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CASE NO.: Appeal (civil)  5699 of 2006

PETITIONER: Jagdish Mandal

RESPONDENT: State of Orissa & Ors.

DATE OF JUDGMENT: 20/\020K/06

BENCH: G. P. Mathur & R. V. Raveendran

JUDGMENT: J U D G M E N T [Arising out of SLP (Civil) No.3196/2006] With

CIVIL APPEAL  NO.5700/2006 [Arising out of SLP (Civil) No.7817/2006]

Laxman Sharma                                                   \005. Appellant

Vs.

State of Orissa & Others                                                \005. Respondents

R.V. RAVEENDRAN, J.

       Leave granted in both the special leave petitions.

       These two appeals by special leave, arise out of a common judgment  dated 25.1.2006 passed by the Orissa High Court allowing Writ Petition  (Civil) Nos. 4769/2005 and 4768/2005 filed by Narayan Mohanty (common  fifth respondent in these two appeals). In the said petitions, Narayan  Mohanty had challenged the award of construction contracts to  Jagdish  Mandal and Laxman Sharma (respective appellant in these appeals) in Upper  Indravati Irrigation Project (’UIIP’ for short). The State, the Executive  Engineer (Right Canal Division No.III), the Chief Engineer (UIIP), and  Superintending Engineer (UIIP) who were the common respondents 1 to 4 in  the said two writ petitions hold the same rank in these two appeals.  

Facts in SLP [C] No.3196/2006 (re : first stretch)

2.      The second Respondent, acting on behalf of the Water Resources  Department, State of Orissa, invited tenders for "construction of Right  Extension Main Canal from RD 8.01 km to 9.03 km including structures" by  tender notice dated 9.11.2004. The estimated value of the work as per the  tender schedule was Rs.1,69,10,506. In response, 17 tenders were received.   The offer of the fifth respondent was the lowest (Rs.1,22,99,099) and the   offer of appellant (J. Mandal) was the second lowest (Rs.1,29,36,579). The  Executive Engineer recommended the acceptance of the tender of fifth  respondent.  

3.      The fifth respondent furnished the Earnest Money Deposit (EMD) by  pledging a postal Term Deposit of Rs.1,70,000/- (Passbook No.154120  dated 6.12.2004 issued by the Post Master, Mukhiguda) in favour of the  second respondent. A written complaint was received by the Department  alleging that fifth respondent had made a postal deposit of only Rs.7,000 and

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had defrauded the Department by altering the figure in the passbook as  Rs.1,70,000. In view of the said complaint, the Superintending Engineer  wrote to the concerned Post Office on 3.2.2005 requesting confirmation  about the authenticity of the said Term deposit. A similar letter was  addressed by the Chief Engineer on 11.3.2005 to the Post Master General,  Berhampur Zone, seeking information as to whether fifth respondent had  made a deposit of Rs.1,70,000 on 6.12.2004 or any subsequent date. The  Superintendent of Post Offices, Kalahandi Division, sent a reply dated  14.3.2005 to the Superintending Engineer stating that the said TD Account  for Rs.1,70,000 submitted by fifth respondent should not be taken into  account for any official requirement.

4.      The tenders were scrutinized and considered by the Project Level  Committee (’Committee’ for short) consisting of the Superintending  Engineer, (Right Canal Circle),  the Financial Advisor and Chief Accounts  Officer (UIIP), the Executive Engineer (UIRC Division No. III), and the  Assistant to Chief Engineer(UIIP). The details of their deliberations  and  recommendations are contained in the proceedings dated 24.3.2005. The  Committee found that fifth respondent, the appellant (Jagdish Mandal) and  Dinesh Kumar Panda were the first, second and third lowest tenderers.  Having regard to the communication dated 14.3.2005 of the Superintendent  of Post Offices not to take note of Term Deposit for Rs.1,70,000, the  Committee held that the EMD submitted by fifth respondent was invalid and  consequently his tender was ’non-responsive’. It therefore recommended the  acceptance of the next lowest valid tender of Jagdish Mandal.  

5.      The office of the Post Master General, Berhampur, sent a reply dated  30.3.2005 to the Chief Engineer, UIIP, reiterating that TD Account  No.154120 for Rs.1,70,000 of fifth respondent should not be taken into  account.  

