TMI Blog2021 (9) TMI 1318X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany 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 to us 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 our 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. 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., Uflex and Montage. 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. In our view, 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 present case is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d natural justice have to stay at a distance. Jagdish Mandal v. State of Orissa, (2007) 14 SCC 517. 3. We cannot lose sight of the fact that a tenderer or contractor with a grievance can always seek damages in a civil court and thus, 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. Id. 4. In a sense the Wednesbury principle is imported to the concept, i.e., the decision is so arbitrary and irrational that it can never be that any responsible authority acting reasonably and in accordance with law would have reached such a decision. One other aspect which would always be kept in mind is that the public interest is not affected. In the conspectus of the aforesaid principles, it was observed in Michigan Rubber v. State of Karnataka(2012) 8 SCC 216 as under: 23. From the above decisions, the following principles emerge: (a) the basic requirement of Article 14 is fairness in action by the State, and non-arbitrariness in essence an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporation Limited Ors. (2019) 14 SCC 81. Even if it amounts to repetition, we believe that it needs to be emphasized in view of the controversy arising in the present case to appreciate the contours within which the factual matrix of the present case has to be analysed and tested. 37. We consider it appropriate to make certain observations in the context of the nature of dispute which is before us. Normally parties would be governed by their contracts and the tender terms, and really no writ would be maintainable under Article 226 of the Constitution of India. In view of Government and public sector enterprises venturing into economic activities, this Court found it appropriate to build in certain checks and balances of fairness in procedure. It is this approach which has given rise to scrutiny of tenders in writ proceedings under Article 226 of the Constitution of India. It, however, appears that the window has been opened too wide as almost every small or big tender is now sought to be challenged in writ proceedings almost as a matter of routine. This in turn, affects the efficacy of commercial activities of the public sectors, which may be in competition with the private ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The constitutional courts must defer to this understanding and appreciation of the tender documents, unless there is mala fide or perversity in the understanding or appreciation or in the application of the terms of the tender conditions. 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. 40. We may also refer to the judgment of this Court in Nabha Power Limited (NPL) v. Punjab State Power Corporation Limited (PSPCL) Anr., 7 (2018) 11 SCC 508. authored by one of us (Sanjay Kishan Kaul, J.). The legal principles for interpretation of commercial contracts have been discussed. In the said judgment, a reference was made to the observations of the Privy Council in Attorney General of Belize v. Belize Telecom Ltd. (2009) 1 WLR 1988. as under: 45. 16. Before discussing in greater detail the reasoning of the Court of Appeal, the Board will make some general observations about the process of implication. The court has no power to improve upon the instrument which it is called upon to const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of commercial courts to look to implied terms of contract. In the current day and age, making of contracts is a matter of high technical expertise with legal brains from all sides involved in the process of drafting a contract. It is even preceded by opportunities of seeking clarifications and doubts so that the parties know what they are getting into. Thus, normally a contract should be read as it reads, as per its express terms. The implied terms is a concept, which is necessitated only when the Penta-test referred to aforesaid comes into play. There has to be a strict necessity for it. In the present case, we have really only read the contract in the manner it reads. We have not really read into it any implied term but from the collection of clauses, come to a conclusion as to what the contract says. The formula for energy charges, to our mind, was quite clear. We have only expounded it in accordance to its natural grammatical contour, keeping in mind the nature of the contract. 43. We have considered it appropriate to, once again, emphasise the aforesaid aspects, especially in the context of endeavours of courts to give their own interpretation to contracts, more specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed as the Tender Accepting Authority apart from the appointment of a Technical Specification Committee (for short TSC ) and a Tender Scrutiny and Finalisation Committee (for short TSFC ) for purposes of production and supply of polyester based hologram excise labels on turnkey basis. The stickers were to be pasted across the caps of bottles of liquor sold by the State Government through one of its instrumentalities, the Tamil Nadu State Marketing Corporation (for short TASMAC ). The tender required the prospective bidders and existing suppliers of hologram excise labels to submit necessary documents on the label features and security standard by 07.09.2020. 