Satyam Constructions Ltd. vs Govt. of A.P. and Others

In the writ petition the petitioner-Company assails the action of the respondents in rejecting all the tenders/ bids received pursuant to the tender notice dated 16-8-1993 including that of the petitioner after having issued a letter of acceptance on 25-6-1994 accepting its bid and calling upon the petitioner to enter into an agreement, as arbitrary, illegal and void and seeks a consequential direction to the respondents to award the contract to it as per the letter of acceptance and to pass such other order or orders as are deemed fit and proper.

There is not much controversy over the facts. The work in question, which is designated as Package L6-15, is a part of the various developmental works envisaged under AP II Irrigation Project which are to be executed with the financial assistance (loan or credit) provided by the International Bank for Reconstruction and Development (World Bank). Tenders for this work were invited by the third respondent (Superintending Engineer) by the tender notice dated 18-9-1993. The value of the work as per the sanctioned estimate was Rs.16,98,72,562/-. In response to the tender notice four bids received including that of the petitioner herein. After evaluation of the bids, the bid of the petitioner with a bid value of Rs.40,85,108/- was found to be the lowest responsive bid and the same was recommended for acceptance to the Government on 24-12-1993. The Government, after examining the matter in its empowered . committee meeting held on 7-4-1994, decided that the bid of the petitioner may be recommended to the World Bank for their ''No Objection'' and accordingly the World Bank was addressed for their ''No Objection'' to award the contract to the petitioner. In reply the World Bank vide letter dated 14-4-1994 raised certain queries and requested for a revised recommendation clarifying the matters referred to in the said letter. The empowered committee considered the observations of the World Bank in its meetings held on 26-4-1994, 29-4-1994 and 21-5-1994 and decided to recommend to the World Bank to give their ''No Objection'' forwarding the contract of L6-15 to the petitioner. The Government of Andhra Pradesh accordingly instructed the second respondent (Chief Engineer) to obtain the ''No Objection'' from the World Bank and furnish the same to the Government for approval. Accordingly the World Bank was addressed by the second respondent on 1-6-1994 and the World Bank gave its clearance to award the contract to the petitioner by telegram dated 24-6-1994. In the said telegram it was also mentioned that the World Bank should be informed by cable as soon as the contract is signed and to forward a copy of the signed contract along with the pre-award check-list to enable the World Bank to review and assign the World Bank Register Number (WBR No). Thereupon respondent No.3 issued the letter acceptance to the petitioner on 25-6-1994 and the petitioner was called upon to furnish (a) Construction Programme and (b) Performance Security in the prescribed form, within 30 days from the date of receipt of the said letter. The petitioner was also requested to be present at the office of the third respondent for execution of contract documents. The petitioner, by letter dated 14-7-1994 addressed to the third respondent, informed that it was ready with the Construction Programme and Performance Security since the last ten days and requested the third respondent to let the petitioner know when the petitioner can sign the agreement, The petitioner subsequently sent reminders on 21-7-1994 and 25-7-1994. It is also stated by the petitioner that it furnished the Construction Programme as well as the Performance Security Bond in the prescribed form initially for the period from 27-5-1994 to 24-1-1998 under the Bank Guarantee No.72 of 94 for a sum of Rs.2,04,26,300/-. The petitioner was finally informed by letter dated 16-12-1996 addressed by the third respondent that all the bids received in respect of Package No.L6-15 are rejected in terms of clause 29.1 of Section 1 of the General and Special Conditions of Contract. By another letter of the same date, the bank-guarantee together with the extension bonds and bank-guarantee for Performance Security furnished by the petitioner were returned in original. Hence this writ petition.

The petitioner contends that the cancellation of the tenders after issuing letter of acceptance to the petitioner is arbitrary, illegal, mala fide and contrary to the tender conditions. It is also contended that the letter of acceptance itself constitutes the formation of the contract and it is not open to the respondents to cancel the bids. In view of the letter of acceptance the petitioner made several commitments incurring heavy expenditure and also failed to take up any other work with the legitimate expectation that this work would be awarded to it. The respondents arc, therefore, estopped from cancelling the bids. In any case, the cancellation of the bids without giving any prior notice or opportunity to the petitioner is grossly unfair and is hit by the doctrine of legitimate expectation.

