Holding

CIAL acted bona‑fide, was not arbitrary or unreasonable, and its award of the contract to Air India stands.

Summary

Cochin International Airport Ltd (CIAL) invited offers for ground handling services and received proposals from Air India and Cambatta Aviation Ltd. The evaluation committee recommended Cambatta, but the Government of India recommended Air India on the basis of its status as the national carrier. CIAL subsequently awarded the contract to Air India after further negotiations, prompting Cambatta to file a writ petition alleging arbitrariness, violation of natural justice and undue influence. The Kerala High Court held the award illegal, but the Supreme Court examined whether CIAL’s decision‑making process was vitiated by mala‑fide or extraneous considerations and whether judicial intervention under Article 226 was appropriate. The Court found that CIAL acted bona‑fide, considered relevant commercial factors, and was not bound to follow a public tender procedure or to treat all bidders identically, thus rejecting the claim of arbitrariness. Consequently, the Supreme Court set aside the High Court’s judgment and upheld the award to Air India.

Issues considered

The award of the contract to Air India was arbitrary, illegal, or violative of natural justice.
Whether the decision‑making process of CIAL was vitiated by mala‑fide or extraneous considerations.
Whether the Supreme Court can intervene under Article 226 in a commercial contract award by a public corporation.
Whether CIAL was bound to follow public tender norms and treat all bidders equally.
Whether the status of Air India as a national carrier is a relevant consideration in awarding the contract.

Legislation cited

Constitution of Indias. Article 14, s. Article 226

Subjects

contract awardpublic procurementnatural justicearbitrarinessArticle 226Article 14administrative lawcommercial transactionpublic sector undertakingnational carrier

Judgment

AIR INDIA A
v.
COCHl.'.'1 INTERNATIONAL AIRPORT LTD.

JA!'.UARY 31, 2000

jU.T. NANAVATI A."l'D S.N. PHUKAN, JJ.] B

Administrative Law-<::onstitution of India, Articles 14 and 226-Award
of contract by >·tate corporati01t-<:ocl1in International Airport Ltd. (CIAL)
awarding contract for ground handling facilities at the new airport to Air
India-CIAL inviting offers by writing letters and not by public tenders~om c
mittee constituted for evaluation recommending Cambatta Aviation Ltd.
(Cambatta)--<iovernment of India writing to Government of Kera/a recom-
mending Air India for award of contract on ground of being national carrier
and having better experience-Following diornssiom> CIAL awarding contract
to Air lndicr-Cambatta's writ petition dismissed by Single Judg~ivision
Bench of High Court allowing appeal held that award of contract to Air India
D
was violative of principles of natural justice, arbitrary and illegal:-This
Court held, allowing Air India's appeal, in such matters court cannot substitute
its decision for decision of party awarding contract; CIAL had acted neither
arbitrarily nor unreasonably and was also not influenced by extraneous con-
siderations during its decision making process. E
Practice and Procedure-Constitution of India, Article 226-Scope of
writ jurisdiction of High Court in matters of award of contracts by public
bodie~--lfeld, even when some defect is found in decfaion making process,
court should exercise its discretionary power only in furtherance of public
F
interest and not merely on the making out of a legal point.
.
For awarding a contract for ground handling facilities at the new
International Airport at Cochin, the Cochin International Airport Ltd.
('CIAL') invited offers by writing letters to certain companies. Responses
v.:ere received, inter alia from Air India and Cambatta Aviation Ltd. G
('Cambatta'). The Committee constituted by CIAL for evaluating the of·
fers, recommended that Cambatta be awarded the con)ract.

The Government of India wrote to the Government of Kerala recom-
mending Air India for award of coatract on the ground of it being a national
carrier and having better experience. Discussions behveen CIAL and Air H
505
506 SUPREME COURT REPORTS (2000] 1 S.C.R.
A India ensu:id and despite prol:ests from Cambatta, the contract was ul-
timately awarded by CIAL to Air India.

Cambatta's writ petition challenging the award of the contract to Air
India was dismissed by a Single Judge who held there was no illegality in
the decision malting process of CIAL and that the decision was taken
B bonafide after evaluating the offers of both Air India and Cambatta.
Cambatta's appeal was allowed! by a Division Bench of High Court which
held that award of contract to Air India was violative of principles of
natural justice, arbitrary and illegal. Air India appealed to this Court.

