individual or group
gets something at no cost, somebody else ends
up paying for it. If there appears to be no direct
cost to any single individual, there is a social cost.
Similarly, someone can benefit for "free" from an
externality or from a public good, but someone
has to pay the cost of producing these benefits."
74. Merely because the DGS&D is not obliged to make payment of
any amount directly to the ASP i.e. respondent No.4, it does not follow
that there is no indirect cost incurred by the DGS&D. Obviously, the
rate contract bidders would have to recover the annual registration
charges that they incur and pay to respondent No.4 from their
business transactions. They would, consequently have to mark up
their bids / prices so as to not only recover their costs, including
towards annual registration charges, but also to make a profit.
Indirectly the registration charges being collected by respondent no.4
would be passed on to the respondent DGS&D and the indenters of the
goods procured by DGS&D under rate contracts.
75. Apart from the aforesaid, the respondent Nos.1 to 3 are also
obliged to ensure that they give a fair deal to their registrants/ bidders.
Respondent Nos.1 to 3 cannot remain indifferent and unconcerned
with the registration charges that the ASP may charge from its bidders,
and permit the ASP to charge any amount that it likes. Such an
attitude would not only increase the costs of procurement of goods and
articles by the DGS&D, as explained hereinabove, but would also
reduce healthy competition as some of the bidders may find the
registration charges to be exorbitant and / or unreasonable and may,
therefore, choose to keep away from the e-tendering system of the
respondent DGS&D. The charge of Rs.6,000/- per month towards
registration charges levied by respondent No.4 appears to be shocking,
considering the fact that in other similar contracts, ASPs are charging
much lesser amount even when the number of registrants are far less.
76. It is well known that in Economics of scale, there is a cost
advantage that a business obtains due to expansion. A producer‟s
average costs per unit falls, as output rises. The cost of developing e-
tendering solution by the respondent No.4 would remain more or less
the same whether there are 1,000 registrants/bidders, who may
eventually register or there are 5,000 registrants/bidders who may
eventually register. However, if there are a larger number of
registrants, say, 5000, the same service can and ought to be offered
by the ASP at much lower costs compared to the costs at which the
service may be offered, if there are only 1,000 registrants. It is on the
basis of this principle that with the expansion of, say,
telecommunication networks and services, the costs of such services
have drastically fallen over the years, as the member of subscribers
have gone up many-fold.
77. The admitted position is that respondent No.4 itself has
offered the e-tendering solution to Madhya Pradesh Laghu Udyog
Nigam Limited on, more or less, the same business and revenue model
only at Rs.800/- (or Rs.1990/- according to respondent No.4) per
supplier per registration per annum even though the number of
suppliers of MPLUNL is much smaller compared to the DGS&D. Under
the said contract a cap on the annual revenue generated by the ASP
i.e. respondent No.4 has been fixed at Rs.33,80,000/-. In contrast,
under the contract in question Rs.6,000/- per annum per registrant is
being charged by respondent No.4 when the number of registrants
could be much larger and there is no cap on the revenue generated by
respondent No.4.
78. To us it is clear that it is a complete sell out by the DGS&D
and the DGS&D has not cared to protect its own interest, as also the
interests of the bidders/registrants, its indentors and the public interest
at large, while awarding the contract in question to respondent No.4.
79. The petitioner has relied upon various clauses of the General
Financial Rules, 2005 to point out the glaring deviations in the conduct
of the respondent authorities while awarding the contract to
respondent No.4. No doubt, the General Financial Rules came into
force in the year 2005, whereas the contract in question was awarded
to respondent No.4 on 16.04.2004, when the General Financial Rules
2005 were not applicable. However, a perusal of the relevant rules
relied upon by the petitioners would show that they merely incorporate
basic principles of transparency, that ought to be maintained by public
bodies while transacting business with the public at large. Even
without the said rules being codified, the adherence to the general
principles incorporated in these Rules, with a view to maintain
transparency in the undertaking of financial transactions by the Stae
and its instrumentalities have to be maintained while distributing State
largesse in larger public interest. It is clear to us that the respondent
DGS&D failed to maintain any level of transparency in the award of the
contract to respondent No.4. Its decision to award the contract to
respondent No.4 is mired in secrecy, and the entire process was such
that no prudent person with average business and commonsense can
justify.
80. The conduct of the respondent DGS&D appears to be even
more suspect, considering the fact that it is a central purchase
organization of the Government of India, and claims itself to be a
procurement specialist. DGS&D is the business arm of the
Government of India. One would, therefore, expect the DGS&D to
drive a hard bargain in public interest. However, in the present case, it
has acted contrary to its own purchase manual. The explanation given
by the DGS&D to disregard its own purchase manual, by claiming that
the said manual is required to be followed when it makes purchases
under rate contracts and not otherwise, cannot be appreciated.
