Authority of India & Ors., (2006) 10 SCC 1, this Court held
that while judicial review cannot be denied in contractual
matters or matters in which the Government exercises its
contractual powers, such review is intended to prevent
arbitrariness and must be exercised in larger public interest.
17) In Jagdish Mandal vs. State of Orissa and Others,
(2007) 14 SCC 517, the following conclusion is relevant:
“22. Judicial review of administrative action is intended to
prevent arbitrariness, irrationality, unreasonableness, bias
and mala fides. Its purpose is to check whether choice or
decision is made “lawfully” and not to check whether choice
or decision is “sound”. When the power of judicial review is
invoked in matters relating to tenders or award of contracts,
certain special features should be borne in mind. A contract
is a commercial transaction. Evaluating tenders and
awarding contracts are essentially commercial functions.
Principles of equity and natural justice stay at a distance. If
the decision relating to award of contract is bona fide and is
in public interest, courts will not, in exercise of power of
judicial review, interfere even if a procedural aberration or
error in assessment or prejudice to a tenderer, is made out.
The power of judicial review will not be permitted to be
invoked to protect private interest at the cost of public
interest, or to decide contractual disputes. The tenderer or
contractor with a grievance can always seek damages in a
civil court. Attempts by unsuccessful tenderers with
imaginary grievances, wounded pride and 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. Such interferences, either interim
or final, may hold up public works for years, or delay relief
and succour to thousands and millions and may increase
the project cost manifold. Therefore, a court before
interfering in tender or contractual matters in exercise of
power of judicial review, should pose to itself the following
questions:
(i) Whether the process adopted or decision made by the
authority is mala fide or intended to favour someone;
OR
Whether the process adopted or decision made is so
arbitrary and irrational that the court can say: “the decision
is such that no responsible authority acting reasonably and
in accordance with relevant law could have reached”;
(ii) Whether public interest is affected.
If the answers are in the negative, there should be no
interference under Article 226. Cases involving blacklisting
or imposition of penal consequences on a
tenderer/contractor or distribution of State largesse
(allotment of sites/shops, grant of licences, dealerships and
franchises) stand on a different footing as they may require a
higher degree of fairness in action.”
18) The same principles have been reiterated in a recent
decision of this Court in Tejas Constructions &
Infrastructure Pvt. Ltd. vs. Municipal Council, Sendhwa &
Anr., (2012) 6 SCC 464.
19) From the above decisions, the following principles
emerge:
(a) the basic requirement of Article 14 is fairness in action
by the State, and non-arbitrariness in essence and substance
is the heartbeat of fair play. These actions are amenable to
the judicial review only to the extent that the State must act
validly for a discernible reason and not whimsically for any
ulterior purpose. If the State acts within the bounds of
reasonableness, it would be legitimate to take into
consideration the national priorities;
(b) fixation of a value of the tender is entirely within the
purview of the executive and courts hardly have any role to
play in this process except for striking down such action of the
executive as is proved to be arbitrary or unreasonable. If the
Government acts in conformity with certain healthy standards
and norms such as awarding of contracts by inviting tenders,
in those circumstances, the interference by Courts is very
limited;
(c) In the matter of formulating conditions of a tender
document and awarding a contract, greater latitude is
required to be conceded to the State authorities unless the
action of tendering authority is found to be malicious and a
misuse of its statutory powers, interference by Courts is not
warranted;
(d) Certain preconditions or qualifications for tenders have
to be laid down to ensure that the contractor has the capacity
and the resources to successfully execute the work; and
(e) If the State or its instrumentalities act reasonably, fairly
and in public interest in awarding contract, here again,
interference by Court is very restrictive since no person can
claim fundamental right to carry on business with the
Government.
20) Therefore, a Court before interfering in tender or
contractual matters, in exercise of power of judicial review,
should pose to itself the following questions:
(i) Whether the process adopted or decision made by the
authority is mala fide or intended to favour someone; or
whether the process adopted or decision made is so arbitrary
and irrational that the court can say: “the decision is such
that no responsible authority acting reasonably and in
accordance with relevant law could have reached”; and (ii)
Whether the public interest is affected. If the answers to the
above questions are in negative, then there should be no
interference under Article 226.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5898 OF 2012
(Arising out of SLP (C) No. 25802 of 2008
M/s Michigan Rubber (India) Ltd. .... Appellant (s)
Versus
The State of Karnataka & Ors. .... Respondent(s)
Dated:AUGUST 17, 2012.
