STATE OF JHARKHAND & ORS. Vs. M/S CWE-SOMA CONSORTIUM
Supreme Court of India (Division Bench (DB)- Two Judge)
Appeal (Civil), 6125 of 2016, Judgment Date: Jul 12, 2016
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6125 OF 2016
(Arising out of SLP (C) No.19285 of 2015)
STATE OF JHARKHAND & ORS. ...Appellants
Versus
M/S CWE-SOMA CONSORTIUM ...Respondent
J U D G M E N T
R. BANUMATHI, J.
Leave granted.
2. This appeal has been filed assailing the judgment dated
13.03.2015 of the High Court of Jharkhand dismissing the appellant’s
Letters Patent Appeal No.309 of 2014, in and by which, the Division Bench
affirmed the order of Single Judge directing opening of technical and
financial bid of the respondent.
3. The matter in dispute relates to construction of a dam in the
State of Jharkhand. The facts leading to filing of this appeal are as
follows: The proposed project, Kharkai Dam at Icha is a part of
Subernarekha Multipurpose Project, a Central Government Aided Scheme funded
through the Accelerated Irrigation Benefits Programme (AIBP). Subernarekha
Multipurpose Project is an Inter State project that was sanctioned in the
year 1978 with the objective of providing irrigation in Jharkhand, Orissa
and West Bengal. It will also provide water for drinking and industrial
purpose as also for production of hydel power. The Water Resources
Department, Government of Jharkhand, through its Executive Engineer issued
a Notice Inviting Tender (NIT) for the construction of the Dam as per the
Standard Bidding Documents (SBD) dated 28.02.2014. On 24.03.2014, a pre-
bid meeting was held where ten tenderers participated and during its
course, it was observed that in the clauses of the NIT, there were certain
departures from the SBD. After the pre-bid meeting, in total, only three
bidders namely, M/s CWE-SOMA Consortium, Hyderabad (respondent herein),
M/s. IL & FS Engineering and Construction Co. Ltd., Hyderabad and M/s.
Navyuga Engineering Co. Ltd., Hyderabad participated in the tender process
and submitted their bids. In meetings of the Departmental Tender Committee
held on 02.06.2014 and 06.06.2014, it was found that among the three
tenderers, only the respondent was found responsive and other two bidders
were found unresponsive. Therefore the tender committee took a decision
under clause 4.18(d) of the Central Vigilance Commission Guidelines (‘CVC
Guidelines’) to cancel the tender and go for retender to make the tender
process more competitive. The tender committee re-affirmed this decision
in a meeting held on 09.07.2014 after the Chief Minister referred an
application of the respondent to them. Aggrieved thereof, respondent filed
a writ petition before the High Court.
4. The learned Single Judge after examining clauses 4.17 and 4.18
of the CVC Guidelines which provide for procedure in case of a single
quote/single valid acceptable quote and in case of lack of competition due
to restrictive specifications respectively, came to the conclusion that in
the absence of the decision of the tender committee that the specifications
were stringent, clause 4.18 could not have been resorted to and tender
committee should have resorted to clause 4.17. The Single Judge allowed
the writ petition, holding the action of the appellants as arbitrary and
against public interest. The matter was then carried in appeal filed by
the appellants before the Division Bench by way of Letters Patent Appeal.
The Division Bench upon perusal of the rationale for the decision of the
tender committee, was of the view that there indeed existed competition as
three companies, including the respondent had participated and respondent
turned out to be the single bidder. Thus, the Division Bench concurred with
the conclusion of the Single Judge that only clause 4.17 should have been
invoked. The Division Bench also noted that the initial tender value was
estimated as Rs.698 crores for the tender floated in February 2014, and
when second tender was floated in July 2014 within the short span of few
months, the estimated value of the project had increased to Rs.738 crores.
Thus, Division Bench dismissed the appeal holding that re-tendering at
later stage would further enhance the estimated value, causing excessive
loss to the state exchequer which may not be in the public interest. Being
aggrieved, the State of Jharkhand has preferred the present appeal.
