2019 (6) TMI 1449 - SC - Indian Laws

Rejection of tenders/technical bid - Competitive bidding - main ground raised was that no reasons were given either while rejecting its tender or the appeals - HELD THAT - This Court being the guardian of fundamental rights is duty bound to interfere when there is arbitrariness, irrationality, mala fides and bias. However, this Court in various decisions has cautioned time and again that courts should exercise a lot of restraint while exercising their powers of judicial review in contractual or commercial matters. This Court is normally loathe to interfere in contractual matters unless a clear cut case of arbitrariness or mala fides or bias or irrationality is made out. One must remember that today many public sector undertakings compete with the private industry. The contracts entered into between private parties are not subject to scrutiny under writ jurisdiction. No doubt, the bodies which are State within the meaning of Article 12 of the Constitution are bound to act fairly and are amenable to the writ jurisdiction of superior courts but this discretionary power must be exercised with a great deal of restraint and caution. The Courts must realise their limitations and the havoc which needless interference in commercial matters can cause. In the present case the petitioner was only challenging the rejection of its technical bid. At this stage the other tenderers were not necessary parties. The position may be otherwise if a tenderer challenges a bid awarded to another or challenges the rejection of his bid at a later stage. In our view the writ petition was maintainable even in the absence of other tenderers because till that stage there was no successful tenderer. Who are the necessary parties will depend upon the facts of each case. Whether the petitioner firm and the sister company are Related Firms , within the meaning of Clause 1.19 of the Manual of Contracts, 2007? - HELD THAT - It is not disputed before us that all the partners of the petitioner firm are the directors of the sister company and, therefore, there can be no manner of doubt that the petitioner firm and the sister company are related firms having a business relationship. Therefore, adverse remarks made against the sister concern can be used against the petitioner firm. To be fair to the learned counsel for the petitioner this point was not seriously contested before us. The eligibility criteria provided in the tender lays down that there should be no adverse remarks in the WLR of the competent engineering authority. Admittedly, there are adverse remarks in Work Load Return (WLR) of the sister company. It is obvious that the sister company having realised that it would not be awarded any contract neither got its enlistment renewed nor tried to submit the tender. The directors of the sister company tried to get over these insurmountable objections by applying for the tender in the name of the petitioner firm. Not only are the names similar but as pointed above, all the directors of the sister company are partners in the petitioner firm. Therefore, these adverse remarks passed against the sister company could not be ignored. Only limited companies can be enlisted in SS Class. The Manual deals with enlistment of contractors in various classes. SS is the highest class and for that only incorporated companies can apply. Therefore, in our opinion the petitioner was not eligible to submit the tender. There are no merit in the petitions which stand dismissed.

Issues Involved:
1. Rejection of technical bids
2. Judicial review in contractual matters
3. Adverse remarks against the sister company
4. Eligibility criteria for tender submission
5. Requirement of reasons in administrative decisions

Issue-wise Detailed Analysis:

1. Rejection of Technical Bids:
The petitioner, a construction firm, had its technical bids rejected by the tendering authorities due to non-compliance with eligibility criteria. The firm appealed, but the appeals were also rejected. The firm then filed a writ petition, arguing that no reasons were provided for the rejection. The respondents countered that the rejection was due to adverse remarks against the petitioner's sister company, which had not renewed its enlistment and had negative remarks in its workload return.

2. Judicial Review in Contractual Matters:
The court reiterated the principles of judicial review in contractual matters, emphasizing judicial restraint. It cited several precedents, including Tata Cellular vs. Union of India, which established that courts should not interfere in commercial activities unless there is arbitrariness or favoritism. The court noted that judicial review is intended to prevent arbitrariness and bias, not to evaluate the soundness of decisions. It stressed that courts should exercise restraint and only intervene in cases of clear arbitrariness or mala fides.

3. Adverse Remarks Against the Sister Company:
The court addressed whether adverse remarks against the sister company could be used against the petitioner. It concluded that since all partners of the petitioner firm were directors of the sister company, they were "related firms" with a business relationship. Therefore, adverse remarks against the sister company could be considered against the petitioner. The court noted that the sister company had not challenged the adverse remarks and had not renewed its enlistment, indicating acceptance or acquiescence to the adverse remarks.

4. Eligibility Criteria for Tender Submission:
The court examined the eligibility criteria for tender submission, which required contractors to be enlisted in the "SS Class" and not carry adverse remarks. The petitioner firm, not being an enlisted contractor, had to meet the same criteria as "SS Class" contractors. The court found that only companies incorporated under the Companies Act, 1956, could be enlisted as "SS Class" contractors. Since the petitioner was a firm and not an incorporated company, it was not eligible to submit the tender.

5. Requirement of Reasons in Administrative Decisions:
The court addressed whether the appellate orders were invalid for lacking reasons. It held that rejecting a tender is a purely administrative decision, not requiring reasons at every stage. The state must have leeway in commercial activities, and reasons can be provided in the counter to a writ petition. The court found that the respondents had provided sufficient reasons in their counter, including delays and non-performance by the sister company, which justified the rejection of the petitioner's bid.

Conclusion:
The court dismissed the petitions, concluding that the petitioner firm was not eligible to submit the tender due to adverse remarks against its sister company and its status as a non-incorporated entity. The court emphasized the need for judicial restraint in contractual matters and upheld the administrative decisions of the tendering authorities.

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