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REPORTABLE

 IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL     APPEAL     NO.        4195         of     2012   (Arising out of S.L.P. (C) No.16175 of 2011

Tejas Constructions &  Infrastructure Pvt. Ltd.             … Appellant

Versus

Municipal Council, Sendhwa & Anr. …Respondents

J     U     D     G     M     E     N     T      

T.S.     THAKUR,     J.   

1. Leave granted.

2. This appeal arises out of an order passed by the High  

Court of Madhya Pradesh at Indore whereby Writ Petition  

No.3427 of 2011 filed by the appellant was dismissed and  

the allotment of the project work involving design,

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construction and commissioning of a single integrated  

water supply at Sendhwa (Madhya Pradesh) in favour of  

M/s P.C. Snehal Construction Company-respondent No.2  

upheld.  

3. In terms of notice inviting tenders (NIT for short)  

Municipal Council Sendhwa, in the State of M.P., invited  

tenders from eligible contractors for the construction of an  

Integrated Water Supply Scheme at an estimated cost of  

nearly rupees twenty crores. Clause (1) of the said NIT as  

amended by addendum dated 23rd March, 2011, stipulated  

the following essential conditions of eligibility for the  

intending bidders:

“1. Registered Contractors have to produce valid  Registration certificate in the category of S-V or  equivalent in any State/Central Government  Department or Government undertaking.

a)    Registered Contractors/Firms of Repute/Joint  Venture firms have to produce certificate for  executing single work of integrated water supply  scheme comprising of intake well, raw/clear water  pumping main, pumps, OHTS, Distribution system  completed and running successfully at present,  having value equal to 60% of the cost of the  proposed works in last 5 years. This certificate  should clearly mention amount of contract,  completion period as per Tender and actual  completion period.  (In case of WPI adjustment for  cost of works the same may be furnished along with  a certificate of Chartered Accountant).  The

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certificate shall be issued from the officer not below  the rank of Executive Engineer or equivalent.

b)    Certified copy of audited balance sheet of last 5  years showing annual turnover equal to estimated  cost of the work and average net worth equal to  40% of the cost of works.”       

4. In response to the above NIT several applications  

were received by respondent No.1 for purchase of the  

tender forms.  It is common ground that only six out of the  

said applicants eventually participated in the pre-bid  

meeting arranged by respondent No.1. It is also not in  

dispute that out of the said six bidders only four were  

eventually found to be eligible. These four included the  

appellant-Tejas Construction & Infrastructure Pvt. Ltd. and  

respondent No.2-M/s P.C. Snehal Construction Company,  

Ahmedabad.

5. The tender conditions, inter alia, provided that the bid  

documents shall comprise three envelopes to be submitted  

by each of the bidders. Envelope A was to contain the  

earnest money deposited, Envelope B was to contain the  

technical bid including qualification documents while  

Envelope C was to contain the price bid of the bidders.  The  

process of evaluation of the bids started on 7th April, 2011

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with the opening of envelopes in the above order. Opening  

of envelope A was uneventful as all the bidders had  

furnished the earnest money stipulated under the terms of  

NIT. The appellant’s case, however, is that when envelope  

B was opened a request was made to respondent No.1 to  

show the technical bid received from respondent No.2  

which request was granted. The appellant’s further case is  

that upon perusal of the technical bid of respondent No.2,  

the appellant had raised an objection as to the eligibility of  

the said to participate in the bid process on the ground that  

it did not have the requisite experience of executing a  

single integrated water supply scheme of the requisite  

value. Respondent No.2 is said to have claimed eligibility to  

offer a bid on the basis of clubbing of different water supply  

scheme projects at Vyara and Songadh which was  

impermissible according to the appellant. The appellant also  

raised an objection to the effect that respondent No.2 had  

not submitted certified copies of audited balance-sheets for  

the last five years and that the net-worth certificate  

produced from a Chartered Accountant for the financial  

year 2010-2011, did not according to the appellant, satisfy

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the said requirement. Despite the objection raised by the  

appellant, respondent No.1 considered all the bids and  

accepted the bid offered by respondent No.2. The appellant  

appears to have approached the concerned authorities in  

Gujarat and obtained a certificate to the effect that Vyara  

and Songadh projects were two different projects and not a  

single integrated water supply scheme and based thereon  

dispatched a telegram to respondent No.1 asking for  

rejection of the bid offered by respondent No.2, but to no  

avail.   

