Government contract: Tender – Award of – Scope of judicial review – Held: Transparency is always required in such tenders because of the nature of economic activity carried on by the State – However, contours to examine are restricted – Objective is not to make the Court an appellate authority to scrutinize as to whom the tender should be awarded – Economics must be permitted since the tendering authority knows best as to what is suited in terms of technology and price for them – In commercial tender matters there is an aspect of commercial competitiveness – Merely because a company 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 – Furthermore, for every succeeding party who gets a tender there may be parties who are not awarded the tender as there can be only one lowest tender – On facts, issuance of notice inviting tender for supply of polyester bases hologram excise labels to be pasted across the caps of bottles of liquor sold by the State Government with various technical specifications and eligibility criteria – Two prospective tendering parties challenged the tendering process – Single Judge of the High Court dismissed the writ petitions – However, the Division Bench of the High Court by directing the State to float a fresh tender, erred in almost sitting as an appellate authority on technology and commercial expediency which is not the role which a Court ought to play – It appears that the two prospective tendering parties endeavoured to continuously create impediments in the way of the succeeding party merely because they could not succeed – When the concerned Committees were looking into the suggestions of the prospective parties, the parties moved to the court – Few issues raised by the parties have already been addressed by the Committees – Thus, the order passed by the Division Bench cannot be sustained and is set aside – Constitution of India – Art. 226.
Costs: Commercial matters – Award of costs – Held: Usually the judicial system hesitates to impose costs, presuming it to be a reflection on the counsel – In a tussle for enforcement of rights against a State different principle apply – However, in commercial matters costs must follow the cause – Tender jurisdiction was created for scrutiny of commercial matters – If parties continuously seek to challenge award of tenders, the succeeding party must get costs and the party which loses must pay costs – On facts, parties litigating are financially strong and took a commercial decision to carry the dispute right up to this Court – They must face the consequences and costs of success or failure in the present proceedings – Furthermore, the instant proceedings do arise from a writ proceeding u/Art. 226 but it is really a commercial dispute, thus, the failing party cannot contend that the present dispute is a writ proceeding – Actual costs quantified on the basis of the bill of fee and costs – Issuance of direction to the respondent companies to pay Rs 23 lakh to the appellant-successful tenderer, and Rs 7.5 lakhs to State Government for defending the litigation.
Costs: Award of – Principles prevailing in England, United States of America, Australia, Hong Kong and Canada while awarding Costs in Civil litigation and Commercial litigation – Stated. Allowing the appeals, the Court
HELD: 1.1 In commercial tender matters there is an aspect of commercial competitiveness. For every succeeding party who gets a tender there may be parties who are not awarded the tender as there can be only one L-1. The question is should the judicial process be resorted to for downplaying the freedom which a tendering party has, merely because it is a State or a public authority, making the said process even more cumbersome. Element of transparency is always required in such tenders because of the nature of economic activity carried on by the State, but the contours under which they are to be examined are restricted. 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. [Para 40][600-D-F]
2.1 The instant dispute has its history in many prior endeavours by the original petitioners which have proved to be unsuccessful. It does appear that in a competitive market they have not been so successful as they would like to be. Merely because a company 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 does appear that this is what is happening; that the two original petitioners are endeavouring to continuously create impediments in the way of the succeeding party merely because they themselves had not so succeeded. It is thus the 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. [Para 41][600-G-H; 601-A-B]
2.2 The checks and balances before the tendering process itself has been provided by constitution of the various committees, more specifically the Technical Specification Committee and the Tender Scrutiny and Finalisation Committee. The objective is to keep the role of these Committees separately defined. [Para 42][601-B-C]
2.3 The objective has been set out by the State Government to use such technology as would prevent spurious liquor from being sold. It is a well-known fact that a large revenue collection comes in Tamil Nadu through sale of liquor. It thus must be left to the State to see how best to maximize its revenue and what is the technology to be utilized to prevent situations like spurious liquor, which in turn would impede revenue collection, apart from causing damage to the consumers. [Para 43][601-C-D]
