M/S. MICHIGAN RUBBER (INDIA) LTD.versusTHE STATE OF KARNATAKA & ORS.

                            [2012) 8 S.C.R. 128


    A              M/S. MICHIGAN RUBBER (INDIA) LTD.
                                    v.
                   THE STATE OF KARNATAKA & ORS.
                     (Civil Appeal No. 5898 of 2012)

                            AUGUST 17, 2012
    B
               [P. SATHASIVAM AND RANJAN GOGOi, JJ.]

        Contract - Tender by State Road Transport Corporation
   - For procuring tyres, tubes and flaps - Tender specifying pre-
C qualification criteria - The criteria challenged by appel/ant-
  company (manufacturer and supplier of the goods) in writ
  petition - Petition dismissed by Single Judge of High Court
  - The order affirmed by Division Bench of High Court - On
  appeal, held: Government and Public Undertakings must have
o tree hand in setting terms of the tender - Court can interfere
  with it only if they are arbitrary discriminatory, ma/a fide or
  actuated by bias - The impugned conditions cannot be
  classified as arbitrary, discriminatory and ma/a fide - Judicial
  Review.
E      Respondent No. 2 (State Road Transport
  Corporation) floated a tender for supply of tyres, tubes
  and flaps specifying certain pre-qualification criteria.
  Appellant-Company, which was engaged in the
  manufacture and supply of tyres, tubes and flaps, filed a
F writ petition challenging the pre-qualification criteria.
  Single Judge of the High Court dismissed the petition.
  Writ Appeal against the same was further dismissed by
  Division Bench of High Court.

G           In appeal to this Court, appellant-Company
        contended that the pre-condition criteria was
        unreasonable, arbitracy, discriminatory and opposed to
        public interest in general as the said conditions were
        incorporated to exclude the appellant-company and other
H                                128
   MICHIGAN RUBBER (!NOIA) LTD. v. STATE OF           129
                KARNATAKA
similarly situated companies from the tender process on        A
extraneous grounds and with ulterior motive.
    Dismissing the appeal, the Court
     HELD: 1.1. The basic requirement of Article 14 is
fairness in action by the State, and non-arbitrariness in B
essence and substance is the heartbeat of fair play. The
actions of the State are amenable to the judicial review
only to the extent that the State must act validly for a
 discernible reason and not whimsically for any ulterior
 purpose. If the State acts within the bounds of c
 reasonableness, it would be legitimate to take into
 consideration the national priorities. [Para 19) [145-G-H;
 146-A]
      1.2. Fixation of a value of the tender is entirely within
 the purview of the executive and courts hardly have any D
 role to play in this process except for striking down such
 action of the executive as is proved to be arbitrary or
  unreasonable. If the Government acts in conformity with
  certain healthy standards and norms such as awarding
  of contracts by inviting tenders, in those circumstances, E
  the interference by courts is very limited. [Para 19] [146-
  8-C]
     1.3,ln the matter of formulating conditions of a tender
 document and awarding a contract, greater latitude is
 required to be conceded to the State authorities unless           F
 the action of tendering authority is found to be malicious
 and a misuse of its statutory powers, interference by
 courts is not warranted. [Para 19) [146-DJ
       1.4. Certain pre-conditions or qualifications for G
  tenders have to be laid down to ensure that the contractor
  has the capacity and the resources to successfully
  execute the work; and if the State or its instrumentalities
   act reasonably, fairly and in public interest in awarding
   contract, here again, interference by court is very
   restrictive since no person can claim fundamental right H
       130     SUPREME COURT REPORTS             [2012] 8 S.C.R.


    A to carry on business with the Government. [Para 19] [146-
       E-F]