Allowing the appeal, th.is Court ·
c
Held : 1.1. CIAL had acted neither arbitrarily nor unreasonably and
was also not influenced by extraneous considerations during its decision
making process. [516-G; 517-A]

1.2. CIAL did no wrong in talting into consideration the fact that Air
D India being a national carrier would be in a position to bring more traffic
of Air India and other domestic lines if it was awarded the contract. CIAL
bonafide believed that involving a public sector undertalting and a national
carrier would, in the long run, 11rove to be more beneficial to CIAL.
[516-E-F; HJ
E 1.3. As regards the merits of the rival offers, it would not be proper
to loo!• at only the financial aspect and hold that CIAL did nut accept
Cambatta's olier, even though it was better, because it wanted to favour Air
India or that it had acted under the influence of Air India and the Ministry
11f Civil Avfati11n. In a commercial transaction of a complex natnre what
F may appear to h: bdter, on the face of it may not be c1msidered so whea an
overnll vim is Uli'ren. [516-F·G]

1.4. b:. such matters the Cmirt cml:ict sabstiruw its tl:cfafuu fer the
decisicn of the p::rty avilll'ding the coctrect. [516-G]

2. Even when s11me defect is found in the 11%cisio:11 ma..lting process Cucrt
G must exercise its discretio11cry power umfl:r Article 226 l'+ith gmit a!Uthm and
shollld exercise it only in furthenwce of P".tblic mterest and not merely en the
mahlng out of a I~ point. The Court shoald clwnys !.eep the llll'&a pllblic
intenst in 1:1ind to decide wheth:er its inb:rve11tio11 is cnR2d for or not. OIDy
\'l1um it co:r·ts to a conclusion that ove:-wl?ehcing pi::l>!ic inb:reli.1 n:qt:lres
H mterference, the Court showd int.ervene. [511-G; 512-A-B]
All{ !ND!A <. COc 'HIN INTERNATIONAL AIRPORT LTD. (U.T. NANA YAU J.] 507

R.D. Shetty v. International Airport Authority, (1979] 3 SCC 488; A
Fertilizer Corporation Kamgar Union v. Union of India, [1981) 1 SCC 568;
Asst. Collector, Cmtral Excise v. Dunlop India Ltd., [1985] 1 SCC 260; Tata
Cellular v. Union of India, [1994) 6 SCC 651; Ramnikla/ N. Bhutta v. State
of Maharashtra, [1997) 1 SCC 134 and Raunaq International Ltd. v. /. V.R.
Construction Ltd., (1999) 1 SCC 492, referred to.
B
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3641 of
1998.

WITH
c
Civil Appeal No. 3642 of 1998.

From the Judgment and· Order dated 29.3.99 of the Kerala High
Court in WA. No. 462 of 1999.

SoliJ. Sorabjee, Attorney General, F.S. Nariman, R.F. Nariman, K.K. D
Venugopal, Mukul Rohatgi, T.L.V. Iyer, A.H. Desai, T.R. Andharujina,
LM. Chagla, A.N. Haksar, H.N. Salve, Gulam Navati, Arun Jaitley, H.D.
Nanavati, A.K. Singh, Joseph Kodianthara, Jatindcr K. Sethi, Puneet D.
Tyagi, Rustam D. Hathikhanewala, Romy Chacko, Rajiv Shekhedhar,
...., (Sakesh Kumar, K.L. Hathi) for M/s. Hathi & Co., Ramesh Babu M.R.,
P.S. Shroff, M.P. Bharucha, Sunil Dogra, Ms. Monica Sharma, Subrat Birla, E
Shaneen Dastur, P.H. Parekh, Sameer Parekh, Ms. Indoo Verma, G.
Prakaili, Ms. Bina Madavan, Ms. Rahana V.M., Satish Sah and Ms. S.
Sagar for the appearing parties.

