Supreme Court of India
ELEKTRON LIGHTING SYSTEMS PVT. LTD. AND ANR.versusSHAH INVESTMENTS FINANCIAL DEVELOPMENTS AND CONSULTANTS PVT.LTD AND ORS. ETC.
- Citation
- 2015 INSC 849
- Decided
- 20 November 2015
- Disposal
- Case Partly allowed
- Bench
- DIPAK MISRA
Holding
The work order for LED street‑lighting is valid, but the grant of exclusive advertising rights, being unrelated to the tender, is severable and must be quashed.
Summary
The Aurangabad Municipal Corporation invited an online BOT tender for replacing street lights with LED fittings. Elektron Lighting Systems and its joint venture were awarded the work order after their technical bid was accepted and price bid negotiated, while two other bidders were disqualified. The successful bidder had also offered exclusive advertising rights on the street‑light poles in a separate letter, which the corporation incorporated into the work contract. The High Court quashed the entire work order, but the Supreme Court held that the award of the LED contract was proper and that the advertising rights, being unrelated to the tender, were severable and must be set aside. The Court emphasized the limited scope of judicial review in procurement matters and applied the doctrine of severability under Section 57 of the Indian Contract Act. Consequently, the work contract stands, but the advertising‑rights clause is void.
Issues considered
- The legality of awarding the work order to the appellant under the BOT tender.
- Whether the inclusion of exclusive advertising rights, not part of the original tender, renders the contract void.
- Whether the High Court erred in quashing the entire work order.
- Application of the doctrine of severability under Section 57 of the Indian Contract Act, 1872.
- The scope of judicial review under Article 226 in public procurement.
Legislation cited
Subjects
public procurementBOT contracttender evaluationjudicial reviewArticle 226severabilityadvertising rightscontract lawWednesbury principleSection 57 Indian Contract Act
Judgment
[2015] 14 S.C.R. 91
ELEKTRON LIGHTING SYSTEMS PVT. LTD. AND ANR. A
v.
. SHAH INVESTMENTS FINANCIAL DEVELOPMENTS
AND CONSULTANTS PVT.LTD AND ORS. ETC.
(Civil Appeal Nos. 9151-9152 of 2015) B
NOVEMBER 20, 2015
[DIPAK MISRA AND PRAFULLA C. PANT, JJ.]
Contract - Online tenders invited by Municipal c
Corporation for replacement of existing street lights by LED
fittings with refurbishment of street light infrastructure on Build,
Operate and Transfer (BOT) basis- Thereafter the appellant
(one of the bidders) offered to reduce its price bid if exclusive
advertising rights were given to it - Technical bid of the D
appellant accepted while that of the other bidder rejected -
Price bid of the appellant was negotiated - Work order issued
to the appellant - Unsuccessful bidder challenged the grant
of work order by filing writ petition - High Court quashed the
work order - On appeal, held: The power u!Art. 226 of the E
constitution should be cautiously exercised in the matters
of awarding contracts keeping in mind the public interest- In
the facts of the case, High Court erred in holding that work
order was illegally given to the appellants - However, the
Municipal Corporation was not justified in giving the F
advertisement rights to the appellants without inviting tender
for it- The grant of advertising rights was not part of the work
for which tender was floated and was severable applying the
doctrine of severability contained in s. 57 of Contract Act -
Therefore, advertising rights given in the work contract shall G
stand quashed while rest of the work contract is upheld ~
Constitution of India, 1950 -Article 226 - Judicia(Review-
Scope of - Contract Act, 1872 - s, 57 - Doctrine of
· severability.
H
91
92 SUPREME COURT REPORTS [2015] 14 S.C.R.
A Judicial Review- Scope of- Jn administrative decisions
and exercise of powers in awarding contracts - Discussed.
Doctrines/Principles - Doctrine of severability -
Applicability of.
B Partly allowing the appeals, the Court
HELD: 1. The scope of judicial review of
administrative decisions and exercise of powers
awarding contracts are: (1) The modern trend points to
c judicial restraint in administrative action. (2) The Court
does not sit as a court of appeal but merely reviews the
manner in which the decision was made. (3) The Court
does not have the expertise to correct the administrative
decision. If a review of the administrative decision is
D permitted, it will be substituting its own decision, without
the necessary expertise which itself may be fallible. (4)
The terms of the invitation to tender cannot be open to
judicial scrutiny. (5) The Government must have freedom
of contract. However, the decision must not only be
E tested by the application of Wednesbury principle of
·reasonableness but must be free from arbitrariness not
affected by bias or actuated by ma/a tides. (6) Quashing
decisions may impose heavy administrative burden on
the administration and lead to increased and
F unbudgeted expenditure." The discretionary power
under Article 226 of the Constitution of India should be
cautiously exercised in the matters of awarding
contracts keeping in mind the public interest. [Paras 12,
G 13] [ 107-G; 108-A-H]
Tata Cellular v. Union of India (1994) 6 SCC 651
: 1994(2)Suppl. SCR122;AirlndiaLtd. v. Cochin
International Airport Ltd. And Ors. (2000) 2 SCC
617: 2000 (1) SCR 505; Jagdish Manda/ v. State
H ofOrissa and Ors. (2007) 14 SCC 517: 2006 (10)
ELEKTRON LIGHTING SYSTEMS v. SHAH INVESTMENTS 93
FINANCIAL DEVELOPMENTS & CONSULTANTS
Suppl. SCR 606 - relied on. A
Sanjay Kumar Shukla v. Bharat Petroleum
Corporation Limited (2014) 3 SCC 493 : 2014
(1) SCR 959 - referred to.