6. Aggrieved by the allotment of work in favour of  

respondent No.2, the appellant filed Writ Petition No.3427  

of 2011 before the Indore Bench of the High Court of  

Madhya Pradesh. The challenge to the eligibility of  

respondent No.2 and eventually to the allotment of the  

project work to the said respondent in the Writ Petition was  

confined to two distinct grounds, namely (1) that  

respondent No.2 had not filed the requisite certified  

balance-sheets for five years immediately preceding the  

issue of tender notice and (2) that respondent No.2 did not

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have the requisite experience of executing a single  

integrated water supply scheme of the required value.

7. The Writ Petition was opposed by the respondents who  

asserted in their respective affidavits that requirement of  

submission of requisite balance-sheets was substantially  

complied with inasmuch as certified copies of the balance-

sheets for four years had been filed but since the audit for  

the fifth year i.e. 2010-2011 had not been completed, the  

certificate issued by the Chartered Accountant for the said  

year sufficiently complied with the said requirement. It is  

also asserted that respondent No.2 satisfied the  

requirement of having executed single integrated water  

supply scheme for Upleta which included raw water  

transmission from intake well and transmission of treated  

clear water from WTP including providing, supplying and  

laying of pipelines, construction of E.S.R.s, Sumps, Pump  

houses and providing and erecting pumping machinery.  

The certificate issued by the Upleta Municipal Council and  

by the Gujarat Urban Development Mission (GUDM) was  

relied upon in support of that claim. The High Court has, by  

the judgment and order under challenge before us,

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examined both the grounds urged in support of the writ  

petition and clearly come to the conclusion that respondent  

No.2 was eligible to offer a bid in as much as it had  

substantially complied with the requirement of filing the  

certified copies of audited balance-sheets for the previous  

period of five years immediately preceding the issue of  

tender notice and that it had the requisite experience of  

executing a single integrated water supply project of the  

requisite value.  

8. We have heard learned counsel for the parties at  

considerable length. A challenge to the award of the project  

work in favour of respondent No.2 involved judicial review  

of administrative action. The scope and the approach to be  

adopted in the process of any such review, has been settled  

by a long line of decisions of this Court. Reference of all  

such decisions is in our opinion is unnecessary as the  

principle of law settled thereof are fairly well recognised by  

now. We may, therefore, refer to some of the said decisions  

only to recapitulate and refresh the tests applicable to such  

cases and the approach which a Writ Court has to adopt

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while examining the validity of an action questioned before  

it.    

9. In Tata Cellular v. Union of India (1994) 6 SCC  

651, this Court emphasized the need to find the right  

balance between administrative discretion to decide  

matters on the one hand and the need to remedy any  

unfairness on the other and observed:

“(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.

(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 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.

(6) Quashing decisions may impose heavy  administrative burden on the administration and lead to  increased and unbudgeted expenditure.”

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10. In Raunaq International Limited v. I.V.R.  

Construction Ltd. & Ors. (1999) 1 SCC 492,  this Court  

reiterated 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 to the same except where there  

is substantial public interest involved and in cases where  

the transaction is mala fide. The court observed:

“10. What are these elements of public interest? (1)  Public money would be expended for the purposes of  the contract. (2) The goods or services which are being  commissioned could be for a public purpose, such as,  construction of roads, public buildings, power plants or  other public utilities. (3) The public would be directly  interested in the timely fulfilment of the contract so  that the services become available to the public  expeditiously. (4) The public would also be interested in  the quality of the work undertaken or goods supplied  by the tenderer. Poor quality 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 —  thus involving larger outlays of public money and  delaying the availability of services, facilities or goods,  e.g., a delay in commissioning a power project, as in  the present case, could lead to power shortages,  retardation of industrial development, hardship to the  general public and substantial cost escalation.

