DUTTA ASSOCIATES PVT. LTD.versusINDO MERCHANTILES PVT. LTD. AND ORS.

A                   DUTTA ASSOCIATES PVT. LTD.
                                v.
               INDO MERCHANTILES PVT. LTD. AND ORS.

                            NOVEMBER 18, 1996

B             [B.P. JEEVAN REDDY AND SUHAS C. SENf'JJ.]

          Tenders-Acceptance of tenders-Decision making process should
    be transparent, fair and open-Viability Range-Not specified in the
    tender-Determined after receiving the tenders-Lowest tenderer asked to
    raise his offer to be covered within the 'Viability range '-Offer raised
C   accordingly and tender accepted-Held: Entire process of acceptance of
    tender is vitiated being opposed to norms viz. transparency, fairness and
    openness-Abuse ofpower for extraneous reasons by the authorities would
    make them liable to appropriate punishment.

D          Constitution of India, 1950-Articles 14, 298-Government
    contracts-Acceptance of tenders-Held, Principles of natural justice to
    be followed.

        The Commissioner, Excise, Assam invited tenders for wholesale
  supply of rectified spirit (Grade-I) for the period May 16, 1994 to
E May 15,1996. Seventeen tenders were received and the rate quoted
  ranged from Rs. 9.20 to Rs. 16.55 Per LPL. Tenders of persons at
  serial No.I and 2 were found ineligible and were excluded from
  consideration. The next lowest tender at serial No.3 was that of the
  appellant's. But instead of accepting his offer, a principle of 'viability
  range' was brought into play by the Government. The viability range
F was determined between Rs. 14.72 to Rs.15.71 per LPL allegedly
  keeping in view the prevailing price outside the State. The offer of
  the person at Serial No.II was the lowest within the 'viability range'
  as he quoted Rs. 15.05 LPL. Instead of accepting his offer, the
  appellant was called to revise his offer, which he did by· quoting
G Rs.15.71 which is maximum of the viability range and his bid was
  accepted. Respondent No.I, one of the tenderers, moved the High
  Court challenging the acceptance of the appellant's tender. The writ
  petition was dismissed by the single judge but the Division Bench
  allowed the appeal and set aside the acceptance of the appellant's
  tender and directed that fresh tenders should be invited. The appellant
H filed the present appeal. Dismissing the appeal, this Court.
                                      710
            DUrfAASSOCIAITSPVT LlD.v.JNDOMERCHANTILESPVTLlD.        711


     HELD: I.I. The entire process leading to the acceptance of the        A
appellant's tender is vitiated. The procedure followed by the
Government in accepting the tender of the appellant is unfair and
opposed to the norms which the Government should follow in such
matters viz., openness, transparency and fair dealing. [714-D, 717-BI

      1.2. Fairness demanded that the authority should have notified       B
in the tender notice itself the procedure which they purpose to adopt
while accepting the tender. This was not done. The tender notice did
not specify the 'Viability range' nor did it say that only the tenders
coming within the 'viability range' would be considered. Nor did it
mention that the Government would first determine the viability range
and then they would call upon the lowest eligible tenderer to make a       C
counter offer. All these things were not mentioned in the tender notice.
                                                             [714-E-FI

      1.3. The very concept of 'viability range' is not understandable,
nor is it possible to appreciate the concept of 'viability range', its
necessity or its real purpose. The very concept of so-called 'viability    D
range' looks rather ridiculous. The appellant had been supplying the
rectified spirit at the rate of Rs. 9.20 per LPL during the period of
about more than two years, pending the writ petition and the writ
appeal, though the rate obtaining during the period when tender was
called was Rs. 11.05 per LPL. This fact clearly proves that there was
no reason for the Government to prescribe a far higher viability range.    E
                                                       (715 C,H 714-HI

      1.4. The Government called upon only the appellant to make a
counter offer to come within the 'viability range' and his revised
offer at higher limit of the 'viability range' was accepted. No such
opportunity to make counter offer to any other tenderer was given.         F
This is equally a vitiating factilr. [716-DI

     1.5. Whatever procedure the Govt. proposes to follow in
accepting the tender, must be clearly stated in the tender notice. The
consideration of the tenders received and procedure to be followed in
the matter of acceptance of a tender should be transparent, fair and G
open. While a bonafide error of judgment would not certainly matter,
any abuse of power for any extraneous reason would expose the
authorities concerned, to appropriate penalties. 1717-B-C[

      Shiv sagar Tiwari v. Union of India, (19961 6 SCC 558; (19961 6
sec 599 relied on.                                                         H
    712                     SUPREME COURT REPORTS [1996] SUPP. 8 S.C.R.


A           CIVIL APPELLATE JURISDICTION : Civil Appeal No. 14603 of
    1996.

