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PETITIONER: COCHIN  INTERNATIONAL AIRPORT LTD.

       Vs.

RESPONDENT: CAMBATTA AVIATION LTD. & ORS

DATE OF JUDGMENT:       31/01/2000

BENCH: G.T.Nanavati, S.N.Phukan

JUDGMENT:

JUDGEMENT G.T.NANAVATI

     Both these appeals arise out of the judgment of Kerala High  Court  in  Writ  Appeal No.  462  of  1999.   Cambatta Aviation  Ltd.  9hereinafter referred to as ’Cambatta’)  had filed  that appeal against the decision of a learned  Single Judge of that High Court in O.P.  No.  25560 of 1998 whereby its  said  petition was dismissed.  Cambatta had  challenged the  action  of the Cochin International Airport Ltd.   (for brevity sake referred to as the ’CIAL") of awarding contract for  ground  handling services at the new Cochin Airport  at Nedumbassery  to  Air India Ltd.  The learned  single  Judge held  that the impugned action of CIAL was neither arbitrary nor  illegal.   On appeal Division Bench of that Court  held that  the said action was vioiative of principles of natural justice, arbitrary and illegal.

     CIAL  is  a  public sector  undertaking.   Some  other public  sector undertakings and the State of Keraia are  its shareholders.   It  has been established for setting up  and maintaining  a  new  International Airport at  Cochin.   For awarding  a  contract for ground handling facilities at  the new  Airport  it invited offers by writing letters  to  some companies  having experience of that type.  The letters were written  on 12.11.1997 to Cambatta;Air India and six others. Proposals were ^o^e’ submitted by 31.12.1997.  Kambatta, Air India,  M/s  DNATA of Dubal, M/s Ogden Aviation Services  of Hong  Kong and M/s P.S.M.  Aviation Pvt.  Ltd.  - responded. Proposals  of  some of them contained alternative  proposals also.   On 13.7.1998 CIAL again wrote to them to make  their best offers on or before

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     28.7.1998.   Air  India  submitted   its  proposal  on 20.7.1998.

     Cambata did so on 28.7.1998.

     The  Committed  constituted by CIAL for evaluation  of the  offers  met on 28.9.1998.  It found that Cambatta,  Air India,  DNATA  and  Ogden Aviation were on  par  as  regards technical  competence,  organisationai   capacity  and  past experience.   It took note of the fact that Cambatta and Air India  are Indian organisations, operate mainly in India and

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have  better  proven  adaptability for operating  in  Indian conditions.   Out  of those two it recommended Cambatta  for awarding  the  work.  On 11.8.1998 the Government  of  India wrote  a letter to the Government of Kerala recommending Air India for awarding the contract on the ground that Air India is   the  national  carrier   and  has  better   experience. Thereafter  a  meeting  took   place  between  the  Managing Director  of  Air  India and the Chief Minister  of  Kerala. That  was  followed by a letter dated 29.10.1998 by Mr.   P. Mascarenhas,  Managing  Director of Air India to  the  Chief Minister  of  Kerala seeking an opportunity to make  a  more detailed presentation to the Board of CIAL on the advantages CIAL  would derive if Air India was appointed its  exclusive handling agent.  The Board of Directors met on 7.11.1998 and decided to have a

     4  detailed discussion with Air India before taking  a final decision and informed it to give a presentation before the  Board  on 27.11.1998.  Having come to know  about  this development^  Cambatta  wrote a letter on 10.11.1998 to  the Chief  Minister of Kerala pointing out that their company is also an Indian company and they also have experience of over 30 years in ground handling work.  It also took exception to the  effort  made  by Air India to revise its offer  on  the ground that it was unethical and deserved to be condemned by the  Board.   It  again  wrote  to  the  Chief  Minister  on 12.11.1998  against giving preference to a national  carrier in  view  of  the policy of  liberlisation.   On  23.11.1998 Cambatta  wrote to CIAL that it was extremely perturbed over the  fact that Air India was given a further opportunity  to make  a presentation to the Board and requested it not to go back  upon  its  earlier decision to give  the  contract  to Cambatta.   It also warned that not adhering to its  earlier decision would be a retrograde step and shake the confidence of  the  people in fairness and impartiality of  CIAL.   Air India  gave  the  presentation  and   by  its  letter  dated 1.12.1998,  reaffirmed  its  proposal With some  changes  as discussed  and requested CIAL to accept it as it was  better than  the  offer made by any other party.   Cambattta  again protested by its letter dated 7.12.1998 and

     informed  CIAL that to accept the revised offer of Air India  and  not  to  accept its offer would  be  unfair  and unethical  and  violative  of   Limited  Global  Competitive Building  Norms.  On 12.12.1998 the first respondent awarded the contract to Air India.