11. When a writ petition is filed in the High Court  challenging the award of a contract by a public  authority or the State, the court must be satisfied that  there is some element of public interest involved in  entertaining such a petition. If, for example, the  dispute is purely between two tenderers, the court

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must be very careful to see if there is any element of  public interest involved in the litigation. A mere  difference in the prices offered by the two tenderers  may or may not be decisive in deciding whether any  public interest is involved in intervening in such a  commercial transaction. It is important to bear in mind  that by court intervention, the proposed project may be  considerably delayed thus escalating the cost far more  than any saving which the court would ultimately effect  in public money by deciding the dispute in favour of  one tenderer or the other tenderer. Therefore, unless  the court is satisfied that there is a substantial amount  of public interest, or the transaction is entered into  mala fide, the court should not intervene under Article  226 in disputes between two rival tenderers.”

11. In Reliance Airport Developers (P) Ltd. v.  

Airports Authority of India & Ors.  (2006)  10 SCC 1,  

this Court held that while judicial review cannot be denied  

in contractual matters or matters in which the Government  

exercises its contractual powers, such review is intended to  

prevent arbitrariness and must be exercised in larger public  

interest.  

12. Reference may also be made to Sterling Computers  

Ltd. v. M & N Publication Ltd. (1993) 1 SCC 445 where  

this Court held that power of judicial review in respect of  

contracts entered into on behalf of the State primarily  

involves examination of the question whether there was  

any infirmity in the decision-making process if such process

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was reasonable, rational and non-arbitrary, the Court would  

not interfere with the decision. In Air India Ltd. v. Cochin  

International Airport Ltd. & Ors. (2000) 2 SCC 617,  

this Court held that award of contract was essential in  

commercial transactions which involves commercial  

consideration and results in commercial decision. While  

taking such decision the State can choose its own method  

on terms of invitation to tender and enter into negotiations.  

The following passage from the decision is apposite:

“The award of contract, whether it is by a private party  or by a public body or the State, is essentially a  commercial transaction. In arriving at a commercial  decision considerations which are of paramount are  commercial considerations. The State can choose its  own method to arrive at a decision. It can fix its own  terms of invitation to tender and that is not open to  judicial scrutiny. It can enter into negotiations before  finally deciding to accept one of the offers made to it.  Price need not always be the sole criterion for awarding  a contract. It is free to grant any relaxation, for bona  fide reasons, if the tender conditions permit such a  relaxation. It may not accept the offer even though it  happens to be the highest or the lowest. But the State,  its corporations, instrumentalities and agencies are  bound to adhere to the norms, standards and  procedures laid down by them and cannot depart from  them arbitrarily. Though that decision is not amenable  to judicial review, the Court can examine the decision  making process and interfere if it is found vitiated by  mala fides, unreasonableness and arbitrariness.

Even when some defect is found in the decision-making  process the Court must exercise its discretionary power  under Article 226 with great caution and should  exercise it only in furtherance of public interest and not

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merely on the making out of a legal point. The Court  should always keep the larger public interest in mind in  order to decide whether its intervention is called for or  not. Only when it comes to a conclusion that  overwhelming public interest requires interference, the  Court should intervene.”

13. To the same effect is the decision of this Court in  

Master Marine Services (P) Ltd. v. Metcalfe &  

Hodgkinson (P) Ltd. & Ors. (2005) 6 SCC 138 and  

Jagdish Mandal v. State of Orissa (2007) 14 SCC 517  

where this Court laid down the following tests for judicial  

interference in exercise of power of judicial review of  

administrative action:  

“Therefore, a court before interfering in tender or  contractual matters in exercise of power of judicial  review, should pose to itself the following questions :

i) Whether the process adopted or decision made by  the authority is mala fide or intended to favour  someone.