6.      On coming to know about the rejection of his tender, the respondent  herein filed W.P. No.4769/2005 seeking a direction to respondents 1 to 4 not  to award to Jagdish Mandal or any other contractor, and a further direction  for awarding the work to him. The Accepting Authority, however, accepted  the offer of Jagdish Mandal and awarded the work to him under an  agreement dated 18.4.2005.  

7.      When the writ petition came up for consideration, the High Court  desired to know the reason as to why the Postal authorities had advised that  T.D. Account No.154120 dated 6.12.2004 of fifth respondent should not be  taken into account. Therefore, the Chief Engineer (UIIP), addressed a letter  dated 19.8.2005 to the Post Master General, Berhampur, requesting for  reasons. The reasons were furnished in the following reply dated 25.8.2005  of the Post Master General :  

"I am directed to intimate that 1 yr. TD A/c No.154120 for Rs.1,70,000/-  has not actually been opened at Mukhiguda SO on 06.12.2004 depositing  the amount. But one pass book bearing 1 yr. TD A/c No.154120 has been  prepared out of record by the holder Sri Narayan Mohanty in connivance  with the SPM Mukhiguda and the said P.B. has been pledged to the  Executive Engineer RCD III, Jungarh on 06.12.2004 itself.  

As 1 yr. TD A/c No.154120 has been prepared without any amount  deposited in post office it has been intimated in this office letter of even  no. dt. 30.3.2005 not to take into account the TD A/c No.154120 for  Rs.1,70,000/- submitted by Sri Narayan Mohanty towards office  requirement."  

8.      The said communication dated 25.8.2005 was placed before the High  Court with an affidavit of the Executive Engineer. When the matter came up  on 29.8.2005, the High Court appears to have observed that the Department  should prosecute the fifth respondent if he had dishonestly and fraudulently  tried to secure a contract by utilizing a fake Post Office T.D. Account book.  The Government Advocate, conveyed the said observations and  instructed

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the Chief Engineer (UIIP), to lodge a complaint with the Police.  Accordingly, the Executive Engineer lodged a complaint dated 9.9.2005  with the Officer-in-Charge of Junagarh Police Station, requesting  appropriate action against fifth respondent. The Officer-in-Charge of  Junagarh Police Station submitted an investigation report to the Advocate  General stating that his investigation of the records showed that Rs.1,70,000  had been deposited by Narayan Mohanty on 6.12.2004 with the Sub-Post  Master, Mukhiguda and a one year T.D. Account No.154120 was opened,  and opined that the passbook was genuine. The said report was also placed  before the High Court.  

9.      The High Court by its judgment dated 25.1.2006 allowed the writ  petition filed by fifth respondent. It held :

"The materials as produced before us clearly show that the tender  committee is wrong in coming to the conclusion that the term deposit  passbook submitted by the petitioner was a forged one. We also find that  though the letter of the Superintendent of Post Offices, Bhawanipatna did  not state that the said term deposit made by the petitioner was a fake one  nor any reason was assigned in the said letter as to why the said term  deposit should not be taken into account, the tender committee  mechanically came to the conclusion that the offers of the petitioner for  both the above works were non-responsive. In view of the subsequent  development, during pendency of both the writ applications and the  investigation report submitted by the police to the learned Advocate  General, after due investigation, we are of the view that the offers of the  petitioner made for both the works have been arbitrarily rejected by the  tender committee for no fault of the petitioner."                                                                  (emphasis supplied)

In view of the said finding, the High Court quashed the agreement between  the Department and Jagdish Mandal (appellant) and directed the Committee  to reconsider the case of Narayan Mohanty (fifth respondent) by accepting  the T.D. passbook submitted by him as valid vis-‘-vis other tenderers and  take a final decision in regard to award of the contract de novo. The said  decision is challenged by Jagdish Mandal.

