Holding

The Supreme Court held that the Board’s discretionary power to relax non‑essential tender conditions and award the contract in the public interest, when exercised in good faith, cannot be interfered with, and that the High Court’s quashing of the award was erroneous.

Summary

Maharashtra State Power General Co. (MAHAGENCO) issued a notice inviting tenders for coal liaison services. Four firms submitted bids; the Board accepted the bid of M/s B.S.N. Joshi & Sons Ltd. (the appellant) despite objections from three other bidders that the appellant failed to meet essential conditions – experience of handling 5 million tonnes of coal per year, a minimum workforce of 100 employees with PF contributions, and not being a "declared defaulter". The Bombay High Court quashed the award, holding the appellant non‑compliant. On appeal, the Supreme Court held that the Board’s discretion to relax non‑essential conditions, consider the financial year versus calendar year, and award the contract in the public interest was exercised bona‑fide. It clarified that "declared defaulter" must be an actual, not alleged, defaulter and that the High Court erred in its interference. The Court allowed the appeal, directing MAHAGENCO to re‑evaluate the appellant’s eligibility and, if satisfied, award the contract for one year, while also ordering the private respondents to bear costs.

Issues considered

Whether the appellant complied with the essential conditions of the tender, particularly the experience, manpower, PF contribution and "declared defaulter" requirements.
Whether the authority could lawfully relax the calendar‑year requirement to a financial‑year basis and still award the contract.
Whether the High Court was correct in quashing the award on the ground of non‑compliance.
Meaning and legal effect of the term "declared defaulter" in a notice inviting tender.
Whether the alleged cartel among the private respondents affected the validity of the award.

Legislation cited

Indian Contract Act, 1872s. 3

Subjects

tender awardessential conditionsdeclared defaulterblacklistingjudicial restraintpublic interestcartelrelaxation of tender conditionsprocurement lawcontract award discretion

Judgment

,..
M/S. B.S.N. JOSHI AND SONS LTD. A
v.
NAIR COAL SERVICES LTD. AND ORS.

OCTOBER 31, 2006

[S.B. SINHA AND DALVEER BHANDARI, JJ.] B

Contract Act, I 872: Section 3.

Tender-Notice inviting tender-"Declared defaulter"-Ejfect of-Held:
When a contractor is black-listed by a department, he is debarred from C
obtaining a contract-However, in terms of notice inviting tender, when a
tenderer is declared to be a defaulter, he may not get any contract at al/-
The same would, thus, have a disastrous effect on him- 'Declared defaulter'
should be an actual defaulter and not an alleged defaulter-Hence, so long
as the dispute is not resolved, the contractor may not be declared to be a D
defaulter.

Tender-Notice inviting tender-State Electricity Board issued a notice
inviting tender for coal liaison, quality· and quantity supervision for its
Thermal Power Station-Four bidders submitted their tenders-Special
Committee scrutinized the tenders-The Committee found that one bidder E
substantially complied with all the essential conditions-The Board opined
that, keeping in view the rates quoted by the said bidder, acceptance thereof
would be in the interest of the Board-Tender ofthe said bidder was accepted
by the Board-The other three bidders filed writ petition alleging that the
said bidder had failed to fulfill the essential qualifications as contained in F
the notice inviting tender-The High Court quashed the order awarding the
contract in favour of the said bidder-Correctness of -Held: The employer
is not bound to accept a bid only because it is the lowest-It must take into
consideration not only the viability but also the fact that the contractor
would be able to discharge its contractual obligations-It must not forget
the ground realities-The Board considered all these aspects while awarding G
the contract to the said bidder-A public sector undertaking may accept a
tender which is economically beneficial to it-When a contract is awarded
in a fair, reasonable and bona fide manner in public interest, the Court
ordinarily should exercise judicial restraint and may not interfere with the
11 H
12 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A decision to award the contract.
Words & Phrases:

"Cartel'~ "declared defaulter"-Meaning of-Explained

B A notice inviting tender was issued by the respondent-State Electricity
Board for coal liaison, quality and quantity supervision for its Thermal Power
Station. Coal is used as a primary fuel for generation of electrical energy ilil
the power stations belonging to the respondent-Board. The appellant and
respondents Nos. 1, 4 and 5 submitted their tenders.

C A special committee was constituted to scrutinize the tender documenlt
submitted by all the four bidders. A comparative statement was prepared
wherein the discrepancies vis-a-vis the conditions of tender were recorded..
The Scrutiny Committee recorded that the appellant substantially complied
with all the essential conditions. The Board of Directors of the respondent··
Board opined that, keeping in view the rates quoted by the appellant, acceptance:
D thereof would be in the interest of the Board. It was also stated that the:
respondents had formed a cartel. Although, in terms of the notice inviting
tender, the proof in regard to the handling the contract was to be shown in
the calendar year, all the participants showed the same for the financial year.

E The tender of the appellant was accepted by the respondent-Board. The:
respondents filed a writ petition before the High Court alleging that the:
appellant had failed to fulfill the essential qualifications as contained in the
notice inviting tender. The f!~-h- Court quashed the order awarding the:
contract in favour of the appellant. Hence the appeal.

F Allowing the appeal, the Court
HELD: 1. It is significant to note that a finding was arrived at that the:
private respondents formed a cartel. "Cartel" includes an association of
producers, sellers, distributors, traders or service providers who, by agreement
amongst themselves, limit, control or attempt to control the production,
G distribution, sale of price of, or, trade in goods or provision of services.
(30-A, Bl
Union of India v. Hindustan Development Corporation, AIR (1994) SC
988, relied on.

