CW 11304/08 //1// In the High Court of Judicature for Rajasthan Jaipur Bench ** Civil Writ Petition No.11304/2008 M/s Megawin Switchgear (P) Ltd Versus Ajmer Vidyut Vitran Nigam Ltd & Anr. Date of Order ::: 15/05/09 Hon'ble Mr. Justice Ajay Rastogi Mr. AK Sharma, with Mr. VKSharma, for petitioner Mr. Ashok Gaur, for respondent No.1 (AVVNL) Mr. Abhay Kr. Bhandari, Sr. Adv.) Mr. Kinshuk Jain, ) for respondent No.2 (Co.) Instant petition is directed against award of contract & purchase order dt.23/09/2008 (Ann.10 & 11) in favour of respondent No.2 (M/s Stelmec Ltd) in pursuance of Tender Notice NO.433) issued by Ajmer Vidyut Vitran Nigam Ltd (respondent NO.1) on 20/02/2008 (Ann.2). Respondent-AVVNL invited tenders for supply, installation & commissioning of 1198 numbers of 12 KV, 630-Amps, Outdoor Vacuum Circuit Breakers (“VCBs”) vide advertisement (TN- 433) dt.20/02/08 (Ann.2) with a stipulation that quantity of VCBs can be increased/decreased at the discretion of the authority. Pursuant to notice (Ann.2), M/s Megawin Switchgear (P) Ltd. (Petitioner) alongwith M/s Stelmec Ltd (respondent No.2) & others submitted tender on 06-07/04/08; and out of 13 tenders opened, Ten participating Firms were considered for opening their price bid by AVVNL on 14/07/08 CW 11304/08 //2// and in course of process whereof, tender of respondent NO.2 was found to be lowest (L-1) (Rs.2,75,764.57p.) as against petitioner-company being second lowest Rs.2,80,853/- per unit (L-2) and their validity of offer was upto 30/09/08. However, AVVNL made counter offer for supply, installation & commissioning of VCBs @ Rs.2,54,774.34 per unit vide letter dt.23/08/08 (Ann.3) calling upon all qualified tenderers to submit their acceptance on or before 02/09/08; to which petitioner Company sent a letter of regret dt.02/09/08 (Ann.4) showing inability to accept its counter offer (Ann.3); and made further request to consider option of proposing lowest quoted price (L-1) as their counter offer. At the same time, vide letter dt.01/09/08, respondent No.2 while showing their inability to reduce their lowest quoted price (L-1) further pointed out that they have specifically executed order from JVVNL, Jaipur for 510 Nos.-12 KV Outdoor VCB Kiosks at approximate counter offer prices (Ann.3); and have supplied more than 4000 Nos. 11 KV VCB outdoor kiosks to Three Discoms of Rajasthan, besides execution of Turnkey order of supply, installation & commissioning of 500 nos.- 11 KV outdoor VCB Kiosks for Jodhpur VVNL and accordingly made request for placement of major share of requirement on their quoted price (L-1) CW 11304/08 //3// while extending validity of offer upto 30/11/08. However, other two Companies who were also qualified tenderers viz., M/s Electroteknica Switch Gears (P) Ltd & M/s Andrew Yule & Co. Ltd, accepted counter offer made by AVVNL vide letter dt.23/08/08 (Ann.3) for their tender quantity (150 & 235 numbers of VCBs) and all such offers made by respective tenderers in respect of their counter offer (Ann.3) were considered by Corporate Level Purchase Committee (“CLPC”) in its meeting held on 05/09/08 against tender notice TN-433; and after discussions, the members finally decided to issue letter of intent in favour both the Companies (supra) for supply, installation & commissioning of 12 KV outdoor VCBs for their maximum capacity of supply of 150 & 235 numbers of VCBs, respectively at FOR destination price of Rs.2,54,774.34p; and took further decision to request respondent NO.2 (Co.) to deput their representative on 09/09/08 for negotiation of their quoted price (L-1). Accordingly meeting of CLPC was held on 09/09/08 for negotiation of price (L-1) quoted by respondent NO.2 for supply, installation & commissioning of remaining 123 KV outdoor VCB Kiosks under TN-433; and made request to representatives of Firm (respondent NO.2) to make down the rates quoted for installation & CW 11304/08 //4// commissioning of 12 KV VCBs (Rs.1,5168.60) to the rates finalized (Rs.6,775.30p.) by JVVNL under TN-1982 in respect of the same firm (respondent NO.2), to which representatives of the Firm agreed provided order for minimum 1000 NO.s of VCB kiosks is placed. After deliberations and looking to day to day requirement of 12 KV breakers in view of on- going FRP schemes & new constructions of sub- stations in rural area, members of CLPC after prolonged discussions, representatives of Firm (respondent No.2) agreed to reduce installation and commissioning price upto Rs.6,775.30 provided order for minimum 1000 Nos. of VCB kiosks is placed. Accordingly, members of CLPC also finally decided to increase tendered quantity (1198 Nos.) by 25% to purchase 1500 Nos. 12 KV outdoor VCB kiosks keeping in view extra targets of new 33/11 KV sub-stations to be commissioned in financial year ending on March 31, 2009; and further decided to issue letter of intent in favour of M/s Stelmec Ltd (respondent