Holding

Altering tender eligibility conditions after the deadline is arbitrary and mandates a fresh tender; the award to Monarch Infrastructure is set aside.

Summary

The Ulhasnagar Municipal Corporation invited tenders for appointing agents to collect octroi, prescribing eligibility clauses 6(a) and 6(b). After the tender submission deadline, clause 6(a) was waived under a government order and the contract was awarded to Monarch Infrastructure, which had not satisfied the original clause. Konark Infrastructure challenged the award, contending that altering the conditions post‑deadline was arbitrary and violative of Article 14. The Bombay High Court set aside the award and directed a fresh tender, rejecting the application of the modified conditions only to existing bidders. On appeal, the Supreme Court affirmed the High Court, holding that deletion of a tender condition after bids are received is tantamount to changing the rules of the game and requires a fresh tender to ensure equality and public interest. The Court also upheld the rejection of a tender that submitted only a photocopy of the required demand draft, and dismissed the appeals, upholding the order for a fresh tender process.

Issues considered

Whether the High Court was justified in setting aside the award of contract to Monarch Infrastructure for non‑fulfilment of Clause 6(a) after its deletion post‑deadline.
Whether alteration of tender eligibility conditions after the last date for submission is permissible or amounts to arbitrariness under Article 14.
Whether a fresh tender process is the only remedy when tender terms are changed after bids are received.
Whether the Municipal Corporation may reject a tender that submits only a photocopy of the demanded demand draft.
Whether the actions of the Commissioner were mala fide, discriminatory, or contrary to public interest.

Subjects

tender processaward of contractarbitrarinessArticle 14municipal corporationpublic interesteligibility conditionsfresh tenderearnest moneydemand draftadministrative law

Judgment

l .,
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MIS. MONARCH INFRASTRUCTURE (P) LTD. A
v.
COMMISSIONER, ULHASNAGAR MUNICIPAL
CORPORATION AND ORS.

MAYS, 2000
B
[S. RAJENDRA BABU AND S.N. PHUKAN, JJ.]

Contract-Award of-Tender process-Eligibility conditions pre-
scribed-Prescribed conditions altered after last date for submission of
tenders but before their opening-Tenderer not satisfying said conditions c
awarded contract-Challenged-Held, Tenderer not fulfilling prescribed
conditions on last date for submission of tenders-If tender terms/conditions
altered after last date for submission of tenders, fresh tender process was only
alternative permissible-Modified tender conditions cannot be restricted to
existing bidders only-Award quashed-Arbitrariness-Constitution of India,
Article 14. D

Judicial review-Scope of-Tender process-Award of contract-Ad-
ministrative action-Intervention by court-When-Held, when Government
.""" ... action is arbitrary, discriminatory, contrary to public interest or malafide-
Constitution of India, Article 14. E
Respondent - Municipal Corporation issued notice inviting tenders
for appointing agents for collection of Octroi. Clauses 6(a) and 6(b) were
qualifying conditions for tenderers. Tender of M was opened despite the
fact that it did not qualify said condition clauses on the ground that Clause
1 6(a) had been waived and upon finalisation of tenders, contract was awarded
F
in favour of M. Appellant-K filed writ petition challenging award of

- .,._
contract to M which was allowed by High Court on the ground that
Municipal Corporation bad acted arbitrarily in considering bid of
M which did not fulfil the prescribed eligibility conditions for submission
of tenders as Clause 6(a) was deleted after last date for submission for
tenders. High Court did not accept next highest bid of K by restricting
application of modified tender conditions to only existing bidders but gave
G

liberty to Municipal Corporation to invite tenders afresh to enable every-
one to participate under modified tender conditions. Aggrieved by the
order of High Court, K & M have filed the present appeals. H
1159
1160 SUPREME COURT REPORTS [2000] 3 S.C.R.
A Appellant-K contended the sequence of events indicated malafide on
the part of Commissioner of Municipal Corporation which affected sanc-
.tity of tender process; and that clauses 6(a) and 6(b) had been deleted in
new tender process to favour M.

This Court by an order allowed steps for calling tenders as directed
B
by High Court but directed not to finalise them 1until further orders. M
made the highest offer in this tender process.

