2011(1) ALL MR 668
IN THE HIGH COURT OF JUDICATURE AT BOMBAY

D.Y. CHANDRACHUD AND A.V. MOHTA, JJ.

Bharat Biotech International Ltd.Vs.Directorate Of Medical, Education & Research & Ors.

Writ Petition (Lodg.) No.2419 of 2010

2nd December, 2010

Petitioner Counsel: Mr. I. M. CHAGLA,Mr. NIKHIL SAKHARDANDE,Ms. CHANDANA SALGAONCAR-RADIA
Respondent Counsel: Mr. D. A. NALAVADE,Ms. G. R. SHASTRI,Mr. VIJAY THORAT,Mr. DEVASIS MITRA, Ms. PRACHI TAKALE, Mr. RAJA RATAN BHURA , Ms. TULITA CHAKRABORTY,Mr. ASHUTOSH KUMBHAKONI,Mr. AMIT BORKAR,Mr. MAHESH LONDHE,Sanjay Udeshi & Co.
Other Counsel: Mr. CHITTRANJAN KUMAR

Constitution of India, Art.14 - Tender process - Duty of public body - Held, a public body when it invites tenders is duty bound to comply with the terms of the tender and by the norms of fairness that Art.14 of the Constitution embodies.

A public body when it invites tenders is duty bound to comply with the terms of the tender and by the norms of fairness that Article 14 of the Constitution embodies. When the Tender Approval Committee holds that a bidder is disqualified, it is totally arbitrary then to proceed to award contract to that very bidder on the ground that other bidders have not matched the commercial bid of a disqualified bidder. Once a bid is disqualified, the bid in its entirety has to be kept aside and no part of that bid can be utilized for evaluating the merits of the other bidders. Once a bid is disqualified, it is impossible to conceive how a contract can be awarded to that very party on the basis that the commercial bid quoted by it is the lowest and the other bidders have not matched the bid. The question of comparing commercial bids arises between bidders similarly circumstanced, that is to say, between bidders who meet the requirement of technical eligibility. Bidders who meet eligibility requirements are not equal to bidders who are disqualified and do not stand on the same basis as bidders who are eligible. To equate them is to treat unequals equally : something that is forbidden by Article 14 of the Constitution. (2001)2 SCC 451 - Ref. to. [Para 17]

Cases Cited:
W.B. State Electricity Board Vs. Patel Engineering Co. Ltd., (2001)2 SCC 451 [Para 18]


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. The Directorate of Medical Education and Research of the Government of Maharashtra invited bids in September, 2009 for a rate contract for the supply inter alia of Anti Rabies Vaccine (ARV) to all State run hospitals for the period from 2010 to 2012. Five bidders submitted offers including amongst them the Petitioner and the Second to Fifth Respondents. The Government of Maharashtra has issued a resolution on 27th March, 2000 to streamline and regulate the purchase of drugs and medicines by government following upon the recommendations of the Lentin Committee. The resolution requires invitations to tender to be processed on the basis of a two bid cover system. The first envelop is to contain documents certifying the eligibility of the bidder while the second envelop is to contain the commercial bid. The commercial bids of only those bidders who are found to be technically qualified are liable to be opened. Negotiations are conducted with acceptable tenderers meaning thereby those bidders who are found to be technically qualified.

3. In the present case, the first envelop containing the technical bids was opened on 15th July, 2010. On 17th August, 2010 the Tender Approval Committee (TAC) met at a meeting at which seven of its members including the Director -Medical Education - and Research, Joint Secretary, Deputy Director, the Director - ESIS and a professor attached to the B.J. Medical College at Pune were in attendance. The bid submitted by the Second Respondent was found not to be eligible and a decision was taken to disqualify the Second Respondent unanimously. The grounds on which the Second Respondent was held to be disqualified were thus :

i) The Second Respondent had not submitted essential documents with the technical bid. Among the documents required to be submitted was a declaration, required by Clause 79 of Annexure I, stating that the bidder had not been blacklisted or debarred for dealing by the Government of India or by any State Government or by a local self governing body. The Second Respondent had also not submitted a latest performance certificate by 31st July, 2010 within the extended period. The Second Respondent had submitted a letter from the Food and Drug Administration of Tamil Nadu which was valid until 14th October, 2009;

ii) An undertaking was required to be submitted by all bidders in a proforma prescribed with the tender. The Second Respondent by his letter dated 15th July, 2010 had lodged a protest while submitting an undertaking, as a result of which the undertaking which was submitted was conditional and qualified;

iii) During the period of a rate contract which the Second Respondent had with the State of Kerala and the Municipal Corporation of Greater Mumbai, the Second Respondent had unilaterally and willfully stopped the supply of Anti Rabies Vaccine because of the non-payment of invoices within the stipulated time period;

iv) The Second Respondent had not disclosed in the undertaking submitted that the Government of Tamil Nadu had not qualified it on the ground that there was an order of blacklisting by the Kerala Government.

