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M J Antony: Premium on government lethargy

OUT OF COURT

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M J Antony New Delhi
Last Updated : Jun 14 2013 | 5:49 PM IST
The contractual terms should be read strictly and the doctrine of fairness will not apply in commerce, says the Supreme Court
 
If a tender or a business contract depends upon a certain action to be taken by the government, one is taking a grave risk. The governmental juggernaut does not move very easily and one's business plans might collapse. This is the warning signalled by a recent judgement of the Supreme Court in Puravankara Projects Ltd vs Hotel Venus International.
 
In this case, the Kerala government transferred 52 acres of land in favour of Goshree Island Development Authority, a non-statutory state government undertaking for its development schemes. The authority was authorised to sell the land in a public auction. It invited tenders and chose a party which offered the highest bid. But there was a catch. The government had to issue an exemption notification under its land reforms law. The bid was accepted on the assumption that the government will exempt the land involved "in a few days". A bank guarantee was furnished following the acceptance of the tender.
 
The much expected notification of the government, which was a condition for the contract, did not come. Therefore, it led to litigation at different levels by the rival contenders. The high court ruled that the exemption notification should have preceded the tender and the winning party could not have been expected to comply with the tender conditions without an exemption notification.
 
When it came to the Supreme Court, the arguments again centred on which should precede "" the exemption or the issuance of the tender. The Supreme Court overruled the high court and awarded the contract to the next highest bidder who had paid the full amount. The state government, which was responsible for the whole incident, added its own bit by standing silent. After considerable delay, it moved the Supreme Court stating that due to the delay, there had been a considerable increase in the price of the land and the price should be revised accordingly. This plea was ignored.
 
The court's view was that the government, by a contract, could not be compelled to grant necessary permissions. There might be a condition to get permission or exemption as in this case, but if it was not fulfilled, the contract becomes unenforceable. The conditions of the tender cannot be changed.
 
There are at least three reasons for this. The relaxation or waiver of a condition in favour of a bidder, unless allowed by the agreement, would create justifiable doubts in the minds of other bidders. It would impair transparency and fairness in deals and would provide room for manipulation to suit the whims of the state agencies. Citing its 2001 judgement in West Bengal Electricity Board vs Patel Engineering Co Ltd, the court said, "Where power to relax or waive a rule or a condition exists under the rules, it has to be done strictly in compliance with the rules." Moreover, it is in the public interest to adhere to the rules and conditions subject to which bids are invited.
 
It is well established now that the court can scrutinise the award of contracts by the government or its agencies in exercise of its power of judicial review to prevent arbitrariness or favouritism. However, there are inherent limitations in such matters, as pointed out in the 1994 leading case, Tata Cellular vs Union of India. It emphasised that the modern trend pointed to judicial restraint in administrative action. The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contracts.
 
Further, the court cautioned that the principles of administrative law should not be confused with contractual law. "The duty to act fairly and reasonably is a doctrine developed in the field of administrative law to ensure the rule of law and to prevent the failure of justice when the action is administrative in nature," the court explained. But that principle cannot be invoked to amend, alter or vary the express terms of the contract between the parties. The terms of the tender are contractual and the government has large freedom to frame them. It is not for the court to examine the details. The high court, in this case, read "implied terms" into the contract. This amounted to the modification of a vital term of the contract, and it was not permissible.
 
Thus, the court has granted ample elbow room to the government in the matter of tenders. In this case, it even permits some sloth, as the state government did not issue the notification on time, leading to the see-saw litigation. Adapting the advice given by a cynic to bachelors who are about to marry, the advice to those who are about to launch their business trusting the government is "Don't!"

 
 

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First Published: Apr 04 2007 | 12:00 AM IST

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