* THE HON’BLE SRI JUSTICE V.V.S.RAO AND * THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN + WRIT APPEAL Nos.395, 396 AND 424 OF 2011 % Dated 28-09-2011 WRIT APPEAL No.395 of 2011 # M/s. ICATCH communications India Limited and two others …. Appellants Vs. $ M/s. Prakash Arts, Hyderabad and four others …. Respondents ! Counsel for the Appellants: Sri P. Radhive Reddy Sri D. Prakash Reddy ^ Counsel for respondents: G.P. for Revenue; Ms. Anjana Taggarse; Dr. Y. Padmavathi <GIST: > HEAD NOTE: ? Citations: 1) (2003) 8 SCC 100 2) AIR 1979 SC 1628 3) AIR 1980 SC 1992 4) AIR 1985 SC 1147 5) AIR 1985 SC 1622 6) AIR 1988 SC 157 7) AIR 1996 SC 51 8) AIR 1996 SC 3538 9) AIR 1999 SC 2468 10) AIR 2001 AP 403 11) (2006) 10 SCC 236 12) AIR 2009 SC 2519 13) 2010 (3) ALD 505 (DB) 14) (1994) 6 SCC 651 15) 2009(3) Supreme 429 16) 2003(2) ALT 288 17) 2007(1) Supreme 704 18) AIR 2000 SC 3313 19) (1875) Ch.D.426 20) AIR 1964 SC 358 21) (2001) 4 SCC 9 22) (2007) 2 SCC 588 23) AIR 1969 SC 634 24) (1996) 3 SCC 52 25) 1984(2) ALT 207 (DB) THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN WRIT APPEAL Nos.395, 396 AND 424 OF 2011 COMMON ORDER: (per Hon’ble Sri Justice Ramesh Ranganathan) These three Writ Appeals are filed by respondent Nos.4 to 6 in W.P. No.8585 of 2010. The said Writ Petition was filed by three advertising companies/firms questioning the action of the Greater Hyderabad Municipal Corporation (for short ‘the Corporation’) in awarding contracts by way of nomination, terming them as “pilot projects”, to respondent Nos.3 to 6 in the Writ Petition vide proceedings dated 02.09.2009, 25.01.2009 and 09.06.2009. These proceedings were challenged on the ground that the process of public auction or tender was not followed, and award of contracts by nomination was arbitrary, illegal and in violation of Article 14 of the Constitution of India. The Writ Petition was allowed by order dated 26.04.2011, and the contracts awarded in favour of respondents 4 to 6 were set aside. The learned Single Judge noted that the contract, awarded in favour of the third respondent in the Writ Petition, was terminated by proceedings dated 02.04.2011 on account of the lapses pointed out therein and, in so far as the third respondent was concerned, the grievance of the petitioners stood redressed. The Writ Petition was allowed setting aside the orders issued by the Corporation in favour of respondent Nos.4 to 6; the Corporation was directed to conduct auction, in relation to the very works allotted in their favour, within a period of three months from the date of the order; in case respondent Nos.4 to 6 emerged as the highest bidders for those very works, the terms of the contract were to stand revised incorporating the outcome of the auction; if any other agency emerged as the highest bidder for the works, covered by the contracts awarded in favour of respondent Nos.4 to 6, the latter were placed under an obligation to remove their installations; the Corporation was to get the expenditure incurred for the individual works, assigned to respondent Nos.4 to 6, and the income derived therefrom in the form of advertisement charges evaluated by a chartered accountant; if the income had either exceeded or was equivalent to the investment, no further steps were needed be taken; if, on the other hand, the investment was found to be more than the income, the Corporation was required to take necessary steps to pay the amount within a period of six months from the date of determination, subject to the terms of the contract between them; the Corporation was required to take steps to invite bids or tenders for installation of the equipment as was awarded to respondent Nos.4 to 6 in other junctions, and other places in the city, as early as possible; and, in no case, was it to award such works on nomination basis. Aggrieved thereby, these three appeals are preferred. The respondent corporation has not only chosen not to prefer an appeal against the order passed in W.P. No.8585 of 2010, but has instead initiated action to comply with the order. Dr. Y. Padmavathi, learned Standing Counsel for the GHMC, would submit that, in compliance with the order of the learned Single Judge, the Corporation had, in terms of clause 16.3 of the terms and conditions of the agreement dated 04.12.2009, terminated the works allotted to the appellants on nomination basis; the appellants were directed to submit details of the expenditure incurred for installation of signages, and for erection of barricades on the central media under the Foot Over bridges, including the income derived from the display of advertisements, so as to entrust the same to a Chartered Accountant to assess the matter; the appellants were directed to hand over the barricade works, and remove the traffic signages, immediately; the Corporation has decided not to prefer an appeal against the order of the learned Single Judge; and, in compliance with the said order, to