17 December 1996
Supreme Court


Case number: C.A. No.-016734-016734 / 1996
Diary number: 78671 / 1996






DATE OF JUDGMENT:       17/12/1996




JUDGMENT:                THE 17TH DAY OF DECEMBER, 1996 Present:               Hon’ble Mr. Justice S.C. Agrawal               Hon’ble Mr. Justice G.B. Pattanaik K.   Parasaran,   Sr. Adv.   S. Ganesh,   Gaurab   Banerjee, R.N. Karanjawala, Arvind  Kumar, Ms. Ruby  Ahuja  and  Manik Karanjawala, Advs. with him for the appellants. Soli  J. Sorabjee,  V.A. Mohta,  Sr.  Advs.,  S.B. Upadhyay, Ashok Kr. Gupta,  Zaki Ahmad  Khan, Advs.  with then for the Respondents.                       J U D G M E N T The following Judgment of the Court was delivered:                       J U D G M E N T PATTANAIK. J.      Leave granted.      This Appeal  by Special  Leave is  directed against the judgment dated  10th October, 1996. By the impugned judgment the High  Court has quashed the ultimate decision of Paradip Port Trust in terms of the Resolution dated 23.8.96 to award the contract to AFCONS, the present appellant as well as the letter of  communication by  Paradip Port  Trust  to  AFCONS dated 24.8.96  and has  further directed  the Port  Trust to effect negotiations  with AFCONS,  the present  appellant as well as  the Trafalgar  House Construction of India Ltd. who was the  petitioner in  OJC and  respondent  no.  1  herein, giving them opportunity to make fresh offers and then lowest bidder should  be given  the  Award.  The  High  Court  also further directed  that if  there cannot  be  any  negotation within one month from the date of the judgment then the Port Trust will  be free  to ask for rebidding for the particular project which   is  the subject matter of the Writ Petition. It is  not necessary  to narrate  the entire  gamut of facts Suffice it to state that for  construction of Wharf intended for creation  of mechanised  handling facility  of  coal  at Paradip Port the Asian Development Bank at Manila had agreed to give  loan to the extent of 134.85 million US dollars and it was intended that a part of this amount would be utilised for the  construction  of  the  Wharf.  The  entire  project consist of  nine major  packages and  none completion of any package would  make the  entire project  unworkable. A  pre-



qualification notice was issued inviting the offers and then on receipt  of the  pre-qualification documents  those  were sent  to   a  Committee   for  evaluation.  The  consultants submitted their  evaluation recommending six firms including the appellant  and respondent  no. 1 for the construction of the Wharf.  The Tender  Committee of Port Trust reviewed the evaluation make by the consultants and recommended the names of all  the six  firms. The  aforesaid evaluation report was sent  to   the  Financial  Institution,  namely,  the  Asian Development Bank  for obtaining  its  views.  The  Board  of Trustees of  Paradip Port Trust thereafter approved the said six firms  and them  invited for  bids by their letter dated 27.9.95. The  last date  for submission  of  bids  was  27th December, 1995,  11.00 a.m.  Out of the six firms only three firms submitted  their  bids,  namely,  the  appellant,  the respondent no.  1 and  one  Muhibbah  Engineering  (M)  BHD, Malaysia. In  accordance with  the prescribed  procedure the bids were opened and were processed. After examining all the bids and  determination of  responsiveness  of  the  bidders three bids  were  sent  to  the  consultant  for  evaluation report. the  consultant found  some discrepancy  in the  bid documents about the amount of concrete required for pre-cast planks for  the Wharf  Deck. The  consultants then corrected the error  and  after  making  re-calculation  came  to  the conclusion that  respondent no.  1’s bid was the lowest. The Tender  Committee   of  Paradip   Port  Trust  accepted  the recommendation of the consultants and submitted the same for approval of  the Financial  Institution, namely,  the  Asian Development Bank.  The Bank  by its communication dated 23rd April, 1996,  stated that  they are  unable to  support  the approach set  out in  the Bid  Evaluation  Report  and  they cannot accept  the proposed  bid change in the quantity. The Bank also  came to  the conclusion that the lowest evaluated substantially  responsive  bidder  is  AFCONS,  the  present appellant, and  accordingly recommended that the contract of construction of  the Wharf  be awarded to AFCONS. On receipt of the  views of  the Bank  and since  substantial amount of finance was  to be  given by the Bank as loan the Port Trust again  asked   their  consultants   about  the  earlier  bid evaluation.  The  Special  Tender  Committee  again  met  on 16.5.96 and  then formulated  its views and communicated the same to  the Bank  on 12.5.96.  The Bank  wrote back  on 5th June, 1996 suggesting that the contract be awarded to AFCONS so that  the words  can be financed from the loan and if the contract is  awarded to  anyone else  then no  loan would be financed and  if the  Port Trust  is inclined  to rebid then also there  would  be  no  loan  from  the  Bank.  The  Bank indicated that  the suggestions  given by the Bank is on due consideration of  the practicability  of mobilizing  finance quickly. On  receipt of  the said response from the Bank the Tender Committee met on 14.6.96 and then decided to call the appellant to  have some clarifications. In the meeting dated 17.6.96 the  appellant appeared  before the Tender Committee and responded  to the  clarification sought for. The Project Manager addressed  a letter  on  12th  July,  1996,  stating therein that  if the  additional commercial  information has been available  at the  time of  assessment then the outcome would appear  to favour  award to  AFCONS. it  also  further stated that  completing the  bid evaluation  and making  its recommendation of  award to Essar the consultant has done so in a  professional  and  impartial  manner  based  upon  the information available  at that  time. It  was further stated that in  view of  the additional  information now  available there was no technical barrier or commercial disincentive to award to  AFCONS, the  appellant herein. But even before the



