Judicial Intervention vis-à-vis Government Tender Process
The Indian government, at both the central and state levels, is authorized by law and constitution to solicit private companies for commercial activities by means of a formal tendering procedure. Under this system, which is based on the idea of the rule of law, complete justice and transparency are required for both the process of tendering and the final contract award. Unsuccessful bidders may use Article 226 of the Constitution to request a judicial review if they feel that their exclusion was unfair. The Supreme Court has always stressed the need for a careful balancing act that protects both the larger public interest that these projects serve and the constitutional rights of individual bidders. This calls for careful judicial action that doesn’t compromise important national initiatives. As a result, in order to ensure that neither the public interest nor individual rights are jeopardized, the Supreme Court works to strike a balance between the two.
What is usually referred to as the “tender jurisdiction” was established on the foundation of the government’s expanded role in economic activity and its commensurate authority to grant economic “largesse.” Beyond the matter of strict enforcement of contractual rights under the civil jurisdiction, the goal was to have greater transparency and the consequent right of an aggrieved party to invoke the jurisdiction of the High Court under Article 226 of the Constitution of India. But the actual situation on the ground right now is that hardly any tender goes uncontested. Parties that are unsuccessful or who choose not to participate in the tender attempt to use Article 226 of the Constitution to claim jurisdiction over the High Court. For the same purpose, the Public Interest Litigation (PIL) jurisdiction is also used, a move that the court typically discourages since it leads to proxy litigation in purely contractual disputes.
In this article, the author tries to decode the scope of judicial review in government contractual matters and then analyze the recent judicial trends around the same issue.
Scope of Judicial Intervention
In the case of Star Enterprises v. City and Industrial Development Corp. of Maharashtra Ltd [i]., the court elucidated the necessity of judicial intervention in government contracts and administrative actions, as a mechanism of checks and balances. However, such power of judicial review cannot be unchecked and a restrictive approach of scrutiny should be taken. The restrictive scope of judicial intervention has been voiced by the judiciary through several judgments throughout the years. In the landmark judgement of Tata Cellular vs UOI [ii] it was held that:
“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 the process of negotiations through several tiers. More often than not, such decisions are made qualitatively by experts. Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure.”
In Uflex Ltd. V/s. Government of Tamil Nadu and Ors.[iii], the court opined that the judiciary can intervene in such contractual matters only if there is a case of arbitrariness, irrationality, unreasonableness, bias, and mala fide in the decision-making process. The goal is not to determine whether the decision is sound, but rather to determine whether it was taken legally. Commercial prudence standards shall guide the parties in assessing offers and granting contracts. Natural justice and equity principles must be kept at bay from one another to that degree. Moreover, the aggrieved tenderer can always seek damages in the civil court, but the intervention of constitutional courts in such frivolous matters which will result in a long drawn out litigation process should be resisted.
Accordingly, the Court has reiterated the same in Afcons Infrastructure Ltd. v. Nagpur Metro Rail Corpn. Ltd. [iv], Silppi Constructions Contractors v. Union of India[v], and Galaxy Transport Agencies v. New J.K. Roadways[vi] that the owner or employer of the project, as the author of the tender document or authority which floats the tender, is the best person to understand and appreciate its requirements, and that the courts should not second-guess their interpretation. The courts must accept the author’s view even if there are other plausible interpretations.
Recently, the Supreme Court has diluted the decisions in the above-mentioned cases and introduced a more restrictive approach. In NG Projects Ltd. V. Vinod Kumar Jain[vii], it was held that if the Court determines that there is complete arbitrariness or that the tender was awarded dishonestly, the Court ought to abstain from intervening in the tender process and instead allow the parties to pursue damages for the unjust exclusion rather than attempting to halt the contract’s execution. As a result of the intervention, the State funds are wasted, and the injunction in the tender goes against the interests of the general public.