Whether the purchase by the respondent DGS&D is under a rate
contract or otherwise, the basic requirement of maintenance of
transparency, and the preservation of public interest by inculcating fair
and healthy competition are under lying principles which have to be
adhered to. As noticed hereinabove, Clause 8.1 of the DGS&D manual
deals with the method of produce by DGS&D of articles and
commodities. The same can be done by invitation of tenders by: (a)
advertisement; (b) limited tender; and (c) single tender. As a general
rule, invitation to tender by advertisement has to be followed in all
cases. If this is to be dispensed with, the competent authority should
record its reasons, and even in those cases other recognized mode of
purchase have to be followed, as may be warranted by the
circumstances of the case. Where the estimated value of payment is
Rs.2 Lacs and above, as a general rule, Advertisement Tender Inquiry
(ATI) has to be followed. A limited tender inquiry can be adopted only
where the estimated value of the order is less than Rs.2 Lacs. Where
the estimated value is more than Rs.2 Lacs, limited tender inquiry
method may also be adopted when sufficient reasons exist which
indicate that it is not in public interest to call for tenders by
advertisement. Reasons must be recorded in such a situation. The
limited tender inquiry can be adopted where the demand is urgent or
the source of supply are definitely known and possibility of fresh
source beyond those being tapped is remote. In the present case, it is
not the stance of the respondent DGS&D that there existed any
reasons to say that in public interest tenders could not have been
invited by advertisements. It is also not the case of the respondents
that the demand was so urgent that the open competition method by
inviting tenders could not have been adopted. Pertinently, limited
tender inquiry method can be adopted where the source of suppliers is
definitely known. The sequitor is, that where the source of suppliers is
not known, as is admittedly claimed by the respondent DGS&D in the
present case, a limited tender inquiry should not be followed and it is
only logical that in such a situation wide publicity should be given while
inviting the tenders. Admittedly, that was not done. Consequently,
DGS&D has acted in defiance of basic common and business sense,
which is reflected in Clause 8.1 of its own manual.
81. The DGS&D has also turned a blind to the fact that there was
a complete lack of competition since respondent No.4 was the only
player left in the field by the time its so called commercial bid was
opened. In such a situation, the DGS&D ought to have undertaken a
fresh process so as to inculcate competition from other suppliers and
vendors. Pertinently, it is not that the respondent No.4 was the only
entity dealing in the business of developing and offering E-tendering
Software Solutions. Even according to the respondents, it had
gathered names of 87 entities who were operating in the field of e-
tendering solution. From the tabulation produced by the petitioner it is
seen that the Government of Andhra Pradesh, PWD, Chattisgarh,
Northern Railway and possibly few others had already awarded
contracts for e-tendering solution prior to the award of the contract in
favour of the respondent No.4 by DGS&D. It, therefore, does not stand
to reason as to why the respondent DGS&D acted in the manner that it
did, while negotiating the award of contract in question. There is no
explanation given by the respondent DGS&D as to why it failed to
follow Office Order No.44/9/03 dated 04.09.2003 issued by the CVC
which required that pre-qualification criteria, performance criteria and
evaluation criteria should be incorporated in the bid documents in clear
and unambiguous terms and that the two bid system i.e. the technical
bid system and the price bid system should be followed. We,
therefore, conclude that grant of the initial contract in favour of
respondent No.4 by the respondent Nos.1 to 3 was illegal and arbitrary
and lacked transparency. The same was discriminatory against all
other eligible bidders including the petitioner and other eligible bidders
were not given a fair opportunity to participate in the tender process
undertaken by the respondent DGS&D. Since the initial grant of the
contract in favour of respondent No.4 itself has been found to be illegal
and arbitrary, it follows that the extension and amendment of the
same by the respondent DGS&D cannot be sustained.
82. We now proceed to consider the aspect of extension and
amendment of the contract stated to have been undertaken on
22.05.2007.
83. The extension and amendment of the contact with respondent
No.4 appears to be just as arbitrary and illegal as its initial grant. The
scope of the initial contract, as is evident from the RFP and the original
contract dated 16.04.2004 was limited to providing e-tendering
solution and services to enable DGS&D to procure supplies of various
articles and commodities by it. Thus, the initial contract was one
between the DGS&D, a service recipient and respondent No.4 a service
provider. Services were agreed to be provided by respondent No.4 to
the DGS&D to enable DGS&D to undertake its task of entering into rate
contracts more efficiently and expeditiously. However, the amendment
of the contract dated 22.05.2007 seeks to transform the original
contract into one establishing what one may loosely call, a joint
venture to scout for fresh business. Clause 4.1.1(i) of the amended
contract has already been noticed by us. The other relevant clauses
from the amended contract dated 22.05.2007 may be extracted which
clearly demonstrate the aforesaid position.
