THE HON’BLE MR JUSTICE L. NARASIMHA REDDY Writ Petition No.1454 of 2011 ORDER: The Registrar General and Census Commissioner of India, the 4th respondent herein, proposed to conduct census operations. The exercise provides for, a) data entry centres, b) bulk data entry, c) biometric data collection, and printing of local register for usual residents. These works were entrusted to three public sector undertakings in the fields of electronics, i.e. the respondents 1 to 3 herein. They came under one umbrella, in the name of “Consortium of Public Sector Undertakings (for short ‘the CPSU’). A request for quotation from reputed agencies in the field, for States of Karnataka and Andhra Pradesh, was made by the CPSU on 01-10-2010, for the respective works. A detailed procedure for processing the requests, which are almost in the form of tenders, was prescribed. The processing involved three stages, viz., a) pre-bid qualification, b) evaluation of technical bid, and c) opening of price bids. According to the petitioner, though the successful tenderer is awarded the contract, it would be restricted to certain limits, depending upon the capacity of the tenderer, and that the balance of the work, if any, is to be allotted to the unsuccessful tenderers, at the lowest rates, quoted by the successful tenderer. The petitioner and various other agencies submitted their quotations. The petitioner was declared and qualified at pre-bid and technical bid stages. The price bid of the petitioner and various other agencies, qualified in the two earlier stages, were opened. The rates quoted by the petitioner for the State of Andhra Pradesh was lowest, at Rs.15.83 per individual, before tax, and at Rs.17.46, after tax. So far as the operation in the State of Karnataka is concerned, the petitioner quoted Rs.16.79, before taxation, per individual, and Rs.18.51, after tax, which is found to be second lowest. The petitioner was not considered for both States, on the ground that the rates quoted by it, were found to be “lower than the unduly low rate, estimated by CPSU”. He was communicated this information through letter dated 21-01-2011. The petitioner challenges the action of the respondents in rejecting its bids, as illegal, arbitrary, unconstitutional and contrary to law laid down by the Supreme Court, as well as the conditions of the bid. The petitioner submits that the respondents did not stipulate any figure, representing the ‘unduly low rate’, nor it was indicated that any quotation, below a particular rate, would not be considered. It is also stated that the concept of ‘viability range’, that constituted the basis for rejection of the bid of the petitioner; did not find place in the notification for quotation, and that the rejection of the bid of the petitioner is contrary to law laid down by the Supreme Court in DUTTA ASSOCIATES PVT. LTD. V. INDO MERCHANTILES PVT. LTD. AND OTHERS[1]. The petitioner further submits that there would be huge loss for the 4th respondent, on account of acceptance of the bids, at a higher rate. A detailed counter-affidavit is filed on behalf of the respondents 1 to 3. According to them, the CPSU has reserved to it, the right to determine what can be treated as an “unduly low bid”, by taking into account, the various factors, mentioned in the quotation, and that the same was arrived at by a Committee, constituted for this purpose. It is stated that the petitioner did not feel aggrieved by the Clause 15.15 of the quotation, and it is not open to them to raise any objection, at this stage. Serious objection is raised to the maintainability of the writ petition. It is also stated that an agency, which has quoted very low rates, in an exercise, that preceded the present one, had left the work abruptly, on finding that the rates are not workable, and the present mechanism was adopted to avoid such contingencies. Reliance is placed upon several judgments of the Supreme Court. Sri S. Niranjan Reddy, learned counsel for the petitioner submits that the exercise undertaken by the respondents 1 to 3, in rejecting the bid of the petitioner, lacked objectivity. He contends that though it is the prerogative of any agency, that invites bids; to reject the same, without assigning any reasons, the exercise must be transparent and free from arbitrariness. He submits that the CPSU has adopted the cut off figures at Rs.17.50 for Karnataka and Rs.17.10 for Andhra Pradesh, absolutely without any basis, and a definite figure, representing the cut off, does, not at all fit into the concept of a bid being unduly low. It is pleaded that the CPSU cannot adopt a figure, representing the cost structure in these days of improved technology, that too, without hearing