Writ Petition No.8548 of 2010

13th December, 2010

Petitioner Counsel: Mr. SHRIRAM S. KULKARNI
Respondent Counsel: Mr. ASHUTOSH KUMBHAKONI, TEJAS D. DESHMUKH,Mr. VIJAY D. PATIL

Cases Cited:
Kasturi Lal Lakshmi Reddy Vs. State of Jammu and Kashmir, (1980)4 SCC 1 [Para 7]
Netai Bag Vs. State of W.B., (2000)8 SCC 262 [Para 7]
Vijay Kumar Gupta Vs. State of Maharashtra, 2008(3) ALL MR 240=2008(4) Mh.L.J. 370 [Para 7]
Monarch Infrastructure (P) Ltd. Vs. Commissioner, Ulhasnagar Municipal Corporation, (2000)5 SCC 287 [Para 9]

JUDGMENT

Dr. D. Y. CHANDRACHUD, J.:- Rule; by consent returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal.

2. In these proceedings under Article 226 of the Constitution, the Petitioner challenges a Government Resolution of 18th August, 2010 and an order of 31st August, 2010 by which a contract of a total value of Rs.31.86 crores for the supply of computer hardware and for imparting training to students in 271 Government Hostels across the State has been awarded without inviting tenders.

3. In the State of Maharashtra, 271 hostels are conducted for students belonging to the backward classes by the State Government. The hostels are administered by the Director of Social Welfare. On 4th July, 2003, the Social Welfare Department issued a Government Resolution in order to make provision for amenities to students of those hostels. Included in those amenities, was a provision for four computer sets for each hostel. According to the Government, though computers were made available to the hostels, they remained unused or were underutilised in the absence of adequate training to students. The First Respondent unilaterally submitted a proposal on 30th March, 2010 for imparting computer training to hostel students. On 26th April, 2010, the Desk Officer forwarded the proposal to the Director of Social Welfare, informing him that the Government has received a proposal for creating a Computer Section on a build, operate and transfer (BOT) basis for Government Hostels and for imparting computer training. The Director of Social Welfare scrutinized the proposal and submitted his report. The Director of Social Welfare while evaluating the proposal was categorically of the view that the State Government should issue a public advertisement and invite offers from interested bidders. By a letter dated 21st June, 2010, the Desk Officer informed the Director of Social Welfare to submit any other proposals that he may receive, to the Department. According to the Government, three other institutions submitted their proposals to the Director which were forwarded by him to the Principal Secretary in the Social Welfare Department on 28th June, 2010. The proposals were evaluated. On 17th August, 2010, a decision was taken at a meeting convened by the Minister, (Social Justice and Special Assistance Department) at which it was decided that from the proposals which had been received from the Director of Social Welfare, a contract should be awarded to the bidder who had offered the lowest rate. Accordingly, on 18th August, 2010, a GR was issued by which a contract for the supply of computers on a BOT basis for providing computer training for 2010-11, 2011-12 and 2012-13 was awarded to the First Respondent. The total outlay for 2010-11 is Rs.14.23 crores, whereas the outlay for the subsequent two years is Rs.8.81 crores per annum.

4. The award of the contract has been challenged by the Petitioner who claims that on 23rd July, 2010, it had submitted a proposal to the Third Respondent. According to the Petitioner, the contract was awarded without considering the proposal of the Petitioner. Broadly speaking, the challenge which has been preferred before the Court by the Petitioner, is based on the following submissions:

Firstly, it is urged that no tenders were invited for the award of the contract. This itself, it is urged, is arbitrary and violative of Article 14;

Secondly, it has been submitted that there was no compelling necessity to deviate from the normal rule of the award of public contracts by inviting tenders. In this case, despite a specific recommendation that tenders should be invited, the State Government chose to award the contract without publishing a notice and without inviting tenders;

Thirdly, it has been submitted that the entire process adopted by the State Government is arbitrary. The Government, it is urged, had not laid down any specifications of what courses should be prescribed for imparting computer training to backward class students staying in hostels. No criteria were laid down in respect of (i) credentials, (ii) financial capacity; (iii) man power; (iv) expert teachers; (v) past experience; and (vi) specifications; infrastructure or the quality of training. As a result, the award of the contract is based on an offer submitted by the First Respondent and three other offers alleged to have been received by the State Government; and

Fourthly, the Petitioner submits that in any event, the offer which has been made by the Petitioner and which was on the file of the Government, has not been considered before the award of the contract.