The Judgment of the Court was delivered by
F
G.T. NANAVATI, J. Both these appeals arise out of the judgment of
Kerala High Court in Writ Appeal No. 462 of 1999. Cambatta Aviation
Ltd. (hen:inafter referred to as 'Cambatta') had filed that appeal against
the decision of a learned Single Judge of that High Court in O.P. No. 25560
of 1998 whereby its said petition was dismissed. Cambatta had challenged G
the action of the Cochin International Airport Ltd. (for brevil:y sake
referred to as the 'CIAL') of awarding contract for ground handing services
at the new Cochin Airport at Nedumbassery to Air India Ltd. The learned
Single Judge held that the impugned action of CIAL was neither arbitrary
nor illegal. On appeal Division Bench of that Court held that the said
action was violative of principles of natural justice, arbitrary and illegal. H
508 Sl. PREME COURT REPORTS [2COO] l S.C.R.
A CIAL is a public sector undertaking. Some other public sector
undertakings and the State of Kerala are its shareholders. It has been
established fo1 setting up and maintaining a new International Airport at
Cochin. For awarding a contract for grnund handling facilities at the: new
Airport it invited offers by writing kttcrs to some companies having
B experience of that type. The letters were written on 12.11.1997 to Cambat-
ta; Air India and six others. Proposals were to be submitted by 31.12.1997.
Kambatta, Ail India, M/s. DNATA of Dubai, M/s. Ogden Aviation Ser-
vices of Hong Kong and M/s. P.S.M. Aviation Pvt. Ltd. - responded.
Proposals of some of tht:m contained alternative proposals also. On
13.7.1998 CIAL agaiII wrote to them to make tht:ir best offt:rs on or before
C 28.7.1998. Air India submitted its proposal on 20.7.1998. C.unbata did so
on 28.7.1998.

The Committee constituted by CIAL for evaluation of the offers met
on 28.9.1998. It found that Cambatta, Air India, DNATA and Ogden
D Aviation wer; on par as regards tt:chnical competenct:, organisational
capacity and past experience. It took note of the fact Cambatta and Air
India are Indian organisations, operate mainly in India and have better
proven adaptability for operating in Indian conditions. Out of those two it
recommendt:J Cambatta for awarding the work. On 11.8.1998 the Govern-
CT
ment of India wrote a letter to the Government of Kerala rt:commending
E Air India fm awarding the contract on the ground that Air India is the
national carrit:r and has better eiqeriencc. Thereafter a meeting took place
between the Managing Director of Air India and the Chief Minister of
Kerala. That was followed by a letter dated 29.10.1998 by Mr. P. Mascaren-
has, Managing Director of Air India to the Chief Minister of Kerala
F seeking an o,1portunity to make a more detailed presentation to the Board
of CIAL on the advantages CIAL would derive if Air India was appointed
its exclusive handling agent. The Board of Directors met on 7.11.1998 and
decided to have a detailed discussion with Air India before taking a final
decision and informed it to give a presentation before the Board on
27.11.1998. Having come to know about this development Carnbatta. wrote
G a letter on 10.11.1998 to the Chief Minister of Kerala pointing out that their
company is also an Indian company and they also have experience ol""over
30 years in ground handling worlk. It also took exception to the effort made
by Air India to revise its offers on the ground that it was unethical and
deserved to be condemned by the Board. It again wrote to •he Chief
H Minister on 12.11.1998 against giving preference to a national carricr in
AIR INDIA v. COCHIN INTERNATIONAL AIRPORT LTD. (G.T. NANAVATI,J.) 509

view of the policy of liberlisation. On 23.11.1998 Cam.batta wrote to CIAL A
that it was extremely perturbed over the fact that Air India was given a
further opportunity to make a presentation to the Board and requested it
not to go back upon its earlier decision to give the contract to Cam.batta.
It also warned that not adhering to its earlier decision would be a
retrograde step and shake the confidence of the people in fairness and
impartiality of CIAL. Air India gave the presentation and by its letter dated
B
1.12.1998, reaffirmed its proposal with some changes as discussed and
requested CIAL to accept it as it was better than the offer made by any
other party. Cambatta again protested by its letter dated 7.12.1998 and
informed CIAL that to accept the revised offer of Air India and not to
accept its offer would be unfair and unethical and violative of Limited c
Global Competitive Building Norms. On 12.12.1998 the first respondent
awarded the contract to Air India.

