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Judgment
Heard Sri Chikkudu Prabhakar, the learned counsel for the petitioners, Sri A. Sanjeev Kumar, the learned Special Government Pleader appearing for the learned Government Pleader for Education appearing for respondent No.1, Sri A. Yadav Reddy, the learned Standing Counsel for TSEWIDC, appearing for respondent Nos.2 and 3, the learned Government Pleader for Industries and Commerce appearing for respondent No.4, and Sri Namavarapu Rajeshwar Rao, the learned Assistant Solicitor General of India appearing for respondent No.5.
Questioning the conditions prescribed in the Tender/Bid Document dated 20.02.2022 for procurement of 2,08,031 of Dual Desks for an estimated cost of Rs.219.00 Crores, issued by the respondent No.3, the present writ petition is filed.
The learned counsel for the petitioners has stated that the official respondents, without taking into consideration G.O.Ms.No.51, Industries and Commerce (MSME) Department, dated 01.06.2010, and the provisions of the Micro, Small and Medium Enterprises Development Act, 2006 (for short, ‘the Act’), have issued the impugned tender notification prescribing onerous conditions only with a view to eliminate the petitioners, which are Small Scale Industries (MSME), from participating in the tender process. To support the said contention, the learned counsel has drawn the attention of this Court to some of the tender conditions, more specifically Clauses 2.2.1.3, 2.2.1.5, 2.2.2 (d) and 2.2.4. The learned counsel has relied on the judgments of the Hon’ble Supreme Court in Union of India v. International Trading Co. and another (2003) 5 Supreme Court Cases 437 and Ramana Dayaram Shetty v. The International Airport Authority of India and others AIR 1979 SC 1628: (1979) 3 SCC 489.
Per contra, Sri A. Sanjeev Kumar, the learned Special Government Pleader, has stated that the impugned tender notice has been issued for procurement of Dual Desks for supply to identified Government/Local Body Schools under Mana Ooru-Mana Badi/Mana Basti-Mana Badiprogram in Telangana State and the said tender is called for at a National Level. That as per the requirements of the Telangana State Education & Welfare Infrastructure Development Corporation, the persons participating in the tender should necessarily have the capacity to supply 2,08,031 Dual Desks within a period of four months. The learned Special Government Pleader has further stated that unless and until the petitioners are able to substantiate their claim that they have the necessary expertise, the required financial capacity and also the production capacity to supply the said quantity of dual desks within the stipulated time, the conditions prescribed in the impugned tender notification are normal terms which are usually prescribed in tender of this size and are stipulated only for the purpose of performance guarantee and cannot be said to be onerous, mala fide, illegal or arbitrary. The learned Special Government Pleader has stated that the petitioners have neither filed any scrap of paper nor pleaded anywhere in the affidavit filed in support of the writ petition that they are having the necessary expertising, financial capacity, and the production capacity for supplying the required dual desks within the stipulated time. The learned Special Government Pleader has further stated that it is for the authorities concerned to prescribe the tender conditions so that only eligible participants having the required qualifications would participate and able to meet their requirements. The official respondents have not prescribed the said conditions to eliminate any person or company from participating in the tender, but only to see that the persons participating in the said tender have the capacity to produce and supply the requisite quantity of Dual Desks within four months. That none of the documents filed by the petitioners substantiate that the petitioners have at any point of time participated/being successful bidder or supplied the quantities that are now sought to be procured by the Department. The learned Special Government Pleader has drawn the attention of this Court to the provisions of the Act, more specifically, Section 7(1)(a)(i)(ii) and (iii) of the Act to buttress his contention that the writ petition is devoid of merits and the same is liable to be dismissed. The learned counsel has relied on the judgment in Balaji Ventures Pvt. Ltd v. Maharashtra State Power Generation Company Limited (Special Leave Petition (C) No.1673 of 2022) rendered by the Hon’ble Supreme Court of India.
Perused the record.
A perusal of the impugned tender notification shows that the Government of Telangana has issued the tender for procurement of dual desks for supply to identified Government/Local Body Schools under Mana Ooru-Mana Badi/Mana Basti-Mana Badiprogram in Telangana State. The total quantity of dual desks that are required to be supplied is 2,08,031 and the estimated cost is Rs.219.00 Crores. Some of the conditions, which are prescribed in the impugned tender notification, which are necessary for disposal of the present writ petition, are extracted below:
“2.1.4 The Bidder shall deposit an EMD/Bid Security of 1% of Estimated Contract Value (ECV) in accordance with the terms of this BID. The Bidder has the option to provide the Bid Security either as online payment or in the form of a Bank Guarantee, in favour of the Managing Director, TSEWIDC, Hyderabad and the said amount does not carry any interest.
