REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOs.4862-4863 OF 2021
UFLEX LTD. … Appellant
Versus
GOVERNMENT OF TAMIL NADU
& ORS. …Respondents
J U D G M E N T
SANJAY KISHAN KAUL, J.
1. The enlarged role of the Government in economic activity and its
corresponding ability to give economic ‘largesse’ was the bedrock of
creating what is commonly called the ‘tender jurisdiction’. The objective
was to have greater transparency and the consequent right of an
aggrieved party to invoke the jurisdiction of the High Court under Article
226 of the Constitution of India (hereinafter referred to as the
‘Constitution’), beyond the issue of strict enforcement of contractual
[1]
rights under the civil jurisdiction. However, the ground reality today is
that almost no tender remains unchallenged. Unsuccessful parties or
parties not even participating in the tender seek to invoke the jurisdiction
of the High Court under Article 226 of the Constitution. The Public
Interest Litigation (‘PIL’) jurisdiction is also invoked towards the same
objective, an aspect normally deterred by the Court because this causes
proxy litigation in purely contractual matters.
2. The judicial review of such contractual matters has its own
limitations. It is in this context of judicial review of administrative
actions that this Court has opined that it is intended to prevent
arbitrariness, irrationality, unreasonableness, bias and mala fide. The
purpose is to check whether the choice of decision is made lawfully and
not to check whether the choice of decision is sound. In evaluating
tenders and awarding contracts, the parties are to be governed by
principles of commercial prudence. To that extent, principles of equity
and natural justice have to stay at a distance.1
3. We cannot lose sight of the fact that a tenderer or contractor with a
grievance can always seek damages in a civil court and thus, “attempts
by unsuccessful tenderers with imaginary grievances, wounded pride and
1
Jagdish Mandal v. State of Orissa, (2007) 14 SCC 517.
[2]
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.”2
4. In a sense the Wednesbury principle is imported to the concept,
i.e., the decision is so arbitrary and irrational that it can never be that any
responsible authority acting reasonably and in accordance with law
would have reached such a decision. One other aspect which would
always be kept in mind is that the public interest is not affected. In the
conspectus of the aforesaid principles, it was observed in Michigan
Rubber v. State of Karnataka3
as under:
“23. 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
2
Id.
3
(2012) 8 SCC 216
[3]
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.”
5. One other aspect examined by this Court is whether the terms and
conditions of the tender have been tailor-made to suit a person/entity. In
fact, this is what is sought to be contended in the facts of the present case
by the respondents who were the original petitioners before the Court. In
order to award a contract to a particular party, a reverse engineering
process is evolved to achieve that objective by making the tender
conditions such that only one party may fit the bill. Such an endeavour
[4]
has been categorized as “Decision Oriented Systematic Analysis” (for
short ‘DOSA’).4
6. The burgeoning litigation in this field and the same being carried
to this Court in most matters was the cause we set forth an epilogue in
Caretel Infotech Ltd. v. Hindustan Petroleum Corporation Limited &
Ors.5
Even if it amounts to repetition, we believe that it needs to be
emphasized in view of the controversy arising in the present case to
appreciate the contours within which the factual matrix of the present
case has to be analysed and tested.
“37. We consider it appropriate to make certain observations in
the context of the nature of dispute which is before us. Normally
parties would be governed by their contracts and the tender terms,
and really no writ would be maintainable under Article 226 of the
Constitution of India. In view of Government and public sector
enterprises venturing into economic activities, this Court found it
appropriate to build in certain checks and balances of fairness in
procedure. It is this approach which has given rise to scrutiny of
tenders in writ proceedings under Article 226 of the Constitution of
India. It, however, appears that the window has been opened too
wide as almost every small or big tender is now sought to be
challenged in writ proceedings almost as a matter of routine. This
in turn, affects the efficacy of commercial activities of the public
sectors, which may be in competition with the private sector. This
could hardly have been the objective in mind. An unnecessary,
close scrutiny of minute details, contrary to the view of the
tendering authority, makes awarding of contracts by Government
4 Misrilall Mines Pvt. Ltd. & Anr. v. MMTC & Ors, 2013 SCC OnLine Del 563.
5
(2019) 14 SCC 81.
[5]
and Public Sectors a cumbersome exercise, with long drawn out
litigation at the threshold. The private sector is competing often in
the same field. Promptness and efficiency levels in private
contracts, thus, often tend to make the tenders of the public sector a
non-competitive exercise. This works to a great disadvantage to
the Government and the public sector.
38. In Afcons Infrastructure Limited v. Nagpur Metro Rail
Corporation Limited & Anr.6
, this Court has expounded further on
this aspect, while observing that the decision-making process in
accepting or rejecting the bid should not be interfered with.
Interference is permissible only if the decision-making process is
arbitrary or irrational to an extent that no responsible authority,
acting reasonably and in accordance with law, could have reached
such a decision. It has been cautioned that Constitutional Courts
are expected to exercise restraint in interfering with the
administrative decision and ought not to substitute their view for
that of the administrative authority. Mere disagreement with the
decision-making process would not suffice.
39. Another aspect emphasised is that the author of the
document is the best person to understand and appreciate its
requirements. In the facts of the present case, the view, on
interpreting the tender documents, of Respondent No.1 must
prevail. Respondent No.1 itself, appreciative of the wording of
Clause 20 and the format, has taken a considered view.
Respondent No.3 cannot compel its own interpretation of the
contract to be thrust on Respondent No.1, or ask the Court to
compel Respondent No.1 to accept that interpretation. In fact, the
Court went on to observe in the aforesaid judgment that it is
possible that the author of the tender may give an interpretation
that is not acceptable to the constitutional Court, but that itself
would not be a reason for interfering with the interpretation given.
We reproduce the observations in this behalf as under:
6
(2016) 16 SCC 818.
