SIDDHARTH MRIDUL, J.
1. The present writ petition under Article 226 of the Constitution
of India seeks quashing of unreasonable and unfair prequalifying
tender condition as well as quashing of issuance of Letter of Intent
(LOI) and award of contract to Respondent No. 2 & 3.
2. Respondent No.1-Delhi Jal Board (DJB) invited bids for
construction of 55 mgd Raw Water Pumping Station and laying an
additional 1500 mm diameter Raw Water Mains from Chainage 11.5
to WTP at Dwarka and MS clear Water Mains of diameter varying
from 600 mm to 1600 mm from WTP Dwarka to various areas of
Dwarka, Najafgarh, Daulatpur, Ujwa and IGI Airport in three
packages- 1A, 1B and III.
3. The Notice Inviting Tenders was published in the newspapers on
9th of June, 2008. The original date for submission of bids for Package
IA, Package IB and Package III were 4th July, 2008, 2nd July, 2008 and
the 30th June, 2008 respectively. The DJB issued corrigendum II on 7th
July, 2008 modifying certain terms and extending the time for
submission of bids for all three Packages till 14th July, 2008. The
Technical Committee, thereafter accepted the price bid of Respondent
No.2 for Package IA and Respondent No.3 for Package IB and Letter
of Intent was accordingly issued to the successful bidders on 11th
September, 2008. Aggrieved by the terms and conditions stipulated in
the tender document, the Petitioner filed the present writ petition on
the 11th September, 2008, seeking quashing of a term incorporated in
the same. The challenge primarily proceeds on the ground that the
impugned condition stipulated in the tender document is completely
unnecessary and has no nexus with the object sought to be achieved,
as well as is provided only to unduly favour Respondent No.3, the sole
manufacturer of expansion joints who alongwith Respondent No.2 and
one D S Construction have formed a cartel. The Petitioner alleges that
the conditions are tailor-made to suit the requirement of the said
Respondents by unfairly and arbitrarily excluding others.
4. Appearing for the Petitioner Mr. Rajiv Nayyar, Sr. Advocate and
Mr. Arvind Nigam, learned counsel strenuously argued that the
requirement of the bidder or its approved manufacturer partner
having experience in the manufacure of expansion joints in terms of
Clause 4.2.24.8 was completely unnecessary as the requirement of
expansion joints in the entire project was negligible. Further the same
being a totally fabricated item being manufactured by some
specialized vendors could have been procured from the open market
and that therefore the said qualifying condition was tailored to suit
only one company namely M/s Pratibha Industries Ltd., Respondent
No.3 herein and its associate bidder namely the Respondent No.2 and
the said D S Construction who as aforesaid has formed a cartel. It was
also urged that the Respondent No.1 in its earlier projects of a similar
nature have never stipulated any such condition and the stipulation
was, according to learned counsel, without any rational nexus with
object sought to be achieved, and consequently liable to be struck
down. The stipulation of an experience of in-house manufacture of
expansion joints, according to counsel for the Petitioner, was
unwarranted and aimed at excluding eligible bidders from
competition. The threshold criteria as stipulated resulted in only one
person qualifying technically, thereby catering to the cartel, which
was contrary to public interest, and also ensured elimination of
competition from the remaining competent bidders.
5. In support of their submissions, counsel for the Petitioner
placed reliance on the following decisions:
1. Rashbihari Panda ETC vs. State of Orissa; 1969(1) SCC
414.
2. Monarch Infrastructure (P) Ltd. vs. Commissioner,
Ulhasnagar Municipal Corporation & Ors.; (2000) 5
SCC 287.
3. Jespar I. Slong vs. State of Meghalaya and others;
(2004) 11 SCC 485.
4. Dhingra Construction Co. vs. Municipal Corporation
of Delhi & Ors.; 116 (2005) DLT 232
5. Gharda Chemicals Ltd. vs. Central Warehousing
Corporation; 118 (2005) DLT 159 (DB).
