Tender system adopted for transparency but ground reality is no tender remains unchallenged: SC

Observing "mindless appeals should not be the rule", the top court in a first of its kind devised a methodology for imposing cost on commercial entities indulging in such litigations and said “The tender jurisdiction was created for scrutiny of commercial matters and, thus, where continuously parties seek to challenge award of tenders, we are of the view that the succeeding party must get costs and the party which loses must pay costs”. 

A bench of Justices Sanjay Kishan Kaul and Hrisikesh Roy, while deciding commercial dispute between corporate entities over the dispute on terms and conditions of tender issued by Tamil Nadu government, said that the judicial review of such contractual matters has its own limitations. 

“The enlarged role of the Government in economic activity and its corresponding ability to give economic ‘largesse’ was the bedrock of creating what is commonly called the ‘tender jurisdiction’. The objective was to have greater transparency and the consequent right of an aggrieved party to invoke the jurisdiction of the High Court…, beyond the issue of strict enforcement of contractual rights under the civil jurisdiction. However, the ground reality today is that almost no tender remains unchallenged”, the bench said. 

It said that the “burgeoning litigation” in this field and the same being carried to this Court has made the top court make observations in the catena of verdicts over the period of time. 

The top court passed the order on an appeal filed by Uflex Ltd against the Madras High Court order of April 29, giving Tamil Nadu government four months’ time to float a fresh tender for production and supply of polyester based hologram stickers to be pasted across the caps of bottles of liquor sold by the Tamil Nadu State Marketing Corporation (TASMAC). 

The High Court had passed the order on a plea filed by two other competing firms, who were not selected in the tender process. 

The bench said that the unsuccessful parties or parties not even participating in the tender process seek to invoke the jurisdiction of the courts and even the Public Interest Litigation (PIL) jurisdiction is also invoked, an aspect which is normally deterred by the Court because this causes proxy litigation in purely contractual matters. 

“The judicial review of such contractual matters has its own limitations. It is in this context of judicial review of administrative actions that this Court has opined that it is intended to prevent arbitrariness, irrationality, unreasonableness, bias and mala fide,” the bench said. 

Referring to an earlier verdict, the bench said this court has held that “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.” 

It said that in commercial tender matters there is obviously an aspect of commercial competitiveness and for every succeeding party who gets a tender there may be a couple or more parties who are not awarded the tender as there can be only one L-1. 

“The objective is not to make the Court an appellate authority for scrutinizing as to whom the tender should be awarded. Economics must be permitted to play its role for which the tendering authority knows best as to what is suited in terms of technology and price for them,” the bench said. 

Terming the dispute between the parties in question as having history of many prior endeavours, the bench said it does appear that rival parties M/s Kumbhat Holographics and M/s. Alpha Lasertek India LLP in a competitive market they have not been as successful as they would like to be. 

“Merely because a company (referring to Uflex Limited) is more efficient, obtains better technology, makes more competitive bids and, thus, succeeds more cannot be a factor to deprive that company of commercial success on that pretext”, it said, adding that it does appear that the rival firms are endeavouring to continuously create impediments in the way of the succeeding party merely because they themselves had not so succeeded. 

The bench in its 48-page verdict said, “it is thus our view that the Division Bench has fallen into an error in almost sitting as an appellate authority on technology and commercial expediency which is not the role which a Court ought to play”. 

It said, “We are thus unequivocally of the view that the impugned order cannot be sustained for all the aforesaid reasons and must be set aside and the appeals are accordingly allowed”. 

The top court awarded over Rs 23.25 lakh to Uflex Limited and even awarded Rs 7.58 lakh to the state government as compensation payable by the two rival firms for defending the litigation.