Holding

The Court held that the tendering authority’s award was not arbitrary or tailored to favour specific bidders, the Division Bench’s direction to re‑float the tender was unsustainable, and the original award to UFLEX and Montage stands.

Summary

The Supreme Court examined a dispute over a government tender for polyester hologram excise labels, where two unsuccessful bidders, Kumbhat Holographics and Alpha Lasertek India LLP, alleged that the tender specifications were tailored to favour the successful bidders, UFLEX Ltd. and Montage Enterprises. The Court held that while transparency is essential, the tendering authority’s decisions are subject only to limited judicial review and were not arbitrary or a breach of the Tender Act. It rejected the claim that the technical specifications and eligibility criteria constituted a "Decision Oriented Systematic Analysis" (DOSA) and found no basis to lift the corporate veil of UFLEX’s investment in Montage. The Division Bench order directing a fresh tender was set aside, and the original award was upheld. Costs were awarded to the successful tenderer and the State, following the principle that costs follow the event in commercial disputes.

Issues considered

The validity of the tender process under the principles of non‑arbitrariness, non‑irrationality and transparency.
Whether the technical specifications and eligibility criteria were tailor‑made to favour specific bidders, amounting to a DOSA.
The applicability of the conflict‑of‑interest provisions and whether UFLEX's preference shareholding in Montage required lifting the corporate veil.
The permissibility of restricting participation to limited companies/LLPs and excluding partnership firms under the Tamil Nadu Transparency in Tender Act.
The entitlement of a partnership (Kumbhat) to the MSME/domestic‑enterprise preference under the Tender Act.
The extent of judicial review permissible in government tender awards, i.e., whether the court can act as an appellate authority.
The appropriate award of costs in a commercial tender dispute.

Legislation cited

Constitution of Indias. Art. 226
Micro, Small and Medium Enterprises Development Act, 2006
Tamil Nadu Transparency in Tender Act, 1998s. Section 10(2), s. Section 2(aa)
Tamil Nadu Transparency in Tender (Public-Private Partnership) Rules, 2012s. Rule 15
Tamil Nadu Transparency in Tender Rules, 2000s. Section 30-A

Subjects

government tenderjudicial reviewtransparencycommercial procurementcosts awardcorporate veilMSMEpublic procurementWednesbury principleDOSA

Judgment

[2021] 7 S.C.R. 571 571

UFLEX LTD. A
v.
GOVERNMENT OF TAMIL NADU & ORS.
(Civil Appeal Nos.4862-4863 of 2021)
SEPTEMBER 17, 2021 B
[SANJAY KISHAN KAUL AND HRISHIKESH ROY, JJ.]
Government contract: Tender – Award of – Scope of judicial
review – Held: Transparency is always required in such tenders
because of the nature of economic activity carried on by the State –
C
However, contours to examine are restricted – Objective is not to
make the Court an appellate authority to scrutinize as to whom the
tender should be awarded – Economics must be permitted since the
tendering authority knows best as to what is suited in terms of
technology and price for them – In commercial tender matters there
is an aspect of commercial competitiveness – Merely because a D
company is more efficient, obtains better technology, makes more
competitive bids and, thus, succeeds more cannot be a factor to
deprive that company of commercial success on that pretext –
Furthermore, for every succeeding party who gets a tender there
may be parties who are not awarded the tender as there can be only
E
one lowest tender – On facts, issuance of notice inviting tender for
supply of polyester bases hologram excise labels to be pasted across
the caps of bottles of liquor sold by the State Government with
various technical specifications and eligibility criteria – Two
prospective tendering parties challenged the tendering process –
Single Judge of the High Court dismissed the writ petitions – F
However, the Division Bench of the High Court by directing the
State to float a fresh tender, erred in almost sitting as an appellate
authority on technology and commercial expediency which is not
the role which a Court ought to play – It appears that the two
prospective tendering parties endeavoured to continuously create
G
impediments in the way of the succeeding party merely because they
could not succeed – When the concerned Committees were looking
into the suggestions of the prospective parties, the parties moved to
the court – Few issues raised by the parties have already been
addressed by the Committees – Thus, the order passed by the
H
571
572 SUPREME COURT REPORTS [2021] 7 S.C.R.

A Division Bench cannot be sustained and is set aside – Constitution
of India – Art. 226.
Costs: Commercial matters – Award of costs – Held: Usually
the judicial system hesitates to impose costs, presuming it to be a
reflection on the counsel – In a tussle for enforcement of rights
B against a State different principle apply – However, in commercial
matters costs must follow the cause – Tender jurisdiction was created
for scrutiny of commercial matters – If parties continuously seek to
challenge award of tenders, the succeeding party must get costs
and the party which loses must pay costs – On facts, parties litigating
are financially strong and took a commercial decision to carry the
C dispute right up to this Court – They must face the consequences
and costs of success or failure in the present proceedings –
Furthermore, the instant proceedings do arise from a writ proceeding
u/Art. 226 but it is really a commercial dispute, thus, the failing
party cannot contend that the present dispute is a writ proceeding –
D Actual costs quantified on the basis of the bill of fee and costs –
Issuance of direction to the respondent companies to pay Rs 23
lakh to the appellant-successful tenderer, and Rs 7.5 lakhs to State
Government for defending the litigation.
Costs: Award of – Principles prevailing in England, United
E States of America, Australia, Hong Kong and Canada while awarding
Costs in Civil litigation and Commercial litigation – Stated.
Allowing the appeals, the Court
HELD: 1.1 In commercial tender matters there is an aspect
of commercial competitiveness. For every succeeding party who
F gets a tender there may be parties who are not awarded the tender
as there can be only one L-1. The question is should the judicial
process be resorted to for downplaying the freedom which a
tendering party has, merely because it is a State or a public
authority, making the said process even more cumbersome.
G Element of transparency is always required in such tenders
because of the nature of economic activity carried on by the State,
but the contours under which they are to be examined are
restricted. The objective is not to make the Court an appellate
authority for scrutinizing as to whom the tender should be
awarded. Economics must be permitted to play its role for which
H
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS. 573

the tendering authority knows best as to what is suited in terms A
of technology and price for them. [Para 40][600-D-F]
2.1 The instant dispute has its history in many prior
endeavours by the original petitioners which have proved to be
unsuccessful. It does appear that in a competitive market they
have not been so successful as they would like to be. Merely B
because a company is more efficient, obtains better technology,
makes more competitive bids and, thus, succeeds more cannot
be a factor to deprive that company of commercial success on
that pretext. It does appear that this is what is happening; that
the two original petitioners are endeavouring to continuously
create impediments in the way of the succeeding party merely C
because they themselves had not so succeeded. It is thus the
view that the Division Bench has fallen into an error in almost
sitting as an appellate authority on technology and commercial
expediency which is not the role which a Court ought to play.
[Para 41][600-G-H; 601-A-B] D
2.2 The checks and balances before the tendering process
itself has been provided by constitution of the various committees,
more specifically the Technical Specification Committee and the
Tender Scrutiny and Finalisation Committee. The objective is to
keep the role of these Committees separately defined. [Para E
42][601-B-C]
2.3 The objective has been set out by the State Government
to use such technology as would prevent spurious liquor from
being sold. It is a well-known fact that a large revenue collection
comes in Tamil Nadu through sale of liquor. It thus must be left F
to the State to see how best to maximize its revenue and what is
the technology to be utilized to prevent situations like spurious
liquor, which in turn would impede revenue collection, apart from
causing damage to the consumers. [Para 43][601-C-D]
2.4 A grievance was made about what was stated to be G
“patented technology”. At the stage when the concerned
committees were still looking to the objections/suggestions of
the parties, K and A rushed to the Court. The State Government

H
574 SUPREME COURT REPORTS [2021] 7 S.C.R.

