REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4195 of 2012
(Arising out of S.L.P. (C) No.16175 of 2011
Tejas Constructions &
Infrastructure Pvt. Ltd. …Appellant
Versus
Municipal Council, Sendhwa & Anr. …Respondents
J U D G M E N T
T.S. THAKUR, J.
1. Leave granted.
2. This appeal arises out of an order passed by the High Court of Madhya
Pradesh at Indore whereby Writ Petition No.3427 of 2011 filed by the
appellant was dismissed and the allotment of the project work involving
design, construction and commissioning of a single integrated water supply
at Sendhwa (Madhya Pradesh) in favour of M/s P.C. Snehal Construction
Company-respondent No.2 upheld.
3. In terms of notice inviting tenders (NIT for short) Municipal Council
Sendhwa, in the State of M.P., invited tenders from eligible contractors
for the construction of an Integrated Water Supply Scheme at an estimated
cost of nearly rupees twenty crores. Clause (1) of the said NIT as amended
by addendum dated 23rd March, 2011, stipulated the following essential
conditions of eligibility for the intending bidders:
“1. Registered Contractors have to produce valid Registration
certificate in the category of S-V or equivalent in any
State/Central Government Department or Government undertaking.
a) Registered Contractors/Firms of Repute/Joint Venture firms
have to produce certificate for executing single work of
integrated water supply scheme comprising of intake well,
raw/clear water pumping main, pumps, OHTS, Distribution system
completed and running successfully at present, having value
equal to 60% of the cost of the proposed works in last 5 years.
This certificate should clearly mention amount of contract,
completion period as per Tender and actual completion period.
(In case of WPI adjustment for cost of works the same may be
furnished along with a certificate of Chartered Accountant).
The certificate shall be issued from the officer not below the
rank of Executive Engineer or equivalent.
b) Certified copy of audited balance sheet of last 5 years
showing annual turnover equal to estimated cost of the work and
average net worth equal to 40% of the cost of works.”
4. In response to the above NIT several applications were received by
respondent No.1 for purchase of the tender forms. It is common ground that
only six out of the said applicants eventually participated in the pre-bid
meeting arranged by respondent No.1. It is also not in dispute that out of
the said six bidders only four were eventually found to be eligible. These
four included the appellant-Tejas Construction & Infrastructure Pvt. Ltd.
and respondent No.2-M/s P.C. Snehal Construction Company, Ahmedabad.
5. The tender conditions, inter alia, provided that the bid documents
shall comprise three envelopes to be submitted by each of the bidders.
Envelope A was to contain the earnest money deposited, Envelope B was to
contain the technical bid including qualification documents while Envelope
C was to contain the price bid of the bidders. The process of evaluation
of the bids started on 7th April, 2011 with the opening of envelopes in the
above order. Opening of envelope A was uneventful as all the bidders had
furnished the earnest money stipulated under the terms of NIT. The
appellant’s case, however, is that when envelope B was opened a request was
made to respondent No.1 to show the technical bid received from respondent
No.2 which request was granted. The appellant’s further case is that upon
perusal of the technical bid of respondent No.2, the appellant had raised
an objection as to the eligibility of the said to participate in the bid
process on the ground that it did not have the requisite experience of
executing a single integrated water supply scheme of the requisite value.
Respondent No.2 is said to have claimed eligibility to offer a bid on the
basis of clubbing of different water supply scheme projects at Vyara and
Songadh which was impermissible according to the appellant. The appellant
also raised an objection to the effect that respondent No.2 had not
submitted certified copies of audited balance-sheets for the last five
years and that the net-worth certificate produced from a Chartered
Accountant for the financial year 2010-2011, did not according to the
appellant, satisfy the said requirement. Despite the objection raised by
the appellant, respondent No.1 considered all the bids and accepted the bid
offered by respondent No.2. The appellant appears to have approached the
concerned authorities in Gujarat and obtained a certificate to the effect
that Vyara and Songadh projects were two different projects and not a
single integrated water supply scheme and based thereon dispatched a
telegram to respondent No.1 asking for rejection of the bid offered by
respondent No.2, but to no avail.