2.1.8 Performance Guarantee / Security Deposit
The Selected bidder(s) shall have to deposit a sum of 2.5% of the Estimated Contract Value (ECV) as Performance Guarantee / Security Deposit. However, at the option of the selected bidder, the EMD of 1% of ECV paid towards tender online payment only, can be adjusted against the Performance guarantee/security deposit, in such event, the selected bidder(s) can only need to deposit the remaining 1.5% of ECV through online payment or BG, to make it a total 2.5% of as Performance guarantee/Security deposit for a period of 6 (six) years.
2.2.1.3 The manufacturer should have a minimum audited annual financial turnover of Rs.219.00 crores (Rupees Two hundred and nineteen crores only) in any one financial year of the last five years only.
2.2.1.4 The Bidder should have physical capacity (production of the plant/factory) of minimum number of units i.e., 25,000 Dual Desks per month, relevant documents of proof shall be uploaded. The bidder shall furnish detailed information of supplies in last five years to the Government institutions/organizations/reputed multi-national companies etc., order copies and completion certificates or final payment vouchers shall be uploaded.
“2.2.1.5 Experience of manufacture and supply of Rs.54.75 crores (Rupees fifty four crores and seventy five lakhs only) worth Dual Desks in any financial year in any one year of the last five years.
2.2.2 (d) Should have manufacturing equipment to complete the work as per time lines and product quality/performance testing equipment (proof of photos to be enclosed), submit list. The bidder should have automated computer based (CNC-Computer Numerical Control) machinery and equipment such as CNC shearing machine, Bending machine, punching machine, hydraulic presses, cutting machines, CRCA pre-treatment facility and power coating line etc. The bidder should have welding machines such as projection welding (fusion welding), MIG welding, spot welding, power coated process equipment with conveyer for painting etc. And the bidder should have all the equipment required for materials test, quality and process control and all other required facilities with all equipment required as per IS codes and ASTM codes, such as powder coating testing equipment, raw material testing equipment etc. Upload the relevant documents of proof and photos.
2.2.4 The Bidder(s) should submit Solvency Certificate for 25% of the estimated cost of Dual Desks for Rs.54.75 crores (Rupees fifty four crores and seventy five lakhs only) from any Nationalized / Scheduled bank issued not earlier than one year from the date of NIT in the prescribed format.
2.6 Milestone program:
For the given supply/purchase order, supply and erection shall be completed as specified in the Rate contract. The TSEWIDC/District Collectors shall place purchase orders to L1 bidder or matching bidder (s) as per rate contract for supply of Dual Desks to school locations district-wise or combined or randomly as per decision of the Government.
The period of supply of Dual Desks (Type I, II, III, IV) shall be 04 (four) months and the milestones of supply : -
1st Mile Stone : Upto 25% by 45 days
2nd Mile Stone : Upto 50% by 75 days
3rd Mile Stone : 100% by 120 days
The selected Bidder shall engage experienced, qualified and trained personnel for maintenance of the products/Dual Desks supplied in conformity with the provisions of the agreement. Selected bidders should establish at least 10 (Ten) Service Centers in the state of Telangana for 5 (Five) years from the date of completion of the work.”
In the entire affidavit filed in support of the writ petition, there is no averment whatsoever as to whether the petitioners are having the requisite expertise, the financial capacity or the production capacity to execute the work within the deadline prescribed by the authority concerned.
