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CASE NO.: Appeal (civil)  2407 of 2411

PETITIONER: Directorate of Education & Ors.                                  

RESPONDENT: Educomp Datamatics Ltd. & Ors.                           

DATE OF JUDGMENT: 10/03/2004

BENCH: R.C. Lahoti & Ashok Bhan

JUDGMENT: J U D G M E N T

BHAN, J.

       The core point which calls for determination in these appeals  is the  extent of  judicial review permissible in exercise of jurisdiction under Article   226 of the Constitution to the terms of tender prescribing eligibility criteria.   Whether the High Court could change the terms incorporated in the tender  notice on the ground of its being inappropriate and that the objective would  be better served by adopting a different eligibility criteria?

Directorate of Education, Government of National Capital Territory of  Delhi, appellants herein, took a decision to establish computer labs in the  National Capital Territory  area in all government schools by the year 2003  in collaboration with private sector.  Under the scheme evolved (computer  education project), the education department is to provide functional literacy  to the students   from class VIth   to Xth  and teaching of computer science  and informatics practices subjects to plus two stage, as per CBSE syllabus.

In the first phase for the year 2000-2001, 115 schools were taken up  for imparting computer education.  Tenders were called from the firms  having a turnover of Rs. 2 crores.  As per terms of tender notice the firm was  to provide hardware to establish the lab in the concerned schools.  The total  contract was for a sum of Rs.14.62 crores.  Since the lowest tenderer was not  in a position to carry out the project in 115 schools, the contract was divided  amongst four parties.  In the year 2001-2002 the turn over clause was  amended, instead Rs. 2 crores the turn over of Rs. 5 crores was prescribed.   Because of  the several representations filed the tender was cancelled and  fresh tenders were invited from the firms having a turnover of Rs. 2 crores or  above. The tender was for 275 schools, the total cost of the project being  approximately Rs. 30 crores.  The lowest tenderer was again not in a  position to take up the entire project.  The other seven  tenderers agreed to  lower their prices to bring it  at par with the rate of the lowest tenderer.   Thus the contract had to be distributed amongst eight parties, i.e., 35 schools   each to seven parties and 28 to one party.  For the final phase of 2002-2003  the tenders were called for all the 748 schools.  The cost of project was  approximately Rs. 100 crores.  Because of the difficulty faced in the earlier  years that the lowest tenderers were not able to implement the entire project,  the government took a policy decision to deal with one company having  financial capacity to take up such a project instead of dealing with a number  of small companies which were unable to take up the entire project  individually.  Accordingly, Government took a decision to invite tenders  from firms having a turnover of Rs. 20 crores or more for the last three  financial years ending with 31.3.2002.  The decision was taken to provide  quality education which was the top  priority of the department as it was felt  that it would be easier for the department to deal with one company which is  well managed and not seven or eight who individually are not in a position

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to take up the whole project compelling the Government to distribute the  contract amongst bidders at the lowest rate having no scope to negotiate the  rates any further.  

Aggrieved by the term of clause inviting tenders from firms having a  turnover of Rs. 20 crores or more, the respondents filed writ petitions in the  High Court of Judicature at Delhi.

Writ petitions were heard by a Division Bench.  The Bench came to  the conclusion that neither the increase in number of schools nor the  quality  of education to be provided appeared to have nexus with the financial  turnover of the bidder inasmuch as the financial turnover had nothing  whatsoever to do with the computer education.  It was held that the term was  arbitrary and it had nothing to do with the objective sought to be achieved,  namely, the quality of education to be imparted.  That the impugned  condition appeared to have been incorporated solely with an intent to  deprive a large number of companies imparting computer education from  bidding and to monopolize the same for big companies.   Accordingly, the  writ petitions were allowed and the offending clause was struck down being  arbitrary and irrational.

