Karnataka High Court
M/S Allengers Medical Systems Ltd vs Sri.Rangappa, Ias on 29 October, 2024
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 29TH DAY OF OCTOBER, 2024
PRESENT
THE HON'BLE MR. N. V. ANJARIA, CHIEF JUSTICE
AND
THE HON'BLE MR. JUSTICE K. V. ARAVIND
WRIT APPEAL No.361 OF 2023 (GM-TEN)
C/W
CCC No.266 OF 2023 (CIVIL)
IN WA No.361 OF 2023
BETWEEN:
KARNATAKA STATE MEDICAL SUPPLIES
CORPORATION LIMITED.,
SHESHADRI ROAD,
OPP: SJP COLLEGE,
K. R. CIRCLE,
BENGALURU-560009.
REPRESENTED BY ITS
MANAGING DIRECTOR.
...APPELLANT
(BY SRI SUMANA BALIGA M., ADVOCATE)
AND:
1. M/S ALLENGERS MEDICAL SYSTEMS LTD.,
CORPORATE OFFICE AT:
S. C. O. 212-213-214,
SECTOR 34-A,
CHANDIGARH-160022,
UNION TERRITORY,
BRANCH OFFICE AT:
No.179-A, 1ST AND 2ND FLOOR
2ND MAIN ROAD,
2
RAJAJINAGAR IVTH BLOCK,
BENGALURU-560010,
REP. BY MR. SAI MANGESH,
S/O SRI GOPAL REDDY,
AGED ABOUT 42 YEARS,
MANAGER GOVERNMENT SALES.
2. THE STATE OF KARNATAKA,
REPRESENTED BY ITS CHIEF SECRETARY,
VIDHANA SOUDHA,
DR. AMBEDKAR VEEDHI,
BENGALURU-560001.
3. THE DIRECTOR,
HEALTH AND FAMILY WELFARE SERVICE,
AROGYA SOUDHA,
MAGADI ROAD,
BENGALURU-560023,
REP. BY ITS COMMISSIONER,
4. THE COMMISSIONER,
HEALTH AND FAMILY WELFARE DEPARTMENT,
AROGYA SOUDHA,
MAGADI ROAD,
BENGALURU-560023,
REP. BY ITS COMMISSIONER,
5. THE PRINCIPAL SECRETARY,
HEALTH AND FAMILY WELFARE SERVICES,
GOVERNMENT OF KARNATAKA,
VIKASA SOUDHA,
DR. AMBEDKAR VEEDHI,
BENGALURU-560001.
...RESPONDENTS
(BY SRI M.S. BHAGAWAT, SENIOR ADVOCATE FOR
SRI SATHISH K. ADVOCATE FOR C/R1;
SRI S.H. PRASHANTH, SPECIAL GOVERNMENT ADVOCATE FOR
R2 TO R5)
THIS WRIT APPEAL FILED UNDER SECTION 4 OF THE
KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE THE FINAL
ORDER DATED 25.01.2023 RENDERED BY THE LEARNED SINGLE
JUDGE IN W. P. No. 17634 (GM-TEN) AND ALLOW THE SAID WRIT
PETITION AND THIS APPEAL WITH COSTS ALL THROUGH, IN THE
INTEREST OF JUSTICE AND EQUITY.
IN CCC No.266 OF 2023
BETWEEN:
M/S ALLENGERS MEDICAL SYSTEMS LTD.,
HAVING ITS BRANCH OFFICE AT No. 179-A,
I AND II FLOOR, 2ND MAIN ROAD,
RAJAJINAGARA IV BLOCK,
BANGALORE 560010.
REPRESENTED BY ITS MANAGER (GOVERNMENT SALES),
SRI SAI MAGESH G.,
S/O GOPAL REDDY,
AGED ABOUT 42 YEARS.
...COMPLAINANT
(BY SRI M.S. BHAGAWAT, SENIOR ADVOCATE FOR
SRI SATHISH K., ADVOCATE)
AND:
SRI.RANGAPPA, I.A.S.,
MANAGING DIRECTOR,
KARNATAKA STATE MEDICAL SUPPLIES
CORPORATION LTD.,
SHESHADRI ROAD,
OPPOSITE SJP COLLEGE,
K.R.CIRCLE,
BENGALURU-560 009.