Admittedly, the impugned tender notification is issued for the supply of 2,08,031 units of dual desks within a period of four months. Even though repeatedly queried by this Court as to whether the petitioners are having the capacity to produce a minimum number of 25,000 dual desks per month, as required under Clause 2.2.1.4 of the terms and conditions of the tender notification, the learned counsel for the petitioners has failed to answer the said query. But, on the other hand, the learned counsel for the petitioners except harping on the point that the conditions prescribed in the tender are onerous and that it is impossible to meet the same by the petitioners, which are MSME Units, and are made only to eliminate the petitioners from participating in the tender process. Unless the petitioners are able to satisfy this Court that they are having the requisite capacity both in terms of production and in financial terms, the conditions imposed cannot be faulted with. When contracts/tenders of huge value are sought to be floated, it is but natural that the authorities prescribe the tender conditions, that may appear to be stringent and onerous, but the ultimate aim in prescribing the said condition is to see that the participating tenderers have the requisite qualification, expertise, machinery, financial capacity, production capacity to execute the works in a smooth and time bound manner. The petitioners except stating that the conditions imposed are onerous, mala fide, tailor made to suit some persons has not stated anywhere or furnished the details of the so-called targeted persons. A perusal of the conditions imposed in the tender also does not in manner give an impression that the same are mala fide, arbitrary and onerous. Even for the sake of arguments the petitioners are allowed to participate in the tender process without insisting on Clause 2.2.1.3, which states that the manufacturer should have a minimum audited annual financial turnover of Rs.219.00 Crores, Clause 2.2.1.5, which states that the experience of manufacture and supply of Rs.54.75 Crores worth dual desks, Clause 2.2.4, which states that the bidder should submit solvency certificate for 25% of the estimated cost of Rs.54.75 Crores, other conditions cannot be said to be onerous or mala fide. If the petitioners are allowed to do so, the entire purpose of floating the tender will be jeopardized as the petitioners cannot meet the deadline set by the Department.
Insofar as other contentions raised by the learned counsel for the petitioners that the conditions imposed in the tender notification are contrary to G.O.Ms.No.51 dated 01.06.2010 and also the provisions of the Act are concerned, it is to be noted that the Act, more particularly Section 7(1) thereof, prescribes the different types of Enterprises based on their turnover. Section 7(1) reads as under:-
“7.(1) Notwithstanding anything contained in Section 11 of the Industries (Development and Regulation) Act, 1951, the Central Government, for the purposes of this Act, by notification and having regard to the provisions of sub-sections (4) and (5), classify any class or classes of enterprises, whether proprietorship, Hindu undivided family, association of persons, co-operative society, partnership firm, company or undertaking, by whatever name called,-
(a) in the case of the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, as –
(i) a micro enterprise, where the investment in plant and machinery does not exceed twenty-five lakh rupees;
(ii) a small enterprise, where the investment in plant and machinery is more than twenty-five lakh rupees but does not exceed five crore rupees; or
(iii) a medium enterprise, where the investment in plant and machinery is more than five crores rupees but does not exceed ten crore rupees;
(b) in the case of the enterprises engaged in providing or rendering of services, as –
(i) a micro enterprise, where the investment in equipment does not exceed ten lakh rupees;
(ii) a small enterprise, where the investment in equipment is more than ten lakh rupees but does not exceed two crore rupes; or
(iii) a medium enterprise, where the investment in equipment is more than two crore rupees but does not exceed five crore rupees.
Explanation 1:- For the removal of doubts, it is hereby clarified that in calculating the investment in plant and machinery, the cost of pollution control, research and development, industrial safety devises and such other items as may be specified by notification, shall be excluded.”
(only the relevant portion extracted)
Sections 9, 10 and 11 of the Act contemplates about the need for encouraging the MSME in respect of Government Contracts and to that effect, the Government of Andhra Pradesh has issued G.O.Ms.No.51, Industries and Commerce (MSME) Department, dated 01.06.2010, reiterating the earlier orders issued vide 1st reference (G.O.Ms.No.1020, Ind. & Com. (SSI) Dept., dated 30.11.1976), for purchasing the goods required from the Registered SSI (MSME) Units. The said G.O. was issued to encourage the SSI Units and preference be given to the said units over other Units but the same cannot be construed as if there is a blanket ban on purchase of required material from other manufacturing units. More so, when the petitioners MSME Units do not have the required production capacity or the financial capability to execute large contracts of this nature, without filing any proof about the capacity of the units of the petitioners, the petitioners cannot contend that the tender conditions have been made only to specifically eliminate them. Even the documents filed by the petitioners go to show that the petitioners at the most have executed the works for supply of dual desks for few units amount to only in lakhs and not in crores.
