Tender; Seth Industrial Corporation Vs. State [Rajasthan High Court, 07-10-2016]

Tender – Cancellation of – the earlier tender was cancelled by the respondents and a new tender has been issued, wherein condition regarding turnover is different from the condition of turnover of the earlier tender. It is not the case, where the respondents have changed the condition of turnover during the tender process or the terms and conditions of the tender document are not clear. In such circumstances, no case for interference is made out in this writ petition and the same is hereby dismissed.

# Tender


IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR

CIVIL WRIT (CW) No. 9992 of 2016

PETITIONER: Seth Industrial Corporation, 80-A, Industrial Estate, Ludhiana – 141 003 (Punjab) through Rajneesh Sehgal, Dy. General Manager (Sales & Marketing) VERSUS RESPONDENTS 1. State of Rajasthan through Secretary Secondary Education, Jaipur. 2. Directorate, Secondary Education, Government of Rajasthan, Lalgarh Palace, Bikaner, Rajasthan. Date of Order : 7th October 2016 HON’BLE MR. VIJAY BISHNOI,J. MR VIKAS BALIA ] MR VARUN SINGHVI, ] for petitioner MR S.S. LADRECHA -AAG assisted by Mr. VIKAS CHOUDHARY, for the State

ORDER

This writ petition has been filed by the petitioner-partnership firm while claiming followingreliefs:

“i issue a writ, order or direction in the nature of prohibition restraining the Respondent from in any manner whatsoever proceeding with the tender process pursuant to the Tender Document dated 12.08.2016; (Annex-1). “ii issue a writ, order or direction in the nature of certiorari quashing the eligibility criteria for turnover prescribed in the Tender Document dated 12.08.2016 at Section V, Serial Number 2 insofar as it requires a bidder to have an net sales turnover of Rupees 200 crores in each of the last three financial years; and “iii issue any other writ, order or direction that this Hon’ble Court may deem fit to grant in the interests of justice, equity and good conscience.”

Brief facts of the case are that respondent No.2-Directorate, Secondary Education, Government of Rajasthan issued Tender Document dated 08.06.2016 (Annexure-P/2) on 17.06.2016 for procurement of approximate three lac complete ladies cycles. The petitioner along with other bidders submitted its tender document. Later on, the respondent NO.2 cancelled the Tender (Annexure- P/2) and intimated the same to the participating bidders by way of e-mail dated 10.08.2016. Immediately thereafter on 12.08.2016, the respondent No.2 issued a fresh Tender (Annexure- P/1).

The main grievance raised by the petitioner in this writ petition is regarding the crierion of turnover for the bidders provided in the Tender Document dated 12.08.2016 (Annexure-P/1).

It is contended by the petitioner that in the Tender Document dated 08.06.2016 (Annexure- P/2), the criterion regarding the turnover was that “tender should have a turnover of Rs.200,00 Crores in each year of last three Financial year (2013-14, 2014-15 and 2015-16)”. However, in the Tender Document dated 12.08.2016 (Annexure-P/1), the criterion has been changed and it would be “net sales turnover of Rs.200.00 Crores in each year of last three Financial year”.

The petitioner has claimed in the writ petition that the said criterion of turnover in the Tender Document dated 12.08.2016 (Annexure-P/1) is introduced only with intention to exclude the petitioner from participating in bidding. It is also contended that respondent No.2 has now inserted and restrictive condition in the eligibility criteria that effectively restrains and curtails participation of interested bidders who are otherwise eligible in terms of capacity and competence to supply the tendered quantity of bicycles.

It is also contended that the condition of having sales turnover of Rupees 200 Crores in each of the last three financial year is extremely harsh and disproportionate and on account of such stringent disproportionate and arbitrary eligibility criterion, number of interested bidders are being excluded and only selected few bidders will be eligible to place their bids before the respondent.

It is further contended that there is no reason or justification for fixing the criterion of net sales turnover of Rs. 200 crores in each of the last three financial year and the actions of the respondent suffer from complete non-application of mind and are not guided by any reason or rationale.

It is also contended by the petitioner that it has successfully supplied bicycles to the respondents in past on various occasions and successfully bidding for supplies of bicycles to the respondents for the past several years and supplied almost five lac bicycles to the respondents in pursuance of three work orders.