Cambatta filed a writ petition in the Kerala High Court challenging
that action of CIAL. Its contention was that its offer was the highest and D
it had fulfilled all the conditions. The offer given by Air India did not come
anywhere near their offer, yet the contract was given to Air India because
of influence exerted by Air India and the Secretary of Ministry of Civil
Aviation. It was also challenged on the ground that CIAL had not acted
fairly and impartially as it had carried on negotiations with Air India
behind the back of Cam.batta and no opportunity was given to Cam.batta E
to give a better offer. In the counter affidavit filed on behalf of CIAL it
was stated that this was not a case where tenders where invited. It was a
project to be implemented by raising finances from various sources and,
therefore, it was decided to invite offers from reputed agencies in order to
decide best terms and conditions and then to award the contract to the F
best suited party in order to make the project viable and successful. It was
further stated that individual offers were assessed considering the back-
ground and infrastructure of the companies, their financial capacity, exper-
tiie and future benefits likely accrue to CIAL. While awarding the contract
to Air India what had weighed with it was, apart from it selection by the
evaluating Committee, that it is a public sector unit, the national carrier G
under the Government of India and that it had offered to support CIAL
in a big way by showing its willingness in equity participation. It had also
taken into consideration the fact the Cam.batta was not an airline operator
like Air India and its interest and expertise was limited to ground handling
work alone. Air India had also offered to help in improving the revenue of H
510 SUPRFMF. COURT RF.PORTS [200011 S.C.R.
A CIAL by increasing Air Traffic through the Cochin Airport. Thus, on a
comparative maly,is of the offers made by Cambatta and Air India it was
found that the ofkr made by Air India was better and more bcneficial to
CIAL. The pdition was hcard by a lt:amed ~ingle Judge of thc High Court
who held that there was no illt!ghlity, arbitrariness or unn:asonablcnes~ in
B the decision making process of ClAL and the decision was taken bona fide
after t:valuating both the offers and on being satisfit:d that in the matter of
experience, expertise, infrastructme and financial capacity the offer of Air
India was superior and more beneficial. As regards the allegation of actual
ma/a fides the learned Single Judge held that the pleading in that bt:half
was very vague and scanty.
c
The matter was then carried by Cambatta in appeal before the same
High Court. The Division Bench held that it was a case of public tender.
It also held that though the decision of evaluation committee was only
recommendatory and not binding on the Board of Dirt:ctors of CIAL, the
fact that the ..:valuation committee had considered all the rt:levant aspects
D and found Cambatta as the most .competent party and yi;t no reasons were
disclosed for exph.ining what prompted the Board of Directors to take a
different view wa1. clearly indicative of the fact that CIAL was influenced
in its decision making process by Air India and the Secretary of the
Ministry of Civil Aviation. As regard!> thi: justification disclosed by CIAL
E in its counter affidavit the Division Bench held that it was 'not impressed
with the reasons given in the counter affidavit as it was well known that the
reasons giveu in the counter affidavit cannot be accepted for what has
happened at the time of acceptance of the offer." It was also of the view
that if the other tenderers had also bet:n invited for negotiations by CIAL
then possibly they would have given better offers and pointed out demerits
F of the offers made hy the rival tendcrers. It held that the Board of Directors
was influenced by the threat to the effect that if Air India was not given
the contrac~ the International Airport will be bereft of flights as Air India
will not allow other flights to land there. It then held that the action of
CIAL in awarding contract to Afr India was arbitrary, illegal and opposed
to tht: principles uf natural justice. It allowt:d the appeal, cancelled the
G contract in favour of Air India and directed CIAL to re-consider the valid
tenders once again and, if necessary, to call all those tenderers for negotia-
tions before finalising tht: contrac:t.

Challenging this decision of the High Court, Air India has filed Civil
H Appeal No. 3641 of 1998 and CIAL ha~ filed Civil Appeal No. 3642 of
AIR INDIA v. C'.UCHIN JN ihRNATIONAI. AlRPl lRT LTD. [O.T. NANA YAU J.J 51 [

1998. Mr. Nariman, learned senior counsel appearing for Air India and Mr. A
Venugopal, learned senior counsel appearing for CIAL contended that the
Division Bench ha~ gone wrong in its conclusion as it adopted a wrong
approach in a matter of this type. They submitted that the Division Bench
committed a grave error in considering this to be a case of public tender.
They also submitted that the decision of CIAL to award the contract to
Air India was takt:n bona fide in the financial and overall interest of ClAL
B
and, therefore, the High Court while exercising its power under Article 226
ought not to have interfered as no substantial amount of public interest was
involved.