"4.1.1(v) e-Procurement platform would permit
finalization and award of tender/contract. The
hardware, system software, personnel etc.
required in Govt. organization will be provided
by the respective Govt. organizations as jointly
decided by DGS&D and C1 India with them.
xx xx xx xx xx xx xx xx
(viii) C1 India shall position and/or depute its
dedicated project manager on behalf of DGS&D
at the e-Procurement cell to be created at the
Government Organization as and when
required for the purpose of operationalizing e-
Procurement module.
(ix) C1 India will keep the Source Code of its
customized e-tendering Software in an Escrow
Account. The terms and conditions relating to
operation of Escrow Account shall be as per a
separate Escrow Agreement, which shall be
signed between DGS&D and C1 India.
xx xx xx xx xx xx xx xx
(xii) C1 India will ensure that the Uptime
remains within the agreed value of 98% on an
annual basis to the Government Organization
except during the period between 8.00 P.M and
8.00 A.M, on all government holidays,
scheduled down times and during Force
Majeure conditions. During the period between
8.00 P.M and 8.00 A.M and all government
holidays, C1 India will ensure system uptime of
90% on an annual basis. In the event of any
shortfall in the above-mentioned Uptime
calculated on an annual basis and any recovery
being effected by the government
Organizations on that account, the same shall
be compensated by C1 India to DGS&D.
However, the liability of C1 India in this regard
shall be limited to 10% of DGS&D revenue from
that Government Organization.
(xiii) For extending e-platform to government
Organizations, the Business Model with regard
to charging of registration/subscription fee
from the vendors wil be the same as DGS&D e-
tendering Business Model i.e. the vendors
quoting against the tenders issued by the
Government Organizations shall pay an annual
registration/subscription fee (Rs.6,000/-
excluding service tax and other statutory
taxes/levies) to C1 India for participation in the
e-Procurement platform. However, in case any
vendor is already registered on DGS&D e-
Procurement platform for DGS&D
empanelment, then that vendor will be treated
as deemed registered provided the vendor‟s
user-id and digital certificate is the same and
its registration is valid. Applicable taxes and
levies on the services rendered will be extra as
applicable.
xx xx xx xx xx xx xx xx"
84. Thus, while entering into the amended contract, the roles of
both the DGS&D and respondent No.4 got transformed. Under the
amended agreement DGS&D evinced its intention and plans to offer
its e-procurement platform to other government organizations involved
in procurement activities, publication of tender notice etc. along with
the E-tendering Software Solution of respondent no.4, and respondent
No.4 agreed to extend its full support both with regard to
customization of software, development of full functionality of e-
procurement and e-tendering beginning from publication of tender
notice till award of contract. Therefore, by the amended contract the
roles of DGS&D and respondent No.4 changed from one of service
recipient and service provider, respectively, to joint venture partners.
A deeper scrutiny of the said amended agreement shows that the real
beneficiary of the whole transaction is respondent No.4, inasmuch as,
the DGS&D agreed to receive a paltry amount of Rs.25,000/- for each
contract secured by it while respondent No.4 became entitled to
pocket registration charges of Rs.6,000/- per registrant per annum, in
respect of such government organization, who accepts the services
offered by DGS&D under its own banner. Therefore, while the risks
and third party claims associated and arising out of the contract with
other government organizations would be shouldered by DGS&D, the
lion‟s share of the revenue would be pocketed by respondent No.4.
85. We find merit in the submission of Mr. Singh, learned Senior
counsel for the petitioner, that it is not the function of the DGS&D to
itself enter into commercial contracts for the purpose of marketing its
products. In fact, the e-tendering solution being provided by
respondent No.4 is not even a product of DGS&D. The DGS&D has no
ownership in the e-tendering solution developed by respondent No.4 &
DGS&D is merely a service recipient being provided by respondent
No.4. To market its services to other government organizations,
Respondent No.4 is seeking to piggy back on DGS&D by using the
name and stature of DGS&D, and the privileges that it enjoys being a
limb of the government by exploiting the fact that under the National
e-Governance Plan, e-tendering is one of the mission mode projects. It
is clear to us that the effect of the amendment of the contract between
DGS&D and respondent No.4 is to change the very basis and
fundamental character of the original contract which was a contract to
procure e-tendering solution services for the DGS&D into one which is
akin to a collaboration agreement between the DGS&D and respondent
No.4 to offer the services of respondent No.4 to other government
organizations. In our view, merely because respondent No.4 is the ASP
qua the DGS&D, that cannot provide the justification for the
respondent DGS&D to fundamentally amend its contract with
respondent No.4 and transform it into a entirely different contract for a
different purpose, and with different objectives. There are various
other service providers in the field who are offering similar e-tendering
software solution system in the country, the petitioner being one of
them. Pertinently, even according to the amendment, the ASP i.e.
respondent No.4 would have to customize the software for the
government agency, who may agree to avail of the services offered by
Respondent No.4 in collaboration with DGS&D. Consequently, any
other service provider who is offering similar e-tendering system
services in the country could well have fit the bill, and it is not as if the
respondent No.4 alone is in a position to offer its services along with
DGS&D to other government agencies for e-tendering solution. The
amendment in the contract, therefore, clearly seeks to exclude all
other similar e-tendering solution providers from offering their services
under the overall umbrella of DGS&D to other government agencies.
