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Synopsis

The Supreme Court has strongly disapproved of the presumptive practice of government bodies inviting tenders from multinational corporations only, based on the belief that Indian manufacturers are inherently incapable of competing with international products or that any service tendered by them would be of inferior quality.

A bench of Justices Surya Kant and N. Kotiswar Singh cautioned the Madhya Pradesh government and the Gwalior Municipal Corporation, expecting them to act in a more transparent manner in the future, as it noted that the notice inviting tender was restricted to multinational corporations solely on a conjectural basis.

Appellant Omega Elevators approached the Supreme Court, challenging the Madhya Pradesh High Court's judgment of October 12, 2020, which declined to consider its writ petition.

The municipal corporation issued a Notice Inviting Tender (NIT) on December 17, 2019, inviting certain permitted bidders to submit their bids for the supply, installation, testing, commissioning, and maintenance of lifts, including allied works, under the Pradhan Mantri Awas Yojana at Mahal Gaon Ki Pahadi and Manpur, Gwalior, Madhya Pradesh.

Notably, the work was required to be completed within six months, and the value of the tender was approximately Rs. 1,460.60 lakh.

The appellant company initially submitted a representation seeking participation in the NIT. When it failed to receive any response, it submitted its bid online on January 10, 2020.

It was pointed out that the reason the appellant was not permitted to participate in the NIT or submit bids for the tender was that the GMC had annexed a list of 10 companies to the NIT, which alone were deemed eligible to submit bids for the contract. These companies were considered to be the 10 most reputed firms in the business of manufacturing lifts and elevators and were accordingly selected by the GMC to ensure quality services.

The aggrieved appellant eventually approached the high court, but its writ petition was dismissed primarily on the strength of a Supreme Court decision in Global Energy Ltd. & Another v. Adani Exports Ltd. & Others (2005), which held that the terms of a tender notice by a statutory authority should not generally be interfered with unless they are wholly arbitrary, discriminatory, or actuated by malice.

In this case, since the lift installation work was to be completed within six months and no interim stay was granted either by the high court or by the Supreme Court, the work was completed by the successful bidder, who, incidentally, was not arrayed as a respondent. Consequently, no effective relief could be granted to the appellant, the court said.

The court, however, decided to examine the limited question of whether the municipal corporation's decision to restrict the bidding process to only 10 companies—and thereby exclude all other potential bidders—could be justified in light of precedent and whether the high court correctly applied the ratio decidendi of that decision.

The bench stated, "The legal principle that the terms of a public tender notice are not generally open to judicial scrutiny and interference unless found to be per se arbitrary is well known. It is trite law that judicial review would apply to the exercise of contractual powers by the Government, to the limited extent of preventing arbitrariness or favouritism. Of course, what constitutes an arbitrary action is ultimately to be answered in the facts and circumstances of any given case."

The bench observed that the assertion that an open tender would render the allotment process cumbersome and time-consuming, or that permitting bidders beyond the designated 10 would result in the installation of inferior-quality lifts, appeared to be conjectural—a mere presumption based on surmises.

Admittedly, the court found that all 10 companies flagged by the municipal corporation as eligible in the NIT were multinational corporations based outside India. This clearly indicated that the GMC ostensibly believed that a company's status as a global entity ipso facto conferred on it the requisite repute and expertise necessary to undertake the specified works.

"In our considered opinion, it is wholly untenable to argue that Indian manufacturers (such as the present appellant) are inherently incapable of competing with international products, or that any service tendered by them would be of an inferior nature. We, in no uncertain terms, disapprove of such presumptive practices," the bench said.

The court pointed out that, except in cases where the competent authority arrives at a well-reasoned, non-discriminatory, and scientifically supported conclusion after an objective analysis by an expert team, such restrictions could not be justified. However, no such argument or supporting material was submitted by the GMC before the high court or before the Supreme Court, it added.

"We further believe that there are several other remedial measures that the GMC could have adopted, including the prescription of stricter standards and criteria in the NIT, to ensure that there is no compromise with quality or post-installation services," the bench said.

The court disposed of the appeals as infructuous after explaining the high court's order.

Case Title: Omega Elevators Vs State of MP & Anr