JUDGMENT [ENTITY], J[CASE NUMBER]
1[CASE NUMBER] RULE D[CASE NUMBER]B[CASE NUMBER]
2[CASE NUMBER] Since the matter does not brook any delay and we have heard learned counsel for the parties at considerable length, with their consent, we proceed to dispose of the matter at this stage itself[CASE NUMBER]
3[CASE NUMBER]In this writ petition under [SECTION] of the [ACT], the legality and validity of insertion of a new eligibility criterion in the tender inquiry No[CASE NUMBER][CASE NUMBER][CASE NUMBER][CASE NUMBER] dated 23 June 2003 by the first respondent, namely, Bharat Sanchar Nigam Ltd[CASE NUMBER] (hereinafter referred to as 'BSNL') is in question[CASE NUMBER]
4[CASE NUMBER] The factual background, on which the foundation of this judicial action is laid, is as follows:
4[CASE NUMBER]1[CASE NUMBER] BSNL, a Public Sector Undertaking, engaged in the creation and maintenance of telecommunication infrastructure in the length and breadth of the country, purchases for the said purpose various items, one of them being Polythene Insulated Jelly Filled Cables (for short 'PIJF Cables')[CASE NUMBER] Almost 90-95% PIJF Cables manufactured throughout the country are purchased by the BSNL[CASE NUMBER] The petitioner is engaged in the manufacture of PIJF cables and like other manufacturers, claims to be dependant on the annual orders from BSNL for its existence[CASE NUMBER]
4[CASE NUMBER]2[CASE NUMBER] According to the petitioner, since the inception of the centralized tendering process in the year 1991, BSNL has been consistently following the practice of allowing the new manufacturers to participate in the tendering process[CASE NUMBER] As per the past practice, once the manufacturing facilities of a new PIJF Cables Manufacturer is in place, BSNL's Telecom Engineering Centre inspects the factory and upon satisfying itself about such manufacturing facilities, grants an Infrastructure Approval Certificate, certifying that the manufacturer has sufficient infrastructure to cater to the orders which may be placed by them[CASE NUMBER] Thereafter, BSNL's Telecom Engineering Centre again inspects the particular product output of a new manufacturer and grants Type Approval Certificate, specific for various sizes of cables that are tendered by BSNL[CASE NUMBER] Right from the year 1991 to 1996, the participation in BSNL's annual tender depended on a manufacturer obtaining an Infrastructural Approval and Type Approval Certificate[CASE NUMBER] To facilitate the entry of new vendors in the annual tendering process, in the year 1997, BSNL introduced the system of educational order[CASE NUMBER] Before the commencement of an annual tender, BSNL started placing educational orders with the new manufacturers, who had obtained infrastructural approval and type approval to supply some quantity of PIJF Cables, in order to practically determine such manufacturer's capabilities and delivery capacity[CASE NUMBER] Once the new manufacturer was able to execute the educational order, it was allowed to participate in the annual tender of BSNL for the purchase of said cables[CASE NUMBER] Thus, according to the petitioner, BSNL has consistently maintained the criteria for participation in the tendering for supply of PIJF Cables to those manufacturers who had valid Infrastructural Approval and Type Approval Certificates for the tendered items[CASE NUMBER]
4[CASE NUMBER]3[CASE NUMBER] Petitioner's case is that on the basis of this consistent policy and practice of BSNL, they set up a unit for manufacture of PIJF Cables by having financial assistance from H[CASE NUMBER]P[CASE NUMBER] State Industrial Development Corporation[CASE NUMBER] After putting up the requisite plant and machinery and other infrastructure and on their applying with the Telecom Engineering Centre of BSNL, Infrastructural Approval Certificate was issued to them on 9 July 2002[CASE NUMBER] Thereafter, they also received from BSNL Type Approval , certifying that the products specified in the Certificate were approved for procurement by BSNL and MTNL[CASE NUMBER]
4[CASE NUMBER]4[CASE NUMBER] Vide their letter dated 17 April 2003, the petitioner requested BSNL for placement of educational order, which when executed would have enabled them to participate in the annual tender of the BSNL[CASE NUMBER] However, no such order was placed with them[CASE NUMBER] Instead, BSNL issued the impugned tender for procurement of PIJF Cables for the year 2003-04[CASE NUMBER] In the tender document a fresh eligibility condition, namely, the bidder having executed commercial orders for rupees one crore or more issued by BSNL or any other Public Sector Undertakings, was inserted[CASE NUMBER] As noticed above, this eligibility condition is the subject matter of challenge in this writ petition[CASE NUMBER]
5[CASE NUMBER] The action of the BSNL in inserting the said eligibility condition is assailed by the petitioner mainly on two grounds, namely, (i) it is irrational and perverse in as much as it has resulted in excluding all new entrants from participating in the annual tender and (ii) it defeats the substantive legitimate expectation of the petitioner that based on the consistent past policy of BSNL since 1991, they would receive educational orders from the respondents and, upon execution thereof, participate in the tender for procurement of PIJF Cables for the year 2003-04[CASE NUMBER]