5. The State Government has filed an affidavit-in-reply in these proceedings. The reply, besides adverting to the facts which have been narrated earlier, states that apart from the proposal of the First Respondent, Government received four other proposals which were scrutinized. A submission was prepared together with a comparative statement of all the proposals and it was placed before the Minister. In pursuance of the directions of the Minister, a meeting was held on 17th August, 2010 when a decision was taken to approve the proposal at the lowest rate. The Government has submitted that while the Petitioner has contended that he had submitted a proposal on 23rd July, 2010, by that time submissions were already made by the Section Officer on 8th July, 2010. The proposal of the Petitioner was almost identical, with slight changes, to the proposal of the First Respondent. The State Government has admitted in its affidavit that in the present case, tenders were not invited. However, five proposals which were received by the Government, were scrutinized and the proposal of the First Respondent was selected since it was the lowest. In the present case, imparting of training to students of Government hostels was taken up on experimental basis and it is only after the receipt of the proposal that the process of providing such training was started. The concept of providing training was received from the First Respondent.

6. The First Respondent, who is the selected bidder, has submitted in his affidavit-in-reply that it was the First Respondent who for the first time, came out with an innovative idea of imparting training to inmates of Government hostels. According to the First Respondent, monetarily the difference between the proposal of the Petitioner and the First Respondent is marginal or almost nil. The First Respondent states that in pursuance of the work order that was issued on 31st August, 2010, steps have been taken to supply the infrastructure to all the concerned Government hostels located throughout the State of Maharashtra and the First Respondent together with its partner, Hinduja International Pvt. Ltd. has incurred an expenditure of approximately Rs.5.88 crores. The submissions which have been urged for and on behalf of the First Respondent are two fold. Firstly, it has been submitted that the First Respondent has taken steps for the purpose of implementing the contract that was entered into with the State Government and has incurred substantial investment. Consequently, it is urged that the interference of this Court under Article 226 of the Constitution is not warranted at the present stage. Secondly, it is urged that inviting of tenders is an invariable but not an inflexible rule and there was valid reason for the Government not to invite tenders. Learned Counsel also submitted that though the Petitioner claims to have submitted a proposal on 23rd July, 2010, it is a matter of issue as to whether that proposal was even placed on the file of the Government prior to September, 2010 when the work order was awarded to the First Respondent.

