S.C.T Limited And Another v. Punjab State Electricity Board And Others

D.K Jain, C.J:— Rule DB.

2. Having regard to the urgency of the matter, with the consent of learned counsel for the parties, it is taken up for final disposal at this stage itself.

3. Challenge in this writ petition, under Article 226 of the Constitution of India, is to the legality and propriety of the decision of Punjab State Electricity Board, respondent No. 1 herein, (hereinafter referred to as ‘the Board’), to award the tender of supply of 148 transformers of 220 KV CTs of various ratios to respondent No. 3. The Chief Engineer, Design Directorate, Patiala is impleaded as respondent No. 2.

4. The factual matrix, on which the foundation of this judicial action is laid, is as follows:

Some time around early February, 2005, the Board, invited tenders for supply of the aforementioned transformers of four different types. The last date for submission of the tenders was 11.3.2005 and the bids received were to be opened on the same day at 11.30 A.M

In the tender notice, it was, inter alia, mentioned that tender specifications will not be issued to the firms, with whom business dealings have been suspended or blacklisted and debarred firms; no specification/tender document shall be issued to the firms who are defaulters for 25% or more quantity for more than 9 months or any quantity for more than 15 months in making the supplies against earlier purchase orders; the tender documents shall be issued only to those bidders, who have manufactured and delivered the material/equipment of similar or higher rating to an Electricity Board/Utility and a performance certificate for at least two years is submitted by two end users with the request for purchase of tender document and the turnover during last three financial years was more than Rs. 6 crores as well as the total value of similar equipment supplied during last three years was more than Rs. 1.5 crore.

Petitioner No. 1-Company, who claims to be in the business of manufacture of electrical equipment for the last more than 10 years, and had supplied to the Board more than 2,000 transformers in the past, submitted its bid for supply of the said transformers. When the bids were opened on 11.3.2005, the bids of five tenderers, including petitioner No. 1 and respondent No. 3, were found to be valid. The offer of petitioner No. 1 was found to be lowest (L-1) in respect of the first three categories and the rates quoted by respondent No. 3 were found to be the lowest in respect of the fourth category.

5. It is averred in the petition that the petitioner-Company, being the lowest tenderer, was sanguine of getting the offer, but somehow the officers of the Board chose to ignore its offer for extraneous considerations in order to favour respondent No. 3. Petitioner No. 1 claims to have learnt on or after 11.3.2005 that respondent No. 3 did not fulfil the condition of supplying similar equipment, namely, transformers of 220 KV CTs or above rating during the last three years. Accordingly, the petitioner-Company objected to the issue of tender forms to respondent No. 3 vide its letter dated 13.4.2005 It is alleged that despite their representations, no enquiry was conducted by the Board and letter for supply of 148 transformers was issued in favour of respondent No. 2. Hence, the present writ petition.

6. Pursuant to the notice of motion, written statements on behalf of the respondents have been filed. The petition is resisted mainly on the ground that the petitioner cannot ask for acceptance of its tender as a matter of right. It only had a right to apply for being considered, which has been duly done. It is stated that on receipt of the tenders from the eligible firms, these were scrutinised by a Committee, known as Project Purchase Committee, constituted under Regulation 8 of the Punjab State Electricity Board Purchase Regulations, 1981, as amended from time to time. The five quotations received were opened in the presence of representatives of the firms; comparative statement of the rates along with other aspects of the tenderer firms were prepared and put up to the Purchase Committee. The meeting of the Purchase Committee was held on 8.4.2005 The Committee scrutinised the tenders, eligibility and merits of the tenderer firms in the light of their past performance and reports received from different quarters with regard to the performance of the equipments supplied by them in the past. The quotations of the petitioner-Company were found to be the lowest qua three items out of four items. The quotations of respondent No. 3 were found to be the second lowest qua these items and lowest for the remaining one item. Upon due consideration, the Purchase Committee recorded its observations and made its recommendations on the bids received. The factors/which weighed for not finding the petitioner-Company to be suitable for grant of tender, are stated to be:

(i) 2 CT's supplied by the petitioner-firm installed at 220 KV Sub-station Jamsher (Jalandhar) and commissioned on 1.12.2004, were damaged on 27.1.2005 and 6.2.2005 immediately after their commissioning. A letter dated 15.2.2005 written by the Superintending Engineer (P&M) Circle Jalandhar to this effect was available on the record before the Committee.

