n' /—r\ . /lf--^^^00^ HSGH COURT OF JUDICATURE CHHATTISGARH : BILASPUR SINGLEBENCH : HON'BLE SHRI S.R. NAYAK. CJ WRITPETmONNO.5153 OF 2005 O RD E R POST IT FOR PRONOUNCEMENT OF ORDER ON: 14/02/2006 Sd/-- Chief Justice -o^ -^? ^^£>D HIGH COURT OF JUDICATURE CHHATTISGARH : BILASPUR SINGLE BENCH : HON'BLE SHRI S.R. NAYAK, CJ. WRITPEnTIOJSi N0.5153 QF2005 PETITIONER RESPONDENTS Vs. M/s Indian Bicycle Manufactures Association, A society registered under the Society Registration Act, 1860 Registered address E-650 Phase V Focal Point, Ludhiana (Punjab) 1. State of Chhattisgarh Through the Secretary Department of Industries D.K.S. Bhawan, Mantralaya Raipur (Chhattisgarh) 2. Chhattisgarh State Industrial Development Corporation Limited (a Government of Chhattisgarh Undertaking) through Managing Director, Ground Floor, LIC Commercial Compiex Pandari, Raipur (C.G.) 492004 3. M/s Hero Cycles Ltd. (Ludhiyana) 503, Tulsiani Chambers, 5 FIoor Nariman Point, Mumbai 400021. Present: Mr. Kanak Tiwari, learned Sr. Adv., with Mr. Prateek Sharma, learned counsel for the petitioner. Mr. Prashant Mishra, learned Addl. Advocate General, with Mr. Sanjay S. Agrawal, learned Govt. Adv., for the State of Chhattisgarh. Mr. Ayaz Naved, learned counsel for respondent No.2. Mr. Goutam Bhaduri, leamed counsel for respondent No.3. ORDER (Passed on of February, 2006) In this writ petition, the action of the Chhattisgarh Stete Jndustrial Development Corporation Ltd., the second respondent herein, which is a Govt. of Chhattisgarh undertaking in awarding the contract in ^L4 ^T favour of M/s Hero Cycles Ltd., the third respondent herein, for supply of 49,603 ladies bicydes to the Department of Tribal Development and the Department ofSchoot Education, is assailed. (2) The facts of the case, in brief, are as follows: The Department of Tribal Development, State of Chhattisgarh issued notification on 30th July 2005 calling for tenders for purchase of 11,558 ladies bicycles for school-going tribal girls. According to the aforesaid tender notification marked as Annexure-P/2A, the 'tenderer' specified in Clause 20 would mean 'manufacturer and also the authorized representative of the manufacturers'. No financial restriction/eligibility clause with regard to tumover of the business of the tenderer was prescribed. However, theaforesaid tender process was withdrawn and on 14/09/2005, the second respondent which is statutory Corporation functioning under the Department of Industries, Govt. of Chhattisgarh State,floated tenders for purchase of 49,603 ladies bicycles on behalf of the Department of Tribal Development and also Department of School Education, vide Annexure-P/2. Vide condition No.24 of Annexure-P/2 it was incorporated that; "a. Tenders are invited from original Indian Manufacturers/authorized agents only....." And "b. Tenderer should have minimum yearly turn- over of Rs.50 crores or more. Regarding this, tenderer must submit their past performance report for last 3 years". The tenders were to be submitted by 06/10/2005 but an addendum was issued to the aforesaid terms and conditions after the tenderers had purchased tender forms including among them also the Madhya Pradesh -3- Laghu Udyog Nigam, a statutory Corporation. The addendum marked as Annexure P-3 stipulates that "tenders are invited from original Indian Manufacturers only who fulfil the pre<|ualification criteria given in the tender document". As such the expression 'authorized agents' were deteted. This invited protest from the organization like Madhya Pradesh Laghu Udyog Nigam, a statutory Corporation constituted by the erstwhile State of Madhya Pradesh (for short 'the M.P.L.U.N.') which consists the members of the petitioner - Association as its constituent members contending jntera//athat in accordance with the World Bank norms one- third of the annual turnover capacity demanded would be enough and the prescribed minimum turnover of Rs.50 Crores of the tendered item in each of the last three years i.e. 2002-03, 2003-04 and 2004-05 is arbitrary and unreasonable. It was also contended by the objectors that the last year also the third respondent and other big manufacturers had formed a cartel while quoting prices of such bicydes to be supplied to the State of Madhya Pradesh and in the circumstance, the Chief Minister of the said State inter/ened and awarded the contract of supply of the bicycles to the small manufacturers under the patronage and agency of M.P.L.U.N. A copy of the representation made by the petitioner - Association is produced and marked as Annexure P-6. (3) The second respondent received only three tendersand they were opened on 06/10/2005. It was found that the third respondent, M/s Atlas Cycles and M/s Avon Cycles had quoted almost the same prices with a variation of only 0.50 Paisa. The purchase committee in its report marked as Annexure R-4 has recorded its minutes on 08/10/2005 opining that the aforementioned three big manufacturers ~ tenderers formed a cartel