6. On behalf of DJB it was argued by Mr. Pinaki Misra, learned
senior counsel that scope of judicial review of the terms and
conditions of a tender was very limited. Counsel submitted that the
Courts have conceded considerable play in the joints to the State in
the matter of stipulating terms of tender notices. Interference with
such terms would, therefore, be permissible only if the same were
found to be arbirary, discriminatory or vitiated by malafides. The
present was not, according to Mr. Misra, one such case where the
impugned terms and conditions could be said to be irrelevant,
discriminatory, arbitrary or malafide in the least. The condition of
manufacture of expansion joints was an essential condition, since the
same was a critical component of the pipeline structural system, and
from experience it was apparent that failure of the expansion joint
would cause structural damage to the line or may result in leakage in
joint itself, thereby resulting in avoidable wastage of water. Thus,
quality of expansion joint was considered a life line to the system and
therefore it was considered imperative by the DJB to include in-house
manufacture of the expansion joint by the bidder or its approved
manufacturer partner as an eligibility criteria. Stipulation of this
condition was also considered crucial for providing resistance from
seismic forces since Delhi is situated in Zone IV of seismic area and is
prone to excessive intensity earthquake. The condition was thus
incorporated to ensure that during such seismic event the expansion
joints provide relief from high stress developed from horizontal and
vertical movements and also isolate the pipeline components thereby
minimising the damage. The insistence of DJB to search for an
experienced manufacturer with sound technical capability to obviate
any delay or poor quality of work because of the joints was in the
public interest to avoid delay in execution of the project and did not
create a cartel as asserted by the Petitioner since a number of
manufacturers are credited with manufacturing expansion joints.
7. Learned senior counsel Mr. Misra placed reliance on the
following decisions.
1. Saraswati Industrial Syndicate vs. Union of India;
1974 (2) 630 SCC.
2. State of Haryana vs. Chanan Mal; 1977 (1) 340 SCC.
3. Union of India vs. S.L. Dutta; 1991 (1) 505 SCC.
4. W.B. State Electricty Board vs. Patel Engineering Co.
Ltd. & Anr.; 2001 (2) 451 SCC.
5. Dir. Of Education and Others vs. Educomp
Datamaatics Ltd. & Ors.; 2004 (4) 19 SCC.
6. Dhampur Sugar (Kashipur) Ltd. vs. State of
Uttaranchal & Ors.; 2007 (8) 418.
7. Triveni Engineering & Industries Ltd. vs. Delhi Jal
Board & Anr.; WP (C) 7012 of 2008.
8. On behalf of the other Respondents namely the successful
bidders it was, inter alia, urged that the Petitioner was guilty of delay
and laches since the bidding process started in June, 2008 and in fact
letter of intent was issued by the Respondent No.1 on 11th September,
2008 and that therefore on the date when the writ petition was filed
the letter of intent had already been issued. Further, the Petitioner
had taken no objection to the conditions impugned in the petition till
the tender submission date, and that prior to the bid submission date
the Petitioner only sought extention of time to file their bid which, in
any event, they did not. It was also urged by counsel on behalf of the
other Respondents that although the Petitioner has alleged
cartelization, it has not been able to substantiate this claim since none
of the manufacturers of the impugned expansion joints were the
bidders themselves and in any event they have not been joined as
parties, and therefore the argument of cartelization does not hold any
water. It was also urged that the tenders were a time bound project
and substantial work has been carried out by Respondent No.2 and 3
and substantial money has been spent by the Respondents pursuant to
the issuance of the letter of intent and the work order and as such the
writ petition is belated and the relief sought are contrary to public
interest.
9. In order to appreciate the rival contentions, it is necessary to
elucidate the broad legal principles attracted to them.
10. In Rashbihari Panda ETC vs. State of Orissa (supra), the
Supreme Court was considering the merits of the scheme adopted by
the State Government first of offering to enter into contracts with
certain named licensees, after inviting tenders from licensees who
had in the previous year carried out their contracts satisfactorily. The
Supreme Court observed:
"18. The classification based on the circumstance
that certain existing contractors had carried out
their obligations in the previous year regularly and
to the satisfaction of the Government is not based on
any real and substantial distinction bearing a just
and reasonable relation to the object sought to be
achieved i.e., effective execution of the monopoly in
the public interest. Exclusion of all persons
interested in the trade, who were not in the previous
year licensees is ex facie arbitrary, it had no direct
relation to the object of preventing exploitation of
pluckers and growers of Kendu leaves, nor had it
any just or reasonable relation to the securing of the
full benefit from the trade to the State.
