SILPPI CONSTRUCTIONS CONTRACTORS versus UNION OF INDIA AND ANR. ETC. ETC.
[2019] 10 S.C.R. 932, Supreme Court of India, 2019
Outcome: Dismissed (Dismissed)
Segment: Issues
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THE SILPPI CONSTRUCTIONS CONTRACTORS
v.
UNION OF INDIA AND ANR. ETC. ETC.
(Special Leave Petition (Civil) Nos.13802-13805 of 2019)
JUNE 21, 2019
[DEEPAK GUPTA AND SURYA KANT, JJ.]
Writ Jurisdiction: Scope of interference in contractual matters
involving State instrumentalities – Held: Courts should exercise a
lot of restraint while exercising their powers of judicial review in
contractual or commercial matters – The writ courts should not easily
interfere in commercial activities just because public sector
undertakings or government agencies are involved – No doubt, the
bodies which are State within the meaning of Art.12 of the
Constitution are bound to act fairly and are amenable to the writ
jurisdiction of superior courts but this discretionary power must be
exercised with a great deal of restraint and caution – Constitution
of India – Arts.32 and 226.
Administrative Law: Contracts involving technical issues –
Judicial review – Scope of interference – In contracts involving
technical issues, the courts should be even more reluctant because
of lack of expertise to adjudicate upon technical issues beyond
their domain – Courts should not use a magnifying glass while
scanning the tenders and make every small mistake appear like a
big blunder – Courts must also not interfere where such interference
will cause unnecessary loss to the public exchequer – Courts should
give way to the opinion of the experts unless the
decision is totally
arbitrary or unreasonable – The authority which floats the contract
or tender, and has authored the tender documents is the best judge
as to how the documents have to be interpreted – If two interpretations
are possible then the interpretation of the author must be accepted
– The courts will only interfere to prevent arbitrariness, irrationality,
bias, mala fides or perversity.
Tata Cellular  v. Union of India (1994) 6 SCC 651:
[1994] 2  Suppl.  SCR  122; Raunaq International Ltd.
v. I.V.R. Construction Ltd. (1999) 1 SCC 492  :
[1998] 3 Suppl.  SCR  421; Air India Limited v. Cochin
[2019] 10 S.C.R. 932
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International Airport Ltd. (2000) 2 SCC 617 :  [2000]
1 SCR 505 ; Karnataka SIIDC Ltd. v. Cavalet India
Ltd. (2005) 4 SCC 456 : [2005] 2 SCR 1183;  Master
Marine Services (P) Ltd. v.  Metcalfe & Hodgkinson
(P) Ltd. (2005) 6 SCC 138 : [2005] 3 SCR 666 ; B.S.N.
Joshi & Sons Ltd. v. Nair Coal Services Ltd. (2006) 11
SCC 548 : [2006] 8 Suppl. SCR 11 ;  Jagdish Mandal
v.  State of Orissa (2007) 14 SCC 517 : [2006] 10 Suppl.
SCR 606; Michigan Rubber (Inda) Ltd. v. State of
Karnataka & Ors. (2012) 8 SCC 216 : [2012] 8 SCR
128; Afcons Infrastructure Ltd. v.  Nagpur Metro Rail
Corporation Ltd. (2016) 16 SCC 818 : [2016] 3 SCR
551; Montecarlo v. NTPC Ltd. AIR 2016 SC 4946:
[2016] 8 SCR 224 ; Municipal Corporation, Ujjain and
Another v. BVG India Ltd. and Others (2018) 5 SCC
462 : [2018] 6 SCR 861; Caretel Infotech Limited v.
Hindustan Petroleum Corporation Limited and Others
2019 (6) SCALE 70 – relied on.
Writ Jurisdiction: Contracts entered into between private
parties – Held: Are not subject to scrutiny under writ jurisdiction.