...ACCUSED
(BY SMT. SUMANA BALIGA M., ADVOCATE)
THIS CCC IS FILED UNDER SECTIONS 11 AND 12 OF THE
CONTEMPT OF COURTS ACT, 1971, BY THE COMPLAINANT,
PRAYING TO INITIATE CONTEMPT PROCEEDINGS AGAINST THE
ACCUSED AND PUNISH THEM IN ACCORDANCE WITH LAW FOR
HAVING WILLFULLY DISOBEYED THE ORDER PASSED BY THIS
HON'BLE COURT IN WRIT PETITION No.17634/2022 DATED
25.01.2023 (ANNEXURE-A)
THESE WRIT APPEAL AND CCC HAVING BEEN HEARD AND
RESERVED FOR JUDGMENT, COMING ON FOR PRONOUNCEMENT
THIS DAY, JUDGMENT WAS PRONOUNCED UNDER:
CORAM: HON'BLE THE CHIEF JUSTICE MR. JUSTICE
N. V. ANJARIA
and
HON'BLE MR. JUSTICE K. V. ARAVIND
C.A.V. JUDGMENT
(PER: HON'BLE MR. JUSTICE K. V. ARAVIND)
Heard learned advocate Smt. M. Sumana Baliga appearing
for appellant, learned Senior advocate Mr. M.S. Bhagwat for
learned advocate Mr. K. Sathish for respondent No.1 and learned
Special Government Advocate Mr. S. H. Prashanth for respondent
Nos.2 to 5 in Writ Appeal No.361 of 2023.
Learned Senior advocate Mr. M.S. Bhagwat for learned
advocate Mr. K. Sathish for complainant and learned advocate
Smt. M. Sumana Baliga appearing for respondent in CCC No.266
of 2023.
2. This is an intra-court appeal under Section 4 of the
Karnataka High Court Act, 1961, by respondent No.2 in writ petition
No.17634 of 2022, aggrieved by the judgment and order dated
25.01.2023. By the impugned judgment and order, the petition was
allowed, the communication dated 03.11.2022 issued by the
Karnataka State Medical Supplies Corporation Limited-respondent
No.2 is quashed. A mandamus came to be issued to respondent
No.2 to issue purchase order in favour of the petitioner-respondent
herein, pursuant to Tender Notification dated 27.10.2021 and
awarded the tender contract in favour of the petitioner.
3. The appellant is a Government Institution engaged in
procurement of drugs and equipment for Government Health
Sector Institutions. The appellant issued a Re-tender Notification
dated 27.10.2021 inviting tenders for the supply of 100mA Portable
X-ray Machines. The Tender Notification deals with other items,
however, this appeal concerns X-ray Machines. The Tender
Scrutiny Committee of the appellant declared respondent No.1 as a
technically qualified and successful bidder. The final price was
negotiated by the appellant and respondent No.1. Contract for
supply of equipment was awarded by the appellant in favour of
respondent No.1 by Notification dated 02.03.2022. Under the
Notification, respondent No.1 was directed to deposit performance
security, which was deposited. As per the Notification of Award,
the per unit price was negotiated at Rs.18,95,947/-.
4. The appellant failed to proceed further in issuing a supply
order. Respondent No.1 preferred writ petition No.17634 of 2022.
In the writ petition, it is prayed to direct the Tendering Authority to
release the purchase order in terms of Notification of Award at
Annexure-G and the consequential reliefs.
5. Learned Single Judge held that once the award is notified, it
is impermissible to withdraw or cancel the tender and issued
mandamus to the appellant to issue a purchase order.
Submissions:
6. Learned advocate Smt. M. Sumana Baliga, appearing for the
appellant, submits that the appellant is only a procuring agency on
behalf of the Government Department/Institutions. The State
Government, under an order dated 17.12.2020, placed an order to
procure various equipment to support 2025 ventilators provided by
the Union of India under the PM Care Scheme to treat COVID-19
infected patients. The State Government, considering the
requirement, has estimated the cost of accessories to the
ventilators. The State recommended/estimated unit price at
Rs.1,50,000/- insofar as 100 mA Portable X-ray Equipments.