5. On behalf of the appellants, Mr. Mukul Rohatgi, the learned
Attorney General submitted that the impugned judgment is contrary to clause
24 of the NIT as also the settled position of law that it is the
prerogative of the government to award the tender. Placing reliance upon
Rajasthan Housing Board and Anr. v. G.S. Investments and Anr. (2007) 1 SCC
477 and Uttar Pradesh Avas Evam Vikas Parishad & Ors. v. Om Prakash Sharma
(2013) 5 SCC 182, it was submitted that so long as the bid has not been
accepted, the highest bidder acquired no vested right to have the auction
confirmed in his favour. It was further submitted that clauses 4.5 (A) (a)
and 4.5 (A) (c) which were restrictive have led to other two bidders
becoming unresponsive. It was contended that these restrictions have not
garnered the approval of the Cabinet which is mandatory and was
consequential in reducing the number of participants from ten to three in
which SOMA alone was found to be responsive and the tender committee
rightly decided to cancel the tender which is in consonance with clause
4.18 (d) of CVC Guidelines. It was urged that the impugned judgment
directing the appellant to open the technical as well as the price bid of
the respondent is erroneous and against well settled principles laid down
by this Court.
6. Per contra, Mr. P.P. Rao learned Senior Counsel for the
respondent appearing along with Senior Counsel, Mr. Dushyant Dave submitted
that cancellation of respondent’s tender was arbitrary and against public
interest. By referring to clause 4.17 of the CVC Guidelines, learned
Senior Counsel submitted that in a case where a single quote or a single
valid acceptable quote is received against limited tender or where a tender
has resulted in a single vendor situation, it needs to be processed
further. It was submitted that the learned Single Judge and the Division
Bench rightly held that clause 4.17 of CVC Guidelines ought to have been
resorted to and not clause 4.18(d) of CVC Guidelines. Drawing our attention
to the financial implications of the project, learned Senior Counsel
submitted that by issuance of a fresh tender, the value of the project will
go up by about Rs.100 crores and the same will be detrimental to the public
interest causing huge loss to the public exchequer.
7. We have carefully considered the rival contentions, perused the
impugned judgment and the material on record including the additional
documents filed by the appellant-State.
8. Every tender above the estimated value of Rs.250/- lakhs has to
be in consonance with Standard Bidding Documents (SBD) which has got its
approval from the Cabinet. The entire exercise of complying with the
general conditions of SBD is to ensure that the tender is not stringent and
restrictive in nature so that it can enable many tenderers to participate
and facilitate a wider fair play competition. Any variation from SBD needs
prior approval from the department which is done after considering the
viability of inserting that clause and whether or not the same is
restrictive and stringent in nature.
9. During the pre-bid meeting held on 24.03.2014 that was attended
by ten tenderers, there were unapproved departures in clauses 4.5 (A) (b)
and 4.5 (A) (c) from the clauses of the SBD. As these departures in the
clauses of the tender document had not been approved, the Chief Engineer
was requested vide letter dated 26.03.2014 to issue appropriate corrigendum
to the tender notice so that the tenders could be published in accordance
with the SBD and reminder of the said request was sent to the Chief
Engineer vide letter dated 31.03.2014. In reply to the afore-mentioned
letters, the Chief Engineer responded vide letter 02.04.2014 stating that
the departures were for the reason that the work was of a specific and
urgent nature and the clauses were inserted to ensure smooth implementation
of the work on time.
10. Even though there were ten participants in the meeting on
24.03.2014 of pre-qualification bid, in view of stringent clauses in the
tender document, only three bidders namely: (i) M/s. CWE-SOMA Consortium,
Hyderabad; (ii) M/s. IL & FS Engineering and Construction Co. Ltd.,
Hyderabad and (iii) M/s. Navyuga Engineering Co. Ltd., Hyderabad submitted
their bids. Upon scrutiny of the three bids, only respondent’s company bid
was found responsive; the other two bids were found non-responsive in the
light of provisions of clauses 4.5(A)(b) and 4.5(A)(c). The tender
committee therefore decided to cancel the tender in order to make the
tender more competitive and decided to re-invite tenders in the light of
SBD norms on the basis of which tenders are invited by the department. The
minutes of the Departmental Tender Committee held on 02.06.2014 reads as
under:-
“In light of special conditions prescribed for the invited tender for
the work, only one tenderer is found responsive in technically-cum-pre-
qualification bid.
