reported / published in http://bombayhighcourt.nic.in/judgements/2012/&fname=OSWP1312.pdf&smflag=N
Bombay High Court
kambli 1 PIL-9.12 dt.12-12-12
IN THE HIGH COURT OF JUDICATURE AT BOMBAY.
ORDINARY ORIGINAL CIVIL JURISDICTION
PUBLIC INTEREST LITIGATION NO.9 OF 2012
…
Niyaz Ahmed Vanu ...Petitioner
v/s.
1.Municipal Corporation of Gr.Mumbai
(M.C.G.M.)
2.The Municipal Commissioner, (M.C.G.M.)
3.The Chief Engineer
(Roads Transport & Bridges)
(M.C.G.M.)
4.M/s.SGS India Pvt.Ltd.
Having their office at SGS House,
4-B, A.S.Marg, Vikhroli (West)
Mumbai- 400 083 ...Respondents
…
Mr.Arshad Shaikh with Mr.Aditya Shiralkar i/b M/s.Shiralkar & Co. for
the petitioner.
Mr.E.P.Bharucha, Sr.Advocate with Ms.S.M.Modhale for RespondentsBMC.
Mr.Iqbal Chagla, Sr.Advocate with Mr.Aniruddha Joshi and Mr.Nikhil
Karnawat i/b Mr.Viraj Maniar for respondent No.4.
...
CORAM: MOHIT S. SHAH, C.J. ,
RANJIT MORE, J. &
A.A.SAYED, J.
JUDGMENT PRONOUNCED ON: 14 December 2012
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JUDGMENT : (PER CHIEF JUSTICE)
This Full Bench has been constituted for considering the
following question referred by the Division Bench of this Court (Coram:
S.A.Bobde & R.D.Dhanuka, JJ.) by order dated 21 February 2012:
“Whether the work of quality audit of roads or work of
similar nature involves “the execution of any work or
supply of any materials or goods” within the meaning of
Section 72 of the Mumbai Municipal Corporation Act, 1881
and can be awarded by the Commissioner only by inviting
tenders, as contemplated by that provision?”
2. The broad facts leading to the present reference are as
under:-
The petitioner has challenged the award of the contract by
the Municipal Corporation for Gr.Mumbai for quality assurance, quality
control and quality audit of road works for a sum of Rs.4.17 crore. The
contract is awarded in pursuance of the Resolution dated 4 January 2012
of the Standing Committee of the Municipal Corporation for
appointment of a world class auditor for roads. The Corporation has
accordingly allotted the task to respondent No.4-SGS India Pvt.Ltd.,
which in the opinion of the Municipal Corporation is a world class
auditor and which is already doing the same work of quality audit of
road works at several places such as Mumbai International Airport,
PMGSY Golden Quadrilateral and several other Municipal Corporations
in the State of Maharashtra. The Standing Committee noted that at that
stage time was not available for complying with the process for
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appointing third party inspecting organization by inviting tenders.
Institutions which are undertaking such type of audit work are very few.
It was necessary to appoint the consultant of world class level for
quality audit of construction of roads by metalization and by providing
cement concrete. The Standing Committee noted that respondent No.4 is
a world level organization which does such audit work in 170 countries.
The audit charges of respondent No.4 will be 0.85% of the costs of
work of construction of roads, i.e. on the costs of Rs.490.83 crore of
construction of roads, the audit charges of respondent No.4 will be
Rs.4.17 crore plus service tax.
3. The petitioner has challenged the legality of the said decision of
the Corporation on the ground that that the contract has been awarded
without inviting tenders and is, therefore, violative of the provisions of
section 72(1) of the Mumbai Municipal Corporation Act, 1881 (“the
Act”) and that the impugned decision is not justifiable under section
72(3) of the Act.
In support of the above contention, learned counsel for the
petitioner relied upon a decision of a Division Bench of this Court in
Qmax Consultants Pvt.Ltd. v/s. Municipal Corporation of Greater
Bombay & ors., 2006 (3) Mh.L.J. 281. According to the petitioner, this
Court has held in the said decision that such contracts which exceed
Rs.50,000/- in value are to be awarded only by floating a tender.
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4. At the hearing of PIL before the Division Bench, the
learned counsel appearing for the respondent-Municipal Corporation as
well as learned counsel appearing for respondent No.4-SGS India Pvt.
Ltd. made two fold submissions. In the first place, that the facts and
circumstances of the present case are very different from those in Qmax
case where the Court was dealing with simultaneous audit. Secondly, it
was submitted that section 72 of the Act does not apply to appointment
of auditor, advocate, chartered accountant or similar appointments of a
fiduciary nature. According to respondents, section 72 of the Act makes
it mandatory for the Municipal Commissioner to give a public notice
inviting tenders only where the contract is “for the execution of any
work, or, the supply of any materials and goods”, which involves an
expenditure exceeding Rs.50,000/-. But quality audit of roads, which
involves a simultaneous assessment and evaluation of work that is being
done on roads, does not involve the execution of any work or supply of
any material or goods as the nature of the task is supervisory and
involves the formation of opinion and is of such a nature as can be
allotted only to a person who has the trust and confidence of the
Corporation.
5. The Division Bench was of the prima facie view that the
appointment of an auditor does not involve execution of any work or
supply of any material or goods within the meaning of Section 72 of the
Act and, therefore, it might not be necessary for the Commissioner to
give notice by advertisement and invite tenders for making such
appointment, whether by way of a contract or otherwise. The Division
Bench, accordingly, has referred the above quoted question to a Larger
Bench.
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6. At the hearing of this reference, the learned counsel for the
petitioner submitted that the reference is misconceived, because the
Resolution of the Standing Committee is passed on the submission of
the Municipal Commissioner made under Section 72(3) of the Act,
which is in the nature of proviso to sub-section (1) of Section 72
requiring the Municipal Commissioner to enter into a contract for
execution of any work … for more than Rs.50,000/-, after issuing a
public advertisement and inviting tenders for such contract. Sub-section
(3) of Section 72 empowers the Standing Committee to authorise the
Municipal Commissioner to enter into such a contract without inviting
tenders, for reasons which shall be recorded in that proceeding. It is,
therefore, submitted that since the submission of the Municipal
Commissioner and the office note requesting the approval of the
Standing Committee itself is submitted under Section 72(3) of the Act,
the Municipal Corporation itself has proceeded on the premise that
awarding contract for quality audit of construction of roads is covered
by the expression “a contract for execution of any work”.
Secondly, it is submitted that the Division Bench in Qmax
Consultant case had given cogent reasons for coming to the conclusion
that such a contract can be awarded only after inviting tenders. Hence,
there is no justification to take a different view.
Reliance is placed on the definition of the term “audit” in
Black's Law Dictionary, 9th Edition, as under:
“Audit: A formal examination of an individual's or
organization's accounting records, financial situation, or
compliance with some other set of standards. See
GENERALLY ACCEPTED AUDITING STANDARDS”
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Hence, contract for quality audit of construction of roads would fall within
the expression “a contract for execution of any work.”
7. On the other hand, Mr.Bharucha, learned Sr.counsel for
respondent No.1-Municipal Corporation and Mr.Chagla, learned Sr.counsel
for respondent No.4-SGS India Pvt.Ltd. have submitted that the question of
law referred by the Division Bench cannot be determined on the basis of
office submission of an officer of the Municipal Corporation and that such
a question has to be decided independently in light of the provisions of
Constitution and MMC Act. It is also submitted that in Qmax case the
Division Bench proceeded on the basis of a concession that in normal
circumstance a contract for quality audit of road works could not have been
awarded without inviting tenders. It is, therefore, submitted that the
Division Bench in Qmax case had no occasion to consider the question
which is the subject matter of the present reference.
