Holding

The terms of an invitation to tender are not open to judicial scrutiny unless arbitrary, discriminatory or mala‑fide; the exemption for government entities is rational, the Single Judge’s order altering the NIT was illegal, and the appellant’s lack of the requisite licence bars award of the contract.

Summary

The West Bengal State Electricity Board issued a notice inviting tenders (NIT) for the sale of surplus power, requiring a Rs 30 lakh earnest money deposit from all bidders except Central/State Government organisations and public sector undertakings (PSUs). Global Energy Ltd., lacking the requisite Category F licence (it held only an interim Category A licence), challenged the exemption as discriminatory and sought to bid without depositing earnest money. A Single Judge of the Calcutta High Court allowed the company to participate by furnishing a bank guarantee within three days of the tender opening, effectively altering the NIT; this order was set aside by a Division Bench. The Supreme Court held that the terms of an invitation to tender are not subject to judicial scrutiny unless they are wholly arbitrary, discriminatory or mala‑fide, and that the exemption for government entities is based on a rational criterion. Consequently, the Single Judge’s order was illegal, and Global Energy’s lack of the required licence precluded it from being awarded the contract. Both appeals were dismissed.

Issues considered

The validity of the earnest‑money exemption for Central/State Government organisations and PSUs under the NIT.
Whether courts can intervene and modify the terms of an invitation to tender.
The legality of the Single Judge’s interim order altering the NIT.
Whether the appellant’s lack of a Category F licence disqualifies it from obtaining the power‑sale contract.

Legislation cited

Code of Civil Procedure, 1908s. Order XXVII Rule 8A
Electricity Act, 2003

Subjects

tenderearnest moneydiscriminationlicence requirementelectricitycontract lawjudicial reviewCPCpublic sector undertakingspower tradinginvitation to tender

Judgment

A GLOBAL ENERGY LTD . .AND ANR.
• v.
MIS. ADANI EXPORTS LTD. AND ORS.

MAY 3, 2005

B [R.C. LAHOTI, CJ. AND G.P. MA THUR, J.]

Contract:

Notice inviting tenders-Condition for depositing Earnest Money-State/
C Central Government and Public Sector Undertakings exempted from the
condition-Party not holding requisite licence for the work challenged the
condition of the tender-High Court by its interim order granted liberty to the
party to participate in tender process with condition to deposit the Earnest
money by famishing .Bank Guarantee or Bankers Cheque within 3 days of
D opening oftender-Order ofSingle Judge set aside by Division Bench ofHigh
Court-On appeal, held: Order of Single Judge was illegal and amounted to
totally altering the notice inviting tenders-Terms of invitation to tender are
not open to-judicial scrutiny the same being in the realm of contract, unless
they are wholly arbitrary, discriminatory or actuated with malice-Party also
not holding requisite licence for the work-The exemption in favour of State/
E Central Government and Pu6lic Sector Undertakings is based on rationale
criteria-Government is always treated as a separate 'class-Code of Civil
Procedure, 1908-0rder XXVJJ Rule 8A.

State electricity Board issued notice inviting tenders for sale of its
F surplus power to different State Electricity Boards or Power UCilities
through Power Trading Agencies. With every quotation Earnest Money
was required to be paid. However, the Central/State Government
Organisations and Public Sector Undertakings were exempted from
submission of Earnest Money. The total unit of power intended to be
traded by the electricity Board was 1471 million units. For trading over
G I 000 million units of power, licence of category 'F' was required. Appellant
possessed an interim licence of category 'A' on the basis of order passed
by High Court. Appellant-Company challenged the condition requiring
submission of Earnest Money and prayed for direction to the Board to
accept and evaluate their bid without deposit of Earnest Money.
1108
H
GLOBAL ENERGY LTD. v. ADANI EXPORTS LTD. 1109

Single Judge of High Court passed interim order granting liberty A
to the appellant to participate in the tender process in response to the
notice inviting tenders, subject to the condition of their depositing the
earnest money by furnishing a Bank Guarantee or Bankers' cheque by a
particular date (i.e. within 3 days after the tender was opened). Letters
Patent appeals filed by respondent-Company was allowed by Division B
Bench of High Court.