2.1 The High Court has erred in law in holding that B
the work order was illegally given to the appellants In
respect of replacement of street lights by LED fittings
and refurbishment of street light infrastructure on BOT
basis. [Para 19] [113-A-B]
c
2.2 The High Court took adverse view against the
appellant on the ground that the MOU between the
appellants and LED manufacturer was not placed on the
record. The High Court failed to notice that none of writ
petitioners had challenged acceptance of appellants' bid ·D
on that ground, and the appellants had no opportunity
to place the same on the record of the court. The MOU
was part of tender bid, and finds its mention in "Tender
. Committee Evaluation Report". [Para 16] [111~C-D]
E
2.3 Another reason to take adverse view against the
appellants, mentioned by the High Court is that attested
copies of VAT returns were not presented by the
appellants. The statement of the VAT returns for relevant
financial years were duly filed by the appellants with the F
· technical bid. Filing of VAT returns with technical bids
gets corroboration also from "Tender Committee
Evaluation Report". [Para 16] [111-D-F]
2.4 There appears to be no hurry on the part of the G
municipal corporation, in awarding contract as the
tender had been issued on 01.08.2014 and the same was
finalized only on 03.09.2014, i.e. after a period of more
than one month. Pre-bid meetings were held and the
last date for submission of tender was extended twice H
94 SUPREME COURT REPORTS (2015] 14 S.C.R.
A from 20.08.2014 to 25.08.2014 and thereafter to
28.08.2014, which by itself shows that the process was
not carried out in haste. Exhaustive pre-bid meeting was
held on 12.08.2014, which. was stated to have been
attended by eight prospective bidders and the minutes
B of the pre-bid meetings running into several pages
changed many terms in favour of the respondent
Corporation to ensure even stricter contract execution
responsibilities and thus became part of the tender
through issuance of two corrigenda. The pre-bid meeting
C was held to understand the requirements of the contract
viz. the opinion of the prospective bidders, to give
sufficient time for bid preparation, evaluation of bids and
award of contract. One month was consumed in carrying
out the said activities and in no way can it be termed as
0
a hurried process, as held by the High Court. [Para 18)
[112-D-H]
3.1 The question of severance as contained u/s. 57
of Contract Act arises only in the case of a composite
E agreement consisting of reciprocal promises. The proper
test for deciding validity or otherwise of an order or
agreement is "substantial severability" and not "textual
divisibility". It is the duty of the Court to sever and
separate trivial and technical parts by retaining the main
F or substantial part and by giving effect to the latter if it is
legal, lawful and otherwise enforceable. [Para 24) [116·
D-F]
3.2 The offer by the appellant relating to exclusive
G advertising rights was uncalled for and severable, and
not a part of the work for which tender was floated. The
municipal corporation which is a statutory body and
instrumentality of the State, should have acted fairly by
making it open for all eligible to submit their offers. As
H
ELEKTRON LIGHTING SYSTEMS v. SHAH INVESTMENTS 95
FINANCIAL DEVELOPMENTS & CONSULTANTS
such, the respondent No.3-Municipal Corporation was A
not justified in giving the advertisement rights to the
appellants without inviting tender for it. To that extent,
the respondent-Coproration has not acted fairly. As such,
the manner in which the advertising rights are given to
the appellants with the work order cannot be said to be B
fair and contract to that extent was liable to be quashed
without interfering with rest of the work order. [Paras 21,
23] [115-E; 116-A·C] .
B.0.1. Finance Ltd. v. Custodian and Ors. (1997) c
1o sec 488 : 1997 (3) SCR 51 ; Shin Satellite
Public Co. Ltd. v. Jain Studios Ltd. (2006) 2 SCC
628 : 2006 (1) SCR 933 - relied on.
Case Law Reference
D
2014 (1) SCR 959 referred to Para 7
1994 (2) Suppl. SCR 122 relied on Para 12
2000 (1) SC!=l 505 relied 6n Para 13
2006. (10) Suppl.SCA 606 relied on Para 14 E
1997 (3) SCR 51 relied on Para 24
2006 (1) SCR 933 relied on Para 24
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. F
9151-9152 of 2015. ·
From the Judgment and Order dated 14.10".2014 of the
High Court of Judicature of Bombay, Bench atAurangabad in
Writ Petition No. 7843 of 2014.
G
Dr. Abhishek Manu Singhvi, Sr. Adv., Pranab Kumar
Mullick, Niraj Singh, Ms. Minakshi Midha, Mrs. Somzi Mullick,
Amit Dayal, Sebat Kumar Deuria, L. Nidhiram Sharma, Pranab
Kumar Mullick for the Appellants.
H
96 SUPREME COURT REPORTS (2015) 14 S.C.R.
A Shyam Divan, Sr. Adv., Sudhanshu S. Choudhari,
Vatsalya Vigya, Ashish Prasad, A. Virmani, Rohit Sharma,
Harish Pandey, Nahush Shah, Ms. Ramni Taneja, Ms. Savita
Singh, Kunal A. Cheema, Nishant Katneshwarkar for the
Respondents.