4. The view of the Tender Approval Committee on the technical bid submitted by the Second Respondent was as follows :

"When all these facts are taken into consideration then it is important that there must be regular supply of this life saving drug Inj. ARV without any shortage, and therefore it is clearly mentioned as per the clause No.8.11 of the tender that tenderer cannot stop the supply of drug/Medicine for non payment of invoices for any reason. As admitted in the undertaking submitted by ITL it is clear that when RC is awarded to them they may stop supply in future for late payment of invoices. If supply of such life saving Inj. ARV is stopped all of a sudden then in emergency it become very difficult for administration to make available/to procure such Medicine from the open market. Not only to purchase the drug at higher cost from the open market in emergency but also it may put the extra burden on the Govt. Budget."

5. On this basis, the Second Respondent was disqualified from being considered for the tender in question for the following reason :

"By considering all abovementioned facts and since it is important that life saving drugs like Inj. ARV required to be supplied without any shortages and regularly and so also total combined requirement of Maharashtra State run Hospitals is three times more than the MCGM, Mumbai, because of which it becomes necessary that drug to be supplied regularly and it is mentioned in clause No.10C of the tender. Hence if any of the tenderer becomes defaulter in regard with the supply then right is given to the Govt. to disqualify such tenderer. Hence decision to disqualify IIL is taken unanimously."

6. A meeting thereafter was held of the Tender Approval Committee on 23rd September, 2010. On 29th September, 2010 the committee noted that at the previous meeting, "issue regarding M/s. Immunological (the Second Respondent) was discussed" and the tender of the Second Respondent was not considered on the ground that it was a defaulter. The committee, however, proceeded to state notwithstanding this, that the Second Respondent had offered a lower rate of Rs.178/- per vial as opposed to the higher rates which were offered by the Petitioner and the Third Respondent. The Petitioner and the Third Respondent reduced the rates quoted by them to Rs.207/- per vial but did not match the rate of the Second Respondent. Solely on this ground, the Tender Approval Committee decided to award the contract to the Second Respondent, and made the following noting in the minutes of the meeting :

"It is thus observed that inspite of making efforts to get economic rate Rs.178.00 per vial from M/s. Kiran Agency and M/s. Bharat Biotect, the firm did not agree. It is therefore, felt necessary to qualify M/s. Indian Immunological by taking an undertaking from them as following :-

1) An undertaking stating that the said vaccine has not been declared of "Sub-Standard Quality" during last 3 years; and

2) An undertaking stating that the tender will not stop the supply of vaccine during the contract period for any reason."

7. The committee opined that if the Petitioner and the Third Respondent had matched the bid of the Second Respondent, the rate contract could have been distributed equally between the three. Since, however, the Petitioner and the Third Respondent did not match the rate quoted by the Second Respondent, the contract was awarded to the Second Respondent. But the committee was conscious of the fact that the Second Respondent had a history of default. In that context, the committee observed thus :

"But looking at the history of defaulting in supplies by M/s. Indian Immunological, the other two M/s. Kiran Agency and M/s. Bharat Biotech may be kept as alternate "contract holder" at the rates negotiated with them. This will help in procuring the vaccine from these alternate contract holders in case of M/s. Indian Immunological being defaulter in supplies of vaccine. The extra expenditure so incurred because of the risk purchase shall be recovered from M/s. Indian Immunological. The committee looking at all this facts/alternatives issues of the matter decided to take an undertaking from M/s. Indian Immunological Ltd., and if M/s. Indian Immunological Ltd., submits their undertaking they may be qualified and their envelop No.2 be opened. The negotiations for most economic rate Rs.178.00 per vial be carried out."

8. The decision to award a contract to the Second Respondent has been questioned in these proceedings. On 21st October, 2010 a Division Bench of this Court, while adjourning the proceedings to enable replies to be filed directed that any action of the Respondent authority regarding the subject matter of the Petition shall be subject to the result thereof.