In the impugned letter dated 16-12-19% no reasons have been assigned for rejecting all the bids, hi the counter-affidavit filed on their behalf, the respondents have taken the stand that the World Bank vide letter dated 16-6-1994 addressed to the first respondent, informed that since A.P. II Irrigation project period was coming to a close on 30-6-1994 and since AP III project agreement had not been entered into, projects in AP II, which were either not completed or commenced would be subject to review for retroactive funding under AP III project. It was also made clear in that letter that any subsequent procurement clearance estimate by Delhi or Washington office of the Bank did not carry any commitment for retroactive funding by the Bank under the proposed AP III project. The Bank further stated that on the basis of the above understanding it was advising its Delhi office to clear package L6-15. The first respondent was also informed that following a review in the coming months the Bank may call for revision of L6-15 package designs and contract scope to render it eligible for retroactive financing and that the risk of any contract variations or contractual complications that could arise in meeting the Bank''s recommendations would have to be borne by the Government of Andhra Pradesh. In view of the said stipulations made by the Bank, the empowered committee decided in its meeting held on 28-6-1994 to defer consideration of award of contract for L6-15 package till the matter was again discussed with the World Bank to avoid complications. Accordingly the Government by memo dated 30-7-1994 directed the second respondent to defer consideration of award of the package work L6-15 and not to enter into agreement with the contractor. The empowered committee in its meeting held on 27-8-1994 has instructed the Chief Engineer to obtain extension of validity from the contractors till the end of December, 1994 and "to review the status to take a final view after the pre-appraisal mission of the World Bank programmed to come in October, 1994, finalises the designs and connected implications and till that time award of the contract to be kept in abeyance." In the discussions held with the officials of the World Bank on 27-5-1996 it was indicated that the award of the contract for the bids received in October, 1993 based on tender documents and procurement procedure adopted in AP II project is not desirable as there is a considerable time lapse and there has been a change in design and lining of canal under the AP III Irrigation Project which provided for concrete lining of the canal sections. In the light of the said discussions the hydraulic particulars of the package work L6-15 has been revised and the estimates of earth work and lining has been prepared from revised hydraulic particulars. The lining quantity is increased by 3,87,279 sq.metrrs. The package estimate L6-15 has become unwieldy for execution by one agency. Therefore, the technical sanction for package work L6-I5 has been cancelled in July, 1996 and the new package work has been divided into two parts as Package No.L6-15A and Package No.L6-15B to have two smaller packages for independent execution. The draft bid documents for package L6-15A and L6-15B have been sent to the World Bank as per the World Bank guidelines for inclusion in A.P. III Irrigation Projects. In view of these circumstances, the Government in memo dated 29-11-1996 decided to reject the tenders and to call for fresh tenders under AP III Irrigation Project for the proposed works. Respondent No.2 communicated the same to the third respondent for necessary action vide endorsement dated 3-12-1996 and the third respondent accordingly rejected all the bids vide letter dated 16-12-1996. The respondents contend that the said decision is a bona fide decision taken in public interest based on the views of the World Bank which is the funding agency and as such the petitioner has no right to question the same. It is also contended that there is no concluded contract in favour of the petitioner since no agreement was entered into and no question of estoppel or legitimate expectation arises in the case as contended by the petitioner. It is finally submitted that contractual obligations arising out of a non-statutory contract cannot be enforced through a writ petition under Article 226 of the Constitution and the writ petition is not maintainable.

The principles governing the scope and extent of judicial review in matters of contract are, by now, fairly well established. Generally speaking, a writ proceeding under Article 226 of the Constitution of India is not a proper remedy for the adjudication or enforcement of rights and obligations arising out of a contract which is non-statutory in character. It is also true that the Government cannot be forced to enter into contractual obligations with any party end the relief of specific performance of contract may not be appropriately granted in a writ proceeding. The remedy in case of breach of contract is either an action for damages or a suit for specific performance under the general law. It is, however, the settled position that even in the matters of contract, the State and its instrumentalities are required to act fairly, reasonably and in public interest. Where the action is arbitrary or mala fide or it is vitiated by factors like non-application of mind, or is based on irrelevant or extraneous considerations, such action will be subject to judicial review under Article 226 of the Constitution. Judicial review is concerned more with the decision making process than with the decision itself. The Court, in exercise of the power of judicial review, will not substitute its opinion for that of the decision making authority. These principles are too well known to require any reiteration. It is relevant to note in this context that the dispute in the instant case is regarding the award or non-award of the contract which is at the threshold but not with regard to the enforcement of the right and obligations under the contract.