          1.5. Therefore, a Court before interfering in tender or
      contractual matters, in exercise of power of judicial
 B review, should pose to itself the following questions: 1)
     Whether the process adopted or decision made by the
     authority is ma/a fide or intended to favour someone; or
     whether the process adopted or decision made is so
     arbitrary and irrational that the court can say: "the
 C decision is such that no responsible authority acting
     reasonably and in accordance with relevant law could
     have reached"; and (it) Whether the public interest is
    affected. If the answers to the above questions are in
    negative, then there should be no interference under
    Article 226. [Para 20] [146-G-H; 147-A]
 D
         Tata Cellular vs. Union of India (1994) 6 SCC 651: 1994
    (2) Suppl.SCR 122; Raunaq International Ltd. vs. I. V.R.
    Construction Ltd.and Ors. (1999) 1 SCC 492: 1998 (3)
     Suppl. SCR 421; Union of India and Anr. vs.International
E Trading Co. and Anr. (2003) 5 SCC 437: 2003 (1) Suppl.
    SCR 55; Jespar /. Stong vs. State of Meghalaya and Ors.
   (2004) 11 SCC 485; Association of Registration Plates vs.
   Union of India and Ors. (2005) 1 sec 679: 2004 (6) Suppl.
   SCR 496; Reliance Airport Developers (P) Ltd. vs. Airports
F Authority of India and Ors. (2006) 10 SCC 12: 2006 (8)
    Suppl.SCR 398 ; Jagdish Manda/ vs. State of Orissa and
   Ors. (2007) 14 SCC 517: 2006 (10) Suppl. SCR606; Tejas
     Constructions and Infrastructure Pvt. Ltd. vs. Municipal
     Council, Sendhwa and Anr. (2012) 6 SCC 464 - relied on.
G     2. There is no valid ground for interference with the
  reasoning of the High Court. The appellant has failed to
  establish that the award of contract was contrary to
  public interest and beyond the pale of discrimination or
  unreasonable. To have the best of the equipment for the
H vehicles, which ply on road carrying passengers, the 2nd
   MICHIGAN RUBBER (INDIA) LTD. v. STATE OF             131
                KARNATAKA
respondent thought it fit that the criteria for applying for A
tender for procuring tyres should be at a high standard
and thought it fit that only those manufacturers who
satisfy the eligibility criteria should be permitted to
participate in the tender. The Government and their
 undertakings must have a free hand in setting terms of B
the tender and only if it is arbitrary, discriminatory, ma/a
 fide or actuated by bias, the courts would interfere. The
 courts cannot interfere with the terms of the tender
 prescribed by the Government because it feels that some
 other terms in the tender would have been fair, wiser or c
  logical. In the case on hand, taking into account various
  aspects including the safety of the passengers and
  public interest, the Contract Management Group
  consisting of experienced persons, revised the tender
   conditions. The Committee had discussed the subject in
                                                                 0
   detail for specifying these two conditions regarding pre-
   qualification criteria and the evaluation criteria. On
   perusal of all the materials, the court is satisfied that the
   impugned conditions do not, in any way, could be
   classified as arbitrary, discriminatory or ma/a fide. [Paras E
   31 and 33] [151-B-F; 152-A-B]
                      Case Law Reference:
      1994 (2) Suppl. SCR 122       Relied on       Para 10
      1998 (3) Suppl. SCR 421       Relied on       Para 11     F
      2003 (1) Suppl. SCR 55        Relied on       Para 12
      (2004) 11 sec 485             Relied on       Para 13
      2004 (6) Suppl. SCR 496       Relied on       Para 14
                                                                G
      2006 (8) Suppl. SCR 398       Relied on       Para 16
      2006 (10) Suppl. SCR 606 Relied on            Para 17
       (2012) 6 sec 464              Relied Jon     Para 18
                                                                 H
          132      SUPREME COURT REPORTS               [2012) 8 S.C.R.


    A        CIVIL APPELLATE JURISDICTION : Civil Appeal No.
         5898 of 2012.

          From the Judgment & Order dated 2.7.2008 of the High
      Court of Karnataka at Bangalore in Writ Appeal No. 1928 of
    B 2007.

              Madhurima Tatia, R.M. Tatia, K.V. Bharathi Upadhyaya for
         the Appellant.

             S.N. Bhat, V.N. Raghupathy for the Respondents.
    c        The Judgment of the Court was delivered by

             P. SATHASIVAM, J. 1. Leave granted.

            2. This appeal is directed against the final judgment and
 o      order dated 02.07.2008 passed by the High Court of
        Karnataka at Bangalore in Writ Appeal No. 1928 of 2007
        whereby the High Court dismissed the appeal filed by the
        appellant-Company herein.

            3.Brief facts:
E
            (a) On 04.08.2005, the Karnataka State Road Transport
        Corporation (KSRTC) - Respondent No.2 herein floated a
        Tender being No. G30-05 for supply of Tyres, Tubes and Flaps
        specifying certain pre-qualification criteria.
F
        (b) Challenging the said pre-qualification criteria, the
  appellant-Company, which is engaged in the manufacture and
  supply of tyres, tubes and flaps filed a Writ Petition being No.
  20543 of 2005 before the High Court. After filing of the writ
  petition, the said criterion was withdrawn by the KSRTC.
G Thereafter, the KSRTC modified the pre-qualification criteria
  and issued a Tender being No. G-23-07 dated 05.07.2007
  wherein, a new pre-qualification criterion was specified.

            (c) Being aggrieved by the said pre-qualification criteria,
H
   MICHIGAN RUBBER (INDIA) LTD. v. STATE OF                  133
        KARNATAKA [P. SATHASIVAM, J.]

the appellant-Company preferred a Writ Petition being No.            A
 11951 of 2007 before the High Court. By judgment dated
13.09.2007, the learned Single Judge of the High Court
dismissed their writ petition.

     (d) Challenging the said judgment, the appellant filed a Writ   B
Appeal being No. 1928 of 2007 before the Division Bench of
the High Court. By impugned judgment dated 02.07.2008, the
Division Bench of the High Court dismissed the same.

    (e) Being aggrieved by the said judgment, the appellant-
Company has preferred this appeal by way of special leave            C
before this Court.

     4. Heard Ms. Madhurima Talia, learned counsel for the
 appellant-Company and Mr. S.N. Bhat, learned counsel for
 respondent Nos. 2 & 3 and Mr. V.N. Raghupathy, learned              D
 counsel for the State.