P. Ramanatha Aiyar: Advanced Law Lexicon, 3rd Edn., p. 693, referred
H to.
,.... B.S.N. JOSHI AND SONS LTD. v. NAIR COAL SERVICES i, TD. 13
2.1. The expression 'declaration' has a definite connotation. It is a A
statement of material facts. It may constitute a formal announcement or a
deliberate statement. A declaration must be announced solemnly or officially.
It must be made with a view 'to make known' or 'to announce'. f31-A)

Prativa Pal v. J.C. Chatterjee, AIR (1963) Cal. 470, approved.
B
2.2. When a person is placed in the category of a 'declared defaulter',
it must precede a decision. The expression 'declared' is wider than the words
'r 'found' or 'made'. 'Declared defaulter' should be an actual defaulter and not
an alleged defaulter. [31-B]

3. When it is proclaimed or published affecting the rights of the parties, C
in the sense in which it has been used, so far as the affected person is
concerned, its effect, would be akin to black-listing. When a contractor is
black-listed by a department, he is debarred from obtaining a contract, but in
terms of the notice inviting tender when a tenderer is declared to be a
defaulter, he may not get any contract at all. It may have to wind up its business. D
The same would, thus, have a disastrous effect on him. Whether a person
defaults in making the payment or not would depend upon the context in which
the allegations are made as also the relevant statute operating in the field.
When a demand is made, if the person concerned raises a bona fide dispute
in regard to the claim, so long as the dispute is not resolved, he may not be
declared to be defaulter. (31-C, D, E) E
Mis. Erusian Equipment & Chemicals Ltd v. State of West Bengal, [1975)
1 SCC 70; Raghunath Thakur v. State of Bihar, f1989) 1 SCC 229 and Tata
. Cellular v. Union of India, AIR (1996) SC 11, relied on.

Tmajirao Kanhojirao Shirke v. Oriental Fire & General Insurance Co. F
Ltd, (2000) 6 ::;cc 622, referred to.

4. It may be true that a contract need not be given to the lowest tenderer
but it is equally true that the employer is the best judge. Therefore, the same
ordinarily being within its domain, court's interference in such matter should
be minimal. The High Court's jurisdiction in such matters being limited in G
a case of this nature, the Court should normally exercise judicial restraint
unless illegality or arbitrariness on the part of the employer is apparent on
the face of the record. (35-C, DJ

Guruvayoor Devaswom Managing Committee v. CK. Rajan, (2003) 7 H
14 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R. ....
A SCC 546; State of U.P. v. Johri Mal, l2004J 4 SCC 714; Master Marine
Services (P) Ltd v. Metcalfe & Hodgkinson (P) Ltd, (2005] 6 SCC 138; Noble
Resources Ltd. v. State of Orissa, (2006) 9 SCALE 181; Poddar Steel
Corporation v. Ganesh Engineering Works, (1991) 3 SCC 273; Delhi
.. Development Authority v. VEE Electricals Engg. (P) Ltd, (2004] 11 SCC 213;
State of NCT of Delhi v. Sanjeev alias Bitto, (2005] 5 SCC 181 and Indian
B Railway Construction Co. Ltd v. Ajay Kumar, (2003] 4 SCC 579, relied on.

G.J. Fernandez v. State of Karnataka, (1990 J 2 sec 488, held {
inappli_cable.
),-
Jagdish Swarup: Constitution ofIndia, 2nd Edn., p. 286, referred to. ,•-
c
5. The law as it stands now may be summarized as under:

(i) If there are essential conditions, the same must be adhered to;
\
(ii) If there is no power of general relaxation, ordinarily the same shall
D not be exercised and the principle of strict compliance would be applied where
it is possible for all the parties to comply with all such conditions fully.

(iii) If, however, a deviation is made in relation to all the parties in regard
}..
to any of such conditions, ordinarily again a power of relaxation may be held
to be existing.
E
(iv) The parties who have taken the benefit of such relaxation should
not ordinarily be allowed to take a different stand in relation to compliance of
another part of tender contract, particularly when he was also not in a position .--
to comply with all the conditions of tender fully, unless the court otherwise,
finds relaxation of a condition which being essential in nature could not be
F
relaxed and, thus, the same was wholly illegal and without jurisdiction. r--
'~
(v) When a decision is taken by the appropriate authority upon due
consideration of the tender document submitted by all the tenderers on their
own merits and if it is ultimately found that the successful bidders had in fact
G substantially complied with the purport and object for which the essential
conditions were laid down, the same may not be ordinarily interfered with.

(vi) The contractors cannot form a ca11el. If despite the same, their bids
are considered and they are given an offer to match with the rates quoted by
the lowest tenderer, public interest would be given priority.
H

•
B.S.N. JOSHI AND SONS LTD. v. NAIR COAL SER VICES LTD. 15
~-

(vii) Where a decision has been taken purely on public interest, the Court A
ordinarily should exercise judicial restraint. [39-A-GJ

6. Law operating in the field is no longer res integra. The application
of law, however, would depend upon the facts and circumstances of each case.
It is not in dispute that there are only a few concerns in India which can handle
such a large quantity of coal. Transportation of coal from various collieries B
to the thermal power stations is essential. For the said purpose, apart from
transportation job, the contractor is required to see that coal of appropriate
'r grade is supplied. The appellant is in business for the last 52 years. It had
been talking part in contracts involving similar jobs in various parts of India.
It had all along been quoting a low rate. According to it, despite the same it C
has been generating profits. (40-A, BJ

7. The employer concededly is not bound to accept a bid only because it
is the lowest. It must take into consideration not only the viability but also
the fact that the contractor would be able to discharge its contractual
obligations. It must not forget the ground realities. The respondent-Board D
considered all aspects of the matter while accepting the appellant's offer. In
its counter affidavit, it categorically stated that the appellant would be able to
perform the contractual undertaking even at such a low rate. (40-C, DJ