     Cambatta  filed  a  writ petition in the  Kerala  High Court  challenging that action of CIAL.  Its contention  was that  its offer was the highest and it had fulfilled all the conditions.   The  offer  given by Air India  did  not  come anywhere near their offer, yet the contract was given to Air India  because  of  influence exerted by Air India  and  the Secretary  of  Ministry  of  Civil Aviation.   It  was  also challenged  on the ground that CIAL had not acted fairly and impartially as It had carried on negotiations with Air India behind  the back of Cambatta and no opportunity was given to Cambatta  to give a better offer.  In the counter  affidavit filed  on  behalf of CIAL it was stated that this was not  a case  where  tenders were invited.  It was a project  to  be implemented  by  raising finances from various sources  and, therefore,  it  was  decided to invite offers  from  reputed agencies  in  order to decide best terms and conditions  and then to award the contract to the best suited party in order to  make the project viable and successful.  It was  further

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stated that individual offers

     6  were  assessed  considering   the  background   and Infrastructure  of the companies, their financiat  capacity, expertise  and future benefits likely accrue to CIAL.  While awarding  the contract to Air India what had weighed with it was,  apart  from it selection by the evaluating  Committee, that  it is a public sector unit, the national carrier under the  Government of India and that it had offered to  support CIAL  in  a  big  way byshowing its  willingness  in  equity participation.   It  had also taken into  consideration  the fact that Cambatta was not a airline operator like Air India and  its  interest  and  expertise  was  limited  to  ground handling  work alone.  Air India had also offered to help in improving  the  revenue  of CIAL by increasing  Air  Traffic through the Cochin Airport.  Thus, on a comparative analysis of  the  offers made by Cambatta and Air India it was  found that  the  offer  made  by Air India  was  better  and  more beneficial  to  CIAL.  The petition was heard by  a  learned Single  Judge  of the High Court who held that there was  no illegality,  arbitrarmess  or  un   reasonableness  in   the decision  making process of CIAL and the decision was  taken bonafide  afterevaluating  both  the  offers  and  on  being satisfied  that  in  the matter  of  experience,  expertise, infrastructure and financial capacity the offer of Air India was superior and more bsneficiai.  As regards the allegation of actual mala fides the

     9  exercising Its power under Article 226 ought not to have  Interfered as no substantial amount of public interest was Involved.

     The  law relating to award of a contract by the State, its  corporations and bodies acting as instrumentalities and agencies  of the Government has been settled by the decision of  this  Court  in R.D.   Shotty  vs.Intarnational  Airport Authority  [(1979) 3 SCC 483J, Fertilizer Corporation Kamgar Union  vs.   Union  of  India 1(1981)  I  SCC  568],  Asstt. Collector,  Central Excise vs.  Dunlop India Ltd.  [(1985) I SCC  260],  lata Cellular vs.  Union of India f(1994) 6  SCC 651J,  Ramnikial  N.   Phutig  vs.   State  of  Maharaslitra [(1997)  I  SCC  134] and Bauliaq Inlernationa!   Ltd.   vs. I.V.R.  Construction Ltd.[(1999) I SCC 4923.  The award of a contract,  whether  it is by a private party or by a  public body  or the State, is essentially a commercial transaction. Inarhvingat acommercial decision considerations which are of paramount  are  commercial  considerations.  The  State  can choose  Its own method to arrive at a decision.  It can  fix its  own terms of Invitation to tender and that is not  open to judicial scrutiny.  It can enter into negotiations before finally deciding to accept one of the offers