A did provide relief by issuing a corrigendum to address the issue
relating to hidden text being visible only through Polaroid, as
colour change background viewable with film as an identifier did
not attract the rigour of this stated patented technology. [Para
44][601-E-F]
B 2.5 As regards the participating entities, it cannot be
contended that all and sundry should be permitted to participate
in matters of this nature. In fact, in every tender there are certain
qualifying parameters whether it be technology or turnover. The
Court cannot sit over in judgment on what should be the turnover
required for an entity to participate. The prohibition arising from
C only a Limited company being permitted to participate was again
addressed by the corrigendum permitting LLPs to participate. If
entities like K and A want to participate they must take some
necessary actions. A is already an LLP. K cannot insist that it will
continue to be a partnership alone and, thus, that partnerships
D must necessarily be allowed to participate. [Para 45][601-F-H;
602-A]
2.6 Insofar as K’s plea based on the Tender Act is
concerned, a reading of the provisions would show that some
benefit is sought to be given to MSMEs to the extent of 25% of
E the order based on their willingness to match the price of the
lowest tender. However, to be able to avail of that benefit, it must
be an entity which is capable of bidding in terms of the tender
conditions. There is no prohibition against limiting the
participation to Limited companies of LLPs. Domestic enterprise
in the Tender Act is defined to mean any micro and small
F enterprise as defined in the MSMED Act. This argument also
appears to be an afterthought, as it is not as if K participated
claiming such right as an MSME. [Para 46][602-B-C]
2.7 There were three bidders and that one of them met the
technical specifications but did not succeed further on financial
G issues and turnover under the NIT. The same cannot be used to
nullify the whole tendering process. While dealing with a tender
of a nature where there cannot be a vacuum. If there is less
participation than necessary, it cannot be said that ipso facto the
terms and conditions of tender have followed a Decision Oriented
H
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS. 575

Systematic Analysis-DOSA, and to somehow give the tender to A
one of the parties. Similar terms have been set out in many tenders
of different States and there have been varying succeeding parties.
No doubt, the success rate of the two successful parties is
definitely higher but it cannot be appreciated how that can form
the basis to come to a conclusion that something must be done
B
to let other people get a tender. If one may say, it will then become
a DOSA to see that the most competitive party does not succeed
in the tender but that other parties who keep approaching the
Court must get some share of the pie. This cannot be the
objective. [Para 47][602-D-G]
2.8 The submissions based on the fact that repeated C
endeavours of A and K have failed not only before the High Court
but before different High Courts based on a similar challenge.
Similar tender conditions have been upheld. It cannot be that
every time a tender is floated, K and A would be permitted to
seek a toehold on one pretext or the other. It is not really the D
function of the Court to vet the terms of the NIT, as it is the
decision-making process which can be reviewed in judicial
scrutiny. [Para 48][602-G-H; 603-A]
2.9 A lot of emphasis has been placed by the Courts below
in seeking to go into the financial linkages between the two E
companies, i.e., appellant and M Company. The correct way of
examining this issue should have been that whether under the
terms of the NIT, any of the aspects which were examined by the
Courts could be said to be a disqualification. The answer to the
same was in the negative. One company had invested in another
through certain preference shares without having any controlling F
interest, this cannot be the basis of judicial scrutiny. The instant
case is not one of an intercorporate battle or of minority
shareholders claiming the rights or any debts due, where the
principle of lifting the corporate veil should be applied. What one
may have said in some income tax proceedings, whether a small G
percentage of the funds of one company have been utilized as
investment in the other are hardly the principles which should
come into play in such a tender matter. [Para 49][603-A-D]

H
576 SUPREME COURT REPORTS [2021] 7 S.C.R.

A 2.10 The impugned order cannot be sustained and is set
aside. [Para 50][603-D]
3.1 The costs following cause is a principle which is followed
in most countries. There seems to be often a hesitancy in the
judicial system to impose costs, presuming as if it is a reflection
B on the counsel. This is not the correct approach. In a tussle for
enforcement of rights against a State different principle apply but
in commercial matters costs must follow the cause. [Para 51][603-
E-F]
3.2 The salutary principles to be followed while awarding
C costs are that costs should ordinarily follow the event; realistic
costs ought to be awarded keeping in view the ever increasing
litigation expenses; and the cost should serve the purpose of
curbing frivolous and vexatious litigation. This endeavour in India
is not unique to our country and in a way adopts the principle
prevalent in England of costs following the event. The position
D may be somewhat different in the United States but then there
are different principles applicable where champerty is prevalent.
No doubt in most of the countries like India the discretion is with
the Court. There has to be a proportionality to the costs and if
they are unreasonable, the doubt would be resolved in favour of
E the paying party. As per Halsbury’s Laws of England, the
discretion to award costs must be exercised judicially and in
accordance with reason and justice. The following principles have
been set out therein in deciding what order (if any) to make about
costs, the court must have regard to all the circumstances,
including: the conduct of all the parties; whether a party has
F succeeded on part of his case, even if he has not been wholly
successful; and any payment into court or admissible offer to settle
made by a party which is drawn to the court’s attention. Similar
principles are followed in Australia, Hong Kong and Canada
largely based on the Common Law principle. In fact in Canada,
G the Manitoba Law Commission Report analysed the ‘Costs
Awards in Civil Litigation’ and referred to broad goals. [Para 53,
54, 55][604-B-G; 605-C-D]
3.3 The said has been set forth so that there is appreciation
of the principles that in carrying on commercial litigation, parties
H must weigh the commercial interests, which would include the
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS. 577

consequences of the matter not receiving favourable A
consideration by the courts. Mindless appeals should not be the
rule. In the given facts of the case, the respondents have
succeeded before the Division Bench though they failed before
the Single Judge. Suffice to say that all the parties are financially
strong and took a commercial decision to carry this legal battle
B
right up to this Court. They must, thus, face the consequences
and costs of success or failure in the present proceedings. [Para
56][605-F-H; 606-A]
3.4 The best reflection of what costs have been incurred is
what the parties have paid towards the counsel fee and out of
pocket expenses. The instant proceedings do arise from a writ C
proceeding under Article 226 of the Constitution but it is really a
commercial dispute. Thus, the failing party cannot hide behind
the veneer of the present dispute being in the nature of a writ
proceeding. The tender jurisdiction was created for scrutiny of
commercial matters and, thus, where continuously parties seek D
to challenge award of tenders, the succeeding party must get
costs and the party which loses must pay costs. This was really a
battle between two commercial entities on one side seeking to
get set aside an award of a tender to two other entities. What
else would be commercial interest! [Para 57][606-B-D]
E
3.5 It is with the said objective that the parties were asked
to file their bill of costs. The objective was to bring forth this
principle into force by quantifying actual costs for the succeeding
party. The bill of fee and costs are scrutinised. There is inclination
to allow actual costs. However, the costs have been modulated
insofar as appellant is concerned to the extent of the indicated F
amount of the Advocate-on-Record and allow 50% of the same.
The total costs, thus, payable to the petitioner/appellant would
be Rs.23,25,750/- (Rupees twenty three lakh twenty five thousand
seven hundred fifty only). The State Government cannot be left
behind so far as their compensation of costs in defending such a G
litigation is concerned and thus, the costs of Rs.7,58,000/- (Rupees
seven lakh fifty eight thousand only) is allowed. The costs be
accordingly paid by K and A in equal share to the two parties.
[Para 58-60][606-D-F]

H
578 SUPREME COURT REPORTS [2021] 7 S.C.R.

A Tata Cellular v. Union of India (1994) 6 SCC 651 –
relied on.
Jagdish Mandal v. State of Orissa (2007) 14 SCC 517;
Michigan Rubber v. State of Karnataka (2012) 8 SCC
216 : [2012] 8 SCR 128; Misrilall Mines Pvt. Ltd. &
B Anr. v. MMTC & Ors. (2013) SCC Online Del 563;
CaretelInfotech Ltd. v. Hindustan Petroleum Corporation
Limited & Ors. (2019) 14 SCC 81 : [2019] 6 SCR 950;
Air India v. Cochin International Airport (2000) 2 SCC
617 : [2000] 1 SCR 505; Raunaq International Ltd. v.
IVR Construction Ltd. (1999) 1 SCC 492 : [1998] 3
C Suppl. SCR 421; Master Marine v. Metcalfe and
Hodkinson (2005) 6 SCC 138 : [2005] 3 SCR 666;
Bharat Cooking Coal v. AMR Dev (2020) 16 SCC 759;
Monarch Infrastructure v. Ulhasnagar Municipal Corp.
(2000) 5 SCC 287 : [2000] 3 SCR 1159; Association
D of Registration Plates v. Union of India (2005) 1 SCC
679 : [2004] 6 Suppl. SCR 496; Ashok Kumar Mittal v.
Ram Kumar Gupta (2009) 2 SCC 656 : [2009] 1 SCR
125; Vinod Seth v. Devinder Bajaj (2010) 8 SCC 1 :
[2010] 7 SCR 424; Sanjeev Kumar Jain v. Raghubir
Saran Charitable Trust (2012) 1 SCC 455 : [2011] 12
E SCR 744 – referred to.
Case Law Reference
(2007) 14 SCC 517 referred to Para 2
[2012] 8 SCR 128 referred to Para 4
F
[2019] 6 SCR 950 referred to Para 6
[2000] 1 SCR 505 referred to Para 28
[1998] 3 Suppl. SCR 421 referred to Para 28
[2005] 3 SCR 666 referred to Para 28
G
(2020) 16 SCC 759 referred to Para 28
[2000] 3 SCR 1159 referred to Para 33
[2004] 6 Suppl. SCR 496 referred to Para 38
(1994) 6 SCC 651 relied on Para 40
H
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS. 579