8. Having regard to the fact that huge public money is involved, a public
sector undertaking, in view of the principles of good corporate governance, E
may accept such tenders which is economically beneficial to it It may be true
that essential terms of the contract were required to be fulfilled. If a party
failed and/or neglected to comply with the required conditions which were
essential for consideration of its case by the employer, it cannot supply the
details at a latter stage or quote a lower rate upon ascertaining the rate quoted
by others. Whether an employer has power of relaxation must be found out
F.
not only from the terms of the notice inviting tender but also the general
practice prevailing in India. For the said purppse, the court may consider th·e
practice prevailing in the past. Keeping in view a particular object, if in effect
and substance it is found that the offer made by one of the bidders substantially
satisfies the requirements of the conditions of notice inviting tender, the G
emIJloyer may be said to ha\'e a general power of relaxation in that behalf.
Once such a power is exercised, one of the questions which would arise for
consideration by the superior courts would be as to whether exercise of such
power was fair, reasonable and bona fide. If the answer thereto is not in the
negative, save and except for sufficient and cogent reasons, the writ courts H
16 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A would be well advised to refrain themselves in exercise of their discretionary
jurisdiction. (40-D-H)

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4613 of2006.

From the final Judgment and Order dated 19.10.2005 of the High Court
B of Judicature at Bombay, Nagpur Bench, Nagpur in Writ Petition No. 4514/
2005.

Manish Vashisht, Sameer Vashisht and Vikas Mehta for the Appellant. (

Vivek Tankha, Gagan Sanghi, Mihir Y. Kanade and Rameshwar Prasad
C Goyal for ~he Respondents.

A.S. Bhasme and Varun Thakur for the MSEB.

Jai Prakash Pandey for the Respondent No. 5.

D The Judgment of the Court was delivered by

S.B. SINHA, J: Leave granted.

A notice inviting tender "".as issued by the Maharashtra State Electricity
Board, now known as 'Maharashtra State Power General Co. Ltd.' (for short, ,..
E MAHAGENCO')~ inter alia, for coal liaisoning, quality and quantity
supervision for its Thermal Power Station on 03.03.2005. Indisputably, coal is
used as a primary fuel for generation of electrical energy in the power stations
belonging to MAHAGENCO wherefor coal is procured from various coal
mines belonging to Government Companies including Western Coalfields
Ltd., South Eastern Coalfields Ltd., Mahanadi Coai Ltd. and Singareni Collieries
F Ltd.

Pursuant to and in furthera,ce of the said notice inviting tender,
Appellant herein as also Respondent Nos. 1, 4 and 5 submitted their tenders.
Tender of Appellant herein was accepted by MAHAGENCO. Estimated amount
G ofcontract as per MSPGCL was Rs.4842.25 per M.T. The rates quoted by the
respective parties are as under :

H
B.S.N. JOSHI AND SONS LTD. v. NAIR COAL SERVICES LTD. [S.B. SINHA, J.] 17

A
SI. PARTICULARS ESTIMATED % OF
No. AMOUNT
ORDER WITH
AMOUNT/PER RESPECT TO
YEAR MSPGCL B
ESTIMATION
I. Mis BSN Joshi & Sons Ltd. Rs.1287.64 26.59%

2. Mis Nair Coal Services Ltd. Rs.6459.77 133.42%

3. Mis Karam Chand Thapar & Bros 6510.70 134.47% c
(CS) Ltd.

4. Mis Nareshkumar & Co. Ltd. Rs.6544.96 135.17%"

On the premise that Appellant herein failed to fulfil the essential
qualifications as contained in Para l .5(ii), l .S(v) and I .S(vii) of the notice D
in-viting tender, a writ petition was filed by First Respondent before the
Nagpur Bench of the Bombay High Court.

The said writ petition has been allowed by a Division Bench of the High
Court by reason of the impugned judgment quashing the order awarding E
contract in favour of Appellant.

Indisputably, the tender documents were in two parts: (a) technical bid;
and (b) financial bid. Ordinarily, nine conditions mentioned therein were
required to be fulfilled by the bidders before their respective financial bids
could be opened. F
As indicated hereinbefore, according to First Respondent, Appellant
did not fulfil the essential conditions laid down in the technical bid and, thus,
was ineligible for being considered for awarding the said contract.

The relevant provisions of the notice inviting tender are as under : G
"(ii) The Bidder should have executed the work of total minimum
quantity of 5 (Five) Million Metric Tons per year for preceding
5 years. Besides this bidder should have executed the work of
total quantity of IO (ten) Million MT's in any of the preceding
5 (Five) years. Above execution of work should be on behalf of H
. 'I •
18 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A State Electricity Board and/or NTPC and/or other State' or Central
Undertaking and/or the private Power Generating Companies as
their liaison agent/coal agent, with regard to receipt and supply
of the coal including supervision on dispatch, loading, movement
of the coal upto destination by Railway only.

B (v) The bidder should have professionally competent staff, ana offices
at the main centres of the coal companies such .as ·al Nagpur,
Bilaspur, Sambalpur and Secunderabad/Hyderabad and at Delhi
(
and Kolkata or wherever linkage committee has allotted the
linkages of the coal of MSEB. Bidder should be in a position to .
employ sufficient manpower required for liaison work. They should
c have on their own roll minimum manpower strength of 100. They
should produce a valid proof of payment of Provident Fund
Contribution of 100 personnel during the· last financial year. The
bidder should submit the copies of the relevant documents to
authenticate his claim towards experience.
D (vii) The bidder should not be.declared ,defaulter from any Electricity
Board/Government/Semi Government/Public Power Utility
Companies during last 3 (three) years."

