Holding

The High Court was not justified in interfering with the award; the contract award to the appellant is affirmed.

Summary

The Paradip Port Trust awarded a contract for constructing a coal‑handling wharf to AFCONS (the appellant) after the Asian Development Bank (ADB) indicated that only AFCONS could secure the loan. Respondent No. 1 (Trafalgar House) challenged the award, arguing that it was the lowest evaluated bidder and that the award to AFCONS was arbitrary. The Orissa High Court quashed the award, directing re‑bidding, but the Supreme Court held that the High Court had exceeded its jurisdiction as there was no allegation of malice, bias or illegality, and that the lowest bidder does not have a vested right to the contract. The Court emphasized that judicial review is limited to illegality, irrationality, and procedural impropriety, and that interfering would harm the public interest by delaying the project and increasing costs. Consequently, the Supreme Court set aside the High Court’s order and affirmed the award to AFCONS.

Issues considered

The High Court's jurisdiction to quash the award of a public contract on the basis that the lowest evaluated bidder was not awarded.
Whether the award to AFCONS was arbitrary, illegal, or irrational in violation of principles of judicial review.
Whether the public interest outweighs the alleged procedural irregularities in the tender process.

Subjects

judicial reviewpublic procurementcontract awardlowest bidderadministrative lawpublic interestprocedural improprietyirrationality

Judgment

ASIA FOUNDATION AND CONSTRUCTION LTD. A
v.
TRAFALGAR HOUSE CONSTRUCTION (I) LTD. AND ORS.

DECEMBER 17, 1996
B
[S.C. AGRAWAL AND G.B. PATTANAIK, JJ.)

Judicial Review-In the area of contractual Jurisdiction-It it not within
the pennissible limits of interference for a Co wt of law, in the absence of any
allegation of malice or ulterior motive or finding by the court of any malafide C
or favouritism in the grant of a contract.

For construction of a wharf intended for mechanised handling
facility of coal at Paradip Port, Asian Development Bank at Manila agreed
to give loan. A prequalified notice was issued inviting offers and the
pre-qualification documents received were sent to the Committee of con- D
sultants for evaluation. The Consultants submitted their evaluation report
recommending six firms including the appellant and the respondent No. 1
for the const1uction of the wharf. The tender committee of the Port Trust
reviewed the evaluation made by the consultants and recommended all six
firms. The Board of Trustees of the Paradip Port Trust approved the said E
six firms and invited bids. Out of the six firms, only three submitted their
bids, namely the appellants, respondent No. 2 and one Mahibba Engineer-
ing (M) BHD Malaysia. The bids were sent to the consultant for evaluation
report. The consultants concluded that the first respondent's bid was the
lowest. Tender Committee accepted the recommendations of the consult-
ants and submitted the same to Asian Development Bank for approval.
F

Asian Development Bank, by its communication dated 23.4.1996
intimated that they were unable to support the bid evaluation report and
cannot accept the proposed bid change in quantity. The Bank came to the
conclusion that the lowest evaluated substantially responsive bidder was G

-·.
the appellant and recommended the contract of the construction of the
. wharf be awarded to the appellant. The special tender committee formu-
lated its view and communicated the same to Asian Development Bank.
Bank indicated that the suggestions given were on due consideration of the
practicability of mobilising finance quickly. The tender committee called H
209
·210 SUPREME COURT REPORTS[1996] SUPP.10 S.C.R.

A the appellant for some clarifications. The project manager addressed a
letter stating that in view of the additional information available there was
no technical barrier or commercial disincentive to award the contract to
· the appellant.