for supply of bicycles. Even the respondents, as could be seen from their return, agree that the aforementioned three bidders had formed a cartel, but according to them, to break that cartel they decided to negotiate with one of the bidders, i.e., the third respondent herein, who had quoted the lowest rate for suppiy of bicycles by 0.50 Paisa margin. Therefore, they negotiated with the third respondent and ultimately the third respondent agreed to supply the required quantity of bicycles at the rate of Rs.1,724/- including all taxes per bicycle as against its own lowest quotation of Rs.1,820/- per bicycle. According to the respondents, this has resulted in saving of Rs.96/- per bicycle or in aggregate Rs.47.62 Lakhs to the Government Exchequer. Thus, the second respondent awarded the contract of supplying bicydes to the third respondent. In the circumstance, the petitioner - Association has filed this writ petition for annulling the contractgranted in favour ofthe third respondent and also to quash the conditions incorporated in the tendered document vide amendment dated 14/09/2005 to the effect that a tenderer should have minimum yearly turnover of Rs.50 Crores or more and he should submit their past performance report for the last three years as arbitrary and unreasonable and violative of Article 14 of the Constitution of India. The petitioner - Association has sought for a direction to issue fresh tender for supply of ladies bicycles after deleting the aforesaid condition of annual tumover of Rs.50 Crores. (4) The petitioner initially did not implead ttie third respondent as a party respondent to this writ petition. The petitioner impleaded the third respondent by filing I.A. No.9750 of 2005. The petitioner by filing I.A. ^z^ ^r No.9674 of 2005 amended the writ petition by taking certain additional grounds. (5) The writ petition is opposed by the respondents 1 and 2 by filing statement of objections/retum. In the return, it is stated that the pre-qualification bids were opened on 06/10/2005 and technical bids were opened on 07/10/2005 and it was minutely scrutinized and it was found that three bidders, namely, M/s Atlas Cyctes, M/s Hero Cycles and M/s Avon Cycles had virtually formed a cartel. Therefore, to break that cartel, it was decided by the purchase committee to negotiate with the third respondent who had quoted the lowest rates for supply of bicycles by 0.50 paisa margin and in the negotiations, the third respondent had agreed to supply the required quantity of bicycles at the rate of Rs.1,724/- including all taxes per bicycle as against its own lowest rate of Rs.1,820/- per bicycle resulting in saving of Rs.96/- per bicycle or in aggregate Rs.47.62 Lakhs to the Government Exchequer. It is also stated that the purchase committee considered the representation of the petitioner - Association and it was found that the allegations made were baseless. It is also stated that the purchase committee before taking decision to award the contract in favour of the third respondent considered other factors, such as local market rates, rate of M.P.L.U.N., quality of product and assured supply within stipulated period. In pursuance of the above decision, an agreement was entered into with the third respondent on 25/10/20(K and in pursuance of the said agreement, purchase orders were placed on 25/10/2005. It is stated that the contract is awarded to the third respondent keeping in mind the assured supply within the stipulated time and to purchase standardized ISI conforming goods and saving of money ^>^°; -6- to the Public Exchequer. It was also stated that the purchase committee felt that it was desirable to purchase goods directly from the original manufacturer avoiding Assemblers, Dealers and Agents. The respondents have also sought to support the condition that the tenderers should have annual turnover of Rs.50 Crores for the last three years. (6) The third respondent also opposed the writ petition by filing a separate statement of objections/retum by contending that the terms of invitation and acceptance of tender are not opened to judicial scrutiny; the contract awarded to the third respondent by the second respondent after thorough scrutiny of the offer and series of discussions and negotiations with the guarantee of supply as also the quality could not be condemned as arbitrary or discrimjnatory or is actuated by malice. It js stated that the third respondent is the biggest cycle manufacturer in the world and the bicycles manufactured by it match the worid standard and norms. (7) The petitioner filed the rejoinder on 16/11/20C^ by filing I.A. No.9588 of 2005, first additional rejoinder on 03/12/2005 and second additional rejoinder on 06/12/2005. The third respondent has also filed the rejoinder. (8) I have heard learned counsel for the parties. Shri Kanak Tiwari, learned Senior Counsel who appeared for the petitioner would advance multi-panged arguments to attack the impugned tender proceedings and the award of contract in favour of the third respondent. It was contended that the decision of the second respondent to oust the agents of the manufacturers was a deliberate, conscious, dishonest act and therefore, the whole tender proceedings are vitiated. It was /s.