NO.2) for supply, installation & commissioning of 1000 numbers 12KV Outdoor VCB Kiosks at FOR destination price of Rs.2,67,371.27p. In pursuance of decisions of CLPC (supra), letter of intent was issued on 09/09/08 while purchase orders were also placed on 23/09/09 in favour of respondent NO.2 & two CW 11304/08 //5// other firms, M/s Electro Teknica Switch Gears (P) Ltd & M/s Andrew Yule Ltd, pursuant to TN-433. After resolution being taken by CLPC in its meeting on 09/09/08 for issuing letter of intent in favour of aforesaid Firms, petitioner Company allegedly sent a letter dt.09/09/08 through fax on 11/09/08 confirming acceptance to supply in terms of counter offer letter (Ann.3) at Rs.2,54,774.34p, subject to placement of order for minimum quantity of 800 numbers of VCBs while withdrawing earlier letter of regret dt.02/09/08. In pursuance to fax sent by petitioner Company, letter was sent by AVVNL on 11/09/08 (Ann.6) as 2nd counter offer that if petitioner agrees on final FOR destination price of Rs. 2,67,371.27p. as accepted by AVVNL in its meeting on 09/09/08, supply can be offered to it. In response to 2nd counter offer letter dt.11/09/08 (Ann.6), petitioner-Co., as alleged, sent its letter dt.12/09/08 through fax & received on 15/09/08 having dis-agreed to the rate of Rs.2,67,371.27p., offered by AVVNL but putting counter offer of Rs.2,54,774.34p., subject to placement of order of minimum 800 numbers VCBs. Curiously enough, once the respondent (AVVNL) already confirmed their counter offer quoting price of Rs.2.67 lacs vide letter dt.11/09/08, in fact there was no justification for petitioner CW 11304/08 //6// Company to have accepted 1st counter offer of AVVNL (Ann.3) while quoting FOR destination price of Rs.2.54 lacs vide letters dt.12/09/08 & dt.16/09/08 ((Ann.7 & 8 respectively). However, AVVNL placed purchase order on 23/09/08 to other Companies including respondent NO.2 as per letter of intent dt.09/09/08. Hence instant petition. Counsel for petitioner submits that respondent NO.1 (AVVNL) being public authority and instrumentality of State U/Art.12 of the Constitution of India, their action in the facts of instant case was a fraudulent exercise of powers against public interest and the decision making process adopted by AVVNL lacks objectivity and being unreasonable and arbitrary, it was in violation of Art.14 of the Constitution. Counsel further submits that once counter offer made by respondent NO.1 was not acceptable to tenderers including petitioner & respondent NO.2-Company who were indisputably L-2 & L-1 respectively, there was no justification on its part to hold negotiations exclusively with respondent NO.2 Company by treating L-1 offered lowest quoted price since in counter offer made by AVVNL, the price was reduced than what was quoted by respondent NO.2-Company as lowest price (L-1); as such very process initiated by AVVNL in holding negotiations exclusive with respondent CW 11304/08 //7// NO.2-Company and not with other tenderers including petitioner tantamounted to denial of equal opportunity to similarly situated tenderers and their action is violative of Art.14 of the Constitution of India. Counsel further submits that on 09/09/08, itself, petitioner-company sent letter by fax duly acknowledged by AVVNL on 11/09/09 making request to supply at the price offered by AVVNL as counter offer @ Rs.2,54,774.34p per unit was accepted provided order for supply of minimum 800 VCBs being placed; as such, accepting offer of respondent NO.2-Company at higher rate of 2,67,371.27p per unit for thousand numbers of VCBs is totally unfair and such decision cannot be said to be in public interest; inasmuch as their action is certainly lacking transparency in the process adopted by AVVNL. Counsel further submits that very issuance of letter of intent could not be considered to be a concluded contract and once price offered by petitioner-Company came on record of AVVNL (respondent No.1) on 11/09/08 there was no justification on its part in issuing purchase order in favour of respondent NO.2 Company on 23/09/08; and their action in no manner can be said to be in large public interest which is a paramount consideration in commercial CW 11304/08 //8// contracts which was expected from respondent NO.1 AVVNL being instrumentality of the State; and that apart, in the facts of instant case, action of AVVNL clearly smacks of arbitrariness and the power to award contract has been exercise for collateral purposes. In support, Counsel placed reliance upon decisions of Apex Court in Dresser Rand S.A. Vs. Bindal Agro Chem Ltd (2006(1) SCC 751): Reliance Energy Ltd Vs. Maharashtra State Road Developments Corpn.