(ii) One C.T supplied by the petitioner-firm installed at 220 KV Sub Station Rajla (Patiala) and commissioned on 4.2.2005 burst on 25.3.2005 resulting into large scale break down of supply in entire Samana Division. A report dated 28.3.2005 from the S.E (P&M Circle), Patiala to this effect was also available on record before the Committee.

(iii) One C.T supplied by the petitioner firm installed at 220 KV Sub-Station Kotli Surat Malli (Gurdaspur) and commissioned on 7.2.2005 burst on 8.4.2005 at 12.25 P.M resulting into break down of supply to the entire Sub-Division comprised of 5 Sub-Stations of 66 KV each. The Addl. S.E (Grids) Construction Division, Amritsar immediately conveyed the message of S.E (Grid Circle) Ludhiana who happened to be in the office of C.E (Sub-Station) Patiala and submitted a report to C.E (Sub-Station) Patiala on the same date.

(iv) There was a report of the Advisor to the Member (Distribution) PSEB, regarding grid disturbance on 7.10.2004 and precautions and remedial measures to be taken in future. The report contained adverse remarks against the petitioner as under:

(ii) SCT Ghaziabad is not a reputed manufacturer. CTs of SCT, Ghaziabad are a risk to Grid security at a sub-station like Barnala with multiple in feed from LHM, MLK, BMB Sangrur.

7. In view of the damage of CTs supplied by the petitioner-firm and report of the Advisor to Member (D), the Dy. Chief Engineer (P&M) Circle Bhatinda also wrote a letter dated 1.12.2004 to the Design Directorate.

8. In view of the large scale damage of CTs supplied by the petitioner-firm, the petitioner was blacklisted on 20.7.1990, after following due procedure and the firm remained blacklisted up to 13.1.1993 The petitioner represented and assured the Board for its best performance in future. Therefore, its status was again revived on 13.1.1993 After revival, the petitioner-firm improved its performance, but from mid 2004 again its performance started depreciating and the reports of its bad performance started pouring into the Design Directorate Sub-station. This adverse past record to the firm was also available before the Committee.

9. It is, thus, averred that taking into consideration the aforenoted material, the Purchase Committee formed an opinion that the petitioner-Company will not be a suitable and proper supplier for the very crucial equipment in the Grid network of the Board. The Purchase Committee found respondent No. 3 to be otherwise suitable and proper in all respects as the lowest tenderer, except the difference in the rates quoted by petitioner No. 1 and respondent No. 3. Therefore, the Purchase Committee submitted its recommendations to the Board recommending award of the contract to any of the remaining tender firms at the rates quoted by petitioner No. 1 so that no financial loss is caused to the Board.

10. It is pleaded that on the representations made by petitioner No. 1 its representative was given a hearing and these were duly considered by the Board, while taking final decision on 29.4.2005 Thus, refuting the claim of petitioner No. 1, it is pleaded that the Board lightly ignored the tender of petitioner No. 1 and awarded the contract to respondent No. 3.

11. We have heard Mr. J.K Sibal, learned senior counsel appearing for the petitioners, Mr. Harbhagwan Singh, learned senior counsel appearing for the Board and Mr. R.S Mittal, learned senior counsel appearing for respondent No. 3.

12. Challenging the validity of the said decision, Mr. Sibal has strenuously urged that in the absence of any action against the petitioner-Company by way of either suspension of business or blacklisting, prior to or after the floating of the tender, its bid could not be ignored by the Board, particularly when the same was found to be the lowest. It is argued that non-consideration of petitioner's bid, in fact, tantamounts to blacklisting it without following the due process of law and in effect the Board has achieved something indirectly what it could not achieve directly. Learned counsel has also urged that it is obvious that the Board has gone out of the way to favour respondent No. 3 because despite the fact that it did not fulfil the basic eligibility criteria of supplying equipment covered by the tender during last 3 years, as its experience was hardly one year in the manufacturing of 220 KV CTs, the contract has been awarded in its favour. It is thus, asserted that the impugned decision is arbitrary and unreasonable and therefore, deserves to be quashed. In support of the proposition that strict adherence to the tender conditions could not be given a go-bye and therefore, the lowest tenderer could not be ignored, reliance is placed on the decisions of the Supreme Court in Harminder Singh Arora v. Union of India, (1986) 3 SCC 247; W.B State Electricity Board v. Patel Engineering Co. Ltd., (2001) 2 SCC 451 and Union of India v. Dinesh Engineering Corporation, (2001) 8 SCC 491. Reliance is also placed on the decision of the Apex Court in Erusian Equipment and Chemicals Ltd. v. State of West Bengal, (1975) 1 SCC 70, to contend that there could not be a unilateral blacklisting by the State or its instrumentality.

