REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

SPECIAL LEAVE PETITION(CIVIL)NOS. 13802­13805 of 2019

THE SILPPI CONSTRUCTIONS CONTRACTORS                                               …   PETITIONER(S)

VERSUS

UNION OF INDIA AND ANR. ETC. ETC.           … RESPONDENT(S)

O R D E R

1. Keeping in  view  the  urgency  of the  matter,  after  detailed

hearing the Special Leave Petitions were dismissed and we had

directed that a reasoned order would follow.   Hence the present

order.

2. Respondent Nos. 1 and 2 issued notice inviting tenders for

two works at Kochi.  The estimated cost of the works were Rs. 53

crores and Rs. 72 crores respectively.  The petitioner “The Silppi

Constructions Contractors”,  (hereinafter referred to as the firm)

uploaded its competitive bid on the site and complied with all the

conditions.   The technical bids of the petitioner were rejected by

the tendering authorities on 28.03.2019.   The petitioner filed

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appeals before the appellate authority on 28.03.2019 itself which

were rejected on 09.04.2019.   

3. Thereafter, the petitioner filed  a writ  petition  in  the  High

Court of Kerala and the main ground raised was that no reasons

were given either while rejecting its tender or the appeals.  In the

counter filed to the writ petition the stand taken by the

respondents was that the petitioner’s tenders were rejected since

the petitioner did not satisfy the eligibility criteria for submission

of the bid.  It was also specifically urged that a sister concern of

the petitioner’s firm namely “M/s Silppi Realtors and Contractors

Pvt. Ltd.”, (hereinafter referred to as the sister company), had not

renewed  its  enlistment  and had adverse remarks  against it in

respect of workload return of ‘SS’ Class Contractors for the

quarter  ending September,  2017.   It  was urged that  since  the

adverse remarks had been given to the sister company the

petitioner firm could not be awarded the contract.

4. The learned single judge allowed the appeal holding that the

order passed by the appellate authority was not a speaking order

and, therefore, not legally sustainable.   The learned single judge

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also observed that the adverse remarks made against the sister

company could not be used against the petitioner. The learned

single judge went on to hold that the remarks against the sister

company were not  justified.  The writ  petition was accordingly

allowed and the respondents 1 and 2 were directed to consider

the financial bid of the petitioner.

5. Respondent nos.  1 and 2 and some of  the tenderers who

were not parties before the learned single judge filed writ appeals.

These writ appeals were allowed by the division bench holding

firstly, that the  scope of interference  in  contractual  matters is

very limited; secondly, that the learned single judge ought not to

have interfered with the decision of the administrative authorities

with regard to the sister company since it was not shown that the

said decision was mala fide; thirdly, since the sister company had

not challenged the adverse remark the learned single judge could

not  have set aside the same in the  writ petition filed by the

petitioner­firm; and lastly, the direction of the learned single

judge to direct the tendering authorities to consider the financial

bid of the petitioner virtually meant that the technical bid of the

petitioner was accepted.   

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6. Aggrieved, the original writ petitioner is before us in these

petitions.  This Court in a catena of judgments has laid down the

principles with regard to judicial review in contractual matters.  It

is settled law that the writ courts should not easily interfere in

commercial activities just because public sector undertakings or

government agencies are involved.

7. In  Tata Cellular  vs.  Union of India1, it  was  held that

judicial review of government contracts was permissible in order

to prevent arbitrariness or favouritism.  The principles enunciated

in this case are :­

“94. ……. (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 which itself may be fallible. (4) The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract. Normally speaking, the decision to accept the tender or award the contract is  reached by process of  negotiations  through several tiers. More often than not, such decisions are made qualitatively by experts. (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 quasi­administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness (including its other facts pointed out above) but

1 (1994) 6 SCC 651

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must be free from arbitrariness not affected by bias or actuated by mala fides.  (6) Quashing decisions may impose heavy administrative burden on the administration  and lead to increased  and  unbudgeted expenditure.”

8. In  Raunaq International Ltd.   vs.   I.V.R. Construction

Ltd.2, this Court held that superior courts should not interfere in

matters of tenders unless substantial public interest was involved

or the transaction was mala fide.   