[2009] 1 SCR 125 referred to Para 52 A
[2010] 7 SCR 424 referred to Para 52
[2011] 12 SCR 744 referred to Para 52
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.4862-
4863 of 2021. B
From the Judgment and Order dated 29.04.2021 of the High Court
of Judicature at Madras in Writ Appeal Nos.848 and 854 of 2021.
Mukul Rohatgi, Sr. Adv., Abhishek Singh, Arun Sinha, Shreshth
Arya, Advs. for the Appellant.
C
Amit Anand Tiwari, Addl. AG, Ranjit Kumar, Ms. Meenakshi Arora,
Dr. A. M. Singhvi, P. S. Narasimha, K. V. Vishwanathan, Sourab Kirpal,
Sr. Advs., Dr. Joseph Aristotle S., Ms. Preeti Singh, Ms. Ripul Swati
Kumari, Vivek Jain, Sandeep Bagmar R., Siddhant Buxy, L. Nidhiram
Sharma, Nirvikar Singh, T. Mahipal, Abhinav Agrawal, Rajiv K. Virmani,
Mohit D. Ram, Advs. for the Respondents. D
The Judgment of the Court was delivered by
SANJAY KISHAN KAUL, J.
1. The enlarged role of the Government in economic activity and
its corresponding ability to give economic ‘largesse’ was the bedrock of E
creating what is commonly called the ‘tender jurisdiction’. The objective
was to have greater transparency and the consequent right of an
aggrieved party to invoke the jurisdiction of the High Court under Article
226 of the Constitution of India (hereinafter referred to as the
‘Constitution’), beyond the issue of strict enforcement of contractual
rights under the civil jurisdiction. However, the ground reality today is F
that almost no tender remains unchallenged. Unsuccessful parties or
parties not even participating in the tender seek to invoke the jurisdiction
of the High Court under Article 226 of the Constitution. The Public
Interest Litigation (‘PIL’) jurisdiction is also invoked towards the same
objective, an aspect normally deterred by the Court because this causes G
proxy litigation in purely contractual matters.
2. The judicial review of such contractual matters has its own
limitations. It is in this context of judicial review of administrative actions
that this Court has opined that it is intended to prevent arbitrariness,
irrationality, unreasonableness, bias and mala fide. The purpose is to H
580 SUPREME COURT REPORTS [2021] 7 S.C.R.

A check whether the choice of decision is made lawfully and not to check
whether the choice of decision is sound. In evaluating tenders and
awarding contracts, the parties are to be governed by principles of
commercial prudence. To that extent, principles of equity and natural
justice have to stay at a distance.1
B 3. We cannot lose sight of the fact that a tenderer or contractor
with a grievance can always seek damages in a civil court and thus,
“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 of judicial review, should be
C resisted.”2
4. In a sense the Wednesbury principle is imported to the concept,
i.e., the decision is so arbitrary and irrational that it can never be that
any responsible authority acting reasonably and in accordance with law
would have reached such a decision. One other aspect which would
D always be kept in mind is that the public interest is not affected. In the
conspectus of the aforesaid principles, it was observed in Michigan
Rubber v. State of Karnataka3 as under:
“23. From the above decisions, the following principles emerge:

E (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 for a
discernible reason and not whimsically for any ulterior purpose. If
the State acts within the bounds of reasonableness, it would be
F legitimate to take into consideration the national priorities;
(b) fixation of a value of the tender is entirely within the 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
G in conformity with certain healthy standards and norms such as
awarding of contracts by inviting tenders, in those circumstances,
the interference by Courts is very limited;
1
Jagdish Mandal v. State of Orissa, (2007) 14 SCC 517.
2
Id.
H 3
(2012) 8 SCC 216
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS. 581
[SANJAY KISHAN KAUL, J.]

(c) In the matter of formulating conditions of a tender document A
and awarding a contract, greater 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,
interference by Courts is not warranted;
(d) Certain preconditions or qualifications for tenders have to be B
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 claim fundamental C
right to carry on business with the Government.”
5. One other aspect examined by this Court is whether the terms
and conditions of the tender have been tailor-made to suit a person/
entity. In fact, this is what is sought to be contended in the facts of the
present case by the respondents who were the original petitioners before D
the Court. In order to award a contract to a particular party, a reverse
engineering process is evolved to achieve that objective by making the
tender conditions such that only one party may fit the bill. Such an
endeavour has been categorized as “Decision Oriented Systematic
Analysis” (for short ‘DOSA’).4
E
6. The burgeoning litigation in this field and the same being carried
to this Court in most matters was the cause we set forth an epilogue in
Caretel Infotech Ltd. v. Hindustan Petroleum Corporation Limited
& Ors.5 Even if it amounts to repetition, we believe that it needs to be
emphasized in view of the controversy arising in the present case to
appreciate the contours within which the factual matrix of the present F
case has to be analysed and tested.
“37. We consider it appropriate to make certain observations in
the context of the nature of dispute which is before us. Normally
parties would be governed by their contracts and the tender terms,
and really no writ would be maintainable under Article 226 of the G
Constitution of India. In view of Government and public sector
enterprises venturing into economic activities, this Court found it
appropriate to build in certain checks and balances of fairness in
4
Misrilall Mines Pvt. Ltd. & Anr. v. MMTC & Ors, 2013 SCC OnLine Del 563.
5
(2019) 14 SCC 81. H
582 SUPREME COURT REPORTS [2021] 7 S.C.R.

A procedure. It is this approach which has given rise to scrutiny of
tenders in writ proceedings under Article 226 of the Constitution
of India. It, however, appears that the window has been opened
too wide as almost every small or big tender is now sought to be
challenged in writ proceedings almost as a matter of routine. This
in turn, affects the efficacy of commercial activities of the public
B
sectors, which may be in competition with the private sector. This
could hardly have been the objective in mind. An unnecessary,
close scrutiny of minute details, contrary to the view of the
tendering authority, makes awarding of contracts by Government
and Public Sectors a cumbersome exercise, with long drawn out
C litigation at the threshold. The private sector is competing often in
the same field. Promptness and efficiency levels in private
contracts, thus, often tend to make the tenders of the public sector
a non-competitive exercise. This works to a great disadvantage
to the Government and the public sector.
D 38. In Afcons Infrastructure Limited v. Nagpur Metro Rail
Corporation Limited & Anr.6, this Court has expounded further
on this aspect, while observing that the decision-making process
in accepting or rejecting the bid should not be interfered with.
Interference is permissible only if the decision-making process is
arbitrary or irrational to an extent that no responsible authority,
E acting reasonably and in accordance with law, could have reached
such a decision. It has been cautioned that Constitutional Courts
are expected to exercise restraint in interfering with the
administrative decision and ought not to substitute their view for
that of the administrative authority. Mere disagreement with the
F decision-making process would not suffice.
39. Another aspect emphasised is that the author of the document
is the best person to understand and appreciate its requirements.
In the facts of the present case, the view, on interpreting the tender
documents, of Respondent No.1 must prevail. Respondent No.1
G itself, appreciative of the wording of Clause 20 and the format,
has taken a considered view. Respondent No.3 cannot compel its
own interpretation of the contract to be thrust on Respondent
No.1, or ask the Court to compel Respondent No.1 to accept that
interpretation. In fact, the Court went on to observe in the aforesaid
6
H (2016) 16 SCC 818.
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS. 583
[SANJAY KISHAN KAUL, J.]

judgment that it is possible that the author of the tender may give A
an interpretation that is not acceptable to the constitutional Court,
but that itself would not be a reason for interfering with the
interpretation given. We reproduce the observations in this behalf
as under:
“15. We may add that the owner or the employer of a project, B
having authored the tender documents, is the best person to
understand and appreciate its requirements and interpret its
documents. The constitutional courts must defer to this
understanding and appreciation of the tender documents, unless
there is mala fide or perversity in the understanding or
appreciation or in the application of the terms of the tender C
conditions. It is possible that the owner or employer of a project
may give an interpretation to the tender documents that is not
acceptable to the constitutional courts but that by itself is not a
reason for interfering with the interpretation given.”
40. We may also refer to the judgment of this Court in Nabha D
Power Limited (NPL) v. Punjab State Power Corporation
Limited (PSPCL) & Anr.,7 authored by one of us (Sanjay Kishan
Kaul, J.). The legal principles for interpretation of commercial
contracts have been discussed. In the said judgment, a reference
was made to the observations of the Privy Council in Attorney E
General of Belize v. Belize Telecom Ltd.8 as under:
“45. … 16. Before discussing in greater detail the reasoning
of the Court of Appeal, the Board will make some general
observations about the process of implication. The court has
no power to improve upon the instrument which it is called F
upon to construe, whether it be a contract, a statute or articles
of association. It cannot introduce terms to make it fairer or
more reasonable. It is concerned only to discover what the
instrument means. However, that meaning is not necessarily
or always what the authors or parties to the document would
have intended. …” G
.... .... .... .... ....