9. In assailing the decision to award the contract to the Second Respondent, learned Senior Counsel appearing on behalf of the Petitioner submitted that -

(i) The Second Respondent was held to be ineligible on the ground that the necessary requirements for eligibility in envelop I were not fulfilled. The Tender Approval Committee having taken this decision on 17th August, 2010, there was no occasion to consider or reconsider the Second Respondent. The Second Respondent who was declared to be ineligible has not been found to be technically qualified thereafter and the only consideration in awarding the contract to the Second Respondent is that the price of Rs.178/- per vial quoted by the Second Respondent is the lowest bid which the other bidders were not willing to match;

(ii) Considering the offer of a bidder who was not technically qualified, is contrary to the tender conditions as well as to the Government Resolution dated 27th March, 2000. The Tender Approval Committee which consisted of seven members has considered the Second Respondent disqualified on four different counts on 17th August, 2010. A bidder who has been found to be disqualified has been arbitrarily awarded the contract only because the other bidders did not match the bid. The committee was, however, conscious of the fact that defaults on the part of the Second Respondent may take place again, given the experience of its prior dealings and therefore, the committee has relied on a fall back option with the Petitioner and the Third Respondent;

(iii) The decision to disqualify the Second Respondent was a valid decision taken in public interest. The Second Respondent had furnished a qualified undertaking on 15th July, 2010. The records before the committee showed that the Municipal Corporation of Greater Mumbai had suffered a financial loss as a result of the failure of the Second Respondent to fulfill an order for the supply of Anti Rabies Vaccine. Action was taken against the Second Respondent by the Government of Kerala on 20th August, 2007 and by the Government of Tamil Nadu on 28th February, 2010 and 27th April, 2010. The performance certificates submitted by the Second Respondent also did not meet the requirements of the tender conditions.

10. On the other hand, it has been urged on behalf of the Second Respondent that-

(i) The Petitioner has not made any complaint in the matter of disqualification of the Second Respondent. If the Petitioner had any complaint about the eligibility of the Second Respondent that was a disputed question of fact to be resolved by the grievance committee;

(ii) As a matter of fact, the Second Respondent is a current supplier to the Municipal Corporation of Greater Mumbai as well as to the States of Kerala, Tamil Nadu, Bihar, Gujarat and West Bengal;

(iii) The minutes of the Tender Approval Committee cannot be equated with the record or order of a quasi judicial authority. The Tender Approval Committee had material before it to suggest that the action that was taken against the Second Respondent by the State Governments of Kerala and Tamil Nadu had been revoked and there is a reference to that in the affidavit in reply that has been filed by the First Respondent. Once the allegations against the Second Respondent are demonstrated to be incorrect, there is no reason or justification to interfere with the award of the contract in favour of the Second Respondent;

(iv) As a matter of fact, the Tender Approval Committee had shown a considerable degree of flexibility in considering subsequent developments that had taken place during the pendency of the scrutiny. The Petitioner who had initially been blacklisted by the Tamil Nadu Government was allowed to establish before the committee that the order of blacklisting had been reversed in appeal so as to allow the bid submitted by the Petitioner to be considered.

11. The learned Government Pleader supported the decision of the Tender Approval Committee and has relied upon the affidavit of the Assistant Director in the office of the Directorate of Medical, Education Research of 15th November, 2010.

12. The rival submissions now fall for consideration.

13. The conditions on which government purchases drugs and medicines has been regulated in the State of Maharashtra by a Government Resolution dated 27th March, 2000. The background in which the resolution was brought into effect was that a commission of enquiry chaired by a former Judge of this Court, Mr. Justice B. Lentin submitted its recommendations having found serious deficiencies in the procurement of drugs. The government has adopted a two bid cover tendering process. The first bid is to contain documents that would establish the technical eligibility of a bidder while the second envelop contains commercial bids. Commercial bids are to be opened only of those bidders who are found to be technically qualified. Negotiations are held only with technically qualified bidders. This, as a matter of fact, is consistent with the requirement that Article 14 of the Constitution imposes in relation to the evaluation of bids invited by public bodies. The question of considering a commercial bid arises as between bidders who are technically qualified. It is only when a bidder is technically qualified that the State or its instrumentalities can consider the commercial bid. In the case of a bidder who is not technically qualified, the commercial bid cannot be opened at all and cannot form the basis for comparison.

14. In the present case, the tender conditions specify the documents which were required to be furnished by bidders. Among the documents that every bidder was required to furnish was an undertaking that the bidder had not been blacklisted or debarred for dealing by the Government of India or by any State Government or a local self government body. An undertaking is also required of bidders. The Second Respondent submitted an undertaking on 15th July, 2010. It its covering letter of 15th July, 2010 the Second Respondent stated that the undertaking which was sought was "with malafide intentions" and stated that it was submitting an undertaking under protest. Two of the conditions of the undertaking were that (i) the bidder has not been penalized or punished for late supply or non-supply of a product in any part of the country; and (ii) all orders received have been executed in time and there is no single instance where an order has not been executed for any reason whatsoever. With reference to these two conditions, the undertaking which was submitted by the Second Respondent reads as follows :

"2. We hereby undertake that we have not been penalized/punished for late supply/Non-supply of the products in any part of the country.