6[CASE NUMBER] The writ petition is resisted by the BSNL[CASE NUMBER] In the reply affidavit it is stated that over the past decade, BSNL is procuring PIJF Cables by prescribing some important criteria to be fulfillled as eligibility to participate in the tender(s) floated by them and these eligibility conditions have been changing from time to time depending upon their requirements[CASE NUMBER] It is pleaded that during the year 2002-03, BSNL experienced a peculiar situation where only 103 LCKM of Cables could be procured against the tendered quantity of 215 LCKM, which adversely affected the plans of BSNL in providing new connections to the subscribers[CASE NUMBER] It is also pointed out that in spite of such eligibility criteria being imposed from time to time, some old and experienced vendors, who were given purchase orders for the year 2002-03 could not even supply 50% of the ordered quantity by 30 June 2003, resulting in hardship to the BSNL and the public at large[CASE NUMBER] It is pleaded that because of the difficulty faced by the BSNL on account of non-fulfillment of contractual obligations by several manufacturers, it was decided to impose the impugned condition, which is in the larger interest of the society[CASE NUMBER] It is also averred that the BSNL desires to have only those bidders, who have executed orders to the extent of Rs[CASE NUMBER]One Crore or more for the BSNL or any other Public Sector Undertakings because this condition would enable the BSNL to assess a bidder's capacity to manufacture and supply PIJF Cables within the stipulated delivery period[CASE NUMBER] BSNL asserts that it is their sole prerogative to prescribe[CASE NUMBER]modify any or all the eligibility criteria, which it may consider desirable and the terms of invitation to tender are not open to judicial scrutiny because the invitation to tender is in the realm of contract[CASE NUMBER] Nevertheless, in order to justify imposition of the impugned eligibility condition on merits, it is stated that the Board of Directors of BSNL had decided to prescribe execution of orders of minimum of Rs[CASE NUMBER]One Crore, which corresponds to a value of 0[CASE NUMBER]22 LCKM against the requirement of 120 LCKM, which is hardly 0[CASE NUMBER]18% of the total requirement, and therefore, the condition cannot be said to be unreasonable or arbitrary[CASE NUMBER]
7[CASE NUMBER] During the tendency of the writ petition, time for submission of tender was extended from time to time[CASE NUMBER] Ultimately, vide order dated 10 February 2004, BSNL was permitted to open the bids but with a direction to reserve 0[CASE NUMBER]31944 LCKM for the petitioner[CASE NUMBER]
8[CASE NUMBER] We have heard Mr[CASE NUMBER][ENTITY], learned senior counsel for the petitioner and Ms[CASE NUMBER][ENTITY], learned counsel for the BSNL[CASE NUMBER]
9[CASE NUMBER] It is strenuously urged by Mr[CASE NUMBER][ENTITY] that in view of the mandatory requirement of obtaining and furnishing of Type Approval Certificate from the Telecom Engineering Centre and Inspection Certificate from the BSNL itself, for the purpose of establishing bidders' eligibility and capacity to execute a commercial order, the insertion of the impugned eligibility condition of successful execution of commercial order for Rs[CASE NUMBER]One Crore, for the stated reason of assessing a bidder's capacity to manufacture and supply PIJF Cables, is wholly arbitrary, irrelevant and discriminatory to the new entrants[CASE NUMBER] It is urged that the said condition has been deliberately introduced in order to somehow oust the new manufacturers at the threshold and limit the competition to ensure that only big manufacturers, who admittedly were the defaulters in the past, are eligible to participate in the tender[CASE NUMBER] Trashing the stand of the BSNL that insertion of the impugned condition would enable them to evaluate the manufacturing capacity of a bidder, learned counsel has submitted that the earlier procedure of placing educational orders, based on the Type Approval and Inspection Certificate, had served the BSNL well and in fact there was hardly any default on the part of the new manufacturing units in executing the educational or commercial orders placed with them[CASE NUMBER] To buttress the argument, learned counsel has referred us to some tabular statements showing the delivery rating given by the BSNL to their vendors and the extent of the contracts executed by the established vendors till June 2003 etc[CASE NUMBER], which indicate that almost all the new entrants had successfully executed the commercial orders, whereas majority of the established vendors had defaulted[CASE NUMBER] Learned counsel asserts that the track record of the vendors, projected by BSNL themselves, clearly shows that the difficulty faced by them on account of short supplies was the creation of the established vendors and not the new entrants, who are now sought to be kept out of the tendering process[CASE