IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 01-12-2008 CORAM : THE HONOURABLE MR. JUSTICE P.K. MISRA and THE HONOURABLE MR. JUSTICE A. KULASEKARAN W.A. Nos. 1125 and 1126 of 2008 -o- M/s. MSPL Gases Limited rep. by its Senior Manager (Sales) Mr. D. Ramesh Babu Baldota Enclave, Abberaj Baldota Road Hospet – 583 203 .. Appellant in Karnataka both the appeal/Petitioner Versus 1. M/s. Steel Authority of India Limited through its Executive Director (Operations) ISPAT Bhavan, Lodi Road New Delhi – 110 003 2. Salem Steel Plant through its Deputy General Manager I/C (Materials Management) a Unit of Steel Authority of India Limited Salem – 636 013 Tamil Nadu 3. Deputy General Manager I/C (Materials Management) Salem Steel Plant Salem – 636 013 Tamil Nadu 4. M/s. INOX Air Products Ltd 7th Floor, Ceejay House Dr. A.B. Road Worli, Mumbai – 400 018 5. M.N. Dastur & Company (P) Ltd 480, Anna Salai .. Respondents in Nandanam both the appeal/Respondents Chennai – 600 035 WA No. 1125 of 2008: Appeal under Clause 15 of Letters Patent against the Order dated 31.07.2008 passed in W.P. No. 6425 of 2008 on the file of this Court. https://hcservices.ecourts.gov.in/hcservices/ WP No.6425/2008: Writ Petition filed under Article 226 of the constitution of India to issue a writ of Certiorarified Mandamus to call for the records from the Respondent No.2, Salem Steel Plant in respect of the impugned tender notice No.E/19 dated 23.2.2008 and quash the same. WA No. 1126 of 2008: Appeal under Clause 15 of Letters Patent against the Order dated 31.07.2008 passed in W.P. No. 6426 of 2008 on the file of this Court. WP No.6426/2008: Writ Petition filed under Article 226 of the constitution of India to issue a writ of Mandamus directing the Respondent No.2 Salem Steel Plant to issue the letter of acceptance to the petitioner as the successful bidder under Tender Document No.PU-E 882801R dated 12.11.2007. For Appellant : Mr. Al. Somayaji, Senior Counsel for Ms. Uma Vijayakumar in W.A. No. 1125 of 2008 : Mr. Vijay Narayan, Senior Counsel for Ms. Uma Vijayakumar in W.A. No. 1126 of 2008 For Respondents : Mr. Jagdeep Dhankar, Senior Counsel for Mr. A. Ilango for R1 in both the appeal Mr.R. Krishnamurthy, Senior Counsel for Mr. A. Ilango for RR2 & 3 in both the appeal Mr. K. Harishankar for R4 in both the Writ Appeal Mr.Habibullah Basha, Senior Counsel for Mr. C. Manishankar for R5 COMMON JUDGMENT A. KULASEKARAN, J The facts involved in the cases on hand is as follows:- (i) The first respondent herein is Steel Authority of India (SAIL), which is registered as a government company under the provisions of Companies Act in which 85% shares are held by the Government of India and 15% shares are held by public. The second respondent namely Salem Steel Plant (SSP) is an unit of the first respondent, which was set up by the first respondent for production of stainless steel. (ii) The first respondent issued tender notice E/08 dated 13.03.2007, hereinafter referred to as first tender, inviting https://hcservices.ecourts.gov.in/hcservices/ sealed tenders for establishment of new Cryogenic Air Separation Plant (ASP) in the premises of Salem Steel Plant on Build-Own-Operate (BOO) basis and supply Oxygen, Nitrogen and Argon gases on long term basis to steel melting shop (SMS) being put up under expansion. The first respondent appointed the fifth respondent as Consultant-cum-Project Manager. The tender floated on 13.03.2007 was opened on 09.05.2007 in which six tenderers have participated, out of which two were found ineligible, one tender was rejected and the remaining three namely the appellant, fourth respondent and one M/s. BOCIL were considered as eligible. After holding techno-commercial discussion with them, the price bid was opened on 04.07.2007 in which the fourth respondent's bid was rejected. The appellant and M/s. BOCIL were evaluated by the fifth respondent. The fifth respondent, in his letter dated 12.07.2007, after evaluating the price bid and the Net Present Value, hereinafter referred to as NPV, as per the terms of the tender conditions, recommended to consider M/s. BOCIL as L1 for establishment of ASP on BOO basis for supply of industrial gas for fifteen years to the second respondent. (iii) While things are such, the re-tender in respect of EAF, LF and AOD packages of SMS were issued by the second respondent on 13.08.2007 and the process was on. In view of the re-tendering of SMS packages, the second respondent sent a letter dated 04.10.2007 to the fifth respondent requesting to recommend for the course of action with respect to ASP on BOO basis. The fifth respondent, by letter dated 15.10.2007 recommended for re-tendering of ASP. Since the