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Scope of court to interfere in tenders and contractual matters

In M/s. Ashirbad Industries & others vs State of Odisha & Others, the petitioners were successful bidders in a tender process. However, as there was delay in finalizing the tender process, the Petitioners filed writ petitions which were disposed of by the Orissa High Court with direction to Respondents to consider and dispose of the representation of the Petitioners by passing a reasoned and speaking order after affording reasonable opportunities of hearing to the Petitioners. Since the direction of this Court has not complied in time, contempt petition were preferred by the Petitioners.

In the meantime, the tenders were rejected by the Respondents as they were found to be defective and having discrepancies. The Petitioners again filed writ praying for finalizing the tender are pending adjudication, the order of cancellation is erroneous and hit by the principles of lis pendens. His further contention is that, when the Petitioners have been selected as successful bidders, the unilateral action of the Opposite Parties in cancelling the tender without giving any opportunity of hearing to the Petitioners is illegal, arbitrary and not sustainable in the eye of law.

The Orissa High Court rejecting the writs referred to the judgement of the Hon'ble Supreme Court  in the case of Jagdish Mandal vs. State of Orissa and others, reported in (2007) 14 SCC 517, where  scope of the Court to interfere in tender and contractual matters in exercise of powers of judicial review was considered and was held as follows:

Judicial review of administrative action is intended to prevent arbitrariness, irrationality, unreasonableness, bias and mala fides. Its purpose is to check whether choice or decision is made "lawfully" and not to check whether choice or decision is "sound". When the power of judicial review is invoked in matters relating to tenders or award of contracts, certain special features should be borne in mind. 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 award of contract is bona fide and is in public interest, courts will not, in exercise of power of judicial review, interfere even if a procedural aberration or error in assessment or prejudice to a tenderer, is made out. The power of judicial review will not be permitted to be invoked to protect private interest at the cost of public interest, or to decide contractual disputes. The tenderer or contractor with a grievance can always seek damages in a civil court. Attempts by unsuccessful tenderers with imaginary grievances, wounded pride and business rivalry, to make mountains out of molehills of some technical/procedural violation or some prejudice to self, and persuade courts to interfere by exercising power of judicial review, should be resisted. Such interferences, either interim or final, may hold up public works for years, or delay relief and succor to thousands and millions and may increase the project cost manifold. Therefore, a court before interfering in tender or contractual matters in exercise of power of judicial review, should pose to itself the following questions:

(i) Whether the process adopted or decision made by the authority is mala fide or intended to favour someone;

Or Whether the process adopted or decision made is so arbitrary and irrational that the court can say: "the decision is such that no responsible authority acting reasonably and in accordance with relevant law could have reached";

(ii)Whether public interest is affected. If the answers are in the negative, there should be no interference under Article 226. Cases involving blacklisting or imposition of penal consequences on a tenderer/contractor or distribution of State largesse (allotment of sites/shops, grant of licences, dealerships and franchises) stand on a different footing as they may require a higher degree of fairness in action."

In the present case, the facts are clear that the tender process was not finalized and no agreement of execution of work has been issued. The bid documents offered by the Petitioners has been accepted at the level of Executive Engineer which is subject to further approval by the Superintending Engineer and Chief Engineer and while undergoing such stage of approval at the higher level due to revelation of defects and discrepancies, the tender was cancelled. Therefore, there was no creation of right accrued in favour of the Petitioners to execute the work for which the Tender Call Notice was issued. Since no such right can be construed which can be said to have accrued in favour of the Petitioners, the cancellation of the tender process in entirety in no way affects the Petitioners and thus, nothing can be said to have changed by such cancellation. Since by mere acceptance of the bid documents on the part of the Executive Engineer would not create any right in favour of the Petitioners, the cancellation of the tender also cannot be said to have attracted the doctrine of lis pendens.

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