In appeal to this Court, appellant contended that condition requiring
deposit of Earnest Money by Power Utilities other than Central/State
Government and Public Sector Undertakings was discriminatory and
illegal; that its tender being higher than that of respondent-Company C
would bring more profit to the Electricity Board.

Respondent-Company contended that a clause regarding deposit of
Earnest Money in the notice inviting tender cannot be altered or changed
by Court, the said clause being in the realm of contract; and that appellant
was not technically qualified to be awarded the contract for sale of D
electricity, in absence of possessing requisite licence.

Dismissing the appeals, the Court

HELD : 1. Single Judge of High Court has completely altered the
notice inviting tenders in two ways. It allowed the appellants to participate E
in the tender process without depositing any earnest money. Secondly, once
the tenders are opened, the relative position of each bidder is known and
the appellants would have avoided depositing any earnest money, had they
felt that their bid was not competitive and there was no chance of getting
the contract. (1114-E-FI
F
2.1. Clause 5.1 of notice inviting tenders clearly provided that every
quotation must accompany earnest money in the form of demand draft
or pay order. Deposit of some amount of earnest money is a normal
condition of tender. The object is that only such parties who are financially
sound and are serious in getting the work or tontract should make a bid. G
Normally, State/Central Government Organizations or Central or State
Public Sector Undertakings would not make a bid unless they are serious
in getting the work. The shareholding of the Government (State or
Central) in any Public Sector Undertakings is afways more than 50 per
cent. They cannot be equated with a company whose net worth may be
very small or may have a small shareholding. Therefore, the exemption H
1110 SUPREME COURT REPORTS [2005] 3 S.C.R.

A granted in favour of State Government Organizations and Public Sector
Undertakings from making deposit of earnest m·oney was based upon a
rational criteri2. and could not be faulted on any ground whatsoever.
(1114-G-H; 115-A-C)

2.2. Order XXVII Rule SA CPC provides that no such security as is
B mentioned in rules 5 and 6 of Order XLI shall be required from the
Government or, where the Government has undertaken any defence of
the suit, from any public officer sued in respect.of an act alleged to be
done by him in his official capacity. This provision shows that Government
·--
is always treated as a separate class. Even assuming for the sake of
C argument that the exemption from depositing earnest money made in
favour of Central/State Government Organisations and Public Sector
Undertakings was illegal, it could only result in such exemption being
struck down •.This could lead to a result where the condition in the NIT
requiring deposit of money itself being set aside. 11115-C-E)
- ~·
D Tata Cellular v. Union of India, AIR (1996) SC 11; Air India ltd v.
Cochin International Airport ltd., (20001 2 SCC 617 and Directorate of
Education v. Educomp Datamatics Ltd., 12004) 4 SCC 19, relied on.

3. The terms of the invitation to tender are not open to judicial
scrutiny and the Courts cannot whittle down the terms of the tender as
E they are in the realm of contract unless they are wholly arbitrary,
discriminatory or actuated by malice. This being the position of law, the
order of the Single Judge was wholly illegal and was, therefore, rightly
set aside by the Division Bench. 11116-E-GI

4. The appellant has a licence of category 'A' and the said licence is
F subsisting in its favour on the basis of an interim order passed by the High
Court. Under the regulations of Central Electricity Regulatory
Commission, a holder of category 'F' licence is entitled to trade in over
. 1000 million units of power in a year. The total power intended to be
traded by the Electricity Board is 1471 million units for which appellant-
G Company does not possess the requisite licence. Having regard to these
facts, no ground has been made out by the appellants, which may warrant
interference by this Court with the decision taken by the Electricity Board
in not awarding the contract to the appellant-Company as price offered
cannot be the sole criteria in the matter of trading of power where holding
of relevant licence is mandatory under the Regulations of Central
H Electricity Regulatory Commission. 11117-G-H; 117-A-BI
GLOBAL ENERGY LTD. v. ADANI EXPORTS LTD. [G.P. MATHUR, J.] 1111

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2988 of2005. A
From the Judgment and Order dated 21.3.2005 of the Calcutta High
Court in M.A.T. No. 1061 of 2005.

WITH
B
C.A. No. 2989 of 2005.