In view of the above, in order to make the tender under subject more
competitive, the departmental tender committee after due consideration
while cancelling the tender has decided to re-invite tenders in light of
SBD norms on the basis of which tenders are invited by the department.
Chief Engineer, Icha-Galudeeh Complex, Adityapur, Jamshedpur shall,
accordingly, ensure action inviting tenders according to the prescribed SBD
norms without any delay.”
It was later realised that the typographical error had been made in the
above minutes and therefore ‘technically-cum-pre-qualification bid’ was
later modified to “pre-qualification bid” in the meeting held on
06.06.2014.
11. Against the decision of tender committee cancelling the tender,
SOMA Consortium filed a complaint before the Chief Minister of Jharkhand
and in furtherance of order of the Chief Minister, the Departmental Tender
Committee held meeting on 09.07.2014. In the said meeting, tender
committee decided that the decision taken by the committee in its meetings
dated 02.06.2014 and 06.06.2014 was correct and the same was affirmed in
the light of clause 4.18(d) of CVC Guidelines, clause 32 of ITB, clause 24
of IFB and the letter of CVC dated 07.05.2004. Tender committee reiterated
its earlier decision to invite fresh tenders to make the tender under
subject more competitive. Pursuant to the decision taken on 09.07.2014,
appellant proceeded for fresh tender and NIT was published in the
newspapers as per the norms on 13.07.2014.
12. In case of a tender, there is no obligation on the part of the
person issuing tender notice to accept any of the tenders or even the
lowest tender. After a tender is called for and on seeing the rates or the
status of the contractors who have given tenders that there is no
competition, the person issuing tender may decide not to enter into any
contract and thereby cancel the tender. It is well-settled that so long as
the bid has not been accepted, the highest bidder acquires no vested right
to have the auction concluded in his favour (vide Laxmikant and Ors. v.
Satyawan and Ors. (1996) 4 SCC 208; Rajasthan Housing Board and Anr. v.
G.S. Investments and Anr. (2007) 1 SCC 477 and Uttar Pradesh Avas Evam
Vikash Parishad and Ors. v. Om Prakash Sharma (2013) 5 SCC 182).
13. The appellant-state was well within its rights to reject the
bid without assigning any reason thereof. This is apparent from clause 24
of NIT and clause 32.1 of SBD which reads as under:-
“Clause 24 of NIT: “Authority reserves the right to reject any or all of
the tender(s) received without assigning any reason thereof.”
Clause 32.1 of SBD: “…the Employer reserves the right to accept or reject
any Bid to cancel the bidding process and reject all bids, at any time
prior to award of Contract, without thereby incurring any liability to the
affected Bidder or Bidders or any obligation to inform the affected Bidder
or Bidders of the grounds for the Employer’s action.”
In terms of the above clause 24 of NIT and clause 32.1 of SBD, though
Government has the right to cancel the tender without assigning any reason,
appellant-state did assign a cogent and acceptable reason of lack of
adequate competition to cancel the tender and invite a fresh tender. The
High Court, in our view, did not keep in view the above clauses and right
of the government to cancel the tender.
14. The State derives its power to enter into a contract under
Article 298 of the Constitution of India and has the right to decide
whether to enter into a contract with a person or not subject only to the
requirement of reasonableness under Article 14 of the Constitution of
India. In the case in hand, in view of lack of real competition, the state
found it advisable not to proceed with the tender with only one responsive
bid available before it. When there was only one tenderer, in order to
make the tender more competitive, the tender committee decided to cancel
the tender and invited a fresh tender and the decision of the appellant did
not suffer from any arbitrariness or unreasonableness.
