Holding

The tender committee acted within its discretion; its rejection of the lowest tender was neither arbitrary nor irrational, and the High Court’s interference was unwarranted.

Summary

The Water Resources Department of Orissa invited tenders for two stretches of a canal project. The lowest bidder, Narayan Mohanty, furnished an Earnest Money Deposit (EMD) by pledging a postal term‑deposit passbook of Rs 1,70,000, which was later alleged to be forged. The tender committee, relying on a communication from the Superintendent of Post Offices that the passbook should not be acted upon, rejected Mohanty’s tender as non‑responsive and awarded the contracts to the next lowest bidders, Jagdish Mandal and Laxman Sharma. Mohanty filed writ petitions; the Orissa High Court quashed the awards, holding the rejection arbitrary and directing reconsideration. The Supreme Court examined whether the committee’s decision was arbitrary, whether an unduly low rate justified rejection, and the proper scope of judicial review under Article 226. It held that the committee acted on a factual basis, that rejection on the ground of invalid EMD and unworkable rates was lawful, and that the High Court had exceeded its jurisdiction. Consequently, the Supreme Court set aside the High Court’s judgment and allowed the appeals.

Issues considered

Whether the tender committee’s rejection of the lowest tender on the ground of an invalid Earnest Money Deposit, without a show‑cause notice, was arbitrary, irrational or illegal.
Whether an unduly low and unworkable rate quoted by a tenderer constitutes a valid ground for rejection of the tender.
What is the proper scope of judicial review of tendering and contract award decisions under Article 226 of the Constitution.
Whether the High Court erred in quashing the award of the contracts based on subsequent police investigation reports.
Whether reliance on the postal department’s communication regarding the EMD suffices to deem the tender defective.

Subjects

tender rejectionearnest money depositjudicial reviewarbitrarinessunduly low ratespublic interestshow cause noticeOrissa Public Works Department Code

Judgment

A JAGDISH MANDAL
v.
STATE OF ORISSA AND ORS.

DECEMBER 11, 2006

B [G.P. MA THUR AND RV. RAVEENDRAN, JJ.]

Contracts-Tenders-Issue of-Rejection of tender-Show cause
notice-Requirement of-Decision of tender committee-Judicial review-
C Scope, power and ambit of-Tender invited for construction of canal in two
stretches-Rates quoted by a contractor, being the lowest, recommended for
acceptance-The said contractor furnished Earnest Money Deposit (EMD)
by pledging a postal Term Deposit of Rs. /, 70,000-A written complaint was
received by the Water Resources Department that the contractor had made
a postal deposit of Rs. 7,000 and had defrauded the Department by altering
D the figure in the passbook as Rs. 1, 70,000-0n enquiry, the Superintendent
of Post Offices sent a reply stating that the said Term Deposit Account for Rs.
/, 70,0001- submitted by the contractor should not be taken into account for
any official requirement-The tender committee held that the EMD submitted
by the contractor was invalid and recommended the acceptance of the next
E lowest valid tender-Contractor filed a writ petition challenging the decision
of the High Court-High Court directed to file a complaint against the
contractor-But the police investigation showed that the passbook produced
by the contractor was genuine-Thereupon, the High Court allowed the writ
petition holding that the offer of work of the contractor was arbitrarily
rejected by the tender committee-Correctness of-Held: Judicial review of
F administrative action is intended to prevent arbitrariness, irrationality,
unreasonableness, bias and mala tides and not to check whether the choice
or decision is 'sound'-Tender committee rightly rejected the tender of the
contractor as it was not accompanied by a valid EMD-No show cause
notice is required for rejection of the tender-High Court judgment set
aside--Orissa Public Works Department Code, Clause 3.5.18.
G
Contracts-Tenders-Rates-Unduly low rate-Quoting of-Ejfect-
Tenders invited for construction of canal in two stretches-Rates quoted by
a contractor, being the lowest recommended for acceptance-On scrutiny,
tender committee found such unduly low rate in respect of a large and last
H 606
JAGDISH MANDAL v. STATE OF ORI SSA 607

item of work was likely to jeopardize the completion of the work~Hence, A
tender committed rejected the tender of the contractor and recommended
acceptance of the next lowest valid tender-High Court allowed the writ
petition ofthe contractor-Correctness of-Held: Unduly low and unworkable
rate or rates is a ground for rejection of tenders-The Committee has applied
its mind and rejected the tender by assigning a reason which is neither B
irrational nor arbitrary-High Court judgment set aside.

CA No. 5699 of 2006

The second respondent, acting on behalf of the Water Resources
Department, invited tenders for 'construction of Right Extension Main Canal' C
(first stretch) by a tender notice. The offer of the fifth respondent was the
lowest and that of the appellant was the second lowest The Executive Engineer
recommended the acceptance of the tender of the fifth respondent

The fifth respondent furnished the Earnest Money Deposit (EMD) by
pledging a postal Term Deposit of Rs. 1,70,000/-. A written complaint was D
received by the Department alleging that the fifth respondent had made a postal
deposit of only Rs. 7,000/- and had defrauded the Department by altering the
figure in the passbook as Rs. 1,70,000/-. On enquiry, the Superintendent of
Post Offices sent a reply stating that the said Term Deposit Account for Rs.
1,70,000/- submitted by the fifth respondent should not be taken into account
for any official requirement. E
The tender committee held that the EMD submitted by the fifth
respondent was invalid and recommended the acceptance of the next lowest
valid tender of the appellant.

The respondent filed a writ petition challenging the rejection of his F
tender. On directiOns of the High Court a complaint was filed against the fifth
respondent However, the investigation report submitted by the police showed
that the passbook was genuine as Rs. 1,70,000/- had actually been deposited
by the fifth respondent. The High Court allowed the writ petition filed by the
fifth respondent holding that the offer of the fifth respondent was arbitrarily G
rejected by the tender committee. Hence the appeal.