Facts in SLP(c) No. 7817/2006 (re : second stretch)

10.     Tenders were also invited in regard to the adjoining stretch, that is  ’Construction of Right Extension Main Canal from RD 9.03 km to 10.02  km’, by tender notice dated 9.11.2004 issued by the second Respondent. The  estimated cost of the tender schedule work was Rs. 2,23,10,768. There were  14 tenders in response to the said tender notice. Fifth respondent was the  lowest tenderer (Rs.1,45,80,338). Laxman Sharma, the appellant was the  second lowest tenderer (Rs.1,69,56,180). The Executive Engineer  recommended the acceptance of the tender of fifth respondent.  

11.     One of the main items of work to be executed was ’cement concrete  lining’ - Item No. 19 of the tender schedule. It was the last among the items  of work to be executed. It accounted for nearly one-fifth of the estimated  cost of the work. The estimated rate for that item was Rs.2020.50 per cu.m.  and the estimated total cost was Rs.41,47,581. The fifth respondent,  however,  quoted a rate of Rs.20 per cu.m., for item no. 19, in all Rs.41,055.  The rate quoted was less than 1% of the estimated rate and thus an unduly  low rate.  

12.     The Committee considered the tenders on 24.3.2005. By proceeding  dated 24.3.2005, the lowest tender submitted by the fifth respondent was  rejected for the following reasons :  

a)      That in regard to the adjoining work (RD 8.01 km to 9.03 km),  the tenderer was found to have committed a fraudulent act in

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manipulating the TD pass-book relating to EMD.  

b)      In regard to Tender schedule item no.19 (CC lining) which  involved 18.37% of the total tendered value, the tenderer had  quoted a rate which was 99.01% less than the estimated rate,  and it was unworkable under any circumstances.  

c)      Though the rate analysis submitted by the tenderer, for schedule  Item No.4 showed the rate as Rs.45/-, he had quoted the rate as  Rs.65/- which showed a tendency to manipulate the rates.  

The Committee, therefore, recommended that the next lowest tender,  (submitted by Laxman Sharma) for acceptance. The accepting authority  acting on the said  recommendations, awarded the work to Laxman Sharma  under an agreement dated 18.4.2005. Feeling aggrieved, Narayan Mohanty  filed Writ Petition (C) No. 4768 of 2005 seeking a direction to the  department not to award the said work to Laxman Sharma and for a further  direction to award the work to him.  

13.     W.P. [C] No.4768/2005 was heard and disposed of along with W.P.  (C) No. 4769 of 2005, by a common judgment. In the said judgment, the  High Court only considered and dealt with the facts relating to the first  stretch which was the subject matter of W.P. (C) No. 4769 of 2005. It did  not consider the facts relating to the second stretch which was the subject  matter of W.P. (C) No. 4768 of 2005.  It proceeded on the assumption that  the tender of fifth respondent in respect of the second stretch, was not  accepted, solely as a consequence of non-acceptance of the fifth  respondent’s tender in respect of the first stretch. As the High Court set aside  the decision of the Committee in regard to first stretch, it also set aside the  decision of the committee regarding the second stretch. The said decision is  challenged by Laxman Sharma.   

Question for consideration :  

14.     The learned counsel for the appellants submitted that the scope of  interference in judicial review of tender processes and award of contracts is  limited only to cases where there are material violation of the terms relating  to scrutiny and acceptance of tenders or where the decision is vitiated either  by arbitrariness/irrationality or by mala fides/favoritism. It was contended  that as the fifth respondent failed to plead or make out any of these grounds  in his writ petitions, the High Court ought not to have interfered with the  contracts awarded  to the appellants.      15.     In the first case, it was contended that the decision of the committee  that the EMD was defective, was based on the communication dated  14.3.2005 of the postal authorities requiring the committee not to take note  of the TD passbook for Rs.1,70,000; that the Post Master General had also  subsequently confirmed vide communications dated  30.3.2005 and  25.8.2005 that the TD passbook furnished by the fifth respondent was  manipulated/forged and not to be acted upon; and that the High Court  committed an error in ignoring the findings of the postal department, and in  relying on an incomplete inquiry report of the Officer in-charge of the  Junagarh police station, submitted during the pendency of the writ petition.  Reliance is also placed on the reports placed by the State Government before  this Court in pursuance of the order dated 4.9.2006 which showed that  Rs.1,70,000 was not deposited by the fifth respondent on 6.12.2004.  