We have been supplying as per our commitment to all the customers. However, penalties have been levied where the customer's requirement exceeds our commitment. Further, in some cases penalties have been levied for delay in supplies, where the delay was due to certain valid reasons or due to events not in our control, such as non-payment of dues, force majeure reasons."

"4. We hereby undertake that all the orders received are executed in time, there is no single instance where in the received orders were not executed for any reasons.

We have executed our orders wherever we have received as per our commitment to the concerned institutions, unless there are valid reasons. In the year 2006-07, we stopped our supplies to the Government of Kerala as did not release payment for the supplies made by us during 2002-03. As the payments were not released even after many reminders, we were forced for (sic) seek legal remedies, we filed a writ petition against them in the Hon'ble High Court, Ernakulam vide Writ Petition No.WP(C) 33383 of 2005 and the Hon'ble High Court directed the Govt. of Kerala and the Department of Health and Family Welfare to settle our pending payment judgment dated 19th September, 2007 in the installment basis. We appealed the judgment in the Hon'ble High Court and it was granted to pay in single installment for the pending payments vide judgment dated 19th March, 2008. Similarly, in case of Municipal Corporation of Greater Mumbai, we have executed the orders as per our commitment. Neither they signed the agreement with us in time nor they settled our payments in time till we resort to legal remedy. Now we are supply to MCGM also as per the order."

15. The Tender Approval Committee took a decision at its meeting held on 17th August, 2010 that the Second Respondent did not fulfill the requirements of technical eligibility by scrutinizing the documents in the first envelop. The reasons on the basis of which this decision was taken have already been extracted in the earlier part of the judgment. The Tender Approval Committee was of the view that the Anti Rabies Vaccine is a life saving drug and having regard to the past performance of the Second Respondent, it was likely that any disruption of supplies would lead to an emergency leading to the procurement of the drug from the open market. This, the Tender Approval Committee stated would place an additional burden on the exchequer. The decision of the Tender Approval Committee to disqualify the Second Respondent was unanimous. The committee noted that the combined requirement of the State run hospitals in Maharashtra was three times as that of the requirement of Municipal Corporation of Greater Mumbai. Hence, it was necessary that the drug be supplied regularly. If a tenderer was a defaulter, the government would be justified in disqualifying the tenderer. The Second Respondent was therefore disqualified. The committee at its subsequent meeting held on 29th September, 2010 noted its earlier decision not to consider the Second Respondent on the ground that it was a "habitual defaulter". Despite this, the committee stated that it was necessary to qualify the Second Respondent on the ground that the Petitioner and the Third Respondent had not matched the rate of Rs.178/- per vial of the Second Respondent. The committee felt that this should be subject to an undertaking that the vaccine which has been supplied by the Second Respondent is not of sub-standard quality during the previous three years and that the Second Respondent will not stop the supply of vaccine during the contract period. The committee was obviously conscious of the past performance of the Second Respondent for it adverted to "the history of default in supplies" by the Second Respondent. Consequently, the committee stated that the Petitioner and the Third Respondent may be kept as alternate contract holders at the rates negotiated with them in order to enable the government to procure vaccine from the competing bidders in the event that the Second Respondent defaulted.

16. From the material on the record it is evident that the committee has not reversed the earlier view which was formed by it unanimously on 17th August, 2010 that the Second Respondent is a habitual defaulter. The only ground on which the committee had decided upon the award of the contract to the Second Respondent is that the rate which was quoted by the Second Respondent was not matched by the Petitioner or by the Third Respondent. In the affidavit in reply which has been filed by the First Respondent in these proceedings, the government has reiterated this as being the only reason for the award of the contract to the Second Respondent. In paragraphs 16 and 17 of the affidavit it has been stated as follows :

"If the State Government is able to get the vaccine also at the same rate of Rs.178/- per vial, then the State Government, public exchequer will benefit by saving of Rs.3 Crores per annum in respect of vaccine. It was therefore found necessary that if Respondent No.2 be also given a chance to participate by requesting them to give undertaking for not defaulting in supply of vaccine and also to give assurance of qualify of the drug.

I say that MCGM, Government of Kerala and TNMC had awarded the tender for supply of Inj. ARV to Respondent No.2 at Rs.178/- per vial, inspite of the fact that Respondent No.2 has been a defaulter in supplying the vaccine.