CA No. 5700 of 2006

Tenders were also invited in regard to the adjoining stretch that is
'construction of Right Extension Main Canal' (second stretch) by a tender H
608 SUPREME COURT REPORTS (2006] SUPP. 10 S.C.R.

A notice issued by the second respondent. The fifth respondent was the lowest
tenderer and the appellant was the second lowest tenderer. The Executive
Engineer recommended the acceptance of the tender of the fifth respondent.
As against the estimated rate of a certain item, which accounted for nearly
one-fifth of the estimated cost of the work, the fifth respondent quoted a rate
B which was less than 1% of the estimated rate and thus an unduly low rate.
The tender committee rejected the lowest tender submitted by the fifth
respondent as the rated quoted by him was unworkable under any
circumstances. The committee, therefore, recommended the acceptance of the
next lowest valid tender of the appellant.

C The High Court allowed the writ petition filed by the fifth respondent
on the assumption that the tender of the fifth respondent, in respect of the
second stretch, was not accepted solely as a consequence of non-acceptance
of the fifth respondent's tender in respect of the first stretch. Hence the appeal.

Allowing the appeals, the Court
D
HELD: 1.1. Judicial review of administrative action is intended to prevent
arbitrariness, irrationality, unreasonableness, bias and malafides. Its purpose
is to check whether choice or decision is made 'lawfully' and not to check
whether the choice or decision is 'sound'. When the power of judicial review
is invoked in matters relating to tenders or award of contracts, certain special
E features should be borne in mind. A contract is a commercial transaction.
Evaluating tenders and awarding of contracts are essentially commercial
functions. Principles of equity and natural justice stay at a distance. If the
decision 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
F 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 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 tenderer with imaginary
grievances, wounded pride and business rivalry, to make mountains out of
G 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 interference, either interim or final, may holdup public
works for years, or delay relief and succour to thousands and millions and
may increase the project cost manifold. Therefore, a court before interfering
I-I in tender or contractual matters, in exercise of powers of judicial review,
JAGDISH MAND AL v. STATE OF ORISSA 609

should pose to itself the following questions: A

(i) Whether the process adopted or decision made by the authority is
mala fide or intended to favour someone.

(ii) Whether the process adopted or decision made is so arbitrary and
irrational that the court can say; 'the decision is such that no responsible B
authority acting reasonably and in accordance with relevant law could have
reached'.

· (iii) Whether public interest is affected. (621-A-G)

1.2. If the answers are in the negative, there should be no interference C
under Article 226. Cases involving blacklisting or imposition of penal
consequences on a tenderer/contractor or distribution of state largesse
(allotment of sites/shops, grant of licences, dealerships and franchises) stand
on a different footing as they may require a higher degree of fairness in action.

Sterling Computers Ltd. v. M & N Publications Ltd., [1993) 1SCC445, D
Tata Cellular v. Union ofIndia AIR (1996) SC 11, Raunaq International Ltd.
v. l. V.R. Construction ltd., (1999) 1 SCC 492, Air India Ltd. v. Cochin
International Airport Ltd., (2000) 2 SCC 617, Association of Registration
Plates v. Union of India, (2005) 1 SCC 679, and B.S.N. Joshi v. Nair Coal
Services ltd., [2006) 11 SCALE 526, referred to. E
2.1. Clause 3.5.18 of the Orissa Public Works Department Code (Code)
requires the authority considering the tenders to take into consideration
several points while determining the validity of the tenderers. Two of the points
to be so taken into account are whether the tenderer has made the specified
Earnest Money Deposit (EMD) and whether the rates quoted contain any F
unduly low and unworkable rates. [622-8, CJ

2.2. It was but natural for the Water Resources Department to seek
confirmation from the Postal Department as to whether the Term Deposit
Passbook was genuine and valid. Its query elicited a reply from the
Superintendent of Post Offices that the Term Deposit passbook for Rs. G
1,70,000/- produced by the fifth respondeilt was not to be acted upon.
Therefore, the Committee concluded that the tender of the fifth respondent
was defective as not being accompanied by a valid EMD. It cannot be said that
the Committee acted unreasonably and arbitrarily, in arriving at the said
decision. Clause 3.5.18 of the Code makes it clear that acceptance of any H
610 SUPREME COURT REPORTS [2006] SUPP. 10 S.C.R.

A tender is entirely at the discretion of the accepting authority and ilo tenderer
can require the authority to show cause for rejection of the tender.

2.3. The Committee was neither blacklisting the tenderer nor visiting
any penal consequences on the tenderer. It was merely treating the tender as
defective. There was, therefore, no need to give an opportunity to the tenderer
B to show cause at that stage. (624-C)

3. In this case, the Committee in fact acted on a factual basis, namely,
the communication from the Superintendent of Posts that the TD passbook
should not be acted upon. Even if the said information furnished by the
Superintendent of Posts was subsequently found to be incorrect, that will not
C invalidate the action taken by the Committee on such information. (625-E)

Barium Chemicals Ltd v. The Company Law Board, [1966) Supp. SCR
311, and Secretary of State for Education and Science v. Metropolitan
Borough of Tame side, (1976) All ER 665, held inapplicable.
D 4. Where the absurdly low rate is in regard to a large item of work,
which has to be executed at the very end, it is possible for the Committee to
suspect some ulterior motive on the part of the tenderer. If the Committee
felt that there was a reasonable possibility of the contractor leaving the work
midway on account of the rate quoted for the last item of work being found to
E be unworkable, thereby putting the ~ork in jeopardy, it can certainly reject
the tender as it affects the reliability of the contractor to perform the work.
Unduly low and unworkable rate or rates is a ground for rejection of tenders
(vide Note to Clause 3.5.18). The modus operandi of quoting low rates in
regard to some items of work and thereby securing the contract ana then
raising disputes by making large claims, is not uncommon anlong the
F contracfors. The very purpose of constituting a Committee for scrutinizing
the tenders is to find out whether any freak low rate will affect the work if
the contract is awarded to the tenderer. If the Committee found that the tender
of the fifth respondent should be rejected on that ground, the said decision
cannot be termed as unreasonable or arbitrary. The Committee has applied
G its mind and rejected the tender by assigning a reason which is neither
irrational nor arbitrary. Neither the High Court nor this Court can sit in
appeal over such technical assessment. There is no infirmity in the decision-
making process or the decision. [626-D-H]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5699of2006.
H
JAGDISHMANDALv. STATEOFORISSA[RAVEENDRAN,J.] 611
From the Final Judgment and order 25.1.2006 of the High Court of A
Orissa, Cuttack in WP (C) 4769 of 2005.

