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  • Rule 4(4) of M.P Country Spirit Rules 1995,
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  • Rule 4(4) of M.P Country Spirit Rules 1995,
Smart Summary

Structured Summary of the Provided Opinion

Factual and Procedural Background

The petitioners are distillers who manufacture and supply country spirit in sealed bottles. They challenged the conditions of a tender notice dated 21-12-2005 issued by the Excise Commissioner of Madhya Pradesh inviting tenders for licences under the M.P. Country Spirit Rules, 1995. The tenders related to supply of country spirit through bonded warehouses to retail sale contractors across 24 districts for the period 1 April 2006 to 31 March 2007.

Multiple writ petitions were filed by different distillers: W.P. No. 258/2006 (Welcome Distillery Pvt. Ltd.), W.P. No. 91/2006 (S.G. Distilleries), W.P. No. 186/2006 (Cox India Ltd.), W.P. No. 1369/2006 (Cox India Ltd.), and W.P. No. 995/2006 (Narang Distilleries Ltd.). The petitions raised challenges to various clauses of the tender notice (notably clauses 2, 3(ii), 3(iii) and 5(ii)) and, in one matter, to an order dated 9-1-2006 rejecting a technical bid for non-fulfilment of clause 3(iii)'s requirement. In W.P. 995/2006 the tenderer's document was rejected for not furnishing the no-dues and credibility certificate in terms of clause 5(ii).

Legal Issues Presented

  1. Whether clause 2 of the tender notice — requiring the tenderer to be a distiller holding an appropriate distillery licence and to have been in production for at least 180 days during calendar year 2005 — is arbitrary, unreasonable or designed to favour existing licence-holders.
  2. Whether clause 3(ii) — assessing past performance or conduct where regularity of earlier supplies will be considered — and clause 3(iii) — assessing production capacity by reference to production in the past four years — are arbitrary, irrational or intended to create monopoly in favour of existing contractors.
  3. Whether clause 5(ii) — requiring a "no dues and credibility certificate" issued by the Excise Commissioner of the State where the distillery is located (and no one else) — is arbitrary or unreasonable, and whether the tender rejection dated 9-1-2006 for non-compliance with clause 5(ii) was justified.
  4. More generally, whether the tender conditions amount to unlawful discrimination or contravene Articles 14 and 19 principles as construed by the authorities relied upon.

Arguments of the Parties

Petitioners' Arguments

  • The conditions in clauses 2, 3(ii) and 3(iii) are arbitrary, unreasonable and irrational because they exclude distillers who did not obtain licences from the Excise Commissioner for the prior contract period (1-4-2005 to 31-3-2006), even though such distillers may have production capacity. The petitioners argued these conditions were tailor-made to favour those who held licences in 2005-2006 and thereby narrow competition and create monopoly.
  • The petitioners contended that production capacity (not actual past production) is the relevant criterion and that reliance on average annual production for the past four years (including a projected year) is unfair to those who were not earlier awarded contracts.
  • In W.P. No. 91/2006 the petitioner sought condonation of delay in submitting the tender on grounds of difficulty in collecting required documents (I.A. No. 616/2006).
  • In W.P. No. 995/2006 Narang Distilleries argued that it complied with clause 5(ii) by filing a certificate issued by the Deputy Excise Commissioner (Distribution), U.P. "for" the Excise Commissioner of Uttar Pradesh because the Excise Commissioner was out of State on 30-12-2005; thus the tender rejection dated 9-1-2006 was arbitrary.
  • Petitioners relied on several Supreme Court judgments (listed in the opinion) to support their contention that arbitrary or tailor-made tender conditions are impermissible.

