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Interference of court in Tender and Awarding Contract Matters

In the last 10 years, due to increased High Value Tenders and Contracts of Government Works, the number of cases challenging the process followed in granting such tenders and contracts are also increasing. On one side, the Government is opposing this trend on the ground that it is an administrative function of the state, that too with regard to commercial contracts and hence courts should not intervene. But on the other side the affected parties claim that there is a gross misuse of statutory powers by the Government authorities while exercising their administrative discretion in such matters. When there is an arbitrary decision taken on the basis of mala fide intention then the public interest at large also gets affected by way of a poor quality service or increased costs etc. But different courts were interpreting the issues in different ways. Due to delay in the execution of such projects because of pending court cases the country also lost a lot of money. Finally, the Hon’ble Supreme Court of India has settled the law by a recent Judgment in the matter of  Michigan Rubber (India) Limited Vs. State of Karnataka and others / (2012) 8SCC 216 with regard to the interference of the courts of law in the matters relating to awarding of contracts and tenders. The Supreme Court has decided as follows:-

  • The courts interference is not warranted in the matters of tenders and awarding of contracts unless the action of the tendering authority is mala fide and there is misuse of statutory powers.
  • Scope of the court’s interference, is very restricted and limited and courts cannot interfere in Tender matters and awarding of contracts where state acts reasonably, fairly and in public interest.
  • No person is guaranteed with any fundamental right as per the constitution of India to do any business with the state or its organisations.
  • To decide Notice Inviting Tenders (NIT) / Tender Conditions / Eligibility / RFP Conditions – Eligibility Criteria for tenders the Government and its institutions have free hand. The scope for judicial review arises only if the above said items are done an arbitrary, discriminatory, mala fide or activated basis.
  • The courts cannot interfere in a tender process on the basis that some others terms in the tender would have been fairer, wiser and more logical.
  • 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.

While making the above said decisions the Hon’ble Supreme Court of India examined various Judgments of the Supreme Court of India and the Judgments of various High Courts. By restricting the scope of Judicial review in matters relating to the tenders and contracts with the state, the court has tried to strike a balance between the administrative discretion to decide matters on one hand and the need to remedy any unfairness or arbitrariness. The above said judgment also has taken into consideration the administrative burden and wastage of tax payer’s money when the courts interfere in the Commercial Transactions of the State. The Stake holders feel that this Judgment will ensure a fair play in the awarding of the Government contracts and at the same time it will reduce unnecessary interference by courts in the tender process and awarding of contracts.