WPMS/3816/2019
2021 Latest Caselaw 2628 UK

IN THE HIGH COURT OF UTTARAKHAND
           AT NAINITAL
            ON THE 27THDAY OF JULY, 2021
                             BEFORE:
     HON'BLE SHRI JUSTICE MANOJ KUMAR TIWARI
       Writ Petition (M/S) No. 3816 of 2019


BETWEEN:
Kanwaljeet Singh Batra                        ...Petitioner
      (By Mr. Anil Kumar Joshi, Advocate)



AND:
Uttarakhand State Warehousing
Corporation &another                          ...Respondents

      (By Mr. ParikshitSaini, Advocate)


                           JUDGMENT

1. The sole question, that falls for consideration, in the present writ petition, is whether a Statutory Corporation, created under a Central Legislation, namely, the Warehousing Corporation Act, 1962, can put a condition in its tender notice which renders persons residing in other States, ineligible for submitting bids? In other words, whether under our Constitutional Scheme, such classification based on place of residence for entering into contract with a Statutory Corporation,would be permissible?

2. The facts, on which there is no dispute,are that petitioner is a resident of District Saharanpur in State of Uttar Pradesh, who deals in handling and transport of food-grains and other articles. He is also a registered contractor with

Uttarakhand State Warehousing Corporation (from hereinafter referred to as "Corporation"). The said Corporation has been established in the year 2016 under the provisions of the Warehousing Corporation Act, 1962. Itissued ae-tender notice on 02.12.2019, whereby bids were invited for appointment of registered contractors for handling &transportation of food-grains/fertilizers and other allied material, as stored by F.C.I., R.F.C. and other agencies at its different warehouses. The said e- tender document is enclosed as Annexure - 1 to the writ petition. It also contains a list of documents which are required to be uploaded by each bidder with his Technical Bid.

3. Petitioner is aggrieved by Clause 19 & 21 of the list of documents, as contained in the e- tender document. According to the petitioner, the conditions mentioned in Clause 19 & 21 have the effect of altogether ousting him from the zone of consideration. Those conditions are extracted below:-

"19. Copy of Residence certificate issued by Sub District Magistrate/Tahsildar in uk government only.

21. The registered contractors in UKSWC who belongs to uttarakhand state will only participate in the tenders having Estimated value of less than 5 crores. The tenders having Estimated value of more than 5 cores will be participated to all registered contractors of UKSWC."

4. Petitioner has challenged the aforesaid two conditions in the e-tender notice, as being arbitrary and illegal. It is the contention of learned counsel for the petitioner that Uttarakhand State Warehousing Corporation, being 'State' within the

meaning of Article 12 of the Constitution of India, cannot put such arbitrary condition, which renders residents of other States ineligible for submitting their bids. He further submits that such condition violates fundamental rights of the petitioner.

5. Learned counsel for the Corporation however submits that the aforesaid conditions were inserted in the e-tender notice on the strength of decision taken by Board of Directors of the Corporation in its meeting held on 12.08.2019. Minutes of the said meeting are on record as Annexure No. 5 to the writ petition.

6. In the said meeting, Board of Directors resolved that, for award of contract for civil construction work as well as for handling/transportation services, persons who are permanent residents of Uttarakhand alone shall be eligible. The said decision refers to an amendment in Uttarakhand Procurement Rules, 2017 made vide notification dated 02.04.2018.

7. Learned counsel for the petitioner submits that by the said amendment in the Uttarakhand Procurement Rules, 2017, a proviso was addedin Rule 3 (6),which provides that civil construction work under State sector by different government agencies upto the value` 5 Crore, can be done through permanent residents/locally registered firms.

