M/S Hasbi Traders Re... v. The Chief Engineer (..., Madras High Court, Judgment, Law, casemine.com

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Case Number

2059 of 2004

Attorney(S)

P.Srinivas
P.Mani
M.Krishnappan

Judges

Mr. Justice D. Murugesan
Mr. Justice V. Periya Karuppiah

Acts

ARTICLE 14 CONSTITUTION OF INDIA

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Smart Summary

Factual and Procedural Background

Bids were invited by tender notification dated 7.11.2003 for sale of scraps. The appellant submitted tenders for lot nos.5, 9, 13 & 14, quoted a total rate of Rs.22,10,000/- and paid earnest money Rs.1,10,500/-. Tenders were opened on 3.12.2003 and the appellant was the highest bidder. By letter dated 21.2.2004 the Chief Engineer (Distribution), Tamil Nadu Electricity Board (TNEB), informed the appellant that its offer for those lots "is not accepted" and returned the EMD. The appellant filed a writ petition challenging that order as illegal, arbitrary and violative of Articles 14 and 19(1)(g) of the Constitution because no reasons were given. The learned single Judge dismissed the writ petition on the ground that the petitioner had no right to demand acceptance of its tender. The appellant filed this writ appeal.

Legal Issues Presented

Whether the respondent-Tamil Nadu Electricity Board could reject the appellant's tender without assigning any reason.
Whether reasons for administrative action rejecting the highest tender must be recorded and communicated, particularly where public authorities deal with public property and state-controlled commercial activity.
Whether reasons not contained in the impugned order can be supplied subsequently (e.g., by later communication or affidavit) to validate that order.

Arguments of the Parties

Appellant's Arguments

The letter dated 21.2.2004 rejecting the tender is illegal, arbitrary and violative of Articles 14 and 19(1)(g) of the Constitution because it contained no reasons for rejection.

Respondent's Arguments

The respondent contended that though the 21.2.2004 order did not state reasons, a subsequent reply dated 5.3.2004 communicated that the tender committee had not approved the tenders because the market rate was higher than the rates offered, thereby supplying reasons.
In a counter-affidavit the respondent also advanced a different ground: that the appellant had violated clause 6(e) of the tender specification by quoting a lumpsum amount for four lots instead of separate amounts.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
R.D.Shetty v. International Airport Authority of India	Instrumentalities of the State must act within the Rule of Law and cannot act arbitrarily; state action is amenable to judicial review.	Used to show that TNEB, though vested with discretion in contractual matters, cannot exercise it arbitrarily and must follow judicially recognised norms when dealing with public property.
Ajay Hasia v. Khalid Mujib Sehravardi	Public authorities are subject to the Rule of Law and their actions are reviewable to prevent arbitrariness.	Supported the proposition that even in commercial contracts public authorities must avoid unreasonable and arbitrary decisions subject to judicial review.
M/s Star Enterprises and others v. City and Industrial Development Corporation of Maharashtra Ltd.and others	When the highest offer is rejected, public authorities should place reasons on record and communicate them; judicial review of administrative action is expanding and reasons assure accountability.	Relied upon to hold that recording reasons for rejection of highest offers is necessary for credibility, accountability and objective review; supported requirement that reasons accompany such orders.
Mohinder Singh Gill v. Chief Election Commissioner	The validity of an order must be judged by the reasons mentioned in the order and cannot be supplemented later by fresh reasons in affidavit or otherwise.	Applied to reject the respondent's attempt to cure the defective impugned order by supplying reasons subsequently (by letter and counter-affidavit).

Court's Reasoning and Analysis

The Court held that TNEB is a public authority and, although clause 5(b) of the tender specification permitted rejection of any or all tenders without assigning reasons, such discretion cannot be exercised arbitrarily. The Court relied on precedents (R.D. Shetty; Ajay Hasia) establishing that state instrumentalities are subject to the Rule of Law and judicial review. It applied M/s Star Enterprises to emphasise that reasons should be placed on record and communicated when the highest offer is rejected, and noted the expanding scope of judicial review in commercial state activity. The Court rejected the respondent's submission that reasons supplied after the impugned order (by the 5.3.2004 letter) cured the defect, holding that the validity of the order must be judged by the reasons contained in that order and cannot be supplemented later (citing Mohinder Singh Gill). The Court further observed that the respondent advanced inconsistent and shifting reasons (first that the tender committee did not approve because market rates were higher, later that the appellant violated clause 6(e) by quoting a lumpsum), suggesting lack of confidence in any single justification given after the fact.