Party/Parties: Necessary party – Tender – Rejection – Writ
petition – Maintainability when all the tenderer are not parties in
the petition – In the instant case, the Division Bench of High Court
held that writ petition was not maintainable without making all the
tenderer parties to the petitions – Held: The Division Bench of the
High Court erred in holding that in all cases challenging the
decision of the tendering authority, all the
eligible tenderers should
be made parties – Such a broad proposition could not be laid down
as an inflexible rule of law – In the instant case, the petitioner was
only challenging the rejection of its technical bid – At this stage,
the other tenderers were not necessary parties – The position may
be otherwise, if a tenderer challenges a bid awarded to another or
challenges the rejection of his bid at a later stage – The writ petition
was maintainable even in the absence of other tenderers because
till that stage there was no successful tenderer.
Contract: Related firms – Whether the petitioner firm and the
sister company are “Related Firms”, within the meaning of Clause
1.19 of the Manual of Contracts, 2007 –  It is not disputed that all
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the partners of the petitioner firm are the directors of the sister
company and, therefore, there can be no manner of doubt that the
petitioner firm and the sister company are related firms having a
business relationship – Therefore, adverse remarks made against
the sister concern can be used against the petitioner firm.
Contract: Tender of petitioner was rejected inter alia on the
ground that adverse remarks were made against sister concern of
the petitioner-tenderer in respect of workload return of ‘SS’ Class
contractors and non-renewal of its enlistment – Division Bench of
High Court held that the adverse remarks recorded against the sister
company could not be gone into in the absence of any challenge by
the sister company – Held: If the tendering authority is using any
adverse material of the sister company against the petitioner firm
then the petitioner firm would be entitled to urge that the adverse
remarks were not called for or that the adverse remarks were not
justified or that the adverse remarks were not to be taken into
consideration while considering the tender of the petitioner firm –
However, it is noted that in the instant case, the sister company not
only did not get its enlistment renewed but also did not care to even
represent against the adverse remarks – The eligibility criteria
provided in the tender laid down that there should be no adverse
remarks in the WLR of the competent engineering
authority –
Admittedly, there were adverse remarks in Work Load Return (WLR)
of the sister company – The sister company having realised that it
would not be awarded any contract, neither got its enlistment
renewed nor tried to submit the tender – The directors of the sister
company tried to get over these insurmountable objections by
applying for the tender in the name of the petitioner firm – All the
directors of the sister company were partners in the petitioner firm
– Therefore, these adverse remarks passed against the sister company
could not be ignored.
Contract: Tender – Eligibility criteria – In the instant case,
as per the eligibility criteria for MES enlisted contractors, only
contractors falling in “SS Class” were eligible to apply – Admittedly,
the petitioner firm was not an enlisted contractor and was, therefore,
required to meet the eligibility criteria for “other contractors” – As
far as “other contractors” were concerned, they were required to
meet the same criteria as “SS” MES contractors category and these
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contractors were specifically told that they could see enlistment
criteria in the MES Manual Contracts – The Manual also provided
criteria for enlisting of contractors – Therefore, only companies
incorporated under the Companies Act, 1956, were eligible to be
enlisted as ‘SS’ Class Contractors – Furthermore, Clause 1.5 dealt
with the documents to be submitted by the contractor for enlistment
in MES – This again would show that only limited companies could
be enlisted in ‘SS’ Class – ‘SS’ is the highest class and for that only
incorporated companies can apply – Therefore, the petitioner was
not eligible to submit the tender.
Administrative Law: Administrative decisions – Contract –
Rejection of tender – Whether the appellate orders rejecting tenders
were bad since they were without reasons – Held: While rejecting
the tender the person or authority inviting the tenders is not required
to give reasons even if it be a State within the meaning of Art.12 of
the Constitution – These decisions are neither judicial nor quasi-
judicial – If reasons are to be given at every stage, then the
commercial activities of the State would come to a grinding halt –
The State must be given sufficient leeway in this regard – Constitution
of India – Art.12.