Let us now proceed to examine the facts of the case in the light of the principles stated above. It is not in dispute that the work in question is one of the works envisaged under AP II Irrigation Project which came to a close on 30-6-1994. It is, however proposed to be included in AP III Irrigation Project. The tenders for this work were invited vide tender notice dated 18-9-1993. The petitioner''s bid was recommended for acceptance by the empowered committee on 9-4-1994 and the same was subsequently reiterated by the empowered committee in its meetings held on 26-4-1994, 29-4-1994 and 21-5-1994. In its meeting held on 26-4-1994, the empowered committee resolved to request the Secretary, Irrigation, Government of Andhra Pradesh, to impress upon the World Bank once again to accept the recommendation already made as "it will result in greater economy to the State and the firms recommended are reputed ones having carried out civil works of equal magnitude for which tenders have been invited." Likewise in its meetings held on 29-4-194 and 21-5-1994 the empowered committee decided to recommend to the World Bank to give there ''no objection'' for awarding the contract of L6-15 to M/s Satyam Constructions Ltd., Secunderabad (petitioner herein) since package L6-15 is more critical being the tail end package and completion of this package will facilitate distribution of water to the Reaches which were earlier localised but not receiving water so far. The World Bank finally gave its clearance to award the work to the petitioner through its telegram dated 24-6-1994 and thereupon the letter of acceptance was also issued to the petitioner on 25-6-1994. The execution of the contract documents was, however, defered in view of certain reservations alleged to have been expressed by the World Bank in the letter dated 16-6-1994. But the fact remains that in spite of the said letter dated 16-6-1994 the World Bank did give its clearance for the award of the contract to the petitioner on 24-6-1994. The respondents have not placed any material on record to show that the World Bank has subsequently changed its opinion or raised any objection for the award of the contract to the petitioner pursuant to the letter of acceptance dated 25-6-1994. However, it is the case of the respondents that on the basis of detailed discussions held with some officials of the World Bank it was decided to split up Package No.L6-I5 into two smaller packages as package Nos.L6-15A and L6-15B and the design was also changed by making a provision for concrete lining of the canal sections which involves additional work not contemplated earlier. In proof of the said averments, reliance is sought to be placed by the respondents on the letter dated 30-5-1996 addressed by the second respondent to the first respondent wherein it is stated that during discussions with World Bank Procurement Engineer on 27-5-1996 it was indicated that award of contract to the bid received in 10 of 93 is not desirable and further the scope of the work under the package has changed considerably due to provision of lining below 1 cumec (which was not contemplated under AP II) and as such the bid of M/s Satyam Construction Co., for package L6-15 received in 10 of 93 may be rejected and orders of the Government in this regard may kindly be obtained and communicated at an early date. There is, however, no similar communication from the World Bank as such available on record. On the contrary. Third Andhra Pradesh Irrigation Project (A.P. III) Preappraisal Mission (November 7-20, 1994) Report of the World Bank which was communicated by the World Bank to the State Government on December 20, 1994, seems to indicate that the World Bank was not against the award of the contract to the petitioner. The relevant paragraph of the said report reads as follows :

"The package covers remodelling of D 83 K M 35.372 to tail including all off making channels. The Bank cleared this package in June 1994 for Rs.408.52 Millions but no work could be done before June 30th, 1994 which was the closing date of A.P. credit. The contractor has extended the validity upto December 31st, 1994 for concluding the agreement. The package has been up-dated to provide lining below 1 cumcc. at an additional cost of Rs.64.00 Millions requiring an appropriate variation order. The mission has reviewed the package and found it legible for grounding and allotment for the retroactive funding under AP III before the expiry of the validity period.

Annexure-II shows the status of on going packages requiring variation order. The Contractor should normally agree to execute additional works at SSR � percentage accepted in the original bid failing which separate bid documents for the additional work will have to be prepared and grounded."