NUMBER] Thus, the submission is that there is no rational nexus between the impugned eligibility condition and the object sought to be achieved, particularly when the commercial order is based on the verified[CASE NUMBER]certified manufacturing capacity of a bide[CASE NUMBER] It is also pointed out that out of 15 tenders floated by BSNL, the impugned condition has been inserted only in the present tender and none else[CASE NUMBER] Learned counsel also contended that based on the past consistent practice of BSNL, the petitioner as also the similarly situated entrepreneurs had made huge investments in setting up manufacturing units for PIJF Cables, having a legitimate expectation of a substantive nature that BSNL would place commercial orders with them[CASE NUMBER] It is pleaded that if the impugned condition is upheld, it may amount to civil death for the new entrants particularly when BSNL has stopped issuing educational orders as per the past practice, and new manufactures will not be able to meet the requirement of execution of commercial orders of Rs[CASE NUMBER]One Crore without executing educational orders[CASE NUMBER] In support, reliance is placed on the decisions of the Supreme Court in [PRECEDENT][CASE NUMBER], and [PRECEDENT][CASE NUMBER], [CASE NUMBER]
10[CASE NUMBER] Per contra, Ms[CASE NUMBER][ENTITY], while supporting the decision of BSNL, on the strength of the afore-mentioned reasons, has contended that the impugned eligibility criteria being a policy decision taken by the competent authority in the interest of public at large, it is not a fit case for judicial review[CASE NUMBER]
11[CASE NUMBER] We have given a thoughtful consideration to the entire matter[CASE NUMBER] True that Courts are slow to interfere in matters relating to administrative functions, unless the impugned decision is tainted by illegality, irrationality or lack of fairness in procedure[CASE NUMBER] It is equally true that certain measure of free play in joints is necessary for an administrative body functioning in an administrative sphere but no authority can act arbitrarily at its sweet will[CASE NUMBER] Great leverage is allowed in the matter of exercise of contractual powers by the government agencies but action taken by such agency cannot be irrational and arbitrary[CASE NUMBER] Its actions have to be in conformity with the standards or norms, which are not arbitrary, irrational or irrelevant[CASE NUMBER] By now it is well settled that in order to prevent arbitrariness or favoritism in the exercise of contractual powers by the Government or Government bodies the principles of judicial review would apply[CASE NUMBER]
12[CASE NUMBER] The scope of judicial review of administrative decisions and exercise of contractual powers of Government bodies was examined in depth by the Apex Court in [PRECEDENT], [CASE NUMBER] On a review of number of earlier decisions on the point, the following principles were deduced:
94[CASE NUMBER] The principles deducible from the above are:
(1) The modern trend points to judicial restraint in administrative action[CASE NUMBER]
(2) The court does not sit as a court of appeal but merely reviews the manner in which the decision was made[CASE NUMBER]
(3) The court does not have the expertise to correct the administrative decision[CASE NUMBER] 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[CASE NUMBER]
(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[CASE NUMBER] Normally speaking, the decision to accept the tender or award the contract is reached by process of negotiations through several tiers[CASE NUMBER] More often than not, such decisions are made qualitatively by experts[CASE NUMBER]
(5)The Government must have freedom of contract[CASE NUMBER] 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[CASE NUMBER] However, the decision must not only be tested by the application of Wednesbury principles of reasonableness (including its other facts pointed out above) but must be free from arbitrariness not affected by bias or actuated by mala fides[CASE NUMBER]
(6) Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure[CASE NUMBER]
13[CASE NUMBER] Then in [PRECEDENT][CASE NUMBER], , it was observed that the terms and conditions in the tender are prescribed by the Government bearing in mind the nature of contract and in such matters the authority calling for the tender is the best judge to prescribe the terms and conditions of the tender and it is not for the Courts to say whether the conditions prescribed in the tender were better than the one prescribed in the earlier tender invitations[CASE NUMBER]
14[CASE NUMBER] Yet again in [PRECEDENT], , the Apex Court felt that a public authority even in contractual matters should not have unfettered discretion and in contracts having commercial element even though some extra discretion is to be conceded in such authorities, they are bound to follow the norms recognised by Courts while dealing with public property[CASE NUMBER] This requirement is necessary to avoid unreasonable and arbitrary decisions being taken by public authorities, whose actions are amenable to judicial review[CASE NUMBER] Therefore, merely because the authority has certain elbow room available for use of discretion in accepting offer in contracts, the same will have to be done within the four corners of the requirement of law, especially [SECTION] of the [ACT][CASE NUMBER]