B
The Judgment of the Court was delivered by
PRAFULLA C. PANT, J. 1. These appeals are directed
against judgment and order dated 14.10.2014 passed by High
C Court of Judicature at Bombay, whereby Writ Petition Nos.
7843 of 2014 and 8211 of 2014, are allowed, and the work
order dated 03.09.2014, and consequential agreement
between the appellants and respondent No. 3, are quashed.
2. Succinctly stated the facts of the case are that on
D 01.08.2014 respondent no. 3 - Aurangabad Municipal
Corporation (for short "municipal corporation") invited tenders
for replacement of existing street lights by Light Emitting
Diodes (LED) fittings with refurbishment of. street light
infrastructure on Build, Operate and Transfer (BOT) basis. The
E contractor was required to complete the project within one year
and recover the payment from the municipal corporation
through Ninety six Equated Monthly Installments (EM ls) over a
period of eight years. Response to E-tender. notice was
required to be made in two separate parts, namely, technical .
F bid and price bid. As per the tender notice, the tender forms
were made available from 01.08.2014 to 20.08.2014. The
period of submission of bids was extended up to 28.08.2014.
3. The Tender Notice contained inter alia following
G conditions : -
"(i) Manufactures of LED Lights OR registered Clause
A Electrical Contractors and ·are eligible to
participate in the Tender.
H
ELEKTRON LIGHTING SYSTEMS v. SHAH INVESTMENTS FINANCIAL 97
DEVELOPMENTS & CONSULTANTS [PRAFULLA C. PANT, J.]
(ii) The Class A Electrical Contractors (Lead Partner) A ·
may only participate by having a Joint Venture
agreement with the Manufacturer of LED Light
Fittings.
(iii) The Manufacturer of LED Light fittings (Lead B
Partner) may form a Joint Venture with Class A
Electrical Contractor.
(iv) The Man\Jfacturer of LED Lights (Lead Partner) may
form a Joint Venture with another Manufacturer of
Electrical items, provided that the Lead Partner has C
entered into a MOU with a Class A Electrical
Contractor towards execution of the tendered BOT
project.
(v) The Bidder should have achieved a minimum D
turnover of Rs. 25 crores in each of the three
, preceding financial years, total 75 crores in three
years.
(vi) Attested.true copies of Sale Tax/VAT registration, E
Manufacturing certificate & DD for EMO to be
submitted along with tender papers.
xxx xxx xxx
(xiv) Bidder may be Joint Venture of maximum two F
companies/firms to jointly meet the commercial and
technical conditions."
xxx xxx . xxx
4. · The present appellants and respondent No.1 /writ G
petitioners submitted their bids but technical bids of the latter
were rejected as they did not fulfill the terms as per the tender
notice. The price bid of appellants was negotiated by the
respondent- municipal corporation, and proposal was sent to H
98 SUPREME COURT REPORTS
.
[2015] 14 S.C.R.
A the standing committee of the corporation. Whereafter, as per
the resolution, the work order was issued in favour of the ·
appellants.
5. The two disqualified bidders filed the Writ Petitions
B (W.P. Nos. 7843 of 2014 and 8211 of 2014) before the High
Court of Judicature of Bombay, Aurangabad Bench,
challenging their disqualification, and acceptance ofthe
appellants' bid. The High Court vide impugned order held that
though disqualification of writ petitioners was correct but
c extraordinary favour was shown to appellants who were
awarded work order, as such, the same was quashed. Hence
these appeals.
6. It is relevant to mention here that the writ petitioners
have not challenged the order of the High Court, whereby their
0
disqualification by the municipal corporation has been upheld.
The disqualification and rejection of technical bid of the writ
petitioners was mainly based on following three reasons:-
.
(i) Neither the writ petitioner nor its joint venture partner
E was a registered Class-A contractor, nor any one
of them was stated to be manufacturer of LED
lights.
(ii) None of the writ petitioners had achieved a
F minimum turnover of Rs. 25 crores in the three
preceding financial years.
(iii) The writ petitioners failed to submit minimum thirty
pieces of different types of samples for the
G purposes of testing.
· 7. As such, so far as the disqualification of the writ
petitioners (present respondent no. 1) is concerned, it requires
no further examination. The only point to be considered by us
H is whether the High Court, even after finding that the technical
ELEKTRON LIGHTING SYSTEMS v. SHAH INVESTMENTS FINANCIAL 99
DEVELOPMENTS & CONSULTANTS [PRAFULLAC. PANT, J.]
bids of the writ petitioners were rightly rejected, was justified A
in quashing the work order given to the appellants whose
technical bid was accepted by the municipal corporation. ~
8. On behalf of the appellants following submissions
were made assailing the impugned order passed by the High B
Court:-
(1 ). RE. ABSENCE OF MOU:
a) That the appellants duly entered into MOU on
14.08.2014 with M/s. Matoshree Electricals & C
Winding Works, a Class A Electrical Contractor as
required in Clause 1.1 (4) of tender.
b) That the Technical Evaluation Report by AMC states
that MOU had been duly filed by Petitioners. D
c) That the Writ Petitioners never raised this point in
their Writ Petitions and even in the amended Writ
Petitions. That is also the reason why the MOU was
not filed before High Court.