2.4 A grievance was made about what was stated to be “patented technology”. At the stage when the concerned committees were still looking to the objections/suggestions of the parties, K and A rushed to the Court. The State Government did provide relief by issuing a corrigendum to address the issue relating to hidden text being visible only through Polaroid, as colour change background viewable with film as an identifier did not attract the rigour of this stated patented technology. [Para 44][601-E-F]
2.5 As regards the participating entities, it cannot be contended that all and sundry should be permitted to participate in matters of this nature. In fact, in every tender there are certain qualifying parameters whether it be technology or turnover. The Court cannot sit over in judgment on what should be the turnover required for an entity to participate. The prohibition arising from only a Limited company being permitted to participate was again addressed by the corrigendum permitting LLPs to participate. If entities like K and A want to participate they must take some necessary actions. A is already an LLP. K cannot insist that it will continue to be a partnership alone and, thus, that partnerships must necessarily be allowed to participate. [Para 45][601-F-H; 602-A]
2.6 Insofar as K’s plea based on the Tender Act is concerned, a reading of the provisions would show that some benefit is sought to be given to MSMEs to the extent of 25% of the order based on their willingness to match the price of the lowest tender. However, to be able to avail of that benefit, it must be an entity which is capable of bidding in terms of the tender conditions. There is no prohibition against limiting the participation to Limited companies of LLPs. Domestic enterprise in the Tender Act is defined to mean any micro and small enterprise as defined in the MSMED Act. This argument also appears to be an afterthought, as it is not as if K participated claiming such right as an MSME. [Para 46][602-B-C]
2.7 There were three bidders and that one of them met the technical specifications but did not succeed further on financial issues and turnover under the NIT. The same cannot be used to nullify the whole tendering process. While dealing with a tender of a nature where there cannot be a vacuum. If there is less participation than necessary, it cannot be said that ipso facto the terms and conditions of tender have followed a Decision Oriented Systematic Analysis-DOSA, and to somehow give the tender to one of the parties. Similar terms have been set out in many tenders of different States and there have been varying succeeding parties. No doubt, the success rate of the two successful parties is definitely higher but it cannot be appreciated how that can form the basis to come to a conclusion that something must be done to let other people get a tender. If one may say, it will then become a DOSA to see that the most competitive party does not succeed in the tender but that other parties who keep approaching the Court must get some share of the pie. This cannot be the objective. [Para 47][602-D-G]
2.8 The submissions based on the fact that repeated endeavours of A and K have failed not only before the High Court but before different High Courts based on a similar challenge. Similar tender conditions have been upheld. It cannot be that every time a tender is floated, K and A would be permitted to seek a toehold on one pretext or the other. It is not really the function of the Court to vet the terms of the NIT, as it is the decision-making process which can be reviewed in judicial scrutiny. [Para 48][602-G-H; 603-A]
2.9 A lot of emphasis has been placed by the Courts below in seeking to go into the financial linkages between the two companies, i.e., appellant and M Company. The correct way of examining this issue should have been that whether under the terms of the NIT, any of the aspects which were examined by the Courts could be said to be a disqualification. The answer to the same was in the negative. One company had invested in another through certain preference shares without having any controlling interest, this cannot be the basis of judicial scrutiny. The instant case is not one of an intercorporate battle or of minority shareholders claiming the rights or any debts due, where the principle of lifting the corporate veil should be applied. What one may have said in some income tax proceedings, whether a small percentage of the funds of one company have been utilized as investment in the other are hardly the principles which should come into play in such a tender matter. [Para 49][603-A-D]
2.10 The impugned order cannot be sustained and is set aside. [Para 50][603-D]
3.1 The costs following cause is a principle which is followed in most countries. There seems to be often a hesitancy in the judicial system to impose costs, presuming as if it is a reflection on the counsel. This is not the correct approach. In a tussle for enforcement of rights against a State different principle apply but in commercial matters costs must follow the cause. [Para 51][603E-F]