The law relating to award of a contract by the State, its corporations C
and bodies acting as instrumentalities and agencies of the Government has
been settled by the decision of this Court in R.D. Shetty v. International
Airport Authority, [1979] 3 SCC 488; Fertilizer Corporation Kamgar Union v.
Union of India, [198111SCC568;Asstt. Collector, Central Excise v. Dunlop
India Ltd., [1985] 1SCC260; Tata Cellular v. Union of India, [1994] 6 SCC D
651; Ramniklal N. Bhutta v. State of Maharashtra, [1997] 1 SCC 134 and
Raunaq International Ltd. v. l. V.R. Construction Ltd., [1999] 1 SCC 492. The
award of a contract, whether it is by a private party or by a public body or
the State, is essentially a commercial transaction. In arriving at a commer-
cial decision considerations which are paramount arc commercial con-
E
siderations. The State can choose its own method to arrive at a decision.
It can fix its own terms of invitation of tender and that is not open to
judicial scrutiny. It can enter into negotiations before finally deciding to
accept one of the offers made to it. Price need not always be the sole
criterion for awarding a contract. It is free to grant any relaxation, for bona
fide reasons, if the tender conditions permit such a relaxation. It may not F
,,r-· accept the offer even though it happens to be the highest or the lowest.
But the State, its corporations, instumentalities and agencies are bound to
adhere to the norms, standards and procedures laid down by them and
cannot depart from them arbitrarily. Though that decision is not amenable
to judicial review, the Court can examine the decision making process and G
interfere if it is found vitiated by ma/a fides, unreasonableness and ar-
bitrariness. The State, its corporations, instumentalities and agencies have
_ the public duty to be fair to all concerned. Even when some defect is found
in the decision making process the Court must exercise its discretionary
power under Article 226 with great caution and should exercise it unly in H
512 SUPREME COURT REPORTS [2000] 1 S.C.R.
A furtherance of public interest and not merdy on the making out of a legal
point. The Court should always keep the larger public interest in mind in
order to decide whether its intervention is called for or not. Only when it
comes to a conclusion that overwhelming public inten:st requires inter-
ference, the Court should intervene.
B In view of thii. settled legal position, Mr. Andhyarujina, learned
senior counsel appearing for Cambatta rightly and fairly did not dispute
that CIAL was not bound to accept the highest offer or that it was entitled
to enter into negotiations with Air India. What he contended was that
CIAL ought to have treated all the tcnden:rs fairly. As Air India was given
C an opportunity to give a- presentatio1n and revise its offer it ought to have
given a chance to Cambatta also to have its say with respect to the offer
made by Air India and to match its offer with the offer of Air India. He
submitted that the evaluation committee had recommended Cambatta for
awarding the contract after considering all the relevant factors and, there-
D fore, it was incumbent upon the Board of Directors to.disclose why they
differed from tht, said recommendation and decided to accept the offer of
Air India. He <.ilso submitted that the decision of CIAL was vitiated
because of the influence exercised by Air India and the Ministry of Civil
Aviation and also because it took into consideration an irrelevant con-
E sideration that Air India is a public sector undertaking and a national
carrier.

What was ;mphasised by Mr. Nariman and Mr. Venugopal is that
CIAL was incorporated to set up a new private International Airport. At
F all airports, permissions for operating aircraft, maintenance, licensing of
crew and flying schedules of airlines is contrqlled by the Directorate
General of Civil Aviation. Applications for hangar space, landing and '-"-
parking facilities and ground handling are made to and granted by the
Airport Authority of India. This was the first attempt to privatise. There-
fore, CIAL, in order to make its project viable and successful, after taking
G into consideration various factors, decided to entrust the task of providing
ground handling services for all airlines operating from the airport to one
single agency. For achieving this purpose it invited offers by writing letters
to eight reputed agencies to enable it to decide the best terms and condi-
tions for awarding the contract and to select the best agency. They sub-
H mitted that, for these reasons, it did not choose to adopt the piib!ic tender
AIR iNUli\ v. COCHIN !NTERNA1lONAL AIRPORT LTD. [G.T. NANAVATI,J.J 513

mode. In its counter affidavit field in the High Court this position was made A
dear. What was stated in the counter affidavit was as under :

"The object of inviting their offers was only to get the terms and
conditions of the respective companies for consideration by the
Board of Directors of this respondent and to select the best suited
B
to the interest of the respondent. Being a new project implemented
by raising finance from variou~ sources all efforts were made to
make the project viable. Hence when Ext. Rl (a) letter was sent
inviting offers the paramount consideration was to get the best
offer for the benefit of the !st respondent. There was no minimum
estimated amount or other conditions for acceptance and rejection c
like the usual tender procedure."