7
(2018) 11 SCC 508.
8
(2009) 1 WLR 1988. H
584 SUPREME COURT REPORTS [2021] 7 S.C.R.

A “19. .....In Trollope & Colls Ltd. v. North West Metropolitan
Regional Hospital Board9 Lord Pearson, with whom Lord Guest
and Lord Diplock agreed, said:
“…the court does not make a contract for the parties. The
court will not even improve the contract which the parties have
B made for themselves, however desirable the improvement might
be. The court’s function is to interpret and apply the contract
which the parties have made for themselves. If the express
terms are perfectly clear and free from ambiguity, there is no
choice to be made between different possible meanings: the
clear terms must be applied even if the court thinks some other
C terms would have been more suitable. An unexpressed term
can be implied if and only if the court finds that the parties
must have intended that term to form part of their contract: it
is not enough for the court to find that such a term would have
been adopted by the parties as reasonable men if it had been
D suggested to them: it must have been a term that went without
saying, a term necessary to give business efficacy to the
contract, a term which, though tacit, formed part of the contract
which the parties made for themselves.”
41. Nabha Power Limited (NPL)10 also took note of the earlier
E judgment of this court in Satya Jain v. Anis Ahmed Rushdie11,
which discussed the principle of business efficacy as proposed by
Bowen, L.J. in the Moorcock12. It has been elucidated that this
test requires that terms can be implied only if it is necessary to
give business efficacy to the contract to avoid failure of the contract
and only the bare minimum of implication is to be there to achieve
F this goal. Thus, if the contract makes business sense without the
implication of terms, the courts will not imply the same.
42. The judgment in Nabha Power Limited13 concluded with the
following observations in para 72:

G “72. We may, however, in the end, extend a word of caution.
It should certainly not be an endeavour of commercial courts
9
(1973) 1 WLR 601 (HL).
10
Nabha (supra).
11
(2013) 8 SCC 131.
12
(1889) LR 14 PD 64 (CA).
H 13
Nabha (supra).
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS. 585
[SANJAY KISHAN KAUL, J.]

to look to implied terms of contract. In the current day and A
age, making of contracts is a matter of high technical expertise
with legal brains from all sides involved in the process of drafting
a contract. It is even preceded by opportunities of seeking
clarifications and doubts so that the parties know what they
are getting into. Thus, normally a contract should be read as it
B
reads, as per its express terms. The implied terms is a concept,
which is necessitated only when the Penta-test referred to
aforesaid comes into play. There has to be a strict necessity
for it. In the present case, we have really only read the contract
in the manner it reads. We have not really read into it any
‘implied term’ but from the collection of clauses, come to a C
conclusion as to what the contract says. The formula for energy
charges, to our mind, was quite clear. We have only expounded
it in accordance to its natural grammatical contour, keeping in
mind the nature of the contract.”
43. We have considered it appropriate to, once again, emphasise D
the aforesaid aspects, especially in the context of endeavours of
courts to give their own interpretation to contracts, more specifically
tender terms, at the behest of a third party competing for the
tender, rather than what is propounded by the party framing the
tender. The object cannot be that in every contract, where some
parties would lose out, they should get the opportunity to somehow E
pick holes, to disqualify the successful parties, on grounds on which
even the party floating the tender finds no merit.”14
7. It may also be pertinent to note the principles elucidated in the
case of Tata Cellular v. Union of India:
F
“94. The principles deducible from the above are:
(1) The modern trend points to judicial restraint in administrative
action.
(2) The court does not sit as a court of appeal but merely reviews
the manner in which the decision was made. G
(3) The court does not have the expertise to correct the
administrative decision. If a review of the administrative decision

14
Caretel (supra). H
586 SUPREME COURT REPORTS [2021] 7 S.C.R.

A is permitted it will be substituting its own decision, without the
necessary expertise which itself may be fallible.
(4) The terms of the invitation to tender cannot be open to judicial
scrutiny because the invitation to tender is in the realm of contract.
Normally speaking, the decision to accept the tender or award
B the contract is reached by process of negotiations through several
tiers. More often than not, such decisions are made qualitatively
by experts.
(5) The Government must have freedom of contract. In other
words, a fair play in the joints is a necessary concomitant for an
C administrative body functioning in an administrative sphere or
quasi-administrative sphere. However, the 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.
D
(6) Quashing decisions may impose heavy administrative burden
on the administration and lead to increased and unbudgeted
expenditure.”15
8. On having set forth the contours of our analysis we now proceed
E to deal with the factual matrix so that we do not deviate from the path
we have set for ourselves aforesaid.
The facts:
9. On 24.08.2020 vide G.O. (Ms.)/No.23 (for short ‘G.O.’) issued
by the Government of Tamil Nadu inter alia appointed the Joint
F Commissioner-II as the Tender Inviting Authority while the Commissioner
of Prohibition and Excise was appointed as the Tender Accepting
Authority apart from the appointment of a Technical Specification
Committee (for short ‘TSC’) and a Tender Scrutiny and Finalisation
Committee (for short ‘TSFC’) for purposes of production and supply of
polyester based hologram excise labels on turnkey basis. The stickers
G
were to be pasted across the caps of bottles of liquor sold by the State
Government through one of its instrumentalities, the Tamil Nadu State
Marketing Corporation (for short ‘TASMAC’). The tender required the
prospective bidders and existing suppliers of hologram excise labels to
15
H (1994) 6 SCC 651.
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS. 587
[SANJAY KISHAN KAUL, J.]

submit necessary documents on the label features and security standard A
by 07.09.2020.
10. The first meeting of the TSC was held on 09.09.2020 where it
was inter alia decided that it would be appropriate to have technical
specifications which are generic in nature so as to ensure wider
participation by incorporating those features that are available with at B
least three bidders. In the second meeting held on 18.09.2020, three
technical specifications for non-holographic features along with hidden
text on colour change background were formulated, which read as under:
i. A stripe of design transferred, but not laminated, on the top
of the hologram with visual holographic design on top; C
ii. Hidden texts/images encrypted on second layer on different
colour background; and
iii. The hidden colour should change at every 45 degree angle,
this hidden text “Tamil Nadu Excise” should be visible only
through a special Polaroid identifier. D
11. The TSC thereafter sought to determine the eligibility criteria
for the commercial bid in addition to the already existing criteria so as to
“enhance the security features, ensure better participation, and to restrict
fly-by-night operators.” Thus, in the third meeting held on 23.09.2020 it
was recommended that supplier should have been continuously doing E
business activities in the same field for the past 8 to 10 years. The draft
tender document consisting of technical specification, product
specification, eligibility criteria and general terms and conditions was
approved in the fourth meeting held on 24.09.2020 and a Notice Inviting
Tender (for short ‘NIT’) was issued on 01.10.2020 with various technical F
specifications and eligibility criteria. The pre-bid meeting was held on
08.10.2020 wherein the respondents before us conveyed their objections
and concerns highlighting that wider participation as mandated by the
G.O. should be adhered along with making a grievance about some
arbitrary conditions in the tender notice.
G
12. However, without waiting for the final decision in respect of
the aforesaid, two of the prospective tendering parties, viz., M/s. Kumbhat
Holographics (for short ‘Kumbhat’) and M/s. Alpha Lasertek India LLP
(for short ‘Alpha’) filed writ petitions in October, 2020 where intervention
was also permitted by two other parties. These petitions were dismissed
by the learned single Judge vide order dated 10.02.2021. H
588 SUPREME COURT REPORTS [2021] 7 S.C.R.

A 13. The material aspect to be taken note of is that there were
certain developments during the pendency of the petition. But we must
note what is the principal grievance made by these parties before the
learned single Judge. The primary contention both by Kumbhat and Alpha
was that the terms of the tender were skewed in favour of Uflex Limited
(for short ‘Uflex’) and Montage Enterprises Private Limited (for short
B
‘Montage’). The grievance which was made was that certain
requirements were introduced in the tender to ensure that only Uflex
and Montage would be able to qualify under the tender requirements,
i.e.: (i) requirement of 8 years of experience in the field of manufacture
of security holograms; (ii) requirement of bidders to have supplied full
C polyester based security hologram labels to the tune of at least Rs. 20
crores to any state excise department during any one of the last three
financial years (with additional requirement under Clause 4.6 in Part 4
of the NIT that the said supply should only have been made to any of the
state excise departments to be considered valid for this purpose); and
(iii) the bidders should also submit a satisfactory performance certificate
D
from the competent authority or the end user.
14. The other aspect was the grievance made about the technical
requirement of a “Hidden Text on Colour Change Background” feature
stated to be based on a patented technology. Holograms with this feature
were supplied to other public sector undertakings such as the IRCTC in
E the past by the suppliers other than Uflex and Montage. However, those
suppliers had never supplied to any State excise department and, thus,
could not meet the two conditions cumulatively. Montage and Uflex were
alleged to be the only two bidders who would qualify under the existent
tender conditions as they held the license to use the patented technology.
F The writ petition was resisted by the State inter alia on the ground of
bona fide exercise and the factum of a clarification being issued on
27.10.2020 on the objections of Kumbhat and Alpha, petition having been
filed even without waiting for the clarification to be issued. Corrigendum
2 to the tender conditions was issued whereby the condition as to the
identification of hidden text by special Polaroid identifier was relaxed by
G providing that in addition to Polaroid identifier, the hidden text could also
be identified by film. The grievance about only limited companies being
permitted to participate was also met by permitting LLPs to participate
in the tender.