1) Leave granted.
2) This appeal is directed against the final judgment and
order dated 02.07.2008 passed by the High Court of
Karnataka at Bangalore in Writ Appeal No. 1928 of 2007
whereby the High Court dismissed the appeal filed by the
appellant-Company herein.
3) Brief facts:
(a) On 04.08.2005, the Karnataka State Road Transport
Corporation (KSRTC) - Respondent No.2 herein floated a
1Page 2
Tender being No. G30-05 for supply of Tyres, Tubes and Flaps
specifying certain pre-qualification criteria.
(b) Challenging the said pre-qualification criteria, the
appellant-Company, which is engaged in the manufacture and
supply of tyres, tubes and flaps filed a Writ Petition being No.
20543 of 2005 before the High Court. After filing of the writ
petition, the said criterion was withdrawn by the KSRTC.
Thereafter, the KSRTC modified the pre-qualification criteria
and issued a Tender being No. G-23-07 dated 05.07.2007
wherein, a new pre-qualification criterion was specified.
(c) Being aggrieved by the said pre-qualification criteria, the
appellant-Company preferred a Writ Petition being No. 11951
of 2007 before the High Court. By judgment dated
13.09.2007, the learned Single Judge of the High Court
dismissed their writ petition.
(d) Challenging the said judgment, the appellant filed a Writ
Appeal being No. 1928 of 2007 before the Division Bench of
the High Court. By impugned judgment dated 02.07.2008,
the Division Bench of the High Court dismissed the same.
2Page 3
(e) Being aggrieved by the said judgment, the appellantCompany
has preferred this appeal by way of special leave
before this Court.
4) Heard Ms. Madhurima Tatia, learned counsel for the
appellant-Company and Mr. S.N. Bhat, learned counsel for
respondent Nos. 2 & 3 and Mr. V.N. Raghupathy, learned
counsel for the State.
5) Ms. Madhurima Tatia, learned counsel for the appellantCompany,
after taking us through the tender pre-qualification
criteria and their performance, raised the following
submissions:
(i) The pre-qualification criteria as specified in Condition
Nos. 2(a) and 2(b) (amended Condition Nos. 4(a) and 4(b)) of
the Tender in question, viz., G-23-07 dated 05.07.2007 is
unreasonable, arbitrary, discriminatory and opposed to public
interest in general.
(ii) The said conditions were incorporated to exclude the
appellant-Company and other similarly situated companies
from the tender process on wholly extraneous grounds which
are unsustainable in law.
3Page 4
(iii) The appellant-Company was successful in previous three
contracts and supplied their products to the KSRTC. There
was no complaint pertaining to short supply and quality. The
financial capacity of the appellant-Company was never
doubted by the KSRTC at any point of time, hence, the
impugned pre-qualification criteria was included to exclude
the appellant-Company from the tender bidding process with
an ulterior motive.
6) Per contra, Mr. S.N. Bhat and Mr. V.N. Raghupathy,
learned counsel for the respondents, after taking us through
the relevant materials including the constitution of high level
Committee i.e. Contract Management Group (CMG), its
deliberations and decisions etc., submitted that:
(i) To have the best of the equipment for the vehicles, which
ply on road carrying passengers, the respondents, in the
circumstances, thought it fit that the criteria for applying for
tender for procuring tyres should be at a high standard and
hence only those manufacturers, who satisfy the eligibility
criteria, should be permitted to participate in the tender.
4Page 5
(ii) The said two conditions were imposed in order to ensure
the supply of good quality tyres.
(iii) The two conditions were incorporated in the tender notice
pursuant to the decision of the Contract Management Group
(CMG) of the KSRTC which consists of higher level officials
having technical knowledge.
(iv) The corrigendum was issued to minimize the confusion,
which might have occurred due to condition No. 2(a).
Discussion:
7) We have carefully considered the rival submissions and
perused all the materials placed before us. It is not in dispute
that the KSRTC has issued tender No. G-23-07 dated
05.07.2007. The pre-qualification criteria as specified in
Condition No.2 of the tender dated 05.07.2007 reads as
under:-
“2 Pre-qualification criteria for procurement of TTF Sets:
(a) Only the tyre manufacturers who have supplied a
minimum average of 5000 sets of Tyres, Tubes and
Flaps set per annum, in the preceding three years out
of 2003-04, 2004-05, 2005-06 and 2006-07 to any one
of the OE chassis manufacturer, i.e. Ashok Leyland,
Tata Motors, Eicher, Swaraj Mazda and Volvo are
eligible to participate, for supply of respective size/type
of Tyres, Tubes and Flaps set. They should produce
5Page 6
purchase order copies and invoice supplies in support
of the same.