The High Court was also of the view that if the offers were made only
pursuant to the letter dated 12.11.1997 the respondents would have a good
case. But in view of Board of Directors' decision to be fair and the CIAL's D
letter dated 13. 7.1998 calling upon the tenderers to give the best offer
before it took a final decision and informing them that the contract period
would be 10 years and the subsequent letter dated 5.8.1998 requiring the
tenderers to give a bank guarantee, CIAL was bound to treat this case as
a case of public tender and for that reason it was not open to it to say that
E
it was free to accept that offer which was best suited to it. It is, however,
not necessary to deal with this aspect more elaborately and point out
how the High Court's view is wrong as it was not disputed by the learned
counsel appearing for Cambatta that it was open to CIAL not to accept
the highest offer of Cambatta if it had good reasons to do so. It was at
no point of time declared by CIAL that it would accept the highest offer F
or accept the offer on a particular basis. All along it had made dear
that it would accept that offer which was found to be the best in their
interest.

The only point that really falls for consideration is whether CIAL G
had acted fairly after it had invited fresh offers by its letter dated 13.7.1998.
It was forcefully submitted by Mr. Andhyarujina that after the High Level
Committee had evaluated the proposals and recommended Air India for
the job it was unfair on the part of CIAL to have permitted Air India to
make a fresh presentation and revise its terms. Even while conceding that H
5l4 SUPREME COL RT RbPORTS [2000[ 1 S.C.R.
A CIAL had a right to enter into negotiations even at that stage, it was
submitted that Cambatta also should have been invited for negotiations and
informed about the revised terms of Air India. It was submitted that like
Air India, Cambatta should have been giv..:n an opportunity to match the
offer made by Air India. From the letter written by CIAL to Cambatta on
B 13. 7.1998 and similar letters wri'.ten to others also, it appears that the
Board of Directors had, in its meeting hdd on 29 .6.1998, taken certain
decisions and felt that in fairness all eligible agencies should be requested
to give their best offers. Air India had submitted its offer on 20.7.1998 and
stated therein that its offer was open tor negotiations. Cambatta had
C submitted its offer on 28.7.1998. It was made on the basis of certain
assumptions. CIAL had in all receiv\:d foe offers. The High Level Com-.
mittee constituted for evaluation of offers did not consider the offer of M/s.
P.S.M. Aviation Pvt. Ltd. as it had not submitted the required bank
guarantee. The other four agencies, namely, Cambatta, DNATA, Air India
D and Ogden, were fund on par as far as technical competence, organisation-
al capacity and past experience was concerned. It, however, short listed
Cambatta and Air India on the ground that they are Indian organisations,
operate mainly in India and has better proven adaptability for opernting in
Indian conditions. lt then recommended Cambatta for undertaking tht:
E ground handling services without giving any reason for its preference for
Cambatta. While making the decision tht: Committee obst:rvt:d that it
would be for the Board of Dirt:ctors to consider wht:tht:r any m:gotiation
should be held with the qualified agt:ncies. The Board of Directors had
then met on 711.1998 and after tiling note of the minutes of tht: High
F Level Committee and taking note of the fact that Air India is a public
sector undertaking and a national carrier, decided to have a dt:tailed
discussion with Air India before taking a final decision. It, tht:refore,
invited the Managin3 Director of Air India for giving a presentation befort:
the Board on 27.11.1998. It was als:i felt m:cessary to take a final decision
G in its next meel:ng to be held on 27.11.1998 as the matter was pending since
long and it was necessary to solve the financial crunch of CIAL. Cambatta
had protested against giving of an opportunity to Air India to make a
presentation by its letters dated 12.11.1998 and 23.11.1998 on the ground
that what was being done by CIAL was improper and in violation of global
H competitive bidding norms. In spite of the protest of Cambatta the Board
AIK ;NDIA v. CCX CHlN INTERNATIONAL AIRPORT LTD. (U.T. NANAVA11, J.] 515

of Directors of CIAL permitted Air India to make a presentation for A
outlining in detail its ground handling capabilities, packages of services
which it wished to offer and other relevant advantages including financial.
Air India by its lettt:r dated 1.12.1998 r<;Capitulated the details of the offer
which it had already made, and the subsequent presentation and discussion
on 27.11.1998. Tht: said lettt:r disclost:s that some changes were made by B
Air India in its original offt:r to make it more acceptable to CIAL. In that
lettt:r it was also indicated that it would try to enhanet: Air India and other
Airlines' - domestic and international operations through CIAL and
pointed out that only through maximisation of operations this new vt:nture
can be a profitable one at an early datt:. Cambatta again by its letti::r dated C
7.12.1998 rdtt:rated that its offer was the highest (most favourable to
CIAL) and that it would be unfair to accept the revised bid of Air India.
In spite of the protests of Cambatta, CIAL, by its lt:tter dated 12.12.1998,
informed Air India that the Board of Directors had decided to accept the
revised offer of Air India. D