      5. Ms. Madhurima Talia, learned counsel for the appellant-
 Company, after taking us through the tender pre-qualification
 criteria and their performance, raised the following
 submissions:                                                            E

      (i) The pre-qualification criteria as specified in Condition
 Nos. 2(a) and 2(b) (amended Condition Nos. 4(a) and 4(b)) of
 the Tender in question, viz., G-23-07 dated 05.07.2007 is
 unreasonable, arbitrary, discriminatory and opposed to public           F
 interest in general.

     (ii) The said conditions were incorporated to exclude the
 appellant-Company and other similarly situated companies
 from the tender process on wholly extraneous grounds which              G
 are unsustainable in law.

       (iii) The appellant-Company was successful in previous
  three contracts and supplied their products to the KSRTC.
  There was no complaint pertaining to short supply and quality.
  The financial capacity of the appellant-Company was never              H
         134      SUPREME COURT REPORTS                [2012] 8 S.C.R.


    A doubted by the KSRTC at any point of time, hence, the
      impugned pre-qualification criteria was included to exclude the
      appellant-Company from the tender bidding process with an
      ulterior motive.

             6. Per contra, Mr. S.N. Bhat and Mr. V.N. Raghupathy,
    8
        learned counsel for the respondents, after taking us through the
        relevant materials including the constitution of high level
        Committee i.e. Contract Management Group (CMG), its
        deliberations and decisions etc .. submitted that:

 C       (i) To have the best of the equipment for the vehicles, which
   ply on road carrying passengers, the respondents, in the
   circumstances, thought it fit that the criteria for applying for
   tender for procuring tyres should be at a high standard and
   hence only those manufacturers, who satisfy the eligibility
 D criteria, should be permitted to participate in the tender.

            (ii) The said two conditions were imposed in order to
        ensure the supply of good quality tyres.

        (iii) The two conditions were incorporated in the tender
E notice pursuant to the decision of the Contract Management
  Group (CMG) of the KSRTC which consists of higher level
  officials having technical knowledge.

      (iv) The corrigendum was issued to minimize the confusion,
F which might have occurred due to condition No. 2(a).

        Discussion:

       7. We have carefully considered the rival submissions and
  perused all the materials placed before us. It is not in dispute
G that the KSRTC has issued tender No. G-23-07 dated
  05.07.2007. The pre-qualification criteria as specified in
  Condition No.2 of the tender dated 05.07.2007 reads as
  under:-

H          "2 Pre-qualification criteria for procurement of TIF Sets:
                                                                               •




  MICHIGAN RUBBER (INDIA) LTD. v. STATE OF                    135
       KARNATAKA [P. SATHASIVAM, J.)

    (a)         Only the tyre manufacturers who have supplied a A
                minimum average of 5000 sets of Tyres, Tubes and
                Flaps set per annum, in the preceding three years
                out of 2003-04, 2004-05, 2005-06 and 2006-07 to
                any one of the OE chassis manufacturer, i.e. Ashok
                Leyland, Tata Motors, Eicher, Swaraj Mazda and B
                Volvo are eligible to participate, for supply of
                respective size/type of Tyres, Tubes and Flaps set.
                They should produce purchase order copies and
                invoice supplies in support of the same.

     (b)        The firm should have minimum average annual
                                                                       c
                turnover of Rs.500 crores in the preceding three
                years out of 2003-04, 2004-05, 2005-06 and 2006-
                07 from the sale of tyres, Tubes and Flaps."

      8. Being aggrieved by the above-mentioned conditions,            D
viz., 2(a) and 2(b) of the tender dated 05.07.2007, the appellant-
Company preferred W.P No. 11951 of 2007 before the High
Court. After filing of the said writ petition, before opening of the
tender bids, the KSRTC amended the tender conditions as
were incorporated in the earlier tender document replacing             E
 Condition Nos. 2(a) and 2(b) with Condition Nos. 4(a) and 4(b).
Condition Nos. 4(a) and 4(b) read as under:

     "4. Pre-qualification criteria for procurement of TIF sets:

       (a)       Only the tyre manufacturers who have supplied a       F
                 minimum average of 5000 sets of Tyres, Tubes and
                 Flaps set per annum, in the preceding three years
                 out of 2003-04, 2004-05, 2005-06 and 2006-07 to
                 any of the heavy goods/passenger vehicles/chassis
                 manufacturers in the country are eligible to          G
                 participate. They should produce purchase order
                 copies and invoice supplies in support of the same.

          (b)     The firm should have minimum average annual
                  turnover of Rs.500 crores in the preceding three         H
        136     SUPREME COURT REPORTS              [2012] 8 S.C.R.


    A             years out of 2003-04, 2004-05, 2005-06 and 2006-
                  07 from the sale of Tyres, Tubes and Flaps."

          Under the said amendment, only Condition No. 2(a) was
    replaced by Condition No 4(a). In Condition No. 4(a), the
 B classification of the vehicles was maintained but the names of
    the manufacturers were deleted. It is the grievance of the
    appellant-Company that the pre-qualification criteria as
    specified in Condition Nos. 2{a) and 2(b) (amended Condition
    Nos. 4(a) and 4(b)) of the tender in question is unreasonable,
    arbitrary, discriminatory and opposed to public interest in
 C general. It is also their grievance that the said conditions were
   incorporated to exclude the appellant-Company and other
   similarly situated companies from the tender process on wholly
   extraneous grounds which is unsustainable in law. In other
   words, according to the appellant-Company, the decision of the
 D KSRTC in restricting their participation in the tender to Original
   Equipment Manufacturer (OEM) suppliers is totally unfair and
   discriminatory.

