THE SILPPI CONSTRUCTIONS CONTRACTORS v. UNION OF INDIA ETC. ETC & Anr.

Contract: Related firms – Whether the petitioner firm and the sister company are “Related Firms”, within the meaning of Clause 1.19 of the Manual of Contracts, 2007 – It is not disputed that all A B C D E F G H 934 SUPREME COURT REPORTS [2019] 10 S.C.R. 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. Contract: Tender of petitioner was rejected inter alia on the ground that adverse remarks were made against sister concern of the petitioner-tenderer in respect of workload return of ‘SS’ Class contractors and non-renewal of its enlistment – Division Bench of High Court held that the adverse remarks recorded against the sister company could not be gone into in the absence of any challenge by the sister company – Held: 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 were not called for or that the adverse remarks were not justified or that the adverse remarks were not to be taken into consideration while considering the tender of the petitioner firm – However, it is noted that in the instant case, the sister company not only did not get its enlistment renewed but also did not care to even represent against the adverse remarks – The eligibility criteria provided in the tender laid down that there should be no adverse remarks in the WLR of the competent engineering authority – Admittedly, there were adverse remarks in Work Load Return (WLR) of the sister company – The sister company having realised that it would not be awarded 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 – All the directors of the sister company were partners in the petitioner firm – Therefore, these adverse remarks passed against the sister company could not be ignored. Contract: Tender – Eligibility criteria – In the instant case, 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” – As far as “other contractors” were concerned, they were required to meet the same criteria as “SS” MES contractors category and these A B C D E F G H SILPPI CONSTRUCTIONS CONTRACTORS v. UNION OF INDIA AND ANR. 935 contractors were specifically told that they could see enlistment criteria in the MES Manual Contracts – The Manual also provided criteria for enlisting of contractors – Therefore, only companies incorporated under the Companies Act, 1956, were eligible to be enlisted as ‘SS’ Class Contractors – Furthermore, Clause 1.5 dealt with the documents to be submitted by the contractor for enlistment in MES – This again would show that only limited companies could be enlisted in ‘SS’ Class – ‘SS’ is the highest class and for that only incorporated companies can apply – Therefore, the petitioner was not eligible to submit the tender. Administrative Law: Administrative decisions – Contract – Rejection of tender – Whether the appellate orders rejecting tenders were bad since they were without reasons – Held: While rejecting the tender the person or authority inviting the tenders is not required to give reasons even if it be a State within the meaning of Art.12 of the Constitution – These decisions are neither judicial nor quasi- judicial – 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 – Constitution of India – Art.12. Case Law Reference [1994] 2 Suppl. SCR 122 relied on [1998] 3 Suppl. SCR 421 relied on [2000] 1 SCR 505 [2005] 2 SCR 1183 [2005] 3 SCR 666 [2006] 8 Suppl. SCR 11 relied on relied on relied on relied on [2006] 10 Suppl. SCR 606 relied on [2012] 8 SCR 128 [2016] 3 SCR 551 [2016] 8 SCR 224 [2018] 6 SCR 861 2019 (6) SCALE 70 relied on relied on relied on relied on relied on Para 7 Para 8 Para 9 Para 10 Para 11 Para 12 Para 13 Para 14 Para 15 Para 16 Para 17 Para 18 A B C D E F G H 936 SUPREME COURT REPORTS [2019] 10 S.C.R. A CIVIL APPELLATE JURISDICTION: Special Leave Petition (Civil) Nos. 13802-13805 of 2019 From the Judgment and Order dated 13.06.2019 of the High Court of Kerala at Ernakulam in Writ Appeal No. 1375 and 1376 of 2019, Writ Appeal No. 1359 of 2019 and Writ Appeal No. 1374 of 2019 P. N. Ravindran, Sr. Adv., Ms. Suman Yadav, Rajiv A. George, Ms. B. Vijayalakshmi Menon, Advs. for the Appellant. Vikramjit Banerjee, ASG, R. Balasubramanian, Ms. Meenakshi Arora, Sr. Advs., Rajan Kr. Chaurasia, Akshay Amritanshu, Baibhav Chadha, A. K. Sharma, Yugandhara Pawar Jha, Pragyan Pradip Sharma, Atul Jha, Chandan Goswami, Ms. Rashmi Singh, Deepu Thankan, Joseph Kodyantra and Ms. Raji Joseph, Advs. for the Respondents. The following Order of the Court was passed : 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 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 B C D E F G H SILPPI CONSTRUCTIONS CONTRACTORS v. UNION OF INDIA AND ANR. 937 had been given to the sister company the petitioner firm could not be awarded the contract. A

#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 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 petitioner- firm; 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.

#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. 1(1994) 6 SCC 651 B C D E F G H 938 SUPREME COURT REPORTS [2019] 10 S.C.R. A B C D E F G H (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 quasi-administrative 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 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.