Holding

Tender terms are not open to judicial scrutiny unless they are arbitrary, discriminatory or mala fide; the Rs 20 crore turnover requirement was not arbitrary, so the High Court’s order was set aside.

Summary

The Directorate of Education, Delhi, invited tenders to set up computer labs in government schools. After earlier tenders with low turnover thresholds failed, it imposed a Rs 20 crore turnover requirement for the 2002‑03 tender, citing the large scale of the project (over Rs 100 crores) and the need for financially stable firms. Educomp Datamatics Ltd. and other respondents challenged this criterion as arbitrary and sought its striking down. The Delhi High Court held the turnover clause arbitrary and quashed it. On appeal, the Supreme Court held that terms of a tender are not subject to judicial review unless they are arbitrary, discriminatory or mala fide; it found the turnover requirement reasonable and not arbitrary, and set aside the High Court’s order, dismissing the writ petitions.

Issues considered

Whether the eligibility criteria (Rs 20 crore turnover) in a government tender are amenable to judicial review under Article 226 of the Constitution.
Whether the turnover requirement is arbitrary, discriminatory or mala fide.
Whether the High Court could strike down the tender clause on the ground of arbitrariness.

Legislation cited

Constitution of Indias. Article 226

Subjects

judicial reviewtender eligibilityfinancial turnoverarbitrarinessArticle 226public procurementpolicy decision

Judgment

A DIRECTORATE OF EDUCATION AND ORS.
v.
EDUCOMP DATAMA TICS LTD. AND ORS.
-
MARCH 10, 2004

B [R.C. LAHOTl AND ASHOK BHAN, JJ.]

Constitution of India-Article 226-Policy decision by Government to
invite firms having financial turnover of minimum Rs. 20 croresfor setting up
C computer labs in Government Schools-Writ Petitions challenging the
requirement of the financial turnover-High Court struck down the financial
requirement as being arbitrary-Judicial review-Correctness of-Held, the
terms of Government tenders are not subject to judicial review unless it is
arbitrary and discriminatory-On facts, decision not arbitrary.

D Appellant-Government initially invited tenders for the years 2000-
2001 and 2001-2002 from firms having a financial turnover of Rs.2 crores
for providing computer hardware for establishing computer labs in
Government Schools. The lowest tenderers in both the years were not able
to implement the entire project. Therefore, the Government was compelled
to distribute the entire project amongst the remaining tenderers at the rate
E quoted by the lowest tenderer. For the year 2002-2003, the Government
took a policy decision to deal with a single company having financial
capacity to take up the entire project solely. Accordingly, the Government
decided to invite tenders from firms having a financial turnover of Rs.20
crores or more for the last three financial years for establishing computer
F fabs in Government Schools. The respondents filed Writ Petitions before
High Court challenging the tender clause requiring the financial turnover
of the bidding firms to be Rs.20 crores. The High Court stuck down the
te~der clause as being arbitrary and had nothing to do with computer
education.

G In appeal to this Court, the Government contended that the High
Court, under Article 226 of the Constitution of Iridia, cannot transgress
into the field of policy decisions taken by the Government and hem:e the
terms of tender prescribing the eligibility criteria are not subject to judicial
review.

H 1010
DIRECTORATE OF EDUCATION'" EDUCOMP DAT AMA TICS LTD. 10 l J
The respondents contended that the High Court was right in striking A
the tender clause of the Government as being arbitrary; and that fresh
tenders should be invited because of the fall in price in the computer
hardware for the year 2002-2003.