DGS&D has, therefore, denied a level playing field to all other
competitors of Respondent No.4, which clearly demonstrates the fact
that the respondent No.4 enjoys special preference with DGS&D. Even
if it were to be granted that the DGS&D could have adopted the avtar
of a consultant and service provider as it has ventured to do, in our
view, before entering into the amendment dated 22.05.2007, it was
incumbent for the DGS&D to comply with all the provisions of the GFR
2005, which admittedly, were applicable at the relevant time. In the
garb of an amendment to the original contract what has been entered
into is a totally new and a different contract, for a different purpose
and a different objective. The same could not have been done without
going through the transparent process of inviting tenders specifically
for the purpose of marketing the e-software solution system of the ASP
in collaboration with the DGS&D to the other government organizations
and agencies.
86. The reliance placed by the respondents on the Office
Memorandum dated 10.01.2007 issued by the Ministry of Finance,
Department of Expenditure, on the subject of "Mandatory e-
procurement" to justify the amendment in the contract with
respondent No.4 also appears to be totally misplaced. The
interpretation sought to be given to the said office memorandum by
the DGS&D cannot be accepted. It is clear from the said office
memorandum that only in respect of goods covered under rate
contracts concluded by the DGS&D it is mandated that ministries
should commence placing orders through the website of DGS&D.
However, in respect of other goods, and procurement of works and
services not covered by the DGS&D rate contracts, the
ministries/department are mandated to make their own arrangements
for switching over to mandatory e-procurement w.e.f. 01.04.2007.
Pertinently, this office memorandum also provides that "the common
regulatory framework with decentralized procurement as provided by
General Financial Rules, 2005, has to be maintained." "Ministries and
departments with sufficiently large procurements can develop and
procure and customize their own platforms for e-procurements which
should confirm to the requirements spelt out in the Detailed Project
Design Guideline". Consequently, the office memorandum dated
10.01.2007 by itself does not mandate the DGS&D to start offering the
e-tendering solution developed by respondent No.4 to other
government agencies, neither does it mandate other government
agencies to accept the e-tendering solution adopted by DGS&D, much
less on the same terms and conditions on which the DGS&D agreed to
accept the services from the ASP.
87. We do not agree with the submission of the respondents that
the scope of the contract as initially awarded to respondent no.4 was
wide enough to include the offering of its software and services for E-
tendering solutions to other government/semi-government
organizations and that the amendment is only clarificatory. Reliance
placed on clause 1.1.2 of the "Requirements" under the heading
"Specifications & Technical Requirements" of the original contract
which states that the software "should support multiple agencies i.e
multiple purchasing organizations/Directorates/units with separate
workflows and administration modules which should be configurable",
projects organization in our view is of no avail. Similarly reliance
placed on clause 1.1.1 of the "Terms & Conditions" of the contract,
which records the fact that respondent no.3 DGS&D is the exclusive
agency charged with the responsibility of providing procurement and
inspection support to Central Government departments and their
attached and subordinate offices, Union Territories, State
Governments, Public Undertakings and other Autonomous Bodies and
Quasi Public Bodies who desire to avail of these services, is also of no
avail.
88. A perusal of the DGS&D Manual, and in particular clause 1.2
shows that the procurements against ad hoc indents was transferred
from the DGS&D to the indenting ministries/departments and
procurement of common user items on rate contract basis continue to
be done by the DGS&D. This has been the position since the
implementation of the decentralisation policy. The stand of the
respondent DGS&D on record is that the original contract entered into
with respondent no.4 was an ad hoc contract. Ad hoc purchases are
for procurement of items not covered by rate contract which includes
procurement of goods, works and services. Rate contract purchases
on the other hand, are for procurement of common user items.
Consequently DGS&D is only authorised to carry out procurement on
rate contract basis of common user items on fixed price, for a specified
period of time. Other government agencies place indents either
directly or through the DGS&D on the registered rate contractors/
suppliers when they wish to purchase rate contracted items.
89. When admittedly, the contract in question was the result of an
ad hoc tender, and not the result of a rate contract, we fail to
understand how the contract between the DGS&D and respondent no.4
could be converted into, and treated like a rate contract enabling other
government organisations to place orders on DGS&D and respondent
no.4 directly, on the terms and conditions on which DGS&D had chosen
to enter into the contract with respondent no.4 The aforesaid
submissions of the respondents cannot be accepted also for the reason
that a perusal of the original contract show that the same was aimed
"to set up an electronic tendering portal where it intends to publish
its tenders and invite suppliers to participate in the tenders by
submitting their bids electronically online."