S.K. Dholakia, Manoj Kumar Das, Nikilesh Ramachandran for the
Appe\\ant.

R. Venkataramani, Ashok Panigarahi, Satya Mitra Garg, Sibo Sankar B
Mishra for the Respondents.

The Judgment of the Court was delivered by

R.V. RA VE END RAN, J. Leave granted in both the special leave petitions.
c
These two appeals by special leave, arise out of a common judgment
dated 25.1.2006 passed by the Orissa High Court allowing Writ Petition (Civil)
Nos. 4769/2005 and 4768/2005 filed by Narayan Mohanty (common fifth
respondent in these two appeals). In the said petitions, Narayan Mohanty
had challenged the award of construction contracts to Jagdish Mandal and
Laxman Sharma (respective appellant in these appeals) in Upper Indravati D
Irrigation Project ('UIIP' for short). The State, the Executive Engineer (Right
Canal Division No.III), the Chief Engineer (UIIP), and Superintending Engineer
(UIIP) who were the common respondents 1 to 4 in the said two writ petitions
hold the same rank in these two. appeals.

Facts in SLP [CJ No.3196/2006 (re : first stretch) E

2. The second Respondent, acting on behalf of the Water Resources
Department, State of Orissa, invited tenders for "construction of Right Extension
Main Canal from RD 8.01kmto9.03 km including structures" by tender notice
dated 9.11.2004. The estimated value of the work as per the tender schedule F
was Rs.1,69,10,506. In response, 17 tenders were received. The offer of the
fifth respondent was the lowest (Rs. I ,22,99,099) and the offer of appellant (J.
Mandal) was the second lowest (Rs.1,29,36,579). The Executive Engineer
recommended the acceptance of the tender of fifth respondent.

3. The fifth respondent furnished the Earnest Money Deposit (EMD) by G
pledging a postal Term Deposit of Rs.1,70,000/- (Passbook No.154120 dated
6.12.2004 issued by the Post Master, Mukhiguda) in favour of the second
respondent. A written complaint was received by the Department alleging that
fifth respondent had made a postal deposit of only Rs.7,000 and had defrauded
the Department by altering the figure in the passbook as Rs.1,70,000. In view H
612 SUPREME COURT REPORTS [2006] SUPP. IO S.C.R.

A of the said complaint, the Superintending Engineer wrote to the concerned
Post Office on 3.2.2005 requesting confirmation about the authenticity of the.
said Term deposit. A similar Jetter was addressed by the Chief Engineer on
11.3 .2005 to the Post Master General, Berhampur Zone, seeking information
as to whether fifth respondent had made a deposit of Rs.1, 70,000 on 6.12.2004
or any subsequent date. The Superintendent of Post Offices, Kalahandi
B Division, sent a reply dated I4.3.2005 to the Superintending Engineer stating
that the said TD Account for Rs. I, 70,000 submitted by fifth respondent
should not be taken into account for any official requirement.

4. The tenders were scrutinized and considered by the Project Level
C Committee ('Committee' for short) consisting of the Superintending Engineer,
(Right Canal Circle), the Financial Advisor and Chief Accounts Officer (UIIP),
the Executive Engineer (UIRC Division No. III), and the Assistant to Chief
Engineer(UIIP). The details of their deliberations and recommendations are
contained in the proceedings dated 24.3.2005. The Committee found that fifth
respondent, the appellant (Jagdish Manda!) and Dinesh Kumar Panda were
D the first, second and third lowest tenderers. Having regard to the communication
dated I4.3.2005 of the Superintendent of Post Offices not to take note of Term
Deposit for Rs. I, 70,000, the Committee held that the EMD submitted by fifth
respondent was invalid and consequently his tender was 'non-responsive'.
It therefore recommended the acceptance of the next lowest valid tender of
E Jagdish Manda!.

5. The office of the Post Master General, Berhampur, sent a reply dated
30.3.2005 to the Chief Engineer, UIIP, reiterating that TD Account No. I54 I20
for Rs. I, 70,000 of fifth respondent should not be taken into account.

F 6. On coming to know about the rejection of his tender, the respondent
herein filed W.P. No.4769/2005 seeking a direction to respondents I to 4 not
to award to Jagdish Manda! or any other contractor, and a further direction
for awarding the work to him. The Accepting Authority, however, accepted
the offer of Jagdish Manda! and awarded the work to him under an agreement
dated I8.4.2005.
G
7. When the writ petition came up for consideration, the High Court
desired to know the reason as to why the Postal authorities had advised that
T.D. Account No.i54 I20 dated 6.12.2004 of fifth respondent should not be
taken into account. Therefore, the Chief Engineer (UIIP), addressed a letter
dated I 9.8.2005 to the Post Master General, Berhampur, requesting for reasons.
H
- JAG DISH MAND AL v. ST ATE OF ORI SSA [RA VEENDRAN, J.) 613

The reasons were furnished in the following reply dated 25.8.2005 of the Post A
Master General :

"I am directed to intimate that l yr. TD Ale No.154120 for Rs.1,70,0001
- has not actually been opened at Mukhiguda SO on 06.12.2004
depositing the amount. But one pass book bearing l yr. TD Ale
No.154120 has been prepared out of record by the holder Sri Narayan B
Mohanty in connivance with the SPM Mukhiguda and the said P.B.
has been pledged to the Executive Engineer RCD III, Jungarh on
06.12.2004 itself.

