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Legal Update | Stalling Tender Processes

Co-authored by Areez Gazdar (Principal Associate) and Nutash Kotwal (Senior Associate)

India: Supreme Court to High Court – Refrain from stalling tender processes by issuing Writs even if it’s arbitrary or malafide, Petitioner may seek damages.

The Hon’ble Supreme Court of India has recently, in the case of N. G. Projects Limited v. Vinod Kumar Jain & Ors.[1], held that High Courts should refrain from interfering in the grant of tender by issuing writs, even if they find that it is arbitrary or that the tender has been granted in a mala fide manner. 

The Division Bench comprising Justice Hemant Gupta and Justice V. Ramasubramaniam observed that the Courts should relegate the parties to seek damages for the wrongful exclusion, rather than to injunct the execution of the contract.  

Brief Facts
Road Construction Department of Jharkhand invited tenders for reconstruction of Nagaruntari – Dhurki – Ambakhoriya Road (“First Tender”). Vinod Kumar Jain i.e., Respondent No. 1 participated in the First Tender and also submitted Bank Guarantee as bid security. However, the First Tender was cancelled and fresh Notice Inviting Tender was issued (“New Tender”).

The Tender Evaluation Committee held a meeting for technical evaluation of bids, pertaining to the New Tender, and 13 out of 15 bids were held to be non-responsive in terms of Standard Bidding Document (“SBD”), including that of Respondent No. 1. The Tender Evaluation Committee’s aforesaid conclusion was, inter alia, based on the following reasons: The bank guarantee submitted by Respondent No. 1 was not in the format as prescribed in the SBD;The amount mentioned in the bank guarantee, in numerical and in words were different; The bank guarantee was valid for a time period prior to the date on which the New Tender was issued; andThe affidavit and undertaking supporting Respondent No. 1’s bid were not properly notarized.The technical bid of M/s. NG Projects Limited (the Appellant) was declared to be substantially responsive and after due evaluation of its financial bid, a work contract was issued to the Appellant. The Appellant started the work on the stipulated date of commencement and completed earth work for 21.9 Kms out of the 24 Kms proposed road.

Subsequently, Respondent No. 1 filed a Writ Petition before the High Court of Jharkhand at Ranchi for quashing of the decision of the Technical Evaluation Committee holding its bid to be non-responsive. The Single Bench set aside the award of the contract and directed the State Respondents to issue fresh tender for the work. 

In appeal, the Division Bench held that the decision of the committee to accept the technical bid of the Appellant (i.e., M/s. N. G. Projects Limited) while rejecting the technical bid of Respondent No. 1 (i.e., M/s. Vinod Kumar Jain), did not conform to the Technical Evaluation Committee’s uniform standards. It was held that the selection of one and rejection of another was neither in consonance with the specific terms of the New Tender and the SBD read with the addendum, nor was on a uniform yardstick. 

Apex Court’s Analysis and Findings
After considering the parties’ submissions, the Supreme Court found that the interference in the contract awarded to the Appellant was wholly unwarranted and had caused loss to public interest. The Court noted that the position of law with regard to the interpretation of the terms of the contract is that the question as to whether a term of the contract is essential or not is to be viewed from the perspective of the employer and by the employer.

Since the first bank guarantee submitted by Respondent No. 1, in relation to the First Tender, was cancelled through a notice, the bench held that given that there was specifically a New Tender in place, Respondent No. 1 was aware that it was required to submit a bank guarantee in the format specified. Furthermore, the Court was of the view that the decision as to whether a bidder satisfies the tender condition is primarily upon the authority inviting the bids and that such authority is aware of expectations from the tenderers while evaluating the consequences of non-performance.

“In the tender in question, there were 15 bidders. Bids of 13 tenderers were found to be unresponsive i.e., not satisfying the tender conditions. The writ petitioner was one of them. It is not the case of the writ petitioner that action of the Technical Evaluation Committee was actuated by extraneous considerations or was malafide….. Since the view of the Technical Evaluation Committee was not to the liking of the writ petitioner, such decision does not warrant for interference in a grant of contract to a successful bidder”, said the Bench.

Directions to Writ Courts 
The Bench added that Writ Courts should refrain from imposing its decision over the decision of the employer as to whether or not to accept the bid of a tenderer. The Courts do not have the expertise to examine the terms and conditions of the present-day economic activities of the State, and Courts should be even more reluctant in interfering with contracts involving technical issues as there is a requirement of necessary expertise to adjudicate upon such issues. 

The Bench held that the approach of the Court should not be to find fault with a magnifying glass in its hands, rather the Court should examine as to whether the decision-making process is in compliance with the procedure contemplated by the tender conditions.

The Bench further added that – “If the Court finds that there is total arbitrariness or that the tender has been granted in a malafide manner, still the Court should refrain from interfering in the grant of tender but instead relegate the parties to seek damages for the wrongful exclusion rather than to injunct the execution of the contract. The injunction or interference in the tender leads to additional costs on the State and is also against public interest.”

Therefore, the court opined that State and its citizens suffer twice, firstly by paying escalation costs and secondly, by being deprived of the infrastructure for which the present-day Governments are expected to work.

With this view, the appeal was disposed of with a direction to the Respondent State to allow the Appellant to resume and complete the work. 

[1] Judgment dated 21st March 2022 in Civil Appeal No. 1846 of 2022

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