E
d) That this being an on line tender, all documents filed
by all the parties were accessable to all. Since the
MOU had been uploaded, the issue was not raised
· in Writ Petition.
F
(2). RE. NON-SUBMISSION OF ATTESTED COPIES
OF VAT RETURNS:
a) That the appellants had duly filed attested copies
. of VAT Returns in terms of Clause 1~2(1 )(C) of G
tender. The Technical Evaluation Report by AMC
states VAT Returns had been duly filed by them.
·b) That the Writ Petitioners never raised this point in
their Writ Petitions and even in the amended Writ
H
100 SUPREME COURT REPORTS [2015] 14 S.C.R.
A Petitions. That is why copies of VAT Returns were
not filed before the High Court.
c) That this being an online Tender, all documents filed
by all parties were accessable to all. Since the VAT
B Returns had been uploaded, the issue was not
raised in Writ Petition.
d) That the High Court erred in assuming that even
joint venture partner which had zero turnover in a
particular financial year had to file VAT Returns. It
c is submitted that VAT return was required only to
establish the turnover requirement. Thus a joint
venture partner had to file VAT returns only if its
· turnover exceeded zero.
D (3). Re. TURNOVER REQUIRMENT:
a) That the Clause 1.1 (5) requires that bidder should
have achieved minimum turnover of Rs. 25 crores
in each of the 3 preceding financial years, total 75
E crores in 3 years. Clause 1.1 (14) specifies bidder
may be a joint venture of maximum two companies/
firms to 'jointly meet' the commercial & technical
conditions.
F b) That the joint turnover of the two joint venture partners
is In excess of Rs. 25 crores p.a. and Rs. 75 crores
in 3 years. The fact that turnover of P-1 was nil, is
inconsequential since requirement is joint
compliance.
G c) That the High Court at para 28 noted that jointly the
turnover requirement is met but erroneously held
against the appellants on the ground that turnover
of appellant No.1 is nil.
H
ELEKTRON LIGHTING SYSTEMS v. SHAH INVESTMENTS FINANCIAL 101
DEVELOPMENTS & CONSULTANTS [PRAFULLA C. PANT, J.]
(4). RE. TREATING LETIER DATED 19.08.2014 AS A
FINANCIAL OFFER:
a) That the subject matter of letter dated 19.08.2014
was offer of a separate product and different period,
which was not covered by the present tender. Hence B
question of the letter being a financial offer did not
arise.
b) That the letter dated 19.08.2014 had the subject
· "Additional Suggestions towards tender-
UNCONDITIONAL" and specifically stated that C
"..... These suggestions are unconditional and are
being made in favour of the improvement for the
City of Aurangabad. It shall be completely at your
kind discretion to accept or reject these D
suggestions ..... "
c) Thatthe letter was considered separately by AMC.
This is apparent from the Work Order. This is also
corroborated by AMC's Additional affidavit before
the High Court. . E
d) .That the letter was uploaded alongwith the Technical
Bid. The High Court erroneously held that the letter
had been disclosed even before opening of the
technical bid, which is contrary to its own recording F
that letter was submitted simultaneously with tender
offer. In fact Shah Investments' amended Writ
Petition itself records that letter dated 19.08.2014
was submitted with technical bid.
G
e) That the relevant figure for evaluation of tender was
under the heading "TOTAL COST TO AMC for
Evaluating the Lowest Bidder= (Vl)+(Vll)+(Vll)". This
figure was nowhere disclosed either in technical
H
102 SUPREME COURT REPORTS (2015] 14 S.C. R.
A bid or in the letter dated 19.08.2014. Price bid
comprised of 27 pages and none of the pages was
attached as part of Technical Bid.
f) That without prejudice to the aforesaid, the part of
B work order .relating to letter dated 19.08.2014 is
severable and even if that part is set aside, the
remaining contract stands.
(5). RE. TREATING GRANT OF ADVERTISING RIGHTS
ON POLES AS BEYOND THE TERMS OF THE
c TENDER:
That the work order is in two parts-one pertaining
to award of the main contract and the other to
additional suggestions of the appellants. It is
D submitted that the part pertaining to additional
suggestions can be severed from main contract and
directed to be removed from the work order. Thus,
work order may be confined to award of main
contract only.
E
(6). RE. THE DECISION MAKING BY AMC BEING
HASTY:
a) That the Notice Inviting Tender was issued on
01.08.2014 and the whole process was completed
F • on 03.09.2014. There was thus no undue haste.
b) That the time period for submission of bids was
extended twice which negates the factum of alleged
haste.
G
c) That the Commissioner of AMC being under orders
of transfer had no bearing on the matter as the
ultimate decision was taken by the Standing
Committee of AMC.
H
ELEKTRON LIGHTING SYSTEMS v. SHAH INVESTMENTS FINANCIAL 103
DEVELOPMENTS & CONSULTANTS [PRAFULLA C. PANT, J.]
d) That the decision making process shows due A
application of mind.
(7). OTHER SUBMISSIONS:
·-- .. ····· .. , ' . -·
a) That the High Court did not correctly appreciate the
judgment of this Court in San}ay Kumar Shukla 8
· Vs. Bharat Petroleum Corporation Limited
[(2014) 3 SCC 493} where this Court reiterated
need for caution in entertaining writ petitions in
contractual matters, unless justified by public C
interest, since serious consequences could ensue.