ASP specifications required to be reviewed, the fifth respondent's letter dated 15.10.2007 was placed before the Plant Level Tender Committee (PLTC) of the respondents 1 to 3 which considered it and recommended to re-tender the packages for ASP on BOO basis with revised quantity and delivery period to synchronise with the commissioning of re-tendered EAF, LF and AOD packages. After approval of the said tender committee and the Executive Director of the second respondent, the second re- tender was floated for establishment of the said ASP with revised terms on BOO basis for 15 years and tender notice was published in dailies and web site of the first respondent on 14.11.2007. (iv) In response to the said second tender notice (1) M/s. Goyal MG Gases (2) the appellant (3) the fourth respondent and (4) M/s. Praxair have participated in which the tender of M/s. Goyal MG Gas was rejected and the remaining three were found eligible. On evaluating the technical bids, it was found that the appellant has agreed to the tender conditions in toto but the fourth respondent and M/s. Prag Air deviated, hence, opportunity was granted to all the three tenderers for discussion and clarification by organising a meeting. The fourth respondent and M/s. Praxair have withdrew all the deviations, however, intended to submit their revised price bids on the ground that the withdrawal of deviation have had a https://hcservices.ecourts.gov.in/hcservices/ bearing on the price quoted. (v) On 10.01.2008, the Techno-Evaluation Committee and Commercial Evaluation Committee of the respondents 1 to 3 recommended that all the three are techno-commercially eligible. The commercial evaluation committee considered the request of the fourth respondent and M/s. Praxair for submitting revised price bid and suggested to seek revised price bids from all the three bidders. The said recommendation was also accepted by the tender committee. The second respondent issued a letter dated 11.01.2008 requesting all the three tenderers to submit their revised price bid on or before 14.01.2008. The appellant stated to have initially not agreed for submitting revised price bid, however, submitted it. The respondents 1 to 3 stated that the appellant has not filed revised price bid but submitted only supplementary price bid, which is not permissible as per the tender conditions. The revised price bid tender was opened on 14.01.2008 in the presence of all the three bidders and handed over to the fifth respondent for the purpose of evaluation, to arrive at NPV and consequently calculate the total cost in the contract period of 15 years as contemplated in annexure-I, Section V of tender document. (vi) The fifth respondent, on going through the bids stated to have informed the appellant that it emerged and qualified as 'L1' and sent its report dated 30.01.2008 to that effect to the second respondent. It is stated by the respondents 1 to 3 that such report dated 30.01.2008 was not received however received letters dated 01.02.2008 and 02.02.2008 of the fifth respondent, however, the appellant sent representations dated 16.01.2008, 18.01.2008, 19.01.2008, 21.01.2008 and 22.01.2008 to the second respondent claiming that they are the lowest bidder and requested to issue letter of acceptance. The fourth respondent also sent representations dated 16.01.2008, 23.01.2008 and 30.01.2008 claiming that they are the lowest bidders on the basis of hourly average flow rate. M/s. Praxair India (P) Limited also claimed that they are the lowest bidders and sent representations dated 14.01.2008, 15.01.2008 and 21.01.2008 stating that there are some lack of clarity for considering the evaluation of price bid and requested to evaluate on the basis of the daily average flow rate i.e., NM3/day for all the gases. (vii) While things are such, the first respondent cancelled the second tender and issued third tender notification dated 23.02.2008, revising the technical conditions as follows:- "a) The oxygen quantity was revised from 84,000 NM3/day (3500 NM3/hour for 24 hours) to 75600 NM3/day (3150 NM3/hour for 24 hours). But at the same time, the respondent DGM, Salem Steel introduced a condition that the plant should be designed to produce 50% to 105% of the contracted https://hcservices.ecourts.gov.in/hcservices/ capacity (Page Number 58 under clause No.9.2 under the heading Design Basis) b) The Argon quantity was reduced from 11500 NM3 (20.54 TPD) to 11200 NM3/day (20 TPD). But in Note 2, Annexure II to the draft agreement, the respondent DGM, Salem Steel introduced a stipulation that the tenderer was to supply 19600 NM3 Argon Gas per day (35 TPD) required occasionally through out the day in