Even before the contract was awarded respondent No. 1 approached
B the High Court. After the contract was finally awarded in favour of the
appellant by Board resolution, the writ petition was amended seeking the
relief of quashing the award. The appellant filed their counter affidavit.
The High Court took note of several clauses in the bid documents and
came to the conclusion that the award of contract should be made to the
C bidder whose bid has been determined to the lowest evaluated bid and who
meets the appropriate standards of capability and financial responsibility.
The High Court came to the conclusion that it would be in the public
interest to quash the award in favour of the appellant and accordingly
quashed the award. Hence this appeal.
D
Allowing this appeal, this Court

HELD : 1.1. It is not for the court to determine whether a particular
policy or particular decision taken in the fulfil~ent of that policy is fair.
ltis concerned with the manner in which those decisions have been taken.
E The administrative action which is subject to control by judicial review,
can be classified into (1) illegality, (2) irrationality, (iii) procedural im-
propriety. Principle of Judicial Review is intended to prevent arbitrariness
or favoritism and in the matter of award of contract, if power had been
exercised for any collateral purpose, Judicial Review is exercised in the
F larger public interest. (217-G-H; 218-A-D]

1.2. In the matter of tender, the lowest bidder may not claim any
enforceable right to get the contract though ordinarily the authorities
should accept the lowest bids. [218-F]

G 1.3. Court cannot lose sight of the fact of escalation of cost on
account of delay and the time involved. In a coordinated project if one
component is not worked out the entire project gets delayed and will cost
enormously on that score if rebidding is done. High Court lost sight of this
fact. In the facts and circumstances of this case rebidding would be grossly
H detrimental to public interest. (219-B-C]
ASIA FOUNDATION AND CONST. LTD.'· TRAFALGAR HOUSE CO NTN. (I) LTD. (PATIANAJK, l.] 211

Tata Cellular v. Union of India, [1994] 6 SCC 651, relied on. A
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 16734 of
1996 .
...
From the Judgment and Order dated 10.10.96 of the Orissa High
Court in OJ.C. No. 6457 of 1996. B
K. Parasaran, S. Ganesh, Garrab Banerjee, R.N. Karanjawala, Ar-
vind Kumar, Ms. Ruby Ahuja and Manik Karanjawala for the Appellants.

Soli J. Sorabjee, V.A. Mohta, Sr. Advs., S.B. Upadhyay, Ashok Kr. C
Gupta and Zaki Ahmad Khan for the Respondents.

The Judgment of the Court was delivered by

PATTANAIK, J. : Leave granted.
D '
This Appeal by Special Leave is directed against the judgment dated
10th October, 1996, of the Division Bench of Orissa High Court in Original
Jurisdiction case No. 6457 of 1996. By the impugned judgmerit 'thlHigh
Court has quashed the ultimate decision of the Paradip Port Trust in terms
of the Resolution dated 23.8.96 to award the contract to AFCONS, the E
present appellant, as well as the letter of communication by Paradip Port
Trust to AFCONS dated 24.8.96 and had further directed the Port Trust
to effect negotiations with AFCONS, the present appellant as well as the
Trafalgar House Construction of India Ltd. who.was the petitioner in OJC
and respondent No. 1 herein, giving them opportunity to make fresh offers F
and then lowest bidder should be given the awards. The High Court also
further directed that if there cannot be any negotiation within one month
from the date of the judgment then the Port Trust will be free to ask for
rebidding for the particular project which is the subject matter of the Writ
Petition. It is not necessary to narrate the entire gamut of facts. Suffice it
to state that for construction of Wharf intended for creation of mechanised G
handling facility of coal at Paradip Port the Asian Development Bank at
Manila had agreed to give loan to the extent of 134.85 million US dollars
and it was intended that a par+ of this amount would be utilised for the
construction of the Whar,J?' The entire project consists of nine major
packages and non completion of any package would make the entire H
212 SUPREME COURT REPORTS[l996J SUPP. 10 S.C.R.