Respondents' Arguments

  • The respondents denied that the impugned conditions were intended to favour existing contractors. They explained the conditions were adopted to secure regularity and punctuality in supply and to prevent the substantial financial loss the State had suffered in the past due to interrupted or irregular supplies.
  • The respondents stated that irregular supply had resulted from contractors who were not producers themselves or whose distilleries were not functional year-round, causing them to source liquor from third parties and thereby interrupt supply.
  • The conditions (including the 180-day production requirement, past performance assessment and production-capacity assessment over four years) were adopted by a high-level committee to ensure uninterrupted supplies and to protect the public exchequer; thus they were relevant and not arbitrary.
  • Regarding clause 5(ii), respondents submitted that requiring the certificate to be issued by the Excise Commissioner (and no one else) ensured authenticity and prevented certificates from being issued by incompetent authorities.
  • The Advocate General highlighted that courts should not interfere with tender conditions unless shown to be arbitrary, discriminatory or mala fide, and relied on several Supreme Court authorities for the proposition that invitation to tender and commercial considerations are primarily for the executive to determine.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Ramana Dayaram Shetty v. The International Airport Authority of India (1979) 3 SCC 489 Government discretion in awarding largess/contracts is not unlimited; action must be based on standards that are not arbitrary, irrational or irrelevant. The court invoked this principle to underline that tender conditions must conform to non-arbitrary standards and to assess whether the impugned conditions exceeded permissible governmental discretion.
Jespar I. Slong v. State of Meghalaya (2004) 11 SCC 485 Government must act in conformity with healthy standards and norms; action should not be arbitrary, irrational or irrelevant when entering contracts. The court used this authority to reinforce that the State's tender conditions should meet standards of non-arbitrariness and relevance to the object sought (regular supply).
Association of Registration Plates v. Union of India (2005) 1 SCC 679 Tender preconditions must be reasonable; Article 14 prohibits arbitrary choice; courts enforce fairness in government contracts. The court relied on the decision to emphasise that conditions may be sustained if they are relevant to ensuring capacity and resources to execute contracts and are not tailor-made to exclude competitors arbitrarily.
Air India Ltd. v. Cochin International Airport Ltd. (2000) 2 SCC 617 Award of contract is essentially a commercial transaction and commercial considerations are paramount; State can choose its method and terms of invitation. The court cited this precedent to stress judicial restraint in scrutinising tender terms and to recognise the executive's freedom to fix tender terms subject to legality.
Directorate of Education v. Educomp Datamatics Ltd. (2004) 4 SCC 19 Terms of invitation to tender are generally in the realm of contract and not open to intrusive judicial scrutiny; courts can review to prevent arbitrariness or favoritism. The court applied this principle to decline to substitute its view for executive policy, while retaining power to intervene if conditions were arbitrary or discriminatory.
Tata Cellular v. Union of India (1994) 6 SCC 651 Judicial review of administrative contractual decisions should prevent arbitrariness/favoritism but courts must respect limits of expertise and administrative discretion (Wednesbury standard and related tests set out). The court adopted the analytical framework set out in Tata Cellular (illegality, irrationality, procedural impropriety, etc.) to examine whether the impugned tender conditions and decisions warranted interference.
Ugar Sugar Works Ltd. v. Delhi Administration (2001) 3 SCC 635 Courts ordinarily do not interfere with executive policy decisions unless shown to be mala fide, unreasonable, arbitrary or unfair. The court invoked this restraint principle in concluding that interference was unwarranted absent patent arbitrariness or mala fides in the tender conditions.
State of M.P. v. Nandlal Jaiswal (1986) 4 SCC 566 No fundamental right to carry on business in liquor; State has broad regulatory power but when granting licences must respect Article 14; courts will be slow to interfere with State policy in this area unless policy is patently arbitrary, discriminatory or mala fide. The court relied on this to recognise the State's latitude in regulating liquor but applied Article 14 constraints to ensure tender conditions were not arbitrary; this supported deference to policy choices unless clearly unreasonable.
Rashbihari Panda v. State of Orissa (1969) 1 SCC 414 Validity of State monopoly schemes judged by whether they confer private benefits on a limited class and whether restrictions satisfy reasonableness under Article 19(6) and Article 14. The court discussed Rashbihari Panda to distinguish the present case on facts: unlike that case, the impugned tender did not restrict tenders to previous contractors only, so that precedent was held not applicable.
Akadasi Padhan's case Mentioned in the context of Rashbihari Panda as a comparative reference point for Article 19(6)(ii) analysis. The opinion references Akadasi Padhan's case indirectly (via Rashbihari Panda) to explain the reasoning in that earlier decision; the court held the present facts distinguishable and did not apply that case to invalidate the tender conditions.

Court's Reasoning and Analysis

The court proceeded by asking whether the challenged conditions were arbitrary, unfair or unreasonable, or were designed to create a monopoly in favour of existing contractors so as to require judicial interference. The analysis followed these steps (as reflected in the opinion):