Reply to the writ petition has been filed by the respondents, wherein it is contended that the project of providing cycles to the girls is an ambitious project in State of Rajasthan in furtherance of their objective of encouraging education amongst the girls. It is further contended in the reply that it is important to ensure timely supply of three lac cycles to the girls and in view of that the respondents have decided that such manufacturers having net sales turnover of Rs.200 crores and more are fit for timely supply of such huge number of cycles. It is contended by the learned counsel for the respondents that as a matter of policy, the respondents have decided to introduce the criterion that a tenderer should have net sales of turnover of Rs. 200 crores in each of the last three financial years and the said policy decision of the State is in the interest of public at large and, therefore, is not liable to be interfered with by the Court while exercising powers underArticle 226 of the Constitution of India.

The allegations of malafides, bias and discrimination are denied by the respondents. It has also been contended that in the earlier years, the petitioner was awarded work orders for supplying bicycles but it failed to supply the same within stipulated time and on account of that it was saddled with heavy penalties. It is also contended that the petitioner came out with a case that terms and conditions of the Tender Document (Annexure-P/1) are not suitable to it and this fact itself shows that the purpose of filing this writ petition is this that the tender should be awarded to it.

Rejoinder to the reply has been filed on behalf of the petitioner, wherein essentially it is alleged that new criterion of turnover in the Tender Document (Annexure-P/1) is introduced only with intention to oust the petitioner from the tender process.

Learned counsel for the petitioner has argued that as per the provisions of section 4 of the Rajasthan Transparency in Public Procurement Act, 2012 (for short ‘the Act of 2012’ hereinafter), the procuring entity shall have the responsibility and accountability to provide fair and equitable treatment to bidders and to promote competition, however, with the introduction of the stringent condition regarding the turnover in the tender document (Annexure-P1), the respondents are not providing equitable treatment to the petitioner and are limiting the scope of competition.

It is further argued by the learned counsel for the petitioner that the respondent No.2 cancelled the earlier Tender- Annexure-P/2 without giving any justifiable reason and, therefore, the said action of the respondent No.2 of cancelling the tender is illegal. Learned counsel for the petitioner has further argued that the respondents are not permitted to provide restrictive or tailored specifications, which can discourage the competition. It is also argued that the Hon’ble Supreme Court in catena of decisions has clearly held that actions of the State should not only be fair and legitimate but should be without any bias.

Learned counsel for the petitioner while placing reliance on decisions of Hon’ble Supreme Court in

# Directorate of Education & Ors. vs. Educomp Datamatics Ltd. & Ors., (2004) 4 SCC 19

# Subhash Projects & Marketing Ltd. vs. W.B.Power Development Corpn. Ltd. & Ors., (2005) 8 SCC 438

# Reliance Energy Ltd. & Anr. vs. Maharashtra State Road Development Corpn. Ltd. & Ors., (2007) 8 SCC 1

and

# Zenit Mataplast Private Ltd. vs. State of Maharashtra & Ors., (2009) 10 SCC 388

and prayed that the reliefs claimed in the writ petition be granted to the petitioner.

Learned counsel for the petitioner has also placed reliance on decisions of Hon’ble Supreme Court in

# Chowringhee Sales Bureau (P) Ltd. vs. Commissioner of Income Tax, West Bengal, AIR 1973 SC 376

and

# Sinclair Murray & Co. P. Ltd. vs. Commissioner of Income Tax, (1974) 97 ITR 0615

to demonstrate that net sales turnover does not include all the receipts of an assessee and amount received by collection of VAT and other taxes etc. cannot be considered as a trading receipt.

The arguments of the learned counsel for the respondents are based on reply filed by it. The learned counsel for the respondents has placed reliance on decisions of Hon’ble Supreme Court in

# Laxmi Sales Corporation vs. M/s Bolangir Trading Co. & Ors., (2005) 3 SCC 157

# Jagdish Mandal vs. State of Orissa & Ors., (2007) 14 SCC 517

# Michigan Rubber (India) Ltd. Vs. State of Karnataka & Ors., (2012) 8 SCC 216

and

# Maa Binda Express Carrier & Anr. vs. Northeast Frontier Railway & Ors., (2014) 3 SCC 760

Heard learned counsels for the rival parties.

