* THE HON’BLE SRI JUSTICE GODA RAGHURAM AND * THE HON'BLE MR JUSTICE RAMESH RANGANATHAN + WRIT PETITION NO. 1338 OF 2009 % 05.03.2010 # P.Narayana Reddy and 2 others ….. Petitioners Vs. $ The Govt. of A.P. rep. by its Principal Secretary, Transport R & B Department Secretariat, Hyderabad and 3 others. …..Respondents ! Counsel for the petitioner: Sri P.Veera Reddy ^ Respondents No.1to 3 : Sri S. Sriram, Spl. Govt. Pleader Respondent No.4 : Sri B. Adinarayana Rao < Gist: >Head Note ? [1] 1988(1) SCC 166=AIR 1988 SC 157 2 1979(3) SCC 489 3 (1985) 3 SCC 267 4 2000(8) SCC 262 5 2007(1) Supreme 704 6 (1994) 6 SCC 651 7 1980(4) SCC 1 8 2009(3) Supreme 429 9 1981 (1) SCC 568 10 1990(3) SCC 752 111991(1) SCC 212 12(1993) 1 SCC 445 13(2009) 7 SCC 561 14(1999)6 SCC 464 15(1991) 4 SCC 54 161987(1) SCC 227 17(2003) 7 SCC 546 18(2004) 11 SCC 1 191993(2) SCC 703 THE HON'BLE SRI JUSTICE GODA RAGHURAM AND THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITION No.1338 OF 2009 ORDER: (Per Hon’ble Sri Justice Ramesh Ranganathan) This writ petition is filed in public interest to declare G.O.Rt. No.1830 Transport, Roads & Buildings (R-1) Department dated 20.12.2008 issued by the 1st respondent entrusting the work of formation of the road, from Mangapatnam to K. Sugumanchipalli Village i.e., K.M 0/0 to KM 30/30 on State Highway No.31, on nomination basis to the 4th respondent as arbitrary and against public interest. Facts, in brief, are that the Galeru Nagari & Sujala Sravanti (GNSS) project envisages drawal of 38.0 tmc of surplus flood waters from the Krishna river to provide irrigation facilities over an extent of 2.60 lakh acres in the drought prone areas of Kadapa (1,55,000 acres), Chittoor (1,03,500 acres) and Nellore (1,500 acres) districts besides meeting the drinking water needs of a population of 10 lakhs. Keeping in view the magnitude of the project it was proposed to take up the works in a phased manner. In March, 2005 the first phase, which involved the works of formation of the Gandikota Reservoir, Vamikonda Sagar reservoir, Sarvaraja Sagar Reservoir including earth work excavation of the GNSS main canal from km. 0.000 to Km. 32.640 and construction of cross masonary and cross drainage (CM & CD) works along with distributory system, were taken up. A proposal was submitted for construction of the Gandikota reservoir at FRL + 209.00 M with a storage capacity of 16.850 TMC and administrative approval was granted vide G.O.Ms.No.53 dated 10.6.2004 for Rs.560.00 Crores. As a result 14 villages, in and around Gandikota reservoir, fell under submergence. In addition the Renigunta-Kadapa- Rayalacheruvu State Highway (SH-31) was expected to submerge for a length of 17.00 Kms. On their bid being found to be the lowest, the work of construction of the Gandikota reservoir was awarded to M/s Maytas – NCC (JV), Hyderabad for Rs.325.70 Crores under EPC Turnkey System. The Superintending Engineer, GNSS Circle, Kadapa, in his letter dated 20.8.2005, informed the Superintending Engineer, R & B, Kadapa of the partial submergence of State Highway No.31. The Superintending Engineer, R & B, vide letter dated 29.08.2005, submitted a proforma estimate for Rs.45.00 Crores for formation of the 17 KM road. Construction of this diversion road was, however, not taken up. On 14.02.2007 the Government decided to raise the FRL of Gandikota dam from + 209.00M to + 212.00 M and to enhance its capacity from 16.850 tmc to 26.850 tmc in order to provide irrigation facilities to the additional ayacut under lift schemes. As a result, another eight villages fell under submergence necessitating a change in the road alignment. On being directed to conduct a detailed investigation regarding the change in alignment the R& B officials, vide letter dated 29.5.2007, requested that Rs.20.00 Lakhs be deposited for carrying out such an exercise and the said sum was deposited vide cheque No.118606 dated 27.7.2007. The Government, vide memo No.1869/Maj. Irrigation VI/2007-1 dated 9.8.2007, instructed the Chief Engineer (Projects) Irrigation, Kadapa to obtain the estimated cost of the work through the Engineer-in- Chief (Roads) so as to accord revised administrative approval. On 24.11.2007 the R & B officials informed that the survey work, which had been entrusted to M/s VAX consultants, Chennai, had to be stopped as the new road alignment could not be finalized until the Railways finalized the alignment of the new railway track. On 7.1.2008 the site was jointly inspected by the Railway officials, R & B department officials and Irrigation department officials and the off- take point of the new railway alignment was agreed upon. The Superintending Engineer, R & B Circle, Kadapa, vide letter dated 20.2.2008, informed that, consequent upon the FRL of the Gandikota reservoir being raised to + 212.00 Meters, the Renigunta- Kadapa– Rayalacheruvu road fell under submergence for a length of 29 km. He communicated the estimates