Mukul Rohtagi, Sanjay Jain with him for the Appellants.

Harish N. Salve, Vikram Nanakani, Tarun Gulati, Ejaz Maqbool,
Abhimeet Sinha and Ms. Minakshi Nag with him for the Respondent No. I C
in C.A. No. 2988/2005.

R.F. Rohington, K.V. Vishwanathan, Ashish Dolakia, Sumanto Basu,
Amit Nayak and Ms. Sumita Hazarika for the Respondent No. I in C.A. No.
2989/2005.
D
V.R. Reddy, H.K. Puri, Uijwal Banerjee, S.K. Puri, Shiv Gupta, V.M.
Chauhan and Mrs. Priya Puri with him for the Respondent Nos. 2-4.

The Judgment of the Court was delivered by

G.P. MATHUR, J. Leave granted. E
2. These appeals have been preferred against the judgment and order
dated 21.3.2005 ·of a Division Bench of Calcutta High Court by which the
appeals preferred against the interim order passed by a learned Single Judge
on 15.3.2005 were allowed and the interim directions contained in the said
order were set aside. F
3. The West Bengal State Electricity Board (for short 'Electricity Board')
issued a notice on 8.3.2005 inviting tenders (for short NIT) for sale of its
surplus power to different State Electricity Boards or Power Utilities on short
term basis through Power Trading Agencies. Paragraphs l and 5 of the notice,
which are relevant for the decision of controversy in hand, are being G
reproduced below :

"l. Sealed tenders are invited by the Chief Engineer, Central
Commercial Department, West Bengal State Electricity Board, Vidyut
Bhawan, 8th Floor, Block-A, Bidhannagar, Kolkata - 700 091 from
experienced and interested Traders and Business Enterprises having H
1112 SUPREME COURT REPORTS [2005] 3 S.C.R.

A Power Trading License or Clearance from the Central Electricity
Regulatory Commission for export offollowing approximate quantum
of power.

5. Mode of deposit of Earnest Money :

5.1. Every quotation must accompany 'Earnest Money' in the
B
form of Demand Draft or Pay Order drawn on any Scheduled
Bank of India in favour of West Bengal State Electricity
Board payable at Kolkata amounting to Rs. 30,00,000.00
(Rupees thirty lakh) only. The Central/State Government
Organization(s) and. CPSU(s)/PSU(s) are exempted from
c submission of Earnest Money.

5.2. Earnest Money shall be refunded to the successful bidder
only after opening of irrevocable and revolving LC by the
successful bidder and commencement of supply as per
Payment Security Mechanism Clause. Earnest Money shall
D be refunded to the unsuccessful bidder after finalization of
Tender.

5.3. No interest shall be paid by WBSEB on Earnest Money."

4 .. Global Energy Ltd. and H. Dhaul, the appellants herein, filed a writ
E petition in the Calcutta High Court on 14.3.2005, where the principal relief
claimed was that the Electricity Board be restrained from enforcing the
condition requiring deposit of Rs. 30 lakhs as earnest money in respect of the
aforesaid tender and an injunction may be issued directing the Electricity
Board to accept and evaluate their bid without requiring deposit of Rs. 30
lakhs as earnest money. The plea taken in the writ petition was that the
F impugned condition for deposit of earnest money of Rs. 30 lakhs by licensed
traders and not by Central/State Government Organizations and Public Sector
Undertakings showed undue favour-to them. It was further pleaded that the
said condition was not only discriminatory but was also contrary to express
mandate of Electricity Act, 2003 and, therefore, the same was liable to be
G struck down. The writ petition was taken .up for admission hearing by· a
learned Single Judge on 15.3.2005 and the following order was passed on the
same day:

"The petitioners herein have challenged the action of the
respondent authorities regarding publication of the ·notice inviting
H tender and also the condition regarding deposit of earnest money by
GLOBAL ENERGY LTD. v. ADAN I EXPORTS LTD. [G.P. MATHUR, J. JI 113

the intending tenderers on various grounds mentioned in the writ A
petition.
'..
According to the petitioners, the respondent authorities hereto
have shown undue favour to the public sector undertakings by granting
exemption from submitting the earnest money.
B
Having heard the learned counsel appearing on behalf of the
parties and considering the facts and circumstances of this case, I am
of the view that this petition should be decided only after filing of
affidavits.