3.2 The salutary principles to be followed while awarding costs are that costs should ordinarily follow the event; realistic costs ought to be awarded keeping in view the ever increasing litigation expenses; and the cost should serve the purpose of curbing frivolous and vexatious litigation. This endeavour in India is not unique to our country and in a way adopts the principle prevalent in England of costs following the event. The position may be somewhat different in the United States but then there are different principles applicable where champerty is prevalent. No doubt in most of the countries like India the discretion is with the Court. There has to be a proportionality to the costs and if they are unreasonable, the doubt would be resolved in favour of the paying party. As per Halsbury’s Laws of England, the discretion to award costs must be exercised judicially and in accordance with reason and justice. The following principles have been set out therein in deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including: the conduct of all the parties; whether a party has succeeded on part of his case, even if he has not been wholly successful; and any payment into court or admissible offer to settle made by a party which is drawn to the court’s attention. Similar principles are followed in Australia, Hong Kong and Canada largely based on the Common Law principle. In fact in Canada, the Manitoba Law Commission Report analysed the ‘Costs Awards in Civil Litigation’ and referred to broad goals. [Para 53, 54, 55][604-B-G; 605-C-D]
3.3 The said has been set forth so that there is appreciation of the principles that in carrying on commercial litigation, parties must weigh the commercial interests, which would include the consequences of the matter not receiving favourable consideration by the courts. Mindless appeals should not be the rule. In the given facts of the case, the respondents have succeeded before the Division Bench though they failed before the Single Judge. Suffice to say that all the parties are financially strong and took a commercial decision to carry this legal battle right up to this Court. They must, thus, face the consequences and costs of success or failure in the present proceedings. [Para 56][605-F-H; 606-A]
3.4 The best reflection of what costs have been incurred is what the parties have paid towards the counsel fee and out of pocket expenses. The instant proceedings do arise from a writ proceeding under Article 226 of the Constitution but it is really a commercial dispute. Thus, the failing party cannot hide behind the veneer of the present dispute being in the nature of a writ proceeding. The tender jurisdiction was created for scrutiny of commercial matters and, thus, where continuously parties seek to challenge award of tenders, the succeeding party must get costs and the party which loses must pay costs. This was really a battle between two commercial entities on one side seeking to get set aside an award of a tender to two other entities. What else would be commercial interest! [Para 57][606-B-D]
3.5 It is with the said objective that the parties were asked to file their bill of costs. The objective was to bring forth this principle into force by quantifying actual costs for the succeeding party. The bill of fee and costs are scrutinised. There is inclination to allow actual costs. However, the costs have been modulated insofar as appellant is concerned to the extent of the indicated amount of the Advocate-on-Record and allow 50% of the same. The total costs, thus, payable to the petitioner/appellant would be Rs.23,25,750/- (Rupees twenty three lakh twenty five thousand seven hundred fifty only). The State Government cannot be left behind so far as their compensation of costs in defending such a litigation is concerned and thus, the costs of Rs.7,58,000/- (Rupees seven lakh fifty eight thousand only) is allowed. The costs be accordingly paid by K and A in equal share to the two parties. [Para 58-60][606-D-F]
Tata Cellular v. Union of India (1994) 6 SCC 651 – relied on.
Jagdish Mandal v. State of Orissa (2007) 14 SCC 517; Michigan Rubber v. State of Karnataka (2012) 8 SCC
216 : [2012] 8 SCR 128; Misrilall Mines Pvt. Ltd. & Anr. v. MMTC & Ors. (2013) SCC Online Del 563; CaretelInfotech Ltd. v. Hindustan Petroleum Corporation Limited & Ors. (2019) 14 SCC 81 : [2019] 6 SCR 950; Air India v. Cochin International Airport (2000) 2 SCC
617 : [2000] 1 SCR 505; Raunaq International Ltd. v. IVR Construction Ltd. (1999) 1 SCC 492 : [1998] 3 Suppl. SCR 421; Master Marine v. Metcalfe and Hodkinson (2005) 6 SCC 138 : [2005] 3 SCR 666; Bharat Cooking Coal v. AMR Dev (2020) 16 SCC 759; Monarch Infrastructure v. Ulhasnagar Municipal Corp. (2000) 5 SCC 287 : [2000] 3 SCR 1159; Association of Registration Plates v. Union of India (2005) 1 SCC
679 : [2004] 6 Suppl. SCR 496; Ashok Kumar Mittal v. Ram Kumar Gupta (2009) 2 SCC 656 : [2009] 1 SCR 125; Vinod Seth v. Devinder Bajaj (2010) 8 SCC 1 : [2010] 7 SCR 424; Sanjeev Kumar Jain v. Raghubir Saran Charitable Trust (2012) 1 SCC 455 : [2011] 12 SCR 744 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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