for the new road with 2 lane carriage way at Rs.86.00 crores, and with 4 lane carriage way at Rs.160.00 crores. The Government, vide memo dated 24.3.2008, directed that Rs.86.00 Crores be deposited with the R & B Department for formation of the new two lane road. In their letter dated 07.03.2008 the Railways, while acceding to the proposal for permanent shifting of the railway track, requested that Rs.226.45 crores be deposited for its construction. On 2.1.2009 the Railways modified their request to Rs.196.17 crores. The amount required to be deposited with the Railways was later finalized at Rs.185.04 crores which the State Government deposited in instalments from July, 2008 to July, 2009. The Railways, vide letter dated 24.6.2008, informed the State Government of the extent and location of the land to be acquired by the State to enable the Railways to lay a new track. Land acquisition proposals for 235 Acres were initiated and compensation was paid during the period October, 2008 to April, 2009 and construction of the new railway track work is said to be at an advanced stage of completion. The 3rd respondent, vide letter dated 5.6.2008, recommended to the 2nd respondent that the work of re-formation of the State highway, estimated at Rs.121 crores, be entrusted to the 4th respondent on nomination basis as the work of construction of Gandikota project for Rs.329.75 Crores had earlier been awarded by the Irrigation Department to them. In the review meeting held on 6.8.2008, the Chief Minister directed that, in view of the urgency, execution of the two lane diversion road be entrusted on nomination basis to the agency executing the dam i.e., the 4th respondent so as to complete the same expeditiously. After the survey work, relating to formation of the new diversion road alignment for a length of 29 Kms, was completed land acquisition proposals were submitted on 22.11.2008. The Government initiated land acquisition proceedings and paid compensation for acquisition of 197.34 acres of land during the period December, 2008 to September, 2009. Acquisition proceedings, for the remaining 241.93 acres, is said to be under process (DN & DD; PV stage). The Government, vide G.O.Rt. No.1830 dated 20.12.2008, accorded permission for the road work of 121 crores to be entrusted to the 4th respondent on nomination basis as formation of the diversion road was essential to store water in the Gandikota Reservoir to derive partial benefits under the Gandikota lift irrigation Scheme, Gandikota-Chitravathi Balancing Reservoir Lift Schemes, CBR Right Canal Scheme (Lingala Canal System) and Pulivendula Branch Canal (PBC) System and as execution of these schemes was in progress. Pursuant thereto the State Government entered into an agreement with the 4th respondent on 11.2.2009 and on the same day the site was handed over to them. Counter affidavits have been filed on behalf of all the respondents. In addition, the Secretary, Irrigation department has filed two additional affidavits dated 02.12.2009 and 02.02.2010. Oral arguments were advanced by Sri P. Veera Reddy, Learned Counsel for the petitioner, Sri S. Sriram, Learned Special Government Pleader appearing on behalf of the Learned Advocate General and Sri B. Adinarayana Rao, Learned Counsel for the 4th respondent. On the pleadings, and oral submissions made by Counsel on either side, the questions which arise for determination have been categorized under the following heads:- IS THE REQUIREMENT OF AWARDING CONTRACTS BY A TENDER PROCESS AN INVOILABLE RULE? Sri P. Veera Reddy, Learned Counsel for the petitioner would submit that the Executive Engineer, R & B Department could entrust works on nomination basis only for Rs. 20,000/-, the Superintending Engineer could award such works only for Rs.50,000/- and the Chief Engineer could allot such works upto Rs.2.00 Lakhs; award of a contract worth Rs.121.00 Crores on nomination basis was unheard of; the Government should have invited tenders for the work; there was no valid basis or justification for award of the contract on nomination basis when the estimated value of the contract was high; if tenders had been called for a larger number of contractors would have offered to execute the work at lesser rates; public revenue, running into crores of rupees, would have been saved thereby; the government could not act arbitrarily at its sweet will to confer largesse on persons of its choice that too at the cost of the State; and such action was unreasonable and contrary to larger public interest. On the other hand Sri S. Sriram, Learned Special Government Pleader appearing on behalf of the Learned Advocate General, would submit that award of contracts through the tender process was not an inviolable rule; and deviation from the said norm could be justified on facts. He would rely on Haji T.M. Hassan Rawther v. Kerala Financial Corpn[1]. While entering into contracts, or granting other forms of