15. The appellant claims that the decision of re-tendering was in
the light of the restrictive nature of the conditions introduced in the NIT
in departure from the SBD and was in consonance with clause 4.18(d) of CVC
Guidelines. Clause 4.18 of CVC Guidelines reads as under:-
“4.18. Re-tendering- Retendering may be considered by the TPC/CFA with
utmost caution, under the following circumstances:
(a) Offer do not confirm to essential specification
Wherever there are major changes in specification and quantity, which may
have considerable impact on the price.
Prices quoted are unreasonably high with reference to assessed price or
there is evidence of a sudden slump in prices.
There may be cases when the lack of competition is due to restrictive
specification, which do not permit many vendors to participate. The CFA
must consider if there are reasons for review of specification of the item
to facilitate wider competition. Re-tendering will be done only after
approval of IFA and CFA in all cases.”
Respondent, on the other hand, submits that the present case is not guided
by clause 4.18(d) of CVC Guidelines rather it is guided by clause 4.17 and
therefore cancellation of tender invoking clause 4.18(d) is arbitrary and
erroneous. Clause 4.17 of the CVC Guidelines reads as under:-
“4.17. There are cases when only a single quote or a single valid
acceptable quote is received even against LTE or OTE, this results in a
single vendor situation indicating lack of competition. These cases will
not be treated as procurement against Single Tender Enquiry and shall be
progressed as an LTE or OTE case as applicable.”
16. In order to consider the question whether the respondent’s case
is to be appreciated under clause 4.17 or clause 4.18 of the CVC
Guidelines, in the impugned judgment, the Division Bench examined the
clauses that have been inserted in the NIT in departure from SBD i.e.
clause 4.5(A) (a) and clause 4.5 (A)(c). The said clauses read as
under:-
“4.5 (A) To qualify for award of the contract, each bidder in its name
should have in the last five years as referred to in Appendix.
Achieved a minimum annual turnover (in all classes of civil engineering
construction works only) amount indicated in Appendix in any one year,
(usually not less than one & half times the estimated cost of the project
may be kept. However, for Turn-key & other projects where completion
period is two years or more, the annual turnover may be kept as per the
requirement upto 1.50 x Estimated cost/years of completion of project).
(b ……
Executed in any one year, the minimum quantities of the following items of
work as indicated Appendix.
– cement concrete (including RCC and PSC).…..cum
-earthwork in both excavation and embankment(combined quantities)
…………..cum
- ………………… …………..cum
- ………………… …………..cum
(usually 50% of estimated quantity. However, for Turn-key & other projects
where completion period is two years or more as per the requirement may be
kept as estimated quantity/years of completion of project.)”
17. Clauses 4.5(A)(a) and 4.5(A)(c) have been found stringent
resulting in request to the Chief Engineer for issuing corrigendum as the
above clauses added an additional qualification of showing of quantity of
work done in one project. The Division Bench thereafter examined clauses
4.17 and 4.18 of CVC Guidelines and came to the conclusion as under:-
“...there was certainly a competition within three companies including SOMA
in which SOMA turned out to be a single vendor and therefore it cannot be
said to be a case for retendering on account of lack of competition due to
restrictive specification. Lack of competition has to be construed in that
manner only. In this eventuality, it is only clause 4.17 of CVC guidelines
which ought to have been invoked and not clause 4.18 of CVC guidelines as
rightly held by learned Single Judge.”
18. Admittedly, in the pre-bid meeting held on 24.03.2014, ten
tenderers have participated. After conclusion of the pre-bid meeting on
24.03.2014, as a result of stringent conditions prescribed in clause
4.5(A)(a) and 4.5(A)(c), only three tenderers could participate in the
bidding process and submit their bids. As noticed earlier, upon scrutiny
two were found non-responsive. In our considered view, High Court erred in
presuming that there was adequate competition. In order to make the tender
more competitive, tender committee in its collective wisdom has taken the
decision to cancel and re-invite tenders in the light of SBD norms. As
noticed earlier, the same was reiterated in a subsequent meeting held on
09.07.2014. While so, the High Court was not justified to sit in judgment
over the decision of tender Committee and substitute its opinion on the
cancellation of tender. Decision of the state issuing tender notice to
cancel the tender and invite fresh tenders could not have been interfered
with by the High Court unless found to be mala fide or arbitrary. When the
authority took a decision to cancel the tender due to lack of adequate
competition and in order to make it more competitive, it decided to invite
fresh tenders, it cannot be said that there is any mala fide or want of
bona fide in such decision. While exercising judicial review in the matter
of government contracts, the primary concern of the court is to see whether
there is any infirmity in the decision-making process or whether it is
vitiated by mala fide, unreasonableness or arbitrariness.