7. While dealing with the merits of the rival contentions, the first aspect which needs to be emphasized is that Article 14 of the Constitution mandates that the State when it awards public contracts must conduct itself fairly and transparently. The award of Government contracts involves disbursement of substantial benefit. Article 14 of the Constitution militates against any notion of an unrestricted largesse which the State can award at its whims and fancies. The State Government when it decides to award contracts must ordinarily prescribe the specifications which an intending bidder must fulfill. These specifications include the laying down of credentials, experience, financial capacity and other like facets. The consequence of these norms is that a bidder, who enters into a contract with the Government, must have a demonstrable capacity to fulfill the requirements of the contract in terms of technical qualifications and financial commitment. Technical qualifications are decided on the basis of the availability of infrastructure, qualified personnel and experience in handling similar contracts of at least a particular value in the past. Financial parameters ensure that the Government, when it awards a contract, deals with a bidder who would have the wherewithal to fulfill the requirements of Government. The award of public contracts is part of the process of governance by which the Government provides facilities and amenities to society at large and in certain cases, such as the present, to a particular segment of the society. The inviting of tenders is a salutary norm which ensures transparency in dealings of the Government. The inviting of tenders is significant not only from the perspective of making available to Government the best possible rates but also ensures that the wide publicity that is ensured by advertising a proposal, results in Government being able to evaluate the merits of a large body of rival bidders. Secrecy in the award of Government contracts is liable to result in the worst possible abuses by excluding a large segment of the community who may have no knowledge of the fact that Government is likely to disburse benefits in the form of a particular public contract. Consequently, while Courts have recognized that the award of public contracts by inviting tenders is the norm, exceptions have been noted in compelling situations. The exception, however, cannot be allowed to become the rule. One such exception was carved out by the Supreme Court in Kasturi Lal Lakshmi Reddy Vs. State of Jammu and Kashmir [(1980)4 SCC 1], where the State Government was proceeding to award a tapping contract to a party who was prepared to set up a factory for the manufacturing inter alia of rosin and turpentine oil. The Supreme Court noted that the purpose of the contract was not tapping simpliciter, but to encourage the process of industrialization within the State. In Netai Bag Vs. State of W.B. [(2000)8 SCC 262], the Supreme Court once again reiterated that where the State was conferring a largesse recourse must be had to a public auction or to a public tender. However, an exception would not in all cases make the exercise of executive power arbitrary. However, an exception to the general rule has to be justified by the State if it is challenged in an appropriate proceedings. The same principle was reiterated in a judgment of a Division Bench of this Court delivered by the Chief Justice, the Hon'ble Mr. Justice Swatanter Kumar (as His Lordship then was) in Vijay Kumar Gupta Vs. State of Maharashtra [2008(4) Mh.L.J. 370 : (2008(3) ALL MR 240)]. The Division Bench emphasized that it is only in a case of the compelling necessity that a breach from the norms of inviting tenders can be justified.

8. In the present case, the entire process which has been adopted by the State Government for the award of a large public contract for the supply of computer infrastructure and for imparting training in the 271 Government Hostels is fundamentally defective. Firstly, there is nothing on the record to indicate that the Government had even applied its mind to what courses should be imparted for training to the backward class students. No criteria were laid down by the Government specifying the credentials, financial capacity, past experience or expertise which bidders would have to meet. Government seems to have been moved only on the receipt of proposals from the First Respondent and by a few other bidders. The Director of Social Welfare had, in his noting on the file, expressly cautioned the Government of the necessity of inviting tenders by publishing an advertisement. There is, in our view, absolutely no reason or justification why, before proceeding to award a contract of a total value in excess of Rs.31 crores, the Government considered it appropriate not to invite tenders. The Court has been moved undoubtedly in the present case, by a bidder, who complained that his proposal was not considered. The issue before the Court is not as to whether the Petitioner is entitled to the award of the contract. Indeed, if as the Court is inclined to hold, the correct course of action for the Government was to invite tenders, it may well be that the Petitioner would not be entitled to relief in terms of the award of the contract in these proceedings. The fundamental point, however, is that there is absolutely no justification offered on the part of the State Government, in the reply, for deviating from the normal rule of inviting tenders for awarding a contract. A cursory reference has been made to the fact that the Government had received the concept of providing training from the First Respondent. The State Government has stated in its affidavit that it had also received a proposal from NIIT on 30th June, 2010. But in the course of arguments, the learned Government Pleader fairly stated that the proposal was received from NIIT in October, 2009. There is nothing novel about a proposal to set up computer infrastructure and impart training to students in the Government Hostels. The Government has stated that it was intending to impart training to students of hostels on an experimental basis and it was only after the receipt of the proposal from the First Respondent that the process of providing such training was started. Even assuming that the idea of imparting training to students of the Government Hostels was mooted by the First Respondent, there was no reason or justification for the Government not to invite tenders and to allow all bidders an equal opportunity to submit bids for the award of the contract. The Government has failed to do so. There is merit in the submission that the entire decision making process has been flawed and has been violative of Article 14 of the Constitution.