[6]
“15. We may add that the owner or the employer of a project,
having authored the tender documents, is the best person to
understand and appreciate its requirements and interpret its
documents. The constitutional courts must defer to this
understanding and appreciation of the tender documents, unless
there is mala fide or perversity in the understanding or
appreciation or in the application of the terms of the tender
conditions. It is possible that the owner or employer of a project
may give an interpretation to the tender documents that is not
acceptable to the constitutional courts but that by itself is not a
reason for interfering with the interpretation given.”
40. We may also refer to the judgment of this Court in Nabha
Power Limited (NPL) v. Punjab State Power Corporation
Limited (PSPCL) & Anr.,7
authored by one of us (Sanjay Kishan
Kaul, J.). The legal principles for interpretation of commercial
contracts have been discussed. In the said judgment, a reference
was made to the observations of the Privy Council in Attorney
General of Belize v. Belize Telecom Ltd.8
as under:
“45. … 16. Before discussing in greater detail the reasoning
of the Court of Appeal, the Board will make some general
observations about the process of implication. The court has
no power to improve upon the instrument which it is called
upon to construe, whether it be a contract, a statute or
articles of association. It cannot introduce terms to make it
fairer or more reasonable. It is concerned only to discover
what the instrument means. However, that meaning is not
necessarily or always what the authors or parties to the
document would have intended. …”
.... .... .... .... ....
7
(2018) 11 SCC 508.
8
(2009) 1 WLR 1988.
[7]
“19. .....In Trollope & Colls Ltd. v. North West
Metropolitan Regional Hospital Board9
Lord Pearson, with
whom Lord Guest and Lord Diplock agreed, said:
“…the court does not make a contract for the parties.
The court will not even improve the contract which
the parties have made for themselves, however
desirable the improvement might be. The court’s
function is to interpret and apply the contract which
the parties have made for themselves. If the express
terms are perfectly clear and free from ambiguity,
there is no choice to be made between different
possible meanings: the clear terms must be applied
even if the court thinks some other terms would have
been more suitable. An unexpressed term can be
implied if and only if the court finds that the parties
must have intended that term to form part of their
contract: it is not enough for the court to find that
such a term would have been adopted by the parties as
reasonable men if it had been suggested to them: it
must have been a term that went without saying, a
term necessary to give business efficacy to the
contract, a term which, though tacit, formed part of
the contract which the parties made for themselves.”
41. Nabha Power Limited (NPL)10 also took note of the earlier
judgment of this court in Satya Jain v. Anis Ahmed Rushdie11
,
which discussed the principle of business efficacy as proposed by
Bowen, L.J. in the Moorcock12. It has been elucidated that this test
requires that terms can be implied only if it is necessary to give
business efficacy to the contract to avoid failure of the contract and
only the bare minimum of implication is to be there to achieve this
9
(1973) 1 WLR 601 (HL).
10 Nabha (supra).
11 (2013) 8 SCC 131.
12 (1889) LR 14 PD 64 (CA).
[8]
goal. Thus, if the contract makes business sense without the
implication of terms, the courts will not imply the same.
42. The judgment in Nabha Power Limited13 concluded with the
following observations in para 72:
“72. We may, however, in the end, extend a word of caution.
It should certainly not be an endeavour of commercial courts
to look to implied terms of contract. In the current day and
age, making of contracts is a matter of high technical
expertise with legal brains from all sides involved in the
process of drafting a contract. It is even preceded by
opportunities of seeking clarifications and doubts so that the
parties know what they are getting into. Thus, normally a
contract should be read as it reads, as per its express terms.
The implied terms is a concept, which is necessitated only
when the Penta-test referred to aforesaid comes into play.
There has to be a strict necessity for it. In the present case,
we have really only read the contract in the manner it reads.
We have not really read into it any ‘implied term’ but from
the collection of clauses, come to a conclusion as to what the
contract says. The formula for energy charges, to our mind,
was quite clear. We have only expounded it in accordance to
its natural grammatical contour, keeping in mind the nature
of the contract.”
43. We have considered it appropriate to, once again, emphasise
the aforesaid aspects, especially in the context of endeavours of
courts to give their own interpretation to contracts, more
specifically tender terms, at the behest of a third party competing
for the tender, rather than what is propounded by the party framing
the tender. The object cannot be that in every contract, where
some parties would lose out, they should get the opportunity to
13 Nabha (supra).
[9]
somehow pick holes, to disqualify the successful parties, on
grounds on which even the party floating the tender finds no
merit.”
14
7. It may also be pertinent to note the principles elucidated in the case
of Tata Cellular v. Union of India:
“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.
14 Caretel (supra).
[10]
(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.”15
8. On having set forth the contours of our analysis we now proceed to
deal with the factual matrix so that we do not deviate from the path we
have set for ourselves aforesaid.
The facts:
9. On 24.08.2020 vide G.O. (Ms.)/No.23 (for short ‘G.O.’) issued by
the Government of Tamil Nadu inter alia appointed the Joint
Commissioner-II as the Tender Inviting Authority while the
15 (1994) 6 SCC 651.
[11]
Commissioner of Prohibition and Excise was appointed as the Tender
Accepting Authority apart from the appointment of a Technical
Specification Committee (for short ‘TSC’) and a Tender Scrutiny and
Finalisation Committee (for short ‘TSFC’) for purposes of production
and supply of polyester based hologram excise labels on turnkey basis.
The stickers were to be pasted across the caps of bottles of liquor sold by
the State Government through one of its instrumentalities, the Tamil
Nadu State Marketing Corporation (for short ‘TASMAC’). The tender
required the prospective bidders and existing suppliers of hologram
excise labels to submit necessary documents on the label features and
security standard by 07.09.2020.
10. The first meeting of the TSC was held on 09.09.2020 where it was
inter alia decided that it would be appropriate to have technical
specifications which are generic in nature so as to ensure wider
participation by incorporating those features that are available with at
least three bidders. In the second meeting held on 18.09.2020, three
technical specifications for non-holographic features along with hidden
text on colour change background were formulated, which read as under:
[12]
i. A stripe of design transferred, but not laminated, on the top
of the hologram with visual holographic design on top;
ii. Hidden texts/images encrypted on second layer on different
colour background; and
iii. The hidden colour should change at every 45 degree angle,
this hidden text “Tamil Nadu Excise” should be visible only
through a special Polaroid identifier.