8. Rule 3(6) of the Uttarakhand Procurement Rules,before its Amendment, reads as under:-

**3¼6½ lHkh 'krsZalekugksusijlkekU;r% U;wurenjokyhfufonkLohdkj dh tk;svU;Fkkmudkj.kksadksloZFkkvfHkfyf[krfd;ktk;sftudsdkj.kU;wur enjokyhfufonkvLohd`r dh xbZgSA**

9. Rule 3(6) of the aforesaid Rules, after its amendment vide notification dated 02.04.2018, reads as under:-

**3¼6½ lHkh '[email protected],alekugksusijU;wurenjokyhfufonkLohdkj dh tk;svU;Fkk mu dkj.kksadksvfHkfyf[krfd;ktk;sftudsdkj.kU;wurenjokyhfufonkvLoh d`r dh xbZgSA**

ijUrqjkT; lSDVj ds vUrxZrizns'k ds HkhrjfofHkUufoHkkxksa }kjkdjk;stkjgs :0 5-00 djksM+ rd ds fuekZ.kdk;Z] vU; '[email protected] vgZrkvksa ds iw.kZgksus dh n'kkesaLFkk;hO;fDr;[email protected]; iathd`rQeksZa ds ek/;e lslEikfnrfd, tkldrsgSaA**

10. A careful reading of Rule 3(6) before and after amendment indicates that besides adding proviso, the main provision was also amended vide notification dated 02.04.2018.The pre-amendment Rule 3(6) provides that other things being equal, ordinarily, the bid with lowest rates shall be accepted, failing which all the reasons will have to be recorded due to which lowest bid was rejected. However, by the amendment the expression 'lkekU;r%' which means 'ordinarily' and the expression 'loZFkk' which means 'all', have been deleted from Rule 3(6). By the amendment, a proviso has also been added in Rule 3(6), which permits execution of civil construction works by Government Departments under State sector up to the value of` 5 Crore by permanent residents/locally registered firms provided they fulfil other conditions of eligibility.

11. From perusal of the proviso to Rule 3(6), as added by the amendment made in the year 2018, it is apparent that it applies only to (a) civil

construction works& (b) upto the value of ` 5 Crores. Furthermore, the said proviso only enables the government departments to get civil construction project executed through permanent residents/locally registered firms and it does not debar residents of other States from participating in the bidding process.

12. The Board of Directors of the respondent- Corporation, however, has misread the proviso to Rule 3(6) for taking a decision to forbid residents of other States from participating in tender process, irrespective of the valuation of work. Although, the proviso to Rule 3(6) deals with civil construction work alone, however, the Board of Directors has imposed a ban on residents of other States even in respect of contracts for handling and transport services.

13. The decision taken by the Board of Directors of the Corporation in its meeting held on 12.08.2019, although refers to amendment made in Rule 3(6) of the Uttarakhand Procurement Rules for depriving residents of other States from participating for the bidding process in respect of all contracts to be awarded by the Corporation, however, Rule 3(6) does not forbid residents of other States from participating in the bidding process. Even otherwise also, proviso to Rule 3(6) is applicable only to civil construction works, that too upto the value of ` 5 Crores; whereas, the decision taken by the Board of Directors has an effect of depriving residents of other States from participating in the bidding process, irrespective of

the value of contract. In such view of the matter, the impugned decision taken by the Board of Directors is not protected by Rule 3(6) of the Uttarakhand Procurement Rules.

14. Mr.ParikshitSaini, learned counsel appearing for the Corporation submits that, in contractual matters, the employer is free to determine the qualification, eligibility condition etc. of bidders and the decision of the employer in these matters is not amenable to judicial review.

15. Bids are invited for award of contract to ensure that, due to competition amongst persons desirous of getting contract, the goods or services are procured at the lowest price. A Government Corporation engaged in commercial activity also follows the same principles which are followed by a private individual/company for maximizing its savings by cutting costs. Thus, the trend today is towards national or international bidding. However, if the bid is restricted to residents of a particular locality while awarding contract for handling/transportation services, the very purpose of holding tender process is lost. Thus, the restriction imposed by the respondent-Corporation by inserting the impugned conditions militates against the guiding principle contained in Rule 3(6) of the Uttarakhand Procurement Rules, which provides that bids with lowest rates shall be accepted.