6.1 The procuring agency committed an error in issuing a tender
at Rs.18,95,947/- per unit without considering the requirement of
the X-ray equipment and the estimated cost per unit. The X-ray
equipment tendered was high-handed and not compatible with the
ventilators, thus defeating the very purpose of procuring. The X-
ray Machines were required to use as ancillary to ventilators.
6.2 It is submitted that the complaints were received by the
Principal Secretary, Health and Family Welfare on irregularities in
procuring X-ray equipment, one such complaint was the higher rate
agreed than as permitted by Government. The State Government
has conducted an enquiry and cancelled the procurement order.
The appellant is merely a procuring agency on behalf of the State
and its Departments/Institutions; the tender could not be taken
further. The appellant was justified in cancelling the tender, which
is a consequence of the State's cancellation of the procurement
order.
6.3 It is submitted that mere issue of Notification of Award and
entering agreement would not conclusively confer the right in
favour of respondent No.1. The Notification of Award is only a
determination of the price of supply and the obligation/contract to
supply will come into effect only on placing supply order.
6.4 In the present case, no supply order has been issued to
create any vested right to supply in favour of respondent No.1.
6.5 It is submitted that the Notification of Award has no
significance in view of the entire tender being cancelled. The
cancellation of the tender is not under challenge. The mandamus
issued to issue a supply order when the entire tender is cancelled
is unsustainable and impractical to implement. Respondent No.1
has not challenged the cancellation of procurement by the State
Government. Unless the order placed with the appellant by the
State remains or proceeds further, in the absence of the
requirement of the X-ray equipment by the State and the payment
towards the supply of such equipments is being released by the
State, the appellant in no way can give effect or proceed further
with tender process and issue supply order as directed by learned
Single Judge.
6.6 It is submitted that the dispute between the appellant and
respondent No.1 is about the damages that is said to have been
suffered by respondent No.1. The dispute is civil in nature, outside
the purview of jurisdiction under Article 226 of the Constitution.
Hence, submits that the writ petition is not maintainable.
7. Sri. M.S. Bhagwat, learned Senior advocate appearing for
respondent No.1 submits that respondent No.1 participated in the
tender. The Tender Scrutiny Committee declared this respondent
as a successful bidder after being found technically qualified. The
appellant has negotiated the price, and a contract for supply was
entered into. It is submitted that agreement is executed and
performance security is deposited as required under the
Notification of Award dated 02.03.2022.
7.1 Learned Senior advocate would further submit that an
agreement for the supply of an X-ray Machine is entered into. The
contract for supply is concluded on execution of the agreement.
The action remained with the appellant was to issue supply orders.
It is submitted that considering the procurement was to deal with
the COVID-19 pandemic and the time constraint involved, this
respondent, acting bona fide on the actions of the appellant,
procured the entire tendered quantum of X-ray Machines. The
appellant's failure to issue supply orders has resulted in huge
losses, which the respondent is entitled to be compensated by
issuing the supply order for the tendered equipment.
7.2 It is further submitted that the cancellation of the contract
citing irregularities in the tender procurement is a lame excuse to
avoid the issue of supply order. The action of cancellation of
tender is arbitrarily exercised discretion. The writ petition is
maintainable as tender is concerned with ill-motive and without any
sustainable reason.
7.3 It is submitted that the appellant has proceeded to issue
supply orders for the other equipment tendered under the same
Notification. The cancellation of tender only regarding the supply of
X-ray Machines is an arbitrary exercise of discretion.
7.4 Learned Senior advocate submits that this respondent has
no remedy under the Contract Act in view of Section 22 of the
Karnataka Transparency in Public Procurements Act, 1999
(hereinafter referred to as 'Act of 1999' for short). It is submitted
that Section 22 of the Act of 1999 overrides other Acts, including
the Contract Act.
7.5 Learned Senior advocate would submit that Clause (1.30) of
Notification dated 27.10.2021 provides the formation of the
Contract on the issue of Notification of Award. As Notification of
Award is issued on 02.03.2022 the contract is concluded and the
respondent No.1 is vested with right to seek issue of supply order.
It is submitted that once the contract is awarded, cancellation is
impermissible.
7.6 Learned Senior advocate by referring to the Clauses (27.1
and 27.2) towards the settlement of disputes from the Notification
dated 27.10.2021, submits that settlement of the dispute through
arbitration is not a remedy as no informal negotiation was initiated
by the appellant.