Accordingly, respondents are directed to file affidavit-in-opposition C
within three weeks from date. Reply thereto, if any, be filed within
a week thereafter and let this matter be listed for hearing four weeks

-
hence.

Let there also be an interim order by granting liberty to the
petitioners to participate in the tender process in response to the D
notice inviting tender being Annexure 'P-1' to the writ petition subject
to the condition that the said petitioners will deposit the earnest money
by furnishing a Bank Guarantee or Bankers' Cheque in favour of the
respondent No. 2 within 18th March, 2005.

The petitioners will, however, comply with the other tender E
conditions as mentioned in the notice inviting tender."

5. Feeli1ig aggrieved by the aforesaid order, Mis Adani Exports Ltd.
and M/s PTC India Ltd. filed two separate Letters Patent Appeals which were
allowed by the Division Bench on 21.3.2005 and the direction contained in
the order under challenge, permitting the writ petitioners (appellants herein) F
1

to deposit the earnest money by furnishing a bank guarantee or bankers'
cheque in favour of the Electricity Board by 18.3.2005 was set aside.

6. Learned counsel for the appellants has submitted that the condition
requiring deposit of Rs. 30 lakhs as earnest money by Power Utilities other
than Central/State Government Organizations and Public Sector Undertakings 'G
is discriminatory and illegal. He has further submitted that the notice inviting '
tenders (NIT) was published on 8.3.2005 which required that every quotation .
must accompany earnest money in the form of a demand draft or pay order
in favour of the Electricity Board amounting to Rs. 30 lakhs and the last date '
fixed for submission of the tender was 14.30 hrs. on 15.3.2005. A very short H
1114 SUPREME COURT REPORTS [2005] 3 S.C.R.

A notice had been given by the Electricity Board in which it was difficult for
the appellants to make arrangement for the amount of Rs. 30 lakhs. In these
circumstances, the learned Single Judge was perfectly justified in issuing an
interim direction, whereby the appellants were permitted to d~posit the earnest
money by furnishing a bank guarantee or bankers' cheque by 18.3.2005.
Learned counsel for M/s Adani ?xports Ltd. and M/s PTC India Ltd., who
B are respondents in the appeals, have submitted that an important clause
regarding deposit of earnest money in a NIT cannot be altered or changed by
Court as the said clause has to be strictly complied with, being in the realm
of contract. The learned single Judge, therefore, committed manifest error of
---
law in issuing the interim direction on 15.3.2005 right on the first day of
C admission hearing of the writ petition, which was rightly set aside by the
Division Bench.

7. Before examining the contention raised it is important to understand
the real import of the order passed by the learned Single Judge on 15.3.2005.
Though, apparently the order looks innocuous in the sense that it has permitted
D the. appellants (writ petitioners) to deposit the money by furnishing a bank
guarantee or a bankers' cheque by 18.3.2005, but in reality it completely
altered the NIT in two ways. It allowed the appellants to participate in the
tender process without depositing_ any earnest money as the tenders/offers
were to be opened at IS.00 hrs. on 15.3.2005 and thus the appellants' tender
E was directed to be considered even though the same was not accompanied
with the earnest money. Secondly, once the tenders are opened, the relative
position of each bidder is known and the appellants would have avoided
depositing any earnest money, had they felt that their bid was not competitive
and there was no chance of getting the contract. It is averred in the counter
affidavit that the appellants adopted a similar device while making bid for
F purchase of power in Orissa where they obtained a somewhat similar order
of not making the deposit of earnest money by the date fixed. When after
opening the tenders it was revealed that their bid was not competitive and
they had no chance of getting the contract they did ri.ot at all deposit the
earnest money, which was a mandatory condition of NIT.