90. Clause 1.1.1 of the "Terms & Conditions" relied upon by
respondent no.4 merely gives the background of DGS&D under the
heading "Introduction". A perusal of Clause 1.1.2 of the
"Requirements" under the heading "Specifications and Technical
Requirements" shows that the contract talks only of DGS&D and no
other organisation. Even the "Scope of Work" defined in clause 4.0 of
the "Terms & Conditions" of the contract shows that the ASP was
obliged to "procure, design, customize and implement the E-tender
solution as per the requirements of the DGS&D". This shows that the
contract did not envisage the provision of the aforesaid services as per
the requirements of any other organisation. The "Specifications and
Technical Requirements" no doubt state at serial no.1.1.2 and 1.1.3
that the "e-tender application should support multiple agencies i.e
multiple purchasing organizations/Directorates/units with separate
work flows and administration modules which should be configurable"
and that "The solution should support section wise/date wise/office
wise/organization wise reporting Structure", but the aforesaid
prescription in the "Specifications and Technical Requirements"
cannot mean that the parties, namely, respondent no.3 and 4 had
contracted to act as collaborators to offer the E-tendering services and
solutions to third parties. Undeniably DGS&D has its headquarters at
New Delhi and regional offices in Kolkatta, Mumbai and Chennai. The
purpose of laying down "Specifications and Technical Requirements"
above referred to merely enabled the use of the E-tendering software
solution in different offices of the DGS&D. Such an important facet of
an agreement, which transforms the original agreement from one
providing for rendering of services by one party to the other, into one
of a joint collaboration to offer services to outsiders cannot be culled
out merely by reference to the specifications and technical
requirements. Had that been the intention as argued by the
respondents, the terms and conditions sought to be incorporated
through wholesale amendment running into 27 pages, would have
been incorporated in the original agreement itself. The original
agreement does not contain any term to define the inter se rights and
obligations of the DGS&D and respondent no.4 in case the E-tendering
solution services are jointly offered by respondent nos. 3 and 4 to third
parties. They have been sought to be incorporated only by resort to an
amendment to the original contract. The scope of the initial contract is
" as defined in the RFP (Annexure `A‟)", (clause 7 of the Original
Contract dated 16.4.2003) Clause 2.1 of the RFP states that the
objective of DGS&D E-tendering initiative is "to streamline and
automate its tendering process........". In order to achieve the
objective, DGS&D desires to utilize new technologies and applications
to create the suitable E-tender solution that meets their requirements".
"DGS&D intends to implement a E-tender solution, which can be
utlised by its zonal offices across India." The scope of work defined in
the RFP in clause 4 also talks about the procurement, design,
customization and implementation of E-tender solution "as per the
requirement of the DGS&D."
91. The "Pricing and Payments" under the original contract were
prescribed in Annexure-B to the contract. This Annexure only talks
about the payment of Rs.6,000/- towards provision of the services
enumerated viz:
Sl. Service Covered Annual Fees
No. (INR)
1 Annual Supplier Registration Fees Rs.6000
which gives access to edit its profile
2 Downloading of tender document
3 Alerts of tender notification by
emails and SMS
4 Training for suppliers along with
training kits
5 Access to Help desk
6 Bid submission, counter offer and
revised offer
7 Bid opening
8 Pre-bid meeting
92. We are therefore of the view that the scope of the original
contract was limited only to the provision of E-tender solution and
services to the DGS&D alone and not to any third party. We also find
the conduct of the respondent DGS&D rather curious in entering into a
memorandum of understanding on 12.7.2007 with M/s Balmer Lawrie &
Co. Ltd. This MOU is stated to be valid for a period of five years from
the date of signing thereof. Pertinently, respondent no.4 is only in the
background in the framework of this MOU. It is the DGS&D, which is in
the forefront. DGS&D has undertaken various obligations under the
MOU under clause 5, which read as follows:-
"OBLIGATIONS OF DGS&D:
5.1 DGS&D shall position and/or depute
purchase, Quality Assurance and other
Officials/Experts/Consultants to 3-Procurement
cell as and when required for the purpose of
operationalising e-Procurement module.
5.2 DGS&D and their offices shall provide
necessary inputs in e-procurement activity.
DGS&D shall also provide such additional
information and clarifications as may be
required by The First Party in this respect.
5.3 Training by DGS&D will be provided free of
cost to identified officials of the First Party and
by Application Service Provider to all the
suppliers who are registered with the
Application Service Provider of DGS&D.
5.4 A separate sub-domain to the main domain
name www.govtprocurement.com shall be
created for the First Party‟s e-tendering home
page. DGS&D shall also provide a hyperlink of
the same on DGS&D home page."