Insofar as Union of India’s case (1 supra), which is relied upon by the learned counsel for the petitioners, is concerned, the same is with regard to the renewal of the lease permit. In the said case, the respondents therein were granted permit under the provisions of the Maritime Zones of India (Regulation of Fishing by Foreign Vessels) Act, 1981, and the Maritime Zones of India (Regulation of Fishing by Foreign Vessels) Rules, 1982, and when the said permit was not renewed, the respondents-applicants therein have approached the Delhi High Court and filed writ petitions and the Delhi High Court has allowed the writ petitions holding as under:
“The High Court, inter alia, came to the conclusions that renewal of the permit is a valuable right; it could be refused only on cogent and valid grounds; though plea was taken that the renewal period was mentioned by mistake same appears to be an afterthoughts, and the concerned authorities were required to consider the prayer for renewal of the permit in accordance with law. The authorities were directed to pass an appropriate order thereupon. Principles of natural justice were required to be applied. Though licence has not been granted for a period of 15 years, there has been a legitimate expectation that renewal shall be granted. Policy decision which is contrary to the statute cannot be upheld. The earlier decision in Golden Ahar Ltd. (supra) was not a binding precedent, as several relevant provisions had not been brought to the notice of the Division Bench hearing the case.
However, it was held that in the circumstances relief was not available by issuing & Mandamus directing the concerned officials to renew the licence. Consideration was to be made by the statutory authorities at the first instance. With the aforesaid conclusions, the authorities were directed to consider the applications and take a decision within a period of six weeks from the date of communication.”
Aggrieved by the same, the Union of India has approached the Hon’ble Supreme Court and filed Civil Appeals, and the Hon’ble Supreme Court, while allowing the said Civil Appeals, has held as under:
“It is trite law that Article 14 of the Constitution applies also to matters of governmental policy and if the policy or any action of the Government, even in contractual matters, fails to satisfy the test of reasonableness, it would be unconstitutional.
While the discretion to change the policy in exercise of the executive power, when not trammelled by any statute or rule is wide enough, what is imperative and implicit in terms of Article 14 is that a change in policy must be made fairly and should not give impression that it was so done arbitrarily on by any ulterior criteria. The wide sweep of Article 14 and the requirement of every State action qualifying for its validity on this touchstone irrespective of the field of activity of the State is an accepted tenet. The basic requirement of Article 14 is fairness in action by the state, and non-arbitrariness in essence and substance is the heart beat of fair play. Actions are amenable, in the panorama of judicial review only to the extent that the State must act validly for a discernible reasons, not whimsically for any ulterior purpose. The meaning and true import and concept of arbitrariness is more easily visualized than precisely defined. A question whether the impugned action is arbitrary or not is to be ultimately answered on the facts and circumstances of a given case. A basic and obvious test to apply in such cases is to see whether there is any discernible principle emerging from the impugned action and if so, does it really satisfy the test of reasonableness.
Where a particular mode is prescribed for doing an act and there is not impediment in adopting the procedure, the deviation to act in different manner which does not disclose any discernible principle which is reasonable itself shall be labelled as arbitrary. Every State action must be informed by reason and it follows that an act uninformed by reason is per se arbitrary.”
Insofar as Ramana Dayaram Shetty’s case (2 supra), which is relied upon by the learned counsel for the petitioners is concerned, the same is with regard to the awarding of the contract contrary to the terms and conditions of the tender notification, and in the said case, the Hon’ble Supreme Court has held as under:
“It will thus be seen that there are several factors which may have to be considered in determining whether a corporation is an agency or instrumentality of Government. We have referred to some of these factors and they may be summarised as under: whether there is any financial assistance given by the State, and if so, what is the magnitude of such assistance whether there is any other form of assistance, given by the State, and if so, whether it is of the usual kind or it is extraordinary, whether there is any control of the management and policies of the corporation by the State and what is the nature and extent of such control, whether the corporation enjoys State conferred or State protected monopoly status and whether the functions carried out by the corporation are public functions closely related to governmental functions. This particularisation of relevant factors is however not exhaustive and by its very nature it cannot be, because with increasing assumption of new tasks, growing complexities of management and administration and the necessity of continuing adjustment in relations between the corporation and Government calling for flexibility, adapt ability and innovative skills, it is not possible to make an exhaustive enumeration of the tests which would invariably and in all cases provide an unfailing answer to the question whether a corporation is governmental instrumentality or agency. Moreover even amongst these factors which we have described, no one single factor will yield a satisfactory answer to the question and the court will have to consider the cumulative effect of these various factors and arrive at its decision on the basis of a particularised inquiry into the facts and circumstances of each case. "the dispositive question in any stale action case," as pointed out by Douglas, J., in Jackson v. Metropolitan Edison Company (supra) "is not whether any single fact or relationship presents a sufficient degree of state involvement, but rather whether the aggregate of all relevant factors compels a finding of state responsibility." It is not enough to examine seriatim each of the factors upon which a corporation is claimed to be an instrumentality or agency of Government and to dismiss each individually as being insufficient to support a finding of that effect. It is the aggregate or cumulative affect of all the relevant factors that is controlling.