-
· · · b)· That ttie High Court failed to appreciate that the
petitions before itwere not public interest petitions
but were petitions of unsuccessful bidders.
D
c) That the motives of the writ petitioners, who made
bids despite knowing that they did not fulfill the
essential requirements, were not considered. In
fact, Shah Investments was a finance company. It
is submitted that the Writ Petitioners were front men E
for others.
d) Tffat writ petitioner Shah Investment's W.P. No.
7843/2014 did not even contain any prayer to quash
the petitioners' bid despite amendment. appellant F
No. 2 in present appeals was not even made a party
in Polycab's W.P. No. 8211/2014.
e) That impugned order imputes mala tides although
there were no allegations of mala fide against any
particular person in the writ petitions. G
· .. · .. 9. On the·other hand, on behalf of the respondent No.1, it
is argued that the work order in question was rightly quashed
by the High Court for the following reasons:-
H
104 SUPREME COURT REPORTS (2015] 14 S.C.R.
A (i) That the bidding for the present tender was to be
conducted by a two-step e-tendering process. As
per Clause 3 of the bid document, at the first stage
the bidders were required to submit their technical
bids, and the acceptable bids amongst these would
B be sent for field trials. Only the financial bids of
those bidders whose samples qualify the technical
stage were thereafter to be opened.
(ii) That Clause 1.2(h) stipulated that in the event a
c bidder submits the price offer along with the
technical bid, the tender bid shall be treated as
withdrawn and EMO forfeited.
(iii) That it was an essential and mandatory condition
of the tender as can be construed from the use of
D the word "shall" and the consequences attached to
a breach of this clause, i.e., the bid treated to be
as withdrawn and the consequent forfeiture of the
EMD deposit.
E (iv) That it is settled law that where there are essential
conditions, the same must be adhered to. In the
present case, the Respondent No. 3 - Gorporation
has no power to relax any of the terms of the bid
document, and in any event no such power can be
F inferred in this context, as no relaxation can be
granted from complying with a mandatory condition
of the bid document.
(v) That the contention of the appellants that the offer
contained in the letter dated 191h August, 2014 was
G
an unconditional offer made only for the
consideration and benefit of the Respondent no.
3 - Corporation cannot save the appellants from
the consequences of a breach of the terms of the
bid document.
H
ELEKTRON LIGHTING SYSTEMS v. SHAH INVESTMENTS FINANCIAL· 105
DEVELOPMENTS & CONSULTANTS [PRAFULLA C. PANT, J.]
(vi) That the said letter dated 19th August, 2014 A
admittedly contained the following offers and
suggestions which have a direct bearing on the
price offer made by the appellants:
a. The letter divulged that the appellants would be B
offering its services for the minimum guarantee ·
period under the tender at the rate of Rs.95/- per
fixture per month.
b. The letter also stated that by implementing the
on line monitoring system, the number of control C
panels to be utilized would be reduced to 600
from 1200 as required by the bid document.
Interestingly, no corresponding reduction in the
price was offered by the appellants. However, if 0
the number of control panels required were to
increase over 600, the appellants would install
the same at the additional cost of the Respondent
No.3 - Corporation. This is a kind of offer which
clearly exposes the mischievous intention of the E
appellants in negotiating a bargain which would
be purely beneficial to itself at the cost of the
public exchequer.
c. The letter also made an offer to implement these · F
new technologies in consideration for being
granted exclusive advertising rights on the street
lights for the entire BOT period.
(vii) That the offers and suggestions made in the said
letter, be it conditional or unconditional, were G
unquestionably a price offer, as is evident from the
work order dated 3rd September, 2014 issued by
the Respondent No. 3 - Corporation.
(viii) That the submission of such letter ipso facto renders H
106 SUPREME COURT REPORTS r2015f14 s.c:R:
A the bid of the appellants unresponsive, to be treated·
as withdrawn and EMO forfeited. The terms of the
bid document do not give the Respondent No.3 -
Corporation the authority to relax its terms
unilaterally for any individual bidder, in a manner
B which would allow such bidder to circumvent a
mandatory and essential terms of the bid document.
(ix) That having submitted such a price offer along with
the technical bid, the appellants stood disqualified
c at the technical stage and, therefore, no question
arises as to whether the Respondent No.3 -
Corporation could choose to accept or reject these
additional offers and suggestions of the appellants..
D
(x) That the practice of indulging in post tender
negotiations has been deprecated and labeled as
a source of corruption and in pursuance of the
same, the Central Vigilance Commission has
issued Circular No.4/3/07 dated 3rd March, 2007
E and has mandated that no post tender negotiations
be held with L-1 except in certain exceptional
situations as are mentioned therein. Admittedly, no
such situation exists in the present case.