93. The DGS&D has undertaken to perform the aforesaid
obligations on the strength of its amended contract with respondent
no.4. However the said contract itself would, in any event, have
expired in the year 2010. In this view of the matter, one fails to
understand how the DGS&D could have made a commitment for a
period of five years to M/s Balmer Lawrie when, in any event, there
could have been no certainty about the continuation of the contract, as
amended, between DGS&D and respondent no.4 after 2010.
94. In Food Corporation of India v. M/s. Kamadhenu Cattle
Feed Industries , AIR 1993 SC 1601, the Supreme Court observed as
follows:-
"7. In contractual sphere as in all other State
actions, the State and all its instrumentalities
have to conform to Article 14 of the
Constitution of which non-arbitrariness is a
significant facet. There is no unfettered
discretion in public law : A public authority
possesses powers only to use them for public
good. This impose the duty to act fairly and to
adopt a procedure which is 'fairplay in action'.
Due observance of this obligation as a part of
good administration raises a reasonable or
legitimate expectation in every citizen to be
treated fairly in his interaction with the State
and its instrumentalities, with this element
forming a necessary component of the decision
making process in all State actions. To satisfy
this requirement of non-arbitrariness in a State
action, it is, therefore, necessary to consider
and give due weight to the reasonable or
legitimate expectations of the persons likely to
be affected by the decision or else that
unfairness in the exercise of the power may
amount to an abuse or excess of power apart
from affecting the bona fides of the decision in
a given case. The decision so made would be
exposed to challenge on the ground of
arbitrariness. Rule of law does not completely
eliminate discretion in the exercise of power,
as it is unrealistic, but provides for control of its
exercise by judicial review.
8. The mere reasonable or legitimate
expectation of a citizen, in such a situation,
may not by itself be a distinct enforceable
right, but failure to consider and give due
weight to it may render the decision arbitrary,
and this is how the requirement of due
consideration of a legitimate expectation forms
part of the principle of non-arbitrariness, a
necessary concomitant of the rule of law. Every
legitimate expectation is a relevant factor
requiring due consideration in a fair decision
making process. Whether the expectation of
the claimant is reasonable or legitimate in the
context is a question of fact in each case.
Whenever the question arises, it is to be
determined not according to the claimant's
perception but in larger public interest wherein
other more important considerations may
outweigh what would otherwise have been the
legitimate expectation of the claimant. A bona
fide decision of the public authority reached in
this manner would satisfy the requirement of
non-arbitrariness and withstand judicial
scrutiny. The doctrine of legitimate expectation
gets assimilated in the rule of law and operates
in our legal system in this manner and to this
extent."
95. In our view there is clear breach of duty cast upon the
respondent authority to act fairly and to adopt a procedure which
would display "fair play in action". The legitimate expectation of the
petitioner and other eligible service providers to be considered and
equally treated in the grant of State Largesse has been dashed on
account of the arbitrary and unreasonable action of the respondent
authorities.
96. In Air India Ltd. vs. Cochin International Airport Ltd.,
2000(2) SCC 617, the Supreme Court summarized the scope of
interference as enunciated in several earlier decisions thus:
"8..............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.
The State, its corporations,
instrumentalities and agencies have the
public duty to be fair to all concerned.
Even when some defect is found in the
decision-making process the court must
exercise its discretionary power under Article
226 with great caution and should exercise it
only in furtherance of public interest and not
merely on the making out of a legal point. The
court should always keep the larger public
interest in mind in order to decide whether its
intervention is called for or not. Only when it
comes to a conclusion that overwhelming
public interest requires interference, the court
should intervene." (emphasis supplied)
97. In Nagar Nigam Vs. Al FAheem Meat Exports (P) Ltd.
(2006) 13 SCC 382 the Supreme Court was considering the challenge
to an advertisement issued by the appellant notifying applications for
granting a fresh contract for running the slaughter house, the High
Court had allowed the writ petition filed by the respondent directing
that the respondent no. 1 would be allowed to run the slaughter house
for ten years on the terms and conditions stipulated by the Court.
While allowing the appeal on the ground that the High Court had
exceeded its jurisdiction in thrusting upon the Nagar Nigam a contract,
the terms whereof were devised by the High Court, the Supreme Court
reiterated the principles evolved by it with regard to the judicial review
of grant of contracts by the government. In paragraphs 12 to 16 and
18, the Supreme Court observed as follows:
"12. In this case, however, we are concerned
with a different question. It is now a well-
settled principle of law that having regard to
the provisions of Article 14 of the Constitution
of India, a State within the meaning of Article
12 thereof cannot distribute its largesse at its
own sweet will, vide Ramana Dayaram Shetty
v. International Airport Authority of India
(1979) 3 SCC 489. The court can ensure that
the statutory functions are not carried out at
the whims and caprices of the officers of the
Government/local body in an arbitrary manner.