9. In Air India Limited   vs.   Cochin International Airport

Ltd.3, this Court once again stressed the need for overwhelming

public interest to justify judicial intervention in contracts

involving the State  and  its  instrumentalities.   It  was held that

Courts  must  proceed  with  great caution  while exercising their

discretionary powers and should exercise these powers only  in

furtherance of public interest and not merely on making out a

legal point.

2 (1999) 1 SCC 492 3 (2000) 2 SCC 617

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10. In Karnataka SIIDC Ltd.   vs.   Cavalet India Ltd.4  it was

held that while effective steps  must be taken to realise the

maximum amount, the  High Court exercising its  power  under

Article  226 of the  Constitution  is  not  competent to  decide  the

correctness of the sale affected by the Corporation.  

11. In  Master Marine Services (P) Ltd.  vs.  Metcalfe  &

Hodgkinson (P) Ltd.5  it was held that while exercising power of

judicial review in respect of contracts, the Court should concern

itself  primarily  with  the question,  whether there has been any

infirmity in the decision­making process. By way of judicial

review, Court cannot examine details of terms of contract which

have been entered into by public bodies or State.

12. In B.S.N. Joshi & Sons Ltd. vs. Nair Coal Services Ltd.6 it

was held that it is not always necessary that a contract be

awarded to the lowest tenderer and it must be kept in mind that

the employer is the best judge therefor; the same ordinarily being

within its domain. Therefore, the court's interference in such

4 (2005) 4 SCC 456 5 (2005) 6 SCC 138 6 (2006) 11 SCC 548

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matters should be minimal. The High Court's jurisdiction in such

matters being limited, the Court should normally exercise judicial

restraint unless illegality or arbitrariness on the part of the

employer is apparent on the face of the record.

13. In Jagdish Mandal   vs.  State of Orissa7 it was held:

“22.   Judicial review  of administrative action is intended to prevent arbitrariness, irrationality,  unreasonableness,  bias and mala fides. Its purpose 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……..”

14.  In Michigan Rubber (India) Ltd.  vs.  State of Karnataka

& Ors.8   it was held that if State or its instrumentalities acted

reasonably, fairly and in  public interest in  awarding contract,

7 (2007) 14 SCC 517 8 (2012) 8 SCC 216

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interference by Court would be very restrictive since no person

could claim fundamental right to carry on business  with the

Government. Therefore, the Courts would not normally interfere

in policy decisions and in matters challenging award of contract

by State or public authorities.

15. In  Afcons Infrastructure Ltd.   vs.  Nagpur Metro Rail

Corporation Ltd.9 it was held that a mere disagreement with the

decision­making process or the decision of the administrative

authority is no reason for a constitutional Court to interfere. The

threshold of mala fides, intention to favour someone or

arbitrariness, irrationality or perversity must be met before the

constitutional Court interferes with the decision­making process

or the decision. The owner or the employer of a project, having

authored the tender documents, is the best person to understand

and appreciate its requirements and interpret its documents. It is

possible that the  owner  or  employer  of  a  project  may give  an

interpretation to the tender documents that is not acceptable to

the constitutional Courts but that by itself is  not a reason for

interfering with the interpretation given.

9     (2016) 16 SCC 818; 2016 KHC 6606

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16. In Montecarlo   vs.   NTPC Ltd.10  it was held that where a

decision is taken that is manifestly in consonance with the

language of the tender document or sub­serves the purpose for

which the tender is floated, the court should follow the principle

of restraint. Technical evaluation or comparison by the court

would be impermissible. The principle that is applied to scan and

understand an ordinary instrument relatable to contract in other

spheres has to be treated differently than interpreting and

appreciating  tender documents relating  to technical  works and

projects requiring special skills. The owner should be allowed to

carry out the purpose and there has to be allowance of free play

in the joints.

17.  In Municipal Corporation, Ujjain and Another   vs.   BVG

India Ltd. and Others11 it was held that the authority concerned

is  in the best position to  find out the best person or the best

quotation depending on the work to be entrusted under the

contract. The Court cannot compel the authority to choose such

undeserving person/company to carry out the work. Poor quality

10    AIR 2016 SC 4946 11   (2018) 5 SCC 462

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of  work or goods can  lead to tremendous public hardship and

substantial financial  outlay  either in  correcting  mistakes  or in

rectifying defects or even at times in re­doing the entire work.