As 1 yr. TD Ale No.154120 has been prepared without any amount
deposited in post office it has been intimated in this oflice letter of C
even no. dt. 30.3.2005 not to take into account the TD Ale No.154120
for Rs.1,70,0001- submitted by Sri Narayan Mohanty towards office
requirement."

8. The said communication dated 25.8.2005 was placed before the High D
Court with an affidavit of the Executive Engineer. When the matter came up
on 29.8.2005, the High Court appears to have observed that the Department
should prosecute the fifth respondent if he had dishonestly and fraudulently
tried to secure a contract by utilizing a fake Post Office T.D. Account book.
The Government Advocate, conveyed the said observations and instructed
the Chief Engineer (UIIP), to lodge a complaint with the Police. Accordingly, E
the Executive Engineer lodged a complaint dated 9.9.2005 with the Officer-in-
Charge of Junagarh Police Station, requesting appropriate action against fifth
respondent. The Officer-in-Charge of Junagarh Police Station submitted an
investigation. report to the Advocate G~neral stating that his investigation of
the records showed that Rs. I, 70,000 had been deposited by Narayan Mohanty F
on 6.12.2004 with the Sub-Post Master, Mukhiguda and a one year T.D.
Account No.154120 was opened, and opined that the passbook was genuine.
The said r(.port was also placed before the High Court.

9. The High Court by its judgment dated 25.1.2006 allowed the writ
petition filed by fifth respondent. It held : G
"The materials as produced before us clearly show that the tender
committee is wrong in coming to the conclusion that the term deposit
passbook submitted by the petitioner was a forged one. We also find
that though the letter of the Superintendent of Post Offices,
Bhawanipatna did not state that the said term deposit made by the H
A
614 SUPREME COURT REPORTS [2006) SUPP. 10 S.C.R.

petitioner was a fake one nor any reason was assigned in the said
-
letter as to why the said term deposit should not be taken into
account, the tender committee mechanically came to the conclusion
that the offers of the petitioner for both the above works were non-
responsive. In view of the subsequent development, during pendency
of both the writ applications and the investigation report submitted
B by the police to the learned Advocate General, after due investigation,
we are of the view that the offers of the petitioner made for both the
works have been arbitrarily rejected by the tender committee for no
fault of the petitioner. "

(emphasis supplied)
c
In view of the said finding, the High Court quashed the agreement between
the Department and Jagdish Manda! (appellant) and directed the Committee
to reconsider the case of Narayan Mohanty (fifth respondent) by accepting
the T.D. passbook submitted by him as valid vis-a-vis other tenderers and
D take a final decision in regard to award of the contract de novo. The said
decision is challenged by Jagdish Mandal.

Facts in SLP(c) No. 781712006 (re : second stretc[y

10. Tenders were also invited in regard to the adjoining.stretch, that is
E 'Construction of Right Extension Main Canal from RD 9.03 km to 10.02 km',
by tender notice dated 9.11.2004 issued by the second Respondent. The
estimated cost of the tender schedule work was Rs. 2,23,10,768. There were
14 tenders in response to the said tender notice. Fifth respondent was the
lowest tenderer (Rs.1,45,80,338): Laxman Sharma, the appellant was the second
lowest tenderer (Rs.1,69,56, 180). The Executive Engineer recommended the
F acceptance of the tender of fifth respondent.

I I. One of the main items of work to be executed was 'cement concrete
lining' - Item No. I 9 of the tender schedule. It was the last among the items
of work to be executed. It accounted for nearly one-fifth of the estimated cost
of the work. The estimated rate for that item was Rs.2020.50 per cu.m. and the
G estimated total cost was Rs.4 I ,47,581. The fifth respondent, however, quoted
a rate ofRs.20 per cu.m., for item no. 19, in all Rs.41,055. The rate quoted was
less than I% of the estimated rate and thus an unduly low rate.

12. The Committee considered the tenders on 24.3.2005. By proceeding
H dated 24.3.2005, the lowest tender submitted by the fifth respondent was
JAGDISH MANDAL v. STATE OF ORISSA [RA VEENDRAN, J.] 615

rejected for the following reasons : A
(a) That in regard to the adjoining work (RD 8.01 km to 9.03 km), the
tenderer was found to have committed a fraudulent act in
manipulating the TD pass-book relating to EMD.
(b) In regard to Tender schedule item no.19 (CC lining) which involved B
18.37% of the total tendered value, the tenderer had quoted a rate
which was 99.01% less than the estimated rate, and it was
unworkable under any circumstances.
(c) Though the rate analysis submitted by the tenderer, for schedule
Item No.4 showed the rate as Rs. 45/-, he had quoted the rate as C
Rs.65/- which showed a tendency to manipulate the rates.

The Committee, therefore, recommended that the next lowest tender, (submitted
by Laxman Sharma) for acceptance. The accepting authority acting on the
said recommendations, awarded the work to Laxman Sharma under an
agreement dated 18.4.2005. Feeling aggrieved, Narayan Mohanty filed Writ D
Petition (C) No. 4768 of 2005 seeking a direction to the department not to
award the said work to Laxman Sharma and for a further direction to award
the work to him.

13. W.P. [C] No.4768/2005 was heard _and disposed of along with W.P.
(C) No. 4769 of2005, by a common judgment. In the said judgment, the High E
Court only considered and dealt with the facts relating to the first stretch
which was the subject matter ofW.P. (C) No. 4769 of2005. It did not consider
the facts relating to the second stretch which was the subject matter of W.P.
(C) No. 4768 of2005. It proceeded on the assumption that the tender of fifth
respondent in respect of the 'second stretch, was not accepted, solely as a
consequence of non-acceptance of the fifth respondent's tender in respect of F
the first stretch. As the High Court set aside the decision of the Committee
in regard to first stretch, it also set aside the decision of the committee
regarding the second stretch. The said decision is challenged by Laxman
Sharma.

Question for consideration : G

14. The learned counsel for the appellants submitted that the scope of
interference in judicial review of tender processes and award of contracts is
limited only to cases where there are material violation of the terms relating
to scrutiny and acceptance of tenders or where the decision is vitiated either H
616 SUPREME COURT REPORTS (2006] SUPP. 10 S.C.R.