11. The TSC thereafter sought to determine the eligibility criteria for
the commercial bid in addition to the already existing criteria so as to
“enhance the security features, ensure better participation, and to restrict
fly-by-night operators.” Thus, in the third meeting held on 23.09.2020 it
was recommended that supplier should have been continuously doing
business activities in the same field for the past 8 to 10 years. The draft
tender document consisting of technical specification, product
specification, eligibility criteria and general terms and conditions was
approved in the fourth meeting held on 24.09.2020 and a Notice Inviting
Tender (for short ‘NIT’) was issued on 01.10.2020 with various technical
specifications and eligibility criteria. The pre-bid meeting was held on
08.10.2020 wherein the respondents before us conveyed their objections
[13]
and concerns highlighting that wider participation as mandated by the
G.O. should be adhered along with making a grievance about some
arbitrary conditions in the tender notice.
12. However, without waiting for the final decision in respect of the
aforesaid, two of the prospective tendering parties, viz., M/s. Kumbhat
Holographics (for short ‘Kumbhat’) and M/s. Alpha Lasertek India LLP
(for short ‘Alpha’) filed writ petitions in October, 2020 where
intervention was also permitted by two other parties. These petitions
were dismissed by the learned single Judge vide order dated 10.02.2021.
13. The material aspect to be taken note of is that there were certain
developments during the pendency of the petition. But we must note
what is the principal grievance made by these parties before the learned
single Judge. The primary contention both by Kumbhat and Alpha was
that the terms of the tender were skewed in favour of Uflex Limited (for
short ‘Uflex’) and Montage Enterprises Private Limited (for short
‘Montage’). The grievance which was made was that certain
requirements were introduced in the tender to ensure that only Uflex and
Montage would be able to qualify under the tender requirements, i.e.: (i)
requirement of 8 years of experience in the field of manufacture of
[14]
security holograms; (ii) requirement of bidders to have supplied full
polyester based security hologram labels to the tune of at least Rs. 20
crores to any state excise department during any one of the last three
financial years (with additional requirement under Clause 4.6 in Part 4 of
the NIT that the said supply should only have been made to any of the
state excise departments to be considered valid for this purpose); and (iii)
the bidders should also submit a satisfactory performance certificate from
the competent authority or the end user.
14. The other aspect was the grievance made about the technical
requirement of a “Hidden Text on Colour Change Background” feature
stated to be based on a patented technology. Holograms with this feature
were supplied to other public sector undertakings such as the IRCTC in
the past by the suppliers other than Uflex and Montage. However, those
suppliers had never supplied to any State excise department and, thus,
could not meet the two conditions cumulatively. Montage and Uflex
were alleged to be the only two bidders who would qualify under the
existent tender conditions as they held the license to use the patented
technology. The writ petition was resisted by the State inter alia on the
ground of bona fide exercise and the factum of a clarification being
[15]
issued on 27.10.2020 on the objections of Kumbhat and Alpha, petition
having been filed even without waiting for the clarification to be issued.
Corrigendum 2 to the tender conditions was issued whereby the condition
as to the identification of hidden text by special Polaroid identifier was
relaxed by providing that in addition to Polaroid identifier, the hidden
text could also be identified by film. The grievance about only limited
companies being permitted to participate was also met by permitting
LLPs to participate in the tender.
15. In the course of scrutiny by the learned single Judge, the
respondents were permitted to accept the bids from prospective bidders
and process the same with the report being submitted with details of
qualified bidders under the technical specifications of the tender. The
report of the TSC dated 24.12.2020 was, thus, submitted, which recorded
that among the three bidders who had submitted the bids, all three
satisfied all the technical and product specifications as per NIT including
Uflex and Montage. The High Court while dismissing the writ petition
noted that the requirement of having minimum three successful bidders
was thus satisfied.
Writ Appeal Round:
[16]
16. The aforesaid conclusion by the learned single Judge in the
conspectus of facts gave rise to writ appeals being filed by Kumbhat and
Alpha impugning the order dated 10.02.2021.
17. The grievance inter alia was that a copy of the report dated
24.12.2020 had not been furnished to either Kumbhat or Alpha depriving
them of the opportunity to scrutinize the report. In effect, the allegation
of DOSA qua Uflex and Montage was once again made while alleging
that there had been deviations from the mandate of setting generic
technical specification as per the G.O.
18. The financial structure of Uflex and Montage was sought to be
examined by lifting the corporate veil and contending that the annual
report of Uflex for 2019-20 showed that it had invested approximately
Rs.152 crores in preference share capital of Montage and thus exercised
considerable influence in the affairs of Montage. The third bidder who
constituted the Trimurti along with Uflex and Montage was Hololive
Corporation Industries (for short ‘Hololive’). It was actually not eligible
to participate on multiple parameters as it was a partnership firm
registered on 01.07.2017 and thus did not meet the requirement of being
either a limited company or an LLP.
[17]
19. The report called for by the learned single Judge was on technical
specifications and, thus, while Hololive fulfilled those technical
specifications, it had not qualified as per commercial terms on the
aforesaid account. Further, Kumbhat being a partnership firm, sought to
contend that the exclusion of partnership firms was arbitrary. The
relationship between Uflex and Montage was in breach of the spirit of
Rule 15 of the Tamil Nadu Transparency in Tender (Public-Private
Partnership Procurement) Rules, 2012 (hereinafter referred to as the
‘Rules’), which pertains to conflict of interest even though the Rules did
not apply to the facts of the case. The said Rule reads as under:
“15. Conflict of Interest.- (1) It shall be the responsibility of
Tender Inviting Authority and Tender Accepting Authority to
ensure that the prospective tenderers do not have a conflict of
interest that affects the Tender Proceedings.
(2) An Applicant or prospective tenderer shall be deemed to have a
Conflict of Interest, if,-
(a) any other prospective tenderer or a member of consortium or
any associate or constituent thereof have common controlling
shareholders or other ownership interest; or
(b) a constituent of such prospective tenderer is also a constituent
of another prospective tenderer.