OR

Whether the process adopted or decision made is so  arbitrary and irrational that the court can say : 'the  decision is such that no responsible authority acting  reasonably and in accordance with relevant law could  have reached.'

ii) Whether public interest is affected.

If the answers are in the negative, there should be no  interference under Article 226.”

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14. Let us examine the challenge to the award of the  

contract in favour of respondent No.2 in the light of the  

above legal position.  In the earlier part of this judgment  

the challenge to the allotment of the work in question was  

primarily based on a two-fold contention.  Firstly, it was  

argued that respondent No.2, successful bidder, had not  

satisfied the requirement of filing audited balance sheets  

for the five years preceding award of the contract. That the  

said respondent had filed certified copies of the audited  

balance sheets for the years 2006-07, 2007-08, 2008-09  

and 2009-10, was not in dispute. What was disputed was  

that the balance sheet for the year 2010-11 had not been  

filed, instead a certificate from the Chartered Accountant  

concerned, relating to the period 1.4.2010 to 22.3.2011,  

had been produced which did not, according to the writ-

petitioner before us, satisfy the requirement of the NIT.  

Rejecting that contention the High Court held that since the  

balance sheet for the year 2010-11 had not been audited  

the production of relevant record of the company was a  

substantial compliance with the stipulation contained in the  

NIT. The High Court observed:                   

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“As regards audited balance sheet, it has not been  disputed that respondent No.2 submitted audited  balance sheets for years 2006-07, 2007-08, 2008-09  and 2009-2010. Respondent No.2 has further  submitted certificate issued by its Chartered  Accountant in respect of period from 1.4.2010 to  22.3.2011. Certificate is at page 66, which has been  issued on the basis of audited books, documents,  registers, records, bills and evidences produced before  it for verification.  Certificate is dated 23.3.2011. It has  been pointed out by Shri Vijay Assudani, learned  advocate appearing for respondent No.2 that by that  time, the financial year 2010-11 was not complete and  it was not possible to obtain certified copy of the  audited balance sheet. It could not be disputed on  behalf of the petitioner that the turnover as shown in  the certificate of Chartered Accountant and other  documents for last five years, was meeting the  requirement as per the NIT. Further, it is not the case  of the petitioner that the particulars and the figures  mentioned in the certificate are incorrect.  Petitioner,  by virtue of Sections 159 and 163 of the Companies  Act, could have obtained certified copy of balance  sheets of respondent No.2 to demonstrate  incorrectness, if any.  The petitioner, having not chosen  to place any such documents on record, cannot  successfully raise any objection, when there is  substantial compliance of the NIT in relation to  turnover.

xxx  xxx xxx

Audit for the year 2010-11 was not completed by  that time. However, certificate was issued on the basis  of the audit books, documents, register, records, bills  and evidences produced before the Chartered  Accountant for verification.  This amounts to substantial  compliance of the requirement with regard to  submission of certified copy of balance sheet, more so,  the petitioner himself could have obtained copies of  audited balance sheet of respondent No.2 and could  have demonstrated incorrectness. It is not the case of  the petitioner that the said certificate depicts incorrect  turnover or net worth. This being so, the process  adopted by respondent No.1 cannot be said to be  arbitrary or irrational.”               

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15. There is, in our opinion, no legal flaw in the above  

finding or the line of reasoning adopted by the High Court.  

It is true that the date of submission of tender was initially  

fixed upto 25th March, 2011 but the same was extended  

upto 7th April, 2011. That being so, 5 years immediately  

preceding the issue of the tender notice would have  

included the year 2010-2011 also for which financial year,  

audit of the company’s books, accounts and documents had  

not been completed. Such being the case, respondent No.2  

could not possibly comply with the requirement of the  

tender notice or produce certified copy of the audited  

balance-sheet for the said year. All that it could possibly do  

was to obtain a certificate based on the relevant books,  

registers, records accounts etc., of the company, which  

certificate was indeed produced by the said respondent.  