largesse, the Government cannot act at its sweet will and, like a private individual, deal with any person it pleases. Its action must conform to standards or norms which are not arbitrary, irrational or irrelevant. The power or discretion of the Government in the matter of grant of largesse, including award of contracts, must be confined and structured by rational, relevant and non- discriminatory standards or norms and, if the Government departs from such standards or norms in any particular case or cases, the action of the Government would be liable to be struck down, unless it can be shown that such departure was not arbitrary, but was based on some valid principle which in itself was not irrational, unreasonable or discriminatory. (Ramana Dayaram Shetty v. International Airport Authority of India[2]; Ram & Shyam Co. v. State of Haryana[3]). When State largesse is decided to be conferred, resort should be had to inviting tenders. That would be a sure method of guaranteeing compliance with the mandate of Article 14 of the Constitution. (Netai Bag v. State of W.B[4]). Contracts by the State must, normally, be granted by inviting tenders from eligible persons and the notification inviting tenders should be advertised in well known dailies having wide circulation in the locality. Award of Government contracts through public tender ensures transparency, maximises economy and efficiency, promotes healthy competition among the tenderers, provides for fair and equitable treatment of all tenderers, and eliminates irregularities, interference and corrupt practices by the authorities concerned. This is required by Article 14 of the Constitution. (Ram and Shyam Company3; Nagar Nigam, Meerut v. Al. Faheem Meat Exports Pvt. Ltd[5]). Transparency in grant of public contracts and compliance with Article 14 of the Constitution would, inter alia, be ensured by holding public auction upon issuance of advertisement in well known newspapers. Ordinarily the State or its instrumentalities should not give contracts by private negotiation but by open public auction/tender after wide publicity. (Nagar Nigam, Meerut5). There are inherent limitations in the exercise of contractual powers by the Government as it is the guardian of the finances of the State and is expected to protect the financial interest of the State. (Tata Cellular v. Union of India[6]). The Government cannot act in a manner which would benefit a private party at the cost of the State; such action would be both unreasonable and contrary to public interest. (Kasturi Lal Lakshmi Reddy v. State of J & K[7]) The Executive does not have an absolute discretion. Certain principles have to be followed, public interest being the paramount consideration. (Meerut Development Authority v. Association of Management Studies[8]). For securing the public interest one of the methods recognised is to invite tenders affording opportunity to submit offers for consideration in an objective manner. A decision, even in the matter of awarding or refusing a contract, must be arrived at after taking into account all relevant considerations and eschewing all irrelevant ones. Once the State decides to grant any right or privilege to others, there is no escape from the rigour of Article 14. (Meerut Dev. Authority8). Philanthropy has no part while dealing with a contractor entrusted with the execution of a contract. If the decision in respect of commercial transactions is influenced by extraneous considerations, which it ought not to have taken into account, the ultimate decision is bound to be vitiated even if it is established that such decision had been taken without bias. (Kasturi Lal Lakshmi Reddy7). The action or the procedure adopted by the authorities, while awarding contracts, can be judged and tested in the light of Article 14 of the Constitution. (Ramana Dayaram Shetty2; Kasturi Lal Lakshmi Reddy7; Fertilizer Corpn. Kamagar Union (Regd.) Sindri v. Union of India[9]; Ram and Shyam Co.3; Haji T.M. Hassan Rawther1; Mahabir Auto Stores v. Indian Oil Corpn.[10]; Shrilekha Vidyarthi v. State of U.P[11]; Sterling Computers Ltd. v. M & N Publications Ltd.,[12]). The norms and procedures prescribed by the Government, and indicated by Courts, have to be strictly followed while awarding contracts which have, along with a commercial element, a public purpose. (Sterling Computers Ltd.12). However in exceptional circumstances, and for justifiable reasons, the tender route can be deviated from and a contract can be awarded by nomination. Non-floating of tenders or not holding of public auction would not in all cases be deemed to be the result of the exercise of the executive power in an arbitrary manner. Making an exception to the general rule could be justified by the State executive, if challenged in appropriate proceedings. Though the State cannot escape its liability to show its actions to be fair, reasonable and in accordance with law, yet