A by arbitrariness/irrationality or by ma/a fideslfavoritism. It was contended
--
that as the fifth respondent failed to plead or make out any of these grounds
in his writ petitions, the High Court ought not to have interfered with the
contracts awarded to the appellants.

15. In the first case, it was contended that the decision of the committee
B that the EMD was defective, was based on the communication dated 14.3 .2005
of the postal authorities requiring the committee not to take note of the TD
passbook for Rs.1,70,000; that the Post Master General had also subsequently
confirmed vide communications dated 30.3.2005 and 25.8.2005 that the TD
passbook furnished by the fifth respondent was manipulated/forged and not
C to be acted upon; and that the High Court committed an error in ignoring the
findings of the postal department, and in relying on an incomplete inquiry
report of the Officer in-charge of the Junagarh police station, submitted
during the pendency of the writ petition. Reliance is also placed on the
reports placed by the State Government before this Court in pursuance of the
order dated 4.9.2006 which showed that Rs.1,70,000 was not deposited by the
D fifth respondent on 6.12.2004.

16. In the second case, it was contended that the High Court had
wrongly allowed the writ petition, without even referring to the facts or
considering the contentions. It was submitted that the High Court ought to
have considered the separate reasons given by the Committee for rejection
E of the tender of the fifth respondent, that is, quoting of unduly low rate for
item no.19 and quoting a manipulated rate for item no.4.

17. The learned counsel for Respondents 1 to 4 broadly agreed with the
contentions urged by the appellants. The fifth respondent, however, supported
F the reasoning of the High Court. On the contentions urged, the question that
arise for consideration is whether the High Court in exercise of power of
judicial review, was justified in quashing the award of the contract relating to
first stretch to Jagdish Manda) and award of contract relating to second
stretch to Laxman Sharma and directing reconsideration of tender.

G Scope of Judicial Review of award of contracts :

18. We may refer to some of the decisions of this Court, which have
dealt with the scope of judicial review of award of contracts.

(18.1) In Sterling Computers Ltdv. M & N Publications Ltd, [1993] 1
H sec 445, this Court observed :
JAGDISH MAND AL v. STATE OF ORI SSA [RA VEENDRAN, J.] 617

"While exercising the power of judicial review, in respect of contracts A
entered into on behalf of the State, the court is concerned primarily
as to whether there has been any infirmity in the decision making
process ..... the courts can certainly examine whether 'decision making
process' was reasonable, rational, not arbitrary and violative of Article
14 of the Constitution."
B
(18.2.) In Tata Cellular v. Union of India, AIR (1996) SC 11, this Court
referred to the limitations relating to the scope of judicial review of
administrative decisions and exercise of powers in awarding contracts, thus:

(I) The modem trend points to judicial restraint in administrative
~00. c
(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
action. If a review of the administrative decision is permitted it D
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 because the invitation to tender is in the realm of contract.
More ..... often than not, such decisions are made qualitatively by E
experts.
(5) The Government must have freedom of contract. In other words,
a fairplay in the joints is a necessary concomitant for an
administrative body functioning in ~n administrative sphere qr
quasi-administrative sphere. However, the decision must not only F
be tested by the application of Wednesbury principle of
reasonableness (including its other facets pointed out above) but
must be free from arbitrariness not affected by bias or actuated
by ma/a jides.

(6) Quashing decisions may impose heavy administrative burden on
the administration and lead to increased and unbudgeted G
expenditure.

This Court also noted that there are inherent limitations in the exercise of
power of judicial review of contractual powers. This Court also observed that
the duty to act fairly will vary in extent, depending upon the nature of cases, H
618 SUPREME COURT REPORTS [2006] SUPP. 10 S.C.R.

A to which the said principle is sought to be applied. This Court held that the
-
State has the right to refuse the lowest or any other tender, provided it tries
to get the best person or the best quotation, and the power to choose is not
exercised for any collateral purpose or in infringement of Article 14.

(I 8.3) In Raunaq International Ltd., v. /. V.R. Construction Ltd., (1999]
B I SCC 492, this Court dealt with the matter in some detail. This Court held:

"The award of a contract, whether it is by a private party or by a
public body or the State, is essentially a commercial transaction. In
arriving at a commercial decision considerations which are of paramount
importance are commercial considerations. These would be: (I) The
c price at which the other side is willing to do the work; (2) Whether
the goods or services offered are of the requisite specifications; (3)
Whether the person tendering has the ability to deliver the goods or
services as per specifications. When large works contracts involving
engagement of substantial manpower or requiring specific skills are to
D be offered, the financial ability of the tenderer to fulfil the requirements
of the job is also important; (4) the ability of the tenderer to deliver
goods or services or to do the work of the requisite standard and
quality; (5) past experience of the tenderer, and whether he has
successfully completed similar work earlier; (6) time which will be
taken to deliver the goods or services; and often (7) the ability of the
E tenderer to take follow up action, rectify defects or to give post
contract services. Even when the State or a public body enters into
a commercial transaction, considerations which would prevail in its
decision to award the contract to a given party would be the same.
However, because the State or a public body or an agency of the State
F enters into such a contract, there could be, in a given case, an element
of public law or public interest involved even in such a commercial
transaction.

What are these elements of public interest? (I) Public money would
be expended for the purposes of the contract; (2) The goods or
G services which are being commissioned could be for a public purpose,
such as, construction of roads, public buildings, power plants or
other public utilities. (3) The public would be directly 'interested in the
timely fulfilment of the contract so that the services become available
to the public expeditiously. (4) The public would also be interested in
the quality of the work undertaken or goods supplied by the tenderer.
H
JAGDISHMANDALv. STATEOFORISSA[RAVEENDRAN,J.) 619
Poor quality of work or goods can lead to tremendous public hardship A
and substantial financial outlay either in correcting mistakes or in
rectifying defects or even at times in re-doing the entire work - thus
involving larger outlays or public money and delaying the availability
of services, facilities or goods, e.g. A delay in commissioning a power
project, as in the present case, could lead to power shortages,
retardation of industrial development, hardship to the general public B
and substantial cost escalation.