Case Law Reference
[1994] 2 Suppl. SCR 122
relied on
Para 7
[1998] 3 Suppl. SCR 421
relied on
Para 8
[2000] 1 SCR 505
relied on
Para 9
[2005] 2 SCR 1183
relied on
Para 10
[2005] 3 SCR 666
relied on
Para 11
[2006] 8 Suppl. SCR
11
relied on
Para 12
[2006] 10 Suppl. SCR 606
relied on
Para 13
[2012] 8 SCR 128
relied on
Para 14
[2016] 3 SCR 551
relied on
Para 15
[2016] 8 SCR 224
relied on
Para 16
[2018] 6 SCR 861
relied on
Para 17
2019 (6) SCALE 70
relied on
Para 18
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CIVIL APPELLATE JURISDICTION: Special Leave Petition
(Civil) Nos. 13802-13805 of 2019
From the Judgment and Order dated 13.06.2019 of the High Court
of Kerala at Ernakulam in Writ Appeal No. 1375 and 1376 of 2019, Writ
Appeal No. 1359 of 2019 and Writ Appeal No. 1374 of 2019
P. N. Ravindran, Sr. Adv., Ms. Suman Yadav, Rajiv A. George,
Ms. B. Vijayalakshmi Menon, Advs. for the Appellant.
Vikramjit Banerjee, ASG, R. Balasubramanian, Ms. Meenakshi
Arora, Sr. Advs., Rajan Kr. Chaurasia, Akshay Amritanshu, Baibhav
Chadha, A. K. Sharma, Yugandhara Pawar Jha, Pragyan Pradip Sharma,
Atul Jha, Chandan Goswami, Ms. Rashmi Singh, Deepu Thankan, Joseph
Kodyantra and Ms. Raji Joseph, Advs. for the Respondents.
The following  Order of the Court was passed :
O R D E R
1. Keeping in view the urgency of the matter, after detailed hearing
the Special Leave Petitions were dismissed and we had directed that a
reasoned order would follow.  Hence the present order.
2. Respondent Nos. 1 and 2 issued notice inviting tenders for two
works at Kochi.  The estimated cost of the works were Rs. 53 crores
and Rs. 72 crores respectively.  The petitioner “The Silppi Constructions
Contractors”, (hereinafter referred to as the firm) uploaded its competitive
bid on the site and complied with all the conditions.  The technical bids of
the petitioner were rejected by the tendering authorities on 28.03.2019.
The petitioner filed appeals before the
appellate authority on 28.03.2019
itself which were rejected on 09.04.2019.
3. Thereafter, the petitioner filed a writ petition in the High Court
of Kerala and the main ground raised was that no reasons were given
either while rejecting its tender or the appeals.  In the counter filed to the
writ petition the stand taken by the respondents was that the petitioner’s
tenders were rejected since the petitioner did not satisfy the eligibility
criteria for submission of the bid.  It was also specifically urged that a
sister concern of the petitioner’s firm namely “M/s Silppi Realtors and
Contractors Pvt. Ltd.”, (hereinafter referred to as the sister company),
had not renewed its enlistment and had adverse remarks against it in
respect of workload return of ‘SS’ Class Contractors for the quarter
ending September, 2017.  It was urged that since the adverse remarks
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had been given to the sister company the petitioner firm could not be
awarded the contract.
4. The learned single judge allowed the appeal holding that the
order passed by the appellate authority was not a speaking order and,
therefore, not legally sustainable.  The learned single judge also observed
that the adverse remarks made against the sister company could not be
used against the petitioner. The learned single judge went on to hold that
the remarks against the sister company were not justified.  The writ
petition was accordingly allowed and the respondents 1 and 2 were
directed to consider the financial bid of the petitioner.
5. Respondent nos. 1 and 2 and some of the tenderers who were
not parties before the learned single judge filed writ appeals.  These writ
appeals were allowed by the division bench holding firstly, that the scope
of interference in contractual matters is very limited; secondly, that the
learned single judge ought not to have interfered with the decision of the
administrative authorities with regard to the sister company since it was
not shown that the said decision was mala fide; thirdly, since the sister
company had not challenged the adverse remark the learned single judge
could not have set aside the same in the writ petition filed by the petitioner-
firm; and lastly, the direction of the learned single judge to direct the
tendering authorities to consider the financial bid of the petitioner virtually
meant that the
technical bid of the petitioner was accepted.