Provided that ‘constituent’ in such cases will not include the
provider of a proprietary technology to more than one applicant; or
[18]
(c) such prospective tenderer, or any associate thereof receives or
has received any direct or indirect subsidy, grant, concessional loan
or subordinated debt from any other Applicant or Respondent, or
any associate thereof has provided any such subsidy, grant,
concessional loan or subordinated debt to any other Applicant or
Respondent, its member or any associate thereof; or
(d) such prospective tenderer has the same legal representative for
purposes of the Tender Proceedings as any other prospective
tenderer; or
(e) such prospective tenderer, its member or any associate thereof,
has a relationship with another prospective tenderer, or any
associate thereof, directly or through common third party/ parties,
that puts either or both of them in a position to have access to each
other’s information about, or to influence the Response of either or
each other; or
(f) such prospective tenderer, its member or any associate thereof,
has participated as a consultant to the Tender Inviting Authority
and Tender Accepting Authority in the preparation of any
documents, design or technical specifications of the Public Private
Partnership (PPP) Project; or
(g) if any legal, financial or technical advisor of the Tender
Inviting Authority and Tender Accepting Authority in relation to
the Project is engaged by the prospective tenderer, its member or
any associate thereof, as the case may be, in any manner for
matters related to or incidental to the Project:
Provided that this clause shall not apply where such advisor was
engaged by the Applicant or Respondent, its member or associate
in the past but such engagement expired or was terminated 6 (six)
months prior to the date of issue of concerned Tender Document or
where such advisor is engaged after a period of 3(three) years from
the date of commercial operation of the Project.”
[19]
20. An alternative argument which Kumbhat sought to develop was
that it is registered as a Small Industry in terms of the classification under
the Micro, Small and Medium Enterprises Development Act, 2006 (for
short ‘MSMED Act’) and, thus, qualifies as a domestic enterprise as
defined in the Tamil Nadu Transparency in Tenders Act, 1998 (hereinafter
referred to as the ‘Tender Act’). Thus, as per proviso to sub-section 2 of
Section 10 of the Tender Act, it was entitled to be called upon to supply a
maximum of 25% of the total procurement if it was willing to match the
price of the lowest bidder. Rule 30-A of the Tamil Nadu Transparency in
Tender Rules, 2000 (hereinafter referred to as the ‘Tender Rules’) was
also relied upon to contend that the purchase preference is required to be
extended to domestic enterprises.
21. On the other hand, it was urged by Uflex that Alpha and Kumbhat
lack the locus as they did not even participate in the tender. Alpha did
not qualify as it did not have the requisite experience in supplying
holograms and its business was actually in the nature of trading. In one
of the relevant financial years, the income and expenditure statement
showed a zero turnover from the sale and manufacture of goods. The
participation by LLPs was permitted which enabled Alpha to bid but in
[20]
case of Kumbhat it was only a partnership firm without being an LLP. It
was sought to be contended that it was justifiable for a Government entity
to procure goods exclusively from corporate entities so as to ensure
stability and existence of such entities.
22. The grievance regarding patented technology, Uflex contended,
does not subsist in view of the corrigendum having been issued whereby
film could be used for identification of the hidden text in addition to
Polaroid. The technology of producing latent images which are invisible
to the naked eye and can be viewed only through polarizer is generic and
Uflex and Montage do not have a monopoly over the same. Technology
not infringing the patent could be deployed, thereby meeting the
technical requirements.
23. The other aspect arising from lifting the corporate veil and
referring to the investment of Uflex in Montage was dealt with by the
submission that the investment was in redeemable, non-voting, nonparticipating preference shares of Montage and, thus, Uflex was neither a
holding company nor an associate company of Montage.
24. Insofar as the rejection of the bid of Hololive was concerned, the
counsel for the State sought to explain the same by submitting that the
[21]
bid was only rejected at the second stage against the requirement of Part
4 of the tender.
25. The Division Bench, however, allowed the writ appeal in terms of
the impugned judgment dated 29.04.2021 giving the State four months
time to float a fresh tender while permitting the existing successful
tenderers to continue to provide the supplies under the same terms and
conditions. The fresh tender was directed to be floated with technical
specifications that are generic so as to ensure wider participation or, if the
State was of the view that the technical specifications are at the heart of
the tender, opt for a single source procurement, albeit by adhering strictly
to the requirements of the Tender Act, which has been enacted to provide
transparency in public procurement and to regulate the procedure in
inviting and accepting the tenders and matters connected therewith or
incidental thereto.
26. The rationale of the judgment of the Division Bench can be
summarized as under:
a. The Government Order had stated that technical specification
should be such that “multiple vendors” qualify whereas the
Commissioner of Prohibition and Excise has used the phrase
[22]
“more than three bidders”. The phrase “multiple vendors” was
used as a rough equivalent of expression of “more than three
bidders” and the minutes of the second and third meeting did not
contain any discussion as to whether the proposed changes would
make the technical specification non-generic. Thus, TSC was held
to have deviated from the mandate of prescribing generic technical
qualifications.
b. The technical requirements as per NIT had features which were not
noticeable from specifications as was explained by the patenting
process. However, it was noticed that wherever technical
specifications were substantially if not wholly similar to the
impugned specifications, the successful bidder was always Uflex
or Montage.
c. The material on record supported an inference that the impugned
technical specifications, when coupled with the requirements of
having made such supplies of a specified minimum value to a State
Excise Department in any of the preceding three years had the
effect of eliminating all bidders other than Uflex or Montage.
[23]
Thus, eliminating reasonable competition came within the domain
of judicial review.
d. Technical bid evaluation was done on the same day as the report
dated 24.12.2020 but yet the learned single Judge was not
informed that Hololive did not fulfill all the technical
specifications. Had the single Judge been aware of this a different
view may have been taken by the learned single Judge who
proceeded on the premise of three eligible bidders.
e. Uflex and Montage were not sister or associate companies in the
technical sense. However, the High Court proceeded to examine
the nexus between the two entities and whether the same would
impair the integrity of the tender process. Montage’s total equity
share capital was about Rs.6 crore and Uflex’s investment of about
Rs.152 crore in preferential share capital of Montage brought in
the possibility of Uflex exercising influence over Montage, which
could not be disregarded. Uflex was a public listed company and
Montage was one of Uflex’s top non-promoter shareholders with a
holding of approximately 4%.