         From the Judgment and Order dated 10.7.96 of the Gauhati High
    Court in W.A. No. 424i95.

B        Mr. Kapil Sibal, M.L. Lahoty, Himanshu Shekhar, Pawan Sharma
    and Ms. Sangeeta Pandey for the Appellant. .

       · H.N. Salve and S.M. Chaudhary, Sunil Kumar Jain, Jatinder Kumar
    Bhatia, Manish Kumara and Shakil Ahmed Syed for the Respondents.

C           The Judgment of the Court was delivered by

            B.P. JEEVAN REDDY, J. Leave grahted.

        Inexplicable indeed are the ways of the rulers on some occasions-
  and this is one such instance. The commissioner of Excise Assam called
D for tenders for wholesale supply of rectified spirit [Grade-I] to the Excise
  Warehouse at Tinsukia for the period May 16, 1994 to May 15,1996. The
  tender was floated on May 28, 1993. As many as seventeen tenders
  mentioned below were received quoting the rate mentioned against each
    person's name:

E           I.     Mis. Himangsu Enterprises
                   RK Bardoloi Road, Dibrugarh.                       Rs.9.20
            2.     Shri Jitendra Nath Saikia
                   Chowkidinghee, Dibrugarh.                         Rs.10.48
            3.     Mis. Dutta Associates Pvt. Ltd.
F
                   Chowkidinghee, Dibrugarh.                         Rs.11.14
            4.     Shri Pradip Kumar Datta
                   Chowkidinghee,. Dibrugarh.                       Rs. 11.75
            5.     Mis. Civiliyar Enterprises
G                  Rajgarh, Guw~hati.                                Rs.12.57
            6 ..   Mis. Onash Enterprises
                   GS Road, Guwahati.                                Rs.13.20
            7.     Shri Umesh Chandra Bora
H                  Laukuli, Tinsukia.                                Rs.13.69
    D!JITAASSOCIA1ESPVT.LTD. v.INOOMEROJANflLFSPVT. LTD. [B.P JE!o-YANRFDDY,l] 7 J 3



      8.      Mis. North East Trade Agency                                             A
              Athgaon, Guwahati.                                        Rs. 13.99
      9.      Mis. Aco Traders
              Rajgarh Guwahati.                                         Rs. 14.28
      JO.     Mis. Noble Sales Agency
              GS Road, Dispur, Guwahati.                                Rs. 14.55      B
      11.     Shri Pranab Kumar Rajkhowa
              Coal Road, Tinsukia.                                       Rs. 15.05
      12.     Mis. United Assam Company
              Rupali Path, Jorhat.                                      Rs. 15.55
                                                                                       c
      13.     Mis. Jndo Mercentiles Pvt. Ltd.
              Bishnu Market, Guwahati.                                   Rs. 15.55
      14.     Shri Vijay Kumar Jasrasaria
              Guwahati                                                   Rs. 16.05
      15.     Shri Dilip Rajkhowa, Tinsukia                              Rs. 16.13     D
      16.     Mis. Pradip Kumar Khaitan
              AT Road, Jorhat                                            Rs. 16.39
      17.     Mis. New Ashish Enterprise
              TR Phukan Road, Guwahati                                  Rs. 16.55.
                                                                                       E
      It is stated that out of seventeen tenders received, tenders of persons
mentioned at Sr.Nos. I and 2 were found ineligible and were, therefore,
excluded from consideration. If that were so, one would have expected
the Commissioner to accept the offer of the person at Sr.No.3 [Dutta
Associates Private Limited, the appellant herein], his being the lowest                F
tender. He did not do so. He did not say that the offer of Dutta Associates
was not a genuine offer or that he is not in a position to fulfil the terms of
the contract, if entered into with him. On the other hand, the Commissioner
and the Government entered upon and exercise of determining, what they
call, "viability range". They determined the viability range between Rs.
 14.72 to Rs. 15.71 per LPL. It is said that this viability range was arrived          G
at keeping in view the prevailing prices outside the States inasmuch as
most of the rectified spirit to be supplied under the contract had to be
procured outside the State of Assam. If viability range was the relevant
basis, then one would have expected the Commissioner and the Government
of Assam to have accepted the tender at Sr. No. I I [Sri Pranab Kumar
Rajkhowal], whose bid was the lowest within the viability range. They                  H
    714                      SUPREME COURT REPORTS [1996] SUPP. 8 S.C.R.