6. Aggrieved, the original writ petitioner is before us in these
petitions.  This Court in a catena of judgments has laid down the principles
with regard to judicial review in contractual matters.  It is settled law
that the writ courts should not easily interfere in commercial activities
just because public sector undertakings or government agencies are
involved.
7. In Tata Cellular  vs. Union of India1, it was held that judicial
review of government contracts was permissible in order to prevent
arbitrariness or favouritism.  The principles enunciated in this case are :-
“94. …….
(1) The modern trend points to judicial restraint in administrative
action.
1(1994) 6 SCC 651
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(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.”
8. In Raunaq International Ltd.  vs.   I.V.R. Construction Ltd.2,
this Court held that superior courts should not interfere in matters of
tenders
unless substantial public interest was involved or the transaction
was mala fide.
9. In Air India Limited   vs.  Cochin International Airport
Ltd.3, this Court once again stressed the need for overwhelming public
interest to justify judicial intervention in contracts involving the State and
its instrumentalities.  It was held that Courts must proceed with great
caution while exercising their discretionary powers and should exercise
these powers only in furtherance of public interest and not merely on
making out a legal point.
2(1999) 1 SCC 492
3(2000) 2 SCC 617
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10. In Karnataka SIIDC Ltd.  vs.  Cavalet India Ltd.4 it was
held that while effective steps must be taken to realise the maximum
amount, the High Court exercising its power under Article 226 of the
Constitution is not competent to decide the correctness of the sale
affected by the Corporation.
11. In Master Marine Services (P) Ltd. vs. Metcalfe &
Hodgkinson (P) Ltd.5 it was held that while exercising power of judicial
review in respect of contracts, the Court should concern itself primarily
with the question, whether there has been any infirmity in the decision-
making process. By way of judicial review, Court cannot examine details
of terms of contract which have been entered into by public bodies or
State.
12. In B.S.N. Joshi & Sons Ltd. vs. Nair Coal Services Ltd.6 it
was held that it is not always necessary that a contract be awarded to
the lowest tenderer and it must be kept in mind that the employer is the
best judge therefor; the same ordinarily being within its domain. Therefore,
the court’s interference in such matters should be minimal. The High
Court’s jurisdiction in such matters being limited, the Court should normally
exercise judicial restraint unless illegality or arbitrariness on the part of
the employer is apparent on the face of the record.
13. In Jagdish Mandal   vs.  State of Orissa7it was held:
“22.   Judicial review of administrative action is intended to prevent
arbitrariness, irrationality, unreasonableness, bias and mala fides.
Its purpose is to check whether choice or decision is made
“lawfully” and not to check whether choice or decision is “sound”.
When the power of judicial review is invoked in matters relating
to tenders or award of contracts, certain special features should
be borne in mind. A contract is a commercial transaction.
Evaluating tenders and awarding contracts are essentially
commercial functions. Principles of equity and natural justice stay
at a distance. If the decision relating to award of contract is bona
fide and is in public interest, courts will not, in exercise of power
of judicial review, interfere even if a procedural aberration or error
4 (2005) 4 SCC 456
5 (2005) 6 SCC 138
6 (2006) 11 SCC 548
7 (2007) 14 SCC 517
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in assessment or prejudice to a tenderer, is made out. The power
of judicial review will not be permitted to be invoked to protect
private interest at the cost of public interest, or to decide contractual
disputes. The tenderer or contractor with a grievance can always
seek damages in a civil court. Attempts by unsuccessful tenderers
with imaginary grievances, wounded pride and business rivalry, to
make mountains out of molehills of some technical/procedural
violation or some prejudice to self, and persuade courts to interfere
by exercising power of judicial review, should be resisted. Such
interferences, either interim or final, may hold up public works for
years, or delay relief and succour to thousands and millions and
may increase the project cost manifold……..”