[24]
f. Uflex and Montage both derived their technology for producing
the latent image from a common source, i.e., patented technology
of ATB Latent Export Import Limited (for short ‘ATB’). This
aspect had to be read with what has been stated aforesaid.
g. The existing records result in a definitive conclusion that tender
conditions were tailor-made in favour of Uflex and Montage and,
thus, judicial review was necessary and in public interest and the
same undermining the tendering process.
Contentions before us:
Submissions on behalf of Uflex:
27. The broad contours of the submissions advanced on behalf of
Uflex assailing the impugned order are as under:
i. Learned counsel for the appellant relied on the judgment in Tata
Cellular v. Union of India16 to submit that Alpha and Kumbhat have
failed to demonstrate any public interest, any flaw in the tender process
or for that matter any mala fide or arbitrariness. In the face of this
submission, the terms of the NIT were not open to judicial scrutiny and
the Court can only review the decision-making process.
16 Id.
[25]
ii. The endeavour of Alpha and Kumbhat is an attempt to use the
judicial process to somehow frustrate the award of the tender to Uflex,
having not succeeded as a competitive commercial enterprise. The same
was true not only in this case but even in other tenders, as is reflected
from their submission that Uflex has been successful in a number of
tenders across the country. Their endeavour to challenge the tender on
similar grounds was unsuccessful in Writ Appeal No.509/2016 before the
Madras High Court itself against which the Special Leave Petition was
dismissed. A similar fate was met in their endeavour before the Madhya
Pradesh High Court in WP No.4448/2016 where also the SLP was
dismissed.
iii. The petitioner has invested a huge amount of about Rs. 10 crore
and has employed 87 people after the grant and issuance of work order.
The adjudication of a civil dispute, the present one being really akin to
the same, is based on the preponderance of probabilities. The impugned
order visits Uflex with adverse civil consequences based on some
“justifiable doubts” as is found in the impugned judgment. In this behalf,
reference was invited to para 47 of the impugned judgment opining so,
i.e., “the evidence on record is insufficient to draw the definitive
[26]
conclusion that the tender conditions were tailored to suit only the two
eligible bidders, although there is sufficient basis for justifiable doubts on
that count.”
We may note that these observations have, however, been followed
by observations to the effect that evidence was sufficient to conclude that
the tender specifications were not generic and had, thus, not been
prepared with the mandate of the G.O.
iv. The approach adopted by the Division Bench of the High Court in
what may be categorized as lifting the corporate veil and then
endeavouring to threadbare scrutinize the business relations of the two
companies, i.e., Uflex and Montage, is not an appropriate approach. Not
only that, the alleged nexus had been examined by the Madhya Pradesh
High Court in WP No.4448/2016 and judgment was pronounced on
06.09.2016 opining that Uflex and Montage are neither a holding –
subsidiary company nor associate company. The SLP filed against the
same, as noted above was dismissed.
[27]
v. There was a failure on part of Alpha and Kumbhat to establish that
the technical specifications were patented and Uflex and Montage had
monopoly over the same.
vi. The counsel for Uflex placed reliance on the judgment in Tata
Cellular17 and the principles culled out hereinabove at the inception
while submitting that this view has been followed in various judicial
pronouncements, viz., Air India v. Cochin International Airport18
,
Raunaq International Ltd. v. IVR Construction Ltd.19, Master Marine
v. Metcalfe and Hodkinson20, Michigan Rubber21 and Bharat Cooking
Coal v. AMR Dev22
.
Submissions on behalf of Montage:
28. Montage sought to support the plea of Uflex largely aggrieved by
the High Court’s findings to the effect that Uflex and Montage are related
entities as it may have an adverse impact on Montage in other contractual
and tender matters. This is more so in the context that in various tenders
these two companies have actually competed against each other
17 (supra)
18 (2000) 2 SCC 617.
19 (1999) 1 SCC 492.
20 (2005) 6 SCC 138.
21 (supra).
22 (2020) 16 SCC 759.
[28]
successfully. Damaging observations were made to the effect that even
the qualification under the NIT was restricted to the two eligible bidders.
This raises questions as to the integrity and reliability of the NIT, which
has thus seriously been assailed.
The observations of the Madhya Pradesh High Court referring to
aforesaid holding that Uflex and Montage are separate legal entities was
again emphasized. Uflex had made a financial investment of about
Rs.152 crore worth of preference shares in Montage due to Montage’s
acquisition of Uflex’s subsidiary, Utech Developers Limited. These
preference shares are 7.50% redeemable, non-cumulative, nonparticipating, non-convertible preference shares and the same does not
allow Uflex to exert any influence on Montage.
29. Similarly, supporting the plea of Uflex, Montage also contended
that the allegation of common source of patent technology through ATB
has no basis as Montage does not have any license arrangement with the
said Company nor had it paid any license fee to ATB. It has, however,
access to technology to produce latent images because it procured the
requisite machinery.