A did not do this either. They called upon Dutta Associates [appellant herein]
    to revise his offer which he did by quoting Rs.15.71 per LPL [which
    happens to be the maximum of the viability range]. His bid was accepted.
    Whereupon Indo Merchantiles Private Limited [firsts respondent herein]
    who is at Sr.No.13 in the aforesaid list of tenders, filed a writ petition in
    the Gauhati High Court questioning the acceptance of appellant's tender.
B   lndo Merchantiles submitted that not accepting his tender at Rs.15.55 and
    accepting the tender of the appellant by making him revise his bid is
    contrary to law, unfair and arbitrary. The writ petition was dismissed by a
    learned Single Judge. On Appeal, however, the Division Bench has allowed
    the writ appeal filed by lndo Merchantiles and has set aside the acceptance
    of the appellant's tender. The Division Bench found that the Commissioner
C   and the Government have acted unfairly is calling upon the appellant,
    Dutta Associates, alone to submit a counter-offer while not giving a similar
    opportunity to other tenderers. The High Court accordingly directed that
    fresh tenders be called for awarding the contract. It has also made certain
    directions for the period until fresh tenders are called for and finalised.

D        After hearing the parties, we are of the opinion that the entire process
  leading to the acceptance of the appellant's tender is vitiated by more than
  one illegality. Firstly the tender notice did not specify the 'viability range'
  nor did it say that only the tende.rs coming within the viability range will
  be considered. More significantly, the tender notice did not even say that
  after receiving the tenders, the Commissioner/Government would first
E determine the 'viability range' and would then call upon the lowest eligible
  tenderer to make a counter-offer. The exercise of determining the viability
  range and calling upon Dutta Associates to make a counter-offer on the
  alleged ground that he was the lowest tenderer among the eligible tenderers
  is outside the tender notice. Fairness demanded that the authority should
  have notified in the tender notice itself the procedure which they proposed
F to adopt while accepting the tender. They did nothing of that sort. Secondly,
  we have not been able to understand the very concept of.'viability range'
  though Sri Kapil Sibal, learned counsel for the appellant, and the learned
  counsel for the State of Assam tried to explain it to us. Learned counsel
  stated that because of the de-control of molasses, the price of rectified
G spirit fluctuates from time to time in the market and that, therefore, the
  viability range was determined keeping in view (i) distillery cost price;
  (2) export pass fees; (3) central sales tax; (4) transportation charges; (5)
  transit wastage @ l % and; (6) warehouse operational wastage
  @ 11/2%-vide the counter-affidavit filed by the Secretary to Excise
  Department, Government of Assam pursuant to this Court's orders. Sri
H Sibal further explained that because of the possibility of the fluctuation,
    lllITTAAS=IAThSPVf.LID. v.INDOMERCHANTILESPVf.LID. [BP.JEEVANREDDY,J] 715


the tender notice contains clause ( 16) which reserves to the Government             A
the power to reduce or increase the contract rate depending upon the
escalation or deceleration of the market price in the exp01ting States. We
are still not able to understand. Clause ( 16) deals with post-contract situation,
i.e., the situation during the currency of the contract and not with a situation
at the inception of the contract. The tenderers are all hard-headed
businessmen. They know their interest better. If they are prepared to supply         B
rectified spirit at Rs. 11 , 14 per LPL or so, it is inexplicable why should the
Government think that they would not be able to do so and still prescribe
a far higher viability range. Not only the rate obtaining during the period
when the tenders were called was Rs. l I .05 per LPL, the more significant
feature is that during the period of about more than two years pending the
writ petition and writ appeal, the appellant has been supplying rectified            C
spirit @ Rs.9.20. per LPL. If it was not possible for anyone to supply
rectified spirit at a rate lower than Rs. 14.72 [the lower figure of the viability
range], how could the appellant have been supplying the same at such a
low rate as Rs. 9.20 for such a long period. It may be relevant to note at
this stage the circumstances in which the appellant volunteered to supply
at the said rate. Inda Mercantiles, the respondent herein, filed the writ            D
petition and asked for an interim order. The learned Single Judge directed
[vide order dated June 2, 1994] that while Dutta Associates [appellant
herein] shall not be given the contract, he shall be allowed to execute the
contract at the lowest quoted rate which is stated to he 9.20 by the writ
petitioner. The respondent No.3 {Dutta Associates] states that the lowest
quoted rate is 11.14. If the lowest quoted rated is 9.20, it is that rate at         E
which the contract shall be given to the respondent No.3" It is pursuant to
the said order that the appellant-Dutta Associates has been supplying rectified
spirit @ Rs.9.20 per LPL since June 1994 till October 1996. The said
order did not compel the appellant [Respond~nt No.3 in the writ petition]
to supply at the rate ofRs.9.20p. If that rate was not feasible or economic,
he could well have said, "sorry''. He did not say so but agreed to and has           F
been supplying at that rate, till October, 1996. It is equally significant to
note that pursuant to the interim orders of this Court [which directed the
Government to implement the orders of the Gauhati High Court with
respect to interim arrangement] negotiations were held with both the
appellant and the first respondent herein; both offered to supply at Rs.             G
9.20p. The Commissioner, of course, chose the first respondent, lndo
 Merchantiles, over the appellant, for reason given by him in his order
dated October 14, 1996. The rate, however, remains Rs.9.20p. and the
appellant's counsel has been making a grievance of the Commissioner not
accepting the appellant's offer. All these facts make the so-called 'viability
range' and the very concept of 'viability range' look rather ridiculous-and          H
    716                      SUPREME COURT REPORTS [1996] SUPP. 8 S.C.R.