award was made in favour of the appellant the respondent no. 1 had  approached the  High Court,  obviously being aware of the fact  that the  appellant’s bid  is going to be accepted and after  the final  award in  favour of  the appellant  by Board’s Resolution dated 3rd August, 1996, the Writ Petition was amended  seeking the  relief of quashing of the award in question.      The appellant in its counter-affidavit filed before the High Court  not only denied the allegations made in the Writ Petition but  also submitted  that factually all through the bid of the appellant has been the lowest. It was also stated that the  consultant has  not taken into account the customs duty which  was  payable  while  making  the  evaluation  in question. The Paradip Port Trust in its affidavit before the High  Court  had  urged  that  since  the  loan  was  to  be sanctioned by  the Asian  Development  Bank  and  the  Asian Development Bank  did not  agree to  sanction  loan  if  the contract is  awarded to  Essar or the contract is re-bid, on reconsideration of  the  entire  situation  the  Port  Trust awarded the  contract in  favour of  the appellant. The Port Trust  also   stated  that  on  receipt  of  the  additional information and taking into consideration the same the Trust was of  the view that the award to AFCONS would appear to be acceptable and  appropriate. The  Port Trust further made it clear that the re-bid was not in the interest of the project and not  only it would jeopardise the entire loan sanctioned by the Asian Development Bank but there is every possibility of bid being substantially higher.      The High  Court by  the impugned  judgment took note of several clauses  of the  bid  documents  which  consists  of several parts  and come  to the conclusion that the award of contract should  be made  to the  bidder whose  bid has been determined to  be the lowest evaluated bid and who meets the appropriate   standards    of   capability   and   financial responsibility. It  also came  to the  conclusion that under the  documents  there  is  a  scope  for  amending  the  bid documents and there is scope for modification of the bids as well as  there is scope for correction of errors. It further come to  the conclusion  that a  detailed procedure has been laid down  to appreciate  the  responsiveness  of  the  bids technically and  there is also a scope for evaluation of the bids. The  High Court  further came to hold that "It is also not appreciated  and it  has not  been  explained  by  Asian Development Bank authorities who have not cared to appear in the case  inspite of notice, as to why the Asian Development Bank authorities  did not  appreciate the  evaluation of the bids and  on correction  the offer  of the petitioners being lower than  that of  AFCON. The  special fancy  of the Asian Development Bank authorities in favour of AFCON has not been justified with  reasons before  this Court  for reasons best known to  the Asian Development Bank authorities." According to the  High Court the power of judicial review in the arena of contractual  jurisdiction has  been widened  as has  been held by  the Supreme Court in Mahabir Auto Stores & Ors. vs. Indian Oil  Corporation &  Ors. (1990) 1 SCR 818, as well as in Food  Corporation of  India vs. M/s. Kamdhenu Cattle Feed Industries (1993)  1 SCR  71, but  each  case  has  its  own peculiar facts and circumstance and ultimate decision has to be arrived at as the situation demands under  the parameters  of law  as it permits. Having considered the  facts and circumstances leading to the award of contract in favour of the appellant the court came to the conclusion that  it would be in the public interest to quash the award  in favour  of the  appellant and  accordingly  it quashed the same and issued directions, as already stated.