H
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS. 589
[SANJAY KISHAN KAUL, J.]

15. In the course of scrutiny by the learned single Judge, the A
respondents were permitted to accept the bids from prospective bidders
and process the same with the report being submitted with details of
qualified bidders under the technical specifications of the tender. The
report of the TSC dated 24.12.2020 was, thus, submitted, which recorded
that among the three bidders who had submitted the bids, all three satisfied
B
all the technical and product specifications as per NIT including Uflex
and Montage. The High Court while dismissing the writ petition noted
that the requirement of having minimum three successful bidders was
thus satisfied.
Writ Appeal Round:
C
16. The aforesaid conclusion by the learned single Judge in the
conspectus of facts gave rise to writ appeals being filed by Kumbhat
and Alpha impugning the order dated 10.02.2021.
17. The grievance inter alia was that a copy of the report dated
24.12.2020 had not been furnished to either Kumbhat or Alpha depriving D
them of the opportunity to scrutinize the report. In effect, the allegation
of DOSA qua Uflex and Montage was once again made while alleging
that there had been deviations from the mandate of setting generic
technical specification as per the G.O.
18. The financial structure of Uflex and Montage was sought to E
be examined by lifting the corporate veil and contending that the annual
report of Uflex for 2019-20 showed that it had invested approximately
Rs.152 crores in preference share capital of Montage and thus exercised
considerable influence in the affairs of Montage. The third bidder who
constituted the Trimurti along with Uflex and Montage was Hololive
Corporation Industries (for short ‘Hololive’). It was actually not eligible F
to participate on multiple parameters as it was a partnership firm
registered on 01.07.2017 and thus did not meet the requirement of being
either a limited company or an LLP.
19. The report called for by the learned single Judge was on
technical specifications and, thus, while Hololive fulfilled those technical G
specifications, it had not qualified as per commercial terms on the
aforesaid account. Further, Kumbhat being a partnership firm, sought to
contend that the exclusion of partnership firms was arbitrary. The
relationship between Uflex and Montage was in breach of the spirit of
Rule 15 of the Tamil Nadu Transparency in Tender (Public-Private
H
590 SUPREME COURT REPORTS [2021] 7 S.C.R.

A Partnership Procurement) Rules, 2012 (hereinafter referred to as the
‘Rules’), which pertains to conflict of interest even though the Rules did
not apply to the facts of the case. The said Rule reads as under:
“15. Conflict of Interest.- (1) It shall be the responsibility of
Tender Inviting Authority and Tender Accepting Authority to ensure
B that the prospective tenderers do not have a conflict of interest
that affects the Tender Proceedings.
(2) An Applicant or prospective tenderer shall be deemed to have
a Conflict of Interest, if,-
(a) any other prospective tenderer or a member of consortium or
C any associate or constituent thereof have common controlling
shareholders or other ownership interest; or
(b) a constituent of such prospective tenderer is also a constituent
of another prospective tenderer.

D Provided that ‘constituent’ in such cases will not include the
provider of a proprietary technology to more than one applicant;
or
(c) such prospective tenderer, or any associate thereof receives
or has received any direct or indirect subsidy, grant, concessional
loan or subordinated debt from any other Applicant or Respondent,
E
or any associate thereof has provided any such subsidy, grant,
concessional loan or subordinated debt to any other Applicant or
Respondent, its member or any associate thereof; or
(d) such prospective tenderer has the same legal representative
for purposes of the Tender Proceedings as any other prospective
F
tenderer; or
(e) such prospective tenderer, its member or any associate thereof,
has a relationship with another prospective tenderer, or any
associate thereof, directly or through common third party/ parties,
that puts either or both of them in a position to have access to
G each other’s information about, or to influence the Response of
either or each other; or
(f) such prospective tenderer, its member or any associate thereof,
has participated as a consultant to the Tender Inviting Authority
and Tender Accepting Authority in the preparation of any
H
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS. 591
[SANJAY KISHAN KAUL, J.]

documents, design or technical specifications of the Public Private A
Partnership (PPP) Project; or
(g) if any legal, financial or technical advisor of the Tender Inviting
Authority and Tender Accepting Authority in relation to the Project
is engaged by the prospective tenderer, its member or any associate
thereof, as the case may be, in any manner for matters related to B
or incidental to the Project:
Provided that this clause shall not apply where such advisor was
engaged by the Applicant or Respondent, its member or associate
in the past but such engagement expired or was terminated 6
(six) months prior to the date of issue of concerned Tender C
Document or where such advisor is engaged after a period of
3(three) years from the date of commercial operation of the
Project.”
20. An alternative argument which Kumbhat sought to develop
was that it is registered as a Small Industry in terms of the classification D
under the Micro, Small and Medium Enterprises Development Act, 2006
(for short ‘MSMED Act’) and, thus, qualifies as a domestic enterprise
as defined in the Tamil Nadu Transparency in Tenders Act, 1998
(hereinafter referred to as the ‘Tender Act’). Thus, as per proviso to
sub-section 2 of Section 10 of the Tender Act, it was entitled to be called
upon to supply a maximum of 25% of the total procurement if it was E
willing to match the price of the lowest bidder. Rule 30-A of the Tamil
Nadu Transparency in Tender Rules, 2000 (hereinafter referred to as
the ‘Tender Rules’) was also relied upon to contend that the purchase
preference is required to be extended to domestic enterprises.
21. On the other hand, it was urged by Uflex that Alpha and F
Kumbhat lack the locus as they did not even participate in the tender.
Alpha did not qualify as it did not have the requisite experience in supplying
holograms and its business was actually in the nature of trading. In one
of the relevant financial years, the income and expenditure statement
showed a zero turnover from the sale and manufacture of goods. The G
participation by LLPs was permitted which enabled Alpha to bid but in
case of Kumbhat it was only a partnership firm without being an LLP. It
was sought to be contended that it was justifiable for a Government
entity to procure goods exclusively from corporate entities so as to ensure
stability and existence of such entities.
H
592 SUPREME COURT REPORTS [2021] 7 S.C.R.

A 22. The grievance regarding patented technology, Uflex contended,
does not subsist in view of the corrigendum having been issued whereby
film could be used for identification of the hidden text in addition to
Polaroid. The technology of producing latent images which are invisible
to the naked eye and can be viewed only through polarizer is generic
and Uflex and Montage do not have a monopoly over the same.
B
Technology not infringing the patent could be deployed, thereby meeting
the technical requirements.
23. The other aspect arising from lifting the corporate veil and
referring to the investment of Uflex in Montage was dealt with by the
submission that the investment was in redeemable, non-voting, non-
C participating preference shares of Montage and, thus, Uflex was neither
a holding company nor an associate company of Montage.
24. Insofar as the rejection of the bid of Hololive was concerned,
the counsel for the State sought to explain the same by submitting that
the bid was only rejected at the second stage against the requirement of
D Part 4 of the tender.
25. The Division Bench, however, allowed the writ appeal in terms
of the impugned judgment dated 29.04.2021 giving the State four months
time to float a fresh tender while permitting the existing successful
tenderers to continue to provide the supplies under the same terms and
E conditions. The fresh tender was directed to be floated with technical
specifications that are generic so as to ensure wider participation or, if
the State was of the view that the technical specifications are at the
heart of the tender, opt for a single source procurement, albeit by adhering
strictly to the requirements of the Tender Act, which has been enacted
F to provide transparency in public procurement and to regulate the
procedure in inviting and accepting the tenders and matters connected
therewith or incidental thereto.
26. The rationale of the judgment of the Division Bench can be
summarized as under:
G a. The Government Order had stated that technical specification
should be such that “multiple vendors” qualify whereas the
Commissioner of Prohibition and Excise has used the phrase
“more than three bidders”. The phrase “multiple vendors” was
used as a rough equivalent of expression of “more than three
bidders” and the minutes of the second and third meeting did
H
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS. 593
[SANJAY KISHAN KAUL, J.]