6. Aggrieved by the allotment of work in favour of respondent No.2, the
appellant filed Writ Petition No.3427 of 2011 before the Indore Bench of
the High Court of Madhya Pradesh. The challenge to the eligibility of
respondent No.2 and eventually to the allotment of the project work to the
said respondent in the Writ Petition was confined to two distinct grounds,
namely (1) that respondent No.2 had not filed the requisite certified
balance-sheets for five years immediately preceding the issue of tender
notice and (2) that respondent No.2 did not have the requisite experience
of executing a single integrated water supply scheme of the required value.
7. The Writ Petition was opposed by the respondents who asserted in
their respective affidavits that requirement of submission of requisite
balance-sheets was substantially complied with inasmuch as certified copies
of the balance-sheets for four years had been filed but since the audit for
the fifth year i.e. 2010-2011 had not been completed, the certificate
issued by the Chartered Accountant for the said year sufficiently complied
with the said requirement. It is also asserted that respondent No.2
satisfied the requirement of having executed single integrated water supply
scheme for Upleta which included raw water transmission from intake well
and transmission of treated clear water from WTP including providing,
supplying and laying of pipelines, construction of E.S.R.s, Sumps, Pump
houses and providing and erecting pumping machinery. The certificate
issued by the Upleta Municipal Council and by the Gujarat Urban Development
Mission (GUDM) was relied upon in support of that claim. The High Court
has, by the judgment and order under challenge before us, examined both the
grounds urged in support of the writ petition and clearly come to the
conclusion that respondent No.2 was eligible to offer a bid in as much as
it had substantially complied with the requirement of filing the certified
copies of audited balance-sheets for the previous period of five years
immediately preceding the issue of tender notice and that it had the
requisite experience of executing a single integrated water supply project
of the requisite value.
8. We have heard learned counsel for the parties at considerable length.
A challenge to the award of the project work in favour of respondent No.2
involved judicial review of administrative action. The scope and the
approach to be adopted in the process of any such review, has been settled
by a long line of decisions of this Court. Reference of all such decisions
is in our opinion is unnecessary as the principle of law settled thereof
are fairly well recognised by now. We may, therefore, refer to some of the
said decisions only to recapitulate and refresh the tests applicable to
such cases and the approach which a Writ Court has to adopt while examining
the validity of an action questioned before it.
9. In Tata Cellular v. Union of India (1994) 6 SCC 651, this Court
emphasized the need to find the right balance between administrative
discretion to decide matters on the one hand and the need to remedy any
unfairness on the other and observed:
“(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.
(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 or quasi-
administrative sphere. However, the decision can be tested by the
application of the "Wednesbury principle" of reasonableness and the
decision should 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.”
10. In Raunaq International Limited v. I.V.R. Construction Ltd. & Ors.
(1999) 1 SCC 492, this Court reiterated the principle governing the
process of judicial review and held that the Writ Court would not be
justified in interfering with commercial transactions in which the State is
one of the parties to the same except where there is substantial public
interest involved and in cases where the transaction is mala fide. The
court observed:
“10. What are these elements of public interest? (1) Public money
would be expended for the purposes of the contract. (2) The goods
or services which are being commissioned could be for a public
purpose, such as, construction of roads, public buildings, power
plants or other public utilities. (3) The public would be directly
interested in the timely fulfilment of the contract so that the
services become available to the public expeditiously. (4) The
public would also be interested in the quality of the work
undertaken or goods supplied by the tenderer. Poor quality of work
or goods can lead to tremendous public hardship and substantial
financial outlay either in correcting mistakes or in rectifying
defects or even at times in redoing the entire work — thus
involving larger outlays of public money and delaying the
availability of services, facilities or goods, e.g., a delay in
commissioning a power project, as in the present case, could lead
to power shortages, retardation of industrial development, hardship
to the general public and substantial cost escalation.
11. When a writ petition is filed in the High Court challenging the
award of a contract by a public authority or the State, the court
must be satisfied that there is some element of public interest
involved in entertaining such a petition. If, for example, the
dispute is purely between two tenderers, the court must be very
careful to see if there is any element of public interest involved
in the litigation. A mere difference in the prices offered by the
two tenderers may or may not be decisive in deciding whether any
public interest is involved in intervening in such a commercial
transaction. It is important to bear in mind that by court
intervention, the proposed project may be considerably delayed thus
escalating the cost far more than any saving which the court would
ultimately effect in public money by deciding the dispute in favour
of one tenderer or the other tenderer. Therefore, unless the court
is satisfied that there is a substantial amount of public interest,
or the transaction is entered into mala fide, the court should not
intervene under Article 226 in disputes between two rival
tenderers.”