(b) The firm should have minimum average annual
turnover of Rs.500 crores in the preceding three years
out of 2003-04, 2004-05, 2005-06 and 2006-07 from
the sale of tyres, Tubes and Flaps.”
8) Being aggrieved by the above-mentioned conditions, viz.,
2(a) and 2(b) of the tender dated 05.07.2007, the appellantCompany
preferred W.P No. 11951 of 2007 before the High
Court. After filing of the said writ petition, before opening of
the tender bids, the KSRTC amended the tender conditions as
were incorporated in the earlier tender document replacing
Condition Nos. 2(a) and 2(b) with Condition Nos. 4(a) and 4(b).
Condition Nos. 4(a) and 4(b) read as under:
“4. Pre-qualification criteria for procurement of TTF sets:
(a) Only the tyre manufacturers who have supplied a
minimum average of 5000 sets of Tyres, Tubes and
Flaps set per annum, in the preceding three years out
of 2003-04, 2004-05, 2005-06 and 2006-07 to
any of the heavy goods/passenger vehicles/chassis
manufacturers in the country are eligible to participate.
They should produce purchase order copies and invoice
supplies in support of the same.
(b) The firm should have minimum average annual
turnover of Rs.500 crores in the preceding three years
out of 2003-04, 2004-05, 2005-06 and 2006-07 from
the sale of Tyres, Tubes and Flaps.”
6Page 7
Under the said amendment, only Condition No. 2(a) was
replaced by Condition No 4(a). In Condition No. 4(a), the
classification of the vehicles was maintained but the names of
the manufacturers were deleted. It is the grievance of the
appellant-Company that the pre-qualification criteria as
specified in Condition Nos. 2(a) and 2(b) (amended Condition
Nos. 4(a) and 4(b)) of the tender in question is unreasonable,
arbitrary, discriminatory and opposed to public interest in
general. It is also their grievance that the said conditions were
incorporated to exclude the appellant-Company and other
similarly situated companies from the tender process on
wholly extraneous grounds which is unsustainable in law. In
other words, according to the appellant-Company, the decision
of the KSRTC in restricting their participation in the tender to
Original Equipment Manufacturer (OEM) suppliers is totally
unfair and discriminatory.
9) This Court, in a series of decisions, considered similar
conditions incorporated in the tender documents and also the
scope and judicial review of administrative actions. The scope
and the approach to be adopted in the process of such review
7Page 8
have been settled by a long line of decisions of this Court.
Since the principle of law is settled and well recognized by
now, we may refer some of the decisions only to recapitulate
the relevant tests applicable and approach of this Court in
such matters.
10) In Tata Cellular vs. Union of India, (1994) 6 SCC 651,
this Court emphasised the need to find a right balance
between administrative discretion to decide the matters on the
one hand, and the need to remedy any unfairness on the
other, and observed:
“94. (1) The modern trend points to judicial restraint in
administrative action.
(2) The court does not sit as a court of appeal but merely
reviews the manner in which the decision was made.
(3) The court does not have the expertise to correct the
administrative decision. If a review of the administrative
decision is permitted it will be substituting its own decision,
without the necessary expertise, which itself may be fallible.
(4) The terms of the invitation to tender cannot be open to
judicial scrutiny because the invitation to tender is in the
realm of contract. …
(5) The Government must have freedom of contract. In other
words, a fair play in the joints is a necessary concomitant for
an administrative body functioning in an administrative
sphere or quasi-administrative sphere. However, the decision
8Page 9
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.”
11) In Raunaq International Ltd. vs. I.V.R. Construction
Ltd. & Ors. (1999) 1 SCC 492, this Court reiterated the
principle governing the process of judicial review and held that
the writ court would not be justified in interfering with
commercial transactions in which the State is one of the
parties except where there is substantial public interest
involved and in cases where the transaction is mala fide.