    Mr. Parasaran, learned senior counsel appearing for the appellant submitted  that the  award of  a contract  by  the State or  a public  authority can  no  doubt  be  judicially reviewed but  a court  would interfere  with the award if it comes to  the conclusion  that  the  award  of  contract  is vitiated  by   arbitrariness,  unfairness,   illegality   or irrationality. In  other words,  if the mistake committed by the authority  in awarding  the contract is of such a nature requiring intervention  then the  court may  set  right  the decision. In  this view  of the  matter and  in view  of the revised opinion  of the  Trust dated 12th July, 1996, an the opinion of  the Asian  Development Bank  who is to grant the loan for  completion of  the project  the High Court was not justified in  interfering with  the contract award in favour of the  appellant. He  further contended  that in project of this magnitude with which the Court was concerned, since the lowest tendered has no right to get the contract, unless the decision of  the authority  in awarding  the contract can be said to be vitiated with arbitrariness or undue favouratism, it would  not  be  for  the  court  to  interfere  with  the decision. Mr.  Parasaran,  learned  senior  counsel  further urged that  the conclusion of the High Court that respondent no.1 was the lowest bidder is factually incorrect and on the other  hand   the  appellant   in  all  situation  prior  to negotiation as well as after the negotiation continued to be the lowest  bidder and,  therefore, there  was no  infirmity with the  decision of  the Asian  Development Bank approving the bid  of the  appellant and  there was no illegality with the decision  of the  Paradip Port  Trust  in  awarding  the contract in favour of the appellant.      Mr. Sorabjee,  learned  senior  counsel  appearing  for respondent no.  1 and  Mr. Mohta,.  learned  senior  counsel appearing for  respondent no. 3 on the other hand contended, that in view of the conceded position as noticed by the High Court that on error being corrected it is the respondent no. 1 who  was the lowest bidder and yet the authorities awarded the contract  in favour  of the appellant, it was sufficient for the  court to  annul the  decision in  the larger public interest. Mr. Sorabjee, learned senior counsel further urged that the  power to award contract lies with the Paradip Port Trust and  Port Trust  had been  forced by the Bank to grant the contract  in  favour  of  the  appellant.  As  has  been observed by  the High  Court itself  Bank did not appear nor had given  any explanation for preferring the appellant that respondent no.  1 even  though respondent  no. 1    was  the lowest bidder.  Consequently such decision on the face of it must be  held to  be arbitrary  and the High Court was fully justified in  interfering with  the decision of awarding the contract in  favour of  the appellant. Mr. Sorabjee, learned senior counsel  also urged that if this court is of the view that a  re-bidding would  take an  undudly long period which may eventually  result in  escalation of  the cost then this Court may  issue appropriate direction as it thinks fit. Mr. Sorabjee, learned senior counsel also in course of arguments produced  before   us  a   telex  message   from  the  Asian Development Bank  whereunder the  Bank  has  agreed  to  the direction of  the High  Court for  re-bidding but  indicates that  re-bidding   has  to  be  carried  out  following  the procedure acceptable  to the  Bank  which  will  included  a bidding period  of atleast  60 days  and,  therefore,  there cannot be  any objection  to the direction of the High Court for re-bidding.      Mr. Upadhyay,  learned counsel  appearing  for  Paradip Port Trust  on the  other hand  submitted that  the ultimate decision of the Trust awarding the contract in favour of the



appellant neither  can be said to be arbitrary nor unfair or illegal and  on the  other hand,  the decision  was  in  the public interest  and,   therefore, it was not proper for the High Court  to interfere with the said decision. The learned counsel further  urged that  in the  mean time agreement has already been executed and the direction of the High Court to negotiate  with  the  parties  did  not  yield  result  and, therefore, the  only other option is for re-bidding and such a re-bidding  will not  only consume  further  time  as  the procedure for  re-bidding will  have to  be adhered  to, but also the  possibility of  escalation of  cost  on  such  re- bidding cannot  be obviated  and, as  such in  the    larger public interest the appellant should be permitted to execute the work.      Having  considered   the  rival  contentions  the  only question that  arises for  our consideration  is whether the High Court  was justified  in the facts and circumstances of the case  to interfere  with the award of contract in favour of  the   appellant  and  whether  such  interference  would subserve any public interest for which the Court purports to have exercised its power of judicial review.      The Asian  Development Bank  came into  existence under and Act called the Asian Development Act, 1966, in pursuance of  an   International  agreement   to  which  India  was  a signatory. This  new financial  institution was  established for acceleration  the economic  development of  Asia and the Fast East. Under the Act the Bank and its officers have been granted certain  immunities, exemption and privileges. It is well known  that it is difficult for the country to go ahead with  such   high  cost   projects  unless   the   financial institutions like  World Bank or the Asian Development Banks grant loan  or subsidy,  as  the  case  may  be.  When  such financial institutions  grant such  huge  loan  they  always insist that  any project  for which loan has been sanctioned must be carried out in accordance with the specification and within the scheduled time and the procedure for granting the award must  be duly adhered to. In the aforesaid premises on getting the  evaluation bids of the appellant and respondent no. 1  together with  the  consultant’s  opinion  after  the socalled corrections  made the conclusion of the bank to the effect "the lowest evaluated substantially responsive bidder is  consequently   AFCONS"  cannot  be  said  to  be  either arbitrary  or   capricious  or   illegal  requiring  court’s interference in  the matter  of an  award of contract. There was some  dispute between  the Bank  on  one  hand  and  the consultant who  was called  upon to evaluate on the other on the question  whether there  is  any  power  of  making  any correction to  the bid  documents after  a specified period. The High  Court in  construing certain  clauses of  the  bid documents has  come to the conclusion that such a correction was permissible  and, therefore,  the Bank  could  not  have insisted  upon  granting  the  contract  in  favour  of  the appellant. We  are of the considered opinion that it was not within the permissible limits of interference for a court of law, particularly  when there  has  been  no  allegation  of malice or  ulterior motive  and particularly  when the court has not  found any mala fides or favouratism in the grant of contract in  favour of  the appellant.  In Tata Cellular vs. Union of India (1994) 6 SCC 651 this Court has held that :      "The  duty   of  the  court  is  to      confine itself  to the  question of      legality. Its concern should be:      1.   Whether    a   decision-making      authority exceeded its powers.      2. Committed an error of law.