· Indisputably, handling of quantum of coal by Appellant herein for five
years preceding invitation to treat was as under :
E
.. ... ~ _/
. '
'l

°'c,,
SI. Name of work
No
Dept-dUtirity Year-wise Details of Quantity in MTs.
:z
0
tll
1999-2000 2000-01 2001-02 2002-03 2003-04

I. Loading superv- APSEB/APGEN 60,05,892.31 . 66;30,248.89 11,37,713.47 59,47,203
=
~
0
ision & shortage co TALCHER tll

minimization ~
tll

~
including Liaisoning
with railway & Coal ·
:"
Co. for dispatch of 6
z
Inc. Mt. of Quality >
Coal from M/s MCL ;;;;
(")
to Vijawada Thermal
Power Station of ~
r
tll
APGENCO l:Tl
7,06,661 ::c
<
IB VALLEY i=i
l:Tl
tll
2. Liaisoning with Mis APGEN CO to
SCCL & Railways KTPS (O&M)
Si
.. c::i
for loading Paloncha Ci>
supervision shortage 30, 75,996.08 ~
tll
minimization &
dispatch of good
z
::r::
quality coal as "J>
per specification To 23,22,33 7.48 I ~
to Power Station
of APGENCO
KTPS Vth
Stage Paloncha I
:c
N
0

3. Liaisoning work in MPS EB 13,98,269.55 32,55,587 .39 35,23, 708.55 32,52,401.01
respect of Quantity '
& Quality l/c
Loading super- ' r./l
vision and c:
"'O
movement of
coal to Satpura
Thermal Power
~
tTl
Station, Sarni. n
0
c:
- :;r;:i
4. Liaisoning wor'k -3
in respect of :;r;:i
tTl
Quality & Quantity "'O
0
aspects including MPS EB 7,36,553.00 38,96,023.00 3,,21,527.00 41,87,553.00
loading supervision ~
r./l
-
& movement of
coal by rai I to
(SGTPS),.
. '
'N
~
0
0

r./l
Birsingpur Pali. c::
"'O
'."tl
GRAND TOTAL 81,40,714.86 1,91,80.192.84 81,82,949.02 74,39,934.0 I 66,53,864 00
r./l
M
?o

.. ~

"'
J
I
t
B.S.N. JOSHI AND SONS LTD. v. NAIR COAL SERVICES LTD. [S.B. SINHA, J.] 21
It is not in dispute that whereas a contractor was required to handle 30 A
milliop metric tones of coal during last five years, Appellant had handled more

-
than 49. million metric tones of coal. In relation to the contract, Appellant
claimed that it had entered into a contract with Andhra Pradesh Power
.
Generation. Corporation Limited (APGENCO) and it was awarded a contract for
one year ~ith effect from 11.09.2003, It completed the said contract successfully.
The cqhtract came to an end on 10.09..2004. B
It ~s a\so not in dispute that whereas in terms of the notice inviting
'r
tender f}Je, proof in regard to handling of contract was to be shown in the
calendar y•r, all the participants showed the same for financial year; and the
authorities of MAHAJENCO accepted the change. The requisite term in the
contract is as under : c
"Please confirm that you have similar experience of liaisoning for
loading, dispatches and monitoring the movement of coal by railways,
at least continuously for a period of 3 (three) years for thermal power
stations. The bidder should have executed the work of total minimum
quantity of 5 (five) million metric tones per year for preceding five D
calendar years (2000, 2001, 2002, 2003, 2004) and should have executed
the work of total quantity of 10 (ten) Million MTs in any of the
preceding 5 (five) years on behalf of State Electricity Board and/or
,. NTPC and/or other State or Central Undertakings and/or the Private
Power Generating Companies as their liaison agent with regard to
receipt and supply of the coal including supervision on dispatch, E
loading, movement of the coal upto the destination by Railways only.
Experience of monitoring and movement of coal of manufacturers of
cement or steel will also be considered. However, the experience of
movement of coal by road and ropeway shall not be considered for
such purposes. Bidder should have experience of monitoring of coal F
supplies from any or more of the following coal companies for preceding
three years SECL, MCL, SCCL, WCL."

Indisputably the said term had been modified after opening of the
technical bid from calendar year to financial year. It is also not in doubt or
dispute that if requirements were treated to be furnishing details in each G
calendar year and not financial year, no tenderer was qualified for award of
the contract. Appellant contended that there had been a consistent practice
in the past that the contracts were awarded for one year or two years, as the
case may be, and in view of the fact that the contracts were not awarded on
financial year or calendar year basis, deviation was permissible.
H
).
22 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A Our attention has been drawn to the fact that if the quantity supplied
in the said period is taken into consideration, Appellant must be held to be
qualified.

In regard to the finding of the High Court that Appellant did not satisfy
the criteria that it had engaged 100 workers, the question which arose was
-
. )3 as to whether having regard to the fact that tender document issued on
03.03.2005, the requirement to engage minimum 100 persons in the previous
year would mean financial year 2003-04 or 2004-05.

In this connection, reference has been made to a letter dated 10.03.2005
issued by Appellant herein to the Assistant Commissioner, Employees'
C Provident Fund, stating :

"We will appreciate if you could arrange to inform us about your
Accounting & Financial Year i.e. how do you take the Accounting &
Financial Year.

D This information is needed for computing our accounts.

Please do the needful at the earliest."