11. In Reliance Airport Developers (P) Ltd. v. Airports Authority of
India & Ors. (2006) 10 SCC 1, this Court held that while judicial review
cannot be denied in contractual matters or matters in which the Government
exercises its contractual powers, such review is intended to prevent
arbitrariness and must be exercised in larger public interest.
12. Reference may also be made to Sterling Computers Ltd. v. M & N
Publication Ltd. (1993) 1 SCC 445 where this Court held that power of
judicial review in respect of contracts entered into on behalf of the State
primarily involves examination of the question whether there was any
infirmity in the decision-making process if such process was reasonable,
rational and non-arbitrary, the Court would not interfere with the
decision. In Air India Ltd. v. Cochin International Airport Ltd. & Ors.
(2000) 2 SCC 617, this Court held that award of contract was essential in
commercial transactions which involves commercial consideration and results
in commercial decision. While taking such decision the State can choose its
own method on terms of invitation to tender and enter into negotiations.
The following passage from the decision is apposite:
“The award of 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 of
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.
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.”
13. To the same effect is the decision of this Court in Master Marine
Services (P) Ltd. v. Metcalfe & Hodgkinson (P) Ltd. & Ors. (2005) 6 SCC 138
and Jagdish Mandal v. State of Orissa (2007) 14 SCC 517 where this Court
laid down the following tests for judicial interference in exercise of
power of judicial review of administrative action:
“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 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.'
ii) Whether public interest is affected.
If the answers are in the negative, there should be no interference
under Article 226.”
14. Let us examine the challenge to the award of the contract in favour
of respondent No.2 in the light of the above legal position. In the
earlier part of this judgment the challenge to the allotment of the work in
question was primarily based on a two-fold contention. Firstly, it was
argued that respondent No.2, successful bidder, had not satisfied the
requirement of filing audited balance sheets for the five years preceding
award of the contract. That the said respondent had filed certified copies
of the audited balance sheets for the years 2006-07, 2007-08, 2008-09 and
2009-10, was not in dispute. What was disputed was that the balance sheet
for the year 2010-11 had not been filed, instead a certificate from the
Chartered Accountant concerned, relating to the period 1.4.2010 to
22.3.2011, had been produced which did not, according to the writ-
petitioner before us, satisfy the requirement of the NIT. Rejecting that
contention the High Court held that since the balance sheet for the year
2010-11 had not been audited the production of relevant record of the
company was a substantial compliance with the stipulation contained in the
NIT. The High Court observed:
“As regards audited balance sheet, it has not been disputed that
respondent No.2 submitted audited balance sheets for years 2006-07,
2007-08, 2008-09 and 2009-2010. Respondent No.2 has further
submitted certificate issued by its Chartered Accountant in respect
of period from 1.4.2010 to 22.3.2011. Certificate is at page 66,
which has been issued on the basis of audited books, documents,
registers, records, bills and evidences produced before it for
verification. Certificate is dated 23.3.2011. It has been pointed
out by Shri Vijay Assudani, learned advocate appearing for
respondent No.2 that by that time, the financial year 2010-11 was
not complete and it was not possible to obtain certified copy of
the audited balance sheet. It could not be disputed on behalf of
the petitioner that the turnover as shown in the certificate of
Chartered Accountant and other documents for last five years, was
meeting the requirement as per the NIT. Further, it is not the case
of the petitioner that the particulars and the figures mentioned in
the certificate are incorrect. Petitioner, by virtue of Sections
159 and 163 of the Companies Act, could have obtained certified
copy of balance sheets of respondent No.2 to demonstrate
incorrectness, if any. The petitioner, having not chosen to place
any such documents on record, cannot successfully raise any
objection, when there is substantial compliance of the NIT in
relation to turnover.
xxx xxx xxx
Audit for the year 2010-11 was not completed by that time.