[29]
Submissions on behalf of Kumbhat:
30. On the other hand, Kumbhat sought to emphasise the following
aspects in support of the impugned judgment:
i. The mandate of the G.O. stipulated that technical specifications
have to be generic in nature to ensure wider participation by
incorporating those features which are available with more than three
bidders and the same was accepted by the Government by reiterating that
there must be multiple bidders. The factum of Hololive disqualification
on certain conditions of the NIT was not raised before the learned single
Judge and, thus, erroneous conclusion was arrived at as there were less
than three bidders. There were only two eligible bidders.
ii. The scenario of there being only two eligible bidders and award
going to the same party is apparent from the award of tenders with same
specifications by four other States. Thus, Uflex and Montage seem to be
monopolizing the business.
iii. The two bidders are closely related to each other as found by the
Division Bench and even in income tax proceedings before the High
[30]
Court of Delhi in the order dated 06.09.2018, Montage had taken the plea
that Uflex was a sister company.
iv. The earlier judgment of the Madras High Court in Writ Appeal
No.509/2016 was not relevant as there were five qualified bidders and the
tender had dissimilar conditions. There was also a subsequent
amendment to the Tender Act, 2017 by introduction of Section 2(aa) read
with the proviso to Section 10(2), which introduced the participation by
Domestic Enterprises. In this behalf, the relevant provisions are
reproduced hereinunder:
“2. Definitions.- In this Act, unless the context otherwise requires,-
xxxx xxxx xxxx xxxx xxxx
[(aa) ‘Domestic Enterprise’ means any micro and small enterprise
as defined in the Micro, Small and Medium Enterprises
Development Act, 2006 (Central Act 27 of 2006), which
manufactures or produces goods, provides or renders services
within the State and filed Part II of the Entrepreneurs
Memorandum in the District Industries Centres or filed Udyog
Aadhaar portal.]”
.... .... .... .... .... ….
“10. Evaluation and Acceptance of Tender.-
xxxx xxxx xxxx xxxx xxxx
(2) After evaluation and comparison of tenders as specified in subsection (1), the Tender Accepting Authority shall accept the lowest
tender ascertained on the basis of objective and quantifiable factors
[31]
specified in the tender document and giving relative weights
among them:
[Provided that the Tender Accepting Authority shall accept the
tender of domestic enterprises, not being the lowest tender, upon
satisfaction of such conditions as may be prescribed, in respect
only of goods manufactured or produced and services provided or
rendered by them, and only to the extent of not exceeding twenty
five per cent of the total requirement in that procurement, if such
domestic enterprise is willing to match the price of the lowest
tender:
Provided further that the Tender Accepting Authority shall accept
the tender of a department of Government, Public Sector
Undertaking, Statutory Board and other similar institutions as may
be notified, not being the lowest tender, upon satisfaction of such
conditions as may be prescribed, in respect only of goods
manufactured or produced and services provided or rendered by
them, and only to the extent of not exceeding forty per cent of the
total requirement in that procurement, if such tenderer is willing to
match the price of the lowest tender:
Provided also that in case of a single procurement, the total
procurement under the above two provisos shall not exceed forty
percent of the total requirement in that procurement.]”
Kumbhat being an MSME, thus, seeks a right to participate in
tenders in Tamil Nadu.
31. We may note at this stage that Kumbhat did not even apply and
could not have applied being a partnership firm while Alpha could have
applied being an LLP but did not apply.
[32]
Submissions on behalf of Alpha:
32. Alpha sought to reiterate the submissions made by Kumbhat and
sought to give examples from other States to support its adequacy of
manufacturing capacity: L-3 in 2019 in Chhattisgarh tender, L-2 in Tamil
Nadu in 2011 and 2015 tenders, and L-3 in 2021 in Andhra Pradesh
tender. These tenders had generic specifications unlike the present
tender. Alpha only got disqualified due to the technical specifications
and its past experience, i.e. clauses 4.6(b) and 4.6(c), which serve to
eliminate all bidders except two.
33. Alpha sought to emphasise the aspect of public interest as a ground
for judicial intervention by relying upon certain judicial pronouncements,
viz., Monarch Infrastructure v. Ulhasnagar Municipal Corp.23 and
Jagdish Mandal24
.
Submissions on behalf of the Government of Tamil Nadu:
34. Let us now turn to the most important stand which is of the Tamil
Nadu Government, which is the tendering entity. In this behalf what has
23 (2000) 5 SCC 287.
24 (supra).
[33]
been sought to be emphasized at the threshold is public interest itself as
the tender conditions seek to prevent spurious liquor being pushed into
the market. Since 1999, only one supplier, Holostik India, had been
successful in all tenders except the present tender where it chose not to
participate despite having the technical capability to do so and three firms
ultimately participated, i.e., Uflex, Montage and Hololive.
35. The State of Tamil Nadu sought to emphasise the importance of
transparency of the decision-making process. The TSC comprised of
eminent scientists in holography and printing technology and the NIT
was formulated after their deliberations and after receiving input from
prospective bidders. The non-holographic feature of ‘hidden text on
colour change background’ was suggested by technical experts from IIT
and Anna University as the same is the latest and most secure feature.
The objective was to reduce chances of the hologram being counterfeited.
36. On the aspect of clauses 4.1, 4.5, 4.6(a) and 4.6(b), which formed
part of the general terms and the conditions of the technical bid and dealt
with the aspect of the past experience in supply and turnover, it was
submitted that these very conditions formed a part of the 2015 tender as
well. These were challenged by Kumbhat and the writ appeal was
[34]
dismissed, and this order was affirmed in the SLP, as already set out
hereinbefore.
37. It was emphasized that Alpha’s grievance qua the door being shut
on them was addressed through corrigendum 2, which permitted LLPs to
participate in the tender. The same very corrigendum addressed the issue
relating to hidden text being visible only through Polaroid by adding
film. It was submitted that the Division Bench wrongly noted that the
hidden colour specification was patented and there were no eligible
bidders who would qualify the same as the counter affidavit contains a
list of tenders which had similar conditions and parties had succeeded in
the same. For example, the 2019-22 Excise Department Chhattisgarh
tender had similar conditions and Prizm Holography succeeded. The
same tender had two other entities who had qualified, including Alpha.
38. On the aspect of tender conditions being tailor-made and the
principles of DOSA applying, it was submitted that the latitude must be
greater where such high security features are involved.25
39. Lastly it was submitted that there was nothing so extraordinary or
unique which was being done by the respondents and the practice
followed were similar to the practices of other States. The impugned
25 Association of Registration Plates v. Union of India (2005) 1 SCC 679.
[35]
technical specifications have been utilized by several states and public
sector undertakings in the past and the tenders were awarded to other
players also apart from Uflex and Montage. This would belie the
contention that the technology was patented and only a few selected
companies were eligible. Not only that, in view of corrigendum 2, colour
change background viewable with film as an identifier did not attract the
rigour of a patented technology. In almost an identical tender floated by
the State of Chhattisgarh, Uflex and Montage did not succeed during the
tendering process.
