LPG Cylinders Tender: Delhi High Court Upholds Restriction On Manufacturers Having Common Business Ownership To Quote Single Bid

The Delhi High Court has upheld a restriction on LPG gas cylinder manufacturers, having common business ownership including sister companies, to quote only a single bid while applying in the tender floated by Hindustan Petroleum, Bharat Petroleum and Indian Oil Corporation Limited.

A division bench of Chief Justice Satish Chandra Sharma and Justice Sanjeev Narula dismissed the petitions moved by various vendors who were effectively barred from submitting bids separately through each of their manufacturing units.

“With supply overshadowing demand and the potential for an even greater imbalance in the future due to the long lifespan of LPG cylinders, it is crucial to manage the procurement process carefully. In such a situation, if multiple units under the same ownership or management were allowed to bid separately, it could disproportionately benefit them, thereby defeating the principles of fair competition and equitable distribution. The impugned clause, in essence, safeguards the interests of the market as a whole, rather than a select few entities,” the court said.

It added that the impugned clause is aimed at “levelling the playing field” and does not bar any entity from participating. The court said that instead, the clause limits the number of bids that such manufacturers can submit.

“These restrictions seek to prevent a single entity or entities with common ownership or management from unduly benefiting by submitting multiple bids and thus, monopolizing the market,” the court said.

Furthermore, the bench also observed that the scope of judicial intervention in decisions related to economic policies is limited and that court do not act as appellate authorities over administrative decisions. The court observed that judicial intervention can happen only in cases when conditions are manifestly whimsical, capricious, or specifically tailored to benefit a certain entity.

“The approach chosen by the OMCs here is the product of their nuanced understanding of market conditions, informed by historical data and considerations of future challenges. It is not within the purview of this Court to substitute its judgment for that of the OMCs unless their decision is found to be arbitrary or capricious. The intricacies of framing tender conditions - especially in a specialized market like that of LPG cylinders - are best left to those with subject-matter expertise,” the court said.

It added that the oil marketing companies, who are the architects of the tender, are well-positioned to understand the nuances and implications of potential market monopolization and flooding of bids.

“Therefore, unless proven otherwise, it is for OMCs companies to establish the conditions under which the tendering process operates, ensuring that it remains competitive, efficient, and resilient against potential market cornering by a limited set of major players,” the court said.

It added, “Given that there is no evidence to suggest that the clause is arbitrary, discriminatory, or introduced with malafide intent, there is no compelling reason for judicial interference in this matter. In essence, the principle reaffirmed here is that courts should exhibit restraint and deference to administrative discretion in matters pertaining to tenders and policy decisions unless there is an apparent breach of established legal norms or principles.”

Case Title: SILICA UDYOG INDIA PVT LTD v. UNION OF INDIA & ORS. and other connected matters

Citation: 2023 LiveLaw (Del) 826

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