The scope of judicial review is confined to scrutinising the decision-making process, but with scams popping up every day, the courts will still have a busy time
The disposal of national resources has become a subject of huge controversy. Whether it is a commercial plot, natural gas, oil or spectrum, a squall of allegations is not far behind. The government may adopt one of the several methods to distribute its wealth equitably, namely, by sale, lease, public auction, inviting bids, lottery or on a first-come-first-served basis. None of these methods has escaped hostile scrutiny and litigation.
One such case was decided by the Supreme Court recently in which it summed up the principles governing such transfer of common assets. The case, HP Housing and Urban Development Authority vs Universal Estate, did not involve a 15-digit scam, but it did deal with a fierce contest for two industrial sites in the hill state of Himachal and yielded some basic canons.
The highest bid was rejected by the authorities, though the tender money was deposited. The state government intervened to stop the process. It wanted to examine why the reserve price was lowered, why there was no open auction – which would have fetched better rates – and whether the sale was properly notified. Following this enquiry, the highest offer was cancelled. The highest bidder, therefore, moved the high court. The court struck down the order of the development authority stating that after accepting the bid money the authority had no right to reject the offer. However, on appeal, the Supreme Court set aside the high court order and ruled that the authority had the power to reject the highest bid.
In this context, the Supreme Court discussed the scope of judicial review. It is indeed very limited. Courts will intervene only if the action of the public authority is detrimental to public interest, arbitrary, unreasonable and mala fide. In some leading cases, the Supreme Court has emphasised these principles. In one such recent case, BSN Joshi & Sons vs Nair Coal Services Ltd, the Supreme Court stated that 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 the award of contract is bona fide and is in the public interest, courts will not interfere even if procedural aberration or error in assignment or prejudice to the tenderer is made out.
“Attempts by unsuccessful tenderers with imaginary grievances, wounded pride and business rivalry, to make mountains out of molehills of some technical or procedural violation or some prejudice to self should be resisted,” the judgment said, and added: “Such interference, either interim or final, may hold up public works for years, or delay relief and succour to millions and may increase the project cost manifold.”
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In another leading case, Air India Ltd vs Cochin International Airport Ltd, the court emphasised that the public authority is free not to accept the highest or the lowest offer and the scope of judicial review is confined to the scrutiny of the decision-making process. Only if it is vitiated by arbitrariness or mala fides, can the judiciary intervene. Otherwise, the public authority has a free hand.
The extent of freedom given to the state in these matters was clearly stated in that judgment. “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. It may not accept the offer even though it happens to be 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.” Public interest is supreme and “only when it comes to a conclusion that overwhelming public interest requires interference, the court should intervene.”
The bench that delivered the judgment in the HP Housing and Urban Development Authority also made headlines in the past three weeks over the 2G spectrum scam. According to the criteria laid down by the judges for judicial intervention, there should be arbitrary and mala fide intention calling for intervention in public interest. The spectrum case is, therefore, a test case. The court’s order in this case will indicate how the judiciary will deal with future scams involving distribution of national resources. Such cases are popping up every day and the coming years could be a busy time for the courts.