16.     In the second case, it was contended that the High Court had wrongly  allowed the writ petition, without even referring to the facts or considering  the contentions. It was submitted that the High Court ought to have  considered the separate reasons given by the Committee for rejection of the  tender of the fifth respondent, that is, quoting of unduly low rate for item  no.19 and quoting a manipulated rate for item no.4.

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17.     The learned counsel for Respondents 1 to 4 broadly agreed with the  contentions urged by the appellants. The fifth respondent, however,  supported the reasoning of the High Court. On the contentions urged, the  question that arise for consideration is whether the High Court in exercise of  power of judicial review, was justified in quashing the award of the contract  relating to first stretch to Jagdish Mandal and award of contract relating to  second stretch to Laxman Sharma and directing reconsideration of tender.  

Scope of Judicial Review of award of contracts :  

18.     We may refer to some of the decisions of this Court, which have dealt  with the scope of judicial review of award of contracts.  

18.1)   In Sterling Computers Ltd vs. M & N Publications Ltd [1993 (1) SCC  445], this Court observed  :  

"While exercising the power of judicial review, in respect of contracts  entered into on behalf of the State, the court is concerned primarily as to  whether  there has been any infirmity in the decision making process  \005\005\005 the courts can certainly examine whether ’decision making  process’ was reasonable, rational, not arbitrary and violative of Article 14  of the Constitution."  

18.2)   In Tata Cellular v. Union of India [AIR 1996 SC 11], this Court  referred to the limitations relating to the scope of judicial review of  administrative decisions and exercise of powers in awarding contracts, thus :  

(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 action. 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\005\005. More often than not, such decisions are made  qualitatively by experts.

(5)     The Government must have freedom of contract. In other  words, a fairplay 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 facets 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.   

This Court also noted that there are inherent limitations in the exercise of  power of judicial review of contractual powers. This Court also observed  that the duty to act fairly will vary in extent, depending upon the nature of  cases, to which the said principle is sought to be applied. This Court held

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that the State has the right to refuse the lowest or any other tender, provided  it tries to get the best person or the best quotation, and the power to choose is  not exercised for any collateral purpose or in infringement of Article 14.  

18.3)   In Raunaq International Ltd., vs. I.V.R. Construction Ltd. [1999 (1)  SCC 492], this Court dealt with the matter in some detail. This Court held :  "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 of paramount importance  are commercial considerations. These would be : (1) The price at which  the other side is willing to do the work; (2) Whether the goods or services  offered are of the requisite specifications; (3) Whether the person  tendering has the ability to deliver the goods or services as per  specifications. When large works contracts involving engagement of  substantial manpower or requiring specific skills are to be offered, the  financial ability of the tenderer to fulfil the requirements of the job is also  important; (4) the ability of the tenderer to deliver goods or services or to  do the work of the requisite standard and quality; (5) past experience of  the tenderer, and whether he has successfully completed similar work  earlier; (6) time which will be taken to deliver the goods or services; and  often (7) the ability of the tenderer to take follow up action, rectify defects  or to give post contract services. Even when the State or a public body  enters into a commercial transaction, considerations which would prevail  in its decision to award the contract to a given party would be the same.  However, because the State or a public body or an agency of the State  enters into such a contract, there could be, in a given case, an element of  public law or public interest involved even in such a commercial  transaction. What are these elements of public interest? (1) Public money would be  expended for the purposes of the contract; (2) The goods or services which  are being commissioned could be for a public purpose, such as,  construction of roads, public buildings, power plants or other public  utilities. (3) The public would be directly interested in the timely  fulfilment of the contract so that the services become available to the  public expeditiously. (4) The public would also be interested in the quality  of the work undertaken or goods supplied by the tenderer. Poor quality of  work or goods can lead to tremendous public hardship and substantial  financial outlay either in correcting mistakes or in rectifying defects or  even at times in re-doing the entire work - thus involving larger outlays or  public money and delaying the availability of services, facilities or goods,  e.g. A delay in commissioning a power project, as in the present case,  could lead to power shortages, retardation of industrial development,  hardship to the general public and substantial cost escalation. When a writ petition is filed in the High court challenging the award of a  contract by a public authority or the State, the court must be satisfied that  there is some element of public interest involved in entertaining such a  petition. If, for example, the dispute is purely between two tenderers, the  court must be very careful to see if there is any element of public interest  involved in the litigation. A mere difference in the prices offered by the  two tenderers may or may not be decisive in deciding whether any public  interest is involved in intervening in such a commercial transaction. It is  important to bear in mind that by court intervention, the proposed project  may be considerably delayed thus escalating the cost far more than any  saving which the court would ultimately effect in public money by  deciding the dispute in favour of one tenderer or the other tenderer.  Therefore, unless the court is satisfied that there is a substantial amount of  public interest, or the transaction is entered into mala fide, the court should  not intervene under Article 226 in disputes between two rival tenderers."