13. Per contra, it is submitted by Mr. Harbhagwan Singh that the impugned decision, having been taken initially by the Purchase Committee and then by the Board taking into consideration the past performance of the petitioner-Company in the best interest of the Board, it cannot be struck down on the touch stone of the principles governing the exercise of power of judicial review, as laid down by the Supreme Court in Tata Cellular v. Union Of India., (1994) 6 SCC 651. To buttress his argument that the low price is not the sole criteria for awarding a contract and the Board was justified in taking into consideration the past record of the petitioner, reliance is placed on yet another decision of the Supreme Court in Raunaq International Ltd. v. I.V.R Company Ltd., (1999) 1 SCC 492 : AIR 1999 SC 393,

14. Mr. Mittal, learned senior counsel appearing for respondent No. 3, the successful tenderer, also supported the decision taken by the Board. Learned counsel also refuted the stand of the petitioner that the said respondent did not fulfil the requisite condition of supplies during the last three years.

15. Thus, the question, that emerges for our consideration, on the basis of respective pleadings, is whether the evaluation and consequent placement of orders with respondent No. 3 for supply of transformers, despite the fact that the bid of the petitioner-Company was the lowest in respect of three out of the four items, is valid in law.

16. It needs little emphasis that the award of contract by a State agency is essentially a commercial transaction and the mode of entering into the contract can be chosen by such State agency by fixing such terms of invitation to tender, as are appropriate. This freedom to contract pre-supposes a certain “fair play in the joints”. It is only the decision-making process culminating in the award of contract, which can be subject to judicial scrutiny and where it is found that the action of the Stage agency is vitiated by illegality, mala fides, unreasonableness or arbitrariness, the State or its agency can be interdicted.

17. In Tata Cellular v. Union Of India. (supra), the Apex Court restated the law in the realm of public contracts and policies that impact upon commercial or economic matters, after reviewing its previous decisions on the scope of judicial review. One of the principles, out-lining the powers and duties of the State of its instrumentalities, was stated thus:

“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 reasonbleness (including its other facts pointed out above) but must be free from arbitrariness not affected by bias or actuated by mala fides.”

18. As to what precisely is “Wednesbury unreasonableness” or irrationality was discussed in great detail in the same judgment and it would be apposite to extract a quotation from R. v. Tower Hamlets London Borough Council, (1988) 1 All England Reports 961:

“The Court is entitled to investigate the action of the local authority with a view to seeing whether or not they have taken into account matters which they ought not to have taken into account, or conversely, have refused to take into account or neglected to take into account matter which they ought to take into account. Once that question is answered in favour of the local authority, it may still be possible to say that, although the local authority had kept within the four corners of the matters which they ought to consider, they have nevertheless come to a conclusion so unreasonable that no reasonable authority could ever have come to it. In such a case, again, I think the Court can interfere…….”

19. In cases involving award of tenders, the Apex Court as well as the High Courts have been consistently following the principles culled out in Tata Cellular's case (supra). These principles can, briefly, be summarised as follows:

(a) The Courts can interfere when the policy or the award of contract is arbitrary or discriminatory of mala fide or it has no nexus with the object it seeks to achieve (see : Monarch Infrastructure (P) Ltd. v. Commissioner, Lilhasnagar Municipal Corporation, (2000) 5 SCC 287 and Directorate of Education v. Edu Comp Datamatics Ltd., 2004 (2) RCR (Civil) 486 (SC) : (2004) 4 SCC 19).

(b) The power of judicial review has to be used to interdict State agencies' policies or actions in the realm of award of contracts with great care and circumspection and not merely because according to the Courts, the policy or measure is incorrect, (see M.P Oil Extraction v. State of M.P, (1997) 7 SCC 592 and Air India Ltd. v. Cochin International Airport Ltd., 2000 (2) RCR (Civil) 670 (SC) : (2000) 2 SCC 617). In Cochin International Airport Ltd.'s case (supra), it was also emphasised that judicial intervention would be warranted only when the overwhelming public interest so requires.