8. Section 72 of the MMC Act, 1888 reads as under:
Tenders to be invited for the Contracts involving
expenditure exceeding Rs.50,000/-
72. (1) Except as is hereinafter otherwise provided the
Commissioner shall, at least seven days before entering
into any contract for the execution of any work or the
supply of any materials or goods which will involve an
expenditure exceeding fifty thousand rupees, give notice by
advertisement in the local newspapers, inviting tenders for
such contract.
(2) The Commissioner shall not be bound to accept any
tender, which may be made in pursuance of such notice, but
may accept, subject to the provisions of clause (c) of
section 69, any of the tenders so made which appears to
him, upon a view of all the circumstances, to be the most
advantageous.
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(3) Provided that the standing committee or in the case of, a
contract to be entered into for the purposes of clause (q) of
section 61 the Education Committee may authorize the
Commissioner, for reasons which shall be recorded in their
proceedings, to enter into a contract without inviting
tenders as herein provided or without accepting any tender
which he may receive after having invited them.
9. Before proceeding further, we may refer to the facts in the
Qmax Consultant case. There also, the concerned respondent was
appointed as consultant for the work of quality audit of road works in
the city of Mumbai and suburbs. The decision was challenged on the
ground that the contract was awarded without inviting tenders as
required under Section 72 of the MMC Act. Petition was filed by a
Project Management Consultant with large experience in the field of
project management consultancy work in the State of Maharashtra,
Gujarat and Madhya Pradesh. The petitioner had contended that it had
carried out similar quality audit work elsewhere. It was also pointed out
that there were sixteen reputed consultants in the same field. The
Resolution of the Standing Committee purportedly under Section 72(3)
of the MMC Act in that case referred to the reasons set out in the
proposal of the Municipal Commissioner. The relevant paragraphs of
the Commissioner's proposal mentioned that only selected few
organizations were dealing with quality control audit and therefore no
purpose would be served by inviting tenders. The Division Bench in
Qmax case found that there was nothing on record to show that the
Standing Committee had considered all relevant aspects and that though
more than one affidavit was filed on behalf of the respondent-authority,
there was no denial of the averments made in the petition that there were
sixteen reputed consultants who could do the job. The Court, thus, came
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to the conclusion that the reasons relied upon by the Standing
Committee proceeded on erroneous assumption that there were very few
organizations dealing with the work of quality audit of construction of
roads.
10. We are, therefore, of the view that the decision of this Court
in Qmax Consultant case proceeded on an agreed sub silentio position
that the appointment of auditor for quality audit of construction of roads
was “contract for execution of any work” as contemplated by subsection (1) of Section 72 of the Act. The Division Bench was only
called upon to decide whether the Corporation had given justification
for not inviting tenders, as contemplated by sub-section (3) of Section
72. The Division Bench was not called upon to decide the question,
which is referred for our opinion.
11. Secondly, we may refer to the submissions of the learned
counsel for the respondents that in the affidavit dated 24 January 2012
filed by the Chief Engineer (Roads, Traffic and Bridges) of Mumbai
Municipal Corporation, it is stated that
(i) the work order for improvement of roads, in asphalt and
concretisation of roads in Mumbai, was issued on 17 October 2011 and
the work was to commence immediately. It was, therefore, necessary to
expeditiously appoint Agency for Quality Control, Monitoring and
Quality Audit for road works, which was required to inspect the raw
materials both at source as well as at the site and carry out daily quality
control tests and monitor the work on day to day basis and suggest
corrective measures which would be implemented at site. Such Agency
is also required to check the workmanship, for example surface
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irregularities, depressions, thickness of layers etc. during the course of
construction of roads. If the tenders for the said work were to be invited,
the process would have delayed the quality control and monitoring of
road works.
(ii) In view of the above, the Municipal Corporation called
upon respondent No.4- (SGS India Pvt.Ltd.) to submit a proposal for
“Project Monitoring Services for Quality Assurance and Quality Control
for the construction of various roads.” Respondent No.4 submitted its
proposal on 26 September 2011 and offered to carry out the work on
0.85% of the contract costs. Respondent No.4 mentioned that it has
been operating in India since 1950 through a network of over 50 offices
and 28 laboratories manned by more than 4400 personnel. Respondent
No.4 is a global leader in verification, testing, inspection and
certification services with over 5 Billion Swiss Francs in revenue, 64000
employees, 1000 offices, 338 laboratories and with presence in 170
countries. At that time, respondent No.4 was carrying out similar work
for Pradhanmantri Gram Sadak Yojana (Golden Quadrilateral) and also
for other Municipal Corporations in the State of Maharashtra.
Respondent No.4 also indicated that it had the resources to inspect raw
materials both at “source” as well as at “site” and carry out daily quality
control test and monitor the work being carried out.
(iii) In view of the above and the urgency involved, the
Additional Municipal Commissioner placed the proposal before the
Standing Committee on 29 September 2011 when the petitioner, who is
a Member of Standing Committee, was also present, but did not oppose
the proposal and the proposal was unanimously approved by the
Standing Committee.
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(iv) Since not a single member raised any objection at the
meeting of the Standing Committee on 29 September 2011, when
informal approval for appointment of respondent No.4 was granted, the
letter of acceptance was issued to respondent No.4 on 10 October 2011
and thereafter the Municipal Commissioner put up the proposal before
the Standing Committee for dispensing with condition of inviting
tenders as provided in Section 72(3) of the Act and for appointment of
respondent No.4 on 19 December 2011 for major roads and on 21
December 2011 for minor roads. The Standing Committee approved the
proposal at its meeting held on 4 January 2012.
(v) Respondent No.4 deployed 44 engineers at various sites,
who have submitted a number of reports after carrying out the required
audits. The said audits have shown number of deficiencies and
deliberate omissions by various contractors carrying out the road works
assigned to them. The audits revealed that in some cases, the roads
constructed were of 400 mm thickness instead of 980 mm. It was found
that the excavation and the quality of the material was not as per the
standards of the Municipal Corporation. The concrete mix in one case
was not according to required standards.
(vi) The work of quality control and monitoring plus quality
audit is a specialised/professional work. Therefore, if tenders were to be
invited, these respondents will have to select the lowest. Professional
Auditors cannot be chosen on the basis of financial qualification.
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12. It is important to note that the stand of the Municipal
Corporation is that appointment of respondent No.4 was required to be
made urgently, as indicated above. After receiving the petitioner's
objection, the Municipal Corporation has been inviting Expression of
Interest for empanelment of agencies for carrying out quality control
monitoring and quality audit of all roads. Empanelment for professional
services is done on the basis of technical and professional expertise and
the panel is formed. Generally work is allotted on a rotation basis with
prefixed rates. Thus, deferment of appointment of a professional third
party quality auditor till empanelment process is over, would not have
saved any money for Municipal Corporation. The Corporation was
satisfied about the capability of respondent No.4 for empanelment and
thus the Municipal Corporation has ensured quality of audit. The
impugned action of appointing the global leader to ensure that the
construction of roads in Mumbai done on a higher standard is, thus, in
consonance with the public interest.
13. In the affidavit dated 23 January 2012 on behalf of
respondent No.4, the contention of the petitioner that there are eighteen
other organizations which were competent to do quality audit of
construction of roads has been dealt with in the following words:-
“As far as this respondent is aware most of the 18 entities
cannot match such worldwide exposure. The difference
between this respondent and 18 entities mentioned in the list
annexed by the petitioner can be gauged from the fact that
this respondent has been authorized by UKAS governing
body for ISO certification and are also registered with
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Quality Council of India and National Accreditation Board
for Certifications Bodies and granted ISO 17020. This
respondent has the authority to issue ISO Certificates to
various organizations who qualify for such certification.
None of the 18 entities has been similarly empowered
atleast, to the knowledge of this respondent. The petitioner's
ignorance of these factors is thus evident.