Disposing the appeals, the Court

C HELD : 1. While public interest is paramount there should be no
arbitrariness in the matter of award of contract and all participants in the
tender process should be treated alike. The-legal position is thus - (i) The
Government is free to enter into any contract with citizens but the court
may interfere where it ~cts arbitrarily or contrary to public interest; (ii)
The Government cannot arbitrarily choose any persons it likes for enter-
D
ing into such a relationship or to discriminate between persons similarly
situated; (iii) ltis open to the Government to reject even the highest bid at
a tender where such rejection is not arbitrary or unreasonable or such
rejection is in public interest for valid and good reasons. Broadly stated,
the courts would not interfere with the matter of administrative action or
E changes made therein -unless the Government's action is arbitrary or
discriminatory or the policy adopted has no nexus with the object it seeks
to achieve or is malafide. [1165-A-E]

2.1. The High Court was justified in setting aside the award of
F contract in favour of M because it had not fulfilled the conditions relating
to Clause 6{a) of the Tender Notice but the same was deleted subsequent to
the last date of acceptance of the tenders. [1165-E-HJ

2.2. H a term of the tender having been deleted after the players
entered into the arena it is like changing the rules of the game after it had
G began and, therefore, if the Government or the Municipal Corporation
was free to alter the conditions fresh process of tender was the only
alternative permissible. The course adopted by the High Court in the
circumstances is justified because by reason of deletion of a particular
condition the wider net will be permissible and a larger participation or
H more attractive bids could be offered. [1165-H; 1166-A-BJ
I

MONARCH INFRASTRUCTURE (P) LTD. v. COMMR., ULHASNAGAR MUNICIPAL CORPN. [R. BABU, J.] 1161
2.3. Public interest would be definitely served by reason of allowing A
_}!) 1t1' the tender process to be completed by accepting the highest offer made by
M. (1167-A]

3. The conditions of the ''Notice Inviting Tender" is that the same
should be accompanied by a Demand Draft/pay order or cash and in no
B
other form. Therefore, the Municipal Corporation is justified in rejecting
the tender offer made by R as not fulfilling the conditions of the Tender
Notice because he only submitted photocopy of the Demand Draft along
with other relevant documents. (1166-C-E]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3288 of 2000 c
Etc.

From the Judgment and Order dated 31.3.2000 of the Bombay High
Court in W.P. No. 1663 of 2000.
D
Harish N. Salve, Solicitor General F.S. Nariman, D.A. Dave, Shanti
Bbusban, Ashok Desai, Dr. Rajeev Dbawan, S.S. Ray, Vikram Nank.ani,
Ishw~ Nankani, R.N. Karanjawala, Ms:Ruby, S. Ahuja, Sandeep Mittal, B.P.
Singh, D.K. Rustagi, Pankaj Monga, Anip Sachthey, Anupam Lal Das, Ms.
Sandhya Rajpal, Arijit Prasad, S.K. Jain, K.C. Sethi, M.J. Lalwani, A.P.
Dhamija and Mrs. Manik Karanjawala for the appearing parties. E