14.  In Michigan Rubber (India) Ltd.  vs.  State of Karnataka
& Ors.8  it was held that if State or its instrumentalities acted reasonably,
fairly and in public interest in awarding contract, interference by Court
would be very restrictive since no person could claim fundamental right
to carry on business with the Government. Therefore, the Courts would
not normally interfere in policy decisions and in matters challenging award
of contract by State or public authorities.
15. In Afcons Infrastructure Ltd.  vs.  Nagpur Metro Rail
Corporation Ltd.9it was held that a mere disagreement with the decision-
making process or the decision of the administrative
authority is no reason
for a constitutional Court to interfere. The threshold of mala fides,
intention to favour someone or arbitrariness, irrationality or perversity
must be met before the constitutional Court interferes with the decision-
making process or the decision. The owner or the employer of a project,
having authored the tender documents, is the best person to understand
and appreciate its requirements and interpret its documents. It is possible
that the owner or employer of a project may give an interpretation to the
tender documents that is not acceptable to the constitutional Courts but
that by itself is not a reason for interfering with the interpretation given.
16. InMontecarlovs.  NTPC Ltd.10 it was held that where a
decision is taken that is manifestly in consonance with the language of
the tender document or sub-serves the purpose for which the tender is
8(2012) 8 SCC 216
9(2016) 16 SCC 818; 2016 KHC 6606
10AIR 2016 SC 4946
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floated, the court should follow the principle of restraint. Technical
evaluation or comparison by the court would be impermissible. The
principle that is applied to scan and understand an ordinary instrument
relatable to contract in other spheres has to be treated differently than
interpreting and appreciating tender documents relating to technical works
and projects requiring special skills. The owner should be allowed to
carry out the purpose and there has to be allowance of free play in the
joints.
17.  In Municipal Corporation, Ujjain and Anothervs.  BVG
India Ltd. and Others11it was held that the authority concerned is in
the best position to find out the best person or the best quotation depending
on the work to be entrusted under the contract. The Court cannot compel
the authority to choose such undeserving person/company to carry out
the work. Poor quality of work or goods can lead to tremendous public
hardship and substantial financial outlay either in correcting mistakes or
in rectifying defects or even at times in re-doing the entire work.
18. Most recently this Court in Caretel Infotech Limited vs.
Hindustan Petroleum Corporation Limited and Others12 observed
that a writ petition under Article 226 of the Constitution of India was
maintainable only in view of government and public sector enterprises
venturing into economic activities.  This Court observed that there are
various checks and balances to ensure fairness in procedure.  It was
observed that the window has been opened too wide as every small or
big tender is challenged as a matter of routine which results in government
and public sectors suffering when unnecessary, close scrutiny of minute
details is done.
19. This Court being the guardian of fundamental rights is duty
bound to interfere when there is arbitrariness, irrationality, mala fides
and bias.  However, this Court in all the aforesaid decisions has cautioned
time and again that courts should exercise a lot of restraint while exercising
their powers of judicial review in contractual or commercial matters.
This Court is normally loathe to interfere in contractual matters unless a
clear-cut case of arbitrariness or mala fides or bias or irrationality is
made out.  One must remember that today many public sector
undertakings compete with the private industry.  The contracts entered
into between private parties are not subject to scrutiny under writ
11(2018) 5 SCC 462
122019 (6) SCALE 70
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jurisdiction.  No doubt, the bodies which are State within the meaning of
Article 12 of the Constitution are bound to act fairly and are amenable to
the writ jurisdiction of superior courts but this discretionary power must
be exercised with a great deal of restraint and caution.  The Courts must
realise their limitations and the havoc which needless interference in
commercial matters can cause.  In contracts involving technical issues
the courts should be even more reluctant because most of us in judges’
robes do not have the necessary expertise to adjudicate upon technical
issues beyond our domain.  As laid down in the judgments cited above
the courts should not use a magnifying glass while scanning the tenders
and make every small mistake appear like a big blunder.  In fact, the
courts must give “fair play in the joints” to the government and public
sector undertakings in matters of contract.  Courts must also not interfere
where such interference will cause unnecessary loss to the public
exchequer.