A we are not very far from the end of the three year period for which the
  tenders were called for. Neither the interlocutory order of the learned
  Single Judge dated June 2, 1994 aforesaid nor does the order of the
  Commissioner dated October 14, 1996 passed pursuant to the interim orders
  of this Court provide for any fluctuation in the rate of supply depending
  upon the fluctuation in the market rate in the exporting States, as provided
B by clause (16) of the Tender Conditions, which too appears rather unusual.
  The order of the learned Single Judge aforesaid does not also say that the
  rate specified therein is tentative and that it shall be subject to revision at
  the final hearing of the writ petition. As a matter of fact, no such revision
  was made either by the learned Single Judge or by the Division Bench. It
  is in these circumstances that, we said, we have not been able to understand
C or appreciate the concept of 'viability range', its necessity and/or its real
  purpose. Thirdly, the Division Bench states repeatedly in its judgment that
  having determined the 'viability range' the Government called upon only
  the appellant-Dutta Associates [third respondent in the writ petition/writ
  appeal] to make a counter-offer to come within the 'viability range' and
  that his revised offer at the higher limit of the 'viability range' [Rs. 15.71]
D was accepted. The Division Bench has stressed that no such opportunity to
  make a counter-offer was given to any other tenderer including the first
  respondent. As the Division Bench has rightly pointed out, this is equally
   a vitiating factor.

          It is thus clear that the entire procedure followed by the Commissioner
E and the Government of Assam in accepting the tender of Dutta Associates
    [appellant herein J is unfair and opposed to the norms which the Government
    should follow in such matters, viz., openness, transparency and fair dealing.
    The Grounds Nos. I and 2 which we have indicated hereinabove, are more
    fundamental than the third ground upon which the High Court has allowed
    the writ appeal.               '
F
          Before parting with this matter, we must also say that we have not
    been able to appreciate a particular observation of the Division Bench. In
    Para-12 of its judgment, it said: "In matter like supply of spirit to
    warehouse, offer of low or high rate does not affect the government
G   revenue. The more the profit earned by the supplier, the more sales tax
    can be levied by the government". We find it difficult to understand how
    the acceptance of a tender at a high rate does not affect the government
    revenue. Secondly, we find it yet more difficult to understand the observation
    that more profit the supplier earns, the more sales tax will the government
    realise. Sales tax is not linked with the profit. It is linked to the sale price
H   and we see no logic in government paying higher rate at a substantive
    IllITTAASSOCIA1ESPVf.LTDv.INDOMERCllANllLESPVf.LTD.[BP.JfEVANREDDYJ.] 7J 7


figure and realising sales tax at a smaller figure.                              A
       In the circumstances, we affirm the judgment of the Division Bench
in writ appeal on the grounds stated above the direct that fresh tenders
may be. floated in the light of the observations made in this judgment. We
reiterate that whatever procedure the Government proposes to follow in
a~cepting the tender must be clearly stated in the tender notice. The            B
consideration of the tenders received and the procedure to be followed in
the matter of acceptance of a tender should be transparent, fair and open.
While a bonafide error or error of judgment would not certainly matter,
any abuse ofpower for extraneous reasons, it is obvious, would expose the
authorities concerned, whether it is the Minister for Excise or the
Commissioner of Excise, to appropriate penalties at the hands of the courts,     C
following the law laid down by this court in Shiv Sagar Tiwari v. Union of
India (re. : Capt. Salish Sharma and Smt. Sheila Kaul) [Writ Petition No.
585 of 1995).

      We further direct that pending the finalisation the contract pursuant
to the tenders to be floated hereinafter pursuant to the directions made         D
herein, the present temporary arrangement shall continue. Though Sri
Sibal has questioned the correctness of the Commissioner's Order dated
october 14, 1996 awarding the contract for the interim period to Indo
Merchantiles, we are not prepared to accept the criticism. In our opinion,
the Commissioner has given valid reasons for preferring Indo Merchantiles        E
over the appellant when both were prepared to supply at the same rate of
Rs. 9.20 per LPL. We further direct that fresh tenders should be floated
within two months from today and the entire process finalised within
four months from today.                                         •

     The appeal is accordingly dismissed subject to the above observations.      F
No costs.

H.K.                                                      Appeal dismissed.