Holding and Implications

The letters dated 21.2.2004 and 5.3.2004 are quashed and the writ appeal is allowed to that extent.

Consequences for the parties: The respondent-Board is permitted to either call for negotiations with the highest bidders and finalise the tender or to call for fresh tenders. W.A.M.P.No.3813 of 2004 is closed. No costs were awarded. No broader legal change or new precedent is articulated beyond the application of existing principles requiring reasons for state action rejecting highest tenders.

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M/S Hasbi Traders Rep.By Its Proprietor v. The Chief Engineer (Distribution), Tamil Nadu Electricity Board Others

(Judgment of the Court was delivered by D.MURUGESAN, J.) The substantial question raised in this writ appeal is as to whether the respondent-Tamil Nadu Electricity Board could reject the tender of the appellant without assigning any reason.

2. Bids were called for by tender notification dated 7.11.2003 for sale of scraps and the appellant had submitted its tender for lot nos.5, 9, 13 & 14 and quoted a total rate of Rs.22,10,000/- and also remitted a sum of Rs.1,10,500/- towards earnest money deposit being 5% of the total value of the scrap. The tenders were opened on 3.12.2003 and the appellant was the highest bidder, as it quoted Rs.40,000/- more than the next highest bidder. However, the said tender was not accepted and the same was communicated by the letter of the Chief Engineer (Distribution), Tamil Nadu Electricity Board, Madurai Region dated 21.2.2004. The said letter reads as under:-

TAMIL NADU ELECTRICITY BOARD From The Chief Engineer (Distribution) Tamil Nadu Electricity Board Madurai Region, Madurai-7 To M/s Hasbi Traders No.17-A, Gopal Street Tiruvannamalai 606 601 Letter No.CE/D/MDU/Specn.7/2003-04/D.761/2004 dt.21.2.2004 Dear Sirs, Sub: Madurai Region-Specn.7/2003-04 Dindigul EDC - Disposal of Scrap Tender opened on 3.12.2003 -

Your offer for the Lot Nos.5, 9, 13 & 14 in the Tender opened on 3.12.2003 is not accepted. The EMD amount of Rs.1,10,500/- (Rupees One Lakh Ten Thousand and Five Hundred only) paid by you is hereby ordered to be returned.

You are requested to contact Superintending Engineer/Dindigul Electricity Distribution Circle/Dindigul for getting the refunds of the above EMD.

The writ petition came to be filed questioning the said order and one of the contentions of the appellant-writ petitioner is that the impugned letter is illegal, arbitrary and violative of Articles 14 and 19(1)(g) of the Constitution of India, inasmuch as it did not contain any reason. The learned single Judge dismissed the writ petition on the ground that the writ petitioner has no right to ask that its tender should be accepted. As against the said order, the present writ appeal is filed.

3. We have heard Mr.M.Krishnappan, learned senior counsel appearing for the appellant and Mr.P.Srinivas, learned counsel appearing for the respondent-Electricity Board.

4. The Tamil Nadu Electricity Board is a public authority and even in contractual matters, it cannot have an unfettered discretion and in contracts having commercial element even though some extra discretion is to be conceded in such authority, it is bound to follow the norms recognised by courts while dealing with public property. This requirement is necessary to avoid unreasonable and arbitrary decisions being taken by public authorities whose actions are amenable to judicial review. Clause 5(b) of the tender specification empowers the Tamil Nadu Electricity Board to reject any or all the tenders without assigning any reasons there of whatsoever. Even though such discretion is given to the authorities, whether it could be exercised in an arbitrary manner is a question to be further considered In R.D.Shetty v. International Airport Authority of India, (1979) 3 SCC 489 as well as in Ajay Hasia v. Khalid Mujib Sehravardi, (1981) 1 SCC 722, the Supreme Court has held that an instrumentality of the State should act within the ambit of Rule of Law and would not be allowed to conduct itself arbitrarily and in its dealings with the public would be liable to judicial review.