The facts, which are not in dispute, are that in the Tender Document dated 08.06.2016 (Annexure-P/2), the condition regarding the turnover is as follows:

2 Turnover The tenderer should have a Audited Balance turnover of Rs.200,00 Crores Sheets and CA in each year of last three Certificate with Financial year (2013-14, 2014- CA’s Registration 15 and 2015-16). Number/Seal

However, in the Tender Document dated 12.08.2016 (Annexure-P/1), the turnover condition is mentioned as under:

2 Turnover The bidder should have a Audited Balance Sheet, net sales turnover of P&L Trading a/c and CA Rs.200.00 Crores in each Certificate on the basis year of last three of final a/c with CA’s Financial year (2013-14, Registration Number/ 2014-15 and 2015-16) Seal

The main grievance of the petitioner is this that the condition regarding turnover as specified in Tender Document (Annexure-P/1) is unreasonable, arbitrary and discriminatory. It is contended that the condition to the effect that the bidder should have net sales turnover of Rs.200.00 Crores in each year of last three Financial year is incorporated only with intention to exclude the petitioner and other similarly situated entities.

The petitioner has also contended that the condition of having net sales turnover of Rs.200.00 Crores in each year of last three Financial year is unreasonable and irrational looking to the amount involved as the total tendered quantity of three lac bicycles would cost Rs.90 crores only.

As per own admission of the counsel for the petitioner, the net sales of the petitioner in each year of last three financial year is not Rs.200 crores and in this petition, essentially the petitioner hasquestion the action of the respondent No.2 of prescribing the pre-qualification criterion regarding turnover.

The scope of judicial review in award of contracts has been defined by the Hon’ble Supreme court in various decisions on which the reliance has been placed by the petitioner as well as the respondents. The ultimate conclusion of the decisions of the Hon’ble Supreme Court is this that the High Court can interfere in the contractual matters when the action of the tendering authority is found to be malicious, discriminatory or the process adopted or decision made is so arbitrary and irrational that the court can say, the decision is such that no responsible authority acting reasonably and in accordance with relevant law could have reached. It has also been held that where the public interest is affected, the court can also interfere in the contractual matters.

The Hon’ble Supreme Court in Directorate of Education & Ors. vs. Educomp Datamatics Ltd. & Ors. (supra) has held as under:

“9. It is well settled now that the courts can scrutinise the award of the contracts by the Government or its agencies in exercise of its powers of judicial review to prevent arbitrariness or favoritism. However, there are inherent limitations in the exercise of the power of judicial review in such matters. The point as to the extent of judicial review permissible in contractual matters while inviting bids by issuing tenders has been examined in depth by this Court in

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

After examining the entire case-law the following principles have been deduced. (SCC pp.687-88, para 94)

“94. The principles deducible from the above are:

(1) The modern trend points to judicial restraint in administrative action. (2) The court does not sit as a court of appeal but merely reviews the manner in which the decision was made.

(3) The court does not have the expertise to correct the administrative decision. If a review of the administrative decision is permitted it will be substituting its own decision, without the necessary expertise which itself may be fallible.

(4) The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract. Normally speaking, the decision to accept the tender or award the contract is reached by process of negotiations through several tiers. More often than not, such decisions are made qualitatively by experts.

(5) The Government must have freedom of contract. In other words, a fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness (including its other facts pointed out above) but must be free from arbitrariness not affected by bias or actuated by mala fides.

(6) Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure.”

[emphasis supplied]

10. In Air India Ltd. v. Cochin International Airport Ltd., (2000) 2 SCC 617, this Court observed: (SCC p. 623, para 7)

“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.” [emphasis supplied]

11. This principle was again restated by this Court in Monarch Infrastructure (p) Ltd. v. Commr., Ulhasnagar Municipal Corpn., (2000) 5 SCC 287. It was held that the terms and conditions in the tender are prescribed by the Government bearing in mind the nature of contract and in such matters the authority calling for the tender is the best judge to prescribe the terms and conditions of the tender. It is not for the courts to say whether the conditions prescribed in the tender under consideration were better than the one prescribed in the earlier tender invitations.