In response thereto by a letter dated 16.03 .2005 the Assistant Provident
Fund Commissioner informed Appellant that :
E "After verifying our records we hereby confirm that M/s B.S.N.
Joshi & Sons Ltd., has paid Provident Fund Contributions for more
than 100 persons for the period from March, 2004 to February, 2005
and ·deposited Provident Fund amounts.

The above letter is issued at the request of Mis B.S.N. Joshi &
F
Sons Ltd."

In regard to the purported violation of Condition No. l.5(vii}, it was
submitted that Appellant had never been declared to be a defaulter. Only
beca.use certain disputes were pending by and between Appellant and Madhya
G Pradesh State Electricity Board and some recovery proceedings had been
initiated by the latter, the same would not mean that it was a declared
defaulter. According to Appellant, no hearing was given to it by the Madhya
Pradesh State Electricity Board, prior to passing of an order declaring it to be
a defaulter, which was sine qua non therefor. lt was further contended that
Board of Directors of MAHAGENCO took into consideration each of the
H
.1-. B.S.N. JOSHI AND SONS LTD. l'. NAIR COAL SERVICES LTD. [S.B. SINHA, J.] 23
documents filed by each of the tenderers scrupulously and opined that A
keeping in view the rates quoted by Appellant, acceptance thereof would be
in the interest of the Board, as thereby it would save about Rs.52 crores and
in that view of the matter it was improper on the part of the High Court to
interfere therewith in exercise of its power of judicial review under Article 226
of the Constitution of India.
B
Mr. Vivek Tankha, learned Senior Counsel appearing on behalf of the
) Writ Petitioner-Respondents, on the other hand, would contend that each of
the nine conditions laid down in the notice inviting tender were pre-requisites
for the tenderers being considered therefor. They, being imperative in character,
could under no circumstances be relaxed. If the Board keeping in view the
magnitude of the contract intended to have an experienced contractor who
c
had not only handled specified quantity of coal but also have sufficient
personnel on its roll and/or must not necessarily be a defaulter vis-a-vis any
other public sector undertaking, no exception thereto could be taken and
Appellant, thus, necessarily was required to comply with each of the said
conditions. In regard to modification of clause l.5(ii) from calendar year to D
financial year, it was urged that such deviation was permissible in law.

Mr. Tankha would submit that in regard to the violation of condition
~
No. l .5(v) not only more than I 00 persons should have been on the roll of
Appellant during the period April to March in the financial year 2003-04, but
also it was required to file proof of payment of provident fund for the E
preceding year. The learned counsel contended that from the records produced
by Appellant, it would appear that whereas at the first instance, it filed proof
of payment of the employees' provident fund for a few persons, it later on
furnished supplementary challans on 07.03.2005 so as to raise the number of
employees to more than I 00. The Board, according to learned counsel, F
overlooked this fact and purported to have relaxed the condition, which
power it did not have. In regard to the finding of the High Court that
Appellant was a declared defaulter, it was contended that the expression
'declared' would merely mean to make it known that a huge amount was
payable to the Madhya Pradesh State Electricity Board, and furthermore the
same was required to be considered having regard to the fact that when in G

-
relation to such a contract dated 17.04.2005 the case of Appellant was not
considered, it filed a writ petition before the Madhya Pradesh High Court,
which was dismissed, inter alia, on the ground that it was a defaulter. The
Letters Patent Appeal filed thereagainst having also been dismissed by the
Madhya Pradesh High Court, Appellant must be held to have been declared
H

.>
24 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R. ~

A a defaulter by the High Court itself.
Mr. A.S. Bhasme, learned counsel appearing on behalfofMAHAGENCO
drew our attention to the fact that the pursuant to the order of the High Court
dated 03.05.2005 fresh tenders had been invited and by an order dated
27.03.2006 this Court directed:
B
"Learned counsel for the petitioner submits that the main petition
is coming up for final hearing on 17th April, 2006. Learned counsel
appearing for respondent Nos.2 and 3 submits that for purposes of \
generating power, coal supplies have to be continued to the
respondents failing which the entire generation of electricity shall
c come to a standstill. Keeping in view this fact, the respondents are
permitted to go ahead with their tender process including award of
contract. They are free to make whatever arrangement they want to
make in this behalf to ensure continued supply of coal to them. It is,
however, made clear that whatever arrangement is made by the
D respondents the same will be subject to the final decision of this
Special Leave Petiton."

Respondent Nos. l, 4 and 5 had been allotted contract in furtherance
thereof. According to the learned counsel, the Board ·shall abide by the I
decision of this Court.
E
Offers are to be made in response to the notice inviting tender. Only
when an offer is made and accepted, a contract comes into being.

The terms contained in the notice inviting tender may have to be
construed differently. having regard to the fact situation obtaining in each
F case. No hard and fast rule can be laid down therefor. We would, a little later,
notice the underlying intention of the employer in prescribing the so called
essential conditions.

So far as non-fulfilment of Condition No.l .5(ii) of the tender document
is concerned, the High Court opined that Appellant did not fulfil the condition
G of handling a quantity of 5 million metric tones in the financial year 2004-04,
stating :
;..
" ... They also demonstrate that the Authority floating tender must
insist upon compliance of essential conditions of eligibility and is not
entitled to deviate from insistence on strict compliance of such essential
H

~-
,'-' B.S.N. JOSHJ.AND SONS LTD. v. NAIR COAL SERVICES LTD. [S.B. SINHA, J.] 25
conditions of eligibility. However, in case of ar.cillary or subsidiary A
condition, it is open to the Authority to deviate therefrom .... "

With a view to understand the implication of the conditions, we may
notice certain broad facts. In its letter dated 18.08.2005, Appellant stated :

"It may be relevant to mention here that the total quantity of coal B
handled by us during the preceding five years as shown at page no.85
in the tender submitted by us is 4,73,76,084 tonnes, thereby average
figure of quantity handled per year is 9.47 million tones which is far
above the desired figure of 5 million tones as per tender requirement.