  1. Context and purpose: The court accepted the respondents' factual premise that the State had suffered substantial financial loss in earlier periods because of irregular and interrupted supplies. The respondents' high-level committee had concluded that irregularity often arose when contractors were not actual producers or when their distilleries were not functional year-round, forcing them to source liquor from others and causing interruptions.
  2. Assessing nexus and relevance: The court tested whether the conditions had a rational nexus with the object sought — reliable, uninterrupted supply and protection of the public exchequer. It found that the 180-day production requirement (clause 2), the past performance assessment (clause 3(ii)) and the production-capacity assessment over the past four years (clause 3(iii)) were connected to that objective.
  3. On exclusivity/monopoly concern: The petitioners argued the conditions tailored the tender to prior licence-holders. The court examined the M.P. Country Spirit Rules, 1995 (including Rule 4(4) and provisions permitting distillers to manufacture and export subject to licences) and concluded that the conditions did not necessarily preclude a distiller from producing (including exporting outside M.P. when licensed) merely because it had not been awarded a prior contract. Thus, inability to secure a prior contract did not inevitably prevent a distiller from meeting the 180-day production test.
  4. On clause 5(ii) (certificate requirement): The court accepted the respondents' rationale that insisting on a certificate issued by the Excise Commissioner of the State where the distillery is located (and no one else) served to ensure authenticity and to prevent certificates from being produced by incompetent authorities.
  5. Application of precedents and standard of review: Citing authorities such as Ramana Shetty, Tata Cellular, Association of Registration Plates, and others, the court reiterated the principle of judicial restraint in commercial/contractual matters: courts review for illegality, irrationality (Wednesbury unreasonableness), procedural impropriety, breach of natural justice, or abuse of power, rather than substitute their own commercial judgment. Applying those precedents, the court found no basis to strike down the tender conditions as arbitrary or discriminatory.
  6. Specific factual relief on the rejected tender: For Narang Distilleries (W.P. 995/2006), the court examined additional material: a letter dated 31-1-2006 from the Excise Commissioner of Uttar Pradesh confirming issuance of the certificate by the Deputy Excise Commissioner (Distribution) U.P. on 30-12-2005 on his behalf, together with an affidavit stating the Commissioner was out of State at that time and the Deputy was discharging his duties. On this basis the court held that the Deputy's certificate, issued on behalf of the Excise Commissioner, satisfied clause 5(ii) and that the tender rejection dated 9-1-2006 was illegal.

Holding and Implications

Holding:

  • W.P. Nos. 258/2006, 91/2006, 186/2006 and 1369/2006 are dismissed.
  • I.A. No. 616/2006 (seeking condonation of delay in W.P. No. 91/2006) is rejected.
  • W.P. No. 995/2006 (Narang Distilleries Ltd.) is allowed in part: Clause 5(ii) of the tender notice is upheld as a valid condition, but the order dated 9-1-2006 rejecting Narang Distilleries' tender for alleged non-compliance of clause 5(ii) is set aside because the certificate filed was held to conform to the requirement. The respondents are directed to consider the petitioner's tender treating that the petitioner has fulfilled clause 5(ii) and to proceed in accordance with law.
  • No orders as to costs.

Implications:

The direct consequences are (i) most of the challenges to the tender conditions were rejected and the conditions were sustained as not arbitrary or irrational, and (ii) one tender rejection (Narang Distilleries) which was found to have been wrongly decided on the facts was set aside and remitted for fresh consideration. The court applied established standards of judicial review in administrative and contractual contexts and upheld the executive's ability to prescribe conditions designed to ensure regular supply, so long as they are not shown to be arbitrary, discriminatory or mala fide.

The opinion does not state that it creates any new legal precedent; it resolves the matters between the parties on the basis of the facts and by applying existing authorities.

Order accordingly.

    Welcome Distillery Pvt. Ltd., Bilaspur v. State Of M.P.

    1. Petitioners are distillers engaged in the business of manufacturing and supply of country spirit in the sealed bottles. They have challenged the conditions of tender notice dated 21-12-2005 issued by the second respondent Excise Commissioner of Madhya Pradesh by which tenders were invited from the distillers for grant of licence(s) under provisions of the M.P Country Spirit Rules, 1995 to supply country spirit through bonded warehouses to the retail sale contractors in the sealed bottles in the area of 24 districts of the State of Madhya Pradesh for the period commencing 1st April 2006 and ending with 31st March, 2007.

    2. In W.P No. 258/2006 - Welcome Distillery Pvt. Ltd. v. State of M.P the challenge is to clauses 2 and 3(ii) of the tender notice. In W.P No. 91/2006 - S.G Distilleries v. State of M.P and W.P No. 186/2006 - Cox India Ltd. v. State of M.P the challenge is to clause 2 of the tender notice. In W.P No. 1369/2006 - Cox India Ltd. v. State of M.P the challenge is to clause 3(iii) and also to the order dated 9-1-2006 passed by the respondents rejecting the petitioner's technical bid for non-fulfilment of requirement of condition enumerated in clause 3(iii) of the tender notice. In W.P No. 995/2006 - Narang Distilleries Ltd. v. State of M.P the challenge is to clause 5(ii) of the tender notice and also to the Order dated 9-1-2006 passed by the respondents by which the petitioner's tender document has been rejected for non-furnishing no dues and credibility certificate of Excise Commissioner of U.P

    3. Briefly stated, on 21-12-2005 the Excise Commissioner of M.P invited tenders from the distillers for supply of country spirit through bonded warehouses to the retail sale contractors in sealed bottles, in various districts mentioned therein for the period 1-4-2006 to 31-3-2007. The conditions of the tender notice which are under challenge through these petitions are extracted below for ready reference:—

    Clause 2 of the tender notice reads thus:

    “2. The tenderer should be a distiller holding appropriate licence for distillery from the competent authority and distillery should be in production currently and should have been in production for at least 180 days during the Calendar Year 2005. Every intending distiller is free to tender for any one or more supply areas indicated above.