wherever a challenge is thrown to any such action, the initial burden of showing the prima facie existence of violation of the mandate of the Constitution lies upon the person approaching the Court. (Netai Bag4). In rare and exceptional cases, having regard to the nature of the largesse or for some other good reason, a contract may be granted by private negotiation, but normally that should not be done as it shakes public confidence. (Ram and Shyam Company3; Nagar Nigam, Meerut5). There may be cases where, in the special facts and circumstances and due to compelling reasons which must stand the test of Article 14 of the Constitution, departure from this rule can be made. (Kasturi Lal Lakshmi Reddy7). Instances of such rare and exceptional cases are: during natural calamities and emergencies declared by the Government; where there is a single source only; where the contractor has exclusive rights in respect of the goods or services and no reasonable alternative or substitute exists; where the auction was held on several dates but there were no bidders or the bids offered were too low, etc. The normal rule of awarding contracts by public tender may, in the aforesaid instances, be departed from and such contracts may be awarded through 'private negotiations'. (Nagar Nigam, Meerut5). The petitioner has discharged the initial burden of establishing prima facie violation of the well accepted norm of awarding contract by invitation to tender. The burden, therefore, shifts on the State to establish that its action in awarding the contract, of laying the diversion road, to the 4th respondent on nomination basis is fair, reasonable and in accordance with law. IS THE CONTRACT FOR EXECUTION OF THE DIVERSION ROAD A SUPPLEMENTAL ITEM OF WORK REQUIRED TO BE EXECUTED BY THE VERY SAME CONTRACTOR WHO WAS AWARDED THE ORIGINAL CONTRACT OF CONSTRUCTION OF THE GANDIKOTA DAM? Sri S. Sriram, Learned Special Government Pleader, would submit that the impugned road work was a supplemental item of work and, as stipulated in the Memo No.136 dated 19.1.1980, was required to be executed by the contractor who was awarded the original work. It is, therefore, necessary to refer to the administrative instructions issued in Memo No.136/COD/80-1, I &P. (PW) Department dated 19.01.1980 which relates to acceptance of tenders, and correction of rates in tenders. The relevant portions of the Memo read thus: Note:1. Tenders should invariably be called for when the amount involved in a particular contract is (Rs.5,000) or more. If it is proposed, in any case whether for urgency or any other reasons to be recorded to depart from the rule, works may be entrusted on nomination at rates not exceeding estimate rates by the Executive Engineer, Superintending Engineer or Chief Engineer upto the following limits indicated against each. Executive Engineer Rs.10,000 Superintending Engineer Rs.25,000 Chief Engineer Rs.50,000 When tenders are dispensed with in the case of contracts exceeding Rs.20,000/- a report should be made by the officer entrusting the work on nomination to the next higher authority indicating the reasons for dispensing with the tenders. When the amount involved is less than (Rs.5,000) the Executive Engineer may call for tenders or not at his discretion. (Inst. By G.O.Ms. No.361. Tr, R&B.(B.I) Dept. Dt.2.3.1985) Note:6. When once tenders have been called for a work in accordance with Note (1) above, ‘supplemental’ or ‘additional’ items may be entrusted to the original contractor dispensing with tenders as follows subject to the provisions of Para 176(e) of APPW ‘D’ Code. 1. Such items of work that are found necessary after letting out a contract and cannot be taken up for execution independently without interfering with the original work let out and have necessity to be executed along with the original contract shall be considered as ‘Supplemental items of work contingent of the original contract’. 2. Supplemental items of work contingent on the main contract have to be necessarily carried out through the original contractor as ‘authorised extra’ by entertaining into a supplemental agreement(s). The power for executing original contracts according to delegation of powers in force regarding of who has executed the main contract in a given case, subject however to the condition that if the net effect of supplemental agreements to be entered into is to enhance the total value of work under the main and supplemental agreement to such an extent as sanction to revised estimate is required to a higher authority then sanction of the revised estimate from the higher authority shall be obtained before entering into supplemental agreement(s). 