In Jagdish Mandal v. State of Orissa[viii], the Supreme Court has laid down the following two-prong test to determine the extent of judicial interference in such contracts:
- If the authority’s chosen course of action or conclusion was biased against one party; Or Whether the procedure followed or the choice made was so capricious and unreasonable that the court could find that no competent body operating properly and in compliance with the law at issue could have arrived at that conclusion.
- If it affects the public interest.
If the answers are in the negative, there should be no interference under Article 226.
Grounds of Review and The Wednesbury Principle
The grounds of judicial review in such contractual matters may be subsumed under three main heads:
- Procedural impropriety
The Wednesbury principle applies in the second category mentioned above. Lord Diplock laid out the idea by saying that “irrationality” applies to a decision that is so ludicrous in its rejection of morality or logic that no reasonable person could have reasonably applied his mind to reach that conclusion. He continues by saying that a judge’s interpretation determines whether or not a decision fits within the purview of this group.
It is important to discuss the significance of the supra vires concept in order to comprehend the necessity of a distinct standard for “unreasonableness.” The term “ultra vires doctrine” refers to an action that goes beyond the authority of bodies that make decisions. The logic or ramifications of this principle are significant because they support parliamentary sovereignty and the rule of law (this significance will be demonstrated through a comparison with the Wednesbury principle).Since every case’s facts have the potential to create multiple levels of complexity, it is common for there to be multiple grounds for challenge. It has been noted that unreasonableness is a common factor in a lot of judgments.
Nature of rights of a bidder participating in the Tender process
It has already been established that invitation to tender falls under the legal purview of contracts, therefore, its provisions cannot be subject to judicial review. A limited judicial review, however, might be applicable if it turns out that the terms of the invitation to tender were specifically tailored to fit the needs of one individual to keep everyone else out of the bidding process.
Participating bidders are granted a unique right in the context of the tender process, which is the right to equality and fair treatment. This is particularly related to the assessment of competitive bids that interested parties have filed in response to a notice requesting tenders. This review must be conducted openly and honestly without any ulterior motives.
It is important to emphasize that the rights granted to bidders are limited to the equality and fair treatment principle described before. Under this framework, the only grounds for contesting the tender’s terms and conditions are those of unfairness or lack of parity in the evaluation process. The conditions of the invitation to tender are regarded as being fundamental to the procedure’s contractual character.
Bidders must acknowledge that the body releasing the offer has no responsibility to participate in additional discussions unless specifically mentioned in the tender announcement. Bidders are not entitled by default to insist on negotiations that go beyond the specified terms and conditions.
If the winning bidder or tender “substantially complies” with the essential terms of the tender document issued by such authority, the public authorities may choose to grant government contracts to him or her. Nevertheless, the aforementioned authority is not unrestricted and must be used by government agencies inside the boundaries of Article 14 of the Constitution. Article 226 of the Constitution grants the High Courts “tender jurisdiction,” which is intended to provide greater responsibility, legitimacy, and transparency on the side of these authorities. The restriction is that the High Court’s jurisdiction to intervene under Article 14 of the Constitution is restricted to very specific circumstances, namely where the public authority’s decision or administrative action in question is arbitrary, biased, illogical, dishonest, or unreasonable. The public interest may take precedence over procedural flaws or assessment errors, but these are not justifications for such interference. Furthermore, the High Courts shouldn’t start analyzing the tender document technically.
Written by Sreeya Sengupta, a second-year student at Institute of Law, Nirma University
[i](1990) 3 SCC 280, 284.
[ii] Tata Cellular v. Union of India, (1994) 6 SCC 651.
[iii]Uflex Ltd. V/s. Government of Tamil Nadu and Ors(2022)1SCC165
[iv] (2016) 16 SCC 818 , para 15.
[v] (2020) 16 SCC 489 , para 20.
[vi] 2020 SCC OnLine SC 1035 , para 14
[vii] N.G. Projects Ltd. case, (2022) 6 SCC 127.
[viii]Jagdish Mandal v. State of Orissa, (2007) 14 SCC 517.