Aggrieved against the aforesaid judgment of the High Court, the  present appeals by way of special leave petitions were filed.  On 24th March,  2003 leave was granted and as an interim measure, the appellants were  permitted to go ahead with the processing of the tender applications but no  contract was to be awarded without taking further orders from this court.   This order was modified on 14th April, 2003.  It was directed that the tender  bids of all the respondents be considered without reference to the financial  qualification of the turnover of Rs. 20 crores.  However, the acceptance of  the bid was kept in abeyance till the passing of the final order in the appeals.

In compliance with the aforesaid directions letters were sent to all the  13 bidders/parties for opening of the commercial bids on 30th July, 2003 at  3.30 P.M..  Technical bids of four companies, i.e., Tata Infotech Ltd.,  Educomp Datamatics Ltd., UPTEC Computer Consultancy Ltd., Sterlite   Foundations were rejected after scrutiny by the tender opening committee as  these firms did not fulfill the criteria laid in the tender notice.  The financial  bids of other 9 companies were opened and the bid given by M/s SSI  Limited was found to be the lowest. Interlocutory Application Nos. 1 to 5 of  2003 were filed for placing these facts on record.   Facts which emerged  from the opening of the bids were that the four companies having a turnover  of Rs. 20 crores or above participated in the tender and M/s SSI Limited  with a turnover of more than Rs. 20 crores was the lowest amongst them.

Shri Kirit N Raval, learned Solicitor General  of India appearing for  the appellants contended that the terms of tender prescribing the eligibility  criteria are not subject to judicial review in view of a number of decisions of  this Court. That the High Court while exercising jurisdiction under Article  226 of the Constitution does not sit as a Court of Appeal, it merely reviews  the manner in which the decision has been taken.  It was well settled that the  Courts in exercise of jurisdiction under Article 226 do not transgress  into  the field of policy decisions taken by the government.  As against this, the  learned counsel appearing for the respondents supported the impugned  judgment and the reasons recorded therein.  Faced with the situation that SSI  Ltd. having a turnover of more than 20 crores was the lowest tenderer and  capable of taking up the entire project on its own, it was argued that fresh  tenders should be invited because of the fall in price in the computer  hardware and lowering of duty on the imports of the computers or its  components.

It is well settled now that the courts can scrutinise the award of the  contracts by the government or its agencies in exercise of its powers of  judicial review to prevent arbitrariness or favoritism.  However, there are  inherent limitations in the exercise of the power of judicial review in such  matters.  The point as to the extent of judicial review permissible in

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contractual matters while inviting bids by issuing tenders has been examined  in depth by this Court in Tata Cellular vs. Union of India [1994 (6) SCC  651].  After examining the entire case law the following principles have  been deduced.

"94. The principles deducible from the above  are: (1)     The modern trend points to judicial restraint  in administrative action. (2)     The court does not sit as a court of appeal  but merely reviews the manner in which the  decision was made. (3)     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. (4)     The terms of the invitation to tender cannot  be open to judicial scrutiny because the  invitation to tender is in the realm of  contract. Normally speaking, the decision to  accept the tender or award the contract is  reached by process of negotiations through  several tiers.  More often than not, such  decisions are made qualitatively by experts. (5)     The Government must have freedom of  contract.  In other words, a 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 principle of  reasonableness (including its other facts  pointed out above) but must be free from  arbitrariness not affected by bias or actuated  by mala fides. (6)     Quashing decisions may impose heavy  administrative burden on the administration  and lead to increased and unbudgeted  expenditure. [Emphasis supplied]

In Air India Limited vs. Cochin International Airport Limited [2000  (2) SCC 617], this Court observed:

"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. In arriving at a  commercial decision considerations which are  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 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, instrumentalities and  agencies are bound to adhere to the norms,

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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."