Allowing the appeals, the Court
B
HELD: 1.1. The Courts can scrutinise the award of the contracts by
the Government or its agencies in exercise of its powers of judicial review
to prevent arbitrariness or favouritism. However, there are inherent
limitations in the exercise of the power of judicial review in such matters.
11015-CI C
1.2. The terms of the invitation to tender are not open to judicial
scrutiny, the same being in the realm of contract. The Government must
have a free hand in setting the terms of the tender. It must have reasonable
play in its joints as a necessary concomitant for an administrative body
in an administrative sphere. The Courts would interfere with the D
administrative policy decision only if it is arbitrary, discriminatory, ma/a
fide or actuated by bias. It is entitled to pragmatic adjustments which may
be called for by the particular circumstances. The Courts cannot strike
down the terms of the tender prescribed by the Government because it
feels that some other terms in the tender would have been fair, wiser or
logical. The Courts can interfere only if the policy decision is arbitrary, E
discriminatory or mala fide. [1017-A-C)

1.3. The Government introduced the criteria of turnover of Rs. 20
crores to enable the companies with real competence having financial
stability and capacity to participate in the tender particularly in view of
the past experience. This Court does not agree with the view taken by the F
High Court that the term providing a turnover of at least Rs. 20 crores
did not have a nexus with either the increase in the number of schools or
the quality of education to be provided. Due increase in the number of
schools the hardware cost itself went upto Rs. 40-50 crores. The total cost
of the project was more than 100 crores. A Company having a turnover G
of Rs. 2 crores may not have the financial viability to implement such a
project. As a matter of policy, the Government took a conscious decision
to deal with one firm having financial capacity to take up such a big project
instead of dealing with multiple small companies which is a relevant
consideration while awarding such a big project. Moreover, it was for the
authority to set the terms of the tender. The Courts would not interfere H
1012 SUPREME COURT REPORTS (2004] 2 S.C.R.

A with the terms of the tender notice unless it was shown to be either
arbitrary or discriminatory or actuated by malice. While exercising the
-
power of judicial review of the terms of the tender notice the Court cannot
say that the terms of the earlier tender notice would serve the purpose
sought to be achieved better than the terms of tender notice under
consideration and order change in them, unless it is of the opinion that
B the terms were either arbitrary or discriminatory or actuated by malice.
The. provision of the terms inviting tenders from firms having a turnover
__.....
of more than Rs. 20 crores has not been shown to be either arbitrary or
discriminatory or actuated by malice. (1017-E-H; 1018-A-B]

C Tata Cellular v. Union of India, [1994) 6 SCC 651; Air India Limited
v. Cochin International Airport Limited, (2000) 2 SCC 617 and Monarch
Infrastructure (P) Ltd. v. Commissioner, Ulhasnagar Municipal Corporation
and Ors., (2000) 5 SCC 287, relied on.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2407-2411
D of 2003.

From the Judgment and Order dated 20.9.2002 of the Delhi High Court
in W.P. (C) Nos. 5908, 5909, 5837, 5878 and 5860 of 2002.

K.N. Raval, Solicitor General, K.C. Kaushik, C.K. Sharma, Ms.
E Deepshikha Bharati and Gulshan Bajwa (NP) for the Appellants.

Sushi! Dutt Salwan, Ms. Ruby Singh Ahuja, Ashwani Kumar, S.K.
Sharma, Pranab Kumar Mullick, Amit S. Chadha, R.S. Nagar and Mrs. Rekha
Pandey for the Respondents.

F The Judgment of the Court was delivered by

BHAN, J. The core point which calls for determination in these appeals
is the extent of judicial review permissible in exercise of jurisdiction under
Article 226 of the Constitution to the terms of tender prescribing eligibility
criteria. Whether the High Court could change the terms incorporated in the
G tender notice on the ground of its being _inappropriate and that the objective
would be better served by adopting a different eligibility criteria?

Directorate of Education, Government of National Capital Territory of
Delhi, appellants herein, took a decision to establish computer labs in the .-
National Capital Territory area in all government schools by the year 2003
H in collaboration with private sector. Under the scheme evolved (computer
DIRECTORATE OF EDUCATION 1·. EDUCOMP DAT AMA TICS LTD. I BHAN . .I j j Qj J

education project), the education department is to provide functional literacy A
to the students from class ,Vlth to Xth and teaching of computer science and
informatics practices subjects to plus two stage, as per CBSE syllabus.