not contain any discussion as to whether the proposed changes A
would make the technical specification non-generic. Thus, TSC
was held to have deviated from the mandate of prescribing
generic technical qualifications.
b. The technical requirements as per NIT had features which
were not noticeable from specifications as was explained by B
the patenting process. However, it was noticed that wherever
technical specifications were substantially if not wholly similar
to the impugned specifications, the successful bidder was
always Uflex or Montage.
c. The material on record supported an inference that the C
impugned technical specifications, when coupled with the
requirements of having made such supplies of a specified
minimum value to a State Excise Department in any of the
preceding three years had the effect of eliminating all bidders
other than Uflex or Montage. Thus, eliminating reasonable
competition came within the domain of judicial review. D

d. Technical bid evaluation was done on the same day as the
report dated 24.12.2020 but yet the learned single Judge was
not informed that Hololive did not fulfill all the technical
specifications. Had the single Judge been aware of this a
different view may have been taken by the learned single Judge E
who proceeded on the premise of three eligible bidders.
e. Uflex and Montage were not sister or associate companies in
the technical sense. However, the High Court proceeded to
examine the nexus between the two entities and whether the
same would impair the integrity of the tender process. F
Montage’s total equity share capital was about Rs.6 crore and
Uflex’s investment of about Rs.152 crore in preferential share
capital of Montage brought in the possibility of Uflex exercising
influence over Montage, which could not be disregarded. Uflex
was a public listed company and Montage was one of Uflex’s G
top non-promoter shareholders with a holding of approximately
4%.
f. Uflex and Montage both derived their technology for producing
the latent image from a common source, i.e., patented technology
H
594 SUPREME COURT REPORTS [2021] 7 S.C.R.

A of ATB Latent Export Import Limited (for short ‘ATB’). This
aspect had to be read with what has been stated aforesaid.
g. The existing records result in a definitive conclusion that tender
conditions were tailor-made in favour of Uflex and Montage
and, thus, judicial review was necessary and in public interest
B and the same undermining the tendering process.
Contentions before us:
Submissions on behalf of Uflex:
27. The broad contours of the submissions advanced on behalf of
C Uflex assailing the impugned order are as under:
i. Learned counsel for the appellant relied on the judgment in Tata
Cellular v. Union of India16 to submit that Alpha and Kumbhat have
failed to demonstrate any public interest, any flaw in the tender process
or for that matter any mala fide or arbitrariness. In the face of this
D submission, the terms of the NIT were not open to judicial scrutiny and
the Court can only review the decision-making process.
ii.The endeavour of Alpha and Kumbhat is an attempt to use the
judicial process to somehow frustrate the award of the tender to Uflex,
having not succeeded as a competitive commercial enterprise. The same
was true not only in this case but even in other tenders, as is reflected
E
from their submission that Uflex has been successful in a number of
tenders across the country. Their endeavour to challenge the tender on
similar grounds was unsuccessful in Writ Appeal No.509/2016 before
the Madras High Court itself against which the Special Leave Petition
was dismissed. A similar fate was met in their endeavour before the
F Madhya Pradesh High Court in WP No.4448/2016 where also the SLP
was dismissed.
iii. The petitioner has invested a huge amount of about Rs. 10
crore and has employed 87 people after the grant and issuance of work
order. The adjudication of a civil dispute, the present one being really
G akin to the same, is based on the preponderance of probabilities. The
impugned order visits Uflex with adverse civil consequences based on
some “justifiable doubts” as is found in the impugned judgment. In this
behalf, reference was invited to para 47 of the impugned judgment opining
so, i.e., “the evidence on record is insufficient to draw the definitive
16
H Id.
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS. 595
[SANJAY KISHAN KAUL, J.]

conclusion that the tender conditions were tailored to suit only the two A
eligible bidders, although there is sufficient basis for justifiable doubts on
that count.”
We may note that these observations have, however, been followed
by observations to the effect that evidence was sufficient to conclude
that the tender specifications were not generic and had, thus, not been B
prepared with the mandate of the G.O.
iv. The approach adopted by the Division Bench of the High Court
in what may be categorized as lifting the corporate veil and then
endeavouring to threadbare scrutinize the business relations of the two
companies, i.e., Uflex and Montage, is not an appropriate approach. C
Not only that, the alleged nexus had been examined by the Madhya
Pradesh High Court in WP No.4448/2016 and judgment was pronounced
on 06.09.2016 opining that Uflex and Montage are neither a holding –
subsidiary company nor associate company. The SLP filed against the
same, as noted above was dismissed.
D
v. There was a failure on part of Alpha and Kumbhat to establish
that the technical specifications were patented and Uflex and Montage
had monopoly over the same.
vi. The counsel for Uflex placed reliance on the judgment in Tata
Cellular17 and the principles culled out hereinabove at the inception E
while submitting that this view has been followed in various judicial
pronouncements, viz., Air India v. Cochin International Airport18,
Raunaq International Ltd. v. IVR Construction Ltd.19, Master Marine
v. Metcalfe and Hodkinson 20 , Michigan Rubber 21 and Bharat
Cooking Coal v. AMR Dev22.
F
Submissions on behalf of Montage:
28. Montage sought to support the plea of Uflex largely aggrieved
by the High Court’s findings to the effect that Uflex and Montage are
related entities as it may have an adverse impact on Montage in other
contractual and tender matters. This is more so in the context that in
G
17
(supra)
18
(2000) 2 SCC 617.
19
(1999) 1 SCC 492.
20
(2005) 6 SCC 138.
21
(supra).
22
(2020) 16 SCC 759. H
596 SUPREME COURT REPORTS [2021] 7 S.C.R.

A various tenders these two companies have actually competed against
each other successfully. Damaging observations were made to the effect
that even the qualification under the NIT was restricted to the two eligible
bidders. This raises questions as to the integrity and reliability of the
NIT, which has thus seriously been assailed.
B The observations of the Madhya Pradesh High Court referring to
aforesaid holding that Uflex and Montage are separate legal entities
was again emphasized. Uflex had made a financial investment of about
Rs.152 crore worth of preference shares in Montage due to Montage’s
acquisition of Uflex’s subsidiary, Utech Developers Limited. These
preference shares are 7.50% redeemable, non-cumulative, non-
C participating, non-convertible preference shares and the same does not
allow Uflex to exert any influence on Montage.
29. Similarly, supporting the plea of Uflex, Montage also contended
that the allegation of common source of patent technology through ATB
has no basis as Montage does not have any license arrangement with
D the said Company nor had it paid any license fee to ATB. It has, however,
access to technology to produce latent images because it procured the
requisite machinery.
Submissions on behalf of Kumbhat:

E 30. On the other hand, Kumbhat sought to emphasise the following
aspects in support of the impugned judgment:
i. The mandate of the G.O. stipulated that technical specifications
have to be generic in nature to ensure wider participation by incorporating
those features which are available with more than three bidders and the
F same was accepted by the Government by reiterating that there must be
multiple bidders. The factum of Hololive disqualification on certain
conditions of the NIT was not raised before the learned single Judge
and, thus, erroneous conclusion was arrived at as there were less than
three bidders. There were only two eligible bidders.
ii. The scenario of there being only two eligible bidders and award
G
going to the same party is apparent from the award of tenders with
same specifications by four other States. Thus, Uflex and Montage seem
to be monopolizing the business.
iii. The two bidders are closely related to each other as found by
the Division Bench and even in income tax proceedings before the High
H
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS. 597
[SANJAY KISHAN KAUL, J.]

Court of Delhi in the order dated 06.09.2018, Montage had taken the A
plea that Uflex was a sister company.
iv. The earlier judgment of the Madras High Court in Writ Appeal
No.509/2016 was not relevant as there were five qualified bidders and
the tender had dissimilar conditions. There was also a subsequent
amendment to the Tender Act, 2017 by introduction of Section 2(aa) B
read with the proviso to Section 10(2), which introduced the participation
by Domestic Enterprises. In this behalf, the relevant provisions are
reproduced hereinunder:
“2. Definitions.- In this Act, unless the context otherwise requires,-
xxxx xxxx xxxx xxxx xxxx C

[(aa) ‘Domestic Enterprise’ means any micro and small enterprise
as defined in the Micro, Small and Medium Enterprises
Development Act, 2006 (Central Act 27 of 2006), which
manufactures or produces goods, provides or renders services
within the State and filed Part II of the Entrepreneurs D
Memorandum in the District Industries Centres or filed Udyog
Aadhaar portal.]”
.... .... .... .... .... ….
“10. Evaluation and Acceptance of Tender.-
E
xxxx xxxx xxxx xxxx xxxx
(2) After evaluation and comparison of tenders as specified in
sub-section (1), the Tender Accepting Authority shall accept the
lowest tender ascertained on the basis of objective and quantifiable
factors specified in the tender document and giving relative weights F
among them:
[Provided that the Tender Accepting Authority shall accept the
tender of domestic enterprises, not being the lowest tender, upon
satisfaction of such conditions as may be prescribed, in respect
only of goods manufactured or produced and services provided G
or rendered by them, and only to the extent of not exceeding
twenty five per cent of the total requirement in that procurement,
if such domestic enterprise is willing to match the price of the
lowest tender:

H
598 SUPREME COURT REPORTS [2021] 7 S.C.R.