20. The essence of the law laid down in the judgments referred to
above is the exercise of restraint and caution; the need for overwhelming
public interest to justify judicial intervention in matters of contract involving
the state instrumentalities; the courts should give way to the opinion of
the experts unless the decision is totally arbitrary or unreasonable;  the
court does not sit like a court of appeal over the
appropriate authority;
the court must realise that the authority floating the tender is the best
judge of its requirements and, therefore, the court’s interference should
be minimal.  The authority which floats the contract or tender, and has
authored the tender documents is the best judge as to how the documents
have to be interpreted.  If two interpretations are possible then the
interpretation of the author must be accepted. The courts will only
interfere to prevent arbitrariness, irrationality, bias, mala fides or
perversity.  With this approach in mind we shall deal with the present
case.
21. It has been urged by the learned counsel for the petitioner that
the Division Bench of the High Court erred in holding that the writ petition
was not maintainable without making all the tenderers parties to the
petition.  At the outset, we may state that the Division bench of the High
Court has held that in all cases challenging the decision of the tendering
authority, all the eligible tenderers should be made parties.  We do not
think such a broad proposition could be laid down as an inflexible rule of
law.  Supposing the tender documents are not sold/delivered to a party
wanting to submit a tender, in such a case the other tenderers would not
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be necessary parties.  In the present case the petitioner was only
challenging the rejection of its technical bid.  At this stage the other
tenderers were not necessary parties.  The position may be otherwise if
a tenderer challenges a bid awarded to another or challenges the rejection
of his bid at a later stage.  In our view the writ petition was maintainable
even in the absence of other tenderers because till that stage there was
no successful tenderer. Who are the necessary parties will depend upon
the facts of each case.
22. It was next urged that the Division Bench erred in holding that
the adverse remarks recorded against the sister company could not be
gone into in the absence of any challenge by the sister company.  We
accept this contention.  In our considered view if the tendering authority
is using any adverse material of the sister company against the petitioner
firm then the petitioner firm would be entitled to urge that the adverse
remarks are not called for or that the adverse remarks are not justified
or that the adverse remarks cannot be taken into consideration while
considering the tender of the petitioner firm.
23. We then come to the moot question as to whether the petitioner
firm and the sister company are “Related Firms”, within the meaning of
Clause 1.19 of the Manual of Contracts, 2007.  The said Clause reads
as follows :-
1.19 Related firms
(a) In the trade of works contracts, “business relationship” is the
most important
factor.  This is corroborated with the provision
to be made in the notice of tender as such a Contractor or
Corporation, wishing to be registered as an approved Contractor,
should give particulars of all MES registered Contractors with
whom he/it has business relationship, irrespective of the fact
whether there is blood/close relationship or not.  These would
include all sister concerns of the Contractor or Corporation
also.
(b) In case of Contractors having blood/close relation with each
other but not any business relation whatsoever, particulars of
such related contractors need not be given under serial no.7 of
the enlistment form. In such cases, it would not be correct to
deny issue of tenders to these contractors if they otherwise
fulfil all requirement in selection for issue of tenders.  However,
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while deciding a tender in favour of one party, it shall be ensured
that fair competition has taken place.
(c) A Contractor/Corporation is termed to have “business
relationship” with other Contractor(s)/ Corporation(s) when one
or more partner(s)/directors (s) are common.
24. It is not disputed before us that all the partners of the petitioner
firm are the directors of the sister company and, therefore, there can be
no manner of doubt that the petitioner firm and the sister company are
related firms having a business relationship.  Therefore, adverse remarks
made against the sister concern can be used against the petitioner firm.
To be fair to the learned counsel for the petitioner this point was not
seriously contested before us.