Further, the quantity of coal handled by us in the year 2002-03 has c
been shown as 10,30,829.84 tones in the tender which is in fact
32,52,401.01 tones as confirmed vide S.E. Services-II, MPSEB. Sami's
letter no.905/1800/2097 dated 29.03.2005. A copy of the letter has
already been submitted as annexure 'O' of our confidential letter
no.BSNJ/NGP/MSEB/04-05 dated 16.04.2005 addressed to the Dy. Chief
Engineer (GEN. TIS &C MSPGC, Nagpur). D
Thus, the quantity handled by us during the preceding five years
is in fact 4,95,97,663 tonnes i.e. 49.60 million tones as per figures
confirmed and certified by the respective power station authorities.
Even after excluding the figure 3 .164 million tones, which is part of the
quantity handed by us at APGENCO under the aforesaid L.0.1.s, at E
para no.I, during the contract period of one year ending in Sept. 04,
the average yearly quantity handled by us for the preceding five years
is 9.29 million tones per year as against the required figure of five
million tones per years.

We hope that our explanation as stated above shall clarify the F
position on the points raised in your above referred letter.

Further, we humbly wish to submit that, as being L-1 party, if the
~ work, as a whole, is awarded to us, we are ready to service MSPGCL.
We have no objection ifthe work is awarded to us for a period of one
year only. We also do not have any objection if the work is distributed
G
among all the bidders including us."
,;
An inquiry admittedly was conducted on behalf of MAHAGENCO as
to whether the statements made by Appellant herein in relation thereto were
correct. The Andhra Pradesh Power Generation Corporation Limited in its
H
~
>
26 SUPREME COURT REPORTS (2006) SUPP. 8 S.C.R. -~

A letter dated 15.06.2005, stated:

"With reference to the letter cited above it is to confirm that
Mis B.S.N. Joshi & Sons Ltd. has supervised the following Coal
quantity for the year 2003-04 and 2004-05.
S. No. Period Name of Colliery Quantity in MT
B 01. 11.09.2003 Mis MCL Talcher 3172750.00
to
March 2004 \
02. 01.10.2003 Mls.MCL, lbvalley 316930.00
to Area
c 31.03.2004 3489680.00
03. 01.04.2004 Mis MCL Talcher 2774455.00
I

to
10.09.2004
04. 01.04.2004 Mis MCL Ibvalley 389732.00
to Area
D
30.09.2004 3164187.00"

It is, therefore, evident that total quantity of 62,64, 135 metric tones of
coal had been handled by Appellant for them.

E The intention of introduction of the said clause becomes self-evident
from the aforementioned note. It may be true, as was observed by the High
Court, that the Respondents in the tender documents did not categorically
state that the block of 365 days in respect of handling of coal by the
tenderes shall be taken into consideration. It is also true that the Corporation
F must be held to be aware as to what was the true intent and purport of the
said term.

A special committee was constituted to scrutinize the tender document
submitted by all the four bidders. A comparative statement was prepared
wherein the discrepancies vis-a-vis the conditions of tender were recorded.
G Clarifications were sought for from the bidders. The Scrutiny Committee
made its observations on such clarifications. It recorded that Appellant
substantially complied with all the essential conditions. It also noticed that :..
Appellant had endosed three copies of the PF Challans for the year 2003-
04 showing that Provident Fund for more than l 00 employees has been
deposited. In regard to the contention that Appellant was a .declared defaulter,
H it took into consideration the opinion of the Law Officer, which was as under

..
B.S.N. JOSHI AND SONS LTD. v. NAIR COAL SERVICES LTD. [S.B. SINHA, J.] 27
"In this regard, I would like to state that Mis BSN Joshi & Sons A
Ltd. filed application for deleting observations in para 8 of the order
by filing MCC No. 644 of2004. In the said application Mis BSN Joshi
& Sons Ltd. contended before the High Court that they never admitted
as 'defaulter and therefore, the word "admittedly" used in para 8 of
the judgment is not appropriate. It was contended that the word
"admittedly" in the order was coming in their way in securing other B
contracts and also that it may affect other pending litigations. The
Hon'ble Division Bench deleted the word "admittedly" and replaced
it by word "apparently". The Hon'ble Bench further observed that in
view of such observation there can be no basis for apprehension that
the said order will come in the way of any other litigation. Thus, the C
High Court has clarified that the observation will not come in the way
of Mis BSN Joshi & Sons Ltd.

From the circumstances on record, it seems that the possibility D
that there might be business rivalry between Mis Nair Coal Services
Ltd. & Mis BSN Joshi & Sons Ltd., cannot be ruled out. Admittedly
there are litigations between MPEP & Mis BSN Joshi & Sons Ltd. may
.,, . be for breach of contract. However, that does not mean that Mis BSN
Jcshi & Sons Ltd. is declared defaulter by the said Board. The High
Court has already clarified that the observations about defaulter, will E
not come in way, in any other litigations."

From the note-sheet in regard to price bids, it furthermore appears, that
the following observations were made therein :

"9.l. As per instructions, vide letters dated 8.6.2005, all the bidders F
were informed the decision to open price bids on dated 13.6.2005
(Please refer Annexure 'V' enclosed).