(xi) That the acceptance of these additional offers and
F
suggestions as contained in the Work Order dated
3rd September, 2014 has resulted in enlarging the
scope of the tender. The period of the tender has
been increased from eight years with_a two years
G
extended guarantee period to eight years with a
four years extended guarantee period. The
answering respondent/writ petitioner seeks
compensation in return for providing the additional
two years of guarantee. The scope of the tendered
H work has also been increased to include the grant
ELEKTRON LIGHTING SYSTEMS v. SHAH INVESTMENTS FINANCIAL 1 07
DEVELOPMENTS & CONSULTANTS [PRAFULLA C. PANT, J.]
of exclusive advertising rights for the entire contract A
period which now stands revised to twelve years,
for no consideration whatsoever. These are major
deviations from the essential terms of the tender
which cannot be permitted.
B
(xii) The appellants during the course of arguments have
tendered certain additional documents across the
bar, to establish that the acceptance of the
additional offers has been done. after due
consideration. However, a mere perusal of said c
documents such as the appellants' letter dated 2nd
September, 2104, the minutes of the meeting of
the Aurangabad Municipal Commission chaired by
the Commissioner also dated 2nd September, 2014
and the minutes of the meeting of the Standing D
Committee of the Aurari.gabad Municipal
Corporation dated 3rd September, 2014 would
indicate the hurried manner in which the entire
process of the tender has been finalized.
10. Learned counsel for the municipal corporation has E
in substance supported the grounds taken by ·the appellants
assailing the impugned orders passed by the High Court.
11 . We have considered submissions of learned counsel
for the parties, and perused the papers on record. F
12: In Tata Cellular Versus Union of lndia 1, this court
has held following limitations relating to scope of judicial review
of administrative decisions and exercise of powers awarding
. contracts. In Para 94 this court has held as under:-
G
"94. The principles deducible from the above are:
(1) Ttie modern trend points to judicial restraint in
administrative
.. action .
1
(1994) 6 sec 651 H
108 SUPREME COURT REPORTS [2015] 14 S.C.R.
A (2) The Court does not sit as a court of appeal but merely
reviews the manner in which the decision was made.
(3) 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
B
decision, without the necessary expertise which itself
may be fallible.
(4) The terms of the invitation to tender cannot be open
to judicial scrutiny because the invitation to tender is in
c 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.
D
(5) 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
E sphere. However, the decision must not only be tested
by the application of Wednesbury principle of
re~onableness (including its other facts pointed out
above) but must be free arbitrariness not affected by
bias or actuated by mala tides.
F (6) Quashing decisions may impose heavy
administrative burden on the administration and lead
to increased and unbudgeted expenditure ....... "
13. In Air India Ltd. Versus Cochin International
··, G Airport Ltd. And Others2, this court has laid down the principle
as to how the discretionary power under Article 226 should be
cautiously exercised in· the matters of awarqing contracts
keeping in mind the public interest. In Para 7 this court has
held as under:-
H 2 (2000)_ 2 sec e11
ELEKTRON LIGHTING SYSTEMS v. SHAH INVESTMENTS FINANCIAL 1 09
DEVELOPMENTS & CONSULTANTS [PRAFULLA C. PANT, J.]
~
"7 ........ It can enter into negotiations before finally A
deciding to accept one of the offers made to it. Price
need not always be the sole criterion for awarding a
contract. It is free to grant any relaxation, for bona fide
reasons, if the tender conditions permit such a
relaxation. It may not accept the offer even though it B
happens to be the highest or the lowest. But the State, .
its corporations, instrumentalities and agencies are
bound to adhere to the norms, standards and
procedures laid down by them and cannot depart from
them arbitrarily. Though that decision is not amenable C
to judicial review, the Court can examine the decision
making process and interfere if it is found vitiated by
mala tides, unreasonableness and arbitrariness. The
State, its corporations, instrumentalities and agencies
0
have the public duty to be fair to all concerned. Even
when some defect is found in the decision-making
process the Court must exercise its discretionary power
under Article 226 with great caution and should exercise ·
it only in furtherance of public interest and not merely on E
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 intervene:: F
14. In Jagdish Manda/ Versus State of Orissa and
Others3, this court has held as under:-
'22. Judicial review of administrative action is intended
to prevent arbitrariness, irrationality, unreasonableness, G
bias and mala tides. Its purpose is to check w~ether
choice or decision is made "lawfully" and not to check
whether choice or decision is "sound". When the power
of judicial review is invoked in matters relating to tenders
'(?007) 14 sec s11 H
110 SUPREME COURT REPORTS [2015] 14 S.C.R.
A or award of contracts, certain special features should
be borne in mind. A contract is a commercial transaction.
Evaluating tenders and awarding contracts are
essentially commercial functions. Principles of equity
and natural justice stay at a distance. If the decision
B relating to award of contract is bona fide and is in public
interest, courts will not, in exercise of power of judicial
review, interfere even if a procedural aberration or error
in assessment or prejudice to a tenderer, is made out.
The power of judicial review will not be permitted to be
c invoked to protect private interest at the cost of public
interest, or to decide contractual disputes. The tenderer
or contractor with a grievance can always seek
. damages in a civil court. Attempts by unsuccessful
tenderers with imaginary grievances, wounded pride
D
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.
Such interferences, either interim or final, may hold up
E
public works for years, or delay relief and succour to
thousands and millions and may increase the project
cost manifold.
15. In the light of the law laid down by this Court, as above,
F we examined the facts of the present case. Admittedly,
respondent No. 3 Municipal Corporation invited online tenders
for replacement of existing street lights by LED fittings. Thee-
tender was required to be made of technical bid and price
bid. It is not disputed that the appellants and the respondent
G No. 1 uploaded their technical bid and submitted price/financial
bid separately on the online portal of the municipal corporation.