future." (viii) According to the appellant, the third respondent colluded with the fourth respondent to favour it and instigated the respondents 1 to 3 to call for the third tender; that on perusal of the technical conditions in the third tender dated 23.02.2008, it was seen that there is no real change in the tender conditions from that specified in the second tender dated 12.11.2007; that the appellant's bid, which is the lowest in the second tender, could have very well met the marginally changed requirements of the third tender. (ix) It was averred by the appellant that the third respondent, in order to favour the fourth respondent is repeatedly revising the tender conditions and such action violates equality before Law enshrined under Article 14 of the Constitution of India; that the appellant is qualified as 'L1' by thein the second tender, but the first respondent erred in not issuing letter of acceptance to the appellant immediately after the appellant qualified as 'L1' by the fifth respondent . The respondents 1 to 3 stated that on 01.02.2008, the fifth respondent has sent a letter to the second respondent stating that the tenderers have not really understood the tender requirements/evaluation criteria as stipulated in the second tender documents and have interpreted differently to suit their bids and claimed themselves to be the 'L1'. Since various representations have been received from the tenderers, the fifth respondent informed the second respondent to seek fresh price bids once again from all the three eligible bidders defining once again the evaluation criteria. The said suggestion was also placed before the tender committee on 02.02.2008 itself which felt that after opening of price bids, seeking fresh price bid is contrary to the terms and conditions of the tender. The Executive Director of the first respondent, after discussing the matter with the Executive Director – Project, Executive Director – Vigilance, Chief Vigilance officer of the first respondent, General Manager (Law) and Principal Law Officer of the first respondent at Corporate Office, New Delhi stated to have found that asking for fresh revised bids after opening the price bid is a clear deviation from PCP-06 and such option cannot be exercised, instead, go for fresh re-tender with necessary clarification and correction as suggested by the fifth respondent. (x) The above said course of action for re-tendering with https://hcservices.ecourts.gov.in/hcservices/ necessary clarification/correction as suggested by the Executive Director (Operations) on 02.02.2008 was said to have informed by the Executive Director of the second respondent to the third respondent herein and it based on the information received from the Executive Director of the second respondent initiated on 02.02.2008, a proposal for re-tender for ASP. The Executive Director of the second respondent, on 04.02.2008, approved the decision for re-tender. The second respondent, thereafter, placed the said re-tender proposal before the Executive Director (Operation) of the first respondent, who sought opinion from the General Manager and Principal Law Officer and they have also opined that revised tender was the better alternative. Thereafter, the Executive Director (Operations) of the first respondent approved the recommendations of the Plant level tender committee for re- tendering on 22.02.2008. The second respondent, thereafter, took steps for re-tendering after obtaining opinion from the Principal Law Officer of the first respondent and placed the matter before the approving authority on 22.02.2008 itself with necessary modification in respect of technical specifications as suggested by the fifth respondent. The revision of technical requirements were carried out in Annexure-II of the draft agreement in the third tender incorporating the methodology to be adopted for the calculation of NPV and for the purpose of price evaluation as suggested by the fifth respondent herein. The competent authority also approved the said third tender for ASP package on 22.02.2008 itself. The Executive Director of the second respondent also approved the recommendation, which was informed to the third respondent by fax message on 22.02.2008. (xi) On 23.02.2008, the second respondent sent a letter to all the tenderers, including the appellant, informing the cancellation of the previous tender dated 13.11.2007. It was also informed that return of the earnest money deposit is being arranged and requested them to participate in the proposed third tender. On 23.02.2008, notice inviting fresh tenders for establishment of ASP was issued indicating the last date as 15.03.2008 for submitting and opening of the