A Provided further that the Tender Accepting Authority shall accept
the tender of a department of Government, Public Sector
Undertaking, Statutory Board and other similar institutions as may
be notified, not being the lowest tender, upon satisfaction of such
conditions as may be prescribed, in respect only of goods
manufactured or produced and services provided or rendered by
B
them, and only to the extent of not exceeding forty per cent of the
total requirement in that procurement, if such tenderer is willing
to match the price of the lowest tender:
Provided also that in case of a single procurement, the total
procurement under the above two provisos shall not exceed forty
C percent of the total requirement in that procurement.]”
Kumbhat being an MSME, thus, seeks a right to participate in
tenders in Tamil Nadu.
31. We may note at this stage that Kumbhat did not even apply
D and could not have applied being a partnership firm while Alpha could
have applied being an LLP but did not apply.
Submissions on behalf of Alpha:
32. Alpha sought to reiterate the submissions made by Kumbhat
and sought to give examples from other States to support its adequacy
E of manufacturing capacity: L-3 in 2019 in Chhattisgarh tender, L-2 in
Tamil Nadu in 2011 and 2015 tenders, and L-3 in 2021 in Andhra Pradesh
tender. These tenders had generic specifications unlike the present tender.
Alpha only got disqualified due to the technical specifications and its
past experience, i.e. clauses 4.6(b) and 4.6(c), which serve to eliminate
F all bidders except two.
33. Alpha sought to emphasise the aspect of public interest as a
ground for judicial intervention by relying upon certain judicial
pronouncements, viz., Monarch Infrastructure v. Ulhasnagar
Municipal Corp.23 and Jagdish Mandal24.
G Submissions on behalf of the Government of Tamil Nadu:
34. Let us now turn to the most important stand which is of the
Tamil Nadu Government, which is the tendering entity. In this behalf

23
(2000) 5 SCC 287.
H 24
(supra).
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS. 599
[SANJAY KISHAN KAUL, J.]

what has been sought to be emphasized at the threshold is public interest A
itself as the tender conditions seek to prevent spurious liquor being pushed
into the market. Since 1999, only one supplier, Holostik India, had been
successful in all tenders except the present tender where it chose not to
participate despite having the technical capability to do so and three
firms ultimately participated, i.e., Uflex, Montage and Hololive.
B
35. The State of Tamil Nadu sought to emphasise the importance
of transparency of the decision-making process. The TSC comprised of
eminent scientists in holography and printing technology and the NIT
was formulated after their deliberations and after receiving input from
prospective bidders. The non-holographic feature of ‘hidden text on colour
change background’ was suggested by technical experts from IIT and C
Anna University as the same is the latest and most secure feature. The
objective was to reduce chances of the hologram being counterfeited.
36. On the aspect of clauses 4.1, 4.5, 4.6(a) and 4.6(b), which
formed part of the general terms and the conditions of the technical bid
and dealt with the aspect of the past experience in supply and turnover, D
it was submitted that these very conditions formed a part of the 2015
tender as well. These were challenged by Kumbhat and the writ appeal
was dismissed, and this order was affirmed in the SLP, as already set
out hereinbefore.
37. It was emphasized that Alpha’s grievance qua the door being E
shut on them was addressed through corrigendum 2, which permitted
LLPs to participate in the tender. The same very corrigendum addressed
the issue relating to hidden text being visible only through Polaroid by
adding film. It was submitted that the Division Bench wrongly noted that
the hidden colour specification was patented and there were no eligible F
bidders who would qualify the same as the counter affidavit contains a
list of tenders which had similar conditions and parties had succeeded in
the same. For example, the 2019-22 Excise Department Chhattisgarh
tender had similar conditions and Prizm Holography succeeded. The
same tender had two other entities who had qualified, including Alpha.
G
38. On the aspect of tender conditions being tailor-made and the
principles of DOSA applying, it was submitted that the latitude must be
greater where such high security features are involved.25

25
Association of Registration Plates v. Union of India (2005) 1 SCC 679. H
600 SUPREME COURT REPORTS [2021] 7 S.C.R.

A 39. Lastly it was submitted that there was nothing so extraordinary
or unique which was being done by the respondents and the practice
followed were similar to the practices of other States. The impugned
technical specifications have been utilized by several states and public
sector undertakings in the past and the tenders were awarded to other
players also apart from Uflex and Montage. This would belie the
B
contention that the technology was patented and only a few selected
companies were eligible. Not only that, in view of corrigendum 2, colour
change background viewable with film as an identifier did not attract the
rigour of a patented technology. In almost an identical tender floated by
the State of Chhattisgarh, Uflex and Montage did not succeed during
C the tendering process.
Conclusion:
40. We must begin by noticing that we are examining the case, as
already stated above, on the parameters discussed at the inception. In
commercial tender matters there is obviously an aspect of commercial
D competitiveness. For every succeeding party who gets a tender there
may be a couple or more parties who are not awarded the tender as
there can be only one L-1. The question is should the judicial process be
resorted to for downplaying the freedom which a tendering party has,
merely because it is a State or a public authority, making the said process
E even more cumbersome. We have already noted that element of
transparency is always required in such tenders because of the nature
of economic activity carried on by the State, but the contours under
which they are to be examined are restricted as set out in Tata Cellular26
and other cases. The objective is not to make the Court an appellate
authority for scrutinizing as to whom the tender should be awarded.
F Economics must be permitted to play its role for which the tendering
authority knows best as to what is suited in terms of technology and
price for them.
41. The present dispute has its history in many prior endeavours
by the original petitioners which have proved to be unsuccessful. It does
G appear that in a competitive market they have not been so successful as
they would like to be. Merely because a company is more efficient,
obtains better technology, makes more competitive bids and, thus,
succeeds more cannot be a factor to deprive that company of commercial

26
H (supra).
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS. 601
[SANJAY KISHAN KAUL, J.]

success on that pretext. It does appear to us that this is what is happening; A
that the two original petitioners are endeavouring to continuously create
impediments in the way of the succeeding party merely because they
themselves had not so succeeded. It is thus our view that the Division
Bench has fallen into an error in almost sitting as an appellate authority
on technology and commercial expediency which is not the role which a
B
Court ought to play.
42. The checks and balances before the tendering process itself
has been provided by constitution of the various committees, more
specifically the TSC and the TSFC. The objective is to keep the role of
these Committees separately defined.
C
43. We are concerned with sale of liquor. The objective has been
set out by the State Government, i.e., use of such technology as would
prevent spurious liquor from being sold. It is a well-known fact that a
large revenue collection comes in Tamil Nadu through sale of liquor. It
thus must be left to the State Government to see how best to maximize
its revenue and what is the technology to be utilized to prevent situations D
like spurious liquor, which in turn would impede revenue collection, apart
from causing damage to the consumers.
44. A grievance was made about what was stated to be “patented
technology”. At the stage when the concerned committees were still
looking to the objections/suggestions of the parties, Kumbhat and Alpha E
rushed to the Court. The State Government did provide relief by issuing
a corrigendum to address the issue relating to hidden text being visible
only through Polaroid, as colour change background viewable with film
as an identifier did not attract the rigour of this stated patented technology.
The issue was actually over with that corrigendum. F
45. Insofar as the participating entities are concerned, it cannot
be contended that all and sundry should be permitted to participate in
matters of this nature. In fact, in every tender there are certain qualifying
parameters whether it be technology or turnover. The Court cannot sit
over in judgment on what should be the turnover required for an entity to G
participate. The prohibition arising from only a Limited company being
permitted to participate was again addressed by the corrigendum
permitting LLPs to participate. If entities like Kumbhat and Alpha want
to participate they must take some necessary actions. Alpha is already
an LLP. Kumbhat cannot insist that it will continue to be a partnership
H
602 SUPREME COURT REPORTS [2021] 7 S.C.R.

