Courts Should Exercise Restraint While Exercising Judicial Review In Contracts Involving Complex Technical Issues: Supreme Court

The Supreme Court recently reiterated that courts should exercise restraint while exercising the power of judicial review in contracts involving complex technical issues.

"..in contracts involving complex technical issues, the Court should exercise restraint in exercising the power of judicial review. Even if a party to the contract is ‘State’ within the meaning of Article 12 of the Constitution, and as such, is amenable to the writ jurisdiction of the High Court or the Supreme Court, the Court should not readily interfere in commercial or contractual matters,” a bench of Chief Justice DY Chandrachud, Justice J B Pardiwala and Justice Manoj Misra observed.

In the matter at hand, Bharat Heavy Electricals Limited (BHEL) had been awarded a contract for setting up a 5x800 MW Yadadri Thermal Power Station. BHEL invited bids to subcontract a part of the work. Subsequently, the appellant(BTL EPC Ltd) was issued a letter of intent based on its bid.

The case of the 1st Respondent(Macawber Beekay Pvt Ltd, a rival bidder) was that the Appellant had entered into a consortium agreement with a Chinese company to fulfil the eligibility conditions under the tender. On 23 July 2020, the Finance Ministry issued an order imposing a restriction that a prospective bidder from a country that shares a land border with India, would be eligible to bid only if such bidder is registered with the Competent Authority. The 1st Respondent approached the Karnataka High Court contending that the award of contract to the Appellant was in breach of the 2020 order the Finance Ministry. Their contention was that the Chinese company in question was not registered with the competent authority and hence the Appellant failed to meet the requirements for award of tender.

The Apex Court was then left to consider the appeal against the division bench of the Karnataka High Court that had quashed the letter of intent issued by BHEL in favour of the Appellant. The High Court had directed BHEL to consider the bid of 1st Respondent in terms of the notice inviting the tender.

The Appellant argued before the Apex Court that the bid was made by the Appellant as a standalone entity and not in a consortium with the Chinese entity. It was contended that it was not a joint bid and hence the registration requirement did not apply. It was further argued the Appellant’s bid was approved after due consideration and satisfaction of BHEL, the tendering authority. It was also pointed out by the Appellant that in a subsequent order in 2021, the Union Government diluted the rigours of its earlier July 2020 order.

In view of the submissions of the Appellant, the Apex Court held that the tendering authority was best suited to interpret the tender terms and that the High Court should not have interfered with the same:

“The Court ought to defer to the discretion of the tender inviting authority which, by reason of having authored the tender documents, is best placed to interpret their terms. The Courts ought not to sit as courts of appeal but review the decision-making process and examine arbitrariness or mala fides, if any.”

The Apex Court accordingly set aside the order of the Division Bench and restored the order of the Single Bench of the High Court.

“Even in a writ appeal, it is well settled that the Division Bench would ordinarily not interfere with the judgment of a Single Judge unless it suffers from perversity or error,” the Supreme Court opined in this context.

Case Title: BTL EPC Lt V. Macawber Beekay Pvt Ltd, Civil Appeal No 5968 of 2023

Citation : 2023 LiveLaw (SC) 834

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