    3. Committed  a breach of the rules      of natural justice,      4.  reached  a  decision  which  no      reasonable  tribunal   would   have      reached or,      5. abused its powers.      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 its;      (ii)     Irrationality,     namely,      Wednesbury unreasonableness.      (iii) Procedural impropriety.      The  above   are  only   the  broad      grounds but  it does  not rule  out      addition  of   further  grounds  in      course of time."      Therefore, though  the  principle  of  judicial  review cannot be denied so far as exercise of contractual powers of government bodies  are concerned,  but  it  is  intended  to prevent arbitrariness  or favouritism and it is exercised in the larger  public interest  or if  it   is brought  to  the notice of  the Court  that in  the  matter  of  award  of  a contract  power   has  been  exercised  for  any  collateral purpose. But on examining the facts and circumstances of the present case  and on  opinion that  non of  the criteria has been satisfied  justifying court’s interference in the grant of contract  in favour of the appellant. We are not entering into the controversy raised by Mr. Parasaran, learned senior counsel that  the High  Court committed  a factual  error in coming to  the conclusion  that respondent  no.  1  was  the lowest bidder  and the  alleged  mistake  committed  by  the consultant in  the matter  of bid  evaluation in  not taking into account  the customs  duty and  the   contention of Mr. Sorabjee, learned  senior counsel  that it has been conceded by all  parties concerned  before  the  High  Court  tat  on correction being  made  respondent  no.  1  was  the  lowest bidder. As  in our  view in  the matter of a tender a lowest bidder may  not  claim  an  enforceable  right  to  get  the contract though  ordinarily the concerned authorities should accept the lowest bid. Further we find from the letter dated 12th July,  1996, that Paradip Port Trust itself has come to the following conclusion :-      "the technical capability of any of      the three  bidders to undertake the      works is not in question.      two of  he bids are very similar in      price.      If      additional       commercial      information  which   has  now  been      provided by bidders through Paradip



    Port Trust,  had been  available at      the time of assessment, the outcome      appear  to   the  favour  award  to      AFCONS."      This being  the position,  in our  considered  opinion, High Court  was not  justified in interfering with the award by going into different clauses of the bid document and then coming  to  the  conclusion  that  the  terms  provided  for modification or  corrections even after a specified date and further coming  to the conclusion that respondent no.1 being the lowest  bidder there was no reason for the Port Trust to award the  contract in  favour of  the appellant.  We cannot lose sight of the fact of escalation of cost in such project on account  of delay  and the time involved and further in a coordinated project  like this,  if  one  component  is  not worked out  the entire project gets delayed and the enormous cost on that score if re-bidding is done. The High Court has totally  lost   sight  of  this  fact  which  directing  the rebidding. In our considered opinion direction of re-bidding in the  facts and  circumstances of the present case instead of being in the public interest would be grossly detrimental to the public interest.      In  the  premises,  as  aforesaid,  we  set  aside  the impugned judgment  of the  Orissa High  Court and  direction that the contract awarded in favour of the appellant Paradip Port Trust  be affirmed  and the  appellant may  execute the work expeditiously.  We  further  make  it  clear  that  the appellant will  not be  entitled to  claim any escalation of the bid  amount on  the ground  of any  delay in issuing the work order  on  account  of  the  pendency  of  the  present litigation. This  appeal is,  therefore, allowed. But in the circumstance without any order as to costs.