A alone and, thus, that partnerships must necessarily be allowed to
participate.
46. Insofar as Kumbhat’s plea based on the Tender Act is
concerned, a reading of the provisions would show that some benefit is
sought to be given to MSMEs to the extent of 25% of the order based on
B their willingness to match the price of the lowest tender. However, to be
able to avail of that benefit, it must be an entity which is capable of
bidding in terms of the tender conditions. There is no prohibition against
limiting the participation to Limited companies of LLPs. Domestic
enterprise in the Tender Act is defined to mean any micro and small
C enterprise as defined in the MSMED Act. This argument also appears
to be an afterthought, as it is not as if Kumbhat participated claiming
such right as an MSME.
47. Now coming to the issue of the requirement of three bidders
or more than three bidders, the factual position is that there were three
D bidders and that one of them met the technical specifications but did not
succeed further on financial issues and turnover under Part 4 of the
NIT. The same cannot be used to nullify the whole tendering process.
We are dealing with a tender of a nature where there cannot be a vacuum.
If there is less participation than necessary, it cannot be said that ipso
facto the terms and conditions of tender have followed a DOSA, and to
E somehow give the tender to one of the parties. Similar terms have been
set out in many tenders of different States and there have been varying
succeeding parties. No doubt, the success rate of the two successful
parties before us is definitely higher but we fail to appreciate how that
can form the basis to come to a conclusion that something must be done
F to let other people get a tender. If one may say, it will then become a
DOSA to see that the most competitive party does not succeed in the
tender but that other parties who keep approaching the Court must get
some share of the pie. This cannot be the objective.
48. We have also noticed the submissions based on the fact that
G repeated endeavours of Alpha and Kumbhat have failed not only before
the Madras High Court but before different High Courts based on a
similar challenge. Broadly, similar tender conditions have been upheld. It
cannot be that every time a tender is floated, Kumbhat and Alpha would
be permitted to seek a toehold on one pretext or the other. As noticed, it

H
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS. 603
[SANJAY KISHAN KAUL, J.]

is not really the function of the Court to vet the terms of the NIT, as it is A
the decision-making process which can be reviewed in judicial scrutiny.27
49. A lot of emphasis has been placed by the Courts below in
seeking to go into the financial linkages between the two companies,
i.e., Uflex and Montage. The correct way of examining this issue should
have been that whether under the terms of the NIT, any of the aspects B
which were examined by the Courts could be said to be a disqualification.
In our view, the answer to the same was in the negative. One company
had invested in another through certain preference shares without having
any controlling interest, this cannot be the basis of judicial scrutiny. The
present case is not one of an intercorporate battle or of minority
C
shareholders claiming the rights or any debts due, where the principle of
lifting the corporate veil should be applied. What one may have said in
some income tax proceedings, whether a small percentage of the funds
of one company have been utilized as investment in the other are hardly
the principles which should come into play in such a tender matter.
D
50. We are thus unequivocally of the view that the impugned order
cannot be sustained for all the aforesaid reasons and must be set aside
and the appeals are accordingly allowed.
Costs:
51. The costs following cause is a principle which is followed in E
most countries. There seems to be often a hesitancy in our judicial system
to impose costs, presuming as if it is a reflection on the counsel. This is
not the correct approach. In a tussle for enforcement of rights against a
State different principle apply but in commercial matters costs must follow
the cause.
F
52. The aspect of awarding the costs has received consideration
of the Law Commission of India in its Report No.240, specifically in
relation to civil litigation. The trigger for this were the observations of
the Supreme Court in Ashok Kumar Mittal v. Ram Kumar Gupta28
and Vinod Seth v. Devinder Bajaj29. The judicial pronouncements took
note of the levying meager costs in civil matters which did not act as a G
deterrent to vexatious or luxury litigation borne out of ego or greed or

27
Tata Cellular (supra).
28
(2009) 2 SCC 656.
29
(2010) 8 SCC 1.
H
604 SUPREME COURT REPORTS [2021] 7 S.C.R.

A resorted to as a ‘buying time’ tactic. These two judicial pronouncements
were followed in Sanjeev Kumar Jain v. Raghubir Saran Charitable
Trust30. In the said proceeding the Law Commission also presented its
views. It is in that context that this Court observed that appropriate
changes in the provisions relating to costs contained in the report of the
Law Commission of India should be followed up by the Parliament and
B
the respective High Courts.
53. We may note that the common thread running through all
these three cases is the reiteration of salutary principles: (i) costs should
ordinarily follow the event; (ii) realistic costs ought to be awarded keeping
in view the ever increasing litigation expenses; and (iii) the cost should
C serve the purpose of curbing frivolous and vexatious litigation. 31
54. We may note that this endeavour in India is not unique to our
country and in a way adopts the principle prevalent in England of costs
following the event. The position may be somewhat different in the United
States but then there are different principles applicable where champerty
D is prevalent. No doubt in most of the countries like India the discretion is
with the Court. There has to be a proportionality to the costs and if they
are unreasonable, the doubt would be resolved in favour of the paying
party32. As per Halsbury’s Laws of England, the discretion to award
costs must be exercised judicially and in accordance with reason and
E justice.33 The following principles have been set out therein:
“In deciding what order (if any) to make about costs, the court
must have regard to all the circumstances, including:
(i) The conduct of all the parties;

F (ii) Whether a party has succeeded on part of his case, even if he
has not been wholly successful; and
(iii) Any payment into court or admissible offer to settle made by
a party which is drawn to the court’s attention.
The conduct of the parties includes:
G

30
(2012) 1 SCC 455.
31
Report No.240 of the Law Commission of India.
32
U.K. Civil Procedure Rule 44.2.
33
H Vol. 10, 4 th Ed. (Para 15).
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS. 605
[SANJAY KISHAN KAUL, J.]

a. Conduct before, as well as during, the proceedings and in A
particular the extent to which the parties followed any relevant
pre-action protocol;
b. Whether it was reasonable for a party to raise, pursue or
contest a particular allegation or issue;
c. The manner in which a party has pursued or defended his B
case or a particular allegation or issue; and
d. Whether a claimant who has succeeded in his claim, in whole
or in part, exaggerated his claim.”34
55. We may add that similar principles are followed in Australia, C
Hong Kong and Canada largely based on the Common Law principle.
In fact in Canada, the Manitoba Law Commission Report analysed the
‘Costs Awards in Civil Litigation’ and referred to six broad goals as
under:
a. indemnification – successful litigants ought to at least be partially D
indemnified against their legal costs;
b. deterrence – potential litigants should carefully assess the merits
of the claim and should refrain from taking any unnecessary legal
actions;
c. rules should be made decipherable and simple to understand; E
d. early settlement of disputes should be encouraged;
e. the costs regime should facilitate access to justice; and
f. there should be flexibility in rules to ensure that justice can be
done.35 F
56. We have set forth the aforesaid so that there is appreciation
of the principles that in carrying on commercial litigation, parties must
weigh the commercial interests, which would include the consequences
of the matter not receiving favourable consideration by the courts.
Mindless appeals should not be the rule. We are conscious that in the G
given facts of the case the respondents have succeeded before the
Division Bench though they failed before the learned single Judge. Suffice
to say that all the parties before us are financially strong and took a

34
10th Vol. 4 th Ed. (Para 17).
35
Law Commission (supra). H
606 SUPREME COURT REPORTS [2021] 7 S.C.R.

A commercial decision to carry this legal battle right up to this Court. They
must, thus, face the consequences and costs of success or failure in the
present proceedings.
57. The best reflection of what costs have been incurred is what
the parties have paid towards the counsel fee and out of pocket expenses.
B The present proceedings do arise from a writ proceeding under Article
226 of the Constitution but it is really a commercial dispute. Thus, the
failing party cannot hide behind the veneer of the present dispute being
in the nature of a writ proceeding. The tender jurisdiction was created
for scrutiny of commercial matters and, thus, where continuously parties
seek to challenge award of tenders, we are of the view that the succeeding
C party must get costs and the party which loses must pay costs. This was
really a battle between two commercial entities on one side seeking to
get set aside an award of a tender to two other entities. What else would
be commercial interest!
58. It is with the aforesaid objective that we had asked the parties
D to file their bill of costs vide order dated 17.08.2021. The objective was
to bring forth this principle into force by quantifying actual costs for the
succeeding party.
59. We have scrutinised the bill of fee and costs. We are inclined
to allow actual costs. However, we have modulated the costs insofar as
E appellant is concerned to the extent of the indicated amount of the
Advocate-on-Record and allow 50% of the same. The total costs, thus,
payable to the petitioner/appellant would be Rs.23,25,750/- (Rupees
twenty three lakh twenty five thousand seven hundred fifty only). The
State Government cannot be left behind so far as their compensation of
F costs in defending such a litigation is concerned and we, thus, allow the
costs of Rs.7,58,000/- (Rupees seven lakh fifty eight thousand only).
60. The costs be accordingly paid within a period of four weeks
by Kumbhat and Alpha in equal share to the two parties as aforesaid.

G Nidhi Jain Appeals allowed.

H