However, certificate was issued on the basis of the audit books,
documents, register, records, bills and evidences produced before
the Chartered Accountant for verification. This amounts to
substantial compliance of the requirement with regard to submission
of certified copy of balance sheet, more so, the petitioner himself
could have obtained copies of audited balance sheet of respondent
No.2 and could have demonstrated incorrectness. It is not the case
of the petitioner that the said certificate depicts incorrect
turnover or net worth. This being so, the process adopted by
respondent No.1 cannot be said to be arbitrary or irrational.”
15. There is, in our opinion, no legal flaw in the above finding or the
line of reasoning adopted by the High Court. It is true that the date of
submission of tender was initially fixed upto 25th March, 2011 but the same
was extended upto 7th April, 2011. That being so, 5 years immediately
preceding the issue of the tender notice would have included the year 2010-
2011 also for which financial year, audit of the company’s books, accounts
and documents had not been completed. Such being the case, respondent No.2
could not possibly comply with the requirement of the tender notice or
produce certified copy of the audited balance-sheet for the said year. All
that it could possibly do was to obtain a certificate based on the relevant
books, registers, records accounts etc., of the company, which certificate
was indeed produced by the said respondent. The High Court has rightly
observed that the appellant had not disputed the correctness of the
turnover certified by the Chartered Accountant for the year 2010-2011 nor
was it disputed that the same satisfied the requirement of the tender
notice. In that view, therefore, there was no question of respondent No.2
being ineligible or committing a deliberate default in producing the
requisite documents to establish its eligibility to offer a bid. The first
limb of the challenge to the finding of the High Court on the above aspect
must, therefore, fail and is accordingly rejected.
16. That leaves us with the second ground on which the appellant
questioned the eligibility of respondent No.2 to offer a bid, namely, the
non-execution by respondent No.2 of a single integrated water supply scheme
for the requisite value. The appellant’s case, in this connection, is two-
fold. Firstly, it is contended that the works executed by respondent No.2
for Vyare and Songadh were distinct and different works which did not
constitute a single integrated water supply scheme hence could not be
pressed into service to show satisfaction of the condition of eligibility
stipulated under the tender notice. The alternative submission made by
learned counsel appearing for the appellant in connection with this ground
is that the work executed by respondent No.2 for Upleta also did not
satisfy the requirement of the tender notice inasmuch as the said work did
not involve the construction of intake wells, which was an essential item
of work for any integrated water supply scheme. In the Counter Affidavits
filed by the Municipal Council and respondent No.2, the contention that the
latter was not eligible on the ground stated by the appellant has been
stoutly denied. Respondent-Council has, inter alia, stated:
“To satisfy this condition, respondent no.2 has placed on record
the certificate issued by Municipal Council Upleta, whereby
respondent No.2 was awarded construction of similar work and has
completed the work on 15.8.2010 for a sum of Rs.14,96,78,721/-.
Not merely this, to show his experience, respondent No.2 has filed
various certificates relating to work at Bardoli, as well as
certificate issued by Gujarat Urban Development Mission,
demonstrating that he has undertaken the work of 87,21,36,172/- of
the similar/somewhat similar nature.
In this regard it is worth noticing that the only requirement under
this clause was to have executed single work of integrated water
supply scheme having above referred components in it and it was not
at all necessary for a bidder to have constructed all the
components himself but he could have used the existing components,
as such it is inconsequential as to whether respondent No.2 has
infact constructed intake well and water treatment plant in Upleta,
but it is of utmost importance that Respondent No.2 should have
experience of having executed integrated water supply scheme.”