anything from the bidders. It is further stated that the so-called exercise was undertaken, just before the opening of tenders, in a hurried manner, almost without any specific parameters, and the rights of the petitioner cannot be taken away, on the basis of such an exercise. Sri C.V. Mohan Reddy, learned Senior Counsel appearing for the respondents 1 to 3, on the other hand, submits that the writ petition is not maintainable, in view of the law laid down by the Supreme Court in various judgments. He contends that the CPSU has made it amply clear, in the request for quotation itself, that in case, it finds that the bid of an applicant is found to be unduly low, it would have the right to reject the bid. Learned Senior Counsel submits that the petitioner has suppressed several facts, including the one, that the method of arriving at the cut off figure was discussed before the submission of quotations. It is also pleaded that the agencies, which quoted unduly low rates, with the sole object of bagging the contract; would leave the work half- way, and thereby cause enormous loss and inconvenience. Placing reliance upon several judgments rendered by the Supreme Court, he contends that this Court cannot sit as an Appellate Authority against an administrative decision, nor can look into the merits thereof. It is also urged that the project is of utmost national importance, and execution thereof, cannot be scuttled, at the instance of an agency, which has quoted unduly low rates, and which are not at all workable. The bids/quotations were invited by the CPSU, through notification dated 01-10-2010. The quotations were to be given for eight items of work, such as bulk data entry, bio-metric data collection, printing of local registers, etc. The notification/request for quotation is a detailed document, containing 27 clauses; a schedule and various annexures. The respondents adopted a system, comprising of bid eligibility, techno-commercial bid and price bid stages. The scope of the work is mentioned in clause 4; minimum eligibility criteria are stipulated in Clause 6; techno- commercial criteria, in Clause 7; and Clause 15.11 provides for opening of price bids of only those agencies, which are cleared in the first two stages. Clause 15:15 of the document reserves the right to the CPSU, to reject a bid, if it is found to be unduly low. The clause reads as under: “Clause 15:15: The bidders shall submit the methodology of arriving at their quote as per the Annexure – C2. If the bid quoted is unduly low, CPSUs have the right to reject the bid. CPSUs’ decision on this will be final. The Price bid will be summarily rejected if Price bid (Annexure – C1) is not accompanied with Annexure –C2.” The other Clauses pertain to payment schedule, terms of payment, furnishing of Bank guarantee, method of termination of contract, etc. The petitioner and 14 others were found eligible in the first two stages, as to their bids for the State of Andhra Pradesh. In case of Karnataka, 13 agencies were found eligible, including the petitioner. The price bids of all the agencies were opened on 05-01-2011. The rates quoted by the petitioner for the State of Andhra Pradesh were the lowest, at Rs.17.46. For the State of Karnataka, the rates quoted by it were the second lowest, at 18.51 (lowest being at Rs.18.38). It needs to be mentioned here that the entire contract is not to be awarded to the lowest bidder. Depending on its financial or other capacities, a limit is stipulated as to the quantum of work, and other tenderers are to be allotted works, depending on the quantum of the balance of the work, according to the same parameters, and at the lowest rates. The bids submitted by the petitioner for the States of Andhra Pradesh and Karnataka were not accepted on the ground that they were below the cut off rates. The respondents have fixed the cut off rate for the State of Andhra Pradesh at Rs.17.10 and for the State of Karnataka, at Rs.17.50. Incidentally, the petitioner was the only agency, which was found below the cut off rates for both the states. The writ petition is filed challenging the action of the respondents. A serious objection is raised, as to the maintainability of the writ petition. Reliance is placed upon the judgments of the Supreme Court i n TATA CELLULAR V. UNION OF INDIA[2]; AIR INDIA LTD. V. COCHIN INTERNATIONAL AIRPORT LTD AND OTHERS[3], and DILIP SINGH V. STATE OF U.P[4]. The gist of the submission is that even where a State of its instrumentality becomes party to a commercial venture, its freedom to contract cannot be subjected to judicial review, as in the case of administrative or quasi-judicial proceedings. According to the respondents, when it is