When a writ petition is filed in the High court challenging the award
of a contract by a public authority or the State, the court must be
satisfied that there is some element of public interest involved in C
entertaining such a petition. If, for example, the dispute is purely
between two tenderers, the court must be very careful to see if there
is any element of public interest involved in the litigation. A mere
difference in the prices offered by the two tenderers may or may not
be decisive in deciding whether any public interest is involved in
intervening in such a commercial transaction. It is important to bear D
in mind that by court intervention, the proposed project may be
considerably delayed thus escalating the cost far more than any
saving which the court would ultimately effect in public money by
deciding the dispute in favour of one tenderer or the other tenderer.
Therefore, unless the court is satisfied that there is a substantial
amount of public interest, or the transaction is entered into ma/a fide, E
the court should not intervene under Article 226 in disputes between
two rival tenderers."

(18.4.) In.Air India Ltd v. Cochin International Airport Ltd, (2000] 2
SCC 617, this Court summarized the scope of interference as enunciated in
several earlier decisions thus :
F

"The award of a contract, whether it is by a private party or by a
public body or the State, is essentially a commercial transaction. In
arriving at a commercial decis.ion considerations which are paramount
are commercial considerations. The State can choose its own method G
to arrive at a decision. It can fix its own terms of invitation to tender
and that is not open to judicial scrutiny. It can enter into negotiations
before finally 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
H
620 SUPREME COURT REPORTS [2006] SUPP. 10 S.C.R.

A conditions permit such a relaxation, for bona fide reasons, if the
tender conditions permit such a relaxation. lt may not accept the offer
even though it 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
B amenable to judicial review, the court can examine the decision-making
process and interfere if it is found vitiated by ma/a /ides,
unreasonableness and arbitrariness. The State, its corporations,
instrumentalities and agencies have the public duty to be fair to all
concerned. Even when some defect is found in the decision-making
c 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 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
D requires interference, the court should intervene. "

[Emphasis supplied]

(18.5.) In Association of Registration Plates v. Union of India, [2005]
I SCC 679, this Court held:
E
" ......Article 14 of the Constitution prohibits government from arbitrarily
choosing a contractor at its will and pleasure. It has to act reasonably,
fairly and in public interest in awarding contracts. At the same time,
no person can claim a fundamental right to carry in business with the
government. All that he can claim is that in competing for the contract,
F he should not be unfairly treated and discriminated, to the detriment
of public interest. ... "

(18.6.) In B.S.N. Joshi v. Nair Coal Services Ltd, [2006] 11 SCALE 526,
this Court observed :

G "It may be true that a contract need not be given to the lowest
tenderer but it is equally true that the employer is the best judge
therefor; the same ordinarily being within its domain, court's
interference in such matter should be minimal. The High Court's
jurisdiction in such matters being limited in a case of this nature, the
H Court should normally exercise judicial restraint unless illegality or
JAGDISH MANDAL v. STATE OF ORISSA [RA YEEND RAN, J.] 621

arbitrariness on the part of the employer is apparent on the face of A
the record."

19. Judicial review of administrative action is intended to prevent
arbitrariness, irrationality, unreasonableness, bias and malafides. Its purpose
is to check whether choice or decision is made 'lawfully' and not to check
whether choice or decision is 'sound'. When the power of judicial review is B
invoked in matters relating to tenders 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
relating to award of contract is bona fide and is in public interest, courts will C
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 invoked to protect private
interest at the cost of public interest, or to decide contractual disputes. The
tef!derer or contractor with a grievance can always seek damages in a civil
court. Attempts by unsuccessful tenderers with imaginary grievances, D
wounded pride and business rivalry, to make mountains out of molehills of
some technical/procedural violation or some prejudice to self, and persuade
courts to interfere by exercising power of judicial review, should be resisted.
Such interferences, either interim or final, may hold up public works for years,
or delay relief and succour to thousands and millions and may increase the E
project cost manifold. Therefore, a court before interfering in tender or
contractual matters in exercise of power of judicial review, should pose to
itself the following questions :

Whether the process adopted or decision made .by the authority
is ma/a fide or intended to favour someone.
F

Whether the process adopted or decision made is so arbitrary
and irrational that the court can say : 'the decision is such that
no responsible authority acting reasonably and in accordance
with relevant law could have reached.' G
(ii) Whether public interest is affected.

If the answers are in the negative, there should be no interference under
Article 226. Cases involving black-listing or imposition of penal consequences
on a tenderer/contractor or distribution of state largesse (allotment of sites/ H
622 SUPREME COURT REPORTS [2006] SUPP. 10 S.C.R.

A shops, grant of licences, dealerships and franchises) stand on a different
footing as they may require a higher degree of fairness in action.

Re : Contract for First Stretch

20. The tender procedure requires all tenders involving Rs. I 0 lakhs or
B more to be evaluated by a Project Level Committee (with four members
described in para 4 above) and their findings/recommendations have to placed
before the approving/accepting authority. Clause 3.5.18 of the Orissa Public
Works Department Code ('code' for short) requires the authority considering
the tenders to take into consideration several points while determining the
C validity of the tenders. Two of the points to be so taken into account are
whether the tenderer has made the specified EMD and whether the rates
quoted contain any unduly low and unworkable rates.