The covering letter dated December 20, 1994 addressed by the World Bank, no doubt, states that the mission''s draft Aide Memoire, whose contents are still provisional does not at this stage represent the Bank''s final position and that a letter from the World Bank''s Head-Quarters will be sent shortly confirming the Bank''s position. No such final letter from the World Bank is, however, placed on record. There is thus no material on record to show that the World Bank desired the tenders received already to be cancelled.

It is also pointed out by the petitioner that a similar contract was awarded to M/s Krishna Mohan Constructions by entering into the agreement on 30-6-1994 on which date AP II Irrigation Project came to a close. Though the World Bank declined to give its no objection to the said contract or assign WBR No. to the same and returned the papers unprocessed by letter dated 1-7-1994, the respondents have allowed M/s Krishna Mohan Constructions to execute the work and the work is still in progress. The respondents, while admitting these facts, however, sought to distinguish that case from the instant case on the ground that agreement was already entered into in that case on 30-6-1994 whereas no agreement was entered into in the present case. This, to my mind, is not very material or relevant. At any rate, it shows that the State Government is free to enter into a contract even without the consent or approval of the World Bank.

It is contended by the learned Advocate General appearing for the respondents that there was no concluded contract and as such no vested right has accrued to the petitioner, and it is always open to the Government to revise its decision and cancel the bids in public interest. It is, therefore, necessary to examine the relevant clauses of the General and Special Conditions of Contract embodied in the bid documents. Clause 27 deals with evaluation and comparison of bids. Clause 28 deals with the award criteria. Clause 28.1 provides that subject to Clause 29 the Employer will award the contract to the bidder whose bid has been determined to be substantially responsive to the bidding documents and who has offered the lowest evaluated bid price pursuant to Clause 27, provided further that the bidder has capability and resources to carry out the contract effectively as mentioned in Clause 3. Clause 29 deals with employer''s right to accept any bid and to reject any or all bids. Clause 29.1, which is invoked by the respondents for rejecting all the bids reads as follows :

"29.1 Notwithstanding clause 28, the Employer reserves the right to accept or reject any bid, and to annul the bidding process and reject all bids, at any time prior to award of contract, without thereby incurring any liability to the affected bidders or any obligation to inform the affected bidder or bidders of the grounds for the Employer''s action."

Clause 30 deals with notification of award. Clause 30.1 provides that prior to the expiration of the period of bid validity prescribed by the Employer, the Employer will notify the successful bidder by cable confirmed in writing by registered letter that his bid has been accepted. This letter (herein and in the Conditions of Contract called ''Letter of Acceptance'') shall name the sum which the Employer will pay to the Contractor in consideration of the execution, completion and maintenance of the works by the contractor as prescribed by the contractor, (hereinafter and in the conditions of Contract called ''the contract price''). Clause 30.2 provides the notification of award will constitute the formation of the contract. Clause 31 deals with signing of agreement. Clause 31.1 provides that at the same time that he notifies the successful bidder that his bid has been accepted, the Employer will send the bidder the Form of Agreement provided in the bidding documents, incorporating all agreements between the parties. Clause 31.2 provides that within 30 days of receipt of the Form of Agreement, the successful bidder shall sign the Form and return it to the Employer.

