Judicial Interference In Tender Matters: A Debate

Public tenders are central to India's procurement system, allowing the government and public sector organisations to source goods and services from private entities. This process ensures transparency, competitive pricing, and optimal use of public funds across sectors like infrastructure, healthcare, and defence. Government institutions at various levels award contracts through tenders, governed by the rule of law, which mandates fairness and transparency. Public tenders, typically involve large financial stakes and competition. As a result, parties often approach courts challenging the decision of the tender issuing authority over the eligibility of bidders, the selection process, or the interpretation of tender conditions. Aggrieved parties tend to seek judicial intervention under Article 226 of the Constitution of India to address perceived irregularities, arbitrariness, or bias in the process, as the courts are seen as protectors of public interest and the rule of law.

The role of Courts in tender processes has always been a subject of debate i.e. Should courts step in to review tender decisions, or should public authorities be allowed to manage their procurement processes independently. This article explores arguments for and against judicial interference in tender matters.

Arguments against Judicial Interference

The Courts have been consistent in expressing their reluctance in interfering in tender matters. Through a catena of judgments, the Courts clarified that:

• Judicial review of public authority decisions can occur only if the authority (i) has exceeded its powers; (ii) has abused its powers; (iii) has violated principles of natural justice; or (iv) has acted illegally, irrationally, or with mala fides or procedural impropriety.
• The Courts, lacking technical expertise in tender conditions, should focus solely on reviewing the decision-making process, not substituting their own judgment. The tender author, usually the project owner, is best suited to interpret the tender's requirements, and courts should refrain from second guessing this, even if multiple interpretations are possible.
• The authority's discretion should not be challenged unless there is evidence of malafide intent or a clear, obvious mistake in the decision-making process. There is an inherent need for transparency and fairness in the tendering process while allowing authorities some latitude in their evaluative judgment.
• Going a step further, the Supreme Court established a two-prong test for judicial interference in tender matters:

1. Is the authority's process or decision made with mala fides or intended favouritism, or is it so arbitrary and irrational that no reasonable authority could have reached such a decision?
2. Is public interest affected? If both answers are negative, there should be no interference under Article 226 of the Constitution.

Judgments in support of the proposition:

1. Tata Cellular v. Union of India 1994 (6) SCC 651
2. Raunaq International Ltd. vs. I.V.R. Construction Ltd.(1999) 1 SCC 492
3. Air India Ltd. vs. Cochin International Airport Ltd. (2000) 2 SCC 617
4. Jagdish Mandal v. State of Orissa (2007) 14 SCC 517
5. Afcons Infrastructure Ltd. vs. Nagpur Metro Rail Corporation Ltd. (2016) 16 SCC 818
6. Municipal Corporation, Ujjain vs. BVG India Ltd.(2018) 5 SCC 462
7. Airport Authority of India vs. Centre For Aviation Policy, Safety and Ors. (2022 SCC OnLine SC 1334)

Arguments in Support of Intervention

Although few and far between, there have been instances, as listed below where the Courts have taken a practical view and intervened in the tender process.

• In one case, the tender issuing authority had cancelled the tender after declaring L-1 on the ground that lower rates may be possible on re tendering and accordingly issued a fresh tender. The Court had set aside the new tender notice and directed the tendering authority to award the contract to the L-1 bidder.
• Similarly, in another case, the Court held that issuing a fresh tender would cause delays and losses and directed the tendering authority to consider the offer of the L-1 as it was willing to supply goods on same rates as to other organizations.
• On one occasion, the Court had set aside the tender cancellation order, as no reasons were provided. The Court emphasized that as per the legal principles laid down by the apex court, any decision on rejecting or recalling tenders must be reasoned as reasons being a necessary concomitant to passing an order, and arbitrary decisions are unacceptable.
• In yet another example, the Court interfered with the tender process as it was of considered view that once the final bid submitted by qualified bidders were opened, subsequent recalling and cancellation of tender process will definitely prejudice the rights and interests of the bidders, especially the "L-1" bidder. Therefore, the Court held that act of tendering authority of cancelling the Tender suffered from unreasonableness and arbitrariness.

Judgments referred and relied upon:

1. Inderjit Mehta vs Union of India (2015 SCC OnLine Del 11661)
2. Sdirmaxo Chemicals Private Limited vs Union of India and Others (2019 SCC OnLine Del 10623)
3. Sical Logistic Limited vs Mahanadi Coalfields Limited and Ors. (2017 SCC OnLine Ori 991)
4. Jalam Singh vs State of H.P. and Others (HP High Court, 07.01.2022),

VERDICT

Through its recent judgments in2022 & 2023 in M/s N. G. Projects Limited and Tata Motors Limited respectively, the Supreme Court has clarified that while the Public authorities have the discretion to award contracts to bidders who have "substantially complied" with the essential tender conditions, this power must be exercised in line with Article 14 of the Constitution. High Courts, under Article 226, have "tender jurisdiction" to ensure accountability and transparency, though their intervention is limited to cases where actions are arbitrary, biased, irrational, or mala fide. Courts should avoid delving into technicalities of tender documents, as this falls within the authority's domain.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.