The High Court has rightly observed that the appellant had  

not disputed the correctness of the turnover certified by the  

Chartered Accountant for the year 2010-2011 nor was it  

disputed that the same satisfied the requirement of the  

tender notice. In that view, therefore, there was no  

question of respondent No.2 being ineligible or committing

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a deliberate default in producing the requisite documents to  

establish its eligibility to offer a bid. The first limb of the  

challenge to the finding of the High Court on the above  

aspect must, therefore, fail and is accordingly rejected.  

16. That leaves us with the second ground on which the  

appellant questioned the eligibility of respondent No.2 to  

offer a bid, namely, the non-execution by respondent No.2  

of a single integrated water supply scheme for the requisite  

value. The appellant’s case, in this connection, is two-fold.  

Firstly, it is contended that the works executed by  

respondent No.2 for Vyare and Songadh were distinct and  

different works which did not constitute a single integrated  

water supply scheme hence could not be pressed into  

service to show satisfaction of the condition of eligibility  

stipulated under the tender notice. The alternative  

submission made by learned counsel appearing for the  

appellant in connection with this ground is that the work  

executed by respondent No.2 for Upleta also did not satisfy  

the requirement of the tender notice inasmuch as the said  

work did not involve the construction of intake wells, which  

was an essential item of work for any integrated water

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supply scheme. In the Counter Affidavits filed by the  

Municipal Council and respondent No.2, the contention that  

the latter was not eligible on the ground stated by the  

appellant has been stoutly denied.  Respondent-Council  

has, inter alia, stated:

“To satisfy this condition, respondent no.2 has placed  on record the certificate issued by Municipal Council  Upleta, whereby respondent No.2 was awarded  construction of similar work and has completed the  work on 15.8.2010 for a sum of Rs.14,96,78,721/-.  Not merely this, to show his experience, respondent  No.2 has filed various certificates relating to work at  Bardoli, as well as certificate issued by Gujarat Urban  Development Mission, demonstrating that he has  undertaken the work of 87,21,36,172/- of the  similar/somewhat similar nature.

In this regard it is worth noticing that the only  requirement under this clause was to have executed  single work of integrated water supply scheme having  above referred components in it and it was not at all  necessary for a bidder to have constructed all the  components himself but he could have used the  existing components, as such it is inconsequential as to  whether respondent No.2 has infact constructed intake  well and water treatment plant in Upleta, but it is of  utmost importance that Respondent No.2 should have  experience of having executed integrated water supply  scheme.”

17. To the same effect is the case set up by respondent  

No.2 who has stated as under:

“I say and submit that the only requirement as per the  said eligibility condition was to have executed a single  work of integrated water supply scheme comprising of  all the components, such as intake well, raw/clean

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water, pumping main, pumps, water treatment plants,  over head tanks, distribution system etc., but it was  not necessary for the bidder to have himself  constructed all the components of integrated water  supply scheme.  As such to show his experience in the  said matter, respondent No.2 also has placed on record  certificate issued by Bardoli Nagar Seva Sadan,  (Annexure P/10 Page 78 of SLP), wherein respondent  No.2 has constructed water treatment plant of 13.5  MLD capacity………………”

