What is the scope of judicial review of award of contracts was the issue before Court in the matter namely, Jagdish Mandal vs. State of Orissa and Ors., decided on 11.12.2006 [MANU/SC/0090/2007 =  Supp (10) SCR606].
It was raised as contention that the scope of interference in judicial review of tender processes and award of contracts is limited only to cases where there are material violations of the terms relating to scrutiny and acceptance of tenders or where the decision is vitiated either by arbitrariness/irrationality or by mala fides/favoritism.
It was held that judicial review of administrative action intends to prevent arbitrariness, irrationality, unreasonableness, bias and malafides. It 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 succour to thousands and millions and may increase the project cost manifold.
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.’ and (ii) Whether public interest is affected.
If answers to above question are in negative, there should be no interference under Article 226. Cases involving black-listing or imposition of penal consequences on a tendered/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.