2021 (9) TMI 1318 - SC - Indian Laws

Tender jurisdiction - strict enforcement of contractual rights under the civil jurisdiction - HELD THAT - In commercial tender matters there is obviously an aspect of commercial competitiveness. For every succeeding party who gets a tender there may be a couple or more parties who are not awarded the tender as there can be only one L-1. The question is should the judicial process be resorted to for downplaying the freedom which a tendering party has merely because it is a State or a public authority making the said process even more cumbersome. We have already noted that element of transparency is always required in such tenders because of the nature of economic activity carried on by the State but the contours under which they are to be examined are restricted - The objective is not to make the Court an appellate authority for scrutinizing as to whom the tender should be awarded. Economics must be permitted to play its role for which the tendering authority knows best as to what is suited in terms of technology and price for them. Merely because a company is more efficient obtains better technology makes more competitive bids and thus succeeds more cannot be a factor to deprive that company of commercial success on that pretext. It does appear to us that this is what is happening; that the two original petitioners are endeavouring to continuously create impediments in the way of the succeeding party merely because they themselves had not so succeeded. It is thus our view that the Division Bench has fallen into an error in almost sitting as an appellate authority on technology and commercial expediency which is not the role which a Court ought to play. A lot of emphasis has been placed by the Courts below in seeking to go into the financial linkages between the two companies i.e. Uflex and Montage. The correct way of examining this issue should have been that whether under the terms of the NIT any of the aspects which were examined by the Courts could be said to be a disqualification. In our view the answer to the same was in the negative. One company had invested in another through certain preference shares without having any controlling interest this cannot be the basis of judicial scrutiny. The present case is not one of an intercorporate battle or of minority shareholders claiming the rights or any debts due where the principle of lifting the corporate veil should be applied. What one may have said in some income tax proceedings whether a small percentage of the funds of one company have been utilized as investment in the other are hardly the principles which should come into play in such a tender matter. The impugned order cannot be sustained - We are inclined to allow actual costs. However we have modulated the costs insofar as appellant is concerned to the extent of the indicated amount of the Advocate-on-Record and allow 50% of the same. The total costs thus payable to the petitioner/appellant would be 23, 25, 750/-.

Issues Involved:
1. Tender jurisdiction and judicial review
2. Allegations of bias and arbitrariness in tender conditions
3. Evaluation of technical and commercial specifications
4. Conflict of interest and corporate relationships
5. Rights of MSMEs under tender laws
6. Costs and consequences of litigation

Detailed Analysis:

1. Tender Jurisdiction and Judicial Review:
The judgment discusses the expanded role of the government in economic activities and the corresponding increase in challenges to tender processes. The court emphasizes that judicial review in tender matters is limited to preventing arbitrariness, irrationality, unreasonableness, bias, and mala fide actions. The court's role is not to assess the soundness of decisions but to ensure they are made lawfully. The "Wednesbury principle" is applied, meaning a decision can only be overturned if it is so unreasonable that no reasonable authority would have made it.

2. Allegations of Bias and Arbitrariness in Tender Conditions:
The respondents argued that the tender conditions were skewed to favor specific bidders, particularly Uflex and Montage, by requiring eight years of experience and significant prior supply to state excise departments. The court noted that the terms of the tender should be fair and not arbitrary, but also recognized that the state has the discretion to set conditions to ensure quality and reliability. The court found that the conditions were not arbitrary and were within the state's discretion.

3. Evaluation of Technical and Commercial Specifications:
The court examined whether the technical specifications were generic enough to allow wider participation. The respondents contended that the specifications were designed to exclude most bidders except Uflex and Montage. The court noted that the tendering authority is the best judge of its requirements and that the court should not interfere unless there is clear evidence of mala fide or irrationality. The court found that the technical specifications were justified and aimed at ensuring the quality and security of the holograms.

4. Conflict of Interest and Corporate Relationships:
The respondents alleged that Uflex and Montage had a conflict of interest due to financial investments and common technology sources. The court examined the relationship between the two companies and found that the investment in preference shares did not amount to a controlling interest. The court reiterated that the principle of lifting the corporate veil should not be applied in tender matters unless there is clear evidence of collusion or control that affects the integrity of the tender process.

5. Rights of MSMEs under Tender Laws:
Kumbhat argued that as an MSME, it should have been allowed to participate in the tender under the provisions of the MSMED Act and the Tender Act. The court noted that while MSMEs have certain protections and preferences, they must still meet the eligibility criteria set out in the tender. The court found that Kumbhat did not meet the criteria as it was a partnership firm and not an LLP or limited company, which were the required forms for participation.

6. Costs and Consequences of Litigation:
The court emphasized the need for costs to follow the cause, especially in commercial litigation, to deter frivolous and vexatious litigation. The court awarded costs to the appellants, Uflex and the State Government, to be paid by Kumbhat and Alpha. The court highlighted the importance of awarding realistic costs to reflect the actual expenses incurred and to discourage unnecessary litigation.

Conclusion:
The Supreme Court set aside the impugned order of the Division Bench, allowing the appeals by Uflex and the State Government. The court found that the tender conditions were justified, the technical specifications were appropriate, and there was no conflict of interest that affected the integrity of the tender process. The court also emphasized the importance of awarding costs to deter frivolous litigation in commercial matters.

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