HM Journal

“Commercial competitiveness obvious in matters of commercial tenders”: SC on limited scope of tender jurisdiction

Court– Supreme Court of India

Judgement Name – Uflex Ltd v. Govt. of Tamil Nadu & Ors. (Civil Appeal No. 4862-4863 Of 2021)

Judgement date – 17 Sept 2021

Judges– J. Sanjay Kishan Kaul and J. Hrishikesh Roy

Introduction –  Thousands of tenders are challenged without weighing the commercial interests and consequences that the economy faces due to the repeated appeals. On 17th Sept 2021, while delivering the judgment of UFLEX Ltd v. Govt of Tamil Nadu, the two judge bench of the Supreme Court observed that the ground reality today is that almost no tender goes unchallenged. Beyond the problem of rigorous enforcement of contractual rights under civil jurisdiction, the goal of creating Tender Jurisdiction was to achieve more transparency and, as a result, the right of an aggrieved party to use the High Court’s jurisdiction under Article 226 of the Indian Constitution. However, it is often seen now that even parties not participating in the tender or unsuccessful parties attempt to invoke the High Court’s Jurisdiction under Article 226 of the Constitution as a result of which there is barely any tender that remains unchallenged.

Brief facts of the Case – Two prospective participating parties M/s Kumbhat Holographics and M/s Alpha Lasertek India LLP filed a writ petition against a NIT(Notice Inviting Tender) which was issued with various technical specifications and eligibility criteria meant for the purposes of production and supply of polyester based hologram excise labels on turnkey basis to be pasted across the caps of liquor bottles sold by the State Government. The primary contention of the petitioners was that the terms and eligibility criteria of the tender were biased and favoured one Uflex Limited (appellant in the present case) and Montage Enterprises Pvt. Ltd. The single Judge dismissed the petition. The division bench, however, allowed the writ appeal noting that it was found that the successful bidder was always Uflex or Montage wherever technical specifications were substantially similar to the impugned specifications.

Contentions of the Appellant– Uflex Ltd made several broad contentions against the impugned order by the division bench. Relying on the judgment in the case of Tata Cellular v Union of India, the appellant contended that The NIT’s conditions are not subject to judicial review, and the Court may only look into the decision-making process since Alpha and Kumbhat failed to prove any public interest or flaw in the entire tender process. They also contended that the writ petition was nothing but an attempt of the original petitioners to somehow frustrate the tender awarded to Uflex. The appellant argued that Alpha and Kumbhat failed to show that the technical specifications were patented and that Uflex and Montage had a monopoly over them.

Contentions of the Respondents – Kumbhat and Alpha made similar submissions and emphasized that the mandate of the G.O. to ensure wider participation was not incorporated since the technical specifications were not generic but biased. They also contended that Uflex and Montage seemed to be monopolizing the business since four other states also awarded the tender with the same specifications and they were the only companies that were eligible bidders. The two bidders were closely related to each other as found by the division bench and Montage too took the plea earlier that Uflex was a sister company.

The Govt contended that the technical specifications were formulated after the deliberations by the eminent scientists in holography and printing technology appointed for the purpose of specifying tender eligibility. The goal was to decrease the possibilities of the hologram being counterfeited. The impugned technical specifications or the work done by the appellants were not unique and were used by several other states and the tenders were awarded to other parties than Montage and Uflex as well.

Principles – The Court observed that the principles of equity and natural justice have to stay at a distance to the extent that while evaluating tenders and awarding the tender, the parties are to be governed by the principles of commercial prudence. The bench also noted that the judicial review of contractual matters has its own limitations and the purpose of the judicial review is to ensure that the choice of decision is made lawfully and not to ensure if the choice of the decision is sound. The court cited the order of Jagdish Mandal v State of Orissa, (2007) 15 SCC 517 to limit the scope of tender jurisdiction noting that attempts by failed tenderers to build mountains out of molehills of some technical/procedural infringement or some detriment to self, and urge courts to intervene by using judicial review power, should be resisted.

Decision Oriented Systematic Analysis(DOSA): Another aspect that was examined by the court was whether the tender’s terms and conditions were tailored to a specific person or business. In reality, the respondents, who were the initial petitioners before the Court, were attempting to argue this in the facts of this case. A reverse engineering technique has emerged to achieve the goal of awarding a contract to a certain party by structuring the tender criteria so that only one company fits the bill. This is categorized as Decision Oriented Systematic Analysis.

The Hon’ble court also examined whether the court procedure should be used to limit a tendering party’s freedom just because it is a State or a public entity, making the process even more difficult. It observed that because of the nature of the state’s economic activity, a certain level of openness is always necessary in such bids, but the parameters within which they must be reviewed are limited, as laid forth in the Tata Cellular, 1994 SCC (6) 651 and other cases. The goal is not to create the Court an appellate authority for deciding who should be granted the tender. It was concluded that economics must be allowed to play its part, and the tendering authority is the greatest judge of what is best for them in terms of technology and pricing.

Judgment– The court set aside the division bench order and allowed the appeal with costs.

Author’s Opinion – The court cited various cases while allowing the appeal and also allowed compensation of more than twenty three lakh rupees to the appellant and also awarded seven lakhs fifty eight thousand rupees as a compensation to defend such a litigation. Plethora of appeals are often filed by ineligible or disqualified parties and the court in this case re- emphasized the limited scope of tender jurisdiction holding the two parties equally accountable for bringing in such litigation. Imposing heavy costs was to convey that the parties must avoid filing mindless appeals and should weigh the commercial interests including consequences if they do not succeed, before filing appeals.

References:

  1. [Uflex Ltd v Govt of Tamil Nadu & Ors, Civil Appeal No. 4862-4863 of 2021, decided on 17.09.2021]

This Article is written by Anamika Singh from NUSRL Ranchi.

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