M J Antony: Hard battles over state tenders

OUT OF COURT

The Supreme Court, in recent times, has laid down well-defined parameters for judicial review of administrative action. However, the question recurs in the courts in various forms.

One such frequent occasion is the award of government tenders. The losing party challenges the technical and financial bids on various grounds.

The Supreme Court last fortnight reiterated its reluctance to interfere in such disputes in Master Marine Services Ltd vs Metcalfe & Hodgkinson Ltd.

The Delhi High Court had quashed the award of contract of work of professional services given by the government-owned Container Corporation of India to Master Marine.

The contender, Metcalfe, had challenged the award on the ground that the successful party had no valid licence and on other grounds. The high court accepted the challenge and set aside the award of the contract.

The Supreme Court reversed it, asserting that the judiciary 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 interfere".

In the past years, the Supreme Court had emphasised this point in at least four major judgements. In 1996, its judgement in the Tata Cellular vs Union of India discussed this issue in great detail.

It stated that the principle of judicial review would apply to the exercise of contractual powers by government bodies in order to prevent arbitrariness and favouritism.

However, there are inherent limitations in exercise of that power of judicial review. The government is the guardian of the finances of the state.

The right to refuse the lowest or any other tender is always available to the government, except that there should not be arbitrariness or unreasonableness in its action.

Although the right to choose cannot be considered to be an arbitrary power, it cannot be exercised for any collateral purpose.

It was also underlined that modern trend pointed to judicial restraint in administrative action. The court does not sit as a court of appeal but merely reviews the manner in which the decision was made.

It does not have the expertise to correct 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. The government must have freedom of contract, it was emphasised.

In Sterling Computers Ltd vs M N Publications Ltd, the court further elaborated the theme. It said: "By way of judicial review, the court cannot examine the details of the terms of the contract which have been entered into by public bodies or the state. Courts have inherent limitations on the scope of such enquiry. But at the same time, the court can certainly examine whether the decision-making process was reasonable, rational, not arbitrary and violative of Article 14 of the Constitution."

In Raunaq International Ltd vs IVR Construction Ltd, the court stated that the award of contract, whether by a private party or by a public body or the state, is essentially a commercial transaction.

In arriving at commercial decisions, considerations that are of paramount importance are commercial ones such as the price at which the party is willing to work, whether the goods or services offered are of the requisite specifications, and whether the person offering the tender has the ability to deliver the goods or services according to the specifications.

The judgement in Air India Ltd vs Cochin International Airport Ltd emphasised the public duty of the state and its instrumentalities to be fair to all concerned.

The court, on its part, will interfere only in furthering public interest and not merely on the making out of a legal point.

These authoritative pronouncements are enough to stop recurring litigation about government tenders, but the contenders use the court as one last battlefield in their commercial rivalry. No matter the losing party is asked to pay cost, as in this case.