In the first phase for the year 2000-200 I, 115 schools were taken up
for imparting computer education. Tenders were called from the firms having
a turnover of Rs. 2 crores. As per terms of tender notice the firm was to B
....-- provide hardware to establish the lab in the concerned schools. The total
contract was for a sum of Rs.14.62 crores. Since the lowest tenderer was not
in a position to carry out the project in 115 schools, the contract was divided
amongst four parties. In the year 2001-2002 the tum over clause was amended,
instead Rs. 2 crores the turn over of Rs. 5 crores was prescribed. Because of C
the several representations filed the tender was cancelled and fresh tenders
were invited from the firms having a turnover of Rs. 2 crores or above. The
tender was for 275 schools, the total cost of the project being approximately
Rs. 30 crores. The lowest tenderer was again not in a position to take up the
entire project. The other seven tenderers agreed to lower their prices to bring
it at par with the rate of the lowest tenderer. Thus the contract had to be D
distributed amongst eight parties, i.e., 35 schools each to seven parties and
28 to one party. For the final phase of 2002-2003 the tenders were called for
all the 748 schools. The cost of project was approximately Rs. I 00 crores.
Because of the difficulty faced in the earlier years that the lowest tenderers
were not able to implement the entire project, the government took a policy E

- decision to deal with one company having financial capacity to take up such
a project instead of dealing with a number of small companies which were
unable to take up the entire project individually. Accordingly, Government
took a decision to invite tenders from firms having a turnover of Rs. 20
crores or more for the last three financial years ending with 31.3.2002. The
decision was taken to provide quality education which was the top priority F
of the department as it was felt that it would be easier for the department to
deal with one company which is well managed and not seven or eight who
individually are not in a position to take up the whole project compelling the
Government to distribute the contract amongst bidders at the lowest rate
having no scope to negotiate the rates any further.
G
Aggrieved by the term of clause inviting tenders from firms having a
turnover of Rs. 20 crores or more, the respondents filed writ petitions in the
High Court of Judicature at Delhi.

Writ petitions were heard by a Division Bench. The Bench came to the H
1014 SUPREME COURT REPORTS [2004] 2 S.C.R.

A conclusion that neither the increase in number of schools nor the quality of
education to be provided appeared to have nexus with the financial turnover
-
of the bidder inasmuch as the financial turnover had nothing whatsoever to
do with the computer education. It was held that the term was arbitrary and
it had nothing to do with the objective sought to be achieved, namely, the
B quality of education to be imparted. That the impugned condition appeared
to have been incorporated solely with an intent to deprive a large number of
companies imparting computer education from bidding and to monopolize
the same for big companies. Accordingly, the writ petitions were allowed and
the offending clause was struck down being arbitrary and irrational.

C Aggrieved against the aforesaid judgmentof the High Court, the present
appeals by way of special leave petitions were filed. On 24th March, 2003
leave was granted and as an interim measure, the appellants were permitted
---
to go ahead with the processing of the tender applications but no contract was
to be awarded without taking further orders from this couit. This order was
modified on 14th April, 2003. It was directed that the tender bids of all the ,.
D respondents be considered without reference to the financial qualification of '·
the turnover of Rs. 20 crores. However, the acceptance of the bid was kept
in abeyance till the passing of the final order in the appeals.

In compliance with the aforesaid directions letters were sent to all the
13 bidders/parties for opening of the commercial bids on 30th July, 2003 at
E 3.30 P.M .. Technical bids of four companies, i.e., Tata Infotech Ltd., Educomp
Datamatics Ltd., UPTEC Computer Consultancy Ltd., Sterlite Foundations
were rejected after scrutiny by the tender opening committee as these firms
did not fulfill the criteria laid in the tender notice. The financial bids of other
9 companies were opened and the bid given by Mis SSI Limited was found
F to be the lowest. Interlocutory Application Nos. 1 to 5 of 2003 were filed for
placing these facts on record. Facts which emerged from the opening of the
bids were that the four companies having a turnover of Rs. 20 crores or
above participated in the tender and M/s SSI Limited with a turnover of more
than Rs. 20 crores was the lowest amongst them.