18. Most recently this Court  in  Caretel Infotech Limited  vs.

Hindustan Petroleum Corporation Limited and Others12

observed that a writ petition under Article 226 of the Constitution

of India was maintainable only in view of government and public

sector enterprises venturing into economic activities.  This Court

observed that there are various checks and balances to ensure

fairness in procedure.  It was observed that the window has been

opened too wide as every small or big tender is challenged as a

matter of routine which results in government and public sectors

suffering when unnecessary, close scrutiny of minute details is

done.   

19. This Court being the guardian of fundamental rights is duty

bound to interfere when there is arbitrariness, irrationality, mala

fides and bias.  However, this Court in all the aforesaid decisions

has cautioned time and again that courts should exercise a lot of

12 2019 (6) SCALE 70

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restraint while exercising their powers of judicial review in

contractual or commercial matters.  This Court is normally loathe

to interfere in contractual  matters unless a clear­cut case of

arbitrariness or mala fides or bias or irrationality is made out.

One must remember that today many public sector undertakings

compete with the private  industry.  The contracts entered  into

between private  parties  are  not  subject to  scrutiny  under  writ

jurisdiction.  No doubt, the  bodies which are  State  within  the

meaning of Article 12 of the Constitution are bound to act fairly

and are amenable to the writ jurisdiction of superior courts but

this discretionary power must be exercised with a great deal of

restraint and caution.   The Courts must realise their limitations

and the havoc which needless interference in commercial matters

can  cause.   In contracts involving technical issues the courts

should  be  even more reluctant  because  most  of  us in judges’

robes  do  not  have the  necessary expertise to  adjudicate  upon

technical issues beyond our domain.   As laid down in the

judgments cited above the courts should not use a magnifying

glass while scanning the tenders and make every small mistake

appear like a big blunder.  In fact, the courts must give “fair play

in the joints” to the government and public sector undertakings

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in matters of contract.  Courts must also not interfere where such

interference will cause unnecessary loss to the public exchequer.

20. The essence of the law laid down in the judgments referred

to  above  is the  exercise  of restraint  and caution; the  need  for

overwhelming  public interest to justify judicial intervention in

matters of contract involving the state instrumentalities; the

courts should give way to the opinion of the experts unless the

decision is totally arbitrary or unreasonable;  the court does not

sit like a court of appeal over the appropriate authority; the court

must realise that the  authority floating the tender is the  best

judge of its requirements and, therefore, the court’s interference

should be minimal.   The authority which floats the contract or

tender, and has authored the tender documents is the best judge

as to how the documents have to be interpreted.   If two

interpretations are possible then the interpretation of the author

must be accepted. The courts will only interfere to prevent

arbitrariness, irrationality, bias, mala fides or perversity.  With

this approach in mind we shall deal with the present case.

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21. It has been urged by the learned counsel for the petitioner

that the Division Bench of the High Court erred in holding that

the  writ  petition was not  maintainable  without  making all the

tenderers parties to the petition.  At the outset, we may state that

the Division bench of the High Court has held that in all cases

challenging the decision of the tendering authority, all the eligible

tenderers should be made parties.  We do not think such a broad

proposition could be laid down as an inflexible rule of law.

Supposing the tender documents are not sold/delivered to a party

wanting to submit a tender, in such a case the other tenderers

would not be necessary parties.  In the present case the petitioner

was only challenging the rejection of  its technical bid.   At this

stage the other tenderers were not necessary parties.   The

position may be otherwise if a tenderer challenges a bid awarded

to another or challenges the rejection of his bid at a later stage.

In our view the writ petition was maintainable even in the

absence of other tenderers because till that stage there was no

successful tenderer. Who are the necessary parties will  depend

upon the facts of each case.

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22. It was next urged that the Division Bench erred in holding

that the adverse remarks recorded against the  sister  company

could not be gone into  in the absence of any challenge by the

sister company.   We accept this contention.   In our considered

view if the tendering authority is using any adverse material of

the sister company against the petitioner firm then the petitioner

firm would be entitled to urge that the adverse remarks are not

called for or that the adverse remarks are not justified or that the

adverse remarks cannot be taken into consideration while

considering the tender of the petitioner firm.

23. We then come to the  moot question as to whether the

petitioner firm and the sister company are “Related Firms”, within

the meaning of Clause 1.19 of the Manual of  Contracts, 2007.