12) In Union of India & Anr. vs. International Trading
Co. & Anr., (2003) 5 SCC 437, this Court, in similar
circumstances, held as under:
“15. While the discretion to change the policy in exercise of
the executive power, when not trammelled by any statute or
rule is wide enough, what is imperative and implicit in terms
of Article 14 is that a change in policy must be made fairly
and should not give the impression that it was so done
arbitrarily or by any ulterior criteria. The wide sweep of
Article 14 and the requirement of every State action
qualifying for its validity on this touchstone irrespective of
the field of activity of the State is an accepted tenet. The
basic requirement of Article 14 is fairness in action by the
9Page 10
State, and non-arbitrariness in essence and substance is the
heartbeat of fair play. Actions are amenable, in the
panorama of judicial review only to the extent that the State
must act validly for a discernible reason, not whimsically for
any ulterior purpose. The meaning and true import and
concept of arbitrariness is more easily visualized than
precisely defined. A question whether the impugned action is
arbitrary or not is to be ultimately answered on the facts and
circumstances of a given case. A basic and obvious test to
apply in such cases is to see whether there is any discernible
principle emerging from the impugned action and if so, does
it really satisfy the test of reasonableness.
16. Where a particular mode is prescribed for doing an act
and there is no impediment in adopting the procedure, the
deviation to act in a different manner which does not
disclose any discernible principle which is reasonable itself
shall be labelled as arbitrary. Every State action must be
informed by reason and it follows that an act uninformed by
reason is per se arbitrary.
22. If the State acts within the bounds of reasonableness, it
would be legitimate to take into consideration the national
priorities and adopt trade policies. As noted above, the
ultimate test is whether on the touchstone of reasonableness
the policy decision comes out unscathed.
23. Reasonableness of restriction is to be determined in an
objective manner and from the standpoint of interests of the
general public and not from the standpoint of the interests of
persons upon whom the restrictions have been imposed or
upon abstract consideration. A restriction cannot be said to
be unreasonable merely because in a given case, it operates
harshly. In determining whether there is any unfairness
involved; the nature of the right alleged to have been
infringed, the underlying purpose of the restriction imposed,
the extent and urgency of the evil sought to be remedied
thereby, the disproportion of the imposition, the prevailing
condition at the relevant time, enter into judicial verdict. The
reasonableness of the legitimate expectation has to be
determined with respect to the circumstances relating to the
trade or business in question. Canalisation of a particular
business in favour of even a specified individual is
reasonable where the interests of the country are concerned
or where the business affects the economy of the country.
10Page 11
(See Parbhani Transport Coop. Society Ltd. v. Regional
Transport Authority, Shree Meenakshi Mills Ltd. v. Union of
India, Hari Chand Sarda v. Mizo District Council and
Krishnan Kakkanth v. Govt. of Kerala.)”
13) In Jespar I. Slong vs. State of Meghalaya & Ors.,
(2004) 11 SCC 485, this Court, in paragraph 17, held as
under:
“17……fixation of a value of the tender is entirely within the
purview of the executive and courts hardly have any role to
play in this process except for striking down such action of
the executive as is proved to be arbitrary or
unreasonable……”
14) In Association of Registration Plates vs Union of
India & Ors., (2005) 1 SCC 679, similar issue was considered
by a bench of three Judges. In that case, the dispute was
about the terms and conditions of notices inviting tenders
(NITs) for supply of high security registration plates for motor
vehicles. The tenders have been issued by various State
Governments on the guidelines circulated by the Central
Government for implementing the provisions of the Motor
Vehicles Act, 1988 and the newly amended Central Motor
Vehicles Rules, 1989. The main grievance of the appellant
therein was that all notices inviting tenders (NITs) which were
issued by various State Governments, contained
11Page 12
conditions which were tailored to favour companies having
foreign collaboration. Their further grievance was that the
tender conditions were discriminatory as per Article 14 of the
Constitution and were being aimed at excluding indigenous
manufacturers from the tender process. It was also contended
that in all the cases, the work of supply of high security
registration plates for all existing vehicles and new vehicles
was being entrusted to a single licence plates manufacturer in
a State or a region and for a long period of 15 years thus
creating monopoly in favour of selected bidders to the
complete exclusion of all others in the field. The further
contention advanced therein was that creation of monopoly in
favour of a few parties having connection with foreign
concerns is violative of the fundamental right of trade under
Article 19(1)(g) and discriminatory under Article 14 of the
Constitution. It was also pointed out that in the name of
implementing the amended Rule 50 of the Motor Vehicles