The price bids of all the four bidders were opened on 13.6.2005
and the audited statements of the rates quoted by the 4 bidders
is enclosed herewith as Annexure 'W'. G
92 From the comparative statement, it is observed that rates quoted
by Mis B.S.N. Joshi & Sons Ltd. for all the seven items
P,Q,.R,S,T,U, V (as detailed under paragraph 3 of this note) are 1°'?'
quite less than the rates quoted by other three bidders, namely,
Mis Nair Coal Services Ltrd., M/s Karam Chand Tahpar & Bros. H
28 SUPREME COURT REPORTS (2006] SUPP. 8 S.C.R.

A (CS) Ltd. and Mis Nareshkumar & Co.
93 For item 'P' contract (i.e. for linkage materialization, shortage
minimization and quality monitoring Mis B.S.N. Joshi & Sons
Ltd., have quoted Rs. 5. 70 while other three bidders have quoted
Rs. 12.50 present rate in the existing contract for the similar type
B of work is Rs. 6.50
For items Q, R, R, S, T, U, V, Mis B.S.N. Joshi & sons Ltd., have
quoted their rates in the range of 12 paise to 50 paise whereas 1'
\

other three bidders have quoted the rates in the range of Rs. I 0
to Rs. 751-"
c It is also of some significance to note that the Chief Engineer in his note
dated 19.08.2005, by which date the writ petition had already been filed by
the First Respondent in the High Court, upon consideration of the
recommendations made by a Committee appointed for the said purpose and
upon inviting all the four bidders for negotiation of rates and matching of
D rates with the lowest bidder by the other three parties, stated :

"Since above three bidders are not ready to roach the rates. with
lowest bidder, we do not have any other option but to award whole
contracts to Mis BSN Joshi & Sons and accordingly we may intimate
the bidder Mis Nair Coal Services Ltd. as per the court directives.
E
It is therefore requested to accord the approval for above so as
to enable coal office to communicate our decision to the Petitioner as
well as Hon. High Court

The estimated order value of this tender is about Rs.13 crores. As
p per B.R.N o.277 dated 11.10.2004 (copy enclosed as Annexure-C) the
M.D. MAHAGENCO in consultation with Director (Operation) and &
Director (Finance) is empowered to place the order upto Rs.15 crores
in works contract."

The said note received the approval of the Director (Operation). The
G Director (Finance) in his note dated 19.08.2005 opined:
"All the four tenderers were called for negotiations on 17th August,
2005. Mis Nair Coal Services Ltd., Nagpur, Mis Nareshkumar & Co.
Ltd., Nagpur and M/s Karamchand Thapar & Brs. Ltd., Mumbai have
submitted in writing that they are not in a position to match their rates
H with LI. All the parties have also raised the .issue of LI not satisfying
B.S.N. JOSHI AND SONS LTD. v. NAIR COAL SERVICES LTD. [S.B. SINHA, J.] 29
~-
the qualifying requirement. In this connection, it is noted thii.t as per A
the tender conditions the· requirement regarding turnover was to be
evaluated for 5 calendar years. However, while submitting the offers,
all the firms including the LI have submitted their physical turnover
for financial years instead of calendar years. In order to evaluate all
the firms on the same footing the deviation from calendar year to
financial year was made. The intention of introducing such qualifying B
requirement is essentially to ascertain the physical capability of the
bidder to carry out the work of the scale stipulated in the tender. It
is, therefore, not very relevant whether for the purpose of evaluation
the calendar year or financial year or any other period of 365 days is
considered. Therefore, considering the documents submitted by M/s c
B.S.N. Joshi & Co. in this regard and confirmation given by M/s
APGENCO it was recommended that M/s B.S.N. Joshi & Co. can be
considered to satisfy the qualifying requirement and that their financial
bid be opened along with the other tenderers.

On the issue of LI being apparent/admitted defaulters etc. L.O. D
has already given his opinion. As per the comparative statement of
rates placed by Pg.24 it is seen that M/s Nair Coal Services Ltd.,
Nagpur, M/s Karamchand Thaper & Brs. Ltd. and M/s Nareshkuamr
& Co. Ltd. have formed a cartel. The difference between the rates
quoted by LI andother three firms is of the order of Rs.51 crs. to 52
crs. Keeping in view the huge difference and the interest of the E
organization, it would be appropriate to consider the offer of LI and
award the contract to LI."

The Managing Director of MAHAGENCO approving the note of the
Director, Finance, stated :
F
"On perusal of rates M/s Nair Coal Services Ltd., Nagpur, M/s
Nareshkumar & Co. Ltd. Nagpur and M/s Karamchand Thapar & Brs.
Ltd., Mumbai, it is apparent that they have formed a cartel. The rates
quoted by these firms are nearly 51 crs. to 52 crs. More than quoted
.}
by LI. As a goodwill gesture the above parties were called for
G
negotiations. However, they have refused to match the LI rates.

In view of the above, it is in public interest and in the interest of
MAHAGENCO a Govt. owned, public utility that the work is allocated
to the lowest qualified bidder namely Ml~ B.S.N. Joshi & Co."

Deviation, if any, therefore, was made by the. competent authority of H
30 SUPREME COURT REPORTS [2006) SUPP. 8 S.C.R.
..-,
A MAHAGENCO keeping in view the peculiar facts and circumstances of the
case.

It is significant to note that a finding was arrived at that the private
respondents herein formed a cartel. What is a cartel has been stated in
Advanced Law Lexicon, 3rd edition by P. Ramanatha Aiyar at page 693 in the
B following terms :

"Cartel" includes an association of producers, sellers, distributors,
traders or service providers who, by agreement amongst themselves, {
limit, control or attempt to control the production, distribution, sale of
price of, or, trade in goods or provision of services."
c
In Union of India v. Hindustan Development Corporation, AIR (1994)
SC 988, 1008, this Court held :

"The 'cartel' is an assoc.iation of producers who by agreement
among themselves attempt to control production, sale and prices of
D the product to obtain a monopoly in any particular industry or
commodity. It amounts to an unfair trade practice which is not in the
public interest."