       9. This Court, in a series of decisions, considered similar
E conditions incorporated in the tender documents and also the
  scope and judicial review of administrative actions. The scope
  and the approach to be adopted in the process of such review
  have been settled by a long line of decisions of this Court.
  Since the principle of law is settled and well recognized by now,
F we may refer some of the decisions only to recapitulate the
  relevant tests applicable and approach of this Court in such
  matters.

       10. In Tata Cellular vs. Union of/ndia, (1994) 6 SCC 651,
  this Court emphasised the need to find a right balance between
G administrative discretion to decide the matters on the one hand,
  and the need to remedy any unfairness on the other, and
  observed:

         "94. (1) The modern trend points to judicial restraint in
H        administrative action.
  MICHIGAN RUBBER (INDIA) LTD. v. STATE OF                  137
       KARNATAKA [P. SATHASIVAM, J.]

  (2) The court does not sit as a court of appeal but merely        A
  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 decision,   B
  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. .. .                                         C

   (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 sphere. However, the              o
   decision must not only be tested by the application of
   Wednesbury principle of reasonableness (including its
   other facts pointed out above) but must be free from
   arbitrariness not affected by bias or actuated by mala
    fides.                                                              E

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

     11. In Raunaq International Ltd. vs. I. V. R. Construction         F
Ltd. & Ors. (1999) 1 SCC 492, this Court reiterated the principle
governing the process of judicial review and held that the writ
court would not be justified in interfering with commercial
transactions in which the State is one of the parties except
where there is substantial public interest involved and in cases        G
where the transaction is mala fide.

    12. In Union of India & Anr. vs. International Trading Co.
& Anr., (2003) 5 SCC 437, this Court, in similar circumstances,
held as under:
                                                                        H
        138      SUPREME COURT REPORTS                 [2012] 8 S.C.R.


    A         "15. While the discretion to change the policy in exercise
             of the executive power, when not trammelled by any statute
             or rule is wide enough, what is imperative and implicit in
             terms of Article 14 is that a change in policy must be made
             fairly and should not give the impression that it was so
    B       done arbitrarily or by any ulterior criteria. The wide sweep
            of Article 14 and the requirement of every State action
            qualifying for its validity on this touchstone irrespective of
            the field of activity of the State is an accepted tenet. The
            basic requirement of Article 14 is fairness in action by the
c           State, and non-arbitrariness in essence and substance is
           the heartbeat of fair play. Actions are amenable, in the
           panorama of judicial review only to the extent that the State
           must act validly for a discernible reason, not whimsically
           for any ulterior purpose. The meaning and true import and
           concept of arbitrariness is more easily visualized than
D
          precisely defined. A question whether the impugned action
          is arbitrary or not is to be ultimately answered on the facts
          and circumstances of a given case. A basic and obvious
          test to apply in such cases is to see whether there is any
          discernible principle emerging from the impugned action
E         and if so, does it really satisfy the test of reasonableness.

          16. Where a particular mode is prescribed for doing an
          act and there is no impediment in adopting the procedure,
         the deviation to act in a different manner which does not
F        disclose any discernible principle which is reasonable itself
         shall be labelled as arbitrary. Every State action must be
         informed by reason and it follows that an act uninformed
         by reason is per se arbitrary.
         22. If the State acts within the bounds of reasonableness,
G
         it would be legitimate to take into consideration the national
         priorities and adopt trade policies. As noted above, the
         ultimate test is whether on the touchstone of
         reasonableness the policy decision comes out unscathed.
H        23. Reasonableness of restriction is to be determined in
                                                                              L



 MICHIGAN RUBBER (INDIA) LTD. v. STATE OF                      139
      KARNATAKA [P. SATHASIVAM, J.]
  an objective manner and from the standpoint of interests A
  of the general public and not from the standpoint of the
  interests of persons upon whom the restrictions have been
  imposed or upon abstract consideration. A restriction
  cannot be said to be unreasonable merely because in a
   given case, it operates harshly. In determining whether B
   there is any unfairness involved; the nature of the right
   alleged to have been infringed, the underlying purpose of
   the restriction imposed, the extent and urgency of the evil
   sought to be remedied thereby, the disproportion of the
    imposition, the prevailing condition at the relevant time, c
    enter into judicial verdict. The reasonableness of the
    legitimate expectation has to be determined with respect
     to the circumstances relating to the trade or business in
     question. Canalisation of a particular business in favour of
     even a specified individual is reasonable where the
                                                                  0
     interests of the country are concerned or where the
      business affects the economy of the country. (See
      Parbhani Transport Coop. Society Ltd. v. Regional
      Transport Authority, Shree Meenakshi Mills Ltd. v. Union
      of India, Harl Chand Sarda v. Mizo District Council and
      Krishnan Kakkanth v. Govt. of Kera/a.)"                     E

    13. In Jespar I. Slang vs. State of Megha/aya & Ors.,
(2004) 11SCC485, this Court, in paragraph 17, held as under:

    "17 ...... fixation of a value of the tender is entirely within the   F
    purview of the executive and courts hardly have any role
    to play in this process except for striking down such action
    of the executive as is proved to be arbitrary or
    unreasonable ..... ."