It is manifest from a reading of Clause 29.1 that the power to reject any bid and to annul the bidding process and to reject all bids is available to the employer at any time prior to the award of contract. According to Clause 30.1 the employer has to notify the successful bidder about the award of the contract to him by sending the letter of acceptance. According to Clause 30.2 the notification of award will constitute the formation of the contract. A conjoint reading of clauses 29 and 30 would show that notification of the award by sending the letter of acceptance will itself constitute the formation of the contract. It cannot, therefore, be said that unless and until the agreement is duly signed in the prescribed form as per Clause 31.1, there is no concluded contract between the parties. Clause 32 deals with performance security. Clause 32.1 provides that within thirty days of receipt of the notification of award from the employer the successful bidder shall furnish to the employer performance security in the prescribed form as enumerated in Clause 5 of the General Conditions. Clause 32.2 further provides that failure of the successful bidder to comply with the requirements of Clause 31 or Clause 32 shall constitute sufficient grounds for the annulment of the award and forfeiture of the bid security. This would show that when once the letter of acceptance is issued constituting the formation of the contract, the employer can annul the award of the contract only if the successful bidder fails to comply with the requirements of Clause 31 and Clause 32 i.e., if he fails to executc the agreement in the prescribed form or to furnish the performance security in the prescribed form with 30 days of receipt of the form of the agreement. I am, therefore, of the view that the contract was concluded on 25-6-1994 itself when the letter of acceptance was sent by the third respondent to the petitioner and it was, therefore, not open to the respondents to reject all the bids by invoking Clause 29.1 of the General and Special Conditions of Contract. It is pertinent to note that according to Clause 29.1, the employer can reject all the bids at any time prior to award of contract without thereby incurring any liability to the affected bidders or any obligation to inform the affected bidder or bidders of the grounds for employer''s action. That necessarily implies that if the employer chooses to reject the bids at any time after the award of contract, he will be incurring liability to the affected bidders and he will also incur the obligation to inform the affected bidder or bidders of the grounds for employer''s action. Admittedly in the instant case the respondents have not informed the petitioner of the grounds for rejecting all the bids nor did they give any prior notice or opportunity to the petitioner before cancelling the bids. The impugned action is, therefore, clearly in violation of Clause 29.1 and also the principles of natural justice. The following observations made by the Apex Court in Tata Cellular Vs. Union of India, are opposite in this context :

"From this letter we are unable to fathom the reason for omission. As seen above Tata Cellular was originally selected for Delhi. By implementation of the judgment of the High Court it has been left out. Before doing so, as rightly urged by Mr.Soli J.Sorabji, the appellant ought to have been heard. Therefore, there is a clear violation of principles of natural justice."

The decision in Loins Constructions v. Govt. ofA.P., 1997 (2) ALD 469 relied on by the learned Advocate General is easily distinguishable. In that case the Court, on a consideration of the various terms and conditions of the tender notice and also the facts and circumstances, came to the conclusion that there was no concluded contract and it was, therefore, open to the Government to have afresh look into the matter by cancelling the proposal and postponing the finalisation of tenders. It was also held that the relief of specific performance of a contract cannot be granted by this Court in exercise of jurisdiction under Article 226 of the Constitution of India.

Likewise the decision in Y. Konda Reddy v. State of A.P., 1997 (1) ALD 192, cited by the learned Advocate General is of no assistance to the respondents in this case. In that case also it was specifically stipulated in the tender conditions that the written agreement entered into between the contractor and the Government shall be the foundation of the rights and obligations of both parties and the contract shall not be deemed to be complete until the agreement has first been signed by the contractor and then by the officer authorised to enter into contracts on behalf of the Government. The Court, therefore, rightly held that in the absence of such a written agreement, the mere order of the commissoinerate of the tenders accepting the tender of the petitioner docs not confer any right on the petitioner and that it is open to the Government to review the decision and cancel the acceptance. In view of the matter, it may not be necessary to go into the oilier questions of promissory estoppel and legitimate expectation raised by the petitioner.

The question, however, still remains as to what relief the petitioner is entitled to in this writ petition. As already stated above, it would not be appropriate for this Court, in exercise of the power of judicial review under Article 226, to grant the relief of specific performance by issuing a writ of mandamus directing the respondents to award the contract to the petitioner. Whether the contract should be awarded to the petitioner or not is a matter to be ultimately decided by the first respondent keeping in view the public interest which is the paramount consideration in such matters. The first respondent should consider whether it is in public interest to restart the tendering process all over again at this distance of time when the petitioner is willing to execute the work at the rates quoted by it in 1993 and when the capacity, qualifications and experience of the petitioner for executing the work are not in dispute. It will be open to the first respondent to ascertain the views of the World Bank also before taking an appropriate decision. The petitioner also may be afforded a reasonable opportunity of being heard before taking a final decision in the matter.

The writ petition is, therefore, disposed of directing the first respondent to re-consider the matter of award of the contract relating to package L6-15 which has since been split up into two packages as L6-15A and L6-15B and take an appropriate decision in accordance with law and in the light of the observations made herein, within three months from the date of receipt of this order. There will be no order as to costs.