The said Clause reads as follows :­

1.19 Related firms

(a) In the trade of works contracts, “business relationship” is the most important factor.  This is corroborated with the provision to be made in the notice of tender as such a Contractor or Corporation, wishing to be registered as an approved Contractor, should give particulars of all MES registered Contractors with whom he/it has business relationship, irrespective of the fact whether there is blood/close relationship or not.  These would include all sister concerns of the Contractor or Corporation also.

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(b) In case of Contractors having blood/close relation with each other but not any business relation whatsoever, particulars of such related contractors need not be given under serial no.7 of the enlistment form. In such cases, it would not be correct to deny issue of tenders to these contractors if they otherwise fulfil all requirement in selection for issue of tenders. However,  while deciding a  tender  in  favour of  one party, it shall be ensured that fair competition has taken place.

(c) A Contractor/Corporation is termed to have “business relationship”  with  other  Contractor(s)/  Corporation(s)  when one or more partner(s)/directors (s) are common.

24. It is not  disputed  before  us that all the partners of the

petitioner firm are the directors of the sister company and,

therefore, there can be no manner of doubt that the petitioner

firm and the sister company are related firms having a business

relationship.  Therefore, adverse remarks made against the sister

concern can be used against the petitioner firm.  To be fair to the

learned counsel for the  petitioner this  point  was not  seriously

contested before us.  

25. That brings us to the most contentious issue as to whether

the learned single judge of the High Court was right in holding

that the appellate orders were bad since they were without

reasons.  We must remember that  we are dealing with purely

administrative  decisions.   These  are in the realm  of contract.

While rejecting the tender the  person or  authority inviting the

tenders is not required to give reasons even if it be a state within

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the meaning of Article 12 of the Constitution.  These decisions are

neither judicial nor quasi­judicial.   If reasons are to be given at

every  stage, then the  commercial  activities  of the  State  would

come to a grinding  halt.   The  State  must be given sufficient

leeway in this regard.  The Respondent nos. 1 and 2 were entitled

to give reasons in the counter to the writ petition which they have

done.

26. Two reasons were given by the Department.   One was that

the sister company had been given a contract for some

construction in Chennai zone and there was a huge delay in the

execution of the project.   According to the petitioners, extension

had been granted to them from time to time by the authorities

and the grant of extension itself indicates that there were

reasonable grounds  for extension of the project and,  therefore,

this ground could not have been taken to reject the technical bid.

27. The second reason was that in another contract awarded to

the sister company, the sister company had failed to perform its

part of the contract leading to cancellation thereof.  The stand of

the petitioner was that the dispute between the parties was

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referred to arbitration and the arbitrator passed  an  award in

favour  of the sister company.  Hence, there  was  a finding in

favour of the petitioner.  According to the respondents, the award

was under challenge before the Court.   

28. As far as the second objection is concerned, we agree with

the petitioner that once an award has been passed in favour of

the petitioner that issue could not be used against the petitioner.

The  Award  being a binding adjudication  would hold the field

unless set aside.     

29. However, as far as the first objection is concerned, merely

because extension of time has been granted, it does not in any

manner mean that the Department has come to the conclusion

that the contractor is not at fault.   Sometimes extension is

granted because a lot of  money has already been invested and

cancellation of contract and appointment of new contractors

would lead to unnecessary litigation and increase in costs.   We

may also point out that though we have held that the petitioner

firm can challenge the correctness of the material used against

the sister concern, we cannot lose sight of the fact that in the

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present case the sister company has not got its enlistment

renewed.  Some of the  adverse remarks were  conveyed  to the

sister company  much prior to the issuance of notice inviting

tenders in the present case.  The sister company not only did not

get its enlistment renewed but also did not care to even represent

against the adverse remarks.  It has been pointed out to us that

as per the Manual on Contracts, 2007 if any adverse remarks are

conveyed to the enlisted contractor the said contractor has a right

to represent against the same.  If no representation is made it is

obvious that the contractor has accepted the adverse remarks.  In

this case the adverse remarks were accepted by the sister

company.  At the least, there was acquiescence if not acceptance.

Therefore, this was a factor which could be taken into

consideration by the respondents.

30. The eligibility criteria provided in the tender lays down that

there should be no adverse remarks in the WLR of the competent

engineering authority.   Admittedly, there are adverse remarks in

Work Load Return (WLR) of the sister company.  It is obvious that

the sister company having realised that it would not be awarded

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any contract neither got its enlistment renewed nor tried to

submit the tender.   The directors of the sister company tried to

get over these insurmountable objections by applying for the

tender in the name of the petitioner firm.  Not only are the names

similar but as pointed above, all the directors of the sister

company are  partners in the  petitioner firm.  Therefore, these

adverse remarks passed against the sister company could not be

ignored.   