This narration of facts makes it clear that all along, after the High
Level Committee had recommended Cambatta for awarding the contract,
what Cambatta was contending was that CIAL having accepted the limited
global competitive bidding norms and having decidt:d 28.7.1998 as the last
E
date for inviting final offer, it was not open to it thereafter to negotiate
with Air India behind the back of Cambatta and permit Air India to revise
its offer. Even though Cambatta had written protest letters, it had not
requested CIAL to give it any opportunity to negotiate or to improve upon
its offer. The decision of the High Level Committee was obviously not the
final decision and certainly it was not binding on the Board of Directors F
who w;.:re the final authority to take the decision. The Board of Directors,
ut the meetin;; hdd on 7.ll.1998, considered the proposals of Air India
and Cambatta and appears to have taken a tentative decision to award the
contract to Air India and, therefore, called it for negotiations with a view
to have better terms and take the final decision. The Board of Directors G
did take the final decision on 27.11.1998 as Air India agreed to make its
olfor more beneficial to CIAL. That becomes apparent from Air India's
lt:tter dated 1.12.1998. The Board of Directors having taken tentative
decision on 7.11.1998 there was no point in calling Cambatta then:after for
1 any negotiation. lt may be recalled that Cambatta was recommended over H
516 SUPREME COURT REPORTS (2000] 1 S.C.R.
A Air India by the High Level Committee only because Cambatta's financial
rating was found higher. What is significant to note is that even the High
Level Committee had in its minutes noted that financial rating cannot be
the sole criterion for taking the final decision. Moreover, in a commercial
transaction of such a complex nature a lot of balancing work has to be done
B while weighin;S all the relevant factors and the final decision has to be taken
after taking an owrall view of the transaction. It is true that even though
Cambatta had calltd upon CIAL ·co produce the minutes of the meeting of
the Board of Directors held on 27..11.1998 the same was not made available
to Cambatta. But that did not entire the High Court to draw any adverse
C inference. The High Court had not called upon CIAL to produce those
minutes.

As regards the merits of Cambatta's proposal, it was contended by
Mr. Andhyarujina that all the three offers of Cambatta were superior in
terms of paramettrs laid down by CIAL than Air India's offer. He sub-
D mitted that even after CIAL unilai:erally raised the license fee of Air India
from 17 per cent to 20 per cent in the 10th year to match Cambatta's offer
and imposed a condition that Air India would not sub-contract, it did not
become comparable with the offer of Cambatta as Air India did not offer
to pay 2 per cent bonus in license fee. It was also submitted that Air India's
E representation that it would be able to bring more traffic was illusory and
for that reason also Air India's p:roposal cannot be regarded as superior
or even comparable with the proposal of Cambatta. We do not think that
CIAL did any wrong in taking into consideration the fact that Air India is
an airline and being a national carrier would be in a position to bring more
F traffic of Air India and other domestic lines if it was awarded the contract.
As regards the merits of the rival offers, we do not think it proper to look
at only the financial aspect and hold that CIAL did not accept Cambatta's
offer, even though it was better, because it wanted to favour Air India or
that it had acted under the influence of Air India and the Ministry of Civil
Aviation. In a commercial transaction of a complex nature may what
G appear to be better, on the face of it, may not be considered so when an
overall view is taken. In such matters the Court cannot substitute it's
decision for the decision of the party awarding the contract. On the basis
of the material placed on record we find that CIAL bona fide believed that
involving a public sector undertaking and a national carrier would, in the
H long run, prove to be move beneficial to CIAL. For all these reasons it is
AIR INDIA v. COCHIN!NlERNATIONALAIRPORTLTD. [G.T. NANAVATI,J.) 517

not possible to agree with the finding of the High Court that CIAL had A
acted arbitrarily and unreasonably and was also influenced by extraneous
considerations during its decision making process.

We, therefore, allow these two appeals, set aside the judgment of the
Division Bench of the Kerala High Court in Writ Appeal No. 462 of 1999
and confirm the decision of the learned Single Judge in O.P. No. 25560 of B
1998.

S.M. Appeals allowed.