(2007(8) SCC 1). Respondent No.1 (AVVNL) and No.2 Company have filed their separate reply. In reply, respondent AVVNL inter-alia averred that petitioner company initially sent a letter of regret dt.02/09/08 against counter offer letter of AVVNL (Ann.3) while at the same time, confined its offer to work at the lowest price (L-1) quoted by respondent NO.2 (Stelmac); inasmuch as respondent No.2 initially sent letter of regret dt.01/09/08 to counter offer of AVVNL (Ann.3) but also pointed out that it has supplied more than 4000 Nos. of 11 KV VCB outdoor kiosks to other distribution companies and its track record was good in all respect, keeping that in view, they be considered for placement of major share of requirement at their quoted lowest price of CW 11304/08 //9// Rs.2,75,764.57p. (L-1); and since two other Firms accepted counter offer letter of AVVNL (Ann.3) subject to their capacity to supply VCBs pursuant to TN-433, CLPC in its meeting held on 05/09/08 accepted offer of two firms (supra) for supply of 150 & 235 Nos. VCBs; and further decided to call upon representative of respondent NO.2 Company for negotiation on their price quoted (L-1); and in further negotiations in the meeting held on 09/09/08 after detailed discussion, the members of CLPC agreed to increase quantity in number of supply of VCBs which was certainly as per terms & condition of TN-433 on a proposal given by representatives of respondent No.2 Company who after negotiations agreed to reduce their (L-1) quoted price substantively to Rs.2,67,371.27p., per unit subject to placement of order for supply of 1000 Numbers of VCBs and accordingly letter of intent was issued on 09/09/08 duly followed by purchase order on 23/09/08 in favour of respondent NO.2-Company alongwith other two participating firms (supra) and petitioner-(Co.) approached this Court in October, 2008 knowing it fully well of concluded contract being arrived at on 09/09/08 upon issuance of letter of intent. Application supported by additional affidavit has been filed by respondent NO.2- Company with regard to subsequent developments CW 11304/08 //10// having taken place, in which it has been inter- alia averred that as per concluded contract, respondent NO.2 Company was required to supply 1000 Nos. VCBs within six months, out of which 744 had already been supplied to respondent- AVVNL and 56 VCBs were under dispatch and by end of April, 2009 remaining quantity numbers are to be supplied as per delivery sheet thereby their supply of 1000 Nos of VCBs would be complete by end of April, 2009. Counsel for AVVNL submits that process adopted by respondent (AVVNL) for awarding of contract (letter of intent) pursuant to TN-433 was transparent and in larger public interest which this Court ordinarily would not like to interfere in limited scope of judicial review even if it is accepted for sake of arguments that there was been some procedural error being committed while finalisation of contract (TN- 433); and in support, placed reliance on the decision of Apex Court in Siemons Public Comm. (P) Ltd Vs. Union of India (AIR 2009 SCW 470). Counsel for respondent No.2 Company while supporting arguments made on behalf of respondent No.1 (AVVNL) added that contract entered into between AVVNL & respondent No.2 is not a statutory contract and all disputed questions raised by the petitioner have to be settled by CW 11304/08 //11// ordinary principle of law of contract; and such a contract being in the realm of private law – against which writ petition U/Art.226 of the Constitution is not maintainable. Respondent No.2 Company has tried to persuade while raising additional pleas in the reply that the Company has an excellent infra-structure of manufacturing and testing facilities by duly professionally managed having experienced & qualified team of engineers; and in support thereof, has placed on record as Schedule 1 showing details of various orders of supply of its products like 11/33 KV indoor/outdoor VCBs across the country and to show that the Company enjoys high reputation of working in the field. Counsel for respondent NO.2 lastly submits that scope of judicial review in the matter of commercial contract is very limited and petitioner Company has failed to show any arbitrariness or favoritism adopted by respondent AVVNL in the matter of award of a contract and if contract has been awarded bonafidely and in larger public interest, this Court must be loath to exercise extraordinary equitable discretionary powers of judicial review available U/Art.226 of the Constitution. It has been brought to the notice of this Court by additional affidavit that after letter CW 11304/08 //12// of intent dt.09/09/08 & purchase order dt. 23/09/08, respondent NO.2-(Co.) was required to supply 1000 numbers of VCBs within six months, major part of units about 744 numbers VCBs were already supplied and by 30/04/09, total tender quantity will be delivered to respondent AVVNL; and process of installation of circuit breakers is in full swing while in some places electricity is being supplied in rural areas through circuit breakers, supplied installed & commissioned