    14. In Association of Registration Plates vs Union of India G
& Ors., (2005) 1 SCC 679, similar issue was considered by a
bench of three Judges. In that case, the dispute was about the
terms and conditions of notices inviting tenders (NITs) for supply
of high security registration plates for motor vehicles. The
tenders have been issued by various State Governments on the H
      140       SUPREME COURT REPORTS                (2012] 8 S.C.R.


  A guidelines circulated by the Central Government for
       implementing the provisions of the Motor Vehicles Act, 1988
      and the newly amended Central Motor Vehicles Rules, 1989.
      The main grievance of the appellant therein was that all notices
      inviting tenders (NITs) which were issued by various State
  B Governments, contained conditions which were tailored to
      favour companies having foreign collaboration. Their further
      grievance was that the tender conditions were discriminatory
      as per Article 14 of the Constitution and were being aimed at
      excluding indigenous manufacturers from the tender process.
 c It was also contended that in all the cases, the work of supply
      of high security registration plates for all existing vehicles and
      new vehicles was being entrusted to a single licence plates
      manufacturer in a State or a region and for a long period of 15
     years thus creating monopoly in favour of selected bidders to
     the complete exclusion of all others in the field. The further
 0
     contention advanced therein was that creation of monopoly in
     favour of a few parties having connection with foreign concerns
     is violative of the fundamental right of trade under Article
     19(1 )(g) and discriminatory under Article 14 of the Constitution.
    It was also pointed out that in the name of implementing the
 E amended Rule 50 of the Motor Vehicles Rules, 1989, the
    States are imposing conditions in the tender that would take
    away the existing rights of the manufacturers of plates in India.
    On the condition laid down for prescribed minimum turnover of
    business, the challenge made on behalf of the petitioners therein
F was that fixing such high turnover for such a new business is
    only for the purpose of advancing the business interests of a
   group of companies having foreign links and support. It is
   impossible for any indigenous manufacturer of security plates
   to have a turnover of approximately 12.5 crores from the high
G security registration plates which were sought to be introduced
   in India for the first time and the implementation of the project
   has not yet started in any of the States. On behalf of the Union
   of India, the State authorities and counsel appearing for the
   contesting manufacturers, in their replies, have tried to justify
H the manner and implementation of the policy contained in Rule
   MICHIGAN RUBBER (INDIA) LTD. v. STATE OF                 141
        KARNATAKA [P. SATHASIVAM, J.]
50 of the Motor Vehicles Rules. On behalf of the Union of India, A
learned ASG submitted that Rule 50 read with Statutory Order
of 2001 issued under Section 109(3) of the Motor Vehicles Act,
the State Governments are legally competent to formulate an
appropriate .policy for choosing a sole or more manufacturers
in order to fulfil the object of affixation of security plates. The B
 Scheme contained in Rule 50 read with the Statutory Order of
 2001 leaves it to the discretion of the State concerned to even
 choose a single manufacturer for the entire State or more than
 one manufacturer regionwise. It was pointed out that such a
 selection cannot be said to confer any monopoly right by the c
 State on any private individual or concern. He further pointed
 out that the tender conditions were formulated taking into
  account the public interest consideration and aspects of high
  security.

     15. While considering the above submissions. ttie three-      D
 Judge Bench held as under:

      "38. In the matter of formulating conditions of a tender
      document and awarding a contract of the nature of
      ensuring supply of high security registration plates, greater E
      latitude is required to be conceded to the State authorities.
      Unless the action of tendering authority is found to be
      malicious and a misuse of its statutory powers, tender
      conditions are unassailable. On intensive examination of
      tender conditions, we do not find that they violate the F
      equality clause under Article 14 or encroach on
       fundamental rights of the class of intending tenderers under
       Article 19 of the Constitution. On the basis of the
       submissions made on behalf of the Union and State
       authorities and the justification shown for the terms of the G
       impugned tender conditions, we do not find that the
        clauses requiring experience in the field of supplying
        registration plates in foreign countries and the quantum of
        business turnover are intended only to keep indigenous
        manufacturers out of the field. It is explained that on the
                                                                        H
        142     SUPREME COURT REPORTS                  [2012] 8 S.C.R.


    A      date of formulation of scheme in Rule 50 and issuance of
           guidelines thereunder by the Central Government, there
          were not many indigenous manufacturers in India with
          technical and financial capability to undertake the job of
          supply of such high dimension, on a long-term basis and
    B     in a manner to ensure safety and security which is the
          prime object to be achieved by the introduction of new
          sophisticated registration plates.