invite bids afresh through the tender process route. It is convenient to classify the contentions urged on behalf of the appellants under different sub-heads. I. CAN AWARD OF CONTRACTS BY THE GHMC TO THE APPELLANTS ON NOMINATION BASIS BE JUSTIFIED ON THE PLEA THAT THEY ARE “PILOT PROJECTS”? Sri D. Prakash Reddy, learned Senior Counsel appearing on behalf of the appellants, (respondent Nos.4 to 6 in the Writ Petition), would submit that from out of 134 traffic junctions in the GHMC area, signages were allotted to the appellants only for 9 junctions as a “pilot project”; this is hardly 6% of the total traffic junctions in the GHMC area, which itself was proof that award of work was on a trial basis, and was treated as a “pilot project”; since the works in question were in the nature of “pilot projects” the Corporation had awarded the works on nomination basis based on the proposals submitted by the appellants; it was immaterial whether the project was conceived by the GHMC or a proposal presented to it was accepted; there was no prohibition for the GHMC to accept a proposal submitted by any agency if it was found to be beneficial to the Corporation; award of contracts on nomination basis to the agency, which had conceived the project, with a view to test its utility cannot be faulted; after scrutiny of the issues at various meetings, including the need for traffic direction signages, innovative systems, and the offer made by the appellants to take up the project at their own cost by paying the required advertising fees, contracts were awarded to them; and, in such circumstances, the action of the Corporation in awarding the works on nomination basis is justified. Learned Senior Counsel would rely on Five (5) M and T Consultants, Secunderabad v S.Y. Nawab[1]. Ms. Anjana Taggarse – Motupalli, learned Counsel for the respondent – writ petitioners, would submit that the works awarded to the appellants were signages, barricades and dustbins which were similar to the items specified under the “Fund Your City” project whereunder auctions were held in December, 2006; awarding contracts by nomination, instead of the general rule of public auction, can only be resorted to in special or exceptional circumstances which, when called upon, must be justified by the Corporation; the works awarded to the appellants were in the nature of build, operate and transfer (BOT) projects which could not be awarded as a “pilot project”; details of the contracts, and the surrounding circumstances, clearly demonstrated a lack of innovation, urgency, extenuating or exceptional circumstances etc., and did not justify award of “works”, on nominations basis, terming them as “pilot projects”, though it was not; the GHMC had not chosen to furnish reasons for award of works on a nomination basis, and not by auction/tender; the contracts in question were not experimental/test projects or “pilot” in nature; it was a non-transparent, unfettered, unguided and arbitrary exercise of power; even in the absence of financial outflow by the respondent-Corporation in respect of the said contracts granted by way of nomination, the Corporation would nonetheless be duty bound to determine the total worth of the contract, and follow the provisions of the GHMC Act pertaining to grant of contracts to private parties; in a “BOT” contract there should be specification of the material used, as the property has eventually to be handed over to the GHMC; a BOT contract can be entered into only after successful completion of the “pilot project”; while a “pilot project” must be innovative, there is no innovation in the concept of erecting signages/barricades/ dustbins, and it has been subjected to auction even under the “Fund Your City scheme”; the appellants’ claim of innovation in the materials used is also not borne out in the contract which does not even specify the material which the appellants were required to use nor are they mandated, under the terms of the contract, to use specific material for erection of signages/barricades and the dustbins concerned; and the statutory safeguards, under Sections 124 to 129 of the GHMC Act, have been ignored in the award of such contracts to the appellants. Learned Counsel would rely on Ramana Dayaram Shetty v. International Airport Authority[2], Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir[3], Ram and Shyam Company v State of Haryana[4], Collector (D.M), Allahabad v Raja Ram Jaiswal[5], Haji T.M. Hassan Rawther v. Kerala Financial Corporation[6], Sterling Computers Ltd. v. M & N Publications Ltd[7], Common Cause v Union of India[8], MI Builders (P) Ltd v. Radhey Shyam Sahu[9], S.Y. Nawab v. MCH[10], Five (5) M and T Consultants1, Noble Resources Ltd. v. State of Orissa[11], Ravi Development v. Shree Krishna Prathisthan[12] and P. Narayan Reddy v. State of A.P.