by Company and thus contract (LOI) pursuant to TN- 433 has been made effective through complete supply on the part of respondent NO.2-Company. However, as informed by respondent (AVVNL) that two other companies to whom purchase orders were placed on 23/09/08, yet are unable to supply requisite VCBs at the rates as agreed to by them. I have considered rival contentions made by Counsel for parties and with their assistance, examined material on record. Before examining the issue raised herein, it would be proper to deal with power of judicial review in regard to commercial contracts as having been examined by Apex Court from time to time. In Tata Cellurlar Vs. Union of India (1994(6) SCC 651), Apex Court observed that the duty of Court is to confine itself to the question of legality and CW 11304/08 //13// its concern should be, whether a decision making authority exceeded its powers or committed a breach of conditions of Tender document or abused its powers for some oblique purposes, can certainly be examined by this Court in writ jurisdiction U/Art.226 of Constitution of India and this Court is only concerned with the manner in which decisions have been taken; but the duty to act fairly varies from case to case. The principles deduced by Apex Court in para 94 are : “(1) The modern trend points to judicial restraint in adminis-trative action. (2)The court does not sit as a court of appeal but merely reviews the manner in which the decision was made. (3) The court does not have the expertise to correct the administrative decision. 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. (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. Normally speaking, the decision to CW 11304/08 //14// accept the tender or award the contract is reached by process of negotiations through several tiers. More often than not, such decisions are made qualitatively by experts. (5) The Government must have freedom of contract. 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. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness (including its other facts pointed out above) but must be free from arbitrariness not affected by bias or actuated by mala fides. (6) Quashing decisions may impose heavy administrative burden on the administration & lead to increased and unbudgeted expenditure.” In Asia Foundation &Construction Ltd Vs. Trafalgar House Construction Ltd (1997(1) SCC 738), Apex Court observed that though principle of judicial review cannot be denied so far as exercise of contractual powers of Government bodies are concerned, but it is intended to prevent arbitrariness or favoritism and it is exercised in larger public interest or if it brought to the notice of the Court that the contract has been award for any collateral CW 11304/08 //15// purpose; that apart, in the matter of a tender, an enforceable right to get the contract is not always available to any of parties to the tender. However, Apex Court emphasized that the decision must not only be tested by application of Wednesbury principles of reasonableness but must be free from arbitrariness not affected by bias or actuated by malafides and the Courts have to be made cautious of the fact that quashing decisions may impose heavy administrative burden on the administration and lead to increased & un- budgeted expenditure but at the same time, Courts can certainly examine whether decision making process was reasonable, rational, not arbitrary or is violative of Article 14 of the Constitution. There are series of decisions on the subject but this Court take note of recent decisions of Apex Court. In Jagdish Mandal Vs. State of Orissa (2006(14 Scale p.224) Apex Court lucidly stated the scope of limited power of judicial review in tender & award of contracts ad infra: "19. Judicial review of administrative action is intended to prevent arbitrariness irrationality, unreason- ableness, bias and malafides. Its purpose is to check whether choice or decision is made 'lawfully' and not to CW 11304/08 //16// check whether choice or decision is 'sound'. When the power of judicial review is invoked in matters relating to tenders or award of contracts,certain special features should be borne in mind. A contract is a commercial transaction. Evaluating tenders and awarding contracts are essentially commercial functions. Principles of equity and natural justice stay at a distance. If the decision relating to award of contract is bona fide and is in public interest, courts will not, in exercise of power of judicial review will not be permitted to be invoked to protect private interest at the cost of public interest, or to decide contractual disputes. The tenderer or contractor with a grievance can always seek damages in a civil court. Attempts by unsuccessful tenderers with imaginary grievances, wounded pride and business rivalry, to make mountains out of molehills of some technical/procedural violation