18.4)   In Air India Ltd. vs. Cochin International Airport Ltd [2000 (2) SCC  617], this Court summarized the scope of interference as enunciated in  several earlier decisions thus :

"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

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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, 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, 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, instrumentalities and agencies  have the public duty to be 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 with 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 is called  for or not. Only when it comes to a conclusion that overwhelming public  interest requires interference, the court should intervene."

[Emphasis supplied]

18.5)   In Association of Registration Plates vs. Union of India [2005 (1)  SCC 679], this Court  held:  

"\005\005..Article 14 of the Constitution prohibits government from arbitrarily  choosing a contractor at its will and pleasure. It has to act reasonably,  fairly and in public interest in awarding contracts. At the same time, no  person can claim a fundamental right to carry in business with the  government. All that he can claim is that in competing for the contract, he  should not be unfairly treated and discriminated, to the detriment of public  interest. \005\005..."  

18.6)   In B.S.N.  Joshi v. Nair Coal Services Ltd. [2006 (11) SCALE 526],  this Court observed :

"It may be true that a contract need not be given to the lowest  tenderer but it is equally true that the employer is the best judge  therefor; the same ordinarily being within its domain, court’s  interference in such matter should be minimal. The High Court’s  jurisdiction in such matters being limited in a case of this nature,  the Court should normally exercise judicial restraint unless  illegality or arbitrariness on the part of the employer is apparent on  the face of the record."

19.     Judicial review of administrative action is intended to prevent  arbitrariness, irrationality, unreasonableness, bias and malafides. Its purpose  is to check whether choice or decision is made ’lawfully’ and not to check  whether choice or decision is ’sound’. When the power of judicial review is  invoked in matters relating to tenders or award of contracts, certain special  features should be borne in mind. A contract is a commercial transaction.  Evaluating tenders and awarding contracts are essentially commercial  functions. Principles of equity and natural justice stay at a distance. If the  decision relating to award of contract is bona fide and is in public interest,  courts will not, in exercise of power of judicial review, interfere even if a  procedural aberration or error in assessment or prejudice to a tenderer, is  made out. The power of judicial review will not be permitted to be invoked  to protect private interest at the cost of public interest, or to decide  contractual disputes. The tenderer or contractor with a grievance can always  seek damages in a civil court. Attempts by unsuccessful tenderers with

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imaginary grievances, wounded pride and  business rivalry, to make  mountains out of molehills of some technical/procedural violation or some  prejudice to self, and persuade courts to interfere by exercising power of  judicial review, should be resisted. Such interferences, either interim or  final, may hold up public works for years, or delay relief and succour to  thousands and millions and may increase the project cost manifold.  Therefore, a court before interfering in tender or contractual matters in  exercise of power of judicial review, should pose to itself the following  questions :  

i)      Whether the process adopted or decision made by the authority  is mala fide or intended to favour someone.  

OR

       Whether the process adopted or decision made is so arbitrary  and irrational that the court can say : ’the decision is such that  no responsible authority acting reasonably and in accordance  with relevant law could have reached.’

ii)     Whether public interest is affected.   

If the answers are in the negative, there should be no interference under  Article 226. Cases involving black-listing or imposition of penal  consequences on a tenderer/contractor or distribution of state largesse  (allotment of sites/shops, grant of licences, dealerships and franchises) stand  on a different footing as they may require a higher degree of fairness in  action.  