[13]. The standard applied by the High Court, while exercising its powers of judicial review in matters relating to award of contract by the Government/local authority, is deferential scrutiny as the Government/local authority must have the freedom of contract, and a fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere. The decision to award contracts must, however, be free from arbitrariness, not affected by bias or actuated by malafides. (Tata Cellular v. Union of India[14]). The power or discretion to award contracts must be confined and structured by rational, relevant and non-discriminatory standards or norms and, if such standards or norms are departed from in any particular case, the action of the Government/local authority would be liable to be struck down, unless it can be shown that such departure was based on some valid principle which in itself was not irrational, unreasonable or discriminatory. (Ramana Dayaram Shetty2; Ram & Shyam Co.4; P. Narayana Reddy13). The Executive does not have absolute discretion in the award of contracts. Certain principles have to be followed, public interest being the paramount consideration. (Meerut Development Authority v. Association of Management Studies[15]; P. Narayana Reddy13; Goldstone Exports Limited v. Govt. of A.P.[16]). For securing the public interest one of the methods recognised is to invite tenders affording opportunity to submit offers for consideration in an objective manner. (Meerut Dev. Authority15; P. Narayana Reddy13). Award of contracts through public tender ensures transparency, maximises economy and efficiency, promotes healthy competition among the tenderers, provides for fair and equitable treatment of all tenderers, and eliminates irregularities, interference and corrupt practices by the authorities concerned. This is required by Article 14 of the Constitution. (Ram and Shyam Company4; Nagar Nigam v. Al. Faheem Meat Exports Pvt. Ltd[17]; P. Narayana Reddy13; Goldstone Exports Limited16). The Government/local authority cannot act in a manner which would benefit a private party at the cost of the State; and such action would be both unreasonable and contrary to public interest. (Kasturi Lal3; P. Narayana Reddy13). Philanthropy plays no part while dealing with a contractor entrusted with the execution of a contract. If the decision in respect of commercial transactions is influenced by extraneous considerations, which ought not to have been taken into account, the ultimate decision is bound to be vitiated. Ordinarily the State or its instrumentalities should not give contracts by private negotiation, but by open public auction/tender after wide publicity, and thereby ensure transparency. (Nagar Nigam17; P. Narayana Reddy13). However, in exceptional circumstances and for justifiable reasons, the tender route can be deviated from and a contract can be awarded by nomination. (Netai Bag v. State of West Bengal[18]; P. Narayana Reddy13). In rare and exceptional cases, having regard to the nature of the largesse or for some other good reason, a contract may be granted by private negotiation, but normally that should not be done as it shakes public confidence. (Ram and Shyam Company4; Nagar Nigam17; P. Narayana Reddy13). There may be cases where, in the special facts and circumstances and due to compelling reasons which must stand the test of Article 14 of the Constitution, departure from this rule can be made. (Kasturi Lal3; P. Narayana Reddy13). Instances of such rare and exceptional cases are: (i) during natural calamities and emergencies declared by the Government; (ii) where there is a single source only; (iii) where the contractor has exclusive rights in respect of the goods or services, and no reasonable alternative or substitute exists; (iv) where the auction was held on several dates but there were no bidders or the bids offered were too low, etc. (Ram & Shyam company4; Nagar Nigam5; P. Narayana Reddy13). It is for the Court to decide, in the given facts and circumstances, whether the action complained of is unreasonable? (Meerut Dev. Authority15; P. Narayana Reddy13). It is open to the Court to review the decision-maker’s evaluation of the facts. The court will intervene where the facts taken as a whole would not logically warrant the conclusion of the decision-maker. If the weight of the facts pointing to one course of action is overwhelming, then a decision the other way cannot be upheld. (Tata Cellular14; P. Narayana Reddy13). It is necessary, therefore, to briefly refer to certain facts and events both prior and subsequent to the award of contracts to the appellants by the GHMC. The prototype litter bins developed and presented by the first appellant was approved by the GHMC, allegedly, for the purpose of testing its functionality. According to the respondent Corporation, from out of the total requirement of 10,000 litter bins needed for the entire area of GHMC, only 60 had been permitted on pilot basis, in a small stretch on tank bund road; and this limited pilot initiative was permitted to test and find a lasting