21. The tender conditions give an option to the tenderer, to furnish
earnest money deposit, by pledging NSC/postal time deposit/postal saving
D passbook/deposit receipts issued by any nationalized Bank. The first
respondent pledged a postal TD Account passbook relating to a Deposit of
Rs. I, 70,000 in fulfilment of the condition regarding EMD. The Department is
entitled to verify the genuineness of the TD passbook to ensure that the
required EMO is furnished. In this case, even before the Committee could
consider the tenders, a complaint was also received alleging that the TD
E passbook produced by fifth respondent was tampered and manipulated. It
was therefore but natural for the Department to seek confirmation from the
Postal Department as to whether the TD Passbook was genuine and valid. Its
query elicited a reply from the Superintendent of Post Offices that the Term
Deposit passbook for Rs.1,70,000 produced by the fifth respondent was not
F to be acted upon. Therefore, the Committee concluded that the tender of fifth
respondent was defective as not being accompanied by a valid EMO. It
cannot be said that the Committee acted unreasonably and arbitrarily, in
arriving at the said decision. The Committee did not send show cause notice
to the fifth respondent before rejecting the TD passbook and consequently
the tender, as Clause 3.5.18 of the Code makes it clear that acceptance of any
G tender is entirely at the discretion of the accepting authority and no tenderer
can require the authority to show cause for rejection of the tender.

22. We have already noticed that while the Committee acted on the letter
dated 14.3.2005 of the Superintendent of posts, the High Court acted on an
Inquiry Report submitted by the Officer in Charge of Junagarh Police Station
H
JAGDISHMANDALv. STATEOFORISSA[RAVEENDRAN,J.] 623

during the pendency of the writ petition. When the SLP came up for A
consideration on 25.1.2006, this Court directed the State to place on record
the report of the Superintendent of Post Offices and the Police investigation
report. Accordingly, the State placed three reports before this Court. The first
is the detailed Vigilance Enquiry Report of the Postal Department holding that
the TA Account pass book no.154120 issued by Sub-Post Master, Mukhiguda
should not be considered as genuine. The second is the Inquiry Report dated B
16.9.2006 of the Officer in charge of Junagarh police station reiterating his
earlier report submitted to the High Court that the pass book is genuine and
a sum ofRs. l,70,000 was deposited by fifth respondent in postal TA Account
No.154120 on 06.12.2004. The third is the report of the Superintendent of
Police, Kalahandi, dated 28. l 0.2006, opining that fifth respondent did not C
deposit RsJ,70,000 on 6.12.2004 and that the Sub-Post Master, Mukhiguda
had shown the date of deposit as 6.12.2004 in order to help fifth respondent
to get his tender accepted. While the inquiry report of the Postal Vigilance
Cell and the letters from postal department clearly holds that the TD Account
Passbook No.154120 produced by fifth respondent was not genuine, the
report of the office in charge of the police station, concludes that the passbook D
is genuine and not forged. But significantly the subsequent police report
dated 28. I 0.2006 by a higher authority, namely the Superintendent of Police,
Kalahandi, states that fifth respondent had obtair.ed a pre-dated passbook in
connivance with the Sub-Post Master Mukhiguda.
E
23. We have referred to various reports only to show that there exist
divergent views about the genuineness of the TD passbook. It is wholly
unnecessary to record a definite finding on the issue whether the TD passbook
submitted by one of the tenderers towards EMD is genuine or forged. In this
case, as the Superintendent of Post Offices infonned the department that the
postal TD passbook produced by fifth respondent should not be acted upon, F
the Committee proceeded to hold that his tender was 'non-responsive' or
defective as it was not accompanied by a valid EMD. In such circumstances,
the limited question that had to be considered in a writ petition filed by the
unsuccessful tenderer is whether the Committee acted unreasonably in taking
such a decision. There can be no doubt that it did not. The tender was to G
be accompanied by an EMD as prescribed. If the postal department which
issued the TD passbook pledged by the fifth respondent towards EMD, said
that it should not be acted upon, there is no question of the Committee then
holding any further eqquiry about its genuineness and holding up the
evaluation of tenders. For example if a Pay Order/Banker's Cheque/Demand
Draft issued by a Bank is produced as EMD and the Bank informs that such H
624 SUPREME COURT REPORTS [2006] SUPP. 10 S.C.R.

A pay order/cheque/DD should not be acted upon, the authority concerned is
not expected to suspend the process of evaluation and hold an enquiry in
regard to the validity of genuineness, but act upon the information received
from the Bank and treat the EMD as defective and proceed with the evaluation
of tenders on that basis.

B 24. The learned counsel for fifth respondent submitted that the
department ought not to have acted on a complaint received against him,
without giving him an opportunity to show cause. This contention has no
merit. Whether any complaint is received or not, the department is entitled to
verify the authenticity of the document pledged as earnest money deposit.
C Such verification is routinely done. The Committee was neither blacklisting
the tenderer nor visiting any penal · consequences on the tenderer. It was
merely treating the tender as defective. There was, therefore, no need to give
an opportunity to the tenderer to show cause at that stage. We no doubt
agree that the Committee could have granted an opportunity to the tenderer
to explain the position. But failure to do so cannot render the action of the
D Committee treating the EMD as defective, illegal or arbitrary.

25. The limited scope of judicial review by the High Court envisaged
examination of the question whether there was any material irregularity in the
decision making process or whether the decision of the Committee and
consequential rejection of fifth respondent's tender was irrational, unreasonable
E or arbitrary. The validity of the decision of the Committee taken on the
material available at the time of consideration of tenders, cannot be tested
with reference to a subsequent police enquiry report submitted in the writ
proceedings. Nor can it be held that the Committee acted arbitrarily in not
accepting the passbook, on the basis of some report opining that the TD
F passbook is genuine. The High Court was not sitting in appeal over the
decision of the Committee. The High Court could not, therefore, by relying
on a subsequent police enquiry report, the correctness of which is yet to be
established, to hold that the Tender Committee was wrong in rejecting the TD
passbook. Further, the High Court missed the issue. The question for
consideration was not whether the TD passbook pledged by the fifth
G respondent is genuine or not. The question for consideration was whether the
committee acted arbitrarily or irrationally in rejecting the said TD passbook.