15[CASE NUMBER] Recently, a similar issue again came up for consideration before the Apex Court in [PRECEDENT][CASE NUMBER], [CASE NUMBER] Answering the question whether in the exercise of its jurisdiction of judicial review under [SECTION] of the [ACT], the Court could change the terms incorporated in the tender notice on the ground of its being inappropriate and the objective would be better served by adopting different eligibility criteria, their Lordships ruled as follows:
It has clearly been held in these decisions that the terms of the invitation to tender are not open to judicial scrutiny, the same being in the realm of contract[CASE NUMBER] That the Government must have a free hand in setting the terms of the tender[CASE NUMBER] It must have reasonable play in its joints as a necessary concomitant for an administrative body in an administrative sphere[CASE NUMBER] The courts would interfere with the administrative policy decision only if it is arbitrary, discriminatory, mala fide or actuated by bias[CASE NUMBER] It is entitled to pragmatic adjustments which may be called for by the particular circumstances[CASE NUMBER] The courts cannot strike down 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[CASE NUMBER] The courts can interfere only if the policy decision is arbitrary, discriminatory or mala fide[CASE NUMBER]
16[CASE NUMBER] Tested on the touchstone of the broad principles enunciated in the afore-mentioned decisions, we are of the view that there is substance in the contention urged on behalf of the petitioners[CASE NUMBER] As noted above, one of the contentions urged by learned counsel for the petitioners is that except for the tender document in question, such a pre-condition did not exist in any other 15 tenders, issued by BSNL in the recent past[CASE NUMBER] In order to appreciate the reason, which weighed with the Board of Management Committee, for imposition of the impugned condition and dis-continuance of the past practice of placement of educational orders, we called for the records, wherein the impugned decision had been taken by the BSNL[CASE NUMBER] The same have been placed before us[CASE NUMBER]
17[CASE NUMBER] From the record it appears that the process for review of the conditions for PIJF Cable tenders was set into motion on receipt of a letter from a Member of Parliament requesting the Minister for Communications to dispense with the delivery rating concept[CASE NUMBER] It was pointed out in the letter that the practice of allocating PIJF Cable orders to the firms who had large capacities and had higher delivery rating was working against BSNL and Government because: (i) there was no incentive for the small manufacturers to quote lower price and (ii) the large firms with the higher delivery rating even if quoting higher prices were able to get away with bulk of orders[CASE NUMBER] Upon examination of the complaint at various levels in the department, it was decided that the matter be considered in depth by the Management Committee of the BSNL Board[CASE NUMBER]
18[CASE NUMBER] On a review of the status of procurement of PIJF Cables based upon the existing vendor rating system during 2002-03, including the representations for release of educational orders, the BSNL Board decided that: (i) no further educational orders need be given for PIJF Cables; (ii) for future procurement of PIJF Cables, the vendor rating system may be dispensed with and (iii) the possession of ISO Certification could be a pre-requisite for eligibility against the PIJF Cable tender[CASE NUMBER]
19[CASE NUMBER] Based on the recommendations of the Board, it was finally decided to modify the eligibility criteria so as to enable the new entrants to participate in the tender provided they meet the requirements of Type Approval Certificate and ISO Certification[CASE NUMBER]
Accordingly, it was proposed that the following clause may be included in the tender for the year 2003-04:
The eligible bidders should be Indian Companies registered to manufacture Tendered Item (PIJF Cable) in India having obtained clearance from Reserve Bank of India where ever applicable[CASE NUMBER] In addition they should have valid type approval Certificate for the Group[CASE NUMBER]Size of the cable for which the bid is submitted against TEC [CASE NUMBER] from Deptt of Telecom (TEC) at the time of Tender opening[CASE NUMBER] The equipment against the tender should be supplied as per technical specifications given in [SECTION] of the bid document[CASE NUMBER] The proof of manufacturing the tendered item in India, possession of I[CASE NUMBER]S[CASE NUMBER]O[CASE NUMBER] Certificate and valid type Approval Certificate as mentioned above shall form part of the bid[CASE NUMBER]