solution to the problem of littering in the city. The third appellant, by their letter dated 5.6.2008, informed the Additional Commissioner (Advertisement), GHMC that they were submitting a preliminary list of locations where they intended to install barricades below the foot-over-bridges and traffic signage/s at important locations under the GHMC jurisdiction. The locations were at:- Locations of Barricades: Locations of Traffic Signage/s: Under the FOB at St. Anns At Rasoolpura Junction High School, Sec’ bad Under the FOB at Khairtabad At Panjagutta Junction Under the FOB at Ameerpet At Hi-tech City Junction The third appellant requested that permission be accorded for erection of barricades and traffic signage/s. The Addl. Commissioner (advt), GHMC, by his letter dated 13.06.2008, permitted the third appellant to put up barricades and traffic signages at the following locations with advertisement rights thereon, on an experimental and pilot basis, for a period of three years: Sl. No. Locations of Barricades Locations of Traffic Signage/s 1. Under the FOB at St. Anns High School, Sec’bad At Rasoolpura Junction 2. Under the FOB at Khairatabad At Panjagutta Junction 3. Under the FOB at Ameerpet At Hi-Tech City Junction They were informed that the barricades and traffic signages should be fabricated and installed as per the technical and structural norms with due approval of the Additional Commissioner of Police (Traffic) Hyderabad; and they should pay the requisite advertisement fee for the advertisement displayed on the barricades and signages. The third appellant informed the Commissioner, GHMC, by their letter dated 11.05.2009, that they had conducted a survey of junctions/intersections and thoroughfares forwarded by the Hyderabad Traffic Police in consultation with the GHMC, and were proposing forty-five traffic signages at ten locations for installation of directional signages. They requested the Commissioner, GHMC to approve and include them in the proceedings to be issued by him. By proceedings dated 13.05.2009 provisional permission was accorded for six locations/spots for installation of six traffic signages on a pilot basis for a period of eight years. Thereafter, vide letter dated 14.05.2009, the third appellant informed that, taking into consideration the capital intensive nature of the project, all 45 signages for the ten locations be considered as anything less would make the project non- viable. By proceedings dated 14.05.2009 the earlier proceedings dated 13.05.2009 was partially modified, and revised orders were issued on BOT basis for twenty traffic signages at six locations. The locations identified for installation of traffic signages were all in the up-market commercial/residential areas of Hyderabad & Secunderabad where the revenues generated, as a result of the advertisements on the signages/barricades etc, would be far higher than in most of the other areas of the twin cities. The terms and conditions stipulated were that the period of allotment would be for eight years on BOT basis; the traffic signages should be installed exactly at the specified locations; traffic signages should be installed only after obtaining technical clearance of designs and specifications from the Chief Engineer, GHMC and the Jawaharlal Nehru Technological University (JNTU); the traffic signages should be installed strictly in accordance with the design and specifications standardized and approved by the Chief Engineer, GHMC and JNTU, Hyderabad; the requisite ground rent, in addition to advertisement fee, should be paid to the GHMC; and they should enter into an agreement with GHMC after securing technical clearance from the Chief Engineer, GHMC and JNTU, Hyderabad. While the impugned proceedings were issued in the name of the third appellant, the contract was subsequently entered into with the second appellant, its sister concern. The Additional Commissioner (T&T) GHMC, by proceedings dated 15.09.2010, fixed Rs.6,00,000/- per annum for each traffic signage in terms of clause 8.2(b) of the agreement in addition to collection of advertisement fee. The second appellant (a sister concern of the third appellant) informed the Commissioner, by their letter dated 20.09.2010, that they would pay Rs.75,00,000/- per annum in all as Annual Advertising Fee. The matter was again referred to the Committee for re-examination of the whole issue and, on the basis of their recommendations, Rs.40.00 lakhs towards lumpsum advertisement fee was re-fixed for all the traffic signages, by proceedings dated 24.11.2010, in terms of Clause 8.2 (b) of the agreement dated 04.12.2009 subject to certain terms and conditions. The proceedings, impugned in the Writ Petition against which these appeals are preferred, relate to award of works terming them as “pilot project” under the BOT (Build Operation and Transfer) model. It is necessary, therefore, to examine the scope of a “pilot project”, and the BOT (build, operate and transfer) model of execution of projects. A “pilot project” is an activity or a project planned or designed as a test or a trial run to demonstrate the effectiveness of a full programme. Pilot project or scheme is defined by Chambers Dictionary – Deluxe Edition – reprint 1996 as a project or scheme serving as a guide on a small scale to a full-scale project or scheme. “BOT (Build Operate Transfer)” finds extensive application in projects executed under Public-Private partnership. Public–private partnership (PPP) describes a government/local authority venture which is funded and operated through a partnership of government/local authority and one or more private sector entities. These schemes, referred to as PPP, involves a contract between the Government/local authority and a private party in which the private party provides a public project and assumes substantial financial, technical and operational risk in the project. Typically, a private sector consortium forms a special company called a "special purpose vehicle" (SPV) to develop, build, maintain and operate the asset for the contracted period. In the BOT framework a third party, for example the public administration, delegates to a private sector entity the task of designing and building infrastructure, and to operate and maintain these facilities for a certain period. During this period the private party is entitled to retain the revenues generated by the project, but is not regarded as the owner of the facility. The facility is transferred to the public administration at the end of the concession agreement. The viability of the project for the government/local authority depends on its efficiency in comparison with the economics of financing the project with public funds. Even the government/local authority can raise or borrow money on better conditions than the private entity. Other factors could also offset this particular advantage. For example, the expertise and efficiency that the private entity is expected to bring may not be of a very high order. “Pilot projects” are essentially i) on a trial basis; ii) limited in scope; iii) for a limited period of time; iv) in respect of limited numbers; v) where there is innovative activity; and (vi) the project is an experiment to test, survey and determine the feasibility of such a project. Pilot projects cannot be granted in respect of time tested projects or for an unusually long duration of time or in respect of several units or number of installations or for a large area. We are in complete agreement with the opinion of the learned Single Judge that the purport of a “pilot project” is as a measure of sample or experiment and thereunder a small fraction, of an otherwise large work, is taken up by the local authority to satisfy itself that the installation or launching of the project in its entirety would be troublefree; the characteristics of a “pilot project” are (a) the agency that launches has a definite plan to install a large number of devices with definite specifications; (b) at the threshold, the agency launches a portion of the project or prototype of the device, on an experimental basis; and (c) once the shortcomings or defects in the functioning of the “pilot project” are noticed and rectified, or the economics worked out, the required number of devices are launched or installed; in the instant case, the Corporation did not have any idea as to the nature of devices to be installed; it did not stipulate the nature and specifications of the installations or the number, much less the cost structure; and, in the absence of a clear plan or idea as to the functions, specifications or other details of the concerned installations, it would be a misnomer to call the exercise undertaken by the Corporation a “pilot project”. A “pilot project” would necessarily imply innovation, a first attempt at doing something, and the requirement of monitoring the project to determine its feasibility etc., The contracts, which are the subject matter of these three appeals, do not satisfy the requisite criteria to be treated and executed as “pilot projects”. Pilot projects cannot be granted in the absence of any innovative activity therein. No innovation or new technology is involved in these contracts, and similar works are being executed all over India. A similar project involving installation of traffic signages was also the subject matter of auction, under the “Fund Your City” scheme of the GHMC, in December, 2006. There can hardly be any innovation either in the technology or in the specifications of materials used in installing signages and in erecting barricades and litter bins. Neither the impugned proceedings nor the contracts entered subsequent thereto specify the material which the appellants are required to use. The terms and conditions stipulated in the impugned proceedings required the appellants to obtain technical clearance for the structural design