19. Validity of the law by which the State assumed
the monopoly to trade in a given commodity has to
be judged by the test whether the entire benefit
arising therefrom is to enure to the State, and the
monopoly is not used as a cloak for conferring
private benefit upon a limited class of persons. The
scheme adopted by the Government first of offering
to enter into contracts with certain named licensees,
and later inviting tenders from licensees who had in
the previous year carried out their contracts
satisfactorily is liable to be adjudged void on the
ground that it unreasonably excludes traders in
Kendu leaves from carrying on their business........"
11. In Monarch Infrastructure (P) Ltd. vs. Commissioner,
Ulhasnagar Municipal Corporation & Ors.(supra), the Supreme
Court observed that:
"10. There have been several decisions rendered
by this Court on the question of tender process, the
award of contract and have evolved several
principles in regard to the same. Ultimately what
prevails with the courts in these matters is that
while public interest is paramount there should be
no arbitrariness in the matter of award of contract
and all participants in the tender process should be
treated alike. We may sum up the legal position
thus:
(i) The Government is free to enter into any
contract with citizens but the court may interfere
where it acts arbitrarily or contrary to public
interest.
(ii) The Government cannot arbitrarily choose
any person it likes for entering into such a
relationship or to discriminate between persons
similarly situate.
(iii) It is open to the Government to reject even
the highest bid at a tender where such rejection
is not arbitrary or unreasonable or such rejection
is in public interest for valid and good reasons.
11. Broadly stated, the courts would not interfere
with the matter of administrative action or changes
made therein unless the Government's action is
arbitrary or discriminatory or the policy adopted has
no nexus with the object it seeks to achieve or is
mala fide."
12. In Jespar I. Slong vs. State of Meghalaya and others
(supra), the Supreme Court was considering grants of Government
contracts awarding rights to collect tolls, weighment charges etc. and
held:
"19. It goes without saying that the Government
while entering into contracts is expected not to act
like a private individual but should act in conformity
with certain healthy standards and norms. Such
actions should not be arbitrary, irrational or
irrelevant. The awarding of contracts by inviting
tenders is considered to be one of the fair methods.
If there are any reservations or restrictions then
they should not be arbitrary and must be justifiable
on the basis of some policy or valid principles which
by themselves should be reasonable and not
discriminatory. (See para 7 of Hindustan
Development case; (1993) 3 SCC 499). The said
judgment also states that any act which excluded
competition from any part of the trade or commerce
by forming cartels should not be permitted."
13. In Dhingra Construction Co. vs. Municipal Corporation of
Delhi & Ors. (supra), a Division Bench of this Court observed that:
"32. The guidelines of the CVC itself notice the
formulation of pre-qualifying criteria have to be both
precise and based upon relevant considerations. The
illustration contained in that document particularly,
para 3(i) show that an exaggerated or artificial basis
for fixing the estimate for similar works would result
in eliminating fair competition. The object of any
criteria fixing exercise is two-fold. First, ensuring
that only those concerns which have a proven track
record with sufficient experience and sound
financial standing are permitted to bid. Second,
ensuring fair competition. Both these considerations
are of paramount importance as per the guidelines
of the CVC, and to our mind, also as facets of
reasonableness, fairness and non-arbitrariness in
the context of the tendering process.
.................
.................
35. As noticed earlier, the Government or its
agencies while acting in the contractual field have
considerable latitude or elbow room in finalizing the
"terms of engagement" if one could use that
expression. However, equally the requirement of
fairness and non arbitrariness cannot be lost sight
of; there can be no lowering or compromise with
those Constitutionally sanctioned standards. The
fixation of an unrealistic or exaggerated threshold
as the basis for estimating similar works, or
eligibility criteria which has no reasonable co-
relation with the value of the contract, in our view
adversely impacts on the need to have fair and wide
participation in a public tendering process. What
has happened in the present case is that the basis
[of similar works] has not been on any objective
material, or after consideration of any estimate.
Even this is not borne out from the record; we are
left to surmise this. When the actual figures were
made available along with the fact that only five
firms (of whom two could not be regarded as
eligible) had the requisite experience as per the
impugned policy, and that the three eligible firms in
the opinion of the committee could not possibly
execute the works, the MCD nevertheless decided to
proceed with the process of finalizing tenders for
different works."