Rules, 1989, the States are imposing conditions in the tender
that would take away the existing rights of the manufacturers
of plates in India. On the condition laid down for
12Page 13
prescribed minimum turnover of business, the challenge made
on behalf of the petitioners therein was that fixing such high
turnover for such a new business is only for the purpose of
advancing the business interests of a group of companies
having foreign links and support. It is impossible for any
indigenous manufacturer of security plates to have a turnover
of approximately 12.5 crores from the high security
registration plates which were sought to be introduced in India
for the first time and the implementation of the project has not
yet started in any of the States. On behalf of the Union of
India, the State authorities and counsel appearing for the
contesting manufacturers, in their replies, have tried to justify
the manner and implementation of the policy contained in
Rule 50 of the Motor Vehicles Rules. On behalf of the Union of
India, learned ASG submitted that Rule 50 read with Statutory
Order of 2001 issued under Section 109(3) of the Motor
Vehicles Act, the State Governments are legally competent to
formulate an appropriate policy for choosing a sole or more
manufacturers in order to fulfil the object of affixation of
security plates. The Scheme contained in Rule 50 read with
13Page 14
the Statutory Order of 2001 leaves it to the discretion of the
State concerned to even choose a single manufacturer for the
entire State or more than one manufacturer regionwise. It was
pointed out that such a selection cannot be said to confer any
monopoly right by the State on any private individual or
concern. He further pointed out that the tender conditions
were formulated taking into account the public interest
consideration and aspects of high security.
15) While considering the above submissions, the threeJudge
Bench held as under:
“38. In the matter of formulating conditions of a tender
document and awarding a contract of the nature of ensuring
supply of high security registration plates, 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, tender conditions are
unassailable. On intensive examination of tender conditions,
we do not find that they violate the equality clause under
Article 14 or encroach on fundamental rights of the class of
intending tenderers under Article 19 of the Constitution. On
the basis of the submissions made on behalf of the Union
and State authorities and the justification shown for the
terms of the impugned tender conditions, we do not find that
the clauses requiring experience in the field of supplying
registration plates in foreign countries and the quantum of
business turnover are intended only to keep indigenous
manufacturers out of the field. It is explained that on the
date of formulation of scheme in Rule 50 and issuance of
guidelines thereunder by the Central Government, there
were not many indigenous manufacturers in India with
technical and financial capability to undertake the job of
supply of such high dimension, on a long-term basis and in
14Page 15
a manner to ensure safety and security which is the prime
object to be achieved by the introduction of new
sophisticated registration plates.
39. The notice inviting tender is open to response by all and
even if one single manufacturer is ultimately selected for a
region or State, it cannot be said that the State has created a
monopoly of business in favour of a private party. Rule 50
permits the RTOs concerned themselves to implement the
policy or to get it implemented through a selected approved
manufacturer.
40. Selecting one manufacturer through a process of open
competition is not creation of any monopoly, as contended,
in violation of Article 19(1)(g) of the Constitution read with
clause (6) of the said article. As is sought to be pointed out,
the implementation involves large network of operations of
highly sophisticated materials. The manufacturer has to
have embossing stations within the premises of the RTO. He
has to maintain the data of each plate which he would be
getting from his main unit. It has to be cross-checked by the
RTO data. There has to be a server in the RTO's office which
is linked with all RTOs in each State and thereon linked to
the whole nation. Maintenance of the record by one and
supervision over its activity would be simpler for the State if
there is one manufacturer instead of multi-manufacturers as
suppliers. The actual operation of the scheme through the
RTOs in their premises would get complicated and confused
if multi-manufacturers are involved. That would also
seriously impair the high security concept in affixation of
new plates on the vehicles. If there is a single manufacturer
he can be forced to go and serve rural areas with thin
vehicular population and less volume of business. Multimanufacturers
might concentrate only on urban areas with
higher vehicular population.
43. 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.
Article 14 of the Constitution prohibits the Government from
arbitrarily choosing a contractor at its will and pleasure. It
has to act reasonably, fairly and in public interest in
awarding contract. At the same time, no person can claim a
fundamental right to carry on business with the
Government. All that he can claim is that in competing for
the contract, he should not be unfairly treated and
discriminated, to the detriment of public interest.