They have carried out the work of integrated water  supply for Upleta Municipal Council for a sum of  Rs.14.97 crores, similarly respondent No.2 have also  carried augmentation water supply scheme for Bardoli  Incorporation Seva Sadan of Rs.4.35 crores, integrated  drinking water supply scheme for Vyara project of  Rs.6.84 crores, Unjha Water Supply Project of Rs.13.19  crores, Jaitpur Water Project Rs. 16.25 crores, Songarh  Integrated Drinking Water Supply Scheme Rs.5.21  crores, Vapi Water Works of Rs.4.00 crores, Jasadan  Water Suppply Scheme of Rs.3.05 crores, Rajula Water  Supply Scheme of Rs.3.83 crores, Idar Water Supply  Scheme of Rs.4.74 crores, Viramgam Water Supply  Project Rs.6.92 crores, Amreli City Pipeline Distribution  Work Rs.6.49 crores, thus the respondent No.2 have  executed works of similar nature of Rs.87.21 crores,  whereas the present work was for only Rs.20.80 crores,  additionally respondent No.2 is executing similar work  of about Rs.40.50 crores at Dholka, Dhandhuka,  Ankleshwar, Gondal, Jasdan and Dhorangdhra.  Thus  respondent No.2 is competent to execute the present  work, a copy of list of works executed by respondent  No.2 under Gujarat Urban Development Mission duly  certified by the G.M. (Technical) of said organization  are already annexed as Annexure P/8 (Page 69 of SLP).  It is worth mentioning here that average turnover of  respondent No.2 during last 5 years ignoring figures of  2010-11 is Rs.45.14 crores and average net worth of  respondent No.2 for last 5 years ignoring figures of  2010-11 is Rs. 9.018 crores.”

18. The High Court has, while examining the question of  

eligibility of respondent No.2 by reference to the execution

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of the single integrated water supply scheme, recorded a  

finding that the nature of the work executed by respondent  

No.2 for Upleta satisfied the requirement of the tender  

notice. That finding, in our view, is in no way irrational or  

absurd. We say so because the certificate relied upon by  

respondent No.2 sufficiently demonstrates that respondent  

No.2 had designed, and executed an integrated water  

supply scheme for Upleta which included raw water  

transmission from intake wells and transmission of treated  

clear water from WTP including providing, supplying and  

laying of pipelines, construction of E.S.R.s, Sumps, Pump  

houses and providing erecting pumping machinery.  

19. It is also noteworthy that in the matter of evaluation  

of the bids and determination of the eligibility of the bidders  

Municipal Council had the advantage of the aid & advice of  

an empanelled consultant, a technical hand, who could well  

appreciate the significance of the tender condition  

regarding the bidder executing the single integrated water  

supply scheme and fulfilling that condition of tender by  

reference to the work undertaken by them.  We, therefore,  

see no reason to interfere with the view taken by the High

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Court of the allotment of work made in favour of  

respondent No.2.

20. We may while parting point out that out of a total of  

Rs.19.5 crores representing the estimated value of the  

contract, respondent No.2 is certified to have already  

executed work worth Rs.11.50 crores and received a sum  

of Rs.8.79 crores towards the said work.  More importantly  

the work in question relates to a drinking water supply  

scheme for the residents of a scarcity stricken municipality.  

The project is sponsored with the Central Government  

assistance under its urban infrastructure scheme for small  

and middle towns. The completion target of the scheme is  

September 2012.  Any interference with the award of the  

contract at this stage is bound to delay the execution of the  

work and put the inhabitants of the municipal area to  

further hardship. Interference with the on-going work is,  

therefore, not conducive to public interest which can be  

served only if the scheme is completed as expeditiously as  

possible giving relief to the thirsting residents of Sendhwa.  

This is particularly so when the allotment of work in favour  

of respondent No.2 does not involve any extra cost in

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comparison to the cost that may be incurred if the contract  

was allotted to the appellant-company.

21. In the light of the above settled legal position and in  

the absence of any mala fide or arbitrariness in the process  

of evaluation of bids and the determination of the eligibility  

of the bidders, we do not consider the present to be a fit  

case for interference of this Court. This appeal accordingly  

fails and is hereby dismissed with cost assessed at  

Rs.25,000/-.   

                                               ……………………………….………J.                           (T.S. THAKUR)

……………………………….………J.   (GYAN SUDHA MISRA)

New Delhi May 4, 2012