M J Antony: Hard battles over tenders

Despite clear rules, the tendering process is prone to litigation

The nation stands dazed by a staggering variety of mega swindles unravelled in the past months, with Coalgate and the spectrum scam currently occupying the front stage. But if there is one field that is perennially under cloud it is the invitation of tenders by public authorities. From panchayats to public sector undertakings, hardly any tender is free from bickering followed by litigation.

The problem is hardly manageable by legislation. There are very few states that have attempted to do some prophylactic exercise like that of Karnataka’s Transparency in Public Procurement Act, 1999. Its preamble states that “in the recent past, irregularities in the processing of tenders occurred in various government departments, public sector undertakings, statutory boards, etc., due to inadequate publicity of tenders, restricted supply of tender documents resulting in lack of transparency in evaluation and acceptance of tenders. The law attempts to prevent recurrence of such irregularities”.

However, in a case from that state last fortnight, the Supreme Court had to reiterate the legal position regarding the invitation of tenders. In the judgment Michigan Rubber (India) Ltd vs State of Karnataka, the dispute was about the supply of tyres, tubes and flaps for the state transport corporation. The bidders were Apollo Tyres, Birla Tyres, Ceat, Good Year, JK Industries, MRF Ltd and Michigan Rubber. The successful bidders were Ceat and JK Tyres. This led to a writ petition challenging the pre-qualification criteria and their variation later. The high court dismissed the challenge by Michigan Rubber. Its appeal was also dismissed by the Supreme Court.

The judgment recalled its earlier judgments dealing with conditions incorporated in tender documents and the scope of judicial review in administrative actions. In the leading case, Tata Cellular vs Union of India, (1994) the court emphasised the need to find a right balance between administrative discretion to decide the matters on the one hand, and the need to remedy any unfairness on the other. It laid down certain criteria and declared: (1) the modern trend points to judicial restraint in administrative action; (2) the court does not sit as a court of appeal but merely reviews the manner in which the decision was made; (3) 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 that itself may be fallible; (4) the terms of the invitation to tender cannot be open to judicial scrutiny because they are in the realm of contract; (5) 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 sphere or a quasi-administrative sphere and; (6) quashing decisions may impose a heavy administrative burden on the administration and lead to increased and unbudgeted expenditure.

Though these are elaborate guidelines, litigation on these aspects did not end there. Soon thereafter, another case came before the court. In that judgment, Raunaq International Ltd. vs I.V.R. Construction Ltd. & Ors. (1999), the court had to reiterate the principle governing the process of judicial review and held that the writ court would not be justified in interfering with commercial transactions in which the state is one of the parties except where there is substantial public interest involved and in cases in which the transaction is mala fide.

Four years later, the court elaborated the law in the case, Union of India vs International Trading Co. The judgment said: “If the state acts within the bounds of reasonableness, it would be legitimate to take into consideration the national priorities and adopt trade policies. The ultimate test is whether on the touchstone of reasonableness the policy decision comes out unscathed. Reasonableness of restriction is to be determined in an objective manner and from the standpoint of interests of the general public and not from the standpoint of the interests of persons upon whom the restrictions have been imposed or upon abstract consideration. A restriction cannot be said to be unreasonable merely because in a given case, it operates harshly.”

In the Michigan Rubber case, the court again summarised all these rules. Though the Transparency in Public Procurements Act was in place in the state, it did not help stop litigation. The present case has now come to an end, but this is not likely to be the last instance of this nature. Ingenuity of the legal profession and persistence of the corporations will bring more such cases up to the Supreme Court. The present dispute took a five-year route through three tiers of the judicial hierarchy, with the company losing at each level. Rich litigants either have great faith in the judicial system or deep pockets for engaging in legal wagers.