The Judgment of the Court was delivered by
.._
RAJENDRABABU, J. Leave granted in all the three sets of petitions.
F
Ulhasnagar Municipal Corporation issued a Notice inviting tender for
appointment of agents for collection of Octroi subject to the terms and
conditions set forth therein fixing 4 p.m. on March 23, 2000 to be the time
. of submission of the tender and fixing 5 p.m. on the same day for opening
of the tenders. On March 21, 2000 Mis. Millenium Infrastructure (P) Ltd.
filed a writ petition No. 1456 of 2000 in the High Court at Mumbai G
challenging the imposition of two conditions contained in Clauses 6(a) and
6(b) of the Tender Booklet as unconstitutional and seeking deletion of these
two conditions as pre-requisite for its participation in the tender. On March
21, 2000, a Division Bench of the High Court and having beard the parties
adjourned the matter till March 24, 2000 at 11 a.m. by making it clear that H
1162 SUPREME COURT REPORTS [2000] 3 S.C.R.
A there shall be no interim relief except that the Ulhasnagar Municipal Corpo-
ration shall not issue work order till further orders. However, on March 23,
2000 Mis. Millenium Infrastructure (P) Ltd. withdrew the aforesaid writ
petition. Five persons tendered their documents and papers and they are
Mis. Konark Infrastructure (P) Ltd., appellant in Civil Appeal arising out of
S.L.P. (C) No. 6717-18 of 2000, Mis. Monarch Infrastructure (P) Ltd.,
B
appellant in Civil Appeal arising out of 6298 of 2000 and respondent No.
3, Mis. Jai Krishna Infrastructure (P) Ltd., respondent No. 4, Mis. Oriental
Veneers (P) Ltd. respondent No. 5, Mis. Sample Infrastructure, respondent
No. 6 in the Appeal filed by Mis. Konark Infrastructure (P) Ltd. The
Commissioner of the Ulhasnagar Municipal Corporation, however, intimated
c the tenderers that as the High Court was seized of a writ petition he did not
propose to open the tenders until further orders from the High Court on March
24, 2000. However, he sought for infonn~tion of the numbers of the tenders
filed and the tenderers qualifying and not qualifying conditions Clauses 6(a)
and 6(b) of the Tender Booklet. On March 24, 2000 the tenders were opened
D and an objection was raised that Mis. Monarch Infrastructure (P) Ltd. did not
fulfil the conditions either under Clause 6(a) or Clause 6(b) in spite of which,
it is stated, the Commissioner insisted on opening the same. The Commis-
sioner informed the parties that Clause 6(a) had been waived of by reason
·of the order made by the Government in exercise of its powers wider Section
451 of the Municipal Corporation Act, 1949. The Commissioner allowed
E
Mis. Monarch Infrastructure (P) Ltd. to furnish a certificate as to Clause 6(b)
by a Chartered Accountant as to its networth which discloses Rs. 4.5 crores
approximately. The Commissioner proceeded to finalise the tenders on the
basis that Clause 6(a) had stood waived or deleted in view of the' order of
the Government issued under Section 451 of the Municipal Corporation Act
and awarded the contract in favour of Mis. Monarch Infrastructure (P) Ltd.
The appellant Mis. Konark Infrastructure (P) Ltd. filed a writ petition ·
challenging the award of contract to Mis. Monarch Infrastructure (P) Ltd. on
various grounds. \
)
~
The High Court allowed the writ petition filed by Mis. Konark Infra-
G
structure (P) Ltd. and held that the deletion of clause 6(a) of the Tender
Booklet took place after offers were received on March 23, 2000 and the
offers had been received on the basis of clause 6(a) and Clause 6(b) which
would define the conditions of eligibility. Therefore, the High Court held that
the Municipal Corporation had acted arbitrarily in considering the bid of
H Mis. Monarch Infrastructure (P) Ltd. which did not fulfil the eligibility
~·

MONARCH INFRASTRUCTURE (P) LTD. .: COMMR., ULHASNAGAR MUNICIPAL CORPN. [R. BABU, J.] 1163
conditions on the last date which was prescribed for the submission of the A
, IW tenders. Therefore, the High Court took the view that once a decision was
taken to delete the application of Clause 6(a) and offers which were received
on March 23, 2000 being made on the basis of existence of Clause 6(a),
fairness and equal treatment required that the process should be carried out
afresh to determine whether better or higher offers would be received upon B
the deletion of the same and that evidently having not been done, a restricted
application of the modified tender conditions to only the existing bidders, the
Municipal Corporation had been deprived of the opportunity which it could
have had of obtaining higher or better bids. On that basis, the High Court
allowed the writ petition. However, it was noticed that by reason of the
deletion of Clause 6(a) of the Tender Booklet a wider net was available and, c
therefore, the Municipal Corporation should have the benefit of as wide a
field as should be reasonably possible. In that view of the matter, it did not
direct the Municipal Corporation to accept the higher bid of Mis. Konark
Infrastructure (P) Ltd. and thereby while quashing the award of contract in
favour of Mis. Monarch Infrastructure (P) Ltd. made it clear that the D
Municipal Corporation would be at liberty to invite a fresh tender for the
purpose of awarding the contract for collection of octroi on te1ms and
conditions which would be prescribed by the Municipal Corporation. Further,
it was made clear that the aforesaid process should be completed within a
period of four weeks and some interim arrangement for collection of octroi
t • E
shall be made subject to certain conditions.

This order made by the High Court is called in question by the
appellants. On April 17, 2000 when this matter came up for consideration
before this Court, we made an order while issuing notice to all the parties
to continue the interim arrangement subject to certain modifications and to F
take steps for calling tenders as directed by the High Court but shall not

• finalise until further orders.