Re : Contract for First Stretch

20.     The tender procedure requires all tenders involving Rs.10 lakhs or  more to be evaluated by a Project Level Committee (with four members  described in para 4 above) and their findings/recommendations have to  placed before the approving/accepting authority. Clause 3.5.18 of the Orissa  Public Works Department Code (’code’ for short) requires the authority  considering the tenders to take into consideration several points while  determining the validity of the tenders. Two of the points to be so taken into  account are whether the tenderer has made the specified EMD and whether  the rates quoted contain any unduly low and unworkable rates.  

21.     The tender conditions give an option to the tenderer, to furnish earnest  money deposit, by pledging NSC/postal time deposit/postal saving  passbook/deposit receipts issued by any nationalized Bank. The first  respondent pledged a postal TD Account passbook relating to a  Deposit of  Rs.1,70,000 in fulfilment of the condition regarding EMD. The Department  is entitled to verify the genuineness of the TD passbook to ensure that the  required EMD is furnished.  In this case, even before the Committee could  consider the tenders, a complaint was also received alleging that the TD  passbook produced by fifth respondent was tampered and manipulated. It  was therefore but natural for the Department to seek confirmation from the  Postal Department as to whether the TD Passbook was genuine and valid. Its  query elicited a reply from the Superintendent of Post Offices that the Term  Deposit passbook for Rs.1,70,000 produced by the fifth respondent was not  to be acted upon. Therefore, the Committee concluded that the tender of fifth  respondent was defective as not being accompanied by a valid EMD. It  cannot be said that the Committee acted unreasonably and arbitrarily, in  arriving at the said decision. The Committee did not send show cause notice  to the fifth respondent before rejecting the TD passbook and consequently  the tender, as  Clause 3.5.18 of the Code makes it clear that acceptance of  any tender is entirely at the discretion of the accepting authority and no  tenderer can require the authority to show cause for rejection of the tender.

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22.     We have already noticed that while the Committee acted on the letter  dated 14.3.2005 of the Superintendent of posts, the High Court acted on an  Inquiry Report submitted by the Officer in Charge of Junagarh Police  Station during the pendency of the writ petition. When the SLP came up for  consideration on 25.1.2006, this Court directed the State to place on record  the report of the Superintendent of Post Offices and the Police investigation  report. Accordingly, the State placed three reports before this Court. The  first is the detailed Vigilance Enquiry Report of the Postal Department  holding that the TA Account pass book no.154120 issued by Sub-Post  Master, Mukhiguda should not be considered as genuine. The second is the  Inquiry Report dated 16.9.2006 of the Officer in charge of Junagarh police  station reiterating his earlier report submitted to the High Court that the pass  book is genuine and a sum of Rs.1,70,000 was deposited by fifth respondent  in postal TA Account No.154120 on 06.12.2004. The third is the report of  the Superintendent of Police, Kalahandi, dated 28.10.2006, opining that fifth  respondent did not deposit Rs.1,70,000 on 6.12.2004 and that the Sub-Post  Master, Mukhiguda had shown the date of deposit as 6.12.2004 in order to  help fifth respondent to get his tender accepted. While the inquiry report of  the Postal Vigilance Cell and the letters from postal department clearly holds  that the TD Account Passbook No.154120 produced by fifth respondent was  not genuine, the report of the office in charge of the police station, concludes  that the passbook is genuine and not forged. But significantly the subsequent  police report dated 28.10.2006 by a higher authority, namely the  Superintendent of Police, Kalahandi, states that fifth respondent had  obtained a pre-dated passbook in connivance with the Sub-Post Master  Mukhiguda.  

