2010 (9) TMI 222 - HC - Companies Law

Award of contract for supply of machinery by the Government of Kerala to third respondent which is a Central Government undertaking in preference to the appellant Held that - Even if Government orders or tender conditions do not provide for any preference to a Government Company in the award of contract by the Government, still it is open to the Government while awarding the contract to favour such a contractor as the risk of breach of contract is less and actually there will be no financial loss to the Government, even if the contract amount is higher than the lower price quoted by a private contractor. In this case we notice that a fair procedure is adopted by second respondent by calling for revised quotations from both the parties, the appellant and third respondent, whereunder the third respondent s tender happened to be the lower and so much so, contract is awarded to them, not merely because third respondent is a Government Company, but because its bid is the lower one. We, therefore, find no merit in the Writ Appeal and, therefore, dismiss the same.

Issues:
1. Preference in awarding contract to a Central Government undertaking over a private company.
2. Allegation of denial of equal opportunity in the negotiation process.
3. Compliance with Article 14 of the Constitution of India in the contract award process.

Issue 1: Preference in awarding contract to a Central Government undertaking over a private company

The case involved a dispute over the award of a contract for the supply of machinery by the Government of Kerala to a Central Government undertaking over a private appellant. The appellant contended that the award was arbitrary and violated Article 14 of the Constitution of India. The appellant argued that both parties should have been given equal opportunity to negotiate the price further after the initial tenders were opened. The court acknowledged the appellant's contention that equal opportunity should have been provided to both parties for competitive bargaining. However, the court noted that the Central Government undertaking had offered a lower bid by Rs. 5.6 lakhs compared to the appellant, leading to the contract being awarded to them. The court highlighted that a fair procedure was followed in calling for revised quotations from both parties, and the contract was awarded based on the lower bid, not solely due to the respondent being a Government Company.

Issue 2: Allegation of denial of equal opportunity in the negotiation process

The appellant alleged that they were unaware of the negotiation between the second respondent and the third respondent, which resulted in the contract being awarded to the latter. The appellant claimed that if given another opportunity, they could have further reduced the price. The court agreed with the appellant's counsel that equal opportunity should have been granted to both parties for negotiating the price. However, it was observed that both parties provided their minimum amounts without contest, with the third respondent offering a lower bid by Rs. 5.6 lakhs. The court noted that the appellant's revised quotation was considered, and the contract was awarded to the third respondent based on their lower bid.

Issue 3: Compliance with Article 14 of the Constitution of India in the contract award process

The court referred to legal precedents to emphasize that the Government must act fairly and reasonably in awarding contracts, ensuring decisions are not arbitrary or whimsical. While the Government is not always bound by the lowest cost in contract awards, the purpose of the contract should be fully achieved. In this case, the court highlighted the difference between a private company and a fully owned Central Government undertaking in terms of contract execution and potential breach. The court noted that the Government Company's decision-making is controlled by the Government, reducing the risk of contract breach. Additionally, the court considered that any profit from the contract awarded to the Government Company would ultimately benefit the Government itself. Therefore, the court concluded that even if there was no explicit preference for a Government Company in the tender conditions, the Government could still favor such a contractor to minimize the risk of financial loss and breach of contract. Ultimately, the court found no merit in the Writ Appeal and dismissed it.

This detailed analysis of the judgment addresses the issues raised regarding the preference given to a Central Government undertaking, the negotiation process, and the compliance with constitutional provisions in the contract award process.

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