or some prejudice to self, and persuade courts to interfere by exercising power of judicial review, shouldbe resisted. Such interferences, either interim or final, may hold up public works for years, or delay relief and succour to thousands and millions and may increase the project cost manifold. Therefore, a court before interfering in tender or contractual matters in exercise of power of judicial review, should pose CW 11304/08 //17// to itself the following questions : (i) Whether the process adopted or decision made by the authority is mala fide or intended to favour someone. OR Whether the process adopted or decision made is so arbitrary and irrational that the Court can say: 'the decision is such that no responsible authority acting reasonable and in accordance with relevant law could have reached.' (ii) Whether public interest is affected. If the answers are in the negative, there should be no interference under Article 226. Cases involving black-listing or imposition of penal consequences on a tenderer/ contractor or distribution of state largesse (allotment of sites/shops, grant of licences, dealerships and franchises) stand on a different footing as they may require a higher degree of fairness in action." In M/s BSN Joshi & Sons Ltd Vs. Nair Coal Services Ltd (AIR 2007 SC 437) Apex Court summarized on the subject ad infra: "67. We are not oblivious of the expansive role of the superior courts on judicial review. 68. We are also not shutting our eyes towards the new principles of judicial review which are being developed; but the law as it stands now having regard to the principles laid CW 11304/08 //18// down in the aforementioned decisions may be summarized as under : i)If there are essential conditions, the same must be adhered to; ii) If there is no power of general relaxation, ordinarily the same shall not be exercised and the principle of strict compliance would be applied where it is possible for all the parties to comply with all such conditions fully; iii)If, however, a deviation is made in relation to all the parties in regard to any of such conditions, ordinarily again a power of relaxation may be held to be existing; iv)The parties who have taken the benefit of such relaxation should not ordinarily be allowed to take a different stand in relation to compliance of another part of tender contract, particularly when he was also not in a position to comply with all the conditions of tender fully, unless the court otherwise finds relaxation of a condition which being essential in nature could not be relaxed and thus the same was wholly illegal and without jurisdiction. v)When a decision is taken by the appropriate authority upon due consideration of the tender document submitted by all the tenderers on their own merits and if it is ultimately found that successful bidders had in fact substantially complied with the purport and object CW 11304/08 //19// for which essential conditions were laid down, the same may not ordinarily be interfered with. vi)The contractors cannot form a cartel. If despite the same, their bids are considered and they are given an offer to match with the rates quoted by the lowest tenderer, public interest would be given priority. vii)Where a decision has been taken purely on public interest, the Court ordinarily should exercise judicial restraint." Taking note of what has been observed in judgments cited (supra), in latest decision of Siemons Public Communication (P) Ltd Vs. Union of India (AIR 2009 SCW 470), Three-Judges Bench of Apex Court observed ad infra: “33. As was noted in the case of Asia Foundation & Construction Ltd. (supra) though the principle of judicial review cannot be denied so far as exercise of contractual powers of government bodies are concerned, but it is intended to prevent arbitrariness or favoritism and it is exercised in the larger public interest or if it is brought to the notice of the Court that in the matter of award of a contract power has been exercised for any collateral purpose. 34. ... When the power of judicial review is invoked in the matters relating to tenders or award of CW 11304/08 //20// contracts, certain special features have to be considered. A contract is a commercial transaction and evaluating tenders and awarding contracts are essentially commercial functions. In such cases principles of equity and natural justice stay at a distance. If the decision relating to award of contracts is bonafide and is in public interest, Courts will not exercise the power of judicial review and interfere even if it is accepted for the sake of argument that there is a procedural lacuna.” (emphasis added) In view of what has been observed in judgments (supra), scope of judicial review in matters of commercial contracts exercised by State or public authorities U/Art.12 of the constitution cannot be denied but can be interfered if the power has been exercised for