14. In Gharda Chemicals Ltd. vs. Central Warehousing
Corporation (supra), a Division Bench of this Court whilst
considering the insertion of a pre-qualification condition of "at least
three years" manufacturing experience of ISI marked chemical stated
that:
"19. ........... There is no consideration as to why
the existing condition of supply of only ISI marked
Chemicals was not adequate to ensure the quality of
the product and as to how the past three years'
experience in manufacturing of ISI marked
Chemicals would achieve the desired object.
Similarly, there is also no consideration about the
relevance of the impugned stipulation in so far as
the consistency in supplies is concerned. It is
pertinent to note that since the pre-qualification
condition of ''at least three years' experience'' is not
for ''immediately preceding three years'', a condition
in the tender notice issued by the Director General,
Health Services, UP, one of the stated guiding
factors, any manufacturer who had manufactured
ISI marked Chemicals for any three years would
meet the said criteria, even though he is not
manufacturing ISI marked chemical in the
immediately preceding year(s). We are, therefore, of
the view that there is no rational basis for
incorporating the impugned pre-qualification
condition and in fact it does not sub serve the object
for which it has been inserted for the first time.
20. It needs little emphasis that there can be no
compromise with the quality of a product to be
purchased. So is the importance of consistency in
the supplies. But the question for consideration is
whether the impugned condition can ensure both. As
noted supra, going by the past experience of the
CWC, even the samples submitted by a company
manufacturing ISI marked chemicals since 1994 had
failed. In our considered opinion, therefore, the
imposition of the impugned condition has no
reasonable co-relation with the quality of the
chemical to be supplied, it rather adversely affects
the need to have a fair and wide participation in a
public tendering process. Admittedly, out of the five
manufacturers of the chemical, only one
manufacturer, namely, Bayer Crop, could fulfill the
pre-qualification criteria. Significantly, it is the same
manufacturer whose sample had failed in the last
year.
21. In the light of the aforenoted factual scenario,
we have no hesitation in holding that the impugned
pre-qualification condition has resulted in
eliminating a wider participation and keeps out
manufacturers of ISI marked chemicals, who are
otherwise eligible.............
22. The guidelines, highlight the fact that the
purpose of any selection procedure is to attract the
wider participation of reputed and capable firms. It
emphasises that while framing any criteria, the
scope and nature of work, experience of the firms in
the same field and their financial soundness have to
be kept in mind. In our view the illustrations given
in para 3 of the afore-extracted memorandum,
particularly sub-para (v), which outlines a situation
akin to the one in these proceedings, aptly apply in
the instant case. Mercifully, the CWC who is equally
bound by these guidelines, has shown ignorance of
the memorandum. At the sake of repetition, we may
note that the eligibility criteria fixed in the instant
case has resulted in disqualifying the remaining four
manufacturers of the chemical. Only one
manufacturer, namely, Bayer Crop fulfills the
criteria. Therefore, the fixation of the impugned
eligibility criteria, without application of mind, is
unreasonable, irrational and against the public
interest. It has no nexus with the object sought to be
achieved, namely quality assurance and consistency
in supplies."
15. In Directorate Of Education and Others vs. Educomp
Datamaatics Ltd. & Ors.(supra), the Supreme Court observed:
"9. It is well settled now that the courts can
scrutinise the award of the contracts by the
Government or its agencies in exercise of their
powers of judicial review to prevent arbitrariness or
favoritism. However, there are inherent limitations
in the exercise of the power of judicial review in
such matters. The point as to the extent of judicial
review permissible in contractual matters while
inviting bids by issuing tenders has been examined
in depth by this Court in Tata Cellular v. Union Of India.; (1994) 6 SCC 651. After examining the entire
case-law the following principles have been
deduced:(SCC pp. 687-88, para 94)
"94. The principles deducible from the above are:
(1) The modern trend points to judicial restraint
in administrative action.
(2) The court does not sit as a court of appeal but
merely reviews the manner in which the decision
was made.
(3) The court does not have the expertise to
correct the administrative decision, if a review of
the administrative decision is permitted it will be
substituting its own decision, without the
necessary expertise which itself may be fallible.
(4) The terms of the invitation to tender cannot
be open to judicial scrutiny because the
invitation to tender is in the realm of contract.
Normally speaking, the decision to accept the
tender or award the contract is reached by
process of negotiations through several tiers.