    Clause 3(ii) and (iii) read thus:

    3. Tender(s) for supply area(s) will be considered on the basis of the following factors:—

    (i) …..…..…..…..…..…..…..…..

    (ii) Performance or conduct if the tenderer held a similar licence in the past — While assessing past performance and conduct, regularity of liquor supplies to the area/areas earlier allocated would be taken into consideration.

    (iii) Production Capacity — Whether the tenderer is capable of supplying the required quantity of country spirit in the area/areas (for which tender(s) have been submitted) taking into account the production capacity and the production in the past 4 years.

    The decision to accept or reject a tender shall be taken on the basis of tender/tenders received in the light of the above and any other relevant factors. No negotiations will be held. It is also notified for the information of intending tenderers that tenders of a distiller in respect of only such number of supply areas may be considered of which the total estimated quantity of issues of country spirit for the year 2006-2007 [arrived at by increasing the estimated issues during 2005-2006 (estimated issues will be based upon actual updated average issues) by 5%] does not exceed 80% of the average annual production in his distillery during the last 4 years, i.e, 2002-2003, 2003-2004, 2004-2005 and projected 2005-2006 (the projected production of 2005-2006 will be based upon actual up-dated average production). The successful tenderers shall be allowed to export outside the State Only after getting permission in this regard from the Excise Commissioner. The said permission shall be given only after ensuring that the exports shall not affect the continuity of supply of country spirit to the State and that minimum stock of rectified spirit and bottled liquor as provided in Rule 4(4) of M.P Country Spirit Rules 1995, shall be maintained.”

    Condition 5(ii) reads thus:—

    ‘5. The tender shall be accompanied by the following documents:—

    (i) …..…..…..…..…..…..…..……….

    (ii) No dues and credibility certificate regarding past performance with respect to production and supply of alcohol issued by the Excise Commissioner or and equivalent authority of M.P for distilleries located in M.P and in case of tenderers whose distilleries are located outside M.P by the Excise Commissioner of that State and no one else.

    4. According to the petitioners the conditions No. 2, 3(ii) and (iii) are arbitrary, unreasonable and irrational. It is stated that the condition that the tenderer should be a distiller and should have been in production for at least 180 days during calendar year 2005, the condition of past performance and of production capacity taking into consideration the average annual production in his distillery during the past four years commencing from 2002 to 2005 and the projected production of 2005-2006, excludes the distillers who have not been successful in getting licence from the Excise Commissioner for manufacturing and supply of country spirit for the period 1-4-2005 to 31-3-2006. It is stated that by putting such condition the distillers who though having production capacity but could not secure licences for the last years have been precluded from participating in the bid. According to the petitioners these conditions are tailor made to oust the distillers other than those whose bids were accepted for the year 2005. It is stated that by laying down such conditions the respondents have narrowed the scope of bidding tenders and limited it in favour of those who are already holding licences. It is further stated that in the absence of any licence for supply of the required quantity of average annual production during last four years the respondents cannot expect from the distillers to have average annual production of that level. They stated that only the production capacity of distiller which is material and relevant and not the actual production of the last four years. The petitioners accordingly termed the aforesaid conditions as arbitrary, unreasonable, irrational and tailor made to suit the favoured distillers. In addition in W.P No. 91/2006 S.G Distillers v. State of M.P the petitioner has filed an I.A No. 616/2006 seeking condonation of delay in submitting the tender.

    5. In W.P No. 995/2005 Narang Distillery Ltd. v. State of M.P the petitioners challenges the condition 5(ii) on the ground that it is arbitrary and unreasonable. It is stated that in compliance of condition 5(ii) the petitioner had submitted no dues and credibility certificate issued by the Deputy Excise Commissioner (Distribution) U.P for and on behalf of the Excise Commissioner, Uttar Pradesh where its distillery is situated. However, its tender has been rejected arbitrarily by the respondents by order dated 9-1-2006 on the ground that the certificate is not in confirmity of condition 5(ii) of the notice. It is stated that requirement of filing of such certificate issued by Excise Commissioner of the State where the distillery is located and no one else, is unreasonable. The petitioner by way of additional documents and additional affidavit filed a letter dated 31-1-2006 addressed to the Excise Commissioner of M.P by the Excise Commissioner of Uttar Pradesh confirming the issuance of the said certificate on 30-12-2005 to the petitioner by the Deputy Excise Commissioner (Distribution) U.P on his behalf. In the additional affidavit the petitioner stated that on 30-12-2005 the Excise Commissioner of Uttar Pradesh was out of Uttar Pradesh, in the circumstances, the certificate was issued by the Deputy Excise Commissioner (Distribution) U.P mentioning it “for Excise Commissioner of U.P”. In the affidavit it is further stated that in the absence of the Excise Commissioner the Deputy Excise Commissioner (Distribution) was performing the duties of Excise Commissioner, U.P Thus according to the petitioner there was full compliance of condition 5(ii) of the notice, therefore, the petitioner's tender could not have been rejected.