A project unworkable. A pre-qualification notice was issued inviting, the
offers and then on receipt of the pre-qualification documents those were
sent to a Committee for evaluation. The consultants submitted their evalua-
tion recommending six firms including the appellant and respondent No. 1
for the construction of the Wharf. The Tender Committee of Port Trust
B reviewed the evaluation made by the consultants and recommended the
names of all the six firms. The aforesaid evaluation report was sent to the
Financial Institution, namely, the Asiai: Development Bank for obtaining
its views. The Board of Trustees of Paradip Port Trust thereafter ap-
proved the said six firms and then invited for bids by their letter dated
C 27.9.95. The last date for submission of bids was 27th December, 1995,
11.00 a.m. Out of the six firms only three firms submitted their bids, namely,
the appellant, the respondent No. 1 and one Muhibbah Engineering (M)
BHD, Malaysia. In accordance with_ the prescribed procedure th~ bids
were opened and were processed. After examining all the bids and deter-
D mination of responsiveness of the bidders three bids were sent to the
consultant for evaluation report. The consultant found some discrepancy
in the bid documents about the amount of concrete required for pre-cast
planks for the Wharf Deck. The consultants then corrected the error and
after making re-calculation came to the conclusion that respondent No. l's
E bid was the lowest. The Tender Committee of Paradip Port Trust accepted
the recommendation of the consultants and submitted the same for ap-
proval of the Financial Institution, namely, the Asian Development Bank.
The Bank by its communication dated 23rd April, 1996, stated that they
are unable to support the approach set out in the Bid Evaluation Report
and they cannot accept the proposed bid change in the quantity. The Bank
F .also came to be conclusion that the lowest evaluated substantially respon-
sive bidder is AFCONS, the present appellant, and accordingly recom-
mended that the contract of construction of the Wharf be awarded to
AFCONS. On receipt of the view of the Bank and since substantial amount
of finance was to be given by the Bank as loan the Port Trust again asked
G their consultants about the earlier bid evaluation. The Special Tender
Committee again met on 16.5.96 and then formulated its views and com-
municated the same to the Bank on 12.5.96. The Bank wrote back on 5th
June, 1996 suggesting that the contract be awarded to AFCONS so that
the works can be financed from the loan and if the contract is awarded to ·
H anyone else then no loan would be financed and if the Port Trust is inclined
ASIA FOUNDATION AND CONST. LID. '· TRAFALGAR HOUSE CON1N. (!) LID. (PAITANAIK, J.) 213

to rebid then also there would be no loan from the Bank. The Bank A
indicated that the suggestions given by the Bank is on due consideration
of the practicability of mobilizing finance quickly. On receipt of the said
response from the Bank the Tender Committee met on 14.6.96 and then
decided to call the appellant to have some clarifications. In the meeting
dated 17.6.96 the appellant appeared before the Te.nder Committee and B
responded to the clarifications sought for. The project manager addressed
a letter on 12th July, 1996, stating therein that if the additional commercial
information had been available at the time of assessment then the outcome
would appear to favour award to AFCONS. It also further stated that
completing the bid evaluation and making its recommendation of award to C
Essar the consultant has done so in a professional and impartial manner
based upon the information available at that time. It was further stated that
in view of the additional information now available there was no technical
barrier or commercial disincentive to award to AFCONS, the appellant
herein. But even before the award was made in favour of the appellant the
respondent No. 1 had approached the High Court, obviously being aware D
of the fact that the appellant's bid is going to be accepted and after the
final award in favour of the appellant by Board's Resolution dated 3rd
August, 1996, the Writ Petition was amended seeking the relief of quashing
of the award in question. ·
E
The appellant in this counter-affidavit filed before the High Court
not only denied the allegations made in the Writ Petition but also submitted
that factually all through the bid of the appellant has been the lowest. It
was also stated that the consultant had not taken into account the customs
duty .which was payable while making the evaluation in question. The F
Paradip Port Trust in its affidavit before the High Court had urged that
since the loan was to be sanctioned by the Asian Development Bank and
· the Asian Development Bank did not agree to sanction loan if the contract
is awarded to Essar or the contract is re-bid, on reconsideration of the
entire situation the Port Trust awarded the contract in favour of the
appellant. The Port Trust also stated that on receipt of the additional G
information and taking into consideration the same the Trust was of the
view that the award to AFCONS would appear to be acceptable and
appropriate. The Port Trust further made it clear that the re-bid was not
in the interest of the project and not only it would jeopardise the entire
loan sanctioned by the Asian Development Bank but there is every pos- H
214 SUPREME COURTREPORTS(1996] SUPP.10 S.C.R.