15Page 16
Undisputedly, the legal position which has been firmly
established from various decisions of this Court, cited at the
Bar (supra) is that government contracts are highly valuable
assets and the court should be prepared to enforce
standards of fairness on the Government in its dealings with
tenderers and contractors.
44. The grievance that the terms of notice inviting tenders in
the present case virtually create a monopoly in favour of
parties having foreign collaborations, is without substance.
Selection of a competent contractor for assigning job of
supply of a sophisticated article through an open-tender
procedure, is not an act of creating monopoly, as is sought to
be suggested on behalf of the petitioners. What has been
argued is that the terms of the notices inviting tenders
deliberately exclude domestic manufacturers and new
entrepreneurs in the field. In the absence of any indication
from the record that the terms and conditions were tailormade
to promote parties with foreign collaborations and to
exclude indigenous manufacturers, judicial interference is
uncalled for.”
After observing so, this Court dismissed all the writ petitions
directly filed in this Court and transferred to this Court from
the High Courts.
16) In Reliance Airport Developers (P) Ltd. vs. Airports
Authority of India & Ors., (2006) 10 SCC 1, this Court held
that while judicial review cannot be denied in contractual
matters or matters in which the Government exercises its
contractual powers, such review is intended to prevent
arbitrariness and must be exercised in larger public interest.
17) In Jagdish Mandal vs. State of Orissa and Others,
(2007) 14 SCC 517, the following conclusion is relevant:
“22. Judicial review of administrative action is intended to
prevent arbitrariness, irrationality, unreasonableness, bias
and mala fides. Its purpose is to check whether choice or
decision is made “lawfully” and not to check whether choice
or decision is “sound”. When the power of judicial review is
invoked in matters relating to tenders or award of contracts,
certain special features should be borne in mind. A contract
is a commercial transaction. Evaluating tenders and
awarding contracts are essentially commercial functions.
Principles of equity and natural justice stay at a distance. If
the decision relating to award of contract is bona fide and is
in public interest, courts will not, in exercise of power of
judicial review, interfere even if a procedural aberration or
error in assessment or prejudice to a tenderer, is made out.
The power of judicial review will not be permitted to be
invoked to protect private interest at the cost of public
interest, or to decide contractual disputes. The tenderer or
contractor with a grievance can always seek damages in a
civil court. Attempts by unsuccessful tenderers with
imaginary grievances, wounded pride and 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. Such interferences, either interim
or final, may hold up public works for years, or delay relief
and succour to thousands and millions and may increase
the project cost manifold. Therefore, a court before
interfering in tender or contractual matters in exercise of
power of judicial review, should pose to itself the following
questions:
(i) Whether the process adopted or decision made by the
authority is mala fide or intended to favour someone;
OR
Whether the process adopted or decision made is so
arbitrary and irrational that the court can say: “the decision
is such that no responsible authority acting reasonably and
in accordance with relevant law could have reached”;
(ii) Whether public interest is affected.
If the answers are in the negative, there should be no
interference under Article 226. Cases involving blacklisting
or imposition of penal consequences on a
tenderer/contractor or distribution of State largesse
(allotment of sites/shops, grant of licences, dealerships and
franchises) stand on a different footing as they may require a
higher degree of fairness in action.”
18) The same principles have been reiterated in a recent
decision of this Court in Tejas Constructions &
Infrastructure Pvt. Ltd. vs. Municipal Council, Sendhwa &
Anr., (2012) 6 SCC 464.
19) From the above decisions, the following principles
emerge:
(a) the basic requirement of Article 14 is fairness in action
by the State, and non-arbitrariness in essence and substance
is the heartbeat of fair play. These actions are amenable to
the judicial review only to the extent that the State must act
validly for a discernible reason and not whimsically for any
ulterior purpose. If the State acts within the bounds of
reasonableness, it would be legitimate to take into
consideration the national priorities;
(b) fixation of a value of the tender is entirely within the
purview of the executive and courts hardly have any role to
play in this process except for striking down such action of the
executive as is proved to be arbitrary or unreasonable. If the
Government acts in conformity with certain healthy standards
and norms such as awarding of contracts by inviting tenders,
in those circumstances, the interference by Courts is very
limited;
(c) In the matter of formulating conditions of a tender
document and awarding a contract, greater latitude is
required to be conceded to the State authorities unless the
action of tendering authority is found to be malicious and a
misuse of its statutory powers, interference by Courts is not
warranted;
(d) Certain preconditions or qualifications for tenders have
to be laid down to ensure that the contractor has the capacity
and the resources to successfully execute the work; and
(e) If the State or its instrumentalities act reasonably, fairly
and in public interest in awarding contract, here again,
interference by Court is very restrictive since no person can
claim fundamental right to carry on business with the
Government.