Conclusion:
40. We must begin by noticing that we are examining the case, as
already stated above, on the parameters discussed at the inception. In
commercial tender matters there is obviously an aspect of commercial
competitiveness. 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. The question is should the judicial process be resorted
to for downplaying the freedom which a tendering party has, merely
because it is a State or a public authority, making the said process even
[36]
more cumbersome. We have already noted that element of transparency
is always required in such tenders because of the nature of economic
activity carried on by the State, but the contours under which they are to
be examined are restricted as set out in Tata Cellular26 and other cases.
The objective is not to make the Court an appellate authority for
scrutinizing as to whom the tender should be awarded. Economics must
be permitted to play its role for which the tendering authority knows best
as to what is suited in terms of technology and price for them.
41. The present dispute has its history in many prior endeavours by the
original petitioners which have proved to be unsuccessful. It does appear
that in a competitive market they have not been so successful as they
would like to be. Merely because a company is more efficient, obtains
better technology, makes more competitive bids and, thus, succeeds more
cannot be a factor to deprive that company of commercial success on that
pretext. It does appear to us that this is what is happening; that the two
original petitioners are endeavouring to continuously create impediments
in the way of the succeeding party merely because they themselves had
not so succeeded. It is thus our view that the Division Bench has fallen
26 (supra).
[37]
into an error in almost sitting as an appellate authority on technology and
commercial expediency which is not the role which a Court ought to play.
42. The checks and balances before the tendering process itself has
been provided by constitution of the various committees, more
specifically the TSC and the TSFC. The objective is to keep the role of
these Committees separately defined.
43. We are concerned with sale of liquor. The objective has been set
out by the State Government, i.e., use of such technology as would
prevent spurious liquor from being sold. It is a well-known fact that a
large revenue collection comes in Tamil Nadu through sale of liquor. It
thus must be left to the State Government to see how best to maximize its
revenue and what is the technology to be utilized to prevent situations
like spurious liquor, which in turn would impede revenue collection,
apart from causing damage to the consumers.
44. A grievance was made about what was stated to be “patented
technology”. At the stage when the concerned committees were still
looking to the objections/suggestions of the parties, Kumbhat and Alpha
rushed to the Court. The State Government did provide relief by issuing
a corrigendum to address the issue relating to hidden text being visible
[38]
only through Polaroid, as colour change background viewable with film
as an identifier did not attract the rigour of this stated patented
technology. The issue was actually over with that corrigendum.
45. Insofar as the participating entities are concerned, it cannot be
contended that all and sundry should be permitted to participate in
matters of this nature. In fact, in every tender there are certain qualifying
parameters whether it be technology or turnover. The Court cannot sit
over in judgment on what should be the turnover required for an entity to
participate. The prohibition arising from only a Limited company being
permitted to participate was again addressed by the corrigendum
permitting LLPs to participate. If entities like Kumbhat and Alpha want
to participate they must take some necessary actions. Alpha is already an
LLP. Kumbhat cannot insist that it will continue to be a partnership alone
and, thus, that partnerships must necessarily be allowed to participate.
46. Insofar as Kumbhat’s plea based on the Tender Act is concerned, a
reading of the provisions would show that some benefit is sought to be
given to MSMEs to the extent of 25% of the order based on their
willingness to match the price of the lowest tender. However, to be able
to avail of that benefit, it must be an entity which is capable of bidding in
[39]
terms of the tender conditions. There is no prohibition against limiting
the participation to Limited companies of LLPs. Domestic enterprise in
the Tender Act is defined to mean any micro and small enterprise as
defined in the MSMED Act. This argument also appears to be an
afterthought, as it is not as if Kumbhat participated claiming such right as
an MSME.
47. Now coming to the issue of the requirement of three bidders or
more than three bidders, the factual position is that there were three
bidders and that one of them met the technical specifications but did not
succeed further on financial issues and turnover under Part 4 of the NIT.
The same cannot be used to nullify the whole tendering process. We are
dealing with a tender of a nature where there cannot be a vacuum. If
there is less participation than necessary, it cannot be said that ipso facto
the terms and conditions of tender have followed a DOSA, and to
somehow give the tender to one of the parties. Similar terms have been
set out in many tenders of different States and there have been varying
succeeding parties. No doubt, the success rate of the two successful
parties before us is definitely higher but we fail to appreciate how that
can form the basis to come to a conclusion that something must be done
[40]
to let other people get a tender. If one may say, it will then become a
DOSA to see that the most competitive party does not succeed in the
tender but that other parties who keep approaching the Court must get
some share of the pie. This cannot be the objective.
48. We have also noticed the submissions based on the fact that
repeated endeavours of Alpha and Kumbhat have failed not only before
the Madras High Court but before different High Courts based on a
similar challenge. Broadly, similar tender conditions have been upheld. It
cannot be that every time a tender is floated, Kumbhat and Alpha would
be permitted to seek a toehold on one pretext or the other. As noticed, it
is not really the function of the Court to vet the terms of the NIT, as it is
the decision-making process which can be reviewed in judicial scrutiny.27
49. A lot of emphasis has been placed by the Courts below in seeking
to go into the financial linkages between the two companies, i.e., Uflex
and Montage. The correct way of examining this issue should have been
that whether under the terms of the NIT, any of the aspects which were
examined by the Courts could be said to be a disqualification. In our
view, the answer to the same was in the negative. One company had
invested in another through certain preference shares without having any
27 Tata Cellular (supra).
[41]
controlling interest, this cannot be the basis of judicial scrutiny. The
present case is not one of an intercorporate battle or of minority
shareholders claiming the rights or any debts due, where the principle of
lifting the corporate veil should be applied. What one may have said in
some income tax proceedings, whether a small percentage of the funds of
one company have been utilized as investment in the other are hardly the
principles which should come into play in such a tender matter.