7.7 Learned Senior advocate would further submit that Section
14 of the Act of 1999 is not available to be exercised after the
issuance of the tender contract. By referring to the instances of
supply to other institutions, the learned Senior advocate attempts to
persuade the Court that the price agreed is the market price at
which supply is made to other Institutions of different States.
7.8 Learned Senior advocate relied on the judgment of this Court
in the case of Object Technologies A Registered Partnership
Firm Vs. State of Karnataka and Others reported in (2017) 6
Kant LJ 310 and in the case of M/s. Sainath Security Force &
Man Power Service Vs. The State of Karnataka and others in
Writ Petition No.100005 of 2021.
8. Learned Additional Government Advocate appearing for
respondent Nos.2 to 5 submits that writ petition is not maintainable
as statutory appeal under Section 16 of Act of 1999 is available. It
is further submitted that the tender contract enables the resolution
of disputes through arbitration.
8.1 It is submitted that unless the work order is issued, merely
award is notified, the contract is not concluded with any right in
respondent No.1 to enforce. If the right is accrued to respondent
No.1 in a contract, the dispute has to be resolved in civil
proceedings, and the same cannot be brought before the Court
under Article 226 of the Constitution.
8.2 It is submitted that the tender was invited to meet the
exigencies during the COVID-19 pandemic and is time-bound. The
tender inviting authority is vested with the power to cancel the
tender. The final work/supply order not having been issued, the
contract was not concluded in favour of respondent No.1. The
cancellation of the tender is within the discretion of the tender
inviting authority.
8.3 It is stated that respondent No.1 was never under obligation
to procure all the X-ray Machines in a single procurement.
Respondent No.1 was to supply the X-ray Machines periodically for
months. The respondent No.1 was given sufficient time to supply
after issuing the work order. It is submitted that if respondent No.1
has procured all the X-ray Machines and cancellation of tender is
causing loss, the same is due to its own mistake, needless to
blame others.
8.4 It is submitted that Section 14 of Act of 1999 empowers
general rejection of tenders due to changes in the scope of
procurement and due to other series of reasons.
Analysis:
9. The appellant has invited tenders in two covers. The first
cover to consist of a technical bid and the second cover a financial
bid. The Notification dated 27.10.2021 provide the terms and
conditions. The respondent No.1 has participated in the tender and
is found to be qualified in the technical and financial bid. The Court
is not engaged to decide the eligibility of respondent No.1
otherwise to supply X-ray Machines. In that view, the Court
proceeds to consider other aspects by presuming the eligibility of
respondent No.1.
10. The record indicates that the appellant engaged respondent
No.1 on negotiation. The negotiated price, as communicated by
respondent No.1, is on record under a letter dated 09.02.2022.
The Notification of Award on the price negotiated is at Annexure-G
dated 02.03.2022. The Notification of Award depicts the final price
agreed upon towards the supply of the specified X-ray machine.
The award further indicates the issue of supply orders upon receipt
of indent from health institutions and after releasing the budget.
11. The afore-stated award would require respondent No.1 to
deposit performance security and to sign the contract agreement.
In the instant case, both the conditions of deposit and agreement
are fulfilled. The award fixes the delivery schedule. As per the
schedule, the supply and installation is to be completed within 45
days from the date of issue of supply order. The agreement binds
the appellant, the purchaser, and respondent No.1, the supplier, to
the terms and conditions of the Notification dated 27.10.2021.
Further Clauses deals with timely supply and timely payments
towards the supply.
12. It is the case of respondent No.1 that as a result of the
agreement to supply 100 X-ray Machines and supply the remaining
65 machines based on an indent placed by the Institutions, there
was an obligation on respondent No.1 to supply 100 X-ray
Machines. The only formal procedure is to issue a supply order;
the refusal is for no reason, much less justifiable.
13. It is difficult to accept the contention on plain reading of the
Notification of Award and the agreement. What can be concluded
on reading of Notification and the Agreement is that (i) the
respondent No.1 is identified as a supplier, (ii) the quantum and the
price of the supply is agreed, (iii) the supply shall be made within
45 days on placing supply order and (iv) payment towards supply
shall be made as agreed. In that view, it is difficult to conclude that
the Notification of Award and the Agreement is a final contract for
supply and right to supply vested with respondent No.1.