    6. In the return the respondents denied the allegations of the petitioners that the condition Nos. 2, 3(ii) and (iii) are incorporated to favour the existing licence holders. It is stated that these conditions have been incorporated so as to achieve the object of regularity and punctuality in supply of spirit. They stated that in the past on account of irregular and interrupted supply of liquor by the distillers the State had to suffer considerable financial loss. Having regard to their past bitter experience of irregular supply by the distillers the high level committee constituted for this purpose, after deliberation realized that irregularity in supply of liquor by the contractor was for the reason that the contractor was either not the producer himself or the distillery was not functional during the entire year and the liquor was obtained by it from other producers causing interruption and irregularity in supply of liquor. In order to overcome this situation causing substantial financial loss to the State, it was decided to lay down the aforesaid conditions. It is stated that the said conditions are incorporated to ensure regular supply and to avoid loss to public exchequer. It is further stated that the conditions No. 3(ii) and (iii) have been put to weed out contractors/distillers whose conduct in the preceding years has not been fair, punctual and whose production capacity in the last four years is not upto the requirement. Thus, it is stated that the conditions under challenge are neither unreasonable nor arbitrary so as to require any interference by this Court. In order to substantiate their plea about irregular supply in the preceding year warranting putting such condition they filed various correspondences with Welcome Distillers in regard to irregular supply made by it. As regards challenge to condition No. 5(ii) requiring the distiller of the other State to submit the certificate of Excise Commissioner of that State and no one else it is stated that the said condition cannot be said to be unreasonable as it has been laid down to ensure the authenticity of such certificate and to ensure that the tenderer does not file certificate issued by incompetent authority.

    7. Shri N.S Kale, Shri Adarsh Muni Trivedi, learned Senior Counsel and Shri Rajesh Maindiratta, learned counsel appearing for the petitioners have contended that these conditions have been laid down for the first time only to exclude distillers other than those who have been granted licence for the year 2005-2006. Such conditions will create monopoly of the trade in the hands of existing licencees. It is stated that such conditions disentitles those who were not given licence for the year 2005-2006 though having much more production capacity than required. The conditions narrow down the competition and would cause loss to the public exchequer as only limited tenderers would be able to participate. It is also contended the distillers whose tenders were not accepted by the respondents for the preceding years, they have been eliminated even though they are having sufficiently large production capacity. They contended that the condition being unreasonable, arbitrary and irrational are liable to be quashed. In support of their contentions they place strong reliance of the judgments of the Supreme Court in case of Rashbihari Panda v. State of Orissa, (1969) 1 SCC 414 : AIR 1969 SC 1081, Ramana Dayaram Shetty v. The International Airport Authority of India, (1979) 3 SCC 489 : AIR 1979 SC 1628, Jespar I. Slong v. State of Meghalaya, (2004) 11 SCC 485, Association of Registration Plates v. Union of India, (2005) 1 SCC 679, Air India Ltd. v. Cochin International Airport Ltd., (2000) 2 SCC 617, Directorate of Education v. Educomp Datamatics Ltd., (2004) 4 SCC 19.

    8. Shri R.N Singh, learned Advocate General appearing for the respondents justifying the laying down of the aforesaid conditions contended that the said conditions cannot be said to be arbitrary or irrational. He contended that to overcome the irregular supply as was the experience of the State in the preceding year, causing considerable loss to the State Exchequer the high level committee has taken a decision to incorporate the aforesaid conditions. He referred to the annexures filed as sample to show that earlier how the irregular supply was made by the distiller causing great financial loss to the State. He contended that by putting the condition that the distillery should have been in production for atleast 180 days during calendar year 2005, the respondents have not favoured the existing contractors to the exclusion of distillers who could not get contact for the last year. He pointed out that the country liquor is not the requirement of M.P only and the distillers are free to supply out of the State of M.P and for that they can have their distillery in production. He contended that under Madhya Pradesh Country Spirit Rules, 1995 the distillers can manufacture and export country spirit out of the State of Madhya Pradesh by getting the licence. In the circumstances the petitioners contention that since they were not awarded contract for the year 2005-2006 they could not produce the spirit and could not run the distillery for 180 days in 2005 has no force. He also brought to the notice of this Court the fact that for the last year 11 distillers participated and 52 tenders were received for different districts as against for this year pursuant to the impugned tender notice 10 distillers submitted 77 tenders. He further contended that in such matters the courts would not interfere unless the action is arbitrary, discriminatory or is mala fide. In support of his contentions he also placed reliance on the judgment passed by the Supreme Court in Association of Registration Plates v. Union of India, (2005) 1 SCC 679, Directorate of Education v. Educomp Datamatics Ltd., (2004) 4 SCC 19, as also on Ugar Sugar Works Ltd. v. Delhi Administration, (2001) 3 SCC 635, Tata Cellular v. Union Of India., (1994) 6 SCC 651 : AIR 1996 SC 11 and State of M.P v. Nandlal Jaiswal, 1987 MPLJ (SC) 250 : (1986) 4 SCC 566.