But the court cannot itself takeover these
functions.
13. This Court time and again has emphasised
the need to maintain transparency in grant of
public contracts. Ordinarily, maintenance of
transparency as also compliance with Article 14
of the Constitution would inter alia be ensured
by holding public auction upon issuance of
advertisement in the well-known newspapers.
That has not been done in this case. Although
the Nagar Nigam had advertised the contract,
the High Court has directed that it should be
given for 10 years to a particular party
(Respondent 1). This was clearly illegal.
14. It is well settled that ordinarily the State or
its instrumentalities should not give contracts
by private negotiation but by open public
auction/ tender after wide publicity. In this
case the contract has not only been given by
way of private negotiation, but the negotiation
has been carried out by the High Court itself,
which is impermissible.
15. We have no doubt that in rare and
exceptional cases, having regard to the nature
of the trade or largesse or for some other good
reason, a contract may have to be granted by
private negotiation, but normally that should
not be done as it shakes the public confidence.
16. The law is well settled that contracts by
the State, its corporations, instrumentalities
and agencies must be normally granted
through public auction/public tender by inviting
tenders from eligible persons and the
notification of the public auction or inviting
tenders should be advertised in well-known
dailies having wide circulation in the locality
with all relevant details such as date, time and
place of auction, subject-matter of auction,
technical specifications, estimated cost,
earnest money deposit, etc. The award of
government contracts through public
auction/public tender is to ensure transparency
in the public procurement, to maximise
economy and efficiency in government
procurement, to promote healthy competition
among the tenderers, to provide for fair and
equitable treatment of all tenderers, and to
eliminate irregularities, interference and
corrupt practices by the authorities concerned.
This is required by Article 14 of the
Constitution. However, in rare and exceptional
cases, for instance during natural calamities
and emergencies declared by the Government;
where the procurement is possible from a
single source only; where the supplier or
contractor has exclusive rights in respect of the
goods or services and no reasonable
alternative or substitute exists; where the
auction was held on several dates but there
were no bidders or the bids offered were too
low, etc., this normal rule may be departed
from and such contracts may be awarded
through "private negotiations". (See Ram and
Shyam Co. v. State of Haryana (1985) 3 SCC
267.)
XXXXXXXXXXXXXXXXXXXXX
18. The law is, thus, clear that ordinarily all
contracts by the Government or by an
instrumentality of the State should be granted
only by public auction or by inviting tenders,
after advertising the same in well-known
newspapers having wide circulation, so that all
eligible persons will have an opportunity to bid
in the bid (sic auction), and there is total
transparency. In our opinion this is an
essential requirement in a democracy, where
the people are supreme, and all official acts
must be actuated by the public interest, and
should inspire public confidence."
98. In Dinesh Engineering Corporation (supra), the Indian
Railways sought to deny the award of the contract for purchase of
certain spare parts to the respondent bidder on the ground that the
Railway Board had reviewed its policy decision to purchase DG-EDC
Governor spares in the context of sophistication, complexity and high
degree of precision associated with governors. The decision was
challenged before the High Court successfully. While dismissing the
appeal preferred by the Union of India, the Supreme Court observed:-
"12............ This policy proceeds on the
hypothesis that there is no other supplier in the
country who is competent enough to supply
the spares required for the governors used by
the Indian Railways without taking into
consideration the fact that the writ petitioner
has been supplying these spare parts for the
last over 17 years to various Divisions of the
Indian Railways which fact has been
established by the writ petitioner from the
material produced both before the High Court
and this Court and which fact has been
accepted by the High Court. This clearly
establishes the fact that the decision of the
Board as found in the letter dated 23.10.1992
suffers from the vice of non-application of
mind................ There is no doubt that this
Court has held in more than one case that
where the decision of the authority is in regard
to a policy matter, this Court will not ordinarily
interfere since these policy matters are taken
based on expert knowledge of the persons
concerned and courts are normally not
equipped to question the correctness of a
policy decision. But then this does not mean
that the courts have to abdicate their right to
scrutinise whether the policy in question is
formulated keeping in mind all the relevant
facts and the said policy can be held to be
beyond the pale of discrimination or
unreasonableness, bearing in mind the
material on record. It is with this limited object
if we scrutinise the policy reflected in the letter
dated 23.10.1992, it is seen that the Railways
took the decision to create a monopoly on
proprietary basis on EDC on the ground that
the spares required by it for replacement in the
governors used by the Railways required a high
degree of sophistication, complexity and
precision, and in the background of the fact
that there was no party other then EDC which
could supply such spares. There can be no
doubt that an equipment of the nature of a
spare part of a governor which is used to
control the speed in a diesel locomotive should
be a quantity which can adhere to the strict
scrutiny/standards of the Railways, but then
the pertinent question is : has the Board taken
into consideration the availability or non-
availability of such characteristics in the spare
parts supplied by the writ petitioner or, for that
matter, was the Board alive to the fact that like
EDC the writ petitioner was also supplying the
spare parts as the replacement parts for the
GE governors for the last over 17 years to the
various Divisions of the Railways. A perusal of
the letter dated 23.10.1992 does not show that
the Board was either aware of the existence of
the writ petitioner or its capacity or otherwise
to supply the spare parts required by the
Railways for replacement in the governors
used by it, an ignorance which is fatal to its
policy decision. Any decision be it a simple
administrative decision or a policy decision, if
taken without considering the relevant facts,
can only be termed as an arbitrary decision. If
it is so then be it a policy decision or otherwise,
it will be violative of the mandate of Article 14
of the Constitution."