23.     We have referred to various reports only to show that there exist  divergent views about the genuineness of the TD passbook. It is wholly  unnecessary to record a definite finding on the issue whether the TD  passbook submitted by one of the tenderers towards EMD is genuine or  forged. In this case, as the Superintendent of Post Offices informed the  department that the postal TD passbook produced by fifth respondent should  not be acted upon, the Committee proceeded to hold that his tender was  ’non-responsive’ or defective as it was not accompanied by a valid EMD. In  such circumstances, the limited question that had to be considered in a writ  petition filed by the unsuccessful tenderer is whether the Committee acted  unreasonably in taking such a decision. There can be no doubt that it did not.  The tender was to be accompanied by an EMD as prescribed. If the postal  department which issued the TD passbook pledged by the fifth respondent  towards EMD, said that it should not be acted upon, there is no question of  the Committee then holding any further enquiry about its genuineness and  holding up the evaluation of tenders. For example if a Pay Order/Banker’s  Cheque/Demand Draft issued by a Bank is produced as EMD and the Bank  informs that such pay order/cheque/DD should not be acted upon, the  authority concerned is not expected to suspend the process of evaluation and  hold an enquiry in regard to the validity of genuineness, but act upon the  information received from the Bank and treat the EMD as defective and  proceed with the evaluation of tenders on that basis.   24.     The learned counsel for fifth respondent submitted that the department  ought not to have acted on a complaint received against him, without giving  him an opportunity to show cause. This contention has no merit. Whether  any complaint is received or not, the department is entitled to verify the  authenticity of the document pledged as earnest money deposit. Such  verification is routinely done. The Committee was neither blacklisting the  tenderer nor visiting any penal consequences on the tenderer. It was merely  treating the tender as defective. There was, therefore, no need to give an  opportunity to the tenderer to show cause at that stage. We no doubt agree  that the Committee could have granted an opportunity to the tenderer to  explain the position. But failure to do so cannot render the action of the  Committee treating the EMD as defective, illegal or arbitrary.

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25.     The limited scope of judicial review by the High Court envisaged  examination of the question whether there was any material irregularity in  the decision making process  or whether the decision of the Committee and  consequential rejection of fifth respondent’s tender was irrational,  unreasonable or arbitrary. The validity of the decision of the Committee  taken on the material available at the time of consideration of tenders, cannot  be tested with reference to a subsequent police enquiry report submitted in  the writ proceedings. Nor can it be held that the Committee acted arbitrarily  in not accepting the passbook, on the basis of some report opining that the  TD passbook is genuine. The High Court was not sitting in appeal over the  decision of the Committee. The High Court could not, therefore, by relying  on a subsequent police enquiry report, the correctness of which is yet to be  established, to hold that the Tender Committee was wrong in rejecting the  TD passbook. Further, the High Court missed the issue. The question for  consideration was not whether the TD passbook pledged by the fifth  respondent is genuine or not. The question for consideration was whether the  committee acted arbitrarily or irrationally in rejecting the said TD passbook.  

26.     The learned counsel for fifth respondent submitted that if the  Committee had proceeded on an incorrect basis of facts, then the decision  was open to judicial review. Reliance was placed on the following  observations of the House of Lords in Secretary of State for Education and  Science v. Metropolitan Borough of Tameside [1976 (3) All ER 665] :

"In many statutes a Minister or other authority is given a discretionary  power and in these cases the court’s power to review any exercise of the  discretion, though still real, is limited. In these cases it is said that the  courts cannot substitute their opinion for that of the Minister; they can  interfere on such grounds as that the Minister has acted right outside his  powers or outside the purpose of the Act, or unfairly, or on an incorrect  basis of fact. But there is no universal rule as to the principles on which  the exercise of a discretion may be reviewed;"   

Reliance is also placed on the following observations of this Court in  Barium Chemicals Ltd. v. The Company Law Board [1966 Supp. SCR 311] :

"No doubt the formation of opinion is subjective but the existence  of circumstances relevant to the inference as the sine qua non for  action must be demonstrable. If the action is questioned on the  ground that no circumstance leading to an inference of the kind  contemplated by the section exists, the action might be exposed to  interference unless the existence of the circumstances is made out."  

These decisions are of no assistance. In this case, the committee in fact acted  on a factual basis, namely, the communication from the Superintendent of  Posts that the TD passbook should not be acted upon. Even if the said  information furnished by the Superintendent of Posts was subsequently  found to be incorrect, that will not invalidate the action taken by the  Committee on such information. In this case, in fact, there is nothing to  show even till now that the information given by the Superintendent of Posts  in his letter dated 14.3.2005 was false. We are not expressing any opinion on  the issue whether the TD pass book was really genuine or not as it does not  directly arise for consideration in this case. All that is required to be noticed  is that the High Court exceeded its power of judicial review in interfering  with the contracts.  