^ ^T- contended that the second respondent fully knowing that the MPLUN being a public sector undertaking of the erstwhile/present State of Madhya Pradesh having been successfully operated identical contracts thereby saving crores of rupees to the Public Exchequer had mischievously/deliberately sidelined the members of the petitioner ~ Association by incorporating conditions which are totally arbitrary and discriminatory. It was contended that the restrictive condition of an annual turnover of Rs.50 crores minimum imposed by the second respondent is a deliberate and malicious act to oust the competitive trading companies so as to create monopoly of trade in favour of 3 to 4 big companies in the country. It was also contended that insertion of the condition of minimum annual turnover of Rs.50 crores is a clear illustrsrtion of encouraging cartel / vicious circle to be formed so that the Public Exchequer is robbed of. In sum and substance, it was the contention of Shri Kanak Thwari that the conditions imposed by the second respondent to oust the members of the petitioner - Association in the tender proceedings and in awarding the contract of supply of bicycles in favour of the third respondent ex facie violates the postulates of Articles 14, 19(1)(g), 19(6) and 21 of the Constitution of India. (9) Shri Prashant Mishra, learned Additional Advocate General appearing for the respondents 1 and 2, per contra, while supporting the impugned tender proceedings and the action of the second respondent in awarding the contract in favour of the third respondent - Company, at the threshold, would submit that the terms of invitation and acceptance of tender are not open to judicial scrutiny and the terms of the tender are in the realm of contract and the conditions imposed by the second ^s^ ^8- respondent for the tenderers to participate in the tender proceedings could not be condemned as arbitrary or unreasonable or discriminatory. Shri Prashant Mishra placing reliance on the judgments of the Supreme Court in Association of Registration Plates Vs. Union of India and others , Air India Ltd. Vs. Cochin International Airport Ltd. and others2, Asia Foundation & Construction Ltd. Vs- Trafalgar House Construction (1) Ltd. and others3, Krishnan Kakkanth Vs. Govt of Kerala and others4, Ugar Sugar Works Ltd. Vs. Delhi Administration and others , Sterling Computers Ltd. Vs. M/s. M&N Publications Ltd. and others6, Union of India and others Vs. Dinesh Engineering Corporation and another7and Directorate of Education and others Vs. Educomp Datamatics Ltd. and others8, submitted that the condition of requirement of having turnover of Rupees Fifty Crores for last three years could not be attacked on any of the permissible grounds and that similar attack has been negatived by the Supreme Court time and again. Shri Prashant Mishra would submit that th©Government of Chhattisgarh has evolved a benevolent scheme known as 'Saraswati Yojna' for supplying ladies bicycle free of cost to all the girls students of Class IX and X belonging to scheduled caste and scheduled tribe category studying in the schools run by the Education Department and Tribal Development Department of the Government of Chhattisgarh. It was contended by Shri Mishra that the decision to award the contract in favour of the third respondent was taken 1. (2005) 1 SCC 679 3. (1997)1SCC738 5. (2001) 3 SCC 635 7. (2001)83cc491 2. (2000) 2 SCC 617 4. (1997) 9 SCC 495 6. (1993)1SCC445 8. (2004)4SCC19 ^'2^ by the second respondent keeping in mind the public interest and the interest of the school-going girls belonging to the scheduled caste and scheduled tribe and after series of discussions and negotiations with the third respondent to reduce the price of the bicycle without sacrificing the quality of the bicycles and therefore, no ground was made out by the petitioners to interfere with the award of contract made by the second respondent in favour of the third respondent. Shri Prashant Mishra pladng reliance on the judgment of the Supreme Court in Ugar Sugar Works Ltd. Vs. Delhi Administration and others5 (supra) would submit that the decision to incorporate condition of Rupees Fifty Crores turnover is a policy decision teken by the respondents and, therefore, the Court should not interfere with such policy decision unless the policy is shown to be totally unreasonably and arbitrary. Lastly, Shri Prashant Mishra would submit that on account of the stay granted by this Court, the supply and distribution of the bicydes to the intended beneficiaries under the Saraswati Yojna is stalled and any further delay in supplying the bicydes to the girls students would defeat the very purpose for which Saraswati Yojna was conceived