I say that in view of the rate difference and life saving nature of the drug and keeping all the aforesaid parameters, the Tender Approval Committee in the meeting dated 29.9.2010, allowed Respondent No.2 to qualify after their giving an additional undertaking about not defaulting in supply of vaccine and also regarding assurance of qualify of vaccine."

17. There is merit in the submission that the entire tendering process has suffered from a clear case of arbitrariness. Tenders were specifically invited with reference to the Government Resolution dated 27th March, 2000. A public body when it invites tenders is duty bound to comply with the terms of the tender and by the norms of fairness that Article 14 of the Constitution embodies. When the Tender Approval Committee holds that a bidder is disqualified, it is totally arbitrary then to proceed to award contract to that very bidder on the ground that other bidders have not matched the commercial bid of a disqualified bidder. Once a bid is disqualified, the bid in its entirety has to be kept aside and no part of that bid can be utilized for evaluating the merits of the other bidders. Once a bid is disqualified, it is impossible to conceive how a contract can be awarded to that very party on the basis that the commercial bid quoted by it is the lowest and the other bidders have not matched the bid. The question of comparing commercial bids arises between bidders similarly circumstanced, that is to say, between bidders who meet the requirement of technical eligibility. Bidders who meet eligibility requirements are not equal to bidders who are disqualified and do not stand on the same basis as bidders who are eligible. To equate them is to treat unequals equally : something that is forbidden by Article 14 of the Constitution. As a matter of fact, the committee, as we have already noted, has not even come to the conclusion that the decision to disqualify the Second Respondent was erroneous or that the Second Respondent was not a defaulter.

18. In W.B. State Electricity Board Vs. Patel Engineering Co. Ltd. [(2001)2 SCC 451] the Supreme Court applied the principles, and observed as follows :

"The contract is, therefore, awarded normally to the lowest tenderer which is in public interest. The principle of awarding contract to the lowest tenderer applies when all things are equal. It is equally in public interest to adhere to the rules and conditions subject to which bids are invited. Merely because a bid is the lowest the requirements of compliance with the rules and conditions cannot be ignored."

19. We do not find any merit in the contention of the Second Respondent that the Petitioner had not made any complaint as regards the qualification of the Second Respondent. In the present case, the Tender Approval Committee itself had come to the conclusion that the Second Respondent was not qualified. In that view of the matter, there was really no occasion for the Petitioner to complain of the decision of the committee in that regard.

20. Counsel appearing on behalf of the Second Respondent has urged that there was material before the committee to hold that the states of Kerala and Tamil Nadu had in fact continued to deal with the Second Respondent and that a performance certificate was issued by the State of Tamil Nadu on 14th October, 2009. Similarly, it was stated that the Kerala Government had entered into an agreement with the Second Respondent on 17th June, 2010 for the same vaccine. In this proceeding, we have proceeded on the basis of the record as it stands and the record contains an unambiguous decision of the Tender Approval Committee to disqualify the Second Respondent. Having disqualified the Second Respondent, the committee has decided to award the contract to the Second Respondent only on the ground that the bid of the Second Respondent was the lowest bid. The reasons which have weighed with the committee are ex facie arbitrary and ultra vires the tendering process and conditions.

21. In the circumstances and for the reasons indicated earlier, we are of the view that the Petitioner would be entitled to succeed. We, therefore, quash and set aside the decision of the Tender Approval Committee dated 29th September, 2010 recommending the award of contract to the Second Respondent and the consequential award of the contract to the Second Respondent by the State Government. While doing so, we leave it open to the First Respondent to proceed in accordance with law. The Second Respondent would be at liberty either to invite fresh bids if it is so advised or to proceed from the stage at which the tendering process is found to have suffered from an illegality. In the event that the State Government adopts the second course of action, the process shall be completed by disregarding the decision of the Tender Approval Committee dated 29th September, 2010, which has been set aside.

22. We clarify that in the event of a fresh tender being floated, it would be open to all parties including the Second Respondent to participate in the tender. The question of eligibility of the participating bidders shall be decided by the Tender Approval Committee on the basis of the conditions of eligibility which are prescribed for the tender.

23. We are conscious of the fact that the supply of Anti Rabies Vaccine has to be effected to public hospitals expeditiously since it is a life saving drug. We clarify that it would be open to the State Government, until the process as noted earlier is complete to make arrangements expeditiously so as to ensure that there is no disruption in the supply of the life saving drug to its hospitals. This order shall therefore not come in the way of an appropriate arrangement being made by the State Government, pending the finalization of the contract.

Rule is made absolute in these terms.

There shall be no order as to costs.

Petition allowed.