More often than not, such decisions are made
qualitatively by experts.
(5) The Government must have freedom of
contract. In other words, a fair play in the joints
is a necessary concomitant for an administrative
body functioning in an administrative sphere or
quasi-administrative sphere. However, the
decision must not only be tested by the
application of Wednesbury principle of
reasonableness (including its other facts pointed
out above) but must be free from arbitrariness
not affected by bias or actuated by mala fides.
(6) Quashing decisions may impose heavy
administrative burden on the administration and
lead to increased and unbudgeted expenditure."
10. In Air India Ltd. v. Cochin International
Airport Ltd.;(2000) 2 SCC 617, this Court
observed:(SCC p. 623, para 7)
"The award of a contract, whether it is by a
private party or by a public body or the State, is
essentially a commercial transaction. In arriving
at a commercial decision considerations which
are paramount are commercial considerations.
The State can choose its own method to arrive at
a decision. It can fix its own terms of invitation to
tender and that is not open to judicial scrutiny. It
can enter into negotiations before finally
deciding to accept one of the offers made to it.
Price need not always be the sole criterion for
awarding a contract. It is free to grant any
relaxation, for bona fide reasons, if the tender
conditions permit such a relaxation. It may not
accept the offer even though it happens to be the
highest or the lowest. But the State, its
corporations, instrumentalities and agencies are
bound to adhere to the norms, standards and
procedures laid down by them and cannot depart
from them arbitrarily. Though that decision is not
amenable to judicial review, the court can
examine the decision-making process and
interfere if it is found vitiated by mala fides,
unreasonableness and arbitrariness."
11. This principle was again restated by this Court
in Monarch Infrastructure (P) Ltd. v. Commr.,
Ulhasnagar Municipal Corpn.; (2000) 5 SCC 287. It
was held that the terms and conditions in the tender
are prescribed by the Government bearing in mind
the nature of contract and in such matters the
authority calling for the tender is the best judge to
prescribe the terms and conditions of the tender. It
is not for the courts to say whether the conditions
prescribed in the tender under consideration were
better than the ones prescribed in the earlier tender
invitations.
12. It has clearly been held in these decisions that
the terms of the invitation to tender are not open to
judicial scrutiny, the same being in the realm of
contract. That the Government must have a free
hand in setting the terms of the tender. It must have
reasonable play in its joints as a necessary
concomitant for an administrative body in an
administrative sphere. The courts would interfere
with the administrative policy decision only if it is
arbitrary, discriminatory, mala fide or actuated by
bias. It is entitled to pragmatic adjustments which
may be called for by the particular circumstances.
The courts cannot strike down the terms of the
tender prescribed by the Government because it
feels that some other terms in the tender would
have been fair, wiser or logical. The courts can
interfere only if the policy decision is arbitrary,
discriminatory or mala fide."
16. In Triveni Engineering & Industries Ltd. vs. Delhi Jal
Board & Anr.(supra), a Division Bench of this Court stated that:
"17. The Hon'ble Supreme Court in the case of
Laxmi Sales Corpn. Vs Bolangir Trading Co. & Ors.
2005(3)SCC 157 held that preconditions or
qualifications for tenders as stipulated by the tender
documents are mandatory in character. After a
perusal of the facts and circumstances of the case,
we are of the view that the Petitioner failed to fulfill
the pre-conditions in the tender documents. The
eligibility condition of work experience which was a
mandatory condition of the tender bid being
imperative in character was not fulfilled by the
Petitioner initially and even after being given a
second chance by the Respondent No. 1. Thus, the
bid of the Petitioner was rightly rejected by the
Respondent No. 1.
18. The contention of the Petitioner that it was in
the interest of DJB and the larger public interest
that the prices should be competitive which can only
happen if there is enough competition in the final
price bid. The Respondent No. 1 in public interest
and in consonance with the principles of natural
justice had rightly given a second chance to the
Petitioner to fulfill the mandatory conditions
stipulated in the tender documents. The Petitioner
again failed to fulfill the essential eligibility criteria
with regard to the work experience leading to the
rejection of the bid by Respondent No.1 and the
liability of such failure on part of the Petitioner
cannot be incurred by the Respondent No.1. The
Respondent No.1 had also rejected the bid of the
other bidder namely M/s. Sinomen Envirox JV
alongwith the Petitioner. In this view of the matter,
the conduct of the Respondent No.1 cannot be
termed as malafide in any manner."