10. The first meeting of the TSC was held on 09.09.2020 where it was inter alia decided that it would be appropriate to have technical specifications which are generic in nature so as to ensure wider participation by incorporating those features that are available with at least three bidders. In the second meeting held on 18.09.2020, three technical specifications for non-holographic features along with hidden text on colour change background were formulated, which read as under: i. A stripe of design transferred, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er requirements, i.e.: (i) requirement of 8 years of experience in the field of manufacture of security holograms; (ii) requirement of bidders to have supplied full polyester based security hologram labels to the tune of at least ₹ 20 crores to any state excise department during any one of the last three financial years (with additional requirement under Clause 4.6 in Part 4 of the NIT that the said supply should only have been made to any of the state excise departments to be considered valid for this purpose); and (iii) the bidders should also submit a satisfactory performance certificate from the competent authority or the end user. 14. The other aspect was the grievance made about the technical requirement of a Hidden Text on Colour Change Background feature stated to be based on a patented technology. Holograms with this feature were supplied to other public sector undertakings such as the IRCTC in the past by the suppliers other than Uflex and Montage. However, those suppliers had never supplied to any State excise department and, thus, could not meet the two conditions cumulatively. Montage and Uflex were alleged to be the only two bidders who would qualify under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Uflex and Montage was Hololive Corporation Industries (for short Hololive ). It was actually not eligible to participate on multiple parameters as it was a partnership firm registered on 01.07.2017 and thus did not meet the requirement of being either a limited company or an LLP. 19. The report called for by the learned single Judge was on technical specifications and, thus, while Hololive fulfilled those technical specifications, it had not qualified as per commercial terms on the aforesaid account. Further, Kumbhat being a partnership firm, sought to contend that the exclusion of partnership firms was arbitrary. The relationship between Uflex and Montage was in breach of the spirit of Rule 15 of the Tamil Nadu Transparency in Tender (Public-Private Partnership Procurement) Rules, 2012 (hereinafter referred to as the Rules ), which pertains to conflict of interest even though the Rules did not apply to the facts of the case. The said Rule reads as under: 15. Conflict of Interest.- (1) It shall be the responsibility of Tender Inviting Authority and Tender Accepting Authority to ensure that the prospective tenderers do not have a conflict of interest that affects the Tender ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative argument which Kumbhat sought to develop was that it is registered as a Small Industry in terms of the classification under the Micro, Small and Medium Enterprises Development Act, 2006 (for short MSMED Act ) and, thus, qualifies as a domestic enterprise as defined in the Tamil Nadu Transparency in Tenders Act, 1998 (hereinafter referred to as the Tender Act ). Thus, as per proviso to sub-section 2 of Section 10 of the Tender Act, it was entitled to be called upon to supply a maximum of 25% of the total procurement if it was willing to match the price of the lowest bidder. Rule 30-A of the Tamil Nadu Transparency in Tender Rules, 2000 (hereinafter referred to as the Tender Rules ) was also relied upon to contend that the purchase preference is required to be extended to domestic enterprises. 21. On the other hand, it was urged by Uflex that Alpha and Kumbhat lack the locus as they did not even participate in the tender. Alpha did not qualify as it did not have the requisite experience in supplying holograms and its business was actually in the nature of trading. In one of the relevant financial years, the income and expenditure statement showed a zero turnover from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecification should be such that multiple vendors qualify whereas the Commissioner of Prohibition and Excise has used the phrase more than three bidders . The phrase multiple vendors was used as a rough equivalent of expression of more than three bidders and the minutes of the second and third meeting did not contain any discussion as to whether the proposed changes would make the technical specification non-generic. Thus, TSC was held to have deviated from the mandate of prescribing generic technical qualifications. b. The technical requirements as per NIT had features which were not noticeable from specifications as was explained by the patenting process. However, it was noticed that wherever technical specifications were substantially if not wholly similar to the impugned specifications, the successful bidder was always Uflex or Montage. c. The material on record supported an inference that the impugned technical specifications, when coupled with the requirements of having made such supplies of a specified minimum value to a State Excise Department in any of the preceding three years had the effect of eliminating all bidders other than Uflex or Montage. Thus, elimin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven in other tenders, as is reflected from their submission that Uflex has been successful in a number of tenders across the country. Their endeavour to challenge the tender on similar grounds was unsuccessful in Writ Appeal No.509/2016 before the Madras High Court itself against which the Special Leave Petition was dismissed. A similar fate was met in their endeavour before the Madhya Pradesh High Court in WP No.4448/2016 where also the SLP was dismissed. iii. The petitioner has invested a huge amount of about ₹ 10 crore and has employed 87 people after the grant and issuance of work order. The adjudication of a civil dispute, the present one being really akin to the same, is based on the preponderance of probabilities. The impugned order visits Uflex with adverse civil consequences based on some justifiable doubts as is found in the impugned judgment. In this behalf, reference was invited to para 47 of the impugned judgment opining so, i.e., the evidence on record is insufficient to draw the definitive conclusion that the tender conditions were tailored to suit only the two eligible bidders, although there is sufficient basis for justifiable doubts on that count. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Montage due to Montage s acquisition of Uflex s subsidiary, Utech Developers Limited. These preference shares are 7.50% redeemable, non-cumulative, nonparticipating, non-convertible preference shares and the same does not allow Uflex to exert any influence on Montage. 