14. Under the Notification of Award and the Agreement,
respondent No.1 is vested with an obligation to supply an X-ray
machine specified within the agreed period for the price agreed.
This right is to be exercised only on issue of supply order. Unless
a supply order is issued, either the terms and conditions of the
tender Notification, the Notification of Award, or the Agreement
warrants respondent No.1 to procure the X-ray Machines. In the
absence of such a compulsion imposed on respondent No.1, it is
difficult to hold that respondent No.1 procured X-ray Machines in
compliance with the agreed terms. Such procurement is of its own
volition and not compliant with the agreement/award.
15. The appellant contends that the Notification towards supply
of X-ray Machines was at the instance of the State Government
and the Agreement declares that the payment towards supply
would be on providing finance by the State. It is further stated that
the appellant acted as a procuring agency on behalf of the State. It
is further contended that the State has issued directions to stop the
procuring activity. As a result, the entire tender process was
cancelled. This action is agitated by the respondent No.1.
16. To examine the above contentions, the appellant's
competence needs examination. Section 14 of the Act of 1999,
enables tender accepting authority to cancel the tenders on variety
of changes and circumstances. Section 14 empowers cancellation
even after tender acceptance under Section 13 of the Act of 1999.
Section 14 provides cancellation on (i) changes in the scope of
procurement, (ii) failure of anticipated financial resources, (iii)
accidents, (iv) calamities, or (v) any other ground as may be
prescribed which would render the procurement unnecessary or
impossible. The appellant has sought to assign three reasons.
Firstly, the X-ray machine required and the machine tendered are
different. Secondly, the X-ray machine required was to be
compatible with the ventilators supplied to treat COVID-19 infected
patients. The tendered X-ray Machines are incompatible and
defeat the purpose of procurement. This reason would fall within
the classification "procurement unnecessary". The third reason
contended by the appellant is irregularities in the tender process,
especially the price negotiation on which the departmental action is
initiated. No material is placed on this aspect, which requires
consideration by the Court.
17. It is also pleaded that tender was invited for the supply of X-
ray Machines as a need at the relevant time under the Emergency
COVID Response Package of the Government of India. Further, it
is stated that the work order was not issued due to changed
circumstances and lack of adequate funds approved for the
procurement under the package. The Court on perusal of the
Government Order dated 17.12.2020 finds force in the submission.
The entire process of procuring specified X-ray Machines was
towards the effective utilization of 2025 ventilators sanctioned to
the State by the Government of India under the PM Care Scheme
for treating COVID-19 patients. The Government Order indicates
the price at which the X-ray Machines can be purchased. On
reading the Government Order and the resulting tender process, it
is clear that X-ray Machines were required to treat COVID-19
patients. In view of the downsizing of the COVID-19 infections at a
relevant time, the decision to cancel the tender would also fit within
"changes in the scope of procurement". Further, as the appellant
was acting as a procuring agency on behalf of the State, the State
having directed to cancel the procurement and having not released
the budget, the cancellation would be justified as a "failure of
anticipated financial resource".
18. In Tata Motors Limited Vs. The Brihan Mumbai Electric
Supply & Transport Undertaking (Best) and Others (Civil
Appeal No.3897 of 2023), the Hon'ble Supreme Court examined
the scope of interference by the Court in tender disputes in the
exercise of jurisdiction under Article 226 of the Constitution. It is
held that interference is only when there is arbitrariness,
irrationality, mala fides and bias. It is also held that the Court must
exercise its discretionary powers under Article 226 of the
Constitution with great caution and should exercise it only in
furtherance of public interest and not merely on making out of a
legal point. The Court should always consider the larger public
interest when deciding whether its intervention is called for or not.
Only when it comes to a conclusion that overwhelming public
interest requires interference, the Court should interfere. The
power of judicial review will not be invoked to protect private
interest at the cost of public interest or to decide contractual
disputes.
19. If the fact situation in the case on hand is tested with the aid
of tools as held by the Hon'ble Supreme Court, the action of
cancellation of tender cannot be held to be arbitrary, irrational,
mala fide or bias. There are no weighty reasons to consider the
private interest that will prevail over the public interest. The Court
is justified in holding as above for the following,
(i) X-ray Machines were required to be compatible with
the ventilators procured to treat COVID-19 patients,
whereas, the notified X-ray Machines were not
compatible.
