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The Extent Of Courts’ Power Of Judicial Review In Interpreting Award Of Tender And Tender Documents – Construction & Planning



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Introduction

Recently, on 18.05.2022 the Hon’ble Supreme Court
(Supreme Court) in Jai Bholenath
Construction vs. Chief Executive Officer
1
deliberated on the exercise of the Court’s Constitutional Power
in the matter of Tender and observed in the facts of the case that
the Bombay High Court’s decision2 directing to award
the tender in favour of a previously disqualified bidder would be a
flagrant violation of principles of natural justice and
fairness, in the process of determining the eligibility of the
tenderers.

The deliberations involved in the matter lead us to the
questions:

  1. the extent of courts’ power of Judicial Review while
    interpreting tender documents and tender process, and

  2. in under what circumstances can the courts exercise the
    principles of Judicial Review on the contractual powers of
    government bodies in allocating tenders, and

  3. power of courts to act as appellant authority over decisions of
    the State in awarding the tender.

In order to understand the same, the authors have discussed
certain landmark decisions of the Supreme Court in this regard, to
carve out answers for the above-posed questions.

Court rulings on the power of Judicial Review of the court in
interpreting the award of tender and tender documents

The Supreme Court in Tata Cellular vs. Union of
India
3 held that 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, there are inherent
limitations to the exercise of the power of judicial review. Since
the government is the guardian of the finance of the State, the
right to refuse the lowest or any other tender is always available
to the government
. There can also be no question of
infringement of Article 14 of the Constitution of India if the
government tries to get the best person or the best quotation for
the contract. Therefore, the right to choose cannot be considered
an arbitrary power, provided the said power is not exercised for
any collateral purpose, which would strike at the root of the
exercise of said power.

The Supreme Court further elaborated that the Court’s
concern should be whether a decision-making authority: exceeded its
powers? or committed an error of law? or breached rules of natural
justice? or reached a decision which no reasonable tribunal would
have reached? or abused its powers?4

The Supreme Court, therefore, held that the terms of the
invitation of tender cannot be open to judicial scrutiny because
the invitation to tender is in the realm of contract. The
government must have freedom of contract but be free from
arbitrariness and not affected by bias or actuated by mala
fides.
5

Further, the Supreme Court in Central Coalfields Limited
and another vs. SLL-SML (Joint Venture Consortium) and
others
6 held that if courts take over the
decision-making functions of the employer and make a distinction
between essential and non-essential terms contrary to the intention
of the employer and thereby re-writing the arrangement, it could
lead to all sorts of problems
. Hence, when there is a
condition that any bid not accompanied by an acceptable Bank
Guarantee shall be rejected by the employer as non-responsive, then
the High Court holding such a condition as non-essential has
impermissibly rewritten the condition since the same was an
ex-facie mandatory condition for the employer.

In Afcons Infrastructure Limited vs. Nagpur Metro Rail
Corporation Limited and another
7 the Supreme
Court held that the owner of the project having authored the
tender documents, is the best person to understand and appreciate
its requirements and interpret its documents, and a constitutional
court needs to appreciate the tender documents, unless there is
mala fide or perversity in the understanding of the terms of the
tender conditions
.

Thereafter, in Silppi Constructions Contractors vs.
Union of India and others
8 the Supreme Court
held that the courts should not use a magnifying glass while
scanning the tenders and make every small mistake appear like a big
blunder. Courts must realize the havoc and loss to the public
exchequer that needless interference in commercial matters can
cause.

In National High-Speed Rail Corporation Limited vs.
Montecarlo Limited
9 the Supreme Court observed
that while entertaining a writ or granting stay which ultimately
may delay the execution of the mega projects, it must be remembered
that it may seriously impede the execution of the projects of
public importance and disables the State or its agencies from
discharging the constitutional and legal obligation towards the
citizens.