Now, obviously where a corporation is an instrumentality or agency of Government, it would, in the exercise of its power or discretion, be subject to the same constitutional or public law limitations as Government. The rule inhibiting arbitrary action by Government which we have discussed above must apply equally where such corporation is dealing with the public, whether by way of giving jobs or entering into contracts or otherwise, and it cannot act arbitrarily and enter into relationship with any person it likes at its sweet will, but its action must be in conformity with some principle which meets the test of reason and relevance.”
Therefore, the above two judgments are not applicable to the facts of the present case and are of no help to the petitioners. But, the judgment of the Hon’ble Supreme Court in Balaji Ventures Private Limited’s case, which is relied upon by the learned Special Government Pleader, is directly on the point, and the Hon’ble Supreme Court while relying upon the judgments in Silppi Constructions Contractors vs. Union of India (2019) SCC Online SC 1133) and Montecarlo Limited vs. National Thermal Power Corporation Limited (2016) 15 SCC 272), has dismissed the Special Leave Petitions and upheld the order of High Court which has held as under:
“The High Court has specifically observed and noted the justification for providing clause 1.12 (V). The said clause was to be applied to al the tenderers/bidders. It cannot be said that such clause was a tailor made to suit a particular bidder. It was applicable to all. Owner should always have the freedom to provide the eligibility criteria and/or the terms and conditions of the bid unless it is found to be arbitrary, mala fide and/or tailore made. The bidder/tenderer cannot be permitted to challenge the bid condition/clause which might not suit him and/or convenient to him. As per the settled proposition of law as such it is an offer to the prospective bidder/tenderer to compete and submit the tender considering the terms and conditions mentioned in the tender document.”
In Silppi Constructions Contractors’ case ((2019) SCC Online SC 1133) supra), the Hon'ble Supreme Court observed as under:
“The essence of the law laid down in the judgments referred to above is the exercise of restraint and caution; the need for overwhelming public interest to justify judicial intervention in matters of contract involving the state instrumentalities; the courts should give way to the opinion of the experts unless the decision is totally arbitrary or unreasonable; the court does not sit like a court of appeal over the appropriate authority; the court must realise that the authority floating the tender is the best judge of its requirements and, therefore, the court’s interference should be minimal. The authority which floats the contract or tender, and has authored the tender documents is the best judge as to how the documents have to be interpreted. If two interpretations are possible then the interpretation of the author must be accepted. The courts will only interfere to prevent arbitrariness, irrationality, bias, mala fides or perversity.”
In Montecarlo Limited’s case (4 supra), the Hon'ble Supreme Court held that where a decision is taken that is manifestly in consonance with the language of the tender document or subserves the purpose for which the tender is floated, the court should follow the principle of restraint. Technical evaluation or comparison by the court would be impermissible. The principle that is applied to scan and understand an ordinary instrument relatable to contract in other spheres has to be treated differently than interpreting and appreciating tender documents relating to technical works and projects requiring special skills. The owner should be allowed to carry out the purpose and there has to be allowance of free play in the joints.
Admittedly, in the instant case, in the absence of any documentary proof to show that the petitioners are having requisite capacity to produce the minimum number of units as stipulated under Clause 2.2.1.4 of the tender conditions within the stipulated time period, the other conditions fixing the annual turnover and also the required machinery cannot be said to be arbitrary, mala fide, and tailor-made to suit any person or company.
The petitioners having failed to plead and prove that they are having requisite production capacity or financial capacity cannot complain that the conditions imposed in the tender notification are onerous merely because the same do not suit this or that they do not meet the criterion.
It is an admitted fact that the supply of dual desks is a time bound programme. In case the petitioners are unable to supply the required material before the start of the academic year, it is the students, who will ultimately suffer the most and there is every likelihood of the academic year getting delayed due to the non-supply of the required furniture in time to the schools.
For the aforestated reasons, the writ petition fails and the same is, accordingly, dismissed.
Miscellaneous petitions pending in these writ petitions, if any, shall stand closed. There shall be no order as to costs.