    9. In Ramana Dayaram Shetty v. The International Airport Authority of India (supra) it has been held that the discretion of the government is not unlimited sin such matters and the government cannot give or withhold largess in its arbitrary discretion or at its sweet will. The Government action should be based on standards that are not arbitrary or unauthorized. The Government cannot be permitted to say that it will give jobs or enter or enter into contracts or issue quotas or licences only in favour of those having grey hair or belonging to a particular political party or professing a particular religious faith. The Government is still the Government when it acts in the matter of granting largess and it cannot act arbitrarily. It does not stand in the same position as a private individual. Its action must be in confirmity with the standard or norms which is not arbitrary, irrational or irrelevant. In Jespar I. Slong v. State of Meghalaya (supra) the Supreme Court held that the Government while entering into contract is expected not to act like a private individual but should act in confirmity with certain healthy standards and norms. Such action should not be arbitrary, irrational or irrelevant. In Association of Registration Plates v. Union of India (supra) the Supreme Court in paras 43 and 44 observed thus:

    “43. Certain preconditions or qualifications for tenders have to be laid down to ensure that the contractor has the capacity and the resources to successfully execute the work. Article 14 of the Constitution prohibits the Government from arbitrarily choosing a contractor at its will and pleasure. It has to act reasonably, fairly and in public interest in awarding contract. At the same time, no person can claim a fundamental right to carry on business with the Government. All that he can claim is that in competing for the contract, he should not be unfairly treated and discriminated, to the detriment of public interest. Undisputedly, the legal position which has been firmly established from various decisions of this Court, cited at the Bar (supra) is that Government contracts are highly valuable assets and the court should be prepared to enforce standards of fairness on the Government in its dealings with tenderers and contractors.

    44. The grievance that the terms of notice inviting tenders in the present case virtually create a monopoly in favour of parties having foreign collaborations, is without substance. Selection of a competent contractor for assigning job of supply of a sophisticated article through an open-tender procedure, is not an act of creating monopoly, as is sought to be suggested on behalf of the petitioners. What has been argued is that the terms of the notices inviting tenders deliberately exclude domestic manufacturers and new entrepreneurs in the field. In the absence of any indication from the record that the terms and conditions were tailor-made to promote parties with foreign collaborations and to exclude indigenous manufacturers, judicial interference is uncalled for.”

    The Supreme Court in Air India Ltd. v. Cochin International Airport Ltd. (supra) held that the award of Contract whether it is by way of private party or by a public body or the State is essential a commercial transaction in arriving at a 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. In Directorate of Education v. Educomp Datamatics Ltd. (supra) the Supreme Court held that the terms of invitation of tenders are not open to judicial scrutiny, the same being in the realm of contract. The courts can scrutinize the award of the contracts by the Government or its agencies in exercise of their powers of judicial review to prevent arbitrariness or favoritism. 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. In Tata Cellular v. Union Of India. (supra) the Supreme Court in paras 85, 93, 94 and 113 has observed thus:

    “85 It cannot be denied that the principles of judicial review would apply to the exercise of contractual powers by Government bodies in order to prevent arbitrariness or favoritism. However, it must be clearly stated that there are inherent limitations in exercise of that power of judicial review. Government is the guardian of the finances of the State. It is expected to protect the financial interest of the State. The right to refuse the lowest or any other tender is always available to the Government. But, the principles laid down in Article 14 of the Constitution have to be kept in view while accepting or refusing a tender. There can be no question of infringement of Article 14 if the Government tries to get the best person or the best quotation. The right to choose cannot be considered to be an arbitrary power. Of course, if the said power is exercised for any collateral purpose the exercise of that power will be struck down.

    93. The duty of the Court is to confine itself to the question of legality. Its concern should be:—

    (i) whether a decision-making authority exceeded its powers?

    (ii) committed an error of law.

    (iii) Committed a breach of the rules of natural justice.

    (iv) reached a decision which no reasonable Tribunal would have reached or.

    (v) abused its powers.