G Shri Kirit N Raval, learned Solicitor General of India appearing for the
appellants contended that the terms of tender prescribing the eligibility criteria
are not subject to judicial review in view of a number of decisions of this
Court. That the High Court while exercising jurisdiction under Article 226 of
the Constitution does not sit as a Court of Appeal, it merely reviews the
H manner in which the decision has been taken. It was well settled that the
DIRECTORATE OF EDUCATION 1·. EDUCOMPJi)ATAMATICS LTD. [BHAN. J]] QJ 5

Courts in exercise of jurisdiction under Article 226 do not transgress into the A
field of policy decisions taken by the government. As against this, the learned
counsel appearing for the respondents supported the impugned judgment and
the reasons recorded therein. Faced with the situation that SSI Ltd. having a
turnover of more than 20 crores was the lowest tenderer and capable of
taking up the entire project on its own, it was argued that fresh tenders should B
be invited because of the fall in price in the computer hardware and lowering
of duty on the imports of the computers or its components.

It is well settled now that the courts can scrutinise the award of the
contracts by the government or its agencies in exercise of its powers of

- judicial review to prevent arbitrariness or favoritism. However, there are
inherent limitations in the exercise of the power of judicial review in such
matters. The point as to the extent of judicial review permissible in contractual
C

matters while inviting bids by issuing tenders has been examined in depth by
this Court in Tata Cellular v. Union of India, [1994) 6 SCC 651. After
examining the entire case law the following principles have been deduced.
D
"94. The principles deducible from the above are.:

(1) The modern trend points to judicial restraint in administrative
action.

(2) The court does not sit as a court of appeal but merely reviews the E
manner in which the decision was made.
(3) The court does not have the expertise to correct the administrative
decision. If a review of the administrative decision is permitted it
will be substituting its own decision, without the necessary
expertise which itself may be fallible.
F
(4) The terms of the invitation to tender cannot be open to judicial
scrutiny because the invitation to tender is in the realm ofcontract.
Normally speaking, the decision to accept the tender or award
the contract is reached by process ofnegotiations through several
tiers. More often than not, such decisions are made qualitatively
by experts. G
(5) The Government must have freedom of contract. In other words,
a fair play in the joints is a necessary concomitant for an
administrative body functioning in an administrative sphere or
quasi-administrative sphere. However, the decision must not only
be tested by the application of Wednesbury principle of H
1016 SUPREME COURT REPORTS [2004) 2 S.C.R.

A reasonableness (including its other facts pointed out above) but
must be free from arbitrariness not affected by bias or actuated
by ma/a fides.
(6) Quashing decisions may impose heavy administrative burden on
the administration and lead to increased and unbudgeted
B expenditure.
[Emphasis applied]

In Air India Limited v. Cochin International Airport Limited., [2000] 2
SCC 617, this Court observed:

C "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 commercial decision considerations which are paramount
are commercial considerations. The State can choose its own method
to arrive at a decision. It can fzx its own terms of invitation to tender
and that is not open to judicial scrutiny. It can enter into negotiations
D
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 accept the offer even
though it happens to be the highest or the lowest. But the State, its
E corporations, instrumentalities 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 interfere if it is found vitiated by ma/a fides, unreasonableness
and arbitrariness."
F
[Emphasis applied]

This principle was again re-stated by this Court in Monarch
Infrastructure (P) Ltd. v. Commissioner, Ulhasnagar Municipal Corporation
G and Ors., [2000] 5 sec 287. It was held that the tenns and conditions in the
tender are prescribed by the government bearing in mind the nature of contract
and in such matters the authority calling for the tender is the best judge to
prescribe the terms and conditions of the tender. It is not for the courts to say
whether the conditions prescribed in the tender under consideration were
better than the one prescribed in the earlier tender invitations.
H
DIRECTORATE OF EDUCATION r EDUCOMP DATA MA TICS LTD. [BHAN. J.]) QJ 7