12. It has clearly been held in these decisions that the terms of the invitation to tender are not open to judicial scrutiny the same being in the realm of contract. That the Government must have a free hand in setting the terms of the tender. It must have reasonable play in its joints as a necessary concomitant for an administrative body in an administrative sphere. The courts would interfere with the administrative policy decision only if it is arbitrary, discriminatory, mala fide or actuated by bias. It is entitled to pragmatic adjustments which may be called for by the particular circumstances. The courts cannot strike down the terms of the tender prescribed by the Government because it feels that some other terms in the tender would have been fair, wiser or logical. The courts can interfere only if the policy decision is arbitrary, discriminatory or mala fide.”

[Emphasis supplied]

The facts of Michigan Rubber (India) Ltd. Vs. State of Karnataka & Ors. (supra) are very nearer to the facts of the present case. In the said case, the Karnataka State Road Transport Corporation issued a tender in which pre- qualification criterion was specified, however, later on, the said pre-qualification criterion was changed. The appellant approached the High Court of Karnataka being aggrieved with the pre-qualification criterion on the ground that the same is unreasonable, arbitrary, discriminatory and oppose to public interest and has been incorporated to exclude the appellant and other similarly situated companies from the tender process.

Hon’ble Supreme Court while relying on its earlier decisions has held as under:

“19) From the above decisions, the following principles emerge:

(a) the basic requirement of Article 14 is fairness in action by the State, and non- arbitrariness in essence and substance is the heartbeat of fair play. These actions are amenable to the judicial review only to the extent that the State must act validly for a discernible reason and not whimsically for any ulterior purpose. If the State acts within the bounds of reasonableness, it would be legitimate to take into consideration the national priorities;

(b) fixation of a value of the tender is entirely within the purview of the executive and courts hardly have any role to play in this process except for striking down such action of the executive as is proved to be arbitrary or unreasonable. If the Government acts in conformity with certain healthy standards and norms such as awarding of contracts by inviting tenders, in those circumstances, the interference by Courts is very limited;

(c) In the matter of formulating conditions of a tender document and awarding a contract, greater latitude is required to be conceded to the State authorities unless the action of tendering authority is found to be malicious and a misuse of its statutory powers, interference by Courts is not warranted;

(d) Certain preconditions or qualifications for tenders have to be laid down to ensure that the contractor has the capacity and the resources to successfully execute the work; and

(e) If the State or its instrumentalities act reasonably, fairly and in public interest in awarding contract, here again, interference by Court is very restrictive since no person can claim fundamental right to carry on business with the Government.”

[Emphasis supplied]

The Hon’ble Supreme Court has further held as under:

“31) As observed earlier, the Court would not normally interfere with the policy decision and in matters challenging the award of contract by the State or public authorities. In view of the above, the appellant has failed to establish that the same was contrary to public interest and beyond the pale of discrimination or unreasonable. We are satisfied that to have the best of the equipment for the vehicles, which ply on road carrying passengers, the 2 nd respondent thought it fit that the criteria for applying for tender for procuring tyres should be at a high standard and thought it fit that only those manufacturers who satisfy the eligibility criteria should be permitted to participate in the tender. As noted in various decisions, the Government and their undertakings must have a free hand in setting terms of the tender and only if it is arbitrary, discriminatory, mala fide or actuated by bias, the Courts would interfere. The Courts cannot interfere with the terms of the tender prescribed by the Government because it feels that some other terms in the tender would have been fair, wiser or logical. In the case on hand, we have already noted that taking into account various aspects including the safety of the passengers and public interest, the CMG consisting of experienced persons, revised the tender conditions. We are satisfied that the said Committee had discussed the subject in detail and for specifying these two conditions regarding prequalification criteria and the evaluation criteria. On perusal of all the materials, we are satisfied that the impugned conditions do not, in any way, could be classified as arbitrary, discriminatory or mala fide.”
[Emphasis supplied] In the present case, the State Government has come out with the specific stand that the condition of having net sales turnover of Rs.200 crores in each year of three Financial year is incorporated on account of bitter experiences in supply of cycles in the previous years and it is decided that the firms applying, pursuant to the tender, must be having a net sales turnover of Rs.200 crores in past three financial year.

As stated earlier, the Hon’ble Supreme Court in catena of decisions has unequovocally held that the terms of invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in realm of contract. It is also held that award of a contract is essentially a commercial transaction which must be determined on the basis of consideration that are relevant to such commercial decision.