A similar interpretation was made by the appropriate authority of ."f'
MAHAGENCO in relation to compliance of Condition No.l.5(v) of the tender
E document.

Before we embark upon the respective contentions made before us on
the said issue, we may notice that although the point was urged during
hearing before the High Court, the First Respondent in its writ application did
not raise any plea in that behalf. The High Court was not correct in allowing
F
First Respondent to raise the said contention. [See Tmajirao Kanhojirao
Shirke and Anr. v. Oriental Fire & General Insurance Co. Ltd, [2000] 6 SCC
622, at page 625]

The short question before the High Court was as to whether the financial ."._
G year should be taken to be April to March or March to February. According
to the authorities of the Provident Fund, the financial year is taken to be from
March to February in the sense that dues in respect of March are deposited
in April and those of February are deposited in March. Yet again, the same ~
logic would apply in regard to the intention ofMAHAGENCO which according
to them was to ascertain that the contractor should have minimum 100 number
H of employees on its roll so that its works ultimately do not suffer.

A
B.S.N. JOSHI AND SONS LTD. v. NAIR COAL SERVICES LTD. [S.B. SINHA, J.] 31
This brings us to the question as to what would be the meaning of a A
'declared defaulter'.

The expression 'declaration' has a definite connotation. It is a statement
of material facts. It may constitute a formal announcement or a deliberate
statement. A declaration must be announced solemnly or officially. It must be
made with a view 'to make known' or 'to announce'. [See Prativa Pal v. J.C. B
Chatterjee, AIR (1963) Cal. 470 at 472]. When a person is placed in the
category of a declared defaulter, it must precede a decision. The expression
'declared' is wider than the words 'found' or 'made'. Declared defaulter
should be an actual defaulter and not an alleged defaulter.

When it is proclaimed or published affecting the rights of the parties, C
in the sense in which it has been used, so far as the affected person is
concerned, its effect, would be akin to black-listing. When a contractor is
black-listed by a department, he is debarred from obtaining a contract, but in
terms of the notice inviting tender when a tenderer is declared to be a
defaulter, he may not get any contract at all. It may have to wind up its D
business. The same would, thus, have a disastrous effect on him. Whether
a person defaults in making payment or not would depend upon the context
in which the allegations are made as also the relevant statute operating in the
field. When a demand is made, if the person concerned raises a bona fide
dispute in regard to the claim; so long as the dispute is not resolved, he may
not be declared to be defaulter. E
In Mis Erusian Equipment & Chemicals Ltd etc. v. State of West
Bengal and Anr., [1975] I SCC 70, this Court stated the law thus :

"20. Blacklisting has the effect of preventing a person from the
privilege and advantage of entering into lawful relationship with the F
Government for purposes of gains. The fact that a disability is created
by the order of blacklisting indicates that the relevant authority is to
have an objective satisfaction. Fundamentals of fair play require that
the person concerned should be given an opportunity to represent his
case before he is put on the blacklist." G
Yet again in Raghunath Thakur v. State ofBihar and Ors., [1989] I SCC
229, it was opined :

"4. Indisputably, no notice had been given to Appellant of the
proposal of blacklisting Appellant. It was contended on behalf of the H
32 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A State Government that there was no requirement in the rule of giving
any prior notice before blacklisting any person. Insofar as the
contention that there is no requirement specifically of giving any
notice is concerned, the respondent is right. But it is an implied
principle of the rule of law that any order having civil consequence
should be passed only after following the principles of natural justice.
B It has to be realised that blacklisting any person in respect of business
ventures has civil consequence for the future business of the person
concerned in any event. Even if the rules do not express so, it is an
elementary principle of natural justice that parties affected by any
order should have right of being heard and making representations
C against the order..... "

In this case, Appellant had made a counter claim. It had raised a bona
fide dispute. It may be true that when the tender document was not furnished
to Appellant by the Madhya Pradesh State Electricity Board, on the premise
that he is a defaulter, it filed a writ petition. A learned Single Judge of the
D Madhya Pradesh High Court while passing an order dated 05.08.2004 recorded
a finding that it was a defaulter in respect of the said demand.

We may, however, notice that the principal ground for not entertaining
the writ petition filed by Appellant was judicial restraint on the part of the
court. It refused to intervene in the decision making process relying on or on
E the basis of a decision of this Court in [Tata Cellul2r v. Union of India, AIR
(1996) SC 11].

The matter was carried in appeal The Division of the High Court in its
order stated :

F "The ratio of the Judgments (supra) makes it clear that the Judicial
review in such matter sh:luld be in rare cases and on limited grounds
as quoted above. Appellant admittedly being a defaulter it \:annot be
said that the Board ltas committed any illegality in outstanding
Appellant from the tender process. No ma/a fides has been alleges." 11_

G It io.. however, not in dispute that a Misc. Application was filed and the
Division Bench by an order dated 03.05.2005 deleted the word 'admittedly'
and substituted the same by the term 'apparently'. It was clearly observed:
~-.
"in view of such observation, there can be no basis for apprehension that the
said order will come in t!1e way of any other litigation'.
H
--.,, r ... B.S.N. JOSHI AND SONS LTD. v. NA!R COAL SERVICES LTD. [S.B. SINHA, J.] 33
Mr. Tankha was, therefore, not correct in submitting that the High Court A
declared Appellant to be a defaulter, Nor could it do so. By reason of the
impugned judgment, the High Court while noticing that the term 'defaulter'
would mean a formal statement, proclamation or announcement, wrongly
opined:

" ... We cannot close