Re : Contract for Second Stretch  

27.     The High Court has quashed the agreement relating to second stretch  without even considering the matter on merits. It proceeded on the basis that  both tenders of fifth respondent were  rejected only on the ground of  fabrication/manipulation of the term deposit pass book offered as EMD for

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the first tender. We have already held, while dealing with the first tender,  that there was no irregularity in the decision to exclude reject fifth  respondent’s tender. Therefore, the very basis for High Court’s judgment for  interfering with the award of the work in respect of the second tender  disappears. Be that as it may. The Committee has given other reasons also  for rejection of fifth respondent’s tender, which merit consideration.  

28.     The fifth respondent had submitted an unduly low rate in regard to  item no. 19 (C.C. lining). It was the last item of work to be executed, and  constituted nearly one fifth of the total estimated value of the work. In  regard to the said work, as against the rate of Rs.2020.50 per cu.m.,  estimated by the department, the fifth respondent quoted an absurdly low  rate of Rs. 20 only which was less than 1% of the estimated rate. It is  obvious that he could not have executed the work at that rate.  The CC lining  being the last work, there was every likelihood of the tenderer executing the  other items of work for which he had quoted much higher rates than others  and leave out the last item, or raise same  dispute thereby jeopardizing the  work and causing delay. It is true that a contractor could have an answer by  contending that he had priced the other items of work in a manner which  enabled him to quote a very low rate for one of the items. But then the  committee is entitled to consider the effect of such freak rates. Where the  absurdly low rate is in regard to a large item of work, which has to be  executed at the very end, it is possible for the committee to suspect some  ulterior motive on the part of the tenderer. If the  committee felt that there  was a reasonable possibility of the contractor leaving the work midway on  account of the rate quoted for the last item of work being found to be  unworkable, thereby putting the work in jeopardy,  it can certainly reject the  tender as it affects the reliability of the contractor to perform the work.  Unduly low and unworkable rate or rates, is a ground for rejection of tenders  (vide Note to clause 3.5.18). The modus operandi of quoting low rates in  regard to some items of work and thereby securing the contract and then  raising disputes by making large claims, is not uncommon among the  contractors. The very purpose of constituting a committee for scrutinizing  the tenders is to find out whether any freak low rate will affect the work if  the contract is awarded to the tenderer. If the committee found that the  tender of fifth respondent should be rejected on that ground, the said  decision cannot be termed as unreasonable or arbitrary. The committee has  applied its mind and rejected the tender by assigning a reason which is  neither irrational nor arbitrary. Neither the High Court nor this Court can sit  in appeal over such technical assessment. There is no infirmity in the  decision making process or the decision.  

29.     Learned counsel for the fifth respondent pointed out that the Resident  Audit Officer had made a report in regard to the extra cost involved due to  rejection of the two lowest tenders of the fifth respondent and that report  refers to the fact that Laxman Sharma had also quoted some low rates in  regard to certain items of work. It is contended that ignoring low rates in the  case of Laxman Sharma, but making it a ground for rejection of fifth  respondent’s tender, show bias and favouritism. The value of work in respect  of which Laxman Sharma is said to have given low tender rates, is not  specified. It is for the Committee to assess whether a particular low tender  rate is likely to affect the execution of the work. Therefore, the fact that  Laxman Sharma had also quoted low rates in regard to certain items of  work, will not affect the decision of the Committee. Conclusion : 30.     We are therefore of the view that there were good and adequate  reasons for the Committee to reject the lowest tenders of fifth respondent in  both cases and there was no justification for the High Court to interfere with  the contracts awarded to the respective appellant in these two appeals. We  also record the statement made by the counsel for the appellants in the two  appeals, on instructions, that the appellants are ready and willing to execute  their respective works, without seeking any revision in rates or  compensation for the delay in commencement of the work on account of  pendency of the legal proceedings till now. The statement is recorded.  

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31.     In view of our findings on the points above, both these appeals are  allowed and the judgment of the High Court in the two writ petitions is set  aside. The writ petitions filed by the fifth respondent are rejected. Parties to  bear respective costs.