A sibility of bid being substantially higher.

The High Court by the impugned judgment took note of several ·
clauses of the bid dncuments which consists of several parts and came to
the conclusion that the award of contract should be made to the bidder
whose bid has been determined to be the lowest evaluated bid and who
B meets the appropriate standards of capability and financial responsibility.
It also came to the conclusion that under the documents there is a scope
for amending the bid documents and there is scope for modification of the
bids as well as there is scope for correction of errors. It further came to
the conclusion that a detailed procedure has been laid down to appreciate
C the responsiveness of the bids technically and there is also a scope for
c
evaluation of the bids. The High Court further came to hold that. "It is also
not appreciated and it has not been explained by Asian Development Bank
authorities who have not cared to appear in the case inspite of notice, as
to why the Asian Development Bank authorities did not appreciate the
D evaluation of the bids and on correction the offer of the petitioners being
lower than that of AFCON. The special fancy of the Asian Development
Bank authorities in favour of AFCON has not been justified with reasons
before this Court for reasons best known to the Asian Development Bank
authorities. Ac_cording to the High Court the power of judicial review in
the arena of contractual jurisdiction has been widened as has been held by
E the Supreme Court in Mahabir Auto Store & Ors. v. Indian Oil Corporation
& Ors., (1990] 1 SCR 818, as well as in Food Corporation of India v. M/s.
Kamdhenu Cattle Feed Industries, [1993] 1 SCC 71, but each case has its
own peculiar facts and circumstances and ultimate decisions had to be
arrived at as the situation demands under the parameters of law as it
F permits. Having considered the facts and circumstances leading to the
award of contract in favour of the appellant the court came to conclusion
that it would be in the public interest to quash the award in favour of the
appellant and accordingly it quashed the same and issued directions, as
already stated.

G Mr. Parasaran, learned senior counsel appearing for the appellant
submitted that the award of the contract by the State or a public authority
can no doubt be judicially reviewed but a court would interfere with the
award if it comes to the conclusion that the award of contract is vitiated
by arbitrariness, unfairness, illegality or irrationality. In other words, if the
H mistake committed by the authority in awarding the contract is of such a
ASIA FOUNDATION AND CONST. LID. v. TRAFALGAR HOUSE CONTN. 0) LID. [PA'ITANA!K, J.) 215

nature requiring intervention then the court may set right the decision. In A
this view of the matter and in view of the revised opinion of the Trust dated
12th July, 1996, and the opinion of the Asian Development Bank who is to

-•
grant the loan for completion of the project the High Court was not
justified in interfering with the contract awarded in favour of the appellant.
He further contended that in a project of this magnitude wi.th which the B
Court was concerned, since the lowest tenderer has no right to get the
contract, unless the decision of the authority in awarding the contract can
be said to be vitiated with arbitrariness of undue favouratism, it would not
be for the court to interfere with the decision. Mr. Parasaran, learned
senior counsel further urged that the conclusion of the High Court Court
that respondent No. 1 was the lowest bidder is factually incorrect and on C
the other hand the appellant in all situation prior to negotiation as well as
-·i after the negotiation continued to be the lowest bidder and, therefore,
there was no infirmity with the decision of the Asian Development Bank
approving the bid of the appellant and there was no illegality with the
decision of the Paradip Port Trust in awarding the contract in favour of D
the appellant.

