The terms of tender/guidelines, being in the realm of contract, cannot be open to judicial scrutiny

Government is free to enter into any contract with citizens, The Court may interfere only where the Government Acts arbitrarily or contrary to public interest.

Government is free to enter into any contract with citizens, The Court may interfere only where the Government Acts arbitrarily or contrary to public interest.

The terms of tender/guidelines, being in the realm of contract, cannot be open to judicial scrutiny etc

Swapnil Ramesh Kaulgud vs. Hindustan Petroleum Corporation Ltd. & Ors.

Writ Petition No. 7475 of 2012, decided on 10th May 2013 by the High Court of Bombay by the bench of Mohit S. Shah, C.J. and Justice Anoop V. Mohta

A question arose before the High Court of Bombay in a writ petition filed under Article 226 of the Constitution of India on the issue of Government’s freedom to enter into contract with the citizen and whether such contracts are open to judicial scrutiny.

The present writ petition was filed in relation to application made by Petitioner for grant of retail outlet dealership, which was rejected by the Respondent, a Government of India Enterprise – Hindustan Petroleum Corporation Limited (HPCL). The application was made pursuant to a public advertisement read with the terms and conditions specified in the guidelines/policy as issued by HPCL, which provided for various tests and formalities for evaluation and allotment of marks. The petitioner was awarded zero marks on the sub-head of Tie up of sales volumes with prospective customers, clause of forms for evaluating the candidates, whereas other Respondents as made party to the proceedings were awarded five marks each for this.

The case of Petitioner was primarily based on a judgment dated 20 February 2008 passed by the Division Bench of Madhya Pradesh High Court in the matter of Smt. Shobha Jaiswal vs. Hindustan Petroleum Corporation Ltd., a case for allotment of retail outlet dealership, based upon the similar set of guidelines for selection of retail outlet dealers. It was observed therein that it was not disputed that the eligibility/suitability of a candidate seeking Retail Outlet is just for the purpose of ensuring his capability to generate business, called a “tied up volume”. It was also not disputed for the purposes of adjudging the suitability, “tied up volume” is considered on the basis of the affidavits of the persons in the vicinity of the proposed Retail Outlet and on that basis the committee arrives at the conclusion about the capacity of the particular candidate to generate business, in addition to the suitability adjudged on the anvil of the other criteria. From the criteria, it was clear that capability to generate business and of sales potential is assessed on the applicant’s ability to tap the sales potential through interview and production of documents including affidavits from prospective customers in support of the claim.

It was further held by the Division Bench of MP High Court that the affidavits filed from the residents of the area does not bind the residents to purchase quantity of the fuel from the proposed outlet and, therefore, apart from being a mere promise, no credence can be given to such affidavits which do not bind the persons who have sworn them. This apart, the affidavit produced by the candidates would enure to the credit of all candidates as they show that there is assured sale. Therefore, the selection was made on the criteria not sustainable. The Supreme Court thereafter in the Special Leave Petitions filed held that, disposed them without interfering into the view taken by MP High Court.

It was categorically specified that the law with regard to the power of Courts while acting under Articles 14 and 226 of the Constitution of India in respect of grant of Government contracts is quite settled and the basic principles were reiterated in Raunaq International Limited vs. I.V.R. Construction Limited, 1999(1) SCC 492: AIR 1999 SC 393 by the Supreme Court as under:

• The court does not sit as a court of appeal but merely reviews the manner in which the decision was made.
• The court does not have the expertise to correct the administrative decision.
• If a review of the administrative decision is permitted it will be substituting its own decision, without the necessary expertise, which itself may be fallible.
• The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract.
• The government must have freedom of contract. In other words, a fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative or quasi administrative sphere.
• However, the decision can be tested by the application of the “Wednesbury principle” of reasonableness and the decision should be free from arbitrariness, not affected by bias or actuated by mala fides.
• Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure.”

Again in Monarch Infrastructure Private Limited v. Commissioner, Ulhasnagar Municipal Corporation, AIR 2000 SC 2272 : 2000 (5) SCC 287, the Apex Court summed up the legal position as under:

• The Government is free to enter into any contract with citizens but the court may interfere where it acts arbitrarily or contrary to public interest;
• The Government cannot arbitrarily choose any person it likes for entering into such a relationship or to discriminate between persons similarly situate;
• It is open to the Government to reject even the highest bid at a tender where such rejection is not arbitrary or unreasonable or such rejection is in public interest for valid and good reasons.

In the present case the Grievance Redressal Committee of HPCL vide impugned orders, dealt with the contentions raised alongwith documents on merits and justified their action of giving particular marks and also provided detail finding why zero marks awarded for Tied up volume to the Petitioner.  It was thus observed that the terms and conditions so provided unless are declared invalid and/or non- binding, the decision cannot be stated to be arbitrary, illegal and/or bad in law and thus the impugned decision was held to be well within the frame work of the published guidelines and/or terms and conditions.

It was reiterated that the Court cannot re-consider or re-evaluate all the items again for awarding the contract or for setting aside the orders as prayed and the writ Court does not sit as the Court of appeal and as it does not have the expertise to correct the administrative decisions and/or substitute its own decisions and the terms of tender/guidelines, being in the realm of contract, cannot be open to judicial scrutiny.