20) Therefore, a Court before interfering in tender or
contractual matters, in exercise of power of judicial review,
should pose to itself the following questions:
(i) Whether the process adopted or decision made by the
authority is mala fide or intended to favour someone; or
whether the process adopted or decision made is so arbitrary
and irrational that the court can say: “the decision is such
that no responsible authority acting reasonably and in
accordance with relevant law could have reached”; and (ii)
Whether the public interest is affected. If the answers to the
above questions are in negative, then there should be no
interference under Article 226.
21) Respondent No. 1-the State, in their counter affidavit,
highlighted that tyre is very critical and a high value item
being procured by the KSRTC and it procured 900x20 14 Ply
Nylon tyres along with the tubes and flaps in sets and these
types of tyres are being used only by the State Transport Units
and not in the domestic market extensively. It is highlighted
that the quality of the tyre plays a major role in providing safe
and comfort transportation facility to the commuters.
22) It is also pointed out by the Respondent-State that in
order to ensure procurement of tyres, tubes and flaps from
reliable sources, the manufacturers of the same with an
annual average turnover of Rs. 200 crores during the
preceding three years, were made eligible to participate in the
tenders. In the tender issued for procurement of these sets
during October, 2004, the appellant participated and based on
the L1 rates, the orders for supply for 16,000 sets of tyres
were placed on the firm. It is also pointed out that the
appellant supplied 10,240 sets of tyres and remaining quantity
was cancelled due to quality problems.
23) Materials has also been placed to show that the appellant
participated in subsequent tenders and orders were released
for supply of 900 x 20 14 PR tyres, tubes and flaps from
October 2006 to September, 2007. It is also explained that
after going into various complaints, in order to achieve good
results, new tyre mileage and safety of the public etc., and
after noting that vehicle/chassis manufacturers such as M/s
Ashok Leyland, M/s Tata Motors etc. have strict quality
control system, it was thought fit to incorporate similar
criteria as a pre-qualification for procurement of tyres.
24) It is also highlighted by the State as well as by the
KSRTC that the tender conditions were stipulated by way of
policy decision after due deliberation by the KSRTC. Both the
respondents highlighted that the said conditions were imposed
with a view to obtain good quality materials from reliable and
experienced suppliers. In other words, according to them, the
conditions were aimed at the sole purpose of obtaining good
quality and reliable supply of materials and there was no
ulterior motive in stipulating the said conditions.
25) Both the counsel for the respondents have brought to
our notice that the two impugned conditions were
incorporated in the tender notice pursuant to a decision of the
Contract Management Group (CMG) of the KSRTC, which is an
institutional mechanism for the purpose of devising proper
method in the matter, inter alia, of procurement of materials to
the KSRTC. The said Group consists of various high level
officials representing different departments of KSRTC. The
CMG constitutes of the following officials:
a) Managing Director,
Bangalore Metropolitan Transport Corporation
b) Managing Directors of four sister Corporations
c) Director, Security & Vigilance
d) Director, Personnel and Environment
e) Chief Accounts Officer
f) Chief Engineer (Production)
g) Chief Engineer(Maintenance)
h) Chief Accounts Officer(Internal Audit)
i) Controller of Stores and Purchase
Thus it is clear that the said CMG is a widely represented body
within the Respondent No. 2-KSRTC.
26) Further materials placed by KSRTC show that the CMG
met on 17.05.2007 and deliberated on the question of
conditions to be incorporated in the matter of calling of
tenders for supply of tyres, tubes and flaps. It is pointed out
that in view of the experience gained over the years, it was felt
by the said Group that the impugned two conditions should be
essential qualifications of any tenderer. The said policy
decision was taken in the best interest of the KSRTC and the
members of the traveling public to whom it is committed to
provide the best possible service. In the course of hearing,
learned counsel for the respondents have also brought to our
notice the Minutes of Meeting of the CMG held on 17.05.2007.
23Page 24
The said recommendation of the CMG was ultimately approved
by the Vice Chairman of KSRTC. In the circumstances, the
said impugned two conditions were incorporated in the tender
notice dated 05.07.2007.
