A Curious Case of Single Bid

in Articles

Author: Raj Kumar, Assistant Professor, Department of Law, University of Jammu

In India, the tending process or bidding is the most preferred route of public procurement. However, only under exceptional circumstances direct negotiation is used in public procurement. ‘Public Procurement ‘or ‘Bids’ can be defined as the procurement of goods, works and services through tender process or bidding process by all Government Ministries, Departments, Agencies, Statutory Corporations and Public Sector Undertakings in the Centre and the States, Municipal Corporations and other local bodies. A tender is an offer to do works, services or supply goods at a price arrived through tender process for a fixed period. Generally, Government reserves the right to accept or reject any application at any stage of the selection process subject to the terms of the tender document. Once government accepts a tender, it is binding on both parties i.e. it results into a binding contract.

The law of contract is considered to be as parties’ paradise, parties to the contract are free to choose terms and conditions of the contract subject to the provisions of the law. The rules and principles governing contracts were governed by the Indian Contract Act, 1872. However, it may be worthwhile to mention here that the Government does not stand on the same footing as a private person who is free to enter into a contract with any person he likes or wishes. The State or Government, in exercise of its various functions, is bound by the mandate of Article 14 of the Constitution of India which excludes arbitrariness in State action and requires the State to act fairly and reasonably and consequently the discretion in the matter of selection of the person for award of the contract has to be exercised keeping in view the public interest involved in such selection. ((Piyush Joshi and Anuradha R.V, Study on Competition concerns in Concession Agreements in Infrastructure Sectors, June 2009, available Here))

It is a settled law that a public authority cannot act arbitrarily ((Article 14 prohibits the Government and Government instrumentalities from arbitrarily choosing a contractor at its will and pleasure; it has to act reasonably, fairly, and in public interest in awarding contract.)) in the matter of awarding contracts. There is a public element in all its activities and it must confirm to the mandate of Article 14 of the Constitution and observes the tenets of equality and the principle of fair action. ((T.R Desai, Law relating to Tenders and Government Contracts (Universal Law Publishing Co. 2nd Edition, 2009) ))

In this article an attempt has been made to analyse nature and scope of tenders ((Tenders for procurement of goods, services or works etc.)) issued by Government and Government instrumentalities and their power to cancel tender/bid process where only single bid has been received in the light of guidelines issued by the Central Vigilance Commission ((The Central Vigilance Commission is a body established by the Government of India in 1964 in order to guide and advise the Government of India and government agencies in the field of vigilance in order to prevent corruption in government activities. The Central Vigilance Commission acquired a statutory status with the promulgation of an ordinance with effect from 25th August 1998 and began to be governed by its own statute, namely the Central Vigilance Commission Act, 2003, which was enacted and came into effect on September 11, 2003. Vide GOI Resolution on “Public Interest Disclosure and Protection of Informer” dated April 2004, the Government of India has authorized the Central Vigilance Commission as the “Designated Agency” to receive written complaints for disclosure on any allegation of corruption or misuse of office and recommend appropriate action against erring officials.)) and rulings of various High Courts and Supreme Court of India.

A CURIOUS CASE OF SINGLE BID

Whether a Sole bidder can be granted the tender in an open bid or not?

Legislation and Guidelines involved:

  • The Constitution of India.
  • The Indian Contract Act, 1872.
  • Central Vigilance Commission Circular No. 4/3/07, Tendering process- Negotiations with L-1 – dated 03.03.2007.
  • Central Vigilance Commission Circular No. 31/11/08, Time bound processing of procurement dated 06.11.2008.
  • Ministry of Shipping, Road Transport and Highways, Department of Road Transport and Highways Circular No. NH 14019/4/2008-P&M, Acceptance of single tenders for National Highway works.
  • First we deal with the Central Vigilance Commission (Hereinafter referred to as “CVC”) guidelines dealing with single bid:

CVC GUIDELINES ON SINGLE BID

The CVC guidelines on single bid can be summarised as follows:

  • In general, single bid or tenders are not acceptable in the first instance.
  • If there is only one bid even after re-tendering, there is need for detailed justification to accept the single tenderer or single bid with the approval from the competent authority.
  • There should be no negotiations with the bidder at all. However, In cases where a decision is taken to go for re-tendering due to the unreasonableness of the quoted rates, but the requirements are urgent and a re-tender for the entire requirement would delay the availability of the item, thus jeopardizing the essential operations, maintenance and safety, negotiations would be permitted with L-1 bidder(s) ((L-1 means lowest bidder, where tender is based on grant or lowest price, and H-1 means highest bidder, where tender is based on payment of premium to the Government, discovered or selected through tendering process or bidding process.))for the supply of a bare minimum quantity. The balance quantity should however be procured expeditiously through a re-tender, following the normal tendering process. ((Central Vigilance Commission Circular No. 4/3/07, Tendering process- Negotiation with L-1 – dated 03.03.2007))

JURISPRIDENTIAL ANALYSIS

In Tata Cellular v. Union of India ((AIR1996SC11)), the Hon’ble Supreme Court observed that the principles of judicial review would apply to the exercise of contractual powers by Government bodies in order to prevent arbitrariness or favouritism. Further, the Court clearly stated that there are inherent limitations in exercise of that power of judicial review. Government is the guardian of the finances of the State. It is expected to protect the financial interest of the State. The right to refuse the lowest or any other tender is always available to the Government. But, the principles laid down in Article 14 of the Constitution have to be kept in view while accepting or refusing a tender. There can be no question of infringement of Article 14 if the Government tries to get the best person or the best quotation. The right to choose cannot be considered to be an arbitrary power. However, if the said power is exercised for any collateral purpose the exercise of that power will be subject to judicial review and could be struck down by the Court.

The Hon’ble Supreme Court of India in Rajasthan Housing Board and Anr v. G.S Investment and Anr, ((2007 (1) SCC 477))held that in case of Government tenders the highest bidder has not acquired any vested right to have auction concluded in his favour and auction proceedings could always be cancelled.

Further, Hon’ble Supreme Court of India has decided in Ramchandra Murarilal Bhattad and Ors v. State of Maharastra and Ors, ((AIR 2007 SC 401))held that the Power has been exercised by the Authority in cancelling tenders so as to enable it to have a re-look of entire project, for the Some reasons may be required to be assigned for rejecting the bid, but in instant case, no reason was required to be assigned as there has been a change in the policy decision.

In State of Orissa and Ors. v. Harinarayana, ((AIR 1972 SC 1816))Hon’ble Supreme Court held that there is no concluded contract till the bid was accepted. By merely giving bids, the bidders had not acquired any vested rights.

Scope and Extent of Judicial Review

In few leading cases ((Tata Cellular v. Union of India (1994) 6 SCC 651, Shimnit Utsch India Pvt. Ltd. and Anr. v. West Bengal Transport Infrastructure Development Corporation Ltd. and Ors. MANU/SC/0382/2010, Meerut Development Authority v. Association of Management Studies and Anr. (2009) 6 SCC 171, Villianur Iyarkkai Padukappu Maiyam v. Union of India and Ors. (2009) 7 SCC 561, Reliance Airport Developers Pvt. Ltd. v. Airports Authority of India and Ors. (2006)10SCC1, Master Marine Services (P) Ltd. v. Metcalfe and Hodgkinson (P) Ltd. and Another (2005) 6 SCC 138, Global Energy Ltd. and Anr. v. Adani Exports Ltd. AIR 2005 SC 2653, Directorate of Education and Others v. Educomp Datamatics Ltd. and Others AIR 2004 SC 1962, Ramana Dayaram Shetty v. The International Airport Authority of India and Ors. AIR 1979 SC 1628.))the Supreme Court has examined contractual powers of the Government through bidding process and the extent of power of judicial review; following broad principles were culled out:

  1. Public auctions are held to obtain the best possible price.
  2. An invitation to tender is not an offer, but an attempt to ascertain whether an offer can be obtained with a margin.
  3. The right to refuse the lowest or any other tender is always available to the Government. That there is no concluded contract until the bid is accepted by a communication. ((Under section 5 of the Indian Contract Act, 1872, a proposal may be revoked at any time before the communication of its acceptance is complete against the proposer, but not afterwards.))
  4. The court does not sit as a court of appeal but merely reviews the manner in which the decision was made.
  5. The principles laid down in Article 14 of the Constitution have to be kept in mind. However, the modern trend points to judicial restraint in administrative action.
  6. 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.
  7. The terms of the invitation to tender (tender document) 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.
  8. 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 principles of reasonableness, ((Lord Diplock in Council of Civil Services Unions v. Minister for the Civil Service [1985 (1) AC, 374] held that If the decision impugned is so outrageous in its defiance of logic or accepted norms of moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it, then it may be said that the decision is unreasonable. This is known as test of “Wednesbury unreasonableness“. Also see, Hughes v. Deptt. of Health and Social Security 1985 AC 776, R. v. Secretary of State for Transport, Ex parte Richmond upon Thames London Borough Council and Ors. (1994) 1 All E.R. 577.))but must be free from arbitrariness not affected by bias or actuated by mala fides.
  9. Quashing decisions may impose heavy administrative burden on the administration and lead to increased and un-budgeted expenditure.
  10. If the power to accept or reject a tender is exercised for a collateral purpose it is always open to judicial review and can be struck down.
  11. The power of judicial review in the matters relating to tenders is very limited and unless special features are placed, the Court shall not interfere and the power of judicial review cannot be stretched to protect the private interest of contractor. ((Jagdish mandal v. State of Orissa, (2007) 14 SCC 517.))

The Hon’ble Supreme Court in Air India Ltd. v. Cochin International Airport Ltd., (((2000) 2 SCC 617))suggested that ‘even when some defect is found in the decision-making process, the court must exercise its discretionary powers under Article 226 with great caution and should exercise it only in furtherance of public interest and not 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 interfere.’

The High Court of Patna in Umesh Kumar Paswan and etc. v.Union of India and Ors, ((MANU/BH/0527/2009))while deciding on the issue of single bid held that the whole purpose of issuing tenders and having open bid is for the sole purpose of getting the best competitive price and if on the face of bids received, it is apparent that the aforesaid purpose is not satisfied then the bids are not bonafide and must not be accepted by the authorities.

The High Court of Karnataka in Mahendra Labs Pvt. Ltd. v. The Appellate Authority/Principal Secretary to Government Animal Husbandry and Fisheries Department, Government of Karnataka, ((MANU/KA/0618/2009))held that if the tender accepting authority feels that the rates quoted by the lowest tenderer, which is also a sole tenderer, is also on the higher side, it is open for the authority to reject the same. Further, the Court would interfere with the administrative policy decision only if it is arbitrary, discriminatory, mala fide or actuated by bias.

Legitimate Expectation of Single Bidder

The Hon’ble Supreme Court in Union of India v. Hindustan Development Corporation, ((AIR 1994 SC 988))held that the principle of legitimate expectation does not create any crystallized right in the favour of bidder.

The Hon’ble Delhi High Court in TDI International India Ltd. v. Airports Authority of India and Anr, ((MANU/DE/1083/2004, 115 (2004) DLT 139))on the question of Legitimate Expectation of single bidder held that the protection of legitimate expectation is not available to a single bidder where an overriding public interest required otherwise.

Acceptance of Single Bid

The Hon’ble Delhi High Court in Virendra Kapoor v. Airport Authority of India, ((Writ Petition (Civil) No.8529 of 2008.))held that while deciding on the issue of acceptance of single bid has laid down following principle:

It would generally not be advisable to cancel a tender merely because only one offer has been received (as long as it is a valid offer).
The single bid should not be financially depressed.
There should not be real prospect of getting a much higher bid. (If there are prospects of getting much higher bid, then the administrative authority can set aside the tendering process and call for a fresh tender).
The decision taken by the authority should not be arbitrary and must not be designed to achieve any collateral purpose.
Therefore the complementary view of this principle would be the authority with detailed justification can accept the tender of a single bidder only in some exceptional circumstances. Furthermore, under Section 5 of the Indian Contract Act, 1872, a proposal may be revoked at any time before the communication of its acceptance is complete against the proposer, but not afterwards.

CONCLUSION

In view of above, keeping in mind objectives behind CVC Guidelines and rulings of the Supreme Court and various High Courts, it is submitted that it is an acceptable norm to accept single bidder/tender. However, subject to detailed justification in the support of acceptance of single bid.