Shri Shanti Bhushan, the learned senior counsel, and Dr. Rajiv Dhawan,
learned senior counsel, appearing for Mis. Konark Infrastructure (P) Ltd.
submitted that (i) that the order of the Government under Section 451 of the G
Municipal Corporation Act deleting Clause 6(a) of the Tender Booklet is ultra
vires said section as it does not fall within its scope; (ii) the certificate filed
-f . by Mis. Monarch Infrastructure (P) Ltd. issued by Mahesh Makhija & Co.,
Chartered Accountant on March 24, 2000 computed the networth on the basis
of equity capital/preference capital/share application money/deposit from H
1164 SUPREME COURT REPORTS [2000] 3 S.C.R
A directors lying with the company as cheques on hand inasmuch as net worth
can only be ascertained with reference to equity and undistributed profits.
Sequence of events indicated malafides on the part of the CoillD_lissioner of
the Municipal Corporation in allowing Mis. Monarch Infrastructure (P) Ltd.
to participate in the tender process in spite of the non-fulfilment of conditions
B prescribed in Clause 6(a) and Clause 6(b) of the Tender Notice. Thus the
sanctity of the tender proc;:ess was affected.

It is now brought to our notice by Shri Harish Salve, learned Solicitor
General appearing for the Municipal Corporation, that after the interim order •
was made by us three persons offered valid bids and details are hereinafter
C set forth as under :

Name Old (12 Months) New (11 Months) New
Rupees Proportionate for
12 Months
Reserve Price 36 33,30 000 34 0000.000
Monarch Infra. 40,41,40,500 40,81,50.000 44,52,54,545
D Pvt. Ltd.
Konark Infra. 38,16,22,221 35,31,21,111 38,52,23,030
Pvt. Ltd.
Jai Krishna Infra. 38,11,11,111 37,51,00,000 40,92,00,000

It is also stated that Ramchand Mahadeo Rao also offered a bid for a
E sum of Rs. 41,51,00,000, details of which we will advert to a little later, and
it is indicated that he is willing to raise it to Rs. 42 crores. -
The question that arises for consideration in these cases are (i) whether
the High Court is justified in setting aside the award of contract in favour
of Mis. Monarch Infrastructure (P) Ltd.; (ii) whether the direction for fresh
F process of tender instead of awarding the contract in favour of Mis. Konark
Infrastructure (P) Ltd. is justified in the facts and circumstances of the case,
and (iii) the effect of the steps taken now by the Municipal Corporation to.
call for fresh tenders.

Shri Shanti Bhushan and Dr. Rajiv Dhawan, for the appellant, pointed
G
out that the sanctity of the tender process must be maintained and principles
in relation to award of contact should be settled instead of merely making
an order which is expedient in the circumstances of the case. Both of them
submitted that in the new tender process Clauses 6(a) and 6(b) have been
altogether deleted which is only to favour Mis. Monarch Infrastructure (P)
H Ltd. and, therefore, we should not encourage such activity in these matters.
MONARCH INFRASTRUCTURE (P) LTD. v. COMMR .• ULHASNAGAR MUNICIPALCORPN. [R. BABU, J.] 1165
There have been several decisions rendered by this Court on the A
question of tender process, the award of contract and evolved several
principles in regard to the same. Ultimately what prevails with the courts in
these matters is that while public interest is paramount there should be no
arbitrariness in the matter Qf award of contract and all participants in the
tender process should be treated alike. We may sum up the legal position B
thus :

(i) The Government is free to enter into any contract with citizens
but the comt may interfere where it acts arbitrarily or contrary
to public interest;

(ii) The Government cannot arbitrarily choose any person it likes
c
for entering into such a relationship or to discriminate between
persons similarly situate;

(iii) ·It is open to the Government to reject even the highest bid at
a tender where such rejection is not arbitrary or unreasonable D
or such rejection is in public interest for valid and good reasons.

Broadly stated, the courts would not interfere with the matter of
administrative action or changes made therein unless the Government's action
is arbitrary or discriminatory or the policy adopted has no nexus with the
object it seeks to achieve or is mala fide. E
!