     10  made  to  it.  Price need not always be  the  sole criterion  for awarding a contract.  It is free to grant any relaxation,  for bona fide reasons, if the tender conditions permit  such a relaxation.  It may not accept the offer even though  it happens to be the highest or the lowest.  But the State, its corporations,.  instumentalities and agencies are bound  to  adhere to the norms, .  standards and  procedures laid  down by them and cannot depart from them  arbitrarily. Though that decision Is not amenable to judicial review, the Court  can examine the decision making process and interfere if  it is found vitiated by mala fides, unreasonableness and arbitrariness.     The     State,      Its"    corporations, instumentalities  and  agencies have the public duty  to  be

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fair  to  all concerned.  Even when some defect is found  in the  decision  making  process the Court must  exercise  Its discretionary power under Article 226 Wlth great caution and should  exercise  it only in furtherance of public  interest and  not  merely  on the making out of a legal  point.   The Court  should always keep the larger public interest in mind In order to decide whether its Intervention «s called for or not.   Only when It comes to a conclusion that  overwhelming public  interest  requires  interference  the  court  should intervene.

     -"."’>o ^’’

     II  In  view  of  this  settled  legal  position,  Mr. Andhyarujina,  learned senior counsel appearing for Cambatta rightly  and fairly did not dispute that CIAL was not  bound to accept the highest offer or that It was entitled to enter Into  negotiations  with Air India.  What he  contended  was that  CIAL  ought to have treated all the tenderers  fairly. As Air India was given an opportunity to give a presentation and  revise  Its  offer It ought to have given a  chance  to Cambattaalso-to  have Its say with respect to the offer made by  Air  India and to match its offer with the offer of  Air India.   He  submitted  that the  evaluation  committee  had recommended  Cambatta  for  awarding   the  contract   after considering  all the relevant factors and, therefore, it was incumbent  upon the Board of Directors to disclose why  they differed  from the said recommendation and decided to accept the offer of Air India.  He also submitted that the decision of  CIAL was vitiated because of the influence exercised  by Air  India  and  the  Ministry of Civil  Aviation  and  also because   It   took  Into    consideration   an   irrelevant consideration  that Air India is a public sector undertaking and a national carrier.

     What was emphasised by Mr.  Nariman and Mr.  Venugop^i is that CIAL was incorporated to set up a new private

     12   Internat’onal   Airport.     At   all   airports, permissions  for operating aircraft, maintenance,  licensing of  crew  and flying schedules of airlines is controlled  by the Directorate General of Civil Aviation.  Applications for hangar  space,  landing  and parking facilities  and  ground handling are made to and granted by the Airport Authority of India.  This was the first attempt to privatise.  Therefore, CIAL,’  in order to make its project viable and  successful, after  taking into consideration various factors, decided to entrust  the task of providing ground handling services  for all  airlines  operating  from  the airport  to  one  single agency.   For  achieving this purpose it invited  offers  by writing  letters  to eight reputed agencies to enable it  to decide  the  best  terms  and conditions  for  awarding  the contract  .and  to select the best agency.   They  submitted that,  for  these  reasons, it did not choose to  adopt  the public  tender mode.  In its counter affidavit filed in  the High Court this position was made clear.  What was stated in the counter affidavit was as under:

     "The  object of inviting their offers was only to  get the  terms and conditions of  the respective companies  for consideration  by the Board of Directors of this  respondent and  to  select  the  best suited to  the  interest  of  the respondent.   Being  a  new project implemented  by  raising finance from various sources all

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     efforts  were made to make the project viable.   Hence when  Ext.   Rl  (a)  letter was sent  inviting  offers  the paramount  consideration  was to get the best offer for  the benefit  of  the  1st  respondent.   There  was  no  minimum estimated  amount  or  other conditions for  acceptance  and rejection like the usual tender procedure."

     The High Court was also of the view that if the offers were  made only pursuant to the letter dated 12.11.1997  the respondents would have a good case.  But in view of Board of Directors’  decision to be fair and the ClAL’s letter  dated 13.7.1998  calling upon the tenderers to give the best offer before  it took a final decision and informing them that the contract  period would be 10 years and the subsequent letter dated  5.8.1998  requiring  the  tenderers to  give  a  bank guarantee,  CIAL  was bound to treat this case as a case  of public  tender and for that reason It was not open to it  to say  that  it was free to accept that offer which  was  best suited  to  it.  It js, however, not necessary to deal  with this  aspect  more  elaborately and point out how  the  High Court’s  view is wrong as it was not disputed by the learned counsel  appearing for Cambatta that it was open to CIAL not to  accept  the  highest offe.  of Cambatta if it  had  good reasons  to  do so.  It was at no point of time  dedared  by CIAL  that  it would accept the highest offer or accept  the offer on a particular basis.  All along it had

     14  made  clear that it would accept that offer  which was found to be the best in their interest.