(ii) The appellant is procuring agency on behalf of the
State. Once State cancels the procurement order, the
cancellation is beyond the control or decision of the
appellant.
(iii) The respondent No.1 has not challenged the order of
cancellation of procurement by the State. Performance
by the appellant is impossible and not bias.
(iv) The cancellation is due to the irregularities found in the
tender process.
(v) The terms and conditions of the tendered document
enable tender cancellation without assigning any
reasons.
(vi) The cancellation is as per Section 14 of Act of 1999.
(vii) The conditions of the Notification of Award and the
Agreement would require supply on issue of supply
order. The agreed terms are silent on the requirement
of the availability of X-ray Machines with respondent
No.1 prior to the issue of the supply order.
20. In view of the above, it is to be held that the cancellation of
tender is justified under Section 14 of the Act of 1999.
21. Another argument canvassed by the learned advocate for the
appellant is regarding the loss suffered due to the cancellation of
the Notification of Award. The exercise to determine the loss
suffered and compensation to be awarded is not an exercise to be
undertaken under Article 226 of the Constitution. The process of
determination of loss involves the recording of evidence. The
competent civil Court can undertake the exercise in appropriate
proceedings. In that view, reliance on the documents consisting of
stock register, supply orders is of no relevance to examine.
22. The judgments in Object Technologies A Registered
Partnership Firm Vs. State of Karnataka and Others (Supra)
and M/s. Sainath Security Force & Man Power Service Vs. The
State of Karnataka and others (Supra) deals with cancellation of
the tender. In the case on hand, the tender cancellation is not
under challenge. The relied judgments are of no assistance to
respondent No.1.
23. Learned Single Judge by referring to the price negotiation,
Notification of Award, deposit of performance security and the
agreement entered, concluded that contract for supply of X-ray
Machines was finalized and right accrued in favour of respondent
No.1. It is further recorded that corruption allegations being
reasons to cancel the tender is without any substance. It is further
held that once the award is notified and contract is executed, the
tender is concluded which cannot be cancelled. Learned Single
Judge has further held that Rule 14 of the Karnataka Transparency
in Public Procurement Rules, 2000 empowers tender inviting
authority to make changes upto the stage of Notification of the
award and it is statutorily impermissible to withdraw after the award
is notified and agreement is entered.
24. The above finding of learned Single Judge is contrary to the
conditions of the tender. In the facts of the case and in view of the
conditions incorporated in the Notification, mere issuance of
Notification will not create any right to supply Machines unless
supply order is issued. The above aspect can be noticed from the
Notification of Award. Neither the tender conditions nor the
conditions in Notification of Award would require respondent No.1
to procure X-ray Machines before issue of supply order. Learned
Single Judge has not noticed the purpose and the timely
requirement of X-ray Machines. When the X-ray Machines
tendered were not compatible with the ventilators to treat COVID-
19 patients, compelling the appellant to issue supply order is
unsustainable. The direction to issue supply order cannot be
sustained for another reason that the purpose of tender is to
procure X-ray Machines to treat COVID-19 patients, which purpose
would not be served at present.
25. For the reasons stated above, the appeal succeeds. The
order of the learned Single Judge in Writ Petition No.17634 of 2022
dated 25.01.2023 is hereby set aside. Respondent No.1 is at
liberty to initiate appropriate proceedings before the competent
forum claiming damages, which shall be on its own merits.
In view of disposal of main appeal, pending interlocutory
application, if any, stands disposed of as not surviving.
26. The contempt petition in CCC No.266 of 2013 is complaining
disobedience and non-compliance to the order dated 25.01.2023 in
W.P.No.17634 of 2022. Writ Appeal No.361 of 2023 is assailing
the order in the writ petition. The order of learned Single Judge
dated 25.01.2023 is set aside in the writ appeal. In that view of the
matter, contempt petition does not survive for consideration.
Accordingly, disposed of.
Sd/-
(N. V. ANJARIA)
CHIEF JUSTICE
Sd/-
(K. V. ARAVIND)
JUDGE
VBS