26. The learned counsel for fifth respon::ient submitted that if the
Committee had proceeded on an incorrect basis of facts, then the decision
H was open to judicial review. Reliance was placed on the following observations
JAGDISHMANDAL v. STATE OF ORISSA [RA VEENDRAN,J.] 625
of the House of Lords in Secretary of State for Education and Science v. A
Metropolitan Borough of Tameside, [ 1976) 3 All ER 665 :

''In many statutes a Minister or other authority is given a discretionary
power and in these cases the court's power to review aily exerdse of
the discretion, though still real, is limited. In these cases it is said that
the courts cannot substitute their opinion for that of the Minister; B
they can interfere on such grounds as that the Minister has acted
right outside his powers or outside the purpose of the Act, or unfairly,
or on an incorrect basis offact. But there is no universal rule as to
the principles on which the exercise of a discretion may be reviewed;"

Reliance is also placed on the following observations of this Court in C
Barium Chemicals Ltd v. The Company Law Board, [1966) Supp. SCR 311)

"No doubt the formation of opinion is subjective but the existence of
circumstances relevant to the inference as the sine qua non for action D
must be demonstrable. If the action is questioned on the ground that
no circumstance leading to an inference of the kind contemplated by
the section exists, the action might be exposed to interference unless
the existence of the circumstances is made out."

These decisions are of no assistance. In this case, the committee in fact E
acted on a factual basis, namely, the communication from the Superintendent
of Posts that the TD passbook should not be acted upon. Even if the said
information furnished by the Superintendent of Posts was subsequently found
to be incorrect, that will not invalidate the action taken by the Committee on
such infonnation. In this case,. in fact, there is nothing to show even till now
that the information given by the Superintendent of Posts in his letter dated F
14.3.2005 was false. We are not expressing any opinion on the issue whether
the TD pass book was really genuine or not as it does not directly arise for
consideration in this case. All that is required to be noticed is that the High
Court exceeded its power of judicial review in interfering with the contracts.

Re : Contract for Second Stretch G

27. The High Court has quashed the agreement relating to second
stretch without even considering the matter on merits. It proceeded on the
basis that both tenders of fifth respondent were rejected only on the ground
of fabrication/manipulation of the term deposit pass book offered as EMD for H
626 .,uPREME COURT REPORTS [2006] SUPP. 10 S.C.R.

A the first tender. We have already held, while dealing with the first tender, that·
there was no irregularity in the decision to exclude reject fifth respondent's
tender. Therefore, the very basis for High Court's judgment for interfering
with the award of the work in respect of the second tender disappears. Be
that as it may. The Committee has given other reasons also for rejection of
B fifth respondent's tender, which merit consideration.

28. The fifth respondent had submitted an unduly low rate in regard to
item no. 19 (C.C. lining). It was the last item of work to be executed, and
constituted nearly one fifth of the total estimated value of the work. In regard
to the said work, as against the rate ofRs.2020.50 per cu.m., estimated by the
C department, the fifth respondent quoted an absurdly low rate of Rs. 20 only
which was less than I% of the estimated rate. It is obvious that he could not
have executed the work at that rate. The CC lining being the last work, there
was every likelihood of the tenderer executing the other items of work for
which he had quoted much higher rates than others and leave out the last
item, or raise same dispute thereby jeopardizing the work and causing delay.
D It is true that a contractor could have an answer by contending that he had
priced the other items of work in a manner which enabled him to ,quote a very
low rate for one of the items. But then the committee is entitled to consider
the effect of such freak rates. Where the absurdly low rate is in regard to a
large item· of work, which has to be executed at the very end, it is possible
E for the committee to suspect some ulterior motive on the part of the tenderer.
If the committee felt that there was a reasonable possibility of the contractor
leaving the work midway on account of the rate quoted for the last item of
work being found to be unworkable, thereby putting the work in jeopardy, it
can certainly reject the tender as it affects the reliability of the contractor to
perform the work. Unduly low and unworkable rate or rates, is a ground for
F rejection of tenders (vide Note to clause 3.5.18). The modus operandi of
quoting low rates in regard to some items of work and thereby securing the
contract and then raising disputes by making large claims, is not uncommon
among the contractors. The very purpose of constituting a committee for
scrutinizing the tenders is to find out whether any freak low rate will affect
G the work ifthe contract is awarded to the tenderer. lfthe committee found that
the tender of fifth respondent should be rejected on that ground, the said
decision cannot be termed as unreasonable or arbitrary. The committee has
applied its mind and rejected the tender by assigning a reason which is
neither irrational nor arbitrary. Neither the High Court nor this Court can sit
in appeal over such technical assessment. There is no infirmity in the decision
H making process or the decision.
JAGDISH MANDAL v. STATE OF ORISSA [RA VEENDRAN. J.] 627
29. Learned counsel for the fifth respondent pointed out that the Resident A
Audit Officer had made a report in regard to the extra cost involved due to
rejection of the two lowest tenders of the fifth respondent and that report
refers to the fact that Laxman Sharma had also quoted some low rates in
regard to certain items of work. It is contended that ignoring low rates in the
case of Laxman Sharma, but making it a ground for rejection of fifth
respondent's tender, show bias and favouritism. The value of work in respect B
of which Laxman Sharma is said to have given low tender rates, is not
specified. It is for the Committee to assess whether a particular low tender rate
is likely to affect the execution of the work. Therefore, the fact that Laxman
Sharma had also quoted low rates in regard to certain items of work, will not
affect the decision of the Committee. C
Conclusion:

30. We are therefore of the view that there were good and adequate
reasons f~r the Committee to reject the lowest tenders of fifth respondent in
both cases and there was no justification for the High Court to interfere with D
the contracts awarded to the respective appellant in these two appeals. We
also record the statement made by the counsel for the appellants in the two
appeals, on instructions, that the appellants are ready and willing to execute
their respective works, without seeking any revision in rates or compensation
for the delay in commencement of the work on account of pendency of the
legal proceedings till now. The statement is recorded. E
31. In view of our findings on the points above, both these appeals are
allowed and thejudgment of the High Court in the two writ petitions is set
aside. The writ petitions filed by the fifth respondent are rejected. Parties to
bear respective costs.
F
v.s.s. Appeals allowed.