27) It is also brought to our notice that the KSRTC is
governed by the provisions of the Karnataka Transparency in
Public Procurements Act, 1999 and the Rules made
thereunder, viz., Karnataka Transparency in Public
Procurements Rules, 2000. Though in Condition No 2(a) in
the tender notice dated 05.07.2007, the names of certain
vehicle manufacturers were mentioned, after finding that it
was inappropriate to mention the names of specific
manufacturers in the said condition, it was decided to delete
their names. Accordingly, a corrigendum was put up before
the CMG and by decision dated 04.08.2007, CMG decided to
revise the pre-qualification criteria by deleting the names of
those manufacturers. Learned counsel for the respondents
have also placed the Minutes of Meeting of the CMG held on
04.08.2007. It is also brought to our notice that the said
corrigendum was also approved by the competent authority.
24Page 25
28) In addition to the same, it was not in dispute that the
appellant-Company was well aware of both the original tender
notices and the corrigendum issued. It is also brought to our
notice that the appellant wrote a letter making certain queries
with regard to the corrigendum issued by the KSRTC and the
said queries were suitably replied by the letter dated
11.08.2007.
29) It is also seen from the records that pursuant to the
tender notice dated 05.07.2007, seven bids were received
including that of the appellant-Company. They are:
i) M/s Apollo Tyres
ii) M/s Birla Tyres
iii) M/s Ceat Ltd
iv) M/s Good Year India
v) M/s JK Industries
vi) M/s MRF Ltd
vii) M/s Michigan Rubber (Former Betul Tyres)
It is brought to our notice that successful bidders were CEAT
and JK Tyres. Accordingly, contracts were entered into with
the said two companies by the KSRTC and the purchase
25Page 26
orders were placed and they have also effected supplies and
completed the contract and the KSRTC also made payments to
the said suppliers.
30) It is pertinent to point out that the second respondent
has also issued 4 (four) more tender notices after the tender
notice dated 05.07.2007. The said tender notices were dated
04.03.2008, 22.08.2008, 24.10.2008 and 19.03.2009.
Pursuant to the tender notices dated 04.03.2008, 22.08.2008
and 24.10.2008, contracts have been awarded and have been
substantially performed. It is also brought to our notice that
all the said four subsequent tender notices also contained
identical conditions as that of the impugned conditions
contained in tender notice dated 05.07.2007.
31) As observed earlier, the Court would not normally
interfere with the policy decision and in matters challenging
the award of contract by the State or public authorities. In
view of the above, the appellant has failed to establish that the
same was contrary to public interest and beyond the pale of
discrimination or unreasonable. We are satisfied that to
have the best of the equipment for the vehicles, which ply on
26Page 27
road carrying passengers, the 2
nd respondent thought it fit that
the criteria for applying for tender for procuring tyres should
be at a high standard and thought it fit that only those
manufacturers who satisfy the eligibility criteria should be
permitted to participate in the tender. As noted in various
decisions, the Government and their undertakings must have
a free hand in setting terms of the tender and only if it is
arbitrary, discriminatory, mala fide or actuated by bias, the
Courts would interfere. The Courts cannot interfere with the
terms of the tender prescribed by the Government because it
feels that some other terms in the tender would have been fair,
wiser or logical. In the case on hand, we have already noted
that taking into account various aspects including the safety
of the passengers and public interest, the CMG consisting of
experienced persons, revised the tender conditions. We are
satisfied that the said Committee had discussed the subject in
detail and for specifying these two conditions regarding prequalification
criteria and the evaluation criteria. On perusal of
all the materials, we are satisfied that the impugned
conditions do not, in any way, could be classified as arbitrary,
discriminatory or mala fide.
32) The learned single Judge considered all these aspects in
detail and after finding that those two conditions cannot be
said to be discriminatory and unreasonable refused to
interfere exercising jurisdiction under Article 226 of the
Constitution and dismissed the writ petition. The well
reasoned judgment of the learned single Judge was affirmed
by the Division Bench of the High Court.
33) In the light of what is stated above, we fully agree with
the reasoning of the High Court and do not find any valid
ground for interference. Consequently, the appeal fails and
the same is dismissed with no order as to costs.
...…………….…………………………J.
(P. SATHASIVAM)
.…....…………………………………J.
(RANJAN GOGOI)
NEW DELHI;
AUGUST 17, 2012.
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