14. It is also necessary to note that by the time, when the
reference was being heard, the learned counsel for the Municipal
Corporation pointed out that 80 to 90% of the audit work was already
completed by respondent No.4. With the consent of the learned counsel
for parties, therefore, we also heard the Public Interest Litigation on
merits.
15. The petition , thus, raises two important questions,
(i) as referred by the Division Bench by order dated 21 February 2012;
(ii) in case the answer to question (i) is in the affirmative, whether the
decision given by the Municipal Corporation for not inviting tenders
before appointing the respondent No.4 as a quality auditor for
construction of roads is required to be accepted as sufficient justification
under sub-section (3) of Section 72 of the Act.
16. Mr.Bharucha, learned Sr.counsel for the respondentMunicipal Corporation submitted that the appointment of auditor either
for accounts or for quality audit of construction of roads or appointment
of a lawyer was not contemplated by the expression “the execution of
any work or supply of any material or goods” in Section 72 of the Act. It
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is submitted that if tenders were to be invited for all such appointments
and if the appointments were to be made on the basis of quotation of
fees or audit charges, the Corporation i.e. the people of city of Mumbai,
may not be able to get the services of competent auditors and
professionals in other fields. It is submitted that in the past while
awarding contract for construction of roads, the decisions were
ordinarily taken in favour of those submitting lowest bids. However,
after getting the contract, such contractor would compromise on the
quality and quantity of raw material to be used for construction of roads
and also compromise on the quality of workmanship. Hence, if the
appointment of quality auditor for construction of roads were also to be
made by following the same procedure of inviting tenders, the whole
purpose of quality audit would be completely frustrated. Due to
complaints received regarding the quality of the roads in Mumbai, the
Municipal Corporation appointed Standing Technical Advisory
committee (hereinafter called “STAC”) had recommended that all road
works be subjected to a Third Party Quality Audit. Accordingly, the
quality assurance manual for road work and the manual for the external
quality audit system for road works were prepared and approved by
STAC and have been applicable since July 2005. Since then the
respondent-Municipal Corporation had issued a number of tenders for
various road work projects. The tender process had resulted in various
local contractors bidding at very low rates. The respondent-Municipal
Corporation acting in its character as a public authority had no option
but to accept the lowest bids which in some cases were 20%-25% less
than the estimated costs of the projects.
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The Quality Audit of the various projects was done
quarterly as per the said Manual. Test samples were taken by the said
auditors from the roads being constructed and sent to the Municipal
laboratory to check the quality of the road works. Thereafter the review
of test results would be taken every quarter. During a meeting held on 6
august 2011 between the Chief Minister of Maharashtra, the Municipal
Commissioner, the Chairman of STAC and Prof.K.V.Krishna Rao of IIT
Mumbai, the issue of quality control on road works was discussed. It
was decided that in view of the earlier quality control method proving
insufficient, consultants of international repute having appropriate work
experience should be appointed for Project Monitoring and Quality
Audit so as to ensure quality control for road works.
17. From the aforesaid averments, it appears that the
Corporation has not correctly appreciated the provisions of Section
72(2) of the MMC Act as well as the correct legal position laid down by
the Supreme Court in a catena of decisions, while awarding contracts for
construction of roads. The Corporation seems to be proceeding on the
basis as if the public authority has no option but to accept the lowest
bids, even if such bids are 20-25% less than the estimated cost of the
project. Sub-section (2) of Section 72 itself provides that the
Commissioner shall not be bound to accept any tender which may be
made in pursuance of public notice, but may accept “subject to the
provision of Section 69(c) of the Act”, any of the tenders so made which
appears to him, upon a view of all the circumstances, to be the most
advantageous.
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18. It is, therefore, obvious that the Commissioner is entitled to
take into consideration all the relevant circumstances. The financial
bidding made by the tenderer is only one of the several circumstances.
In G.D.Zalani and another v/s. Union of India and ors, AIR 1995 SC
1178, the Supreme Court has held that when a public authority like
Hindustan Antibiotics Ltd. engaged in the manufacture of several
antibiotics drugs looks for a partner for collaboration for the purpose of
improving the quality and utility of one of its products Penicillin-G, and
to achieve full capacity the HAL was entitled to select the most suitable
parter by evaluating the technology being offered by a party. The HAL,
thus, trying to improve the quality of its products was entitled to go for
the best partner.
19. It is also necessary to note at this stage the meaning of the
term “quality control”. In Tata engineering & Locomotive Co.Ltd. v/s.
Commissioner of Central Excise, Pune, 2010 (256) E.L.T.56 (Bom.), a
Division Bench of this Court explained the importance of quality control
in the following words:-
24 Quality control is a process employed to ensure a
certain level of quality in a product or service. It may
include whatever actions a business deems necessary to
provide for the control and verification of certain
characteristics of a product or service. The basic goal of
quality control is to ensure that the products, services, or
processes provided meet specific requirements and are
dependable, satisfactory, and fiscally sound.
25 The quality control essentially involves examination
of a product, service, or process for certain minimum levels
of quality. The goal of a quality control is to identify
products or services that do not meet a company s specified
standards of quality. If a problem is identified, the job of a
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quality control team or professional may involve stopping
production temporarily. Depending on the particular
service or product, as well as the type of problem
identified, production or implementation may not cease
entirely.
26 In majority of the industries quality inputs is
examined with respect to its quality and strength much
before the input is used in final product. In some industries,
quality check is undertaken after manufacture of final
product. In some cases quality check is undertaken at both
stages i.e. before and after manufacture of finished product
such as pharmaceutical products wherein input undergoes
quality test before it is used in manufacture of final product
and thereafter again after final product is tested vis a vis its
quality and potency.
27 In the present case, the raw material used for testing
in a laboratory located within the factory premises much
before actual manufacture of final products needs to be
considered, keeping in mind, the expression the goods used
in or in relation to the manufacture of such final product
and inputs which are manufactured and used within the
factory of production, in or in relation to the manufacture
of final product appearing in Rule 57A of the Rules and
explanation thereof.
20. It is clear that in the facts of the present case also the
Municipal Corporation decided to go for quality control at both stages
i.e. before and after construction of roads, so that the raw materials also
undergo quality test before they are used and also at the stage of actual
construction of roads and thereafter when the construction of roads is
completed.
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21. Having given anxious consideration to the propositions laid
down in various decisions, it appears to us that the Municipal
Corporation is entitled and empowered to reject a bid which may be the
lowest bid for awarding contract for construction of roads, if the bidder
with the lowest bid is not able to satisfy the Municipal Corporation
about its ability and competence to execute a work of required quality
and standards. For arriving at such satisfaction, it is open to the
Competent Authority, inter alia, to look into the past performance of the
bidder, both in terms of quality and punctuality in execution of the
contracts, whether contracts were awarded by the respondent-Municipal
Corporation itself or other authorities or organizations. It goes without
saying that the concerned officers of the Municipal Corporation may
also like to see the performance themselves and not rest content with
certificates issued by other authorities.
22. All that is necessary for the public authority to do is to
conduct itself fairly and transparently. When an authority which is
“State” within the meaning of Article 12 of the Constitution decides to
award a contract it must ordinarily prescribe the specifications which an
intending bidder must fulfill. These specifications include the laying
down of credentials, experience, financial capacity and other like facets.
The consequence of these norms is that a bidder, who enters into a
contract with a public authorities, must have a demonstrable capacity to
fulfill the requirements of the contract in terms of technical
qualifications (availability of infrastructure, qualified personnel and
experience in handling similar contracts) and financial commitment
(having the wherewithal to fulfill the requirements of the contract).