99. It further held in para 16 as follows:-
"16. But then as has been held by this Court in
the very same judgment that a public authority
even in contractual matters should not have
unfettered discretion and in contracts having
commercial element even though some extra
discretion is to be conceded in such authorities,
they are bound to follow the norms recognised
by courts while dealing with public property.
This requirement is necessary to avoid
unreasonable and arbitrary decisions being
taken by public authorities whose actions are
amenable to judicial review. Therefore, merely
because the authority has certain elbow room
available for use of discretion in accepting offer
in contracts, the same will have to be done
within the four corners of the requirements of
law especially Article 14 of the Constitution. In
the instant case, we have noticed that apart
from rejecting the offer of the writ petitioner
arbitrarily, the writ petitioner has now been
virtually debarred from competing with the
EDC in the supply of spare parts to be used in
the governors by the Railways, ever since the
year 1992, and during all this while we are told
the Railways are making purchase without any
tender on a proprietary basis only from the EdC
which, in our opinion, is in flagrant violation of
the constitutional mandate of Article 14. We
are also of the opinion that the so-called policy
of the Board creating monopoly of EDC suffers
from the vice of non-application of mind.
hence, it has to be quashed as has been done
by the High Court."
100. We also fail to appreciate the submission of the respondent,
DGS&D that since respondent no.4 has taken a great deal of time in
developing the E-tendering solution for it, it is not possible to change
the ASP from respondent no.4 to any other entity. If this argument of
DGS&D were to be accepted, then it would mean that respondent no4.
should be continued in perpetuity as the ASP for DGS&D. We find the
aforesaid submission of DGS&D to be totally absurd and we reject the
same. There cannot be a policy decision in the name of sophistication
or precision to create a monopoly in favour of one entity to procure
goods or services without an open tender.
101. Moreover, even if it were to be assumed that the DGS&D
might be justified in seeking to continue with respondent no.4 as the
ASP on a long term basis, that intention should have manifested itself
in the original NIT which admittedly is not the case. The tenure of the
contract even according to the respondents (on the assumption that it
was legally entered into, which is in fact not the case) is only five years
at the most. The same cannot, in any event, be sought to be
continued in perpetuity. As aforesaid, the said original contract was
vitiated by illegality and arbitrariness.
102. In view of our aforesaid discussion, we allow the present writ
petition and declare that the original contract dated 16.4.2004 entered
into between respondents 1 to 3 and respondent no.4 arising out of
tender No.3/(7/2001/E-tendering/17) was arbitrary and illegal.
However, since the term of the initial contract expired on 31.03.2008
we are not quashing the same, as a transaction under the initial
contract is already concluded. However, we quash the extension of,
and amendment to the original contract dated 22.5.2007 as the same
materially and illegally alters the terms and conditions and scope of
the original contract, which itself was entered into irregularly. We
restrain respondents 1 to 3 from jointly marketing with respondent
no.4, the E-procurement solution to other government/semi-
government bodies and agencies in terms of the amended contract
dated 22.5.2007. We direct the respondent authorities to immediately
undertake a fresh tender process for appointing an Application Service
Provider for undertaking E-procurement activities by DGS&D on clearly
stated terms and conditions and specifications, and by issuing a notice
inviting tender which should be duly published. The fresh tender
process should be completed within a period of four months from today
and the contract should be awarded to the newly appointed ASP within
this period. We further direct respondent nos. 1 to 3 to adhere to the
General Financial Rules in the matter of award of a fresh contract for E-
tendering solutions.
103. Considering the fact that respondent no.4 is presently
providing its services as the ASP to the DGS&D, we permit the
continuation of the said services by respondent no.4 for a period of
four months, or till the new ASP is in a position to render its services,
whichever is earlier.
104. The writ petition is accordingly allowed in the aforesaid terms
with costs quantified at Rs. One lakh. 50% of the cost shall be borne
by respondents 1 to 3 and the remaining 50% by respondent no.4.
(VIPIN SANGHI)
JUDGE
(A.K. SIKRI)
JUDGE
April 02, 2009
as/rsk/dp