17. To the same effect is the case set up by respondent No.2 who has
stated as under:
“I say and submit that the only requirement as per the said
eligibility condition was to have executed a single work of
integrated water supply scheme comprising of all the components,
such as intake well, raw/clean water, pumping main, pumps, water
treatment plants, over head tanks, distribution system etc., but it
was not necessary for the bidder to have himself constructed all
the components of integrated water supply scheme. As such to show
his experience in the said matter, respondent No.2 also has placed
on record certificate issued by Bardoli Nagar Seva Sadan, (Annexure
P/10 Page 78 of SLP), wherein respondent No.2 has constructed water
treatment plant of 13.5 MLD capacity………………”
They have carried out the work of integrated water supply for
Upleta Municipal Council for a sum of Rs.14.97 crores, similarly
respondent No.2 have also carried augmentation water supply scheme
for Bardoli Incorporation Seva Sadan of Rs.4.35 crores, integrated
drinking water supply scheme for Vyara project of Rs.6.84 crores,
Unjha Water Supply Project of Rs.13.19 crores, Jaitpur Water
Project Rs. 16.25 crores, Songarh Integrated Drinking Water Supply
Scheme Rs.5.21 crores, Vapi Water Works of Rs.4.00 crores, Jasadan
Water Suppply Scheme of Rs.3.05 crores, Rajula Water Supply Scheme
of Rs.3.83 crores, Idar Water Supply Scheme of Rs.4.74 crores,
Viramgam Water Supply Project Rs.6.92 crores, Amreli City Pipeline
Distribution Work Rs.6.49 crores, thus the respondent No.2 have
executed works of similar nature of Rs.87.21 crores, whereas the
present work was for only Rs.20.80 crores, additionally respondent
No.2 is executing similar work of about Rs.40.50 crores at Dholka,
Dhandhuka, Ankleshwar, Gondal, Jasdan and Dhorangdhra. Thus
respondent No.2 is competent to execute the present work, a copy of
list of works executed by respondent No.2 under Gujarat Urban
Development Mission duly certified by the G.M. (Technical) of said
organization are already annexed as Annexure P/8 (Page 69 of SLP).
It is worth mentioning here that average turnover of respondent
No.2 during last 5 years ignoring figures of 2010-11 is Rs.45.14
crores and average net worth of respondent No.2 for last 5 years
ignoring figures of 2010-11 is Rs. 9.018 crores.”
18. The High Court has, while examining the question of eligibility of
respondent No.2 by reference to the execution of the single integrated
water supply scheme, recorded a finding that the nature of the work
executed by respondent No.2 for Upleta satisfied the requirement of the
tender notice. That finding, in our view, is in no way irrational or
absurd. We say so because the certificate relied upon by respondent No.2
sufficiently demonstrates that respondent No.2 had designed, and executed
an integrated water supply scheme for Upleta which included raw water
transmission from intake wells and transmission of treated clear water from
WTP including providing, supplying and laying of pipelines, construction of
E.S.R.s, Sumps, Pump houses and providing erecting pumping machinery.
19. It is also noteworthy that in the matter of evaluation of the bids
and determination of the eligibility of the bidders Municipal Council had
the advantage of the aid & advice of an empanelled consultant, a technical
hand, who could well appreciate the significance of the tender condition
regarding the bidder executing the single integrated water supply scheme
and fulfilling that condition of tender by reference to the work undertaken
by them. We, therefore, see no reason to interfere with the view taken by
the High Court of the allotment of work made in favour of respondent No.2.
20. We may while parting point out that out of a total of Rs.19.5 crores
representing the estimated value of the contract, respondent No.2 is
certified to have already executed work worth Rs.11.50 crores and received
a sum of Rs.8.79 crores towards the said work. More importantly the work
in question relates to a drinking water supply scheme for the residents of
a scarcity stricken municipality. The project is sponsored with the
Central Government assistance under its urban infrastructure scheme for
small and middle towns. The completion target of the scheme is September
2012. Any interference with the award of the contract at this stage is
bound to delay the execution of the work and put the inhabitants of the
municipal area to further hardship. Interference with the on-going work is,
therefore, not conducive to public interest which can be served only if the
scheme is completed as expeditiously as possible giving relief to the
thirsting residents of Sendhwa. This is particularly so when the allotment
of work in favour of respondent No.2 does not involve any extra cost in
comparison to the cost that may be incurred if the contract was allotted to
the appellant-company.
21. In the light of the above settled legal position and in the absence
of any mala fide or arbitrariness in the process of evaluation of bids and
the determination of the eligibility of the bidders, we do not consider the
present to be a fit case for interference of this Court. This appeal
accordingly fails and is hereby dismissed with cost assessed at Rs.25,000/-
.
……………………………….………J.
(T.S. THAKUR)
……………………………….………J.
(GYAN SUDHA MISRA)
New Delhi
May 4, 2012
