Judicial Intervention Must Be Exercised Cautiously In Contractual Sphere, Specifically In Govt Contracts: Andhra Pradesh High Court

Justice U. Durga Prasad Rao while dismissing a petition seeking to declare a tender notification illegal citing arbitrary and unreasonable eligibility conditions, observed that judicial intervention in state instrumentalities must be limited, arising only when there are doubts about the procedure being arbitrary and against public interest.

Facts

An e-procurement tender notification was issued in January 2021 for the supply of school bags for the year 2021-2022 under Jagananna Vidya Kanuka Scheme. This notification was floated in consonance with Central Government's Samagra Shiksha Scheme and procurement of school's bags under this scheme is governed by the manual of Financial Management and Procurement and the grants under the scheme are to be governed by various mandatory provisions of GFR.

Petitioner's case was that the first tender notification had an eligibility criteria condition that the annual turnover of the firm for the previous three years immediately preceding the tender notification should be more than INR 30 Crores and the firm should also furnish the latest solvency certificate (adding the condition "for a minimum value of 50% of the ECV" two days prior to bid closing date).

Petitioner attended the pre-bid meeting and raised an issue that the eligibility criteria of furnishing of solvency certificate of such a high value, two days prior to bid closing was unreasonable and then emailed the same objection on 10^th March 2021 but without considering Petitioner's objections, another tender was floated and the criteria were made even more onerous by changing the turnover requirement from 30 crores to 100 crores and thus, the petitioner argued that for a contract estimated at 78 Crores, the condition to impose average annual turnover was arbitrary, illegal and unreasonable and was added specifically to benefit certain bidders at the behest of the others.

Respondent's case was that the entire tender process was looked into by a High-Level Committee constituted by the Government of Andhra Pradesh which was to implement the project under APSSA. And APSSA had the liberty to frame its own procedure for procurement for the scheme's purpose.

This Committee had issued both the tender notifications. When the first notification was issued, the writ petitioner had not participated in the tender and 5 firms had submitted applications, out of which during technical evaluation, no bidder was found to have fulfilled the eligibility criteria.

And thus, the Committee decided to cancel the previous bid and float another bid with a different criterion, increasing the annual turnover, so that qualified, efficient firms could participate in the tender for better quality and timely supply and the entire process was fair and transparent. In this round, six firms had participated and five had qualified the technical evaluation and respondent no. 4 was declared as L1 and the bidding was closed.

Thus, the respondents argued that there was no violation of Articles 14 and 19 as alleged by the petitioner and no public interest was being hampered and the writ petition must be dismissed on grounds of maintainability.

The respondents had also vociferously claimed that since the petitioner had not participated in either bid, he had no locus standi to even file the present writ petition. The respondents also claimed that because the tender invitations come under the realm of Contracts, the present Court should not sit as a court of appeal to scrutinize the conditions therein.

Judgment

The High Court at the outset looked at whether the petitioner had the locus standi in the current case and stated that "mere appearance in a pre-bid meeting does not amount to participation in the tender process". Further noting that the petitioner did not even offer a quotation in response to the tender notification, he is already not suited to question the legality of the tender.

However, the Court still decided to test the veracity of these conditions on judicial principles noting that the petitioner had challenged the eligibility criteria itself.

The Court determined whether it could question the tender conditions and referred to a plethora of judgments, including but not limited to Kasturi Lal Lakshmi Reddy v. State of Jammu & Kashmir, Food Corporation of India v. Kamdhenu Cattle Feed Industries, Sterling Computers Limited v. M&N Publications Limited, Tata Cellular v. Union of India, Jamshed Hormusji Wadia v. Board of trustees, Jagdish Mandal v. the State of Orissa, and several others.

All the judicial pronouncements referred above implied in administrative matters, contractual matters or matters involving state instrumentalities, judicial intervention should be minimum and should only come into play when there are doubts about the aforementioned compromising with public interest, or violating the tenets of Fundamental rights laid in the Constitution or are biased, arbitrary, illegal, irrational, unreasonable and malafide.

The Court also perused the apex court's words in Uflex Limited v. The Government of Tamil Nadu, where the apex court had held that "The object of judicial review is not to make the court an appellate authority for scrutinizing as to whom the tender should be awarded. Economic must be permitted to play its role for which tendering authority knows best as to what is suited in terms of technology and price."

The High Court then laid out certain points which emerged from such perusal of landmark judgments and noted that in the matter of government contracts, article 14 must be followed scrupulously and the Court can only probe whether due procedure is followed or not. The court further stated that greater latitude must be conceded to state authorities for formulating conditions of a tender document unless their action is found to be malicious. Averring that if state instrumentalities act fairly and reasonable, the judicial review should be restricted, the High Court proceeded to analyze the claims in the writ petition.

Primarily the court took note of the fact that although the petitioner had claimed to have protested against the condition of production of the latest solvency certificate for 50% of ECV, he had not challenged that through the writ petition and thus, he could not now call that condition atrocious. The Court further noted that even objectively, when the ECV was 78 Crores, the above solvency certificate requirement could not be said to be arbitrary.

Then the court looked at the condition regarding the average annual turnover of INR 100 crore and stated that if a manufacturer couldn't manufacture INR 100 Crore worth of stock in one year then his ability to manufacture and deliver stock worth INR 78 Crore was questionable.

Regarding the petitioner's claim that the conditions were changed in the second tender to give undue advantage to respondent no.4 (L1), the court noted that this stipulation of bidder's annual average turnover being more than INR 100 Crore was relevant to test the bidder's capability and resources to be able to perform the contract successfully.

Thus, the High Court held that the impugned conditions were to subserve the public interest and the petition was lacking in merit and thus, it was dismissed by the High Court with no order to costs.

Case title: Attal Plastics v. The State of Andhra Pradesh

Citation: 2022 LiveLaw (AP) 8

Coram: Hon'ble Sri Justice U. Durga Prasad

Counsels for Appellant: Sri L. Ravi Chander

Counsels for Respondent: Additional Advocate General