50. We are thus unequivocally of the view that the impugned order
cannot be sustained for all the aforesaid reasons and must be set aside
and the appeals are accordingly allowed.
Costs:
51. The costs following cause is a principle which is followed in most
countries. There seems to be often a hesitancy in our judicial system to
impose costs, presuming as if it is a reflection on the counsel. This is not
the correct approach. In a tussle for enforcement of rights against a State
different principle apply but in commercial matters costs must follow the
cause.
[42]
52. The aspect of awarding the costs has received consideration of the
Law Commission of India in its Report No.240, specifically in relation to
civil litigation. The trigger for this were the observations of the Supreme
Court in Ashok Kumar Mittal v. Ram Kumar Gupta28 and Vinod Seth v.
Devinder Bajaj29. The judicial pronouncements took note of the levying
meager costs in civil matters which did not act as a deterrent to vexatious
or luxury litigation borne out of ego or greed or resorted to as a ‘buying
time’ tactic. These two judicial pronouncements were followed in
Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust30. In the said
proceeding the Law Commission also presented its views. It is in that
context that this Court observed that appropriate changes in the
provisions relating to costs contained in the report of the Law
Commission of India should be followed up by the Parliament and the
respective High Courts.
53. We may note that the common thread running through all these
three cases is the reiteration of salutary principles: (i) costs should
ordinarily follow the event; (ii) realistic costs ought to be awarded
28 (2009) 2 SCC 656.
29 (2010) 8 SCC 1.
30 (2012) 1 SCC 455.
[43]
keeping in view the ever increasing litigation expenses; and (iii) the cost
should serve the purpose of curbing frivolous and vexatious litigation.31
54. We may note that this endeavour in India is not unique to our
country and in a way adopts the principle prevalent in England of costs
following the event. The position may be somewhat different in the
United States but then there are different principles applicable where
champerty is prevalent. No doubt in most of the countries like India the
discretion is with the Court. There has to be a proportionality to the costs
and if they are unreasonable, the doubt would be resolved in favour of the
paying party32. As per Halsbury’s Laws of England, the discretion to
award costs must be exercised judicially and in accordance with reason
and justice.33 The following principles have been set out therein:
“In deciding what order (if any) to make about costs, the court
must have regard to all the circumstances, including:
(i) The conduct of all the parties;
(ii) Whether a party has succeeded on part of his case, even if he
has not been wholly successful; and
(iii) Any payment into court or admissible offer to settle made by
a party which is drawn to the court’s attention.
31 Report No.240 of the Law Commission of India.
32 U.K. Civil Procedure Rule 44.2.
33 Vol. 10, 4th Ed. (Para 15).
[44]
The conduct of the parties includes:
a. Conduct before, as well as during, the proceedings and in
particular the extent to which the parties followed any relevant
pre-action protocol;
b. Whether it was reasonable for a party to raise, pursue or contest
a particular allegation or issue;
c. The manner in which a party has pursued or defended his case
or a particular allegation or issue; and
d. Whether a claimant who has succeeded in his claim, in whole
or in part, exaggerated his claim.”34
55. We may add that similar principles are followed in Australia, Hong
Kong and Canada largely based on the Common Law principle. In fact
in Canada, the Manitoba Law Commission Report analysed the ‘Costs
Awards in Civil Litigation’ and referred to six broad goals as under:
a. indemnification – successful litigants ought to at least be
partially indemnified against their legal costs;
b. deterrence – potential litigants should carefully assess the merits
of the claim and should refrain from taking any unnecessary legal
actions;
c. rules should be made decipherable and simple to understand;
d. early settlement of disputes should be encouraged;
34 10th Vol. 4th Ed. (Para 17).
[45]
e. the costs regime should facilitate access to justice; and
f. there should be flexibility in rules to ensure that justice can be
done.35
56. We have set forth the aforesaid so that there is appreciation of the
principles that in carrying on commercial litigation, parties must weigh
the commercial interests, which would include the consequences of the
matter not receiving favourable consideration by the courts. Mindless
appeals should not be the rule. We are conscious that in the given facts of
the case the respondents have succeeded before the Division Bench
though they failed before the learned single Judge. Suffice to say that all
the parties before us are financially strong and took a commercial
decision to carry this legal battle right up to this Court. They must, thus,
face the consequences and costs of success or failure in the present
proceedings.
57. The best reflection of what costs have been incurred is what the
parties have paid towards the counsel fee and out of pocket expenses. The
present proceedings do arise from a writ proceeding under Article 226 of
the Constitution but it is really a commercial dispute. Thus, the failing
35 Law Commission (supra).
[46]
party cannot hide behind the veneer of the present dispute being in the
nature of a writ proceeding. The tender jurisdiction was created for
scrutiny of commercial matters and, thus, where continuously parties
seek to challenge award of tenders, we are of the view that the
succeeding party must get costs and the party which loses must pay costs.
This was really a battle between two commercial entities on one side
seeking to get set aside an award of a tender to two other entities. What
else would be commercial interest!
58. It is with the aforesaid objective that we had asked the parties to
file their bill of costs vide order dated 17.08.2021. The objective was to
bring forth this principle into force by quantifying actual costs for the
succeeding party.
59. We have scrutinised the bill of fee and costs. We are inclined to
allow actual costs. However, we have modulated the costs insofar as
appellant is concerned to the extent of the indicated amount of the
Advocate-on-Record and allow 50% of the same. The total costs, thus,
payable to the petitioner/appellant would be Rs.23,25,750/- (Rupees
twenty three lakh twenty five thousand seven hundred fifty only). The
State Government cannot be left behind so far as their compensation of
[47]
costs in defending such a litigation is concerned and we, thus, allow the
costs of Rs.7,58,000/- (Rupees seven lakh fifty eight thousand only).
60. The costs be accordingly paid within a period of four weeks by
Kumbhat and Alpha in equal share to the two parties as aforesaid.
...……………………………J.
[Sanjay Kishan Kaul]
...……………………………J.
[Hrishikesh Roy]
New Delhi.
September 17, 2021.
[48]