9. On behalf of the First Respondent, it has been submitted that the Petition should be dismissed on the ground that there has been an unexplained delay in moving the Court. The work order to the First Respondent was awarded on 31st August, 2010. A Memorandum of Understanding was entered into between the State Government and the First Respondent on 24th September, 2010. The Petition was lodged before this Court on 21st October, 2010. By an interim order dated 25th October, 2010, which was passed by a Division Bench, after hearing Counsel appearing on behalf of the First Respondent and the Learned Government Pleader, the Division Bench clarified that any preliminary steps being taken such as laying down electrical cables may continue, but installation of computers shall not be allowed till 28th October 2010. The interim order was thereafter continued. The Petitioner has, in an affidavit filed in rejoinder in these proceedings, stated that after the submission of his proposal on 23rd July, 2010 to the Secretary in the Social Welfare Department, he has continuously followed up the matter between July and September, 2010. In September, 2010, the Petitioner met the Secretary in the Social Welfare Department. On the proposal submitted by the Petitioner, the Secretary in the Social Welfare Department made an endorsement on 9th September, 2010 to the effect that the proposal should be put up along with the main file. On this basis, it is urged on behalf of the Petitioner that right until then, the Petitioner was led to believe that his proposal was under consideration. The work order that has been issued to the First Respondent also states in condition 15 that in the event that any dispute arises in relation to the contract awarded to the First Respondent, the First Respondent would have no claim as against the State Government. There is no delay on the part of the Petitioner. Be that as it may, we are of the view that in the present case, where the award of the contract has been effected without complying with basic procedures consistent with the requirement of Article 14, the intervention of the Court is warranted. There is, in our view, no delay much less an unexplained delay, on the part of the Petitioner in moving the Court. The action of the Government is clearly arbitrary and discriminatory as held by the Supreme Court in Monarch Infrastructure (P) Ltd. Vs. Commissioner, Ulhasnagar Municipal Corporation [(2000)5 SCC 287], warranting the grant of relief.

10. For the reasons aforesaid, the Petition is allowed in terms of prayer clause (a) by quashing the Government Resolution dated 18th August, 2010 and the consequential work order dated 31st August, 2010. In the event that the Government proposes to award a contract for the installation of the computer infrastructure in the 271 Government Hostels and to impart training to students of the hostels, the Government shall proceed in accordance with law, in terms of the observations contained in this judgment.

11. While allowing the petition, we are of the view that the equities that have intervened in the present case, prior to the date of the interim order of this Court dated 25th October, 2010 would have to be balanced. It has been urged on behalf of the First Respondent that even prior to the date of the interim order dated 25th October, 2010, the First Respondent had supplied computer infrastructure and paraphernalia to the Government Hostels after the date of the work order. We are of the view that it would be appropriate in the facts and circumstances of the case, to direct that Government shall constitute a Committee consisting of the Secretaries in-charge of the (i) Social Justice and Special Assistance Department; (ii) Finance Department; (iii) Information Technology Department; and (iv) Law and Judiciary Department. The Committee shall take a decision on whether (i) The computers and peripherals, if any, which have been supplied by the First Respondent prior to the interim order dated 25th October, 2010 meet the requirements of the Government with reference to the proposed setting up of infrastructure and imparting of training to students of Government Hostels in the State; (ii) In the event that the Committee comes to the conclusion that Computers and peripherals were supplied by the First Respondent prior to the interim order dated 25th October, 2010 and are acceptable and meet the requirements of the programme, the Committee shall proceed to make a valuation of the equipment supplied by the First Respondent at the rate applicable to the rate contracts of the State Government. In that event, it would be open to the State Government to offer to disburse to the First Respondent the amount that is determined by the Committee subject to this being acceptable to the First Respondent. In the event that the proposal of the Committee is not acceptable to the First Respondent, it would be open to the First Respondent to apply to the Committee for removing the computers and peripherals which have been supplied. This process shall be completed preferably within a period of six weeks from today. The Director of Social Welfare shall assist the Committee in the completion of the aforesaid exercise. The Petition shall stand disposed of with these directions. There shall be no order as to costs.

Petition allowed.