20[CASE NUMBER] The proposal was submitted for consideration and approval of the BSNL Board[CASE NUMBER] It appears that up to the stage of Director (Planning and NS), the said proposal was cleared but the Director (Finance), commenting on the proposal to omit the condition of bidder being an established supplier having successfully executed educational and commercial orders for tendered item, suggested that the said cable being a costly and important element of the network and not possible to replace after the same was laid unde ground, it may be necessary that the cable should be procured from established suppliers[CASE NUMBER] He, thus, suggested that the afore-extracted eligibility clause may be adopted or a condition of being established supplier may also be incorporated therein[CASE NUMBER] The note was put up to the next senior officers[CASE NUMBER] The next note of DDG([CASE NUMBER]), dated 17 June 2003, suggests that the case was discussed and it was decided that in addition to the afore-mentioned eligibility condition the following condition would be added:
The bidder should have successfully executed commercial order for Rs[CASE NUMBER]One crore or more for the tendered item issued by BSNL HQ or any other PSU[CASE NUMBER] The certificate w[CASE NUMBER]r[CASE NUMBER]t[CASE NUMBER] successful execution of order will have to be certified by an officer not below the rank of General Manager will be submitted along with the bid[CASE NUMBER]
21[CASE NUMBER] From the above narration of material nothings on the file, it is evident that the entire emphasis was on the quality of the cable to be supplied[CASE NUMBER] We are unable to appreciate the co-relation or the nexus between the quality and the quantum of the commercial order, particularly when to ensure quality the twin conditions of valid Type Approval Certificate from Department of Telecom and possession of ISO Certificate have been retained as a pre-requisite for a valid tender[CASE NUMBER] It is also pertinent to note that though the afore-noted criteria[CASE NUMBER]condition was finalised on the basis of the recommendations of the Board of Management of BSNL but a further condition of being an established supplier, as suggested in the note dated 16 June 2003 and the impugned criteria of successful execution of commercial order of Rs[CASE NUMBER]One Crore, not even suggested in any of the notes, was added, without referring the same to the Board of Management[CASE NUMBER] It is also pertinent to note that the reason for insertion of the impugned eligibilite condition as stated in the reply affidavit of the BSNL, namely, non-fulfillment of contractual obligations by several manufacturers, is not borne out from the record, wherein, as noticed above, the reason is the quality of the cable[CASE NUMBER] There is no material or any discussion as to how and why the impugned criteria would be in the larger public interest, or subserve the objects of BSNL[CASE NUMBER] Likewise, in the records no objective material is available to support such a criteria[CASE NUMBER] Hence, the explanations offered by BSNL in their affidavits cannot be accepted[CASE NUMBER] As observed by their Lordships of the Supreme Court in [PRECEDENT] and Ors[CASE NUMBER], , the validity of the impugned insertion has to be judged by the reasoning in the afore-mentioned notes and this cannot be supplemented by fresh reasons in the shape of an affidavit or otherwise[CASE NUMBER]
22[CASE NUMBER] Thus, although we recognise the fact that the government or its agency is the best judge to prescribe the terms and conditions of the tender, a contractual matter, but, unfortunately in the instant case, having regard to the background in which the exercise to review the tender conditions was undertaken, the BSNL has failed to justify the insertion of the impugned eligibility condition on any tangible or rational ground[CASE NUMBER] As noticed above, the complaint of the Member of Parliament was that the earlier condition of delivery rating was acting to the detriment of small manufactures[CASE NUMBER] By inserting the impugned eligibility condition, small manufacturers have again been excluded from tendering[CASE NUMBER] We have no hesitation in holding that the decision of the BSNL to insert the impugned eligibility condition is irrational and arbitrary and has no nexus with the object sought to be achieved, namely full and timely supply of quality PIJF Cables and therefore, deserves to be quashed[CASE NUMBER]
23[CASE NUMBER] For the view we have taken above, we deem it unnecessary to deal with the other contention of Learned Counsel for the petitioner with regard to the legitimate expectation, though in the light of the recent decision of the Supreme Court in [PRECEDENT], , prima facie, the stand of the petitioner does not seem to be on a very strong footing[CASE NUMBER]
24[CASE NUMBER] In the result, the writ petition is allowed; the impugned eligibility condition of successful execution of commercial orders for Rupees One Crore or more issued by BSNL or any other Public Sector Undertaking is quashed and the rule is made absolute[CASE NUMBER] Subject to petitioner's fulfillling other tender conditions, their bid for supply of PIJF shall be processed as expeditiously as practicable and in any case not later than two weeks from the date of this order[CASE NUMBER] There will, however, be no order as to costs