29. Similarly, supporting the plea of Uflex, Montage also contended that the allegation of common source of patent technology through ATB has no basis as Montage does not have any license arrangement with the said Company nor had it paid any license fee to ATB. It has, however, access to technology to produce latent images because it procured the requisite machinery. Submissions on behalf of Kumbhat: 30. On the other hand, Kumbhat sought to emphasise the following aspects in support of the impugned judgment: i. The mandate of the G.O. stipulated that technical specifications have to be generic in nature to ensure wider participation by incorporating those features which are available with more than three bidders and the same was accepted by the Government by reiterating that there must be multiple bidders. The factum of Hololive disqualification on certain conditions of the NIT was not raised befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er: Provided further that the Tender Accepting Authority shall accept the tender of a department of Government, Public Sector Undertaking, Statutory Board and other similar institutions as may be notified, not being the lowest tender, upon satisfaction of such conditions as may be prescribed, in respect only of goods manufactured or produced and services provided or rendered by them, and only to the extent of not exceeding forty per cent of the total requirement in that procurement, if such tenderer is willing to match the price of the lowest tender: Provided also that in case of a single procurement, the total procurement under the above two provisos shall not exceed forty percent of the total requirement in that procurement.] Kumbhat being an MSME, thus, seeks a right to participate in tenders in Tamil Nadu. 31. We may note at this stage that Kumbhat did not even apply and could not have applied being a partnership firm while Alpha could have applied being an LLP but did not apply. Submissions on behalf of Alpha: 32. Alpha sought to reiterate the submissions made by Kumbhat and sought to give examples from other States to support its adequacy of manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o participate in the tender. The same very corrigendum addressed the issue relating to hidden text being visible only through Polaroid by adding film. It was submitted that the Division Bench wrongly noted that the hidden colour specification was patented and there were no eligible bidders who would qualify the same as the counter affidavit contains a list of tenders which had similar conditions and parties had succeeded in the same. For example, the 2019-22 Excise Department Chhattisgarh tender had similar conditions and Prizm Holography succeeded. The same tender had two other entities who had qualified, including Alpha. 38. On the aspect of tender conditions being tailor-made and the principles of DOSA applying, it was submitted that the latitude must be greater where such high security features are involved. Association of Registration Plates v. Union of India (2005) 1 SCC 679. 39. Lastly it was submitted that there was nothing so extraordinary or unique which was being done by the respondents and the practice followed were similar to the practices of other States. The impugned technical specifications have been utilized by several states and public sector undertakings i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g as an appellate authority on technology and commercial expediency which is not the role which a Court ought to play. 42. The checks and balances before the tendering process itself has been provided by constitution of the various committees, more specifically the TSC and the TSFC. The objective is to keep the role of these Committees separately defined. 43. We are concerned with sale of liquor. The objective has been set out by the State Government, i.e., use of 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 Government 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. 44. 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, Kumbhat and Alpha rushed to the Court. The State Government did provide relief by issuing a corrigendum to add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 before us is definitely higher but we fail to appreciate 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. 48. We have also noticed the submissions based on the fact that repeated endeavours of Alpha and Kumbhat have failed not only before the Madras High Court but before different High Courts based on a similar challenge. Broadly, similar tender conditions have been upheld. It cannot be that every time a tender is floated, Kumbhat and Alpha would be permitted to seek a toehold on one pretext or the other. As noticed, 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. Tata Cellular (supra). 49. A lot of emphasis has been placed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Law Commission of India should be followed up by the Parliament and the respective High Courts. 53. We may note that the common thread running through all these three cases is the reiteration of salutary principles: (i) costs should ordinarily follow the event; (ii) realistic costs ought to be awarded keeping in view the ever increasing litigation expenses; and (iii) the cost should serve the purpose of curbing frivolous and vexatious litigation. Report No.240 of the Law Commission of India. 54. We may note that 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 U.K. Civil Procedure Rule 44.2. As per Halsbury s Laws of England, the discretion to award costs must be exercised judicially and in accordance with reason and justice. Vol. 10, 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision 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. 57. 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 present 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, we are of the view that 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 58. It is with the aforesaid objective that we had asked the parties to file their bill of costs vide order dated 17.08.2021. The objective was to bring forth this principle into force by quantifying actual costs for the su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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