The Supreme Court in Jagdish Mandal vs. State of
Orissa
10 categorically held that the
judicial review of contractual matters had its own limitations. The
court is intended to prevent arbitrariness, irrationality,
unreasonableness, bias and mala fides, and the court is not there
to check whether the choice of awarding of tender is sound or not.
Here parties are governed by principles of commercial prudence and
to that extent the principles of equity and natural justice have to
stay at a distance.

Further, in Uflex Limited vs. Government of Tamil
Nadu
11 the Supreme Court held that in
commercial tender matters there is obviously an aspect of
commercial competitiveness, as for every succeeding party who gets
a tender there may be a couple or more parties who are not awarded
the tender as there can be only one L-1. Therefore, the objective
is not to make the court an appellate authority for scrutinizing to
whom tender should be awarded.

Thereafter, in Galaxy Transport Agencies vs. New J.K.
Roadways
12 the Supreme Court held that if
the decision related to the award of the contract by tender is bona
fide and in the public interest, then the courts will not exercise
the power of judicial review would interfere, even if a procedural
aberration or error in assessment or prejudice to a tenderer is
made out. As the power of judicial review cannot protect private
interest at the cost of public interest
.

Further, recently on 21.03.2022 the Supreme Court in the case of
M/S. N.G. Projects Limited vs. M/S. Vinod Kumar Jain and
others
13 observed that, the satisfaction
whether a bidder satisfies the tender condition is primarily upon
the authority inviting the bids.
The Supreme Court further
observed that when it is not the case of the writ petitioner, whose
bid was not accepted by the tender authority, that action of the
tender authority was actuated by extraneous considerations or was
malafide, then, only because the view of the tender authority was
not to the liking of the writ petitioner, such decision does not
warrant a court for interference in a grant of the contract to a
successful bidder.

The Supreme Court stated that the writ court should refrain
itself from imposing its decision over the decision of the employer
as to whether or not to accept the bid of a tenderer. Since the
court does not have the expertise to examine the terms and
conditions of the present-day economic activities of the State, and
therefore should be even more reluctant in interfering with
contracts involving technical issues as there is a requirement of
the necessary expertise to adjudicate upon such
issues.14

Even if the court finds that there is total arbitrariness or
that the tender has been granted in a malafide manner, still the
court should refrain from interfering in the grant of tender but
instead relegate the parties to seek damages for the wrongful
exclusion rather than to injunct the execution of the contract. As
the injunction of tender leads to additional costs on the State and
is also against public interest.15

Bombay High Court misreading the law

Bombay High Court in the case of Jai Bholenath
Construction vs. The Chief Executive Officer and
others
16 granted ad-interim relief and stayed
the tender authority from issuing the work order to any party.

The issue, which was framed before the Bombay High Court, was,
that Jai Bholenath Constructions, the lowest bidder, did not
receive the tender, and the tender was subsequently issued to M/s.
L.D. Constructions, whose bid was not opened and was declared as
ineligible for non-compliance of documents by the tender
authority.

However, thereafter, behind the back of the other tenderers, the
tender authority opened the bid of M/s. L.D. Constructions, 78 days
after the bids of other tenderers were opened and their rates were
exposed. It was the case of the tender authority and M/s. L.D.
Constructions, that due to human error the documents already
submitted by M/s. L.D. Constructions were overlooked. Hence, the
tender issued to Jai Bholenath Constructions was revoked, and a
corrigendum dated 24.11.2021 was issued by the tender authority by
which the tender was issued to M/s. L.D. Constructions being the
lowest bidder.

The Bombay High Court at first granted ad-interim relief and
stayed the tender authority from issuing the work order to any
party, vide order dated 15.12.2021. However, vide its final order
dated 30.04.2022, the Bombay High Court dismissed the petition of
Jai Bholenath Constructions, while relying on the decision of the
Supreme Court in M/S. N.G. Projects Limited vs. M/S. Vinod
Kumar Jain and others
17 .