3. Such items of works that are found necessary after letting out a work and be executed independently without affecting or interfering with the execution of the work let out, shall be considered as ‘Additional items to work not contingent on the original contracts’. Such additional items of work may be let out after call of tenders. However, if tender call is considered undesirable and it is considered necessary to entrust the item of wok on nomination to the original contractor involving the provision in Note (1) above it may be done so, provided the total value of such additional items does not exceed upto which the officers can entrust works without calling for tenders as per the delegation of powers in force. If the value of the items exceeds the limit, approval of the next higher authority shall be obtained. They can be executed only after separate estimate or a revised estimate or a workslip containing the additional items is sanctioned/approved by the competent authority. Entrustment of such items shall be at rate not exceeding the estimate rate. (Subs. By G.O.Ms. No.169, TR, R&B(CI) Dept, Dt.25.5.1981) While Note-6 of the Memo dated 19.01.1980 enables supplemental items of work to be entrusted to the original contractor upon dispensing with the tender process, Note 6(1) makes it clear that it is only such items of work that are found necessary, after letting out a contract, but cannot be taken up for execution independently without interfering with the original work let out, and have the necessity to be executed along with the original contract, which are required to be considered a supplemental item of work contingent to the original contract. The original work of construction of the Gandikota reservoir is an irrigation work. The road work awarded to the 4th respondent, on nomination basis, is a work which can be executed independently without interfering with the original work. It is not even the case of the respondents that this road work has to be executed simultaneously with the original contract. The very fact that the Gandikota reservoir work is said to be almost complete, and the road work was not even taken up for execution when this Writ Petition was filed is itself proof that the road work can be executed independent of the original work. As the impugned contract is not a work which is a supplemental item of the original contract, the administrative instructions in Memo dated 19.1.1980 do not require the said work to be awarded to the original contractor. The Government was, therefore, not obligated to have the road work executed only through the original contractor, i.e., the 4th respondent, on a nomination basis without resorting to the tender process. Award of the impugned work to the 4th respondent on nomination basis cannot, therefore, be justified on this ground. WAS THE NECESSITY OF LAYING THE DIVERSION ROAD SO URGENT AS TO DEVIATE FROM THE ACCEPTED NORM OF AWARDING CONTRACTS THROUGH THE TENDER PROCESS? Sri P. Veera Reddy, Learned Counsel for the petitioner, would submit that there was no justification in awarding such a huge work on nomination basis; and it could not be said that formation of the diversion road was urgently required as several components of the work are still pending. Sri S. Sriram, Learned Special Govt. Pleader, would submit that the diversion road had to be urgently laid as the existing road would submerge on completion of construction of the Gandikota reservoir; residents of the villages which were under submergence had refused to shift to the rehabilitation centres till the diversion road was formed; delay in laying the diversion road, and in shifting villagers to the rehabilitation centers, would necessitate water not being released from the Gandikota reservoir thereby depriving several farmers of their irrigation and drinking water needs; the decision to lay the diversion road was taken by the Government in June, 2008 and the impugned work was awarded on nomination to the 4th respondent soon thereafter; the process of inviting and finalizing tenders would take around four months; to avoid the delay which would arise on adhering to the tender process the Government had decided to award the work to the 4th respondent whose men and machinery were readily available at the site; this Court would not sit in judgment over the opinion formed by the Government regarding urgency; it should, ordinarily, defer to the wisdom of the executive in such matters and not substitute its opinion for that of the Government. Sri B. Adinarayana Rao, Learned Counsel for the 4th respondent, would submit that this Court, in exercise of its powers of judicial review, would not make a roving enquiry to decide whether or not there was urgency; this Court lacked the expertise to adjudicate on these aspects; and the scope of judicial review in such matters was limited only to an examination of the question whether or not the work was awarded for extraneous reasons. Learned counsel would rely on Villianur Iyarkkai Padukappu Maiyam v. Union of India[13]. If the contract has been entered into without ignoring the procedure which can be said to be basic in nature, and after an objective consideration of different