17. In the light of the above authoritative pronouncements of the
Supreme Court as well as of this Court, we now proceed to examine
the conditions assailed by the Petitioner in the present writ petition.
First and foremost the Petitioner urged that there was no necessity of
including the manufacture of expansion joints in the conditions of the
tender and the same was without any rational nexus with the object
sought to be achieved. We do not think so, for two precise reasons.
Firstly, because the condition of manufacture of expansion joints
cannot be said to be an irrelevant factor. The condition of
manufacture of expansion joints in-house or by the approved
manufacturer partner was necessary as the same was a critical
component of the pipeline structural system and from experience the
DJB was of the opinion that failure of the expansion joint could cause
structural damage to the line or would result in leakage in joint itself
thereby resulting in avoidable wastage of water. Thus the quality of
expansion joints was considered a life line to the system and therefore
considered imperative enough to be stipulated to be manufactured
in-house, in the public interest. In any event, it is beyond the scope of
judicial review to determine whether the expansion joints should be
manufactured in-house or purchased from the open market. Secondly
for the very same reasons, it also cannot be said, as was sought to be
urged by the Petitioner, that this stipulation did not have any nexus
with the object sought to be achieved. The nexus is clearly made out
in this case. Expansion joints when manufactured by the very same
manufacturer as that of pipes would provide a custom fit thereby
minimizing leakage in the system and enuring to the benefit of the
public. Even otherwise, it is observed in the present case that, prior
to the issuance of the Letter of Intent and right from the stage of the
pre bid meeting, the Petitioner had never objected to this condition or
asked for a change therein and had only sought extension of time to
file their bid, which they in fact never did. It also is of no avail to the
Petitioner to urge that the terms of the earlier tenders would have
served the purpose sought to be achieved, better than the terms of
the tender notice under consideration, since it has been held in
numerous decisions that the Courts cannot strike down the terms of
the tender just because it feels that some other terms would have
been fair, wiser or logical.
18. That brings us to the question whether the condition stipulated
was done with a view to favour the sole manufacturer of expansion
joints, with a view to cater to a cartel or to minimize competition as
urged. In this respect it is first seen, that the Petitioner proceeds on
an erroneous assertion of fact, inasmuch as, it was not Respondent
No.3 who was the only in-house manufacturer of expansion joints as
alleged, but one Pratibha Pipes and Structurals Limited who satisfied
the condition as approved manufacturer partner of Respondent No.3.
The said Pratibha Pipes and Structurals Limited was not even arrayed
as party respondent to the petition. Further, the Petitioner has also
not arrayed one PSL, the manufacturer partner of Respondent No.2,
as party respondent. Therefore, the Petitioner's assertion that the
impugned condition was included to favour the manufacturer of
expansion joints falls to the ground. The present petition similarly
contains a number of erroneous statements and assertions that are
contrary to the facts, and the petition was liable to be dismissed on
this ground alone. Further, in this behalf, it is seen that a number of
manufacturers are credited with manufacturing expansion joints
including one Jindal Saw Ltd., who it was also wrongly urged on
behalf of the Petitoner, were not so manufacturing. Resultantly, the
allegations of cartelization and of the tender condition being opposed
to public interest and preventing wider participation have not been
made out and hold no water.
19. The foregoing discussion leads us to the conclusion that the
condition stipulated in the tender was neither arbitrary, nor
discriminatory or malafide and that it was in the public interest, which
is the paramount consideration to be followed by the Courts whilst
considering the award of a tender. Therefore, the decision of the
Respondents to award Letter of Intent to the Respondents No.2 & 3
respectively cannot be found fault with or interferred in.
20. In the result the writ petition is devoid of merit and is hereby
dismissed. However, in the circumstances, it is dismissed with costs
actually incurred by the Respondents quantified in the amount of
Rs.17,50,000/- (rupees seventeen lakh fifty thousand). The Petitioner
will deposit this amount in the Registry of this Court by way of
demand draft drawn in favour of the Registrar General, Delhi High
Court, within four weeks from today.
21. List for compliance on 6th March, 2009.
SIDDHARTH MRIDUL, J.
MADAN B. LOKUR, J.
January 29, 2009
mk