     The  only point that really falls for consideration is whether  CIAL  had acted fairly after it had  Invited  fresh offers  by  its letter dated 13.7.1998..  It was  forcefully submitted  by  Mr.  Andhyarujina that after the  High  Level Committee  had  evaluated the proposals and recommended  Air India  for the job it was unfair on the part of CIAL to have permitted  Air India to make a fresh presentation and revise its  terms.   Even while conceding that CIAL had  aright  to enter into negotiations even at that stage, it was submitted that Cambatta also should have been invited for negotiations and  informed about the revised terms of Air India.  It  was submitted  that  like Air India, Cambatta should  have  been given  an opportunity to match the offer made by Air  India. From the letter written by CIAL to Cambatta on 13.7.1998 and similar  letters written to others also, it appears that the Board  of  Directors had, in its meeting held on  29.6.1998, taken  certain  decisions  and  felt that  in  fairness  all eligible  agencies  should be requested to give  their  best offers.   Air India had submitted its offer on 20.7.1998 and stated  therein  that ;ts offer was opan  for  negotiations. Cambatta had

     15  submitted its offer on 28.7.1998.  It was made  on the  basis of certain assumptions.  CIAL had in ail received five  offers.   The  High Level  Committee  constituted  for evaluation  of  offers  did not consider the  offer  of  M/s P.S.M.   Aviation  Pvt.  Ltd.  as it had not  submitted  the required  bank guarantee.  The other four agencies,  namely, Cambatta,  DNATA, Air India and Ogden, were found on par  ss far  as  technical competence, organisational  capacity  and past  experience  was concerned.  It, however, short  listed Cambatta  and  Air India on the ground that they are  Indian organisations,  operate mainly inindia and has better proven

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adaptability  for  operating in Indian conditions.  It  then recommended  Cambatta  for undertaking the  ground  handling services  without  giving any reason for its preference  for Cambatta.   While making the decision the Committee observed that  it  would  be for the Board of Directors  to  consider whether  any- negotiation should be held with the  qualified agencies.   The Board of Directors had then met on 7.11.1998 and  after  taking  note of the minute?  of the  high  leve! committee  and  taking note of the fact that Air India is  a public sector undertaking and a national carrier, decided to have  a  detailed discussion with Air India before taking  a final  decision.   It,  therefore,   invited  the   Managing Director of Air India for giving a presentation before

     16  the  Board  on 27.  II.  1998.  It was  also  felt necessary to take a final decision in its next meeting to be held  on 27.11.1998 as the matter was pending since long and it  was  necessary  to solve the financial crunch  of  CIAL. Cambatta  had protested against giving of an opportunity  to Air  India  to  make  a presentation by  its  letters  dated 12.11.1998  and 23.11.1998 on the ground that what was being done  by  CIAL  was  Improper and  In  violation  of  globa! competitive  bidding  norms.   In spite of  the  protest  of Cambatta  the Board of Directors of CIAL permitted Air India to  make  a presentation for outlining in detail its  ground handling  capabilities, packages of services which it wished to  offer and other relevant advantages including financial. Air  India  by Its letter dated 1.12.1998 recapitulated  the details  of  the.  offer which It had already made, and  the subsequent  presentation and discussion on-27.II.1998.   The said  letter  discloses that some changes were made  by  Air India  in  its original offer to make It more acceptable  to CIAL.   In  that letter it was also indicated that it  wouid try  to enhance Air India and other Airlines’ - domestic and international  operations through CIAL and pointed out  that "n?y through maximisation of operations this new venture can be a profitabiG one at an early date.  Cambatta again by its letter  d^ted  7.12.1998 reiterated that its offer  was  the highest (most

     17  favourable to CIAL) and that it would be unfair to accept  the  revised  bid  of Air India.  In  spite  of  the protests  of Cambatta, CIAL, by Its letter dated 12.12.1998, informed  Air India that the Board of Directors had  decided to accept the revised offer of Air India.  ’