tenders, which was extended to 22.03.2008 and further extended to 31.03.2008. Till the issuance of re-tender on 23.02.2008, the price bids submitted by all the three tenderers in respect of the second tender was not at all evaluated. (xii) The said third tender notification dated 23.02.2008 was challenged by the appellant in W.P. No. 6425 of 2008 and W.P. No. 6426 of 2008 was filed praying for a Writ of Mandamus to direct the second respondent herein to issue letter of acceptance to the appellant as he was the successful bidder relating to the second tender notification dated 12.11.2007. Both the writ petitions were dismissed by the learned single Judge by a common order dated 31.07.2008, hence, the present writ appeals. https://hcservices.ecourts.gov.in/hcservices/ 2. Mr. AL. Somayaji, learned senior counsel appearing for the appellant in W.A. No. 1125 submitted the following:- The orders for cancellation of the second tender and seeking re-tender was made to accommodate the fourth respondent, which is ex-facie illegal, arbitrary, discriminatory and perverse. The second respondent, along with the fifth respondent fixed the criteria that Oxygen and Nitrogen would be evaluated on a hourly basis and Argon on daily basis, based on it, the plant capacity was fixed to match the actual requirement of gases, which was not considered by the respondents 1 to 3. The tender process was actuated by malice, which is evident that the respondents 1 to 3 suppressed the recommendations dated 30.01.2008 of the fifth respondent that the appellant was 'L1' and chosen to act upon only on their subsequent letter dated 01.02.2008, that suggested for revised price bids only however the respondents 1 to 3 decided to favour the fourth respondent and had gone for the third tender, which factors were not considered by the learned single Judge. The learned single Judge failed to note that the letter dated 01.02.2008 and 02.02.2008 were placed before the plant level tender committee and others and approvals have been obtained from authorities within a short period. No valid reason is assigned by the respondents 1 to 3 for not placing the letter dated 30.01.2008 of the fifth respondent before the plant level tender committee. Once the fifth respondent has evaluated the tenders submitted by the tenderers and given final recommendations stating that the appellant is 'L1' it is obligatory on the part of the respondents 1 to 3 to consider it before taking a different view. There is no materials placed on record to show or valid reasons assigned why fifth respondent changed its original decision took on 30.01.2008 and suggested for fresh price bid in its letter dated 01.02.2008. The fifth respondent ought to have issued the letter dated 01.02.2008 only at the behest of the respondents 1 to 3. The learned single Judge erred in not appreciating the role of the Consultant, 5th respondent and the value of its recommendation and brushed it aside on the ground that it is a mere recommendation. The stand taken by the respondents 1 to 3 that there was confusion in the minds of the tenderers, which resulted in cancelling the second tender is incorrect, indeed, all the tenderers have understood the evaluation criteria and submitted their bids in accordance with those criteria after numerous clarificatory meetings, which were also considered by the fifth respondent before submitting its final recommendations dated 31.01.2008 mentioning that the appellant was 'L1'. The plea of the respondents 1 to 3 that evaluation criteria in the second tender lacks clarity or was incapable of being applied is not supported by any material. The learned judge erred in not noticing the fact that final quantities frozen and clarified in the third tender are the same as claimed by the appellant in the second tender and was evaluated by the fifth respondent in the final recommendation dated 30.01.2008. The second tender was cancelled with malafide https://hcservices.ecourts.gov.in/hcservices/ intention to give another opportunity to the fourth respondent, that too at the cost of delaying the project. The third respondent is also a party in the plant level tender committee and he colluded with the fourth respondent to favour them, which factors have been elicited by the appellant but not considered by the learned single Judge and prayed for setting aside the common order passed by the learned single Judge in W.P. Nos. 6425 and 6426 of 2008. In support of their contention, the learned counsel for the appellant relied on the decisions of the Honourable Supreme Court reported in i) In (Delhi Development Authority vs. UEE Electricals Engineering) (2004) 11 SCC 213 the Honourable Supreme