If we bear thee principles in mind, the High Court is justified in setting
aside the award of contract in favour of Mis. Monarch Infrastructure (P) Ltd.
because it had not fulfilled the conditions relating to Clause 6(a) of the Tender
Notice but the same was deleted subsequent to the last date of acceptance
F
of the tenders. If that is so, the arguments advanced on behalf of Mis. Konark
Infrastructure (P) Ltd. in regard to allegation of mala fides of the Commis-
sioner of the Municipal Corporation in showing special favour to Mis.
Monarch Infrastructure (P) Ltd. or the other contentions raised in the High
Court and reiterated before us are insignificant because the High Court had
set aside the award made in favour of Mis. Monarch Infrastructure (P) Ltd. G
The only question therefore remaining is whether any contract should have
been awarded in favour of Mis. Konark Infrastructure (P) Ltd .. The High
Court had taken the view that if a term of the tender having been deleted
after the players entered into the arena it is like changing the rules of the game
after it had began and, therefore, if the Governme~t or the Municipal H
1166 SUPREME COURT REPORTS [2000] 3 S.C.R.
A Corporation was free to alter the conditions fresh process of tender was the
only alternative permissible. Therefore, we find that the course adopted by
the High Court in the circumstances is justified because by reason of deletion
of a particular condition the wider net will be permissible and a larger
participation or more attractive bids could be offered.
B Now it is necessary to consider the case of Ramchand Mahadev Rao.
One of the conditions to make offer is regarding the earnest money deposit
for a sum of Rs. 1.70 crores in the form of crossed Demand Draft/Pay Order
or Cash. Ramchand Mahadev Rao got prepared a cheque for Rs. 1.70 crores
as required from the bank and submitted the tender just before the expiry of
c the time on April 19, 2000. He further alleges that in haste and confusion
he misplaced the Demand Draft and was in a wrong impression that a mere
photocopy of the draft duly notarised will be sufficient and, therefore, he
submitted photocopy of the Demand Draft along with other relevant docu-
ments. The conditions of the "Notice Inviting Tender" is that the same should
be accompanied by a Demand Draft/pay order or casli and in no other form.
D
It is clear from the statement made by him as to in what manner he could
gather an impression that a photocopy of the Demand Draft duly notorised
would be sufficient nor it could be said that it is naive to accept a mere
statement that Demand Draft for a sum of Rs. 1. 70 crores obtained for the
purpose of submitting the same along with the tender documents could be
E misplaced in the manner suggested in the application. Therefore, the Munici-
pal Corporation is justified in rejecting the tender offer made by Ramchand
Mahadev Rao as not fulfilling the conditions of the Tender Notice.

Now we will turn to the last question formulated by us. The High Court
had directed the commencement of new tender process subject to such terms
F
and conditions, which will be prescribed by the Municipal Corporation. New
terms and conditions have been prescribed apparently bearing in mind the
nature of contract, which is only collection octroi as an agent and depositing
the same with the Corporation. In addition earnest money and the perform-
ance of bank guarantee are insisted upon; collection of octroi have to be made
G on day to day basis and·payment must be made on weekly basis entailing,
in case of default, cancellation of the contract. We cannot say whether these
conditions are better than what were prescribed earlier for in such matters the
authority calling for tenders is the best judge. We do not think that we should
intercede to restore status quo ante the conditions arising in clauses 6(a) and
H 6(b) of the Tender Booklet and bid offered much earlier by Mis . .Monark
MONARCH INFRASTRUCTURE (P) LTD. v. COMMR., ULHASNAGAR MUNICIPAL CORPN. [R. BABU, J .] 1167
Infrastructure (P) Ltd. should be accepted, for it filed a writ petition, which A
was allowed with direction for calling for fresh tenders. Public interest in the
present case would be definitely served by reason of allowing the tender
process to be completed by accepting the highest offer made by Mis. Monarch
Infrastructure (P) Ltd. subject to raising its bid to Rs. 42 crores matching with
that of Ramchand Mahadeo Rao, though invalid, for Rs. 41,51,00,000 for the
.B
period of 11 months which he is willing to raise to Rs. 42 crores. We are
not allowing Mis. Konark infrastructure (P) Ltd. or Mis. Jai Krishan Infra-
)
structure such an opportunity as they had made lower bids.

We dispose of the appeals by upholding the order made by the High
Court and by giving further directions as stated above. C
A.K.T. Appeals disposed.