17 December 1996
Supreme Court







DATE OF JUDGMENT:       17/12/1996




JUDGMENT:                      J U D E G M E N T PATTANAIK, J.      Leave granted.      This Appeal  by Special  Leave is directed  against the judgment dated  10th October, 1996, of the Division Bench of Orissa High Court in Original  Jurisdiction case No. 6457 of 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 rebinding  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 consists 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 made 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 then  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 dared 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 works  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 clarifications sought for. The Project Manager addressed  a latter  on  12th  July.  1996,  stating therein the  if the  additional commercial  information  had been available  at the  time of  assessment then the outcome would appeal  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’s bid 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  hot only  denied the allegation made in the Writ



Petition but  also submitted  that factually all through the bid on the appellant has been the lowest. IT was also stated that the  consultant had  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 farther made in clear that the re-bid was not in the interest of the project and not  only in would jeopardise the entire loan sanctioned by the  Asian Development Bank 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 came  to the conclusion that the award of contract should  be made  to the  bider 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 came to  the conclusion  that a  detailed procedure has been laid down  to  appreciate  the  responsiveness  of  he  bids technically and there is also a scope for evaluation for 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  reason before  this Court  for  reason  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 SCC  71, but  each  case  has  its  own peculiar facts  and circumstances  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  i the public interest to quash the award in favour of the  appellant and  accordingly in  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 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, and 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 a project of this magnitude with which the Court was concerned, since the lowest tender  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 of 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 lowest  bidder is  factually incorrect and no 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 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 had 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  annual the  decision in the larger public interest. Mr.  Sorabjee, learned senior counsel further. 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  nor  appear  nor  had  given  any explanation for preferring the appellant than respondent no. 1 even  though respondent  no. 1  was  the  was  the  lowest bidder. Consequently  such decision  on the face of the 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 producer acceptable to  the Bank  which with include a bidding period of atleast  60 days  and, therefore,  there  cannot  be  any objection to  the direction  for 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 an 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 accelerating the  economic development  of Asia  and the Far 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  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 the court of law,  particularly when  there has  ben 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 very 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 understand correctly      the law that regulates his decision      making power  and must  give effect      to it;      (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  going through  the records  we are of the considered opinion  that  none  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 that  on corrections 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 Pardip Port Trust itself has come to the following conclusion:-      "the technical  capability  any  of  three  bidders  to undertake the works is not in question.      two of the bids are very similar in price.      If additional commercial information which has now been provided by  bidders through  Pardip Port  Trust,  had  been available at  the time  of  assessment,  the  outcome  would appear to the favour award to AFCONS."      This being  the position,  in our  considered  opinion, High Court was no 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 modifications 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  to  this  fact  while  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 direct 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  circumstances without any order as to costs.