25. That brings us to the most contentious issue as to whether the
learned single judge of the High Court was right in holding that the
appellate orders were bad since they were without reasons.  We must
remember that we are dealing with purely administrative decisions.  These
are in the realm of contract. While rejecting the tender the person or
authority inviting the tenders is not required to give reasons even if it be
a state within the meaning of Article 12 of the Constitution.  These
decisions are neither judicial nor quasi-judicial.  If reasons are to be
given at every stage, then the commercial activities of the State would
come to a grinding halt.  The State must be given
sufficient leeway in
this regard.  The Respondent nos. 1 and 2 were entitled to give reasons
in the counter to the writ petition which they have done.
26. Two reasons were given by the Department.  One was that
the sister company had been given a contract for some construction in
Chennai zone and there was a huge delay in the execution of the project.
According to the petitioners, extension had been granted to them from
time to time by the authorities and the grant of extension itself indicates
that there were reasonable grounds for extension of the project and,
therefore, this ground could not have been taken to reject the technical
bid.
27. The second reason was that in another contract awarded to
the sister company, the sister company had failed to perform its part of
the contract leading to cancellation thereof.  The stand of the petitioner
was that the dispute between the parties was referred to arbitration and
the arbitrator passed an award in favour of the sister company.  Hence,
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there was a finding in favour of the petitioner.  According to the
respondents, the award was under challenge before the Court.
28. As far as the second objection is concerned, we agree with
the petitioner that once an award has been passed in favour of the
petitioner that issue could not be used against the petitioner.  The Award
being a binding adjudication would hold the field unless set aside.
29. However, as far as the first objection is concerned, merely
because extension of time has been granted, it does not in any manner
mean that the Department has come to the conclusion that the contractor
is not at fault.  Sometimes extension is granted because a lot of money
has already been invested and cancellation of contract and appointment
of new contractors would lead to unnecessary litigation and increase in
costs.  We may also point out that though we have held that the petitioner
firm can challenge the correctness of the material used against the sister
concern, we cannot lose sight of the fact that in the present case the
sister company has not got its enlistment renewed.  Some of the adverse
remarks were conveyed to the sister company much prior to the issuance
of notice inviting tenders in the present case.  The sister company not
only did not get its enlistment renewed but also did not care to even
represent against the adverse remarks.  It has been pointed out to us
that as per the Manual on Contracts, 2007 if any adverse remarks are
conveyed to
the enlisted contractor the said contractor has a right to
represent against the same.  If no representation is made it is obvious
that the contractor has accepted the adverse remarks.  In this case the
adverse remarks were accepted by the sister company.  At the least,
there was acquiescence if not acceptance.  Therefore, this was a factor
which could be taken into consideration by the respondents.
30. The eligibility criteria provided in the tender lays down that
there should be no adverse remarks in the WLR of the competent
engineering authority.  Admittedly, there are adverse remarks in Work
Load Return (WLR) of the sister company.  It is obvious that the sister
company having realised that it would not be awarded any contract neither
got its enlistment renewed nor tried to submit the tender.  The directors
of the sister company tried to get over these insurmountable objections
by applying for the tender in the name of the petitioner firm.  Not only
are the names similar but as pointed above, all the directors of the sister
company are partners in the petitioner firm.  Therefore, these adverse
remarks passed against the sister company could not be ignored.
SILPPI CONSTRUCTIONS CONTRACTORS  v.
UNION OF INDIA AND ANR.
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SUPREME COURT REPORTS
[2019] 10  S.C.R.
31. Another important aspect of the matter is that as per the
eligibility criteria for MES enlisted contractors only contractors falling in
“SS Class” were eligible to apply.  Admittedly, the petitioner firm was
not an enlisted contractor and was therefore required to meet the eligibility
criteria for other contractors.  Relevant portion of the notice inviting
tender reads as follows :-
8.
Eligibility Criteria

(A)
For 
MES 
enlisted 
contractor

They should satisfy the following 
criteria :-

(a)   ……….. 