5. In fact the very same question as to whether this Court would be justified in interfering with such orders of rejection of tender without any reason came up for consideration before the Supreme Court in M/s Star Enterprises and others v. City and Industrial Development Corporation of Maharashtra Ltd.and others, (1990) 3 SCC 280 and in paragraph-9, the Supreme Court has held as follows:-

"The question which still remains to be answered is as to whether when the highest offer in response to an invitation is rejected, would not the public authority be required to provide reasons for such action? Mr.Dwivedi has not asked us to look for a reasoned decision but has submitted that it is in the interest of the public authority itself, the State and everyone in the society at large that reasons for State action are placed on record and are even communicated to the persons from whom the offers came so that the dealings remain above board; the interest of the public authority is adequately protected and a citizen knows where he stands with reference to his offer."

In the very same judgment, as to the power of judicial review of administrative action, the Supreme Court has held as follows:-

"In recent times, judicial review of administrative action has become expansive and is becoming wider day by day. The traditional limitations have been vanishing and the sphere of judicial scrutiny is being expanded. State activity too is becoming fast pervasive. As the State has descended into the commercial field and giant public sector undertakings have grown up, the stake of the public exchequer is also large justifying larger social audit, judicial control and review by opening of the public gaze; these necessitate recording of reasons for executive actions including cases of rejection of highest offers. That very often involves large stakes and availability of reasons for actions on the record assures credibility to the action; disciplines public conduct and improves the culture of accountability. Looking for reasons in support of such action provides an opportunity for an objective review in appropriate cases both by the administrative superior and by the judicial process."

6. Mr.P.Srinivas, learned counsel appearing for the Tamil Nadu Electricity Board, however, would submit that though the order dated 21.2.2004 had not assigned any reason for not accepting the tender, pursuant to the notice issued by the very same appellant dated 28.2.2004, a reply was sent to him on 5.3.2004 stating that the tenders have not been approved by the tender committee as the market rate was higher than the rate offered by the tenderers. Hence the appellant had been communicated with the reasons which would satisfy the act of the authority as to its fairness. We are not inclined to accept the said submission as the order impugned before this Court should be judged with reference to the contents of the order. The Tamil Nadu Electricity Board is not entitled to withdraw its case later on after the orders were passed. That apart, by a subsequent order dated 5.3.2004, though the respondent-Board had taken the stand that the tender of the appellant was not accepted as the same was not approved by the tender committee as the market rate was higher than the rate offered by the tenderers, in the counter affidavit it takes entirely a new stand for not accepting the tender of the appellant. In paragraph-4 of the counter affidavit, it is stated that contrary to clause 6(e) of the tender specification in quoting separate amount for four lots, namely, lot nos.5, 9, 13 & 14, the appellant had quoted a lumpsum of Rs.22,10,000/- for all the four lots, which is in violation of the tender specification. From the above two different stand taken by the respondent-Board, it appears to us that even the respondents were not confident of the reasons for which the tender of the appellant was not accepted and the same was communicated by the letter dated 21.2.2004. Further the counter affidavit cannot supplement the reasons as held by the Supreme Court in Mohinder Singh Gill v. Chief Election Commissioner, AIR 1978 SC 851. In paragraph-8 of the said judgment, the Supreme Court has observed that

"the validity of an order must be judged by the reasons so mentioned and the order cannot be supplemented by fresh reasons in the shape of affidavit or otherwise."

Hence the reliance placed by Mr.P.Srinivas, learned counsel for the respondent-Board that the reasons for the rejection were communicated to the appellant subsequently cannot cure the defect in respect of the violation of Article 14 of the Constitution of India.

7. For the foregoing reasons, the letters dated 21.2.2004 and 5.3.2004 impugned in the writ petition are quashed and the writ appeal is allowed to that extent. It is open to the respondent-Board to either call for negotiations with the highest bidders and finalise the tender or to call for fresh tenders. Consequently, W.A.M.P.No.3813 of 2004 is closed. No costs.

ss To

1. The Chief Engineer (Distribution) Tamil Nadu Electricity Board Madurai Region Madurai-7

2. The Tender Committee Tamil Nadu Electricity Board 800, Anna Salai Chennai-2

3. The Chairman Tamil Nadu Electricity Board 800, Anna Salai Chennai-2

4. The Chief Engineer (Material Management) Tamil Nadu Electricity Board 800, Anna Salai Chennai-2

5. The Superintending Engineer Dindigul Electricity Distribution Circle Tamil Nadu Electricity Board Dindigul

M/S Hasbi Traders Re... v. The Chief Engineer (...