only the decision making process and not the decision as such, that can constitute the judicial review, and that it is only when the decision is found to be unreasonable, or irrational, that the process can be examined by the Courts. The principles laid down by the Supreme Court in the decision referred to above, and other similar judgments are clear. This Court would never act as an appellate authority, while hearing the writ petition under Article 226 of the Constitution of India, that too, when the subject-matter of the writ petition is a commercial contract. For the most part of it, the parties to commercial contract must be required to work out their remedies available in Civil Law. Where, however, the exercise undertaken by a State or its agencies is public in nature, and it is regulated by a definite procedure, the Court can certainty examine the matter, to ensure that the prescribed procedure is followed, and there does not exist any arbitrariness or irrationality. In TATA CELLULAR V. UNION OF INDIA (2 supra), Their Lordships have elaborated the principles, according to which, the judicial review can be undertaken. In none of the judgments, it was held that there exists a total bar on the jurisdiction of the High Court. Much would depend upon the facts and circumstances of the case, and this much can be said that the Court should be careful and slow in undertaking judicial review of the commercial contracts, involving the State. In the instant case, the work undertaken by the respondents is referable to sovereign activity, viz., conducting of census operations. The method of selecting agencies for undertaking such a work is prescribed in detail, in the bid document itself. The question as to whether the terms and conditions of the document were followed in their letter and spirit, and whether transparency and lack of arbitrariness is ensured in the selection process; can certainly be the realm of the judicial review. Reluctance to entertain writ petitions, involving such questions, would indirectly confer unguided freedom upon the respondents and a wrong decision taken wittingly, unwittingly, and the consequences thereof may go unchecked. Such a course would be opposed to the very concept of ‘rule of law’. Neither a State, nor its agency can arrogate to itself, the unbridled freedom to do things, as it chooses, and to tell the Court, that it cannot review the decisions. Therefore, the objections raised by the respondents, as to the maintainability of the writ petition is rejected. A note of caution needs to be added before discussing the matter on merits. It is not at all the intention of the Court to examine the issue on the desirability or propriety of the rejection of the bids of the petitioner. The effort is only to see whether the procedure adopted by the respondents 1 to 3, accords with the conditions, stipulated in the document. This Court also has acknowledges the right of an agency to reject even a lowest tender, without assigning any reasons, but would certainly verify, whether such rejection or the selection of the other agency was transparent and objective. The only ground on which the bids of the petitioner were rejected is that, they were found to be ‘unduly low’. The letter dated 21-01-2011, through which, the petitioner was communicated the decision, reads as under: “…During the price bid evaluation, it is noted that the rate quoted in your price bid is lower than the unduly low rate estimated by CPSU. Hence we have not considered your bid for further processing. We are returning herewith your EMD of Rs.20,00 lakh as per the details given below: DD ref Date Drawee Bank 961993 20.01.2011 State Bank of India” In the statement that is prepared, reflecting all the bids for both the States, the cut off rates were mentioned as Rs.17.10 and 17.50, respectively, for the States of Andhra Pradesh and Karnataka. The impugned letter dated 21-01-2011 does not make any mention of cut off. There exists substantial difference between “cut off rate”, on the one hand, and “unduly low rate”, on the other hand. The former is concrete, whereas the latter is abstract. If a cut off mark or rate is fixed, it is immaterial whether the rates that are quoted below that are reasonable, desirable, or otherwise, and hardly does the authority or agency have any discretion to consider anything below the cut off rate. ‘Unduly low’, on the other hand, is almost a psychological phenomenon. It may vary from person to person, whoever had an occasion to deal with the situation. What is undue, for one individual, and in a given situation may not be so, for another, and for every situation. In a given case, an explanation offered by the one, who is found