(b)   ……….. 
(c)    They should have enlistment in 
class “SS” Category a(i) 
(d)  They should not carry adverse 
remarks 
in 
WLR 
of 
competent 
engineer authority.

(B) 
For other contractors

The firm is not enlisted with MES 
shall meet the following criteria :-
(a) 
…………. 
(b) 
…………. 
(c) They should meet the enlistment 
criteria 
of 
Class 
“SS” 
MES 
Contractors and Category a(i), i.e. 
having 
satisfactorily 
completed 
requisite 
value 
works, 
annual 
turnover, solvency, working capital, 
immovable 
property/fixed 
assets, 
T&P, Engineering establishment, no 
recovery 
outstanding 
in 
govt. 
department, 
police 
verification/passport etc.  Enlistment 
criteria may be seen in para 1.4 of 
section 1 of part I of MES Manual on 
Conttracts-2007 (Reprint-2102) as 
available in all MES formation.  
These firms shall also submit copy of 
police 
verification 
from 
police 
authority of the area where the 
registered office of the firm is 
located/notarized 
copy 
of 
valid 
passport 
of 
proprietor/each 
partner/each director.

(d) They should not carry any adverse 
remarks in WLR/or any other similar 
report of any authority.
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A bare reading of the eligibility criteria would clearly show that as
far as MES enlisted contractors are concerned, they should be enlisted
in “SS” Category a(i) and secondly, they should not carry adverse
remarks in WLR of competent engineer authority.  As far as other
contractors are concerned, they are required to meet the same criteria
as “SS” MES contractors category a(i) and these contractors was
specifically told that they could see enlistment criteria in the MES Manual
Contracts.
32. The Manual also provides criteria for enlisting of contractors.
We are only concerned with Class “SS”.  The relevant portion reads as
follows :-
“………………..        ….……………..               ….……………...
1. For enlistment in class ‘SS’, the company incorporated under
the ‘Companies Act 1956’ shall only be eligible.
…….…………        ………….………              ………..………..”
Therefore, only companies incorporated under the Companies Act,
1956, are eligible to be enlisted as ‘SS’ Class Contractors.  It is urged on
behalf of the petitioner that in various other places dealing with the
documents required to be submitted for enlistment in MES, the terms
proprietors, partners, directors have been used, meaning that even firms
can be enlisted as ‘SS’ Class contractors.  We do not agree with this
contention.  The note quoted above clearly indicates that only
incorporated companies can be enlisted as ‘SS’ Class contractors.
Furthermore, Clause 1.5 deals with the documents to be submitted by
the contractor for enlistment in MES.  The relevant portion reads as
follows :-
“(a) …………….     ……………….                ………………….
(b) Affidavit for constitution of firm (only limited companies shall
be enlisted in ‘SS’ Class).
……………….…      ………………                  ..……………….”
This again shows that only limited companies can be enlisted in
‘SS’ Class.  The Manual deals with enlistment of contractors in various
classes.  ‘SS’ is the highest class and for that only incorporated companies
can apply.  Therefore, in our opinion the petitioner was not eligible to
submit the tender.
SILPPI CONSTRUCTIONS CONTRACTORS  v.
UNION OF INDIA AND ANR.

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SUPREME COURT REPORTS
[2019] 10  S.C.R.
33. It was faintly contended that the requirement of being a
company would be only for MES enlisted contractors and not for other
contractors.  The answer to this lies in the eligibility criteria for other
contractors referred to above wherein it has been clearly mentioned
that they should meet the enlistment criteria of Class ‘SS’ MES
Contractors.  Even otherwise it would be a travesty of justice if enlisted
contractors should only be limited companies and unlisted unknown
contractors, could be a firm, individual etc.  This   is   not   the purpose of
the criteria.
34.  In view of the above discussion, we find no merit in the
petitions which stand dismissed vide order dated 21.06.2019.
Application(s), if any, shall also stand dismissed.
Devika Gujral
                  SLPs dismissed.