                                                       [Emphasis supplied]

       This principle was again re-stated by this Court in Monarch  Infrastructure (P) Ltd. vs. Commissioner, Ulhasnagar Municipal Corporation  and Others [2000 (5) SCC 287].  It was held that the terms and conditions in  the tender are prescribed by the government bearing in mind the nature of  contract and in such matters the authority calling for the tender is the best  judge to prescribe the terms and conditions of the tender.  It is not for the  courts to say whether the conditions prescribed in the tender under  consideration were better than the one prescribed in the earlier tender  invitations.

       It has clearly been held in these decisions that the terms of the  invitation to tender are not open to judicial scrutiny the same being in the  realm of contract.  That the government must have  a free hand in setting the  terms of the tender.  It must have reasonable play in its joints as a necessary  concomitant for an administrative body in an administrative sphere.  The  courts would interfere with the administrative policy decision only if it is  arbitrary, discriminatory, mala fide or actuated by bias.  It is entitled to  pragmatic adjustments which may be called for by the particular  circumstances.  The courts cannot strike down the terms of the tender  prescribed by the government because it feels that some other terms in the  tender would have been fair, wiser or logical.  The courts can interfere only  if the policy decision is arbitrary, discriminatory or mala fide.

       Directorate of Education, Government of NCT of Delhi had invited  open tender with prescribed eligibility criteria in general terms and  conditions under tender document for leasing of supply, installation and  commissioning of computer systems, peripherals and provision of computer  education services in various government/ government aided senior  secondary, secondary and middle schools under the Directorate of  Education, Delhi.  In the year 2002-2003, 748 schools were to be covered.   Since the expenditure involved per annum was to the tune of Rs. 100 crores  the competent authority took a decision after consulting the technical  advisory committee for finalisation of the terms and conditions of the tender  documents providing therein that tenders be invited from firms having a  turnover of more than Rs. 20 crores over the last three years.  The hardware  cost itself was to be Rs.40-45 crores.  The government introduced the  criteria of turnover of Rs. 20 crores to enable the companies with real  competence having financial stability and capacity to participate in the  tender particularly in view of the past experience.  We do not agree with the  view taken by the High Court that the term providing a turnover of at least  Rs. 20 crores did not have a nexus with either the increase in the number of  schools or the quality of education to be provided.  Because of the increase  in the number of schools the hardware cost itself went upto Rs. 40-50 crores.   The total cost of the project was more than 100 crores.  A company having  a  turnover of Rs. 2 crores may not have the financial viability to implement  such a project.   As a matter of policy government took a conscious decision  to deal with one firm having financial capacity to take up such a big project  instead of dealing with multiple small companies which is a relevant  consideration while awarding such a big project.  Moreover, it was for the  authority to set the terms of the tender.  The courts would not interfere with  the terms of the tender notice unless it was shown to be either arbitrary or  discriminatory or actuated by malice.  While exercising the power of judicial  review of the terms of the tender notice the court cannot say that the terms of  the earlier tender notice would serve the purpose sought to be achieved  better than the terms of tender notice under consideration and order change

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in them,  unless  it  is  of  the  opinion  that the  terms  were either arbitrary  or  discriminatory  or  actuated by malice. The provision of the terms  inviting tenders from firms having a turnover of more than Rs. 20 crores  has  not been shown to be either arbitrary or discriminatory or actuated by  malice.         This apart SSI having a turnover of more than Rs. 20 crores was the  lowest bidder.  Faced with the situation that the bids given by the  respondents were not  competitive  with the bid given by SSI Limited,  learned counsel for the respondents contended that because of the fall in  price in the computer hardware and lowering of duty on the imports of the  computers or its components the government should invite fresh bids.   It is  not for us to comment as to what course is to be adopted by the appellants, in  the changed circumstances attributable to lapse of time.  It is for them to  decide whether to continue with the tenders already floated, if necessary be  making negotiations so as to bring down the rates quoted  or to invite fresh  tenders.         For the reasons stated above, the appeals are accepted.  The judgment  of the High Court is set aside and the writ petitions filed by the respondents  are dismissed with no order as to costs.