It is also admitted between the parties that the last date of
submission of tenders was initially 20.08.2014, which was
H extended up to 28.08.2014. The technical evaluation of all the
ELEKTRON LIGHTING SYSTEMS v. SHAH INVESTMENTS FINANCIAL 111
DEVELOPMENTS & CONSULTANTS [PRAFULLAC. PANT, J.]
three bidders was carried out in their presence. It is relevant A
to mention here that the disqualification of other two bidders,
• who filed writ petitions, was found correct by the High Court,
and said fact is not challenged before us. As such, the only
issue required to be examined is as to whether the technical
bid of the appellants was approved in accordance with the B
settled principle of law without giving them undue favour, or
not.
16. The High Court has observed in the impugned orders
that the MOU between the appellants and LED manufacturer c
M/s Matoshree Electricals &Winding Works, was not placed
on the record. However, the High court failed to no.tice that
none of writ petitioners had challenged acceptance of
appellants' bid on that ground, and the appellants had no ·
opportunity to place the same on the record of the court, The D
MOU was part of tender bid, and finds its mention in "Tender
Committee Eva1u-ation Report", The another reason to take.
adverse view against the appellants; mentioned by theHigh
Court in the impugned order; is that attested copies of VAT
returns were not presented by the appellants. It is pointed out E
before us that the statement of the VATreturns for relevant
financial years were duly filed by the appellants with the
technical bid. From the record, it reveals that filing of VAT
returns with technical bids gets corroboration also from
"Tender Committee Evaluation Report":ln said report as to F
the requirement "VAT Returns of the Bidder", the Committee
has mentioned - "OK. "1 OA, 1OB, 1OC, 1OD", and acquaint the
head - "Tender Condition Compliance" word "Yes" is
mentioned. Regarding the condition of turnover of rupees G
twenty five crores, the High Court itself did not find infirmity
and observed that the appellants did fulfill the condition of return
of rupees twenty five crores in each of the preceding financial
years as the turnover of the joint venture partner was to be
taken into account.
H
112 SUPREME COURT REPORTS [2015] 14S.C.R.
A 17. It is pertinent to mention here that the tender was
invited incorporating the National Lightening Code to ensure
the safety of pedestrians and motorists. The tender also
specified the Lux levels to be achieved and to be maintained
for eight years. The power consumption required to be
B guaranteed and the contractor was made liable to bear the
difference between the excess of actual energy bill over the
quoted energy bill. The contractor was made responsible for
comprehensive maintenance for all installed equipment over
BOT period including any breakage, theft, loss on any account
C whatsoever. It is worthwhile to mention here that in the pre-bid
meeting, representatives of eight bidders stated to have
participated and clarified various points regarding the tender
notice.
D 18. In our opinion, there appears to be no hurry on the
part of the municipal corporation, in awarding contract as the
tender had been issued on 01.08.2014 and the same was
finalized only on 03.09.2014, i.e. after a period of more than
one month. Pre-bid meetings were held and the last date for
E supmission of tender was extended twice from 20.08.2014 to
25.08.2014 and thereafter to 28.08.2014, which by itself shows
that the process was not carried out in haste. Exhaustive pre-
bid meeting was held on 12.08.2014, which was stated to have
been attended by eight prospective bidders and the minutes
F of the pre-bid meetirfgs running into several pages changed
many terms in favour of the respondent Corporation to ensure
even stricter contract execution responsibilities and thus
became part of the tender through issuance of two corrigenda.
G The pre-bid meeting was held to understand the requirements
of the contract viz. the opinion of the prospective bidders, to
give sufficient time for bid preparation, evaluation of bids and
award of contract. One month was consumed in carrying out
the said activities and in no way can it be termed as a hurried
H process, as held by the High Court.
ELEKTRON LIGHTING SYSTEMS v. SHAH INVESTMENTS FINANCIAL 113
DEVELOPMENTS & CONSULTANTS [PRAFULLA C. PANT, J.]
19. Therefore, in our opinion, the High Court has erred A
in law in holding that the work order was illegally given to the
appellants in respect of replacement of street lights by LED
fittings and refurbishment of street light infrastructure on BOT
·basis.
B
20. Now, we come to that part of work order and
consequential agreement by which advertising rights were also
granted to the appellants on the basis of letter dated 19.8.2014
. sent by the appellants to the Municipal Corporation. The High
Court has taken serious note of the letter dated 19.08.2014 (a C
day before submissio'16f technical bid) in which the appellants
has made "certain suggestions" to the municipal corporation.
Copy of said letter is reproduced below: -
"The Commissioner, D
Aurangabad Municipal Corporation
. Aurangabad, Maharashtra
Sub: Additional Suggestions toward Tender- E
UNCONDITIONAL
Respected Sir,
We are participating in the tender for the LED Street F
Lighting due to be opened on 21 "August, 2014, &there
are some additional suggestions towards the same for
your kind consideration. These suggestions are
unconditional & are being made in favour of the
improvement for the City of Aurangabad. It shall be G
completely at your kind discretion to accept or reject
these suggestions.