Mr. Sorabjee, learned senior counsel appearing for respondent No.
1 and Mr. Mohta, learned senior counsel appearing for respondent no. 3
on the other hand contended, that in view of the conceded position as
noticed by the' High Court that on error being corrected it is the respon- E
dent No. 1 who was the lowest bidder and yet the authorities awarded the
contract in favour of the appellant, it was sufficient for the court to annul
the decision in the larger public interest. Mr. Sorabjee, learned senior
counsel further urged that the power to award contract lies with the
Paradip Port Trust and Port Trust had been forced by the Bank to grant F
the contract in favour of the appellant. As has been observed by the High
Court itself Bank did not appear nor had given any explanation for prefer-
ring the appellant than respondent No. 1 even though respondent No. 1
was the lowest bidder. Consequently such decision on the face of it must
be held to be arbitrary and the High Court was fully justified in interfering G
with the decision of awarding the contract in favour of the appellant. Mr.
Sorabjee, learned senior counsel also urged that if this Court is of the view
that a re-bidding would take an unduly long period which may eventually
result in escalation of the cost then this Court may issue appropriate
direction as it thinks fit. Mr. Sorabjee, learned senior counsel also in course
of arguments produced before us a telex message from the Asian Develop- H
216 SUPREME COURT REPORTS[1996) SUPP. 10 S.C.R.

A · ment Bank whereunder the Bank has agreed to the direction of the High
Court for re-bidding but indicates that re- bidding has to be parried out
following the procedure acceptable to the Bank which will include a
bidding period of atleast 60 days and; therefore, there cannot be any
objection to the direction of the High Court for re-bidding.

B Mr. Upadhyay, learned counsel appearing for Paradip Port Trust on
the other hand submitted that the ultimate decision of the Trust awarding
the contract in favour of the appellant neither can be said to be arbitrary
nor unfair or illegal and on the other hand, the decision was i n the public
interest and, therefore, it was not proper for the High Court to interfere
C with the said decision. The learned counsel further urged that in the mean
time agreement has already been executed and the direction of the High
Court to negotiate with the parties did not yield result and, therefore, the
only other option is for re-bidding and such a re-bidding will not only '
consume further time as the procedure' for re-bidding will have to be
D adhered to, but also the possibility of escalation of cost on such re-bidding
cannot be obviated and, as such in the larger public interest the appellant
should be permitted to execute the work.

Having considered the rival contentions the only ques~ion that arises
for our consideration is whether the High Court was justified in the facts
E and circumstances of the case to interfere with the aw~d of contract in
favour of the appellant and whether such interference would subserve any
public interest for which the Court purports to have exercised its power of
judicial review.

F The Asian Development Bank came into existence under an Act
called the Asian Development Act, 1966, in pursuance of an International
agreement to which India was a signatory. This new financial institution
was established for accelerating the economic development of Asia and the
Far East. Under the Act the Bank and its officers have been granted
certain immunities, exemption and privileges. It is well known that it is
G difficult for the country to go ahead with such high cost project unless the
financial institutions like World Bank or the Asian Development Banks
grant loan or subsidy, as the case may be. When such financial institutions
grant such huge loan they always insist that any project for which loan has
been sanctioned must be carried out in accordance with the specificaiion
H and within the scheduled time and the procedure for granting the award
ASIA FOUNDATION AND CONST. LID. v. TRAFALGAR HOUSE CO NIN. (I) LID.. (PATIANAIK, J.] 217

must be duly adhered to. In the aforesaid premises on getting the evalua- A
tion bids of the appellant and respondent No. 1 together with the consult- ·
ant's opinion after the so-called corrections made the conclusion of the
bank to the effect "the lowest evaluated substantially responsive bidder is
consequently AFCONS" cannot be said to be either arbitrary or capricious
or illegal requiiing court's interference in the matter of an award of B
contract. There was some dispute between the Bank on one hand and the
consultant who was caned upon to evaluate on the other on the question
whether there is any power of making any correction to the bid document
-after a specified period. The High Court in construing certain clauses of
'the bid document has come to the conclusion that such a correction was
permissible and, therefore, the Bank could not have insisted upon granting C
the contact in favour of the appellant. We are of the considered opinion
that it was not within the permissible limits. of interference for a court of
law, particularly when there has been no allegation of malice or ulterior
motive and particularly when the court has not found any mala fides or
favouratism in the grant of contract in favour of the appellant. In Tata D
Cellular v. Union of India, (1994] .6 SCC 651 this Cour:t has held that :

"That duty of the court is to confine itself to the question of legality.
Its concern should be : .,

1. Whether a decision-making authority exceeded its powers. E

2. Committed an error of law,
'i

3. Committed a breach of the rules of natural justice,

4. Reached a decision which no reasonable tribunal would have F
reached or,

-S. Abused its powers.