           39. The notice inviting tender is open to response by all
           and even if one single manufacturer is ultimately selected
c         for a region or State, it cannot be said that the State has
          created a monopoly of business in favour of a private party.
          Rule 50 permits the RTOs concerned themselves to
          implement the policy or to get it implemented through a
          selected approved manufacturer.
D
           40. Selecting one manufacturer through a process of open
           competition is not creation of any monopoly, as contended,
           in violation of Article 19(1)(g) of the Constitution read with
           clause (6) of the said article. As is sought to be pointed
E          out, the implementation involves large network of
           operations of highly sophisticated materials. The
          manufacturer has to have embossing stations within the
          premises of the RTO. He has to maintain the data of each
          plate which he would be getting from his main unit. It has
F         to be cross-checked by the RTO data. There has to be a
          server in the RTO's office which is linked with all RTOs in
          each State and thereon linked to the whole nation.
          Maintenance of the record by one and supervision over its
          activity would be simpler for the State if there is one
          manufacturer instead of multi-manufacturers as suppliers.
G
         The actual operation of the scheme through the RTOs in
         their premises would get complicated and confused if
         multi-manufacturers are involved. That would also seriously
         impair the high security concept in affixation of new plates
         on the vehicles. If there is a single manufacturer he can be
H
                                                                        •




MICHIGAN RUBBER (INDIA) LTD. v. STATE OF               143
     KARNATAKA [P. SATHASIVAM, J.J
forced to go and serve rural areas with thin vehicular          A
population and less volume of business. Multi-
manufacturers might concentrate only on urban areas with
higher vehicular population.

 43. Certain preconditions or qualifications for tenders have
                                                               8
 to be laid down to ensure that the contractor has the
 capacity and the resources to successfully execute the
 work. Article 14 of the Constitution prohibits the
 Government from arbitrarily choosing a contractor at its will
  and pleasure. It has to act reasonably, fairly and in public C
  interest in awarding contract. At the same time, no person
  can claim a fundamental right to carry on business with the
  Government. All that he can claim is that in competing for
   the contract, he should not be unfairly treated and
   discriminated, to the detriment of public interest.
   Undisputedly, the legal position which has been firmly D
   established from various decisions of this Court, cited at
   the Bar (supra) is that government contracts are highly
    valuable assets and the court should be prepared to
    enforce standards of fairness on the Government in its
    dealings with tenderers and contractors.                     E

  44. The grievance that the terms of notice inviting lenders
  in the present case virtually create a monopoly in favour
  of parties having foreign collaborations, is without
  substance. Selection of a competent contractor for                F
   assigning job of supply of a sophisticated article through
   an open-tender procedure, is not an act of creating
   monopoly, as is sought to be suggested on behalf of the
   petitioners. What has been argued is that the terms of the
   notices inviting tenders deliberately exclude domestic           G
   manufacturers and new entrepreneurs in the field. In the
   absence of any indication from the record that the terms
   and conditions were tailor-made to promote parties with
   foreign collaborations and to exclude indigenous
   manufacturers, judicial interference is uncalled for."
                                                                    H
        144      SUPREME COURT REPORTS                   [2012] 8 S.C.R.


    A After observing so, this Court dismissed all the writ petitions
      directly filed in this Court and transferred to this Court from the
      High Courts.

           16. In Reliance Airport Developers (P) Ltd. vs. Airports
    B Authority oflndia & Ors., (2006) 10 SCC 1, this Court held that
      while judicial review cannot be denied in contractual matters
      or matters in which the Government exercises its contractual
      powers, such review is intended to prevent arbitrariness and
      must be exercised in larger public interest.
    c       17. In Jag dish Manda/ vs. State of Orissa and Others,
        (2007) 14 sec 517, the following conclusion is relevant:

            "22. Judicial review of administrative action is intended to
              prevent arbitrariness, irrationality, unreasonableness, bias
D            and mala fides. 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 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
E
            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 not, in exercise
           of power of judicial review, interfere even if a procedural
F          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
G         seek damages in a civil court. Attempts by unsuccessful
          tenderers with imaginary grievances, 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
H         of judicial review, should be resisted. Such interferences, -
 MICHIGAN RUBBER (INDIA) LTD. v. STATE OF                  145
      KARNATAKA [P. SATHASIVAM, J.]

  either interim or final, may hold up public works for years,       A
  or delay relief and succour to thousands and millions and
  may increase the 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:                                           B

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

   OR
                                                                     c
   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";

    (ii) Whether public interest is affected.
                                                                     D

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

     18. The same principles have been reiterated in a recent
                                                                         F
decision of this Court in Tejas Constructions & Infrastructure
Pvt. Ltd. vs. Municipal Council, Sendhwa & Anr., (2012) 6
sec 464.
   19. From the above decisions, the following principles
emerge:                                                                  G

     (a) the basic requirement of Article 14 is fairness in action
by the State, and non-arbitrariness in essence and substance
is the heartbeat of fair play. These actions are amenable to the
judicial review only to the extent that the State must act validly       H
          146       SUPREME COURT REPORTS                [2012] 8 S.C.R.