G 8. Clause 5.1 of NIT clearly provided that every quotation must
accompany earnest money amounting to Rupees thirty lakhs in the form of
demand draft or pay order drawn on any Scheduled Bank of India in favour
of West Bengal State Electricity Board payable at Kolkata. However, the
learned Single Judge in his order dated 15.3.2004 also gave an option to the
H appellants to furnish a bank guarantee of the said amount. Deposit of some
GLOBAL ENERGY LTD. v. ADANI EXPORTS LTD. [G.P. MATHUR, J.] 1115

amount of earnest money is a normal condition of tender. The object is that A
only such parties who are financially sound and are serious in getting the
-
work or contract, should make a bid. Otherwise any number of persons who
have no capacity, financial or otherwise, would like to take a chance by
making a bid. Normally, State/Central Government Organizations or Central
or State Public Sector Undertakings would not make a bid unless they are
serious in getting the work. The shareholding of the Government (State or B
Central) in any Public Sector Undertakings is always more than 50 per cent.
They cannot be equated with a company whose net worth may be very small
or may have a small shareholding. Therefore, the exemption granted in favour
of State Government Organizations and Public Sector Undertakings from
making deposit of earnest money of Rs. 30 lakhs was based upon a rational c
criteria and could not be faulted on any ground whatsoever. Order XXVII
Rule 8A CPC provides that no such security as is mentioned in rules 5 and
6 of Order XLI shall be required from the Government or, where the
Government has undertaken any defence of the suit, from any public officer
sued in respect of an act alleged to be done by him in his official capacity.
This provision shows that Government is always treated as a separate class. D
Even assuming for the sake of argument that the exemption from depositing
earnest money made in favour of Central/State Government Organizations
and Public Sector Undertakings was illegal, it could only result in such
exemption being struck down. This could not lead to a result where the
condition in the NIT requiring deposit of earnest money itself being set aside. E
9. I~ Tata Cellular v. Union of India, AIR (1996) SC l l, a Three Judge
Bench has explaineo what is a tender and what are the requisites of a valid
tender. It has been held that the tender must be unconditional and must
conform to the terms of the obligation and further the person by whom the
te!"lder is made must be able and willing to perform his obligations. It has F
been further held that the terms of the invitation to tender cannot be open to
judicial scrutiny because the invitation to tender is in the realm of contract.
In Air India Ltd v. Cochin International Airport ltd, (2000] 2 SCC 617 the
same view was reiterated that the State can fix its own terms of invitation of
tender and that it is not open to judicial scrutiny. Whether and in what
conditions the terms of a notice inviting tenders can be a subject matter of
G
...,,_. judicial scrutiny, has been examined in considerable detail in Directorate of
f
Education v. Educomp Datamatics ltd., (2004] 4 SCC 19. The Directorate
of Education, Government of National Capital Territory of Delhi had taken
a decision to establish computer laboratories in all Government schools in
NCT area and tenders were invited to provide hardware for this purpose. For H
[
1116 SUPREME COURT REPORTS [2005] 3 S.C.R.

A the final phase of 2002-03, tenders were called for 748 schools and the cost
of project was approx. Rs. I 00 crores. In view of the difficu1ty faced in the
. earlier years where the lowest tenderers were not able to implement the entire
project, a decision was taken to invite tenders from finns having a turnover
of Rs. 20 c~ores or more for the last three financial years ending with
B 31.3 .2002, as it was .felt that it would be easier for the department to deal
with one company which is well managed and not with several companies.
Some of the firms filed writ petitions in Delhi High Court challenging the
clause of the NIT whereby a condition was put that only such finns which
had a turnover of Rs. 20 crores or more for the last three financial years
would be eligible. It was contended before the High Court that. the aforesaid
C condition had been incorporated solely with an intent to deprive a large
number of companies imparting computer education from bidding and
monopolize the same for big companies. The writ petition was allowed and
the clause was struck down as being arbitrary and irrational. In appeal, this
Court reversed the judgment of the High Court basically on the ground that • 1

the tenns of the invitation to tender are not open to judicial scrutiny, the same
D being in the realm of contract and the Government must have a free hand in
settling the terms of the tender. The courts would not interfere with the terms
of the tender notice unless it was shown to be either arbitrary or discriminatory
or actuated by malice. It was further held that while exercising the power of
judicial review of the tenns of the tender notice, the Court cannot order
E change in them.
10. The principle is, therefore, well settled that the tenns of the invitation
to tender are not open to judicial scrutiny and the Courts cannot whittle down
the tenns of the tender as they are in the realm of contract unless they are
wholly arbitrary, discriminatory or actuated by malice. This being the position
F of law, settled by a Catena of decisions of this Court, it is rather surprising
that the learned Single Judge passed an interim direction on the very first day
of admission hearing of the writ petition and allowed the appellants to deposit
the earnest money by furnishing a bank guarantee or a bankers' cheque till
three days after the actual date of opening of the tender. The order of the
G learned Single Judge being wholly illegal, was, therefore, rightly set aside by
the Division Bench.