20. In the light of the above broad principles, we now advert to the facts in hand to examine whether the impugned action of the Board is fair, reasonable and non-arbitrary.

21. In deference to our direction, the Board has produced the original records, wherein all the bids received pursuant to the tender notice were evaluated. From these records, we find that item with regard to the procurement of 127 numbers of 220 KV CTs was to be taken up for consideration in the meeting of the Whole Time Members (WTM) on 15.4.2005 However, a letter from the Member (Administrative) of the Board was placed before the Committee, in which the Member had referred to the representations submitted by the petitioner-Company, alleging some conspiracy in ignoring it for the award of the said contract. The Member had desired that the matter should be got investigated through a Committee consisting of concerned S.E (P&M), Director, Sub-Station and S.E (Technical) to ensure justice and correct decision. It was desired that till then, this item may not be taken up for decision in W.T.M or Board for finalisation. In view of the said communication, this item on the agenda for the meeting was deferred to the next meeting. A copy of note dated 22.4.2005 is also available on record, wherein it is noted that the representative of the petitioner-Company was called in the meeting of Whole Time Members of the Board to explain his allegation of discrimination and position regarding damage to CTs at 220 KV Sub Stations, Jamsher, Rajla and Kotli Surat Malli. It is recorded, in the said note, that the representative of the firm had no explanation for the damage/bursting/failure of CTs and requested the Board's Members to give him chance to improve their quality.

22. We also find from the minutes recorded by the Purchase Committee for its meeting held on 8.4.2005, on the evaluation of the bids received, that though the offer of the firm was found to be technically suitable, but having regard to the complaints from the field, its performance was not found to be satisfactory, although the Purchase Committee did not propose the rejection of the bid of the petitioner-Company on account of its past performance. The Purchase Committee recommended that the quantity of 127 numbers 220 KV CTs be distributed amongst the firms, which may be decided by the Whole Time Members of the Board and the order be placed on the lowest L-I rates.

23. Taking into consideration these aspects, the Whole Time Members of the Board took the final decision on 29.4.2005, deciding to place the purchase order with respondent No. 3 at L-I rates.

24. Having regard to the afore-noted factual scenario, emanating from the record, we are of the considered view that in the light of the above principles, governing the power of judicial review, the decision taken by the Board to award the contract to respondent No. 3 and not to accept the lowest bid of the petitioner-Company cannot be characterised as arbitrary or unreasonable. The Whole Time Members of the Board took a conscious decision to award the contract to respondent No. 3 by making a fair assessment on the basis of the past performance of the petitioner-Company. We are of the opinion that the Board was within its right to make such an assessment. The inference drawn by the Board on the basis of the past performance, based on the reports from the field, cannot be said to be irrational or unreasonable, particularly bearing in mind the nature of the equipment to be purchased under the tender. It is well settled that the price offered is only one of the criteria and assessment of quality of the goods on the basis of past performance of the tenderer are material factors for deciding to whom the contract should be awarded. Be that as it may, the impugned decision is based upon the assessment of the Board, an expert body, which, in exercise of power of judicial review, we cannot value-judge not sit over as an appellate authority. In our opinion, therefore, the decision of the Board not to enter into the contract with the petitioner-Company cannot be said to be arbitrary or unreasonable or in violation of any tender conditions warranting our interference. We are convinced that the process of finalising the contract by the Board with respondent No. 3 does not suggest of any mala fides or arbitrariness.

25. Before parting with the case, we may also note that there is no substance in the objection of the petitioner that respondent No. 3 did not fulfil the condition of supplies of similar equipment during last 3 years to the tune of Rs. 1.5 crores. We have verified this fact from the original records. This fact was also duly verified by the Board and in fact, the supplies made by respondent No. 3 were more than Rs. 1.5 crores during last 3 years. On the question of blacklisting, it has been stated before us by learned counsel for the Board that the petitioner-Company has not been non-suited on the ground that it has either been blacklisted or the Board had suspended its dealings with it.

26. In view of the foregoing discussion and findings, we are of the view that the present writ petition is bereft of any merit. It is dismissed accordingly and the rule is discharged, but with no order as to costs.

Petition dismissed.