    A for a discernible reason and not whimsically for any ulterior
      purpose. If the State acts within the bounds of reasonableness,
      it would be legitimate to take into consideration the national
      priorities;

         (b) fixation of a value of the tender is entirely within the
    8
    purview of the executive and courts hardly have any role to play
    in this process except for striking down such action of the
   executive as is proved to be arbitrary or unreasonable. If the
   Government acts in conformity with certain healthy standards
 C and norms such as awarding of contracts by inviting tenders,
   in those circumstances, the interference by Courts is very
   limited;

        (c) In the matter of formulating conditions of a tender
  document and awarding a contract, greater latitude is required
D to be conceded to the State authorities unless the action of
  tendering authority is found to be malicious and a misuse of
  its statutory powers, interference by Courts is not warranted;

       (d) Certain preconditions or qualifications for tenders have
E to be laid down to ensure that the contractor has the capacity
  and the resources to successfully execute the work; and

        (e) If the State or its instrumentalities act reasonably, fairly
  and in public interest in awarding contract, here again,
  interference by Court is very restrictive since no person can
F claim fundamental right to carry on business with the
  Government.

      20. Therefore, a Court before interfering in tender or
  contractual matters, in exercise of power of judicial review,
G should pose to itself the following questions:

             (i) Whether the process adopted or decision made by the
        authority is mala fide or intended to favour someone; or
        whether the process adopted or decision made is so arbitrary
        and irrational that the court can say: "the decision is such that
H
   MICHIGAN RUBBER (INDIA) LTD. v. STATE OF                 147
        KARNATAKA [P. SATHASIVAM, J.]
no responsible authority acting reasonably and in accordance A
with relevant law could have reached"; and (ii) Whether the
public interest is affected. If the answers to the above questions
are in negative, then there should be no interference under
Article 226.
                                                                   B
     21. Respondent No. 1-the State, in their counter affidavit,
highlighted that tyre is very critical and a high value item being
procured by the KSRTC and it procured 900x20 14 Ply Nylon
tyres along with the tubes and flaps in sets and these types of
tyres are being used only by the State Transport Units and not
in the domestic market extensively. It is highlighted that the C
 quality of the tyre plays a major role in providing safe and
 comfort transportation facility to the commuters.

       22. It is also pointed out by the Respondent-State that in
 order to ensure procurement of tyres, tubes and flaps from D
 reliable sources, the manufacturers of the same with an annual
 average turnover of Rs. 200 crores during the preceding three
 years, were made eligible to participate in the tenders. In the
 tender issued for procurement of these sets during October,
 2004, the appellant participated and based on the L1 rates, the E
  orders for supply for 16,000 sets of tyres were placed on the
  firm. It is also pointed out that the appellant supplied 10,240
  sets of tyres and remaining quantity was cancelled due to
  quality problems.

       23. Materials has also been placed to show that the F
  appellant participated in subsequent tenders and orders were
  released for supply of 900 x 20 14 PR tyres, tubes and flaps
  from October 2006 to September, 2007. It is also explained
  that after going into various complaints, in order to achieve
  good results, new tyre mileage and safety of the public etc., and G
  after noting that vehicle/chassis manufacturers such as M/s
  Ashok Leyland, M/s Tata Motors etc. have strict quality control
   system, it was thought fit to incorporate similar criteria as a pre-
   qualification for procurement of tyres.
                                                                       H
        148         SUPREME COURT REPORTS               [2012] 8 S.C.R.


    A         24. It is also highlighted by the State as well as by the
        KSRTC that the tender conditions were stipulated by way of
        policy decision after due deliberation by the KSRTC. Both the
        respondents highlighted that the said conditions were imposed
        with a view to obtain good quality materials from reliable and
    B   experienced suppliers. In other words, according to them, the
        conditions were aimed at the sole purpose of obtaining good
        quality and reliable supply of materials and there was no ulterior
        motive in stipulating the said conditions.

        25. Both the counsel for the respondents have brought to
C our notice that the two impugned conditions were incorporated
   in the tender notice pursuant to a decision of the Contract
  Management Group (CMG) of the KSRTC, which is an
  institutional mechanism for the purpose of devising proper
  method in the matter, inter alia, of procurement of materials to
D the KSRTC. The said Group consists of various high level
  officials representing different departments of KSRTC. The
  CMG constitutes of the following officials:

              (a)   Managing Director,
E
                    Bangalore Metropolitan Transport Corporation

              (b)   Managing Directors of four sister Corporations

              (c)   Director, Security & Vigilance
F             (d)   Director, Personnel and Environment

              (e)   Chief Accounts Officer

            (f)     Chief Engineer (Production)
G
            (g)     Chief Engineer(Maintenance)

            (h)     Chief Accounts Officer(lnternal Audit)

            (i)     Controller of Stores and Purchase
H
   MICHIGAN RUBBER (INDIA) LTD. v. STATE OF                149
        KARNATAKA [P. SATHASIVAM, J.]

    Thus it is clear that the said CMG is a widely represented       A
body within the Respondent No. 2-KSRTC.

     26. Further materials placed by KSRTC show that the
CMG met on 17.05.2007 and deliberated on the question of
conditions to be incorporated in the matter of calling of tenders B
for supply of tyres, tubes and flaps. It is pointed out that in view
of the experience gained over the years, it was felt by the said
Group that the impugned two conditions should be essential
qualifications of any tenderer. The said policy decision was
taken in the best interest of the KSRTC and the members of C
 the traveling public to whom it is committed to provide the best
 possible service. In the course of hearing, learned counsel for
 the respondents have also brought to our notice the Minutes of
  Meeting of the CMG held on 17.05.2007. The said
  recommendation of the CMG was ultimately approved by the
  Vice Chairman of KSRTC. In the circumstances, the said D
  impugned two conditions were incorporated in the tender notice
  dated 05.07.2007.