31. Another important aspect of the matter is that as per the

eligibility  criteria  for  MES enlisted contractors only  contractors

falling in “SS Class” were eligible to apply.   Admittedly, the

petitioner firm was not an enlisted contractor and was therefore

required to meet the eligibility criteria for other contractors.

Relevant portion of the notice inviting tender reads as follows :­

8.      Eligibility Criteria (A) For MES enlisted contractor

They should satisfy the following criteria :­

(a)   ……….. (b)   ……….. (c)     They should have enlistment in class “SS” Category a(i) (d)   They should not carry adverse remarks in WLR of competent

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engineer authority. (B) For other contractors The firm is not enlisted with  MES

shall meet the following criteria :­

(a) …………. (b) …………. (c)  They should meet  the enlistment criteria of Class “SS” MES Contractors and Category a(i), i.e. having satisfactorily completed requisite value works, annual turnover, solvency, working capital, immovable property/fixed assets, T&P, Engineering establishment, no recovery outstanding in govt. department, police verification/passport etc.   Enlistment criteria  may be  seen in  para  1.4  of section 1 of part I of MES Manual on Conttracts­2007 (Reprint­2102) as available in all MES formation.  These firms shall also submit copy of police verification from police authority of the area where the registered office of the firm is located/notarized copy of valid passport of proprietor/each partner/each director.

(d) They should not carry any adverse remarks in WLR/or any other similar report of any authority.

A bare reading of the eligibility criteria would clearly show that as

far as MES enlisted contractors are concerned, they should be

enlisted in “SS” Category a(i) and secondly, they should not carry

adverse remarks in WLR of competent engineer authority.  As far

as other contractors are concerned, they are required to meet the

same criteria  as “SS”  MES contractors  category  a(i)  and  these

contractors was specifically told that they could see enlistment

criteria in the MES Manual Contracts.  

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32. The Manual also provides criteria for enlisting of contractors.

We are only concerned with Class “SS”.  The relevant portion reads

as follows :­

“………………..              ….……………..               ….……………...     1. For enlistment in class ‘SS’, the company incorporated

under the ‘Companies Act 1956’ shall only be eligible.

…….…………                ………….………              ……….. ………..”   

Therefore, only companies incorporated under the Companies Act,

1956, are eligible to be enlisted as ‘SS’ Class Contractors.   It is

urged on behalf of the petitioner that in various other places

dealing with the documents required to be submitted for

enlistment in MES, the terms proprietors, partners, directors have

been used, meaning that even firms can be enlisted as ‘SS’ Class

contractors.  We  do  not  agree  with this contention.  The  note

quoted above clearly indicates that only incorporated companies

can be enlisted as ‘SS’ Class contractors.  Furthermore, Clause 1.5

deals with the documents to be submitted by the contractor for

enlistment in MES.  The relevant portion reads as follows :­

“(a)  ……………….               ……………….                ………………….

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(b) Affidavit for constitution of firm (only limited companies shall be enlisted in ‘SS’ Class).

  ……………….…               ………………                   .. ……………….”

This again shows that only limited companies can be enlisted in

‘SS’  Class.   The Manual deals with enlistment of contractors  in

various classes.   ‘SS’ is the highest class and for that only

incorporated companies can apply.   Therefore, in our opinion the

petitioner was not eligible to submit the tender.

33. It  was faintly contended that the requirement of being a

company would be only for MES enlisted contractors and not for

other contractors.  The answer to this lies in the eligibility criteria

for other contractors referred to above wherein it has been clearly

mentioned that they should meet the enlistment criteria of Class

‘SS’ MES Contractors.   Even otherwise it would be a travesty of

justice if enlisted contractors should only  be limited companies

and unlisted unknown contractors, could be a firm, individual etc.

This   is   not   the purpose of the criteria.  

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34. In view of the  above  discussion,  we  find  no merit in the

petitions which stand dismissed vide order dated 21.06.2019.

Application(s), if any, shall also stand dismissed.

…………………………….J. (Deepak Gupta)

……………………………..J. (Surya Kant)

New Delhi June 21, 2019

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