    94. Therefore, it is not for the Court to determine whether a particular policy or particular decision taken in the fulfilment of that policy is fair. It is only concerned with the manner in which those decisions have been taken. The extent of the duty to act fairly will vary from case to case. Shortly put, the grounds upon which an administrative action is subject to control by judicial review can be classified as under:

    (i) Illegality: This means the decision-maker must understand correctly the law that regulates his decision making power and must give effect to it.

    (ii) Irrationally, namely, Wednesbury unreasonableness.

    (iii) Procedural impropriety.

    113. 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 the 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.

    In State of M.P v. Nandlal Jaiswal in para 33 the Supreme Court has held that there is no fundamental right in a citizen to carry on trade or business in liquor. The State under its regulatory power has the power to prohibit absolutely form the activity in relation to intoxicants and its manufacture, storage, export, import, sale and possession. No one can claim as against the State the right to carry on trade or business in liquor and the State cannot be compelled to part with its exclusive right or privilege of manufacturing and selling liquor. But when the State decides to grant such right or privilege to others the State cannot escape the rigour of Article 14. It cannot act arbitrarily or at its sweet will. In para 34 the Supreme Court observed: However, having regard to the nature of the trade or business, the court would be slow to interfere with the policy laid down by the State Government for grant of licences for manufacture and sale of liquor. The court would, in view of inherently pernicious nature of the commodity, allow a large measure of latitude to the State Govt. in determining its policy of regulating, manufacturing and trade in liquor. Moreover, the grant of licences for manufacture and sale of liquor would essentially be a matter of economic policy. In complex economic matters every decision is necessarily empiric and it is based on experimentation or ‘trial and error’ method and, therefore, its validity cannot be tested on any rigid a prior consideration or on the application of any strait-jacket formula. The Court must while adjudging the constitutional validity of an executive decision relating to economic matters grant a certain measure of freedom or, “play in the joints” to the executive. The Court cannot strike down a policy decision taken by the State Government merely because it feels that another policy decision would have been fairer or wiser or more scientific or logical. The court can interfere only if the policy decision is patently arbitrary, discriminatory or mala fide. In Ugar Sugar Works Ltd. v. Delhi Administration it has been held that the Courts, in exercise of their power of judicial review, do not ordinarily interfere with the policy decisions of the executive unless the policy can be faulted on the grounds of mala fide, unreasonableness, arbitrariness or unfairness etc. The mere fact that it would hurt business interest of a party, does not justify invalidating the policy. In tax and economic regulation cases, there are good reasons for judicial restraint, if not judicial deference, to judgment of the executive. The courts are not expected to express their opinion as to whether at a particular point of time or in a particular situation any such policy should have been adopted or not. It is best left to the discretion of the State.

    In Rashbihari Panda v. State of Orissa (supra), the Supreme Court in para 19 has held thus:

    “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 Tendu leaves from carrying on their business. The scheme of selling Tendu leaves to selected purchasers or of accepting tenders only from a specified class of purchasers was not ‘integrally and essentially’ connected with the creation of the monopoly and was not on the view taken by this Court in Akadasi Padhan's case protected by Article 19(6)(ii): it had therefore to satisfy the requirement of reasonableness under the first part of Article 19(6). No attempt was made to support the scheme on the ground that it imposed reasonable restrictions on the fundamental rights of the traders to carry on business in Tendu leaves. The High Court also did not consider whether the restrictions imposed upon persons excluded from the benefit of trading satisfied the test of reasonableness under the first part of Article 19(6). The High Court examined the problem from the angle whether the action of the State Government was vitiated on account of any oblique motive, and whether it was such as a prudent person carrying on business may adopt.”

    In this case the Government of Orissa adopted the scheme for sale of Tendu leaves and in spite of inviting tenders it offered the sale of Tendu leaves to certain old contractors. On realizing that the said scheme of offering to enter into contract with the old licensees and to renew their terms was open to grave objection. The Government then decided to invite offers for advance purchases of Tendu leaves but restricted to those individuals who had carried out the contracts in the previous years without default and to the satisfaction of the Government. By this in spite of Government making an effort the existing contractors were given the exclusive right to make offers to purchase Tendu Leaves. Insofar as the right to make tenders, it was restricted to those who had contracts in the previous years. In the circumstances the Supreme Court held that both the schemes evolved by the Government were violative of fundamental rights under Articles 14 and 19(1)(g) because the scheme gave rise to monopoly. However, in the present matter the tenders are not invited from the existing contractors only. Thus, this case is distinguishable on facts and has no application to the present case.