19. Observing that while exercising power of judicial review, court
does not sit as appellate court over the decision of the government but
merely reviews the manner in which the decision was made, in Tata Cellular
v. Union of India (1994) 6 SCC 651, in para (70) it was held as under:-
“70. 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 favouritism, 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.”
20. The government must have freedom of contract. In Master Marine
Services (P) Ltd. v. Metcalfe & Hodgkinson (P) Ltd. and Anr. (2005) 6 SCC
138, in para (12) this Court held as under:-
“12. After an exhaustive consideration of a large number of decisions and
standard books on administrative law, the Court enunciated the principle
that the modern trend points to judicial restraint in administrative
action. The court does not sit as a court of appeal but merely reviews the
manner in which the decision was made. 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.
The Government must have freedom of contract. In other words, 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 principles of reasonableness but also must be free from
arbitrariness not affected by bias or actuated by mala fides. It was also
pointed out that quashing decisions may impose heavy administrative burden
on the administration and lead to increased and unbudgeted expenditure.
(See para 113 of the Report, SCC para 94.)”
The court does not have the expertise to correct the administrative
decision as held in Laxmikant and Ors. v. Satyawan and Ors. (1996) 4 SCC
208, the government must have freedom of contract.
21. The right to refuse the lowest or any other tender is always
available to the government. In the case in hand, the respondent has
neither pleaded nor established mala fide exercise of power by the
appellant. While so, the decision of tender committee ought not to have
been interfered with by the High Court. In our considered view, the High
Court erred in sitting in appeal over the decision of the appellant to
cancel the tender and float a fresh tender. Equally, the High Court was
not right in going into the financial implication of a fresh tender.
22. Having addressed the correctness of reasonings recorded by the
High Court, it is important to note one further aspect. When the SLP came
up for hearing, by an order dated 10.08.2015, while granting interim stay
on the operation of the impugned judgment, this Court directed that the
appellants shall be free to invite fresh tenders and process the same, but
no allotment shall be made without permission of this Court. The appellant-
state has filed an additional document stating that about 20,421.43 acre of
land is to be acquired under the “Right to Fair Compensation and
Transparency in Land Acquisition Rehabilitation and Resettlement Act, 2013”
which came into force on 01.01.2014. Section 41 of the said Act states that
no acquisition of land as far as possible could be made in the Scheduled
Area. If it is necessary, it should be done only as per last resort. It
also states that land in Scheduled Areas can only be acquired with the
prior consent of Gram Sabha or Panchayats or the autonomous District
Councils. The learned Attorney General submitted that the entire sub-
mergence area of the proposed Icha Dam is in the scheduled area and the
remaining land for Icha Dam can be acquired only with the prior consent of
the Gram Sabha of the affected villages. It is further stated that the
issue was discussed in the meeting of Tribal Advisory Council held on
27.09.2014 and that Tribal Advisory Council and the sub-committee opined
that the construction of Icha-Kharkai Dam may be cancelled. Learned
Attorney General therefore submitted that there are some issues which need
to be resolved before floating a fresh tender of Icha dam. The impugned
judgment of the High Court is liable to be set aside.
23. In the result, the impugned judgment of the High Court of
Jharkhand is set aside and this appeal is allowed. No costs.
…………………….CJI.
(T.S. THAKUR)
……………………….J.
(R. BANUMATHI)
New Delhi;
July 12, 2016
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