11. Learned counsel for the appellants has submitted that the appellant
Mis Global Energy Ltd. had submitted a tender for Rs. 436 crores while
Mis Adani Exports India Ltd. had submitted a tender for Rs. 396 crores and
H as the tenCter of the appellants was Rs. 40 crores more than that of respondent
GLOBAL ENERGY LTD. v. ADAN! EXPORTS LTD. [G.P. MATHUR, J.)1117

No. I the Electricity Board would gain the said amount if the contract is A
awarded to the appellant. Learned counsel for the contesting respondents
have submitted that appellant no. I is not technically qualified to be awarded
the contract for the sale of electricity as it does not possess the requisite
license for the said purpose. The appellant no. I applied for grant of license
for interstate trading in electricity in all the five electricity regions in the B
country for trading of I 00 million units in a year to the Central Electricity
Regulatory Commission. The Commission vide its order dated 6.9.2004
granted an interim license for category 'A'. The appellant no. I challenged
the said order before the Delhi High Court in which initially an order was
passed on 26.10.2004 and the interim license granted to it was extended till
the next date of hearing. This order was extended and finally on 3.2.2005, the C
High Court directed that the interim license granted to appellant no. I shall be
extended till further orders. It is, therefore, clear that appellant no. I is having
an interim license of category 'A' in its favour on the basis of the order
passed by the High Court. It is averred in the counter affidavit filed by the
Electricity Board that the total units of power intended to be traded are 14 71
million units. For trading over 1000 million units of power in any year the D
license required is that of category 'F'. The computer website of Central
Electricity Regulatory Commission, as on 14.3.2005, contains the names of
I2 licensed electricity traders, but the name of the appellant no.I, Mis Global
Energy Ltd. does not find mention therein. It is also averred in the counter
affidavit that the Electricity Board had been selling surplus power to electricity E
traders since I st April, 2003. In the course of such negotiations, the Electricity
Board came to be associated with appellant no. I· for entering into power
purchase agreement for the period March to June 2004. However, the appellant
no.I, after accepting the terms and conditions offered by the Electricity Board
and after issuance of letters of awards, failed at the last moment to open the
letter of credit for requisite amount and submitted unacceptable letter of F
credit making the Electricity Board as a second beneficiary. Due to this
reason, the power purchase agreement failed to materialize at the last moment,
due to which the Electricity Board could not sell surplus power resulting in
a loss of revenue to the extent of about Rs. I 0.86 crores. In view of these
facts, the contract was not awarded to appellant no. I. G
12. The fact that Mis Global Energy Ltd. has a license of category 'A'
and that the said licence is subsisting in its favour on the basis of an interim
order passed by the High Court is not in dispute. Under the regulations of
Central Electricity Regulatory Commission, a holder of category 'F' license
is entitled to trade in over 1000 million units of power in a year. The total H
1118 SUPREME COURT REPORTS (2005] 3 S.C.R.

A power intended to be traded by the Electricity Board is 1471 million units for
which appellant no. I does not possess the requisite license. Having regard to
these facts, we are clearly of th:: opinion that no ground has been made out
by the appellants, which may warrant interference by this Court with the
decision taken by the West Bengal State Electricity Board in not awarding
B the contract to the appellant No. 1 as price offered cannot be the sole criteria
in the matter of trading of power where holding of relevant licence is
mandatory under the Regulations of Central Electricity Regulatory
Commission.

13. The appeals lack merit and are hereby dismissed with costs, which
C we quantify as Rs. 25,000. The cost shall be paid by the appellants to the
West Bengal State Electricity Board (respondent no.2).

K.K.T. Appeal dismissed.