     .   .   .  This narration of facts makes it dear  that all  along,  after the High Level Committee had  recommended Cambatta  for  awarding  the  contract,  what  Cambatta  was contending  was that CIAL having accepted the limited global competitive  bidding  norms and having decided 28.7.1998  as the  last date for inviting final offer, it was not open  to it thereafter to negotiate with Air India behind the back of Cambatta  and  permit Air India to revise its  offer.   Even though  Cambatta  had  written protest letters, it  had  not requested CIAL to give it any opportunity to negotiate or to improve  upon  Its  offer.  The decision of the  High  Level Comrnuttee.was   obviously  not  the   final  decision   and certainly  it was not binding on the Board of Directors  who were the final authority to take the decision.  The Board of Directors,  at the meeting heid on 7.11.1998, considered the proposals  of  Air India and Carnbatts rnd appears  to  have taken  a  tentative  decision to award the contract  to  Air India and, therefore, called It for

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     negotiations with a view to have better terms and take the  final  dedsion.   The Board of Directors did  take  the final decision on 27.11.1998 as Air India agreed to make its offer more beneficial to CIAL.  Thatat becomes apparent from Air  India’s letter dated 1.12.1998.  The Board of Directors having  taken  tentative decision on 7.11.1998 there was  no point  in  calling Cambatta thereafter for any  negotiation. It  may  be recalled that Cambatta was recommended over  Air India  by  the High-Level Committee only because  Cambatta’s financial  rating was found higher.  What is significant  to note  is  that even the High ’Level ’ Committee had  in  its minutes  noted  that  financial rating cannot’ be  the  sole criterion  for  taxing the final decision.  Moreover, ’in  a commercial  transaction  of such a complex nature a  lot  of balancing  work  has  to  be done  while  weighing  ail  the relevant  factors  and  the final decision has to  be  taken after  takinging an overall view of the transaction.  It  is true  that  even  though Cambatta had called  upon  CJAL  to produce the minutes of the meeting of the Board of Directors held  on  27.11.1995  the  same was not  made  available  to Cambatta.   But that did not entitle the High Court to  draw any  adverse inference.  The High Court had not called  upon CIAL to produce those minutes.

     19  As  regards the merits of Cambatta’s proposal,  it was contended by Mr.  Andhyarujina that all the three offers of  Cambatta were superior in terms of parameters laid  down by  CIAL  than  Air India’s offer.  He submitted  that  even after  CIAL unllaterally raised the license fee of Air India from  17  per cent to 20 per cent in the 10th year to  match Cambatta’s  offer  and  imposed a condition that  Air  India would  not  sub-contract, it did not become comparabie  with the  offer  of Cambatta as Air India did not offer to pay  2 per  cent bonus in license fee.  It was also submitted  that Air  India’s  representation that it would be able to  bring more  traffic  was  illusory and for that  reason  also  Air India’s  proposal  cannot  be regarded as superior  or  even comparable  with the proposal of Cambatta.  We do not  think that  CIAL  did any wrong in taking into  consideration  the fact  that  Air  India is an airline and  being  a  national carrier  would be in a position to bring more traffic of Air India  and  other  domestic  lines if  It  was  awarded  the contract.   As regards the merits of the rival offers, we do not think it proper to look at only the financial aspect and hold  that CIAL did not accept Cambatta’s offer, even though it was better, because it wanted to favour Air India or that it  had  acted  under  the influence of Air  India  and  the Ministry  of Civil Aviation.  In a commercial transaction of a complex

     20 nature what may appear to be better, on the face of it,  may not be considered so when an overall view is taken. In  such  matters the Court cannot substitute it’s  decision for the decision of the party awarding the contract.  On the basis  of  the material placed on record we find  that  CIAL bona   fide   believed  that   involving  a  public   sector undertaking  and a national carrier would, in the long  run, prove  to be more beneficial to CIAL.  For all these reasons it  is  not possible to agree with the finding of  the  High Court  that CIAL had acted arbitrarily and unreasonably  and was also influenced by extraneous considerations during, its decision making process.  .--.-

     We,  therefore, allow these two appeals, set aside the

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judgment  of the Division Bench of the Kerala High Court  in Writ Appeal No.  462 of 1999 and confirm the decision of the learned Single Judge in O.P.  No.  25560 of.1998.