Therefore, it is not for the Court to determine whether a parecular G
policy or particular decision taken in the fulfilment of. that policy
is fair. It is only concerned with the manner in which those decision
have been taken. The extent of the duty to act fairly will vary from
case to case. Shortly put, the grounds upon which an administrative
action is subject to control by judicial review can be classified as
under: H
218 SUPREME COURT REPORTS[1996) SUPP.10 S.C.R.

A (i) Illegality : This means the decision-maker must understand
correctly the law that regulates his decision-making power and
must give effect to it;

(ii) Irrationality, namely, Wednesbury unreasonableness.

B (iii} Procedural impropriety.

The above are only the board grounds but it does not rule out
addition of further grounds in course of time."

Therefore, though the principle of judicial review cannot be denied
C so far as exercise of contractual powers of government bodies are con-
cerned, but it is intended to prevent arbitrariness or favouritism and it is
exercised in the larger public interest or if it is brought to the notice of the
Court that in the matter of award of a contract power has been exercised
for any collateral purpose. But on examining the facts and circumstances
D of the present case and on going through the records we are of the
considered opinion that none of the criteria has been satisfied justifying
court's interfer.:nce in the grant of contract in favour of the appellant. We
are not entering into the controversy raised by Mr. Parasaran, learned
senior counsel that the High Court commit_ted a factual error in coming to
the conclusion that respondent No. 1 was the lowest bidder and the alleged
E mistake committed by the consultant in the matter of bid evaluation in not
taking into account the customs duty aiid the contention to Mr. Sorabjee,
learned senior counsel that it has been conceded by all parties concerned
before the High Court that on corrections being made respondent No. 1
was the lowest bidder. As in our view in the matter ofa lowest bidder may
F not claim an enforceable right to get the contract though ordinarily lhe
concerned authorities should accept the lowest bid. Further we find from
the letter dated 12th July, 1996, that Paradip Port Trust itself has come to
· the following conclusion :

"the technical capability of any of the three bidders to undertake the
G works1s not in question.
c
•

two of the bids are very similar in price.

If additional commercial information which has now been provided
by bidders through Paradip Port Trust, had been available at the time of
H assessment, the outcome would appear .to the favour award to AFCONS."
ASIA FOUNDATION AND CONST.LID.'- TRAFALGARHOUSECONTN. (I) LID. (PA1TANAIK,J.) 219

This being the position, in our considered opinion, High Court was A
not justified in interfering with the award by going into different clauses of
the bid document and then coming to the conclusion that the terms
provided for modifications or corrections even after a specified date and
further coming to the conclusion that respondent No. 1 being the lowest
bidder there was no reason for the Port Trust to award the contract in B
favour of the appellant. We cannot lose sight of the fact of escalation of
cost in such project bn account of delay and the time involved and further
in a coordinated project like this, if one component is not worked out the
entire project gets delayed and the enormous cost on that score if re-bid- '
ding is done. The High Court has totally lost sight of this fact while
dkecting the rebidding. In our considered opinion direction of re-bidding C
in the facts and circumstances of the present case instead for being in the
public interest would be grossly detrimental to the public interest.

In the premises, as aforesaid, we set aside the impugned judgment
of the Orissa High Court and direct that the contract awarded in favour D
of the appellant Paradip Port Trust be affirmed and the appellant may
. execute the work expedi~usly. We further make it clear that the appellant
will not be entitled to claim any escalation of the bid amount on the ground
of any delay in issuing the work order on account of the pendency of the
present litigation. This appeal is, therefore, allowed. But in the circillnstan-
ces without any order as to costs. E
K.S.G. Appeal allowed.