and being implemented. (10) Shri Goutam Bhaduri, learned counsel appearing for the third respondent while adopting the arguments of Shri Prashant Mishra, learned Addl. Advocate General and supplementing the same would highlight that in pursuance of the contract awarded to the third respondent, the third respondent had taken all necessary steps to manufacture the parts of the bicycles to see that the required bicycles are supplied without much loss of time. Learned counsel would also tell the Court that though time is lost in the litigation and by virtue ofthe interim order granted by this (^ ^o- Court, even at this belated stage, the third respondent - Company is in a position to supply the required number of bicycles within tiie stipulated time-frame. (11) Having heard learned counsel for the parties, the only thing to be seen by me is whether the petitioner has made out any ground for reviewing the action of the respondents 1 and 2 in awarding the contract of supply of bicycles in favour of the third respondent. (12) Though a Government contract is a species of the genus contract and is govemed by the same law of contract, i.e., the Indian Contract Act, yet it is a thing apart, a class by itself, calling for special and distinct consideration. As the contract involves public interest and public finance is affected, it is subject to certain limitations - constitutional and legal as well - which would not be relevant to a private contract. Though the basic structure of the contract, offer and acceptance, would be of equalapplicability to a Government contract, yet, in order to safeguard the public interest involved, certain strict compliance with the constitutional requirement of entering into a contract contained in the mandatory provision of Article 299 of the Constitution of India has to be complied with before a Government contract can become legal, valid and enforceable. At the same time, the Government is boundby Article 14 postulates, i.e., reasonableness, fairness and non-arbitrariness. The Govemment in awarding contract is expected to practice openness, transparency, objectivity and fairness. Furthermore, in awarding contract, the Government and the Governmental authorities are required to practice the norms of legality, rationality and propriety and they cannot pick and '$i53 JM- choose the persons, natural or legal, for awarding the contract at their whims and fancies and their actions in awarding the contract are amenable to judicial review and they could be tested on the touchstone of Article 14 postulates and mandate of Article 299 of the Constitution of India. (13) The law relating to award of contracts by the State, instrumentalities of the State, statutory bodies and otherauthorities which could be treated as 'State' within the meaning of Article 12 of the Constitution has been well settled by a catena of decisions of the Supreme Court and High Courts and to mention few are the decisions in M/s. Erusian Equipment & Chemicals Ltd. Vs. State of West Bengal and another9, Union of India and others Vs. Hindustan Development Corporation and others10, Asia Foundation & Construction Ltd. Vs. Trafalgar House Construction (1) Ud. and others , M.P. Oil Extraction & another Vs. State of Madhya Pradesh and others , West Bengal EIectricity Board Vs. Patel Engineering Co. Ltd. and othres13, Union of India and others Vs. Dinesh Engineering Corporation and another7 (supra), R.D. Shetty Vs. International Airport Authority4, Fertilizer Corporation Kamgar Union (Regd.) , Sindri and others Vs. Union of India and others15, Asstt. Collector of Central Excise, Chandan Nagar, WB Vs. Dunlop India Ltd.16, Tata Cellular Vs. Union of India17, 9. (1975) 1 SCC 70 10. (1993) 3 SCC 499 11.(1997) 1 SCC 738 12. AIR 1998 SC 145 = (1997) 7 SCC 592 13. AIR 2001 SC 682 = (2001) 2 SCC 451 14. (1979)38cc 489 15. (1981)13cc 568 16. (1985)13cc 260 17. (1994)63cc 651 ^t2 Ramniklal N. Bhutta Vs. State of Maharashtra18, Raunaq International Limited Vs. IVR Construction Limited19, M/s Monarch Infrastructure Pvt. Limited Vs. Commissioner, Ulhasnagar Municipal Corporation and others20, and AIR India Limited Vs. Cochin Int. Airport Ltd. and others2 (supra). It is true that the award of a contract, whether it is by a private party or by a public body or the State, is essentially, a commercial transaction. In arriving at a commercial decision consideration which are of paramount importance are commercial considerations. The State can choose its own method to arrive at a decision. It can fix its own terms of invitation to tender and that it is not open to judicial scrutiny unless such terms could be condemned on the touchstone of Article 14 postulates. Price need not always be the sole criterion for awarding a confract. It is free to grant any relaxation, for bona fide reasons, if the tender conditions permit such relaxation. It may not accept the offer even though it happens to be the highest or the lowest. But the State, its corporations, instrumentelities and agencies are bound to adhere to the norms, standards and procedure laid down by them and cannot depart from them arbitrarily. Though the decision taken by them is not amenable to judicial review on merit, the Court can examine the decision-making process and interfere if it is found vitiated by mala ffctes, unreasonabteness and arbrtrariness and due to violation of the terms and conditions imposed by the authority itself. It is trite law that the State, its corporation, instrumentaljties and agendes have ttie public duty to be fair to all concerned. 