We can offer to implement the Onlin·e Internet based
H
114 SUPREME COURT REPORTS [2015) 14 S.C.R.
A Control & Monitoring of the Street Lights from the
Switching point. The suitable systems shall use GSM
based modems to control the switching ON & OFF of
the street lights, to be installed in each control Panel.
Though the cost of such a system is quite high, however
B we are hereby offering to implement the solution at a
reduced price of Rs. 36,000/- per Control Panel along
with the recurring costs of the GSM communication &
software to Online monitor it, provided the Exclusive
Advertising rights for all the Street Lights Poles are
c ·extended to us.
The stipulated number of Control Panels is about 1200,
as per the Tender. In case it is decided to implement
D the New Technology Online control System, we may
mutually plan to reduce the number of existing Control
Panels to about 600, as the Switching Point system load
shall get substantially reduced after implementation of
LED Lights. Thus we may offset the cost of reduced
E Control Panels by using Online Technology without
burden of AMC. In case due to logistic issues, the Street
Lighting cannot be controlled by the proposed 600
Panels, then whatever additional nos. may be required,
cost for the same shall be borne by AMC.
F
As a reciprocal towards implementation of the Online
Monitoring & Control, we seek the Exclusive Advertising
Rights for all the Street Light Poles.
G
2. Additional Extended Guarantee Period of Two
Years:-
We can extend the Additional Guarantee Period from
H
ELEKTRON LIGHTING SYSTEMS v. SHAH INVESTMENTS FINANCIAL 115
DEVELOPMENTS & CONSULTANTS [PRAFULLA C. PANT, J.]
Two Years to Four Years, if required by AMC, on the A
same terms of Cost as per Part D, i.e. on payment of
Rs.95/- per fixture per month. This offer has.
Joint Venture Bidder
B
. (Electron Lighting System (P) Ltd.
& Paragon Cable India)
Sci/-
Authorized Signatory" c
21. The above letter discloses that the suggestions were
unconditional, leaving it open for the municipal corporation to
accept or not to accept the same. Through the above quoted
letter the appellants suggested that if exclusive advertising
rights are given to the bidder on the street lights pole, the bidder D
wquld reduce price by Rs. 36,000/- per control panel. The
stipulated number of control panel was 1,200/-, which could
be reduced through mutual plan to 600/-. We are of the view
that the above offer relating to advertising rights was uncalled
for and severable, and not a part of the work I.or which tender E
was floated. Learned counsel for the appellants submitted
that the appellants are ready to execute the work without taking
benefit of said letter as per the work contract relating to
replacement of street lights by LED on BOT basis.
F
· 22. It is submitted on behalf of the respondent No.3 that
though revenue from advertising in city of Aurangabad from
other sources, for the financial years 2011-2012, 2012-2013
and 2013-2014 was Rs. 81,31,091=00, 81,15,438=00 and
89,03,976=00 respectively, but the same from advertising on G
Street Light Poles was nil for each of the three years. As such,
the municipal Corporation· did not commit any illegality in
negotiating the matter with the appellants while awarding the
work order to it.
H
SUPREME COURT REPORTS [2015] 14S.C.R.
A 23. In our opinion, the matter regarding advertising rights
was separate, and the municipal corporation which is a
statutory body and instrumentality of the State should have
acted fairly by making it open for all eligible to submit their
offers. As such, we think that the respondent No.3 was not
B justified in giving the advertisement rights to the appellants
without inviting tender for it. To that extent, in our opinion,
respondent No.3 has not acted fairly. As such, the manner in
which the advertising rights are given to the appellants with
the work order cannot be said to be fair and contract to that
C extent was liable to be quashed without interfering with rest of
the work order.
24. Explaining ti 1e doctrine of severability contained in
Section 57 of Indian Contract Act, 1872, in 8.0.1. Finance
D Ltd., v. Custodian and others4, a three Judge Bench of this
Court has held that question of severance arises only in the
case of a composite agreement consisting of reciprocal
promises. In Shin Satellite Public Co. Ltd. v. Jain Studios
Ltd.5 , this Court has observed that the proper test for deciding
E validity or otherwise of an order or agreement is "substqantial
severability" and not "textual divisibility". It was further held by
this Court that it is the duty of the Court to sever and separate
trivial and technical parts by retaining the main or substantial
part and by giving effect to the latter if it is legal, lawful and
F otherwise enforceable.
25. Therefore, in the facts and circumstances and for the
reasons as discussed above, the appeals deserve to be partly
allowed. Accordingly, we set aside the impugned orders
G passed by the High Court to the extent it has quashed the work
contract given to the appellants regarding replacement of
existing street lights by LED fittings and refurbishment of street
light infrastructure on BOT basis. The work order dated
• (1997) 10sec 488.
H ' (2006) 2sec 928
ELEKTRON LIGHTING SYSTEMS v. SHAH INVESTMENTS FINANCIAL 117
DEVELOPMENTS & CONSULTANTS [PRAFULLAC. PANT, J.]
03.09.2014, to that extent given to the appellants shall stand A
valid. However, the advertisement rights given to the appellants,
in the work contract, shall remain quashed. As to the
advertisement rights, respondent No.3 may invite tenders
before awarding contract in respect thereof. The appeals stand
disposed of. B
26. No order as to costs.
Kalpana K. Tripathy Appeals partly allowed.
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