Prescribing Pre-Qualification Criteria By Authority In Tender Document Cannot Be Considered Arbitrary If Conditions Are Reasonable: Calcutta HC

Brief Facts:

The writ petitioner is a partnership firm and has set up a unit in BHARUCH, Gujrat for converting High density Ammonium Nitrate melt to High density Ammonium solid .

The Petitioner feeling aggrieved by the formulation of the tender conditions and alleging arbitrariness in awarding the contract filed a writ petition seeking the recall or setting aside of the tender and any related letter of intent/award. After hearing the parties, the Writ Court dismissed the petition and observed that the perception of the employer or Tender Issuing Authority is paramount in determining the criteria bidders must meet for a specific project or procurement.

The present appeal has been filed against the above order.

Contentions:

The Appellant submitted that none of the six existing suppliers participated in the tender. Indian Oil Corporation Limited (IOCL) rejected the offer of the Appellant as they did not meet Pre Qualification Criteria (PQC) requirements in the NIP which led to the cancellation of the tender.

It was also argued that apart from Respondents No. 2 to 7, no other manufacturer could meet the PQC requirements specified in the Notice Inviting Tender (NIT). IOCL's approach to High Density Ammonium Nitrate Melt (HDANM) procurement is monopolistic, as over 80 percent of the HDANM produced by GNFC is exclusively manufactured by IOCL making it nearly impossible for new manufacturers to meet the prescribed criteria.

It was further submitted that the Pre qualification Criteria for the service period 2020 2022 in the Notice Inviting Tender required new tenderer to have supplied a minimum of 900 MT of High Density Ammonium Nitrate in the last five years. However no such experience criteria were applied to existing convertors, thereby favouring them.

The Supreme Court in Meerut Development Authority v. Association of Management studies & Anr, (2009), held that the judicial review of the terms of the tender would be permissible when the terms of the NIT would be so tailor made to suit the convenience of any particular person with a view to eliminate all others from participating in the bidding process.

It was argued that the Department of Expenditure clarified that CPSUs may relax prior turnover and experience conditions for MSEs in public procurement except as per para 3 of the OM dated September 20 2016. However, the Respondents have failed to comply.

Per contra, the Respondent No. 1 submitted that the Appellant was incorporated in 2014 and lost its startup status in May 2024 after the completion of 10 years. Thereafter, it obtained a Petroleum and Exclusive Safety Organization (PESO) license on April 8 2022 therefore the Appellant is no longer a startup rendering the appeal a fait accompli.

The Supreme Court in Afcons Infrastructure Limited vs. Nagpur Metro Rail corporation limited &another (2016) held that a constitutional court will not interfere merely due to disagreement with an administrative decision or its process. The interference of the court is justified only when mala fides, favoritism, arbitrariness, irrationality or perversity is established.

Observations:

The court noted that Rule 173(i) General Financial Rules, 2017 uses the word may granting the tendering authority discretion to relax turnover/expense criteria for startups. The Appellant cannot claim such relaxation as mandatory. Given that the tendered product is an explosive substance, IOCL had the authority to impose conditions ensuring public safety. Moreover, the Ministry of Finance's OM date September 20 2016 excludes sensitive departments from the relaxed norms.

The Supreme Court in Afcons Infrastructure Limited (supra) held that a constitutional court will not interfere merely due to disagreement with an administrative decision or its process. The interference of the court is justified only when mala fides, favoritism, arbitrariness, irrationality or perversity is established.

Based on the above, the court observed that the appellant has never made out a case that they submitted a proposal for supply of HDNS in terms of the Tender document and that was not considered. They participated in the Tender as a bidder claiming themselves as a Start up when their privilege as start up expired in May 2024 after a period of 10 yrs from the date of its incorporation and hence their start up recognition fails.

It further added that in terms of the specific terms as envisaged in the tender document the participants must meet the PQC and in case of non- availability the tender was rightly cancelled. The Appellant as start up failed to meet the required criteria in the said tender process

The court further observed that the classification between startups and established industries in the tender process is neither arbitrary nor unjustified. The Supreme Court in State of West Bengal vs. Anwar Ali Sarkar (1952) held that similarly situated entities must be treated alike in privileges and liabilities. Since startups are classified separately in the tender document, the approach of the IOCL was found to be justified.

Similarly, the Supreme Court in Shri Ram Krishna Dalmia versus Shri Justice S.R. Tendolkar and others (1958) held that a statute will not be struck down merely because it lacks explicit classfication or grants discretion to the government in selection or classification. The court will examine whether the statute provides a guiding principle or policy for exercising such discretion. If no such principle or policy is found, the statute may be struck down.

The court concluded that given the hazardous nature of the product, the Authority exercised its discretion with valid reasoning making PQC compliance mandatory for all participants including startups or non-startups. The Appellant sought relaxation of norms as a startup which was not granted. The tender inviting authority had to impose such conditions therefore no error was found in its decision.

Case Title: BLACK DIAMOND RESOURCES AND ANR. VS INDIAN OIL CORPORATION LIMITED AND ORS.

Case Number: MAT/2470/2023

Judgment Date: 21/03/2025

Advocate for Appellant: Mr. Abhratosh Majumdar, Sr Adv., Mr Chayan Gupta, Mr. Rajesh Upadhyay, Mr Shoham Sanyal and Ms. Surabita Biswas, Advocates

Advocate for Indian Oil Corporation (Respondent): Mr. Sabyasachi Chowdhury, Sr Adv., Ms. Urmila Chakraborty, Mr. Amit Meharia, Ms. Paramita Banerjee, Ms. Subika Paul and Mr. Tamoghna Chattopadhyay Advocates (MCO Legals – Meharia & Company).

Advocate for Respondent No 3 & 7 – Mr. Avishek Guha, Advocate and Ms. Shilpa Das, Advocate

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