      27. It is also brought to our notice that the KSRTC is
 governed by the provisions of the Karnataka Transparency in E
 Public Procurements Act, 1999 and the Rules made thereunder,
 viz., Karnataka Transparency in Public Procurements Rules,
 2000. Though in Condition No 2(a) in the tender notice dated
 05.07.2007, the names of certain vehicle manufacturers were
 mentioned, after finding that it was inappropriate to mention the F
 names of specific manufacturers in the said condition, it was
 decided to delete their names. Accordingly, a corrigendum was
 put up before the CMG and by decision dated 04.08.2007,
 CMG decided to revise the pre-qualification criteria by deleting
 the names of those manufacturers. Learned counsel for the G
  respondents have also placed the Minutes of Meeting of the
  CMG held on 04.08.2007. It is also brought to our notice that
  the said corrigendum was also approved by the competent
  authority.

       28. In addition to the same, it was not in dispute that the       H
      150           SUPREME COURT REPORTS           [2012] 8 S.C.R.


 A appellant-Company was well aware of both the original tender
   notices and the corrigendum issued. It is also brought to our
   notice that the appellant wrote a letter making certain queries
   with regard to the corrigendum issued by the KSRTC and the
   said queries were suitably replied by the letter dated
 B 11.08.2007.
          29. It is also seen from the records that pursuant to the
     tender notice dated 05.07.2007, seven bids were received
     including that of the appellant-Company. They are:

 c          (i)      Mis Apollo Tyres

            (ii)     M/s Birla Tyres

            (iii)   M/s Cea! Ltd

 D          (iv)    Mis Good Year India

            (v)     M/s JK Industries

            (vi)    M/s MRF Ltd

E           (vii)   M/s Michigan Rubber (Former Betul Tyres)

       It is brought to our notice that successful bidders were
  CEAT and JK Tyres. Accordingly, contracts were entered into
  with the said two companies by the KSRTC and the purchase
F orders were placed and they have also effected supplies and
  completed the contract and the KSRTC also made payments
  to the said suppliers.

       30. It is pertinent to point out that the second respondent
   has also issued 4 (four) more tender notices after the tender
G notice dated 05.07.2007. The said tender notices were dated
  04.03.2008, 22.08.2008, 24.10.2008 and 19.03.2009. Pursuant
  to the tender notices dated 04.03.2008, 22.08.2008 and
  24.10.2008, contracts have been awarded and have been
  substantially performed. It is also brought to our notice that all
H the said four subsequent tender notices also contained identical
                                                                           •




   MICHIGAN RUBBER (INDIA) LTD. v. STATE OF                 151
        KARNATAKA [P. SATHASIVAM, J.]

conditions as that of the impugned conditions contained in         A
tender notice dated 05.07.2007.

        31. As observed earlier, the Court would not normally
interfere with the policy decision and in matters challenging the
award of contract by the State or public authorities. In view of B
the above, the appellant has failed to establish that the same
was contrary to public interest and beyond the pale of
 discrimination or unreasonable. We are satisfied that to have
 the best of the equipment for the vehicles, which ply on road
 carrying passengers, the 2nd respondent thought it fit that the
 criteria for applying for tender for procuring tyres should be at C
  a high standard and thought it fit that only those manufacturers
  who satisfy the eligibility criteria should be permitted to
  participate in the tender. As noted in various decisions, the
  Government and their undertakings must have a free hand in
  setting terms of the tender and only if it is arbitrary, D
  discriminatory, mala fide or actuated by bias, the Courts would
  interfere. The Courts cannot interfere with the terms of the tender
  prescribed by the Government because it feels that some other
   terms in the tender would have been fair, wiser or logical. In
   the case on hand, we have already noted that taking into E
   account various aspects including the safety of the passengers
   and public interest, the CMG consisting of experienced
    persons, revised the tender conditions. We are satisfied that
    the said Committee had discussed the subject in detail and for
    specifying these two conditions regarding pre-qualification F
    criteria and the evaluation criteria. On perusal of all the
     materials, we are satisfied that the impugned conditions do not,
     in any way, could be classified as arbitrary, discriminatory or
     mala fide.
                                                                       G
       32. The learned single Judge considered all these aspects
  in detail and after finding that those two conditions cannot be
  said to be discriminatory and unreasonable refused to interfere
   exercising jurisdiction under Article 226 of the Constitution and
   dismissed the writ petition. The well reasoned judgment of the
                                                                       H
    152       SUPREME COURT REPORTS                  [2012] 8 S.C.R.


A   learned single Judge was affirmed by the Division Bench of the
    High Court.

          33. In the light of what is stated above, we fully agree with
    the reasoning of the High Court and do not find any valid ground
    for interference. Consequently, the appeal fails and the same
8
    is dismissed with no order as to costs.

    K.K.T.                                       Appeal dismissed.