In the opinion of the court, the action of the respondents of introduction of turnover condition in the Tender Document (Annexure-P/1) which is different from turnover conditions mentioned in Tender Document (Annexure-P/2) or earlier tenders cannot be said to be without any authority.

Simply because the petitioner is not meeting the criterion of turnover as mentioned in Tender Document (Annexure-P/1), it cannot be said that the said condition is unreasonable. The petitioner cannot claim as a matter of right that the conditions of tender should always be suitable to it. The tender conditions cannot be interfered with only on the ground that the conditions of earlier tenders are suitable to the petitioner and the petitioner was a successful bidder in those tenders. As held by the Hon’ble Supreme Court in various decisions, the scope of judicial review in contractual matters is very limited and the terms and conditions of a tender are not liable to be interfered with unless the same is found to be malicious, discriminatory and against the public interest.

In the present case the petitioner has failed to make out a case of discrimination, malafides and also failed to demonstrate that the action of the respondents in introducing the turnover condition in Annexure-P/1 is against the public interest.

In Zenit Mataplast Private Ltd. vs. State of Maharashtra & Ors. (supra), the application of the appellant for allotment of land was rejected by the Maharashtra Industrial Development Corporation and the said land was allotted to some other company, then the appellant approached the Bombay High Court by way of a writ petition, however, the Bombay High Court while admitting the writ petition filed by the appellant rejected the application for interim relief, against which the appellant approached the Hon’ble Supreme Court in which the Hon’ble Supreme Court interfered with the matter and granted interim relief to the appellant. Here in this case, the petitioner has challenged the condition of turnover mentioned in the tender document and, therefore, the facts of the Zenit Mataplast Private Ltd. vs. State of Maharashtra & Ors. (supra) are quite distinguishable and have no application in the present controversy.

In Reliance Energy Ltd. & Anr. vs. Maharashtra State Road Development Corpn. Ltd. & Ors. (supra), the Hon’ble Supreme Court has interfered with the matter because bids of the appellants were illegally rejected at the time of evaluation of the bids and in that circumstance, the Hon’ble Supreme court has held that when tenders are invited, the terms and conditions must indicate with legal certainty, norms and benchmarks. This “legal certainty” is an important aspect of the rule of law. If there is vagueness or subjectivity in the said norms it may result in unequal and discriminatory treatment. It may violate doctrine of “level playing field”.

In the present case, the earlier tender (Annexure-P/2) was cancelled by the respondents and a new tender (Annexure-P/1) has been issued, wherein condition regarding turnover is different from the condition of turnover of the earlier tender. It is not the case, where the respondents have changed the condition of turnover during the tender process or the terms and conditions of the tender document are not clear.

In such circumstances, the decision rendered in Reliance Energy Ltd. & Anr. vs. Maharashtra State Road Development Corpn. Ltd. & Ors. (supra) is also of no help to the petitioner.

In Subhash Projects & Marketing Ltd. vs. W.B.Power Development Corpn. Ltd. & Ors. (supra), the High Court has given finding that contract was illegally awarded to the appellant company, however, instead of cancelling the contract awarded to the appellant – company, it has directed to pay Rs.1 crore to the company, which was aggrieved with the award of contract to the appellant – company. The Supreme Court refused to interfere in the matter and upheld the decision of High Court.

As stated earlier in this petition, the petitioner is not aggrieved with the award of contract to any other company but is only aggrieved with the condition of turnover. Hence, the decision rendered in Subhash Projects & Marketing Ltd. vs. W.B.Power Development Corpn. Ltd. & Ors. (supra) is also of no help to the petitioner.

Though in the pleadings of this petition, there is no challenge to the decision of the respondents of cancelling the tender dated 08.06.2016 (Annexure-P/2) but the learned counsel for the petitioner has orally argued that the action of the respondents of cancelling the Tender Document (Annexure-P/2) is illegal.

I have gone through the minutes of the meeting of the High Level Committee dated 08.08.2016 (Annexure-R/4), whereby the decision to cancel the Tender (Annexure-P/2) was taken wherein reasons have been recorded for cancelling the tender, therefore, it cannot be said that thedecision for cancellation of procurement process was taken without recording the reasons.

In view of the above discussions, no case for interference is made out in this writ petition and the same is hereby dismissed.

Stay petition also stands dismissed.

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