    10. In the light of aforesaid judgments of the Supreme Court and also taking into consideration the provisions contained in M.P Country Spirit Rules, 1995 and the M.P Distillery Rules, 1995 it has to be seen as to whether the conditions No. 2, 3(ii), (iii) and 5(ii) are arbitrary, unfair or unreasonable and are incorporated to create monopoly in favour of the existing contractors, so as to require judicial interference. On a closure scrutiny of the aforesaid conditions and the object sought to be achieved by putting these conditions in my considered view the said conditions are not unreasonable, unfair or arbitrary. The conditions no way create any monopoly in the hands of existing contractor. In the past there was irregular supply of liquor by the distillers, as per the experience of the respondents the earlier contractors were either not the producer themselves or their distilleries were not functional during the entire year causing substantial financial loss and irregular supply. To overcome this situation of irregular supply and financial loss the respondents have put the conditions that the distiller should have been in production for at least 180 days in the calendar year 2005 and also put condition in respect of production capacity. The contention of the petitioners that these conditions have been laid down to exclude distillers other than who have been granted licence by the respondents for the year 2005-2006 cannot be accepted in view of the provisions of the M.P Country Spirit Rules 1995 which provides that the distiller can manufacture and export country spirit obtaining a licence in form C.S 1-A. Thus even if the petitioners could not secure contract for the year 2005-2006 or in the preceding years there was no impediment in manufacturing and supplying the country spirit outside the State of M.P Thus, for having been in production for at least 180 days during the calendar year 2005 or in the past it was not necessary that they should have been granted contract by the respondents in the year 2005 or in the past. In the circumstances it cannot be said that the condition is to create monopoly in favour of the existing contractors. The condition of assessing the past performance or conduct of the tenderer also cannot be said to be arbitrary or irrational as to ensure uninterrupted supply and to avoid financial loss laying down such condition is quite relevant. The condition of production capacity of supplying the required quantity of country spirit taking into account the production capacity and the production in the last 4 years has also nexus with the object sought to be achieved. In order to assess that a tenderer would be able to meet out the demand and maintain regular supplies during the period of contract putting of such condition cannot be said to be arbitrary or unreasonable. Insisting for producing of no dues and credibility certificate regarding past performance with respect to production and supply of Alcohol in case of distillery located outside M.P by the Excise Commissioner of that State and no one else has been put to avoid producing such certificate obtained from incompetent person. In this view of the matter this condition is also not arbitrary or irrational warranting any interference. In view of the aforesaid judgments of the Supreme Court no interference is called for in the conditions referred to above.

    11. Coming to the challenge to the order dated 9-1-2006 passed by the respondents whereby the tender document of petitioner of W.P 995/2006 Narang Distillery Ltd. has been rejected, in my considered view having regard to the uncontroverted additional documents and the additional affidavit filed by the petitioner by which the petitioner has filed a letter dated 31-1-2006 of Excise Commissioner of Uttar Pradesh addressed to Excise Commissioner of M.P confirming the issuance of certificate in terms of Clause 5(ii) of the tender notice by the Deputy Excise Commissioner (Distribution) Uttar Pradesh on his behalf and the petitioner's statement on affidavit that on 30-12-2005 when the said certificate was issued in its favour by the Deputy Excise Commissioner (Distribution), Uttar Pradesh for and on behalf of Excise Commissioner of Uttar Pradesh, the Excise Commissioner of Uttar Pradesh was out of State and in his absence the Deputy Excise Commissioner (Distribution) of Uttar Pradesh was performing and discharging the duties of Excise Commissioner of Uttar Pradesh, the rejection of petitioner's tender is illegal. When the Excise Commissioner of Uttar Pradesh was not available and the Deputy Excise Commissioner (Distribution) of that State was performing the duties of the Excise Commissioner of Uttar Pradesh, the filing of certificate issued by the Deputy Excise Commissioner (Distribution) of Uttar Pradesh which was issued on behalf of Excise Commissioner of Uttar Pradesh was sufficient compliance of Condition No. 5(ii). In this view of the matter the order dated 9-1-2006 whereby the petitioner's tender has been rejected for non-compliance of condition No. 5(ii) is set aside.

    12. As a result W.Ps No. 258/2006, 91/2006, 186/2006 and 1369/2006 are dismissed. So far as I.A No. 616/2006 filed in W.P No. 91/2006 seeking condonation of delay in submitting the tender on the ground that the petitioner could not collect various documents required to be submitted along with tender, in the facts and circumstances of the case, is no ground to condone the delay. Accordingly, I.A 616/2006 also stands rejected.

    13. The W.P No. 995/2006 is allowed in part, the condition No. 5(ii) is upheld, however, the order of rejection of petitioner's tender on the ground of non-compliance of condition No. 5(ii) is set aside and it is held that the certificate filed by the petitioner is in confirmity of the condition No. 5(ii) of the tender notice. The respondents are directed to consider the petitioner's tender treating that the petitioner has fulfilled condition No. 5(ii) and proceed in accordance with law.

    14. No orders as to cost.

    Order accordingly.

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