It has clearly been held in these decisions that the terms of the invitation A
to tender are not open to judicial scrutiny the same being in the realm of
contract. That the government must have a free hand in setting the terms of
the tender. It must have reasonable play in its joints as a necessary concomitant
for an administrative body in an administrative sphere. The courts would
interfere with the administrative policy decision only if it is arbitrary, B
discriminatory, mala fide or actuated by bias. It is entitled to pragmatic
adjustments which may be called for by the particular circumstances. The
courts cannot strike down the terms of the tender prescribed by the government
because it feels that some other terms in the tender would have been fair,
wiser or logical. The courts can interfere only ifthe policy decision is arbitrary,
discriminatory or mala fide. C
Directorate of Education, Government of NCT of Delhi had invited
open tender with prescribed eligibility criteria in general terms and conditions
under tender document for leasing of supply, installation and commissioning
of computer systems, peripherals and provision of computer education services
in various government/government aided senior secondary, secondary and D
middle schools under the Directorate of Education, Delhi. In the year 2002-
2003, 748 schools were to be covered. Since the expenditure involved per
annum was to the tune of Rs. I 00 crores the competent authority took a
decision after consulting the technical advisory committee for finalisation of
the terms and conditions of the tender documents providing therein that tenders E
be invited from firms having a turnover of more than Rs. 20 crores over the
last three years. The hardware cost itself was to be Rs.40-45 crores. The
government introduced the criteria of turnover of Rs. 20 crores to enable the
companies with real competence having financial stability and capacity to
participate in the tender particularly in view of the past experience. We do
not agree with the view taken by the High Court that the term providing a F
turnover of at least Rs. 20 crores did not have a nexus with either the increase
in the number of schools or the quality of education to be provided. Because
of the increase in the number of schools the hardware cost itself went upto
Rs. 40-50 crores. The total cost of the project was more than 100 crores. A
company having a turnover of Rs. 2 crores may not have the financial viability G
to implement such a project. As a matter of policy government took a conscious
decision to deal with one firm having financial capacity to take up such a big
project instead of dealing with multiple small companies which is a relevant
consideration while awarding such a big project. Moreover, it was for the
authority to set the terms of the tender. The courts would not interfere with
the terms of the tender r.otice unless it was shown to be either arbitrary or H
1018 SUPREME COURT REPORTS [2004] 2 S.C.R.

A discriminatory or actuated by malice. While exercising the power of judicial
review ·of the terms of the tender notice the court cannot say that the terms
of the earlier tender notice would serve the purpose sought to be achieved
better than the terms of tender notice under consideration and order change
in them, unless it is of the opinion that the terms were either arbitrary or
B discriminatory or actuated by malice. The provision of the terms inviting
tenders from firms having a turnover of more than Rs. 20 crores has not been
shown to be either arbitrary or discriminatory or actuated by malice.

This apart SSI having a turnover of more than Rs. 20 crores was the
lowest bidder. Faced with the situation that the bids given by the respondents
C were not competitive with the bid given by SSI Limited, learned counsel for ~
the respondents contended that because of the fall in price in the computer
hardware and lowering of duty on the imports of the computers or its
components the government should invite fresh bids. It is not for us to comment
as to what course is to be adopted by the appellants, in the changed
circumstances attributable to lapse of time. It is for them to decide whether
D to continue with the tenders already floated, if necessary by making
negotiations so as to bring down the rates quoted or to invite fresh tenders.

For the reasons stated above, the appeals are accepted. The judgment
of the High Court is set aside and the writ petitions filed by the respondents
are dismissed with no order as to costs.
E
B.S. Appeals allowed.

~·