18. (1997)1SCC134 19. (1999)1SCC492 20. 2000 (4) SUPREME 34 = AIR 2000 SC 2272 = (2000) 5 SCC 287 ^3-" (14) It is pertinent to notice that since the guarantee of equal protection enshrined in Article 14 of the Constitution embraces the entire domain of 'State Action', it would extend not only when an individual is discriminated in the matter of exercise of his rights or in the matter of imposing liabilities upon him, but also in the matter of granting privileges, e.g., granting licences for entering into any business, inviting tenders for entering into a contract relating to Government business, or issuing quotas, giving jobs and in all these cases, the principle is that there should be no discrimination between one person and another if their position or circumstance is the same. In other words, the State's action must not be arbitrary but must be based on some valid principle which iteelf must not be irrational or discriminatory. It is well established by the Indian Administrative Law that an executive or statutory authority must be rigorously held to the standards by which it professes its actions to be judged and it must scrupulously observe those standards on pain of invalidation of an action taken in violation of them. It needs to be noticed that every activity of the State has the public element in it and must, therefore, be informed with reason and fair play in action and guided by public interest. If the Government awards contracts or otherwise deals with its property or grants any other largesse, it would be liable to be tested for its validity on the touchstone of reasonableness and public interest and if it fails to satisfy either test, it would be unconstitutional and invalid. The public authority cannot exercise its discretion arbitrarily in the matter of giving contracts to a parfy on its sweet will and pteasure giving a go-by to the norms and procedure prescribed by itself or by law. In other 14 words, the action of the authority in the matter of awarding contract should inspire transparency and openness and reflect justification and legality. (15) In the case of Kumari Shrilekha Vidyarthi Vs. State of U.P.21, the Apex Court dealing with the requirements of Artide 14 in the sphere of contract entered into by the State, has laid down the following propositions of law: "The requirement of Article 14 should extend even in the sphere of contractual matters for regulating the conduct of the State activity. Applicability of Article 14 to all executive actions of the State being settled and for the same reason its applicability at the threshold to the making of a contract in exercise of the executive power being beyond dispute, the State cannot thereafter cast off its personality and exercise unbridled power unfettered by the requirements of Article 14 in the sphere of contractual matters and claim to be govemed herein only by private law principles applicable to private individuals whose rights flow only from the terms of the contract without anything more. The personality of the State, requiring regulation of its conduct in all spheres by requirement of Article 14,does not undergo such a radical change after the making of a contract merely because some contractual rights accrue to the other party in addition. It is not as if the requirement of Article 14 and contractual obligations are alien concepts, which cannot co- exist. The Constitution does not envisage or permit unfairness or unreasonableness in State actions in any sphere of its activity contrary to the professed ideals in the Preamble. Therefore, total exclusion of Article 14 non-arbitrariness which is basic to rule of law - from Stete actions in contractual field is notjustified." 21.AIR1991SC537 15 It was further observed by the Apex Court in the above case as under 28. Even assuming that it is necessary to import the concept of presence of some public element in a State action to attract Article 14 and permit judicial review, we have no hesitation in saying that the ultimate impact of all actions of the State or a public body being undoubtedly on public interest, the requisite public elements for this purpose is present also in contractual matters. We, therefore, find it difficult and unrealistic to exclude the State actions in contractual matters, after the contract has been made, from the purview of judicial review to test its validity on the anvil of Article 14."