Court held in Para No.16 as follows:- "16. Doubtless, he who seeks to invalidate or nullify any act or order must establish the charge of bad faith, an abuse or a misuse by the authority of its powers. While the indirect motive or purpose, or bad faith or personal ill will is not to be held established except on clear proof thereof, it is obviously difficult to establish the state of a man’s mind, for that is what the employee has to establish in this case, though this may sometimes be done. The difficulty is not lessened when one has to establish that a person apparently acting in the legitimate exercise of power has, in fact, been acting mala fide in the sense of pursuing an illegitimate aim. It is not the law that mala fides in the sense of improper motive should be established only by direct evidence. But it must be discernible from the order impugned or must be shown from the established surrounding factors which preceded the order. If bad faith would vitiate the order, the same can, in our opinion, be deduced as a reasonable and inescapable inference from proved facts. (See S. Partap Singh v. State of Punjab) It cannot be overlooked that burden of establishing mala fides is very heavy on the person who alleges it. The allegations of mala fides are often more easily made than proved, and the very seriousness of such allegations demands proof of a high order of credibility. (As noted by this Court in E.P. Royappa v. State of T.N. ii) In (Reliance Airport Developers (P) Ltd vs. Airports Authority of India and others) (2006) 10 SCC Page No.1 the Honourable Supreme Court, in Para No.62 held thus:- 62. Therefore, to arrive at a decision on “reasonableness” the court has to find out if the administrator has left out relevant factors or taken into account https://hcservices.ecourts.gov.in/hcservices/ irrelevant factors. The decision of the administrator must have been within the four corners of the law, and not one which no sensible person could have reasonably arrived at, having regard to the above principles, and must have been a bona fide one. The decision could be one of many choices open to the authority but it was for that authority to decide upon the choice and not for the court to substitute its view. iii) In (Noble Resources Ltd., vs. State of Orissa and another) (2006) 10 SCC 236, in Para 15, it was held by the Honourable Supreme Court as follows:-: 15. It is trite that if an action on the part of the State is violative of the equality clause contained in Article 14 of the Constitution of India, a writ petition would be maintainable even in the contractual field. A distinction indisputably must be made between a matter which is at the threshold of a contract and a breach of contract; whereas in the former the court’s scrutiny would be more intrusive, in the latter the court may not ordinarily exercise its discretionary jurisdiction of judicial review, unless it is found to be violative of Article 14 of the Constitution. While exercising contractual powers also, the government bodies may be subjected to judicial review in order to prevent arbitrariness or favouritism on their part. Indisputably, inherent limitations exist, but it would not be correct to opine that under no circumstances a writ will lie only because it involves a contractual matter. iv) In (Directorate of Education and others vs. Educomp Datamatics Ltd., and others) 2004 4 SCC 19, it was held by the Honourable Supreme Court in Para Nos. 9 and 12 as follows:- 9. It is well settled now that the courts can scrutinise the award of the contracts by the Government or its agencies in exercise of their powers of judicial review to prevent arbitrariness or favouritism. However, there are inherent limitations in the exercise of the power of judicial review in such matters. The point as to the extent of judicial review permissible in contractual matters while inviting bids by issuing tenders has been examined in depth by this Court in Tata Cellular v. Union of India. After examining https://hcservices.ecourts.gov.in/hcservices/ the entire case-law the following principles have been deduced: (SCC pp. 687- 88, para 94) “94. The principles deducible from the above are: (1) The modern trend points to judicial restraint in administrative 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 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 and lead to increased and unbudgeted expenditure.” (emphasis supplied) 12. 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. That the Government must have a free hand in setting the terms of the tender. It must have reasonable play in its joints as a necessary concomitant for an administrative body in an administrative