to have quoted unduly low rate may find favour with the agency. This is particularly so, in respect of contracts, that involve the utilization of technology. In these days of improved technology, one cannot say that, it is only through a particular method, or with a particular cost, that the work can be undertaken. The same work can be executed at substantially low rate, by pressing into service, an improved technology. As long as the concern of the authority is only to ensure quality of work, its attention should be mostly only upon the cost structure. It does not need any emphasis to say that the very logic behind the invitation of bids or tenders is to ensure that the proposed work is executed at a competitive price. Where, however, an agency intends to put a cut off mark, it is made specific, clear and manifest, in the notification or tender document itself. For instance, in certain contracts pertaining to Irrigation and Roads and Buildings Departments, the submission of tenders with 10% above or 10% below the estimated rates is prohibited. In certain other cases, the tenders, which are below or above the estimated value, up to certain percentage, are subjected to review by a superior authority. If no such limit is stipulated, it becomes impermissible for the authorities to reject the tender on such grounds. Clause 15.15, that has already been extracted in the preceding paragraphs; would certainly stipulate the theory of ‘unduly low rates’. However, it does not enable the respondents to prescribe a “cut off rate”. Further, in case the cut off rate were to have been adopted, it ought to have found place in the document itself, so that a bidder would take note of it, and avoid bidding, at any rate, below the same. Admittedly, the respondents did not incorporate the cut off rates. The request for quotation was published on 01-10-2010; pre-bid meeting registration took place on 09-10-2010, and last date for submission of bids was 28-10-2010. The eligible bids were opened on the same date. The documents were verified in the presence of the respective bidders between 13th and 16th of December, 2010. In their counter-affidavit, the respondents have stated that the CPSU appointed a Committee of Experts, on 29-12-2010, and the committee in turn, fixed the same on 30-12-2010. It was with reference to the figures so indicated, that the price bids were considered on 05-01-2011. The procedure adopted by the CPSU cannot be supported in law. It was aware of the minute details pertaining to the work, and if its intention was to determine a basic price for effective execution of the work, it ought to have determined, well in advance. There was no justification for undertaking exercise of that nature at the final stage of the processing of bids. Further, there is any amount of contradiction in terms. The very purpose of screening the bidders at the first two stages, viz., the pre-bid and techno-commercial bid stages, is to ensure that it is only the agencies with necessary experience and background, that are permitted to bid. The petitioner was found to be qualified in both these aspects. Once the respondents were satisfied about the technical efficiency of the petitioner, the only consideration ought to have been the rates, quoted by various agencies. Further, Clause 15.15 could have been pressed into service, only when the respondents were able to demonstrate that the bid of an agency is such that, the rates are not at all workable. In case that clause were to have been pressed into service against a bidder, the respondents were under the obligation to give an opportunity to such bidder to explain, as to how far the rates are workable. If the explanation was not satisfactory, the bid could have been rejected, indicating the precise reasons. The respondents were not at all justified in fixing the cut off rates, which are not at all provided for, under the request for quotation. The State cannot be burdened with unnecessary expenditure by rejecting the lowest bid made by an agency, which was found to be technically and otherwise qualified. Hence, the writ petition is allowed, and the impugned letter is set aside. The respondents 1 to 3 are directed to consider the matter afresh, without reference to the “cut off rates”. It shall, however, be open to them to invoke Clause 15.15, vis-à-vis the petitioner, and if they choose to do so, they shall be under obligation to give an opportunity to the petitioner to explain, as to how the rates quoted by it are workable. There shall be no order as to costs. _______________________ L. NARASIMHA REDDY, J. Dt.16-03-2011. Note: c.c. in three days. (B/O) KO [1] (1997) 1 SCC 53 [2] (1994) 6 SCC 651 [3] (2000) 2 SCC 617 [4]