In this regard, when the matter reached before the Supreme
Court, the Supreme Court in Jai Bholenath Construction vs.
Chief Executive Officer
18 after hearing both
the parties and facts of the case, vide its order dated 18.05.2022
observed that the Bombay High Court has totally misread the
judgment in the case of M/S. N.G. Projects Limited vs. M/S.
Vinod Kumar Jain and others
19. The Supreme
Court held that declaring M/s. L.D. Constructions as eligible
bidders is a flagrant violation of principles of natural justice
and all fairness in the process of determining the eligibility of
the tenderers. The Supreme Court observed that the bid of the
M/s. L.D. Constructions was accepted despite the fact that at the
time of opening of the technical bids, the same was disqualified.
Therefore, the manner in which the bid has been accepted shows the
arbitrary exercise of the power of the tender authority
.
Hence, the Supreme Court set aside the order of the Bombay High
Court and directed the tender authority to process the matter
further from the stage prior to the issuance of the corrigendum
dated 24.11.2021.

Conclusion

The Supreme Court while dealing with issues arising out of the
award of tender or tender documents, has kept a very clear approach
of not interfering in the tender jurisdiction of the government
bodies or tendering authorities, unless the court senses any
disregard of principles of natural justice or presence of any
arbitrariness or malafide process.

As, the judicial review of the award of tender or tender
documents comes with its own sets of limitations, considering the
fact that a contract is a commercial transaction, evaluating the
tenders would also be a commercial function. In this regard, the
author of the tender documents, that is the tender authority,
therefore has been given leverage by the courts, being the best
person to understand its requirements. Hence, a mere disagreement
with the decision-making process of the tender authority is not a
reason for a constitutional court to interfere with the same.

Footnotes

1 Jai Bholenath Construction vs. The Chief Executive
Officer, Zilla Parishad, Nanded and others, Civil Appeal No. 4140
of 2022, dated 18.05.2022.

2 Jai Bholenath Construction vs. The Chief Executive
Officer and others, W.P. No. 14156 of 2021, dated
30.03.2022.

3 Tata Cellular vs. Union of India, (1994) 6 SCC
651.

4 Tata Cellular vs. Union of India, (1994) 6 SCC
651.

5 Tata Cellular vs. Union of India, (1994) 6 SCC
651.

6 Central Coalfields Limited and another vs. SLL-SML
(Joint Venture Consortium) and others, (2016) 8 SCC
622.

7 Afcons Infrastructure Limited vs. Nagpur Metro Rail
Corporation Limited and another, (2016) 16 SCC 818.

8 Silppi Constructions Contractors vs. Union of India and
others, 2019 SCC OnLine SC 1133.

9 National High-Speed Rail Corporation Limited vs.
Montecarlo Limited, 2022 SCC OnLine SC 111.

10 Jagdish Mandal vs. The State of Orissa, (2007) 14 SCC
517.

11 Uflex Limited vs. Government of Tamil Nadu, (2022) 1
SCC 165.

12 Galaxy Transport Agencies vs. New J.K. Roadways, 2020
SCC OnLine SC 1035.

13 M/S. N.G. Projects Limited vs. M/S. Vinod Kumar Jain
and others, Civil Appeal No. 1846 of 2022.

14 M/S. N.G. Projects Limited vs. M/S. Vinod Kumar Jain
and others, Civil Appeal No. 1846 of 2022.

15 M/S. N.G. Projects Limited vs. M/S. Vinod Kumar Jain
and others, Civil Appeal No. 1846 of 2022.

16 Jai Bholenath Construction vs. The Chief Executive
Officer and others, Writ Petition No. 14156 of 2021.

17 M/S. N.G. Projects Limited vs. M/S. Vinod Kumar Jain
and others, Civil Appeal No. 1846 of 2022.

18 Jai Bholenath Construction vs. The Chief Executive
Officer, Zilla Parishad, Nanded and others, Civil Appeal No. 4140
of 2022, dated 18.05.2022.

19 M/S. N.G. Projects Limited vs. M/S. Vinod Kumar Jain
and others, Civil Appeal No. 1846 of 2022.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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