16. The submission made by Mr. ParikshitSaini, Advocate appears to be attractive in

the first blush, however, upon deeper scrutiny, this Court finds no substance in the said submission.No doubt, the employer is free to lay down the conditions regarding financial capacity, work experience, past performance etc. of a bidder to ensure that upon award of contract, the bidder is able to complete the work/provide services to the satisfaction of the employer. However, the conditions, which can be imposed, should have some nexus with the object sought to be achieved. In the present case, there does not appear to be any nexus with theobject and the conditions, which have been imposed, appear to be actuated by parochial considerations.

17. Under our Constitutional Scheme, India is a Union of States. Our Constitution provides for single citizenship and single domicile. Article 14 of our Constitution grants 'equality before law' to all citizens and mandates that 'State shall not deny to any person equality before the law or equal protection of laws within the territory of India'. Articles 15 & 16 of the Constitution are extension of equality clause contained in Article 14. Article 19(1)

(d) guarantees right to move freely throughout the territory of India to all citizens; Article 19(1) (e) guarantees right to reside and settle in any part of the territory of India; and Article 19(1) (g) guarantees the right to practice any profession or to carry on any occupation, trade or business to all citizens. The aforesaid rights guaranteed under Article 19, however, are subject to such reasonable restrictions, which the State may by law impose.

18. The restrictions imposed by the impugned conditions cannot be said to be reasonable. Moreover, the impugned restrictions are not backed by any legislation, State or Central.

19. Since our Constitution guarantees equality to all citizens, therefore, any invidious discrimination made by the State or a Statutory Corporation based on place of birth or place of residence, would be abhorrent to the spirit of Indian Constitution. Our Constitution recognizes single domicile and single citizenship, therefore, discrimination amongst citizens based on place of residence will fall foul of Indian Constitution. A citizen remains a citizen, whichever State he resides in and the parochial tendency to discriminate citizens, based on their place of residence, cannot be upheld or else such tendency will damage the concept of federalism, which has been held to be basic structure of our Constitution.

20. The scope and parameters of judicial review of tender condition has been dealt with by Hon'ble Supreme Court in various authoritative judicial pronouncements, some of which are discussed hereinafter.

21. In the case of Tata Cellular Vs Union of India reported in 1994 (6) SCC 651, Hon'ble Supreme Court has held as under:-

"70. It cannot be denied that the principles of judicial review would apply to the exercise of contractual powers by Government bodies in order to prevent arbitrariness or favoritism.

However, it must be clearly stated that there are inherent limitations in exercise of that power of judicial review. Government is the guardian of

the finances of the State. It is expected to protect the financial interest of the State. The right to refuse the lowest or any other tender is always available to the Government. But, the principles laid down in Article 14 of the Constitution have to be kept in view while accepting or refusing a tender. There can be no question of infringement of Article 14 if the Government tries to get the best person or the best quotation. The right to choose cannot be considered to be an arbitrary power. Of course, if the said power is exercised for any collateral purpose the exercise of that power will be struck down.

81. Two other facets of irrationality may be mentioned.

(1) It is open to the court to review the decision- maker's evaluation of the facts. The court will intervene where the facts taken as a whole could not logically warrant the conclusion of the decision-maker. If the weight of facts pointing to one course of action is overwhelming, then a decision the other way, cannot be upheld. Thus, in Emma Hotels Ltd. v. Secretary of State for Environment, the Secretary of State referred to a number of factors which led him to the conclusion that a non-resident's bar in a hotel was operated in such a way that the bar was not an incident of the hotel use for planning purposes, but constituted a separate use. The Divisional Court analysed the factors which led the Secretary of State to that conclusion and, having done so, set it aside. Donaldson, L.J. said that he could not see on what basis the Secretary of State had reached his conclusion.

(2) A decision would be regarded as unreasonable if it is impartial and unequal in its operation as between different classes. On this basis in R. v. Bernet London Borough Council, ex p Johnson the condition imposed by a local authority prohibiting participation by those affiliated with political parties at events to be held in the authority's parks was struck down.

93. In Union of India v. Hindustan Development Corpn. this Court held thus : (SCC p. 515, para

9)

"... the Government had the right to either accept or reject the lowest offer but that of course, if done on a policy, should be on some rational and reasonable grounds. In Erusian Equipment & Chemicals Ltd. v. State of W.B.9 this Court observed as under: (SCC p. 75, para17)

'When the Government is trading with the public, "the democratic form of Government demands equality and absence of arbitrariness and discrimination in such transactions". The activities of the Government have a public element and, therefore, there should be fairness and equality. The State need not enter into any contract with anyone, but if it does so, it must do so fairly without discrimination and without unfair procedure."

22. Hon'ble Supreme Court in the case of Monarch Infrastructure (P) Ltd. Vs Commissioner Ulhasnagar reported in 2000 (5) SCC 287 has held as under:-

"10. There have been several decisions rendered by this Court on the question of tender process, the award of contract and evolved several principles in regard to the same. Ultimately what prevails with the courts in these matters is that while public interest is paramount there should be no arbitrariness in the matter of award of contract and all participants in the tender process should be treated alike. We may sum up the legal position thus:

(i) The Government is free to enter into any contract with citizens but the court may interfere where it acts arbitrarily or contrary to public interest;

(ii) The Government cannot arbitrarily choose any person it likes for entering into such a relationship or to discriminate between persons similarly situate:

(iii) It is open to the Government to reject even the highest bid at a tender where such rejection is not arbitrary or unreasonable or such rejection is in public interest for valid and good reasons.

11. Broadly stated, the courts would not interfere with the matter of administrative action or changes made therein unless the Government's action is arbitrary or discriminatory or the policy adopted has no nexus with the object it seeks to achieve or is mala fide."

23. Similarly, Hon'ble Supreme Court in the case of Siemens Public Communication Network Vs Union of India & others reported in 2008 (16) SCC 215 has held as under:-

"26. In JagdishMandal Vs. State of Orissa, the scope of limited power of judicial review in tender and award of contracts was also lucidly stated in paragraph 19 as follows:- (SCC pp.531, para 22)

"22. Judicial review of administrative action is intended to prevent arbitrariness, irrationality, unreasonableness, bias and malafides. Its purpose is to check whether choice or decision is made 'lawfully' and not to check whether choice or decision is 'sound'. When the power of judicial review is invoked in matters relating to tenders or award of contracts, certain special features should be borne in mind. A contract is a commercial transaction.

Evaluating tenders and awarding contracts are essentially commercial functions. Principles of equity and natural justice stay at a distance. If the decision relating to award of contract is bona fide and is in public interest, courts will not, in exercise of power of judicial review will not be permitted to be invoked to protect private interest at the cost of public interest, or to decide contractual disputes. The tenderer or contractor with a grievance can always seek damages in a civil court.Attempts by unsuccessful tenderers with imaginary grievances, wounded pride and business rivalry, to make mountains out of molehills of some technical/procedural violation or some prejudice to self, and persuade courts to interfere by exercising power of judicial review, should be resisted. Such interferences, either interim or final, may hold up public works for years, or delay relief and succour to thousands and millions and may increase the project cost manifold. Therefore, a court before interfering in tender or contractual matters in exercise of power of judicial review, should pose to itself the following questions:

(i) Whether the process adopted or decision made by the authority is mala fide or intended to favour someone.

OR

Whether the process adopted ordecision made is so arbitrary and irrational that the Court can say: 'the decision is such that no responsible authority acting reasonable and in accordance with relevant law could have reached.'

(ii) Whether public interest is affected. If the answers are in the negative, there should be no interference under Article 226. Cases involving black-listing or imposition of penal consequences on a tenderer/contractor or distribution of state largesse (allotment of sites/shops, grant of licences, dealerships and franchises) stand on a different footing as they may require a higher degree of fairness in action.""

24. Similarly, Hon'ble Supreme Court in the case of Rasbihari Panda Vs State of Orissa reported in 1969 (1) SCC 414 has held as under:

"17. Validity of the schemes adopted by the Government of Orissa for sale of Kendu leaves must be adjudged in the light of Article 19(1)(g) and Article 14. Instead of inviting tenders the Government offered to certain old contractors the option to purchase Kendu leaves for the year 1968 on terms mentioned therein. The reason suggested by the, Government that these offers were made because the purchasers had carried out their obligations in the previous year to the satisfaction of the Government is not of any significance. From the affidavit filed by the State Government it appears that the price fetched at public auctions before and after January, 1968, were much higher than the prices at which Kendu leaves were offered to the old contractors. The Government realised that the scheme of offering to enter into contracts with the old licensees and to renew their terms was open to grave objection, since it sought, arbitrarily to exclude many persons interested in the trade. The Government then decided to invite offers for advance purchases of Kendu leaves but restricted the invitation to those individuals who had carried out the

contracts in the previous year without default and to the satisfaction of the Government. By the new scheme instead of the Government making an offer, the existing contractors were given the exclusive right to make offers to purchase Kendu leaves. But inso far as the right to make tenders for the purchase of Kendu leaves was restricted to those persons who had obtained contracts in the previous year. the scheme was open to the game objection. The right to make offers being open to a limited class of persons it effectively shut out all other persons carrying on trade in Kendu leaves and also new entrants into that business. It was ex facie discriminatory, and imposed unreasonable restrictions upon the right of persons other than existing contractors to carry on business. In our view, both the schemes evolved by the Government were violative of the fundamental right of the petitioners under Article 19(1)(g) and Article 14because the schemes gave rise to a monopoly in the trade in Kendu leaves to certain traders, and singled out other traders for discriminatory treatment."

25. Mr.ParikshitSaini, learned counsel appearing for the Corporation has placed reliance upon the judgment rendered byHon'ble Supreme Court in the case of G.B. Mahajan& others VsJalgaon Municipal Council & others reported in 1991 (3) SCC 91and Air India Vs Cochin International Airport & others reported in 2000 (2) SCC 617. He also relied upon the judgment rendered by Division Bench of this Court in M/s RadicoKhaithan Ltd. Vs State of Uttaranchal & another (WPMB No. 516 of 2006 along with WPMB No. 620 of 2006) decided on 10.07.2006.

26. The judgments relied upon by Mr.PariksitSaini, learned counsel appearing for the Corporation, however, are distinguishable on facts, therefore, they are not applicable to the present case.

27. It is settled position in law that a classification is valid if it has intelligible differentia and also has a nexus with the object sought to be achieved. In the present case, petitioner is a contractor, duly registered with respondent no. 1-Corporation. Yet, he has been declared ineligible for participating in the bidding process only because he is not a permanent resident of Uttarakhand. Such classification has neither any intelligible differentia nor any nexus with the object sought to be achieved.

28. A Statutory Corporation cannot differentiate between citizens based on their place of residence. Moreover, the primary object of any Corporation, whether owned by Government or privately owned, would be to maximise savings by getting the work done at lowest rates. The said objective is lost if the field of eligibility is restricted to residents of Uttarakhand State alone.

29. Although, respondents have attempted to justify the impugned conditions by submitting that it is intended to generate employment opportunity for the local people, however, in the humble opinion of this Court, this cannot be a valid justification for restricting the field of eligibility to local people only.

30. Thus, in any view of the matter, the impugned condition inserted by respondent- Corporation in the e-tender notice falls foul of the Indian Constitution, therefore, it cannot be sustained in the eyes of law.

31. In such view of the matter, the writ petition is allowed. Condition Nos. 19 and 21 in the e-tender notice and also the impugned decision taken by Board of Directors in its meeting held on 12.08.2019 regarding agenda item number - 5 are liable to be quashed and are hereby quashed.

(MANOJ KUMAR TIWARI, J.) Aswal