Courts Can't Interfere In Contractual Matters Unless A Clear-Cut Case Of Arbitrariness Is Made Out: Gujarat High Court
The Gujarat High Court has recently observed that normally, Courts would be loath to interfere in contractual matters unless a clear-cut case of arbitrariness or malafides or bias or irrationality is made out. A bench of Chief Justice Aravind Kumar and Justice Ashutosh Shastri observed that needless interference in commercial matters can cause havoc and hence, the Courts must realize...
The Gujarat High Court has recently observed that normally, Courts would be loath to interfere in contractual matters unless a clear-cut case of arbitrariness or malafides or bias or irrationality is made out.
A bench of Chief Justice Aravind Kumar and Justice Ashutosh Shastri observed that needless interference in commercial matters can cause havoc and hence, the Courts must realize their limitations in such matters.
"But, at the same time, it is also the proposition of law that Constitutional Court being the guardian of the fundamental rights, is duty bound to interfere when there is arbitrariness, irrationality, malafides and bias and as such, a duty is cast upon the Court in such circumstances that whenever any specific arbitrariness or irrationality is visible in public interest, Court can exercise powers of judicial review," it added.
This significant observation was made in a petition under Article 226, seeking to quash a communication dated 23.03.22 which declared the action of the Respondent holding the Petitioner's bid to be invalid.
The Petitioners sought that the Court declare the Petitioner's bid to be valid, responsive and entitled for consideration in respect of the pertinent tender and also prohibit the Respondent from issuing any Letters of Acceptance to any other bidders for the same tender.
The Petitioner herein, a registered vendor to public organisations for the past several years, had bid for the tender floated by the Respondent for procuring aluminium wound, amorphous core distribution transformers with BIS marking and certification. The total quantity of the transformers required was changed and the last date for submission of online bid was extended. However, the Petitioner claimed that it was not informed about the new date for opening the technical and price bids by the authority.
Subsequently, there was a similar tender floated by the Respondent for procuring copper wound but through a corrigendum, the quantity required and the deadline for submission of bids were revised. Yet again, per the Petitioner claimed that the revised dates were not informed to the Petitioner. Even though the Petitioner qualified the preliminary round of scrutiny, its bid was rejected since the Petitioner had lapsed in uploading a few documents and it had not communicated the names of new Directors.
This communication declaring the Petitioner's bid as invalid was challenged by the Petitioner by mentioning that the change of directors was already informed to the Respondent earlier. It was the Petitioner's allegation that the Respondents had created a 'new theory' of lack of documents to reject the Petitioner's bid. It was also submitted that the Petitioner was undertaking the work of supplying transformers to the Respondent arising from the Letter of Acceptance and the Respondent was aware of the authority of the directors. Therefore, the impugned communication was 'arbitrary, illegal and perverse.'
The Respondent opposed the petition stating that in contractual matters, the extraordinary jurisdiction of the High Court cannot be exercised which was a settled proposition of law. Further, the Petitioner was aware of the terms and conditions of the tender and about the disqualification clause, as well. Therefore, it cannot raise the grievance about the non-assigning of a detailed reason for disqualification. The change of directors 'substantially altered the control of the firm' which, per the Respondent, should have been brought to their notice.
The Bench noted that the Petitioner had clearly communicated to the Respondent authority on 19.09.2021 about the change of directors but the only issue was that the Petitioners had not informed of the change telephonically. Further, the Respondent had been in business with the Petitioner with regard to another agreement and yet under the guise of lack of information about the directors, rejected the instant bid of the Petitioner. The High Court also rejected the averment that there was a material change of ownership because of the change in directors in the Petitioner firm.
While accepting the position that Constitutional courts cannot be expected to interpret or modify the terms of the tender but on the basis of material, the High Court cautioned that if the decision-making process is found to be 'somewhat unfair', reflects 'clear arbitrariness and unreasonableness', the Court cannot shut its eyes to such processes particularly, where the work relates to public importance.
Opining that the decision-making process was not 'germane to law', the High Court placed reliance on Silppi Constructions Contractors Vs. Union of India and Another to conclude that Courts must give fair play in the joint sector undertakings of the Government in matters of contract. However, the Courts must not interfere where such interference will cause unnecessary loss to public exchequer.
Similarly, the High Court emphasised the 'enlarged role' of the Government in economic activity and how the PIL jurisdiction can be invoked is there is arbitrariness, violation of fair play or whimsicalness in the tender contracts (Uflex Limited Vs. Government of Tamil Nadu and others).
Owing to these precedents and reasons, the High Court allowed the petition and directed that the Respondents consider the Petitioner's bid with gravity and take an appropriate decision at the earliest. The High Court cautioned that no opinion with regard to merits was passed and that the Respondent is at liberty to take decision on merits as per the tender terms and conditions.
Case Title: SUMESH ENGINEERS PRIVATE LIMITED v/s MADHYA GUJARAT VIJ COMPANY LIMITED
Case Citation: 2022 LiveLaw (Guj) 184