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23. In Master Marine Services (P) Ltd. v/s. Metcalfe &
Hodgkinson (P) Ltd. And another, (2005) 6 SCC 138, the Apex Court
reviewed a large number of decisions and the proposition laid down in
Air India Ltd. v/s. Cochin International Airport Ltd., (2000) 2 SCC 617,
where the law relating to scope of judicial review in matters of awarding
of contract by public sector corporation was reviewed and it was held:-
15. The law relating to award of contract by State and
public sector corporations was reviewed in Air India Ltd.
v/s. Cochin International Airport Ltd. 2000 (2) SCC 617
and it was held that the award of a contract, whether by a
private party or by a State, is essentially a commercial
transaction. It can choose its own method to arrive at a
decision and it is free to grant any relaxation for bona fide
reasons, if the tender conditions permit such a relaxation. It
was further held that the State, its corporations,
instrumentalities and agencies have the public duty to be
fair to all concerned. Even when some defect is found in
the decision making process, the Court must exercise its
discretionary powers 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
interfere.
24. In State of Maharashtra and ors. v/s. Prabhu, (1994) 2 SCC
481, a three Judge Bench of the Apex Court explained the discretionary
nature of writ jurisdiction in the following words:
4. Even assuming that construction placed by the High
Court and vehemently defended by the learned counsel for
respondent is correct, should the High Court have
interfered with the order of Government in exercise of its
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equity jurisdiction? The distinction between writs issued as
a matter of right such as habeas corpus and those issued in
exercise of discretion such as certiorari and mandamus are
well known and explained in countless decisions given by
this Court and English Courts. It is not necessary to recount
them. The High Courts exercise control over Government
functioning and ensure obedience of rules and law by
enforcing proper, fair and just performance of duty. Where
the Government or any authority passes an order which is
contrary to rules or law it becomes amenable to correction
by the courts in exercise of writ jurisdiction. But one of the
principles inherent in it is that the exercise of power should
be for the sake of justice. One of the yardstick for it is if
the quashing of the order results in greater harm to the
society then the court may restrain from exercising the
power.
25. It is also necessary to note that in Qmax Consultant case,
the petitioner was one of the parties, which was considering itself
competent to do the work of quality of audit of construction of roads,
was excluded from the audit work. In the facts of the present case, the
respondents have not only given justification for not inviting tenders,
but also pointed out that respondent No.4 is a global leader in the work
of audit of construction of roads and is already appointed as such auditor
by many other Municipal Corporations in the State of Maharashtra and
also by the Mumbai International Airport Authority.
26. In Kasturi Lal Lakshmi Reddy v/s. State of Jammu &
Kashmir, (1980) 4 SCC 1, the contract was for extraction of resin from
inaccessible chir forests in the State of Jammu and Kashmir. The
Supreme Court observed as under:-
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14. Where any governmental action fails to satisfy the
test of reasonableness and public interest and is found to
be wanting in the qualities of reasonableness or lacking in
the element of public interest, it would be liable to be
struck down as invalid. It must follow as a necessary
corollary from this proposition that the Government cannot
act in a manner which would benefit a private party at the
cost of the State; such an action would be both
unreasonable and contrary to public interest. The
Government, therefore, cannot, for example, give a
contract or sell or lease-out its property for a consideration
less than the highest that can be obtained for it, unless of
course there are other considerations which render it
reasonable and in public interest to do so. Such
considerations may be that some Directive Principle is
sought to be advanced or implemented or that the contract
or the property is given not with a view, to earning revenue
but for the purpose of carrying out a welfare scheme for
the benefit of a particular group or section of people
deserving it or that the person who has offered a higher
consideration is not otherwise fit to be given the contract
at the property. These considerations are referred to only
illustratively for there may be an infinite variety of
considerations which may have to be taken into account by
the Government in formulating its policies and it is on a
total evaluation of various considerations which have
weighed with the Government in taking a particular action,
that the Court would have to decide whether the action of
the Government is reasonable and in public interest. But
one basic principle which must guide the Court in arriving
at its determination on this question is that there is always
a presumption that the Government action is reasonable
and in public interest and it is for the party challenging its
validity to show that it is wanting in reasonableness or is
not informed with public interest. This burden is a heavy
one and it has to be discharged to the satisfaction of the
Court by proper and adequate material. The Court cannot
lightly assume that the action taken by the Government is
unreasonable or without public interest because, there are a
large number of policy considerations which must
necessarily weigh with the Government in taking action
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and therefore the Court would not strike down
governmental action as invalid on this ground, unless it is
clearly satisfied that the action is unreasonable or not in
public interest.
27. The considerations which may apply for the purpose of
awarding a contract for disposal of a property would not necessarily
apply when a public authority is to appoint a professional, who must
enjoy the trust and confidence of the public authority. For instance, for
appointment of an auditor or for appointment of a lawyer, tenders cannot
be invited, because the competence and credentials of a professional
cannot be decided on the basis of financial quotations.
28. We are also satisfied that the stand of the respondentMunicipal Corporation is reasonable- while appointment of respondent
No.4 was made without giving any public notice, in view of the urgency
involved at the relevant time, the Corporation has decided to prepare a
panel of auditors for quality audit of construction of roads and that work
of quality audit will be entrusted to the auditors so empaneled.
29. As regards the preliminary objection, we may also note
that the petitioner himself is not in the business of providing quality
audit for construction roads. None of the parties, who are in the
profession of quality audit of construction of roads have come to the
Court. In fact, the petitioner is a Member of the Standing Committee of
the respondent-Municipal Corporation, who was present at the first
meeting when the informal discussion had taken place for approval of
the contract for audit of construction of roads and the petitioner had not
objected for selection of respondent No.4 for appointment as quality
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auditor for construction of roads. However, in the view that we are
taking on the merits of the matter, it is not necessary to give a finding on
the preliminary objection.
30. In view of the above discussion, our conclusions are as
under:-
(I) While awarding contracts for construction of roads,
the Mumbai Municipal Corporation has been proceeding on
the erroneous basis that a public authority has no option but
to accept the lowest bids, even if such bids are 20-25% less
than estimated cost of the project.
(II) As provided in Subsection (2) of Section 72 of the
Mumbai Municipal Corporation Act itself, the Competent
Authority is not bound to accept any tender, which may be
made in pursuance of the public notice and that the
authority may accept any of the tender so made, which
appears to the Competent Authority, upon a review of all
the circumstances, to be the most advantageous to public
interest.
(III) The work of quality audit of roads or work of similar
nature is not covered by the expression “the execution of
any work or supply of any materials or goods” within the
meaning of Section 72(1) of the Mumbai Municipal
Corporation Act, 1881.
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(IV) For awarding contracts for quality audit of roads or
for work of similar nature, it would be sufficient for the
Corporation to give, over a period of time, an opportunity to
be considered for empanelment of auditor, without
necessarily inviting bids from those who are qualified and
competent for such work.
(V) For appointing professionals, who must enjoy trust
and confidence of the public authority, tenders are not to be
invited because there may be qualified and competent
professionals who would not like to submit applications for
appointment as auditors and consultants.
(VI) In the facts of the present case, even if it were to be
held that tenders were required to be invited for
appointment of auditors, for quality assurance, quality
control and quality audit of road works, the impugned
decision of the Municipal Corporation to award the contract
to respondent no.4, by dispensing with inviting tenders, was
justified in view of the urgency involved.
31. In the result, our answers to the question referred by the
Division Bench is as under:
“The work of quality audit of roads or work of similar
nature to be done by a person who must enjoy trust and
confidence of the public authority is not covered by the
expression “the execution of any work or supply of any
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materials or goods” within the meaning of Subsection (1)
of Section 72 of the Mumbai Municipal Corporation Act,
1881. Hence, it is not necessary for Municipal
Commissioner to assign such work only by inviting tenders
as contemplated by the proviso, i.e. sub-section (3) of
Section 72 of the said Act.”
32. The PIL petition is dismissed.
CHIEF JUSTICE
(RANJIT MORE, J.)
(A.A.SAYED, J.)
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY.
ORDINARY ORIGINAL CIVIL JURISDICTION
PUBLIC INTEREST LITIGATION NO.9 OF 2012
…
Niyaz Ahmed Vanu ...Petitioner
v/s.
1.Municipal Corporation of Gr.Mumbai
(M.C.G.M.)
2.The Municipal Commissioner, (M.C.G.M.)
3.The Chief Engineer
(Roads Transport & Bridges)
(M.C.G.M.)
4.M/s.SGS India Pvt.Ltd.
Having their office at SGS House,
4-B, A.S.Marg, Vikhroli (West)
Mumbai- 400 083 ...Respondents
…
Mr.Arshad Shaikh with Mr.Aditya Shiralkar i/b M/s.Shiralkar & Co. for
the petitioner.
Mr.E.P.Bharucha, Sr.Advocate with Ms.S.M.Modhale for RespondentsBMC.
Mr.Iqbal Chagla, Sr.Advocate with Mr.Aniruddha Joshi and Mr.Nikhil
Karnawat i/b Mr.Viraj Maniar for respondent No.4.
...
CORAM: MOHIT S. SHAH, C.J. ,
RANJIT MORE, J. &
A.A.SAYED, J.
JUDGMENT PRONOUNCED ON: 14 December 2012
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JUDGMENT : (PER CHIEF JUSTICE)
This Full Bench has been constituted for considering the
following question referred by the Division Bench of this Court (Coram:
S.A.Bobde & R.D.Dhanuka, JJ.) by order dated 21 February 2012:
“Whether the work of quality audit of roads or work of
similar nature involves “the execution of any work or
supply of any materials or goods” within the meaning of
Section 72 of the Mumbai Municipal Corporation Act, 1881
and can be awarded by the Commissioner only by inviting
tenders, as contemplated by that provision?”
2. The broad facts leading to the present reference are as
under:-
The petitioner has challenged the award of the contract by
the Municipal Corporation for Gr.Mumbai for quality assurance, quality
control and quality audit of road works for a sum of Rs.4.17 crore. The
contract is awarded in pursuance of the Resolution dated 4 January 2012
of the Standing Committee of the Municipal Corporation for
appointment of a world class auditor for roads. The Corporation has
accordingly allotted the task to respondent No.4-SGS India Pvt.Ltd.,
which in the opinion of the Municipal Corporation is a world class
auditor and which is already doing the same work of quality audit of
road works at several places such as Mumbai International Airport,
PMGSY Golden Quadrilateral and several other Municipal Corporations
in the State of Maharashtra. The Standing Committee noted that at that
stage time was not available for complying with the process for
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appointing third party inspecting organization by inviting tenders.
Institutions which are undertaking such type of audit work are very few.
It was necessary to appoint the consultant of world class level for
quality audit of construction of roads by metalization and by providing
cement concrete. The Standing Committee noted that respondent No.4 is
a world level organization which does such audit work in 170 countries.
The audit charges of respondent No.4 will be 0.85% of the costs of
work of construction of roads, i.e. on the costs of Rs.490.83 crore of
construction of roads, the audit charges of respondent No.4 will be
Rs.4.17 crore plus service tax.
3. The petitioner has challenged the legality of the said decision of
the Corporation on the ground that that the contract has been awarded
without inviting tenders and is, therefore, violative of the provisions of
section 72(1) of the Mumbai Municipal Corporation Act, 1881 (“the
Act”) and that the impugned decision is not justifiable under section
72(3) of the Act.
In support of the above contention, learned counsel for the
petitioner relied upon a decision of a Division Bench of this Court in
Qmax Consultants Pvt.Ltd. v/s. Municipal Corporation of Greater
Bombay & ors., 2006 (3) Mh.L.J. 281. According to the petitioner, this
Court has held in the said decision that such contracts which exceed
Rs.50,000/- in value are to be awarded only by floating a tender.
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4. At the hearing of PIL before the Division Bench, the
learned counsel appearing for the respondent-Municipal Corporation as
well as learned counsel appearing for respondent No.4-SGS India Pvt.
Ltd. made two fold submissions. In the first place, that the facts and
circumstances of the present case are very different from those in Qmax
case where the Court was dealing with simultaneous audit. Secondly, it
was submitted that section 72 of the Act does not apply to appointment
of auditor, advocate, chartered accountant or similar appointments of a
fiduciary nature. According to respondents, section 72 of the Act makes
it mandatory for the Municipal Commissioner to give a public notice
inviting tenders only where the contract is “for the execution of any
work, or, the supply of any materials and goods”, which involves an
expenditure exceeding Rs.50,000/-. But quality audit of roads, which
involves a simultaneous assessment and evaluation of work that is being
done on roads, does not involve the execution of any work or supply of
any material or goods as the nature of the task is supervisory and
involves the formation of opinion and is of such a nature as can be
allotted only to a person who has the trust and confidence of the
Corporation.
5. The Division Bench was of the prima facie view that the
appointment of an auditor does not involve execution of any work or
supply of any material or goods within the meaning of Section 72 of the
Act and, therefore, it might not be necessary for the Commissioner to
give notice by advertisement and invite tenders for making such
appointment, whether by way of a contract or otherwise. The Division
Bench, accordingly, has referred the above quoted question to a Larger
Bench.
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6. At the hearing of this reference, the learned counsel for the
petitioner submitted that the reference is misconceived, because the
Resolution of the Standing Committee is passed on the submission of
the Municipal Commissioner made under Section 72(3) of the Act,
which is in the nature of proviso to sub-section (1) of Section 72
requiring the Municipal Commissioner to enter into a contract for
execution of any work … for more than Rs.50,000/-, after issuing a
public advertisement and inviting tenders for such contract. Sub-section
(3) of Section 72 empowers the Standing Committee to authorise the
Municipal Commissioner to enter into such a contract without inviting
tenders, for reasons which shall be recorded in that proceeding. It is,
therefore, submitted that since the submission of the Municipal
Commissioner and the office note requesting the approval of the
Standing Committee itself is submitted under Section 72(3) of the Act,
the Municipal Corporation itself has proceeded on the premise that
awarding contract for quality audit of construction of roads is covered
by the expression “a contract for execution of any work”.
Secondly, it is submitted that the Division Bench in Qmax
Consultant case had given cogent reasons for coming to the conclusion
that such a contract can be awarded only after inviting tenders. Hence,
there is no justification to take a different view.
Reliance is placed on the definition of the term “audit” in
Black's Law Dictionary, 9th Edition, as under:
“Audit: A formal examination of an individual's or
organization's accounting records, financial situation, or
compliance with some other set of standards. See
GENERALLY ACCEPTED AUDITING STANDARDS”
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Hence, contract for quality audit of construction of roads would fall within
the expression “a contract for execution of any work.”
7. On the other hand, Mr.Bharucha, learned Sr.counsel for
respondent No.1-Municipal Corporation and Mr.Chagla, learned Sr.counsel
for respondent No.4-SGS India Pvt.Ltd. have submitted that the question of
law referred by the Division Bench cannot be determined on the basis of
office submission of an officer of the Municipal Corporation and that such
a question has to be decided independently in light of the provisions of
Constitution and MMC Act. It is also submitted that in Qmax case the
Division Bench proceeded on the basis of a concession that in normal
circumstance a contract for quality audit of road works could not have been
awarded without inviting tenders. It is, therefore, submitted that the
Division Bench in Qmax case had no occasion to consider the question
which is the subject matter of the present reference.
8. Section 72 of the MMC Act, 1888 reads as under:
Tenders to be invited for the Contracts involving
expenditure exceeding Rs.50,000/-
72. (1) Except as is hereinafter otherwise provided the
Commissioner shall, at least seven days before entering
into any contract for the execution of any work or the
supply of any materials or goods which will involve an
expenditure exceeding fifty thousand rupees, give notice by
advertisement in the local newspapers, inviting tenders for
such contract.
(2) The Commissioner shall not be bound to accept any
tender, which may be made in pursuance of such notice, but
may accept, subject to the provisions of clause (c) of
section 69, any of the tenders so made which appears to
him, upon a view of all the circumstances, to be the most
advantageous.
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(3) Provided that the standing committee or in the case of, a
contract to be entered into for the purposes of clause (q) of
section 61 the Education Committee may authorize the
Commissioner, for reasons which shall be recorded in their
proceedings, to enter into a contract without inviting
tenders as herein provided or without accepting any tender
which he may receive after having invited them.
9. Before proceeding further, we may refer to the facts in the
Qmax Consultant case. There also, the concerned respondent was
appointed as consultant for the work of quality audit of road works in
the city of Mumbai and suburbs. The decision was challenged on the
ground that the contract was awarded without inviting tenders as
required under Section 72 of the MMC Act. Petition was filed by a
Project Management Consultant with large experience in the field of
project management consultancy work in the State of Maharashtra,
Gujarat and Madhya Pradesh. The petitioner had contended that it had
carried out similar quality audit work elsewhere. It was also pointed out
that there were sixteen reputed consultants in the same field. The
Resolution of the Standing Committee purportedly under Section 72(3)
of the MMC Act in that case referred to the reasons set out in the
proposal of the Municipal Commissioner. The relevant paragraphs of
the Commissioner's proposal mentioned that only selected few
organizations were dealing with quality control audit and therefore no
purpose would be served by inviting tenders. The Division Bench in
Qmax case found that there was nothing on record to show that the
Standing Committee had considered all relevant aspects and that though
more than one affidavit was filed on behalf of the respondent-authority,
there was no denial of the averments made in the petition that there were
sixteen reputed consultants who could do the job. The Court, thus, came
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to the conclusion that the reasons relied upon by the Standing
Committee proceeded on erroneous assumption that there were very few
organizations dealing with the work of quality audit of construction of
roads.
10. We are, therefore, of the view that the decision of this Court
in Qmax Consultant case proceeded on an agreed sub silentio position
that the appointment of auditor for quality audit of construction of roads
was “contract for execution of any work” as contemplated by subsection (1) of Section 72 of the Act. The Division Bench was only
called upon to decide whether the Corporation had given justification
for not inviting tenders, as contemplated by sub-section (3) of Section
72. The Division Bench was not called upon to decide the question,
which is referred for our opinion.
11. Secondly, we may refer to the submissions of the learned
counsel for the respondents that in the affidavit dated 24 January 2012
filed by the Chief Engineer (Roads, Traffic and Bridges) of Mumbai
Municipal Corporation, it is stated that
(i) the work order for improvement of roads, in asphalt and
concretisation of roads in Mumbai, was issued on 17 October 2011 and
the work was to commence immediately. It was, therefore, necessary to
expeditiously appoint Agency for Quality Control, Monitoring and
Quality Audit for road works, which was required to inspect the raw
materials both at source as well as at the site and carry out daily quality
control tests and monitor the work on day to day basis and suggest
corrective measures which would be implemented at site. Such Agency
is also required to check the workmanship, for example surface
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irregularities, depressions, thickness of layers etc. during the course of
construction of roads. If the tenders for the said work were to be invited,
the process would have delayed the quality control and monitoring of
road works.
(ii) In view of the above, the Municipal Corporation called
upon respondent No.4- (SGS India Pvt.Ltd.) to submit a proposal for
“Project Monitoring Services for Quality Assurance and Quality Control
for the construction of various roads.” Respondent No.4 submitted its
proposal on 26 September 2011 and offered to carry out the work on
0.85% of the contract costs. Respondent No.4 mentioned that it has
been operating in India since 1950 through a network of over 50 offices
and 28 laboratories manned by more than 4400 personnel. Respondent
No.4 is a global leader in verification, testing, inspection and
certification services with over 5 Billion Swiss Francs in revenue, 64000
employees, 1000 offices, 338 laboratories and with presence in 170
countries. At that time, respondent No.4 was carrying out similar work
for Pradhanmantri Gram Sadak Yojana (Golden Quadrilateral) and also
for other Municipal Corporations in the State of Maharashtra.
Respondent No.4 also indicated that it had the resources to inspect raw
materials both at “source” as well as at “site” and carry out daily quality
control test and monitor the work being carried out.
(iii) In view of the above and the urgency involved, the
Additional Municipal Commissioner placed the proposal before the
Standing Committee on 29 September 2011 when the petitioner, who is
a Member of Standing Committee, was also present, but did not oppose
the proposal and the proposal was unanimously approved by the
Standing Committee.
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(iv) Since not a single member raised any objection at the
meeting of the Standing Committee on 29 September 2011, when
informal approval for appointment of respondent No.4 was granted, the
letter of acceptance was issued to respondent No.4 on 10 October 2011
and thereafter the Municipal Commissioner put up the proposal before
the Standing Committee for dispensing with condition of inviting
tenders as provided in Section 72(3) of the Act and for appointment of
respondent No.4 on 19 December 2011 for major roads and on 21
December 2011 for minor roads. The Standing Committee approved the
proposal at its meeting held on 4 January 2012.
(v) Respondent No.4 deployed 44 engineers at various sites,
who have submitted a number of reports after carrying out the required
audits. The said audits have shown number of deficiencies and
deliberate omissions by various contractors carrying out the road works
assigned to them. The audits revealed that in some cases, the roads
constructed were of 400 mm thickness instead of 980 mm. It was found
that the excavation and the quality of the material was not as per the
standards of the Municipal Corporation. The concrete mix in one case
was not according to required standards.
(vi) The work of quality control and monitoring plus quality
audit is a specialised/professional work. Therefore, if tenders were to be
invited, these respondents will have to select the lowest. Professional
Auditors cannot be chosen on the basis of financial qualification.
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12. It is important to note that the stand of the Municipal
Corporation is that appointment of respondent No.4 was required to be
made urgently, as indicated above. After receiving the petitioner's
objection, the Municipal Corporation has been inviting Expression of
Interest for empanelment of agencies for carrying out quality control
monitoring and quality audit of all roads. Empanelment for professional
services is done on the basis of technical and professional expertise and
the panel is formed. Generally work is allotted on a rotation basis with
prefixed rates. Thus, deferment of appointment of a professional third
party quality auditor till empanelment process is over, would not have
saved any money for Municipal Corporation. The Corporation was
satisfied about the capability of respondent No.4 for empanelment and
thus the Municipal Corporation has ensured quality of audit. The
impugned action of appointing the global leader to ensure that the
construction of roads in Mumbai done on a higher standard is, thus, in
consonance with the public interest.
13. In the affidavit dated 23 January 2012 on behalf of
respondent No.4, the contention of the petitioner that there are eighteen
other organizations which were competent to do quality audit of
construction of roads has been dealt with in the following words:-
“As far as this respondent is aware most of the 18 entities
cannot match such worldwide exposure. The difference
between this respondent and 18 entities mentioned in the list
annexed by the petitioner can be gauged from the fact that
this respondent has been authorized by UKAS governing
body for ISO certification and are also registered with
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Quality Council of India and National Accreditation Board
for Certifications Bodies and granted ISO 17020. This
respondent has the authority to issue ISO Certificates to
various organizations who qualify for such certification.
None of the 18 entities has been similarly empowered
atleast, to the knowledge of this respondent. The petitioner's
ignorance of these factors is thus evident.
14. It is also necessary to note that by the time, when the
reference was being heard, the learned counsel for the Municipal
Corporation pointed out that 80 to 90% of the audit work was already
completed by respondent No.4. With the consent of the learned counsel
for parties, therefore, we also heard the Public Interest Litigation on
merits.
15. The petition , thus, raises two important questions,
(i) as referred by the Division Bench by order dated 21 February 2012;
(ii) in case the answer to question (i) is in the affirmative, whether the
decision given by the Municipal Corporation for not inviting tenders
before appointing the respondent No.4 as a quality auditor for
construction of roads is required to be accepted as sufficient justification
under sub-section (3) of Section 72 of the Act.
16. Mr.Bharucha, learned Sr.counsel for the respondentMunicipal Corporation submitted that the appointment of auditor either
for accounts or for quality audit of construction of roads or appointment
of a lawyer was not contemplated by the expression “the execution of
any work or supply of any material or goods” in Section 72 of the Act. It
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is submitted that if tenders were to be invited for all such appointments
and if the appointments were to be made on the basis of quotation of
fees or audit charges, the Corporation i.e. the people of city of Mumbai,
may not be able to get the services of competent auditors and
professionals in other fields. It is submitted that in the past while
awarding contract for construction of roads, the decisions were
ordinarily taken in favour of those submitting lowest bids. However,
after getting the contract, such contractor would compromise on the
quality and quantity of raw material to be used for construction of roads
and also compromise on the quality of workmanship. Hence, if the
appointment of quality auditor for construction of roads were also to be
made by following the same procedure of inviting tenders, the whole
purpose of quality audit would be completely frustrated. Due to
complaints received regarding the quality of the roads in Mumbai, the
Municipal Corporation appointed Standing Technical Advisory
committee (hereinafter called “STAC”) had recommended that all road
works be subjected to a Third Party Quality Audit. Accordingly, the
quality assurance manual for road work and the manual for the external
quality audit system for road works were prepared and approved by
STAC and have been applicable since July 2005. Since then the
respondent-Municipal Corporation had issued a number of tenders for
various road work projects. The tender process had resulted in various
local contractors bidding at very low rates. The respondent-Municipal
Corporation acting in its character as a public authority had no option
but to accept the lowest bids which in some cases were 20%-25% less
than the estimated costs of the projects.
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The Quality Audit of the various projects was done
quarterly as per the said Manual. Test samples were taken by the said
auditors from the roads being constructed and sent to the Municipal
laboratory to check the quality of the road works. Thereafter the review
of test results would be taken every quarter. During a meeting held on 6
august 2011 between the Chief Minister of Maharashtra, the Municipal
Commissioner, the Chairman of STAC and Prof.K.V.Krishna Rao of IIT
Mumbai, the issue of quality control on road works was discussed. It
was decided that in view of the earlier quality control method proving
insufficient, consultants of international repute having appropriate work
experience should be appointed for Project Monitoring and Quality
Audit so as to ensure quality control for road works.
17. From the aforesaid averments, it appears that the
Corporation has not correctly appreciated the provisions of Section
72(2) of the MMC Act as well as the correct legal position laid down by
the Supreme Court in a catena of decisions, while awarding contracts for
construction of roads. The Corporation seems to be proceeding on the
basis as if the public authority has no option but to accept the lowest
bids, even if such bids are 20-25% less than the estimated cost of the
project. Sub-section (2) of Section 72 itself provides that the
Commissioner shall not be bound to accept any tender which may be
made in pursuance of public notice, but may accept “subject to the
provision of Section 69(c) of the Act”, any of the tenders so made which
appears to him, upon a view of all the circumstances, to be the most
advantageous.
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18. It is, therefore, obvious that the Commissioner is entitled to
take into consideration all the relevant circumstances. The financial
bidding made by the tenderer is only one of the several circumstances.
In G.D.Zalani and another v/s. Union of India and ors, AIR 1995 SC
1178, the Supreme Court has held that when a public authority like
Hindustan Antibiotics Ltd. engaged in the manufacture of several
antibiotics drugs looks for a partner for collaboration for the purpose of
improving the quality and utility of one of its products Penicillin-G, and
to achieve full capacity the HAL was entitled to select the most suitable
parter by evaluating the technology being offered by a party. The HAL,
thus, trying to improve the quality of its products was entitled to go for
the best partner.
19. It is also necessary to note at this stage the meaning of the
term “quality control”. In Tata engineering & Locomotive Co.Ltd. v/s.
Commissioner of Central Excise, Pune, 2010 (256) E.L.T.56 (Bom.), a
Division Bench of this Court explained the importance of quality control
in the following words:-
24 Quality control is a process employed to ensure a
certain level of quality in a product or service. It may
include whatever actions a business deems necessary to
provide for the control and verification of certain
characteristics of a product or service. The basic goal of
quality control is to ensure that the products, services, or
processes provided meet specific requirements and are
dependable, satisfactory, and fiscally sound.
25 The quality control essentially involves examination
of a product, service, or process for certain minimum levels
of quality. The goal of a quality control is to identify
products or services that do not meet a company s specified
standards of quality. If a problem is identified, the job of a
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quality control team or professional may involve stopping
production temporarily. Depending on the particular
service or product, as well as the type of problem
identified, production or implementation may not cease
entirely.
26 In majority of the industries quality inputs is
examined with respect to its quality and strength much
before the input is used in final product. In some industries,
quality check is undertaken after manufacture of final
product. In some cases quality check is undertaken at both
stages i.e. before and after manufacture of finished product
such as pharmaceutical products wherein input undergoes
quality test before it is used in manufacture of final product
and thereafter again after final product is tested vis a vis its
quality and potency.
27 In the present case, the raw material used for testing
in a laboratory located within the factory premises much
before actual manufacture of final products needs to be
considered, keeping in mind, the expression the goods used
in or in relation to the manufacture of such final product
and inputs which are manufactured and used within the
factory of production, in or in relation to the manufacture
of final product appearing in Rule 57A of the Rules and
explanation thereof.
20. It is clear that in the facts of the present case also the
Municipal Corporation decided to go for quality control at both stages
i.e. before and after construction of roads, so that the raw materials also
undergo quality test before they are used and also at the stage of actual
construction of roads and thereafter when the construction of roads is
completed.
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21. Having given anxious consideration to the propositions laid
down in various decisions, it appears to us that the Municipal
Corporation is entitled and empowered to reject a bid which may be the
lowest bid for awarding contract for construction of roads, if the bidder
with the lowest bid is not able to satisfy the Municipal Corporation
about its ability and competence to execute a work of required quality
and standards. For arriving at such satisfaction, it is open to the
Competent Authority, inter alia, to look into the past performance of the
bidder, both in terms of quality and punctuality in execution of the
contracts, whether contracts were awarded by the respondent-Municipal
Corporation itself or other authorities or organizations. It goes without
saying that the concerned officers of the Municipal Corporation may
also like to see the performance themselves and not rest content with
certificates issued by other authorities.
22. All that is necessary for the public authority to do is to
conduct itself fairly and transparently. When an authority which is
“State” within the meaning of Article 12 of the Constitution decides to
award a contract it must ordinarily prescribe the specifications which an
intending bidder must fulfill. These specifications include the laying
down of credentials, experience, financial capacity and other like facets.
The consequence of these norms is that a bidder, who enters into a
contract with a public authorities, must have a demonstrable capacity to
fulfill the requirements of the contract in terms of technical
qualifications (availability of infrastructure, qualified personnel and
experience in handling similar contracts) and financial commitment
(having the wherewithal to fulfill the requirements of the contract).
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23. In Master Marine Services (P) Ltd. v/s. Metcalfe &
Hodgkinson (P) Ltd. And another, (2005) 6 SCC 138, the Apex Court
reviewed a large number of decisions and the proposition laid down in
Air India Ltd. v/s. Cochin International Airport Ltd., (2000) 2 SCC 617,
where the law relating to scope of judicial review in matters of awarding
of contract by public sector corporation was reviewed and it was held:-
15. The law relating to award of contract by State and
public sector corporations was reviewed in Air India Ltd.
v/s. Cochin International Airport Ltd. 2000 (2) SCC 617
and it was held that the award of a contract, whether by a
private party or by a State, is essentially a commercial
transaction. It can choose its own method to arrive at a
decision and it is free to grant any relaxation for bona fide
reasons, if the tender conditions permit such a relaxation. It
was further held that the State, its corporations,
instrumentalities and agencies have the public duty to be
fair to all concerned. Even when some defect is found in
the decision making process, the Court must exercise its
discretionary powers 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
interfere.
24. In State of Maharashtra and ors. v/s. Prabhu, (1994) 2 SCC
481, a three Judge Bench of the Apex Court explained the discretionary
nature of writ jurisdiction in the following words:
4. Even assuming that construction placed by the High
Court and vehemently defended by the learned counsel for
respondent is correct, should the High Court have
interfered with the order of Government in exercise of its
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equity jurisdiction? The distinction between writs issued as
a matter of right such as habeas corpus and those issued in
exercise of discretion such as certiorari and mandamus are
well known and explained in countless decisions given by
this Court and English Courts. It is not necessary to recount
them. The High Courts exercise control over Government
functioning and ensure obedience of rules and law by
enforcing proper, fair and just performance of duty. Where
the Government or any authority passes an order which is
contrary to rules or law it becomes amenable to correction
by the courts in exercise of writ jurisdiction. But one of the
principles inherent in it is that the exercise of power should
be for the sake of justice. One of the yardstick for it is if
the quashing of the order results in greater harm to the
society then the court may restrain from exercising the
power.
25. It is also necessary to note that in Qmax Consultant case,
the petitioner was one of the parties, which was considering itself
competent to do the work of quality of audit of construction of roads,
was excluded from the audit work. In the facts of the present case, the
respondents have not only given justification for not inviting tenders,
but also pointed out that respondent No.4 is a global leader in the work
of audit of construction of roads and is already appointed as such auditor
by many other Municipal Corporations in the State of Maharashtra and
also by the Mumbai International Airport Authority.
26. In Kasturi Lal Lakshmi Reddy v/s. State of Jammu &
Kashmir, (1980) 4 SCC 1, the contract was for extraction of resin from
inaccessible chir forests in the State of Jammu and Kashmir. The
Supreme Court observed as under:-
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14. Where any governmental action fails to satisfy the
test of reasonableness and public interest and is found to
be wanting in the qualities of reasonableness or lacking in
the element of public interest, it would be liable to be
struck down as invalid. It must follow as a necessary
corollary from this proposition that the Government cannot
act in a manner which would benefit a private party at the
cost of the State; such an action would be both
unreasonable and contrary to public interest. The
Government, therefore, cannot, for example, give a
contract or sell or lease-out its property for a consideration
less than the highest that can be obtained for it, unless of
course there are other considerations which render it
reasonable and in public interest to do so. Such
considerations may be that some Directive Principle is
sought to be advanced or implemented or that the contract
or the property is given not with a view, to earning revenue
but for the purpose of carrying out a welfare scheme for
the benefit of a particular group or section of people
deserving it or that the person who has offered a higher
consideration is not otherwise fit to be given the contract
at the property. These considerations are referred to only
illustratively for there may be an infinite variety of
considerations which may have to be taken into account by
the Government in formulating its policies and it is on a
total evaluation of various considerations which have
weighed with the Government in taking a particular action,
that the Court would have to decide whether the action of
the Government is reasonable and in public interest. But
one basic principle which must guide the Court in arriving
at its determination on this question is that there is always
a presumption that the Government action is reasonable
and in public interest and it is for the party challenging its
validity to show that it is wanting in reasonableness or is
not informed with public interest. This burden is a heavy
one and it has to be discharged to the satisfaction of the
Court by proper and adequate material. The Court cannot
lightly assume that the action taken by the Government is
unreasonable or without public interest because, there are a
large number of policy considerations which must
necessarily weigh with the Government in taking action
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and therefore the Court would not strike down
governmental action as invalid on this ground, unless it is
clearly satisfied that the action is unreasonable or not in
public interest.
27. The considerations which may apply for the purpose of
awarding a contract for disposal of a property would not necessarily
apply when a public authority is to appoint a professional, who must
enjoy the trust and confidence of the public authority. For instance, for
appointment of an auditor or for appointment of a lawyer, tenders cannot
be invited, because the competence and credentials of a professional
cannot be decided on the basis of financial quotations.
28. We are also satisfied that the stand of the respondentMunicipal Corporation is reasonable- while appointment of respondent
No.4 was made without giving any public notice, in view of the urgency
involved at the relevant time, the Corporation has decided to prepare a
panel of auditors for quality audit of construction of roads and that work
of quality audit will be entrusted to the auditors so empaneled.
29. As regards the preliminary objection, we may also note
that the petitioner himself is not in the business of providing quality
audit for construction roads. None of the parties, who are in the
profession of quality audit of construction of roads have come to the
Court. In fact, the petitioner is a Member of the Standing Committee of
the respondent-Municipal Corporation, who was present at the first
meeting when the informal discussion had taken place for approval of
the contract for audit of construction of roads and the petitioner had not
objected for selection of respondent No.4 for appointment as quality
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auditor for construction of roads. However, in the view that we are
taking on the merits of the matter, it is not necessary to give a finding on
the preliminary objection.
30. In view of the above discussion, our conclusions are as
under:-
(I) While awarding contracts for construction of roads,
the Mumbai Municipal Corporation has been proceeding on
the erroneous basis that a public authority has no option but
to accept the lowest bids, even if such bids are 20-25% less
than estimated cost of the project.
(II) As provided in Subsection (2) of Section 72 of the
Mumbai Municipal Corporation Act itself, the Competent
Authority is not bound to accept any tender, which may be
made in pursuance of the public notice and that the
authority may accept any of the tender so made, which
appears to the Competent Authority, upon a review of all
the circumstances, to be the most advantageous to public
interest.
(III) The work of quality audit of roads or work of similar
nature is not covered by the expression “the execution of
any work or supply of any materials or goods” within the
meaning of Section 72(1) of the Mumbai Municipal
Corporation Act, 1881.
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(IV) For awarding contracts for quality audit of roads or
for work of similar nature, it would be sufficient for the
Corporation to give, over a period of time, an opportunity to
be considered for empanelment of auditor, without
necessarily inviting bids from those who are qualified and
competent for such work.
(V) For appointing professionals, who must enjoy trust
and confidence of the public authority, tenders are not to be
invited because there may be qualified and competent
professionals who would not like to submit applications for
appointment as auditors and consultants.
(VI) In the facts of the present case, even if it were to be
held that tenders were required to be invited for
appointment of auditors, for quality assurance, quality
control and quality audit of road works, the impugned
decision of the Municipal Corporation to award the contract
to respondent no.4, by dispensing with inviting tenders, was
justified in view of the urgency involved.
31. In the result, our answers to the question referred by the
Division Bench is as under:
“The work of quality audit of roads or work of similar
nature to be done by a person who must enjoy trust and
confidence of the public authority is not covered by the
expression “the execution of any work or supply of any
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materials or goods” within the meaning of Subsection (1)
of Section 72 of the Mumbai Municipal Corporation Act,
1881. Hence, it is not necessary for Municipal
Commissioner to assign such work only by inviting tenders
as contemplated by the proviso, i.e. sub-section (3) of
Section 72 of the said Act.”
32. The PIL petition is dismissed.
CHIEF JUSTICE
(RANJIT MORE, J.)
(A.A.SAYED, J.)
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