Squabbles Over Contracts

Though the Supreme Court had set the rules for testing the legality of awarding government contracts in the Tata Cellular case two years ago, the problem raises its head once in a while in different factual contexts. Sometimes, the high courts also fail to apply the guidelines.

Thus, the apex court had to re-examine the judgment of the Orissa high court recently in the award of a contract to build a wharf at Paradip port (Asia Foundation & Construction Ltd vs Trafalgar House Construction Ltd).

The high court had quashed the decision of the port trust to award the contract to the first company and asked it to allow both firms to make fresh offers. If it was not done within a month, the port trust had to bid again for the whole project.

From among six firms shortlisted, only three submitted their bids. Trafalgars bid was found to be the lowest. But when the port trust sought the approval of the Asian Development Bank, it raised objections. According to the bank, the lowest bid was that of Asia Foundation and it insisted that the award should be given to the Foundation.

The tender committee met again and its decision was reiterated. The bank wrote back asserting its stand and warned that if the contract was awarded to anyone else then no loan would be forthcoming. Even if there was a rebid, there would be no loan, the bank insisted.

Meanwhile, Trafalgar moved the high court and claimed that its was the lowest bidder. The high court allowed its petition and observed that the bank had not appeared before it and therefore, it did not appreciate the evaluation of bids. The special fancy of the bank authorities in favour of Asia Foundation has not been justified, the high court observed. Thus the appeal came before the Supreme Court.

The high courts view was that the power of judicial review has been widened by the Supreme Court in cases like Mahabir Auto Stores (1990) and Food Corporation (1993). But the Supreme Court remarked that each case should be decided according to its own merits and facts.

The Supreme Courts view was that the high court could not interfere in cases where there has been no allegation of malice or ulterior motive. A court should interfere only where the decision-making body exceeded its powers, committed an error of law or breach of the rules of natural justice, abused its powers or reached a decision which no reasonable tribunal would have reached.

This reassertion of the principle of judicial review will cut down litigation and prevent escalation of costs. With increasing privatisation and the state authorities still holding power to award contracts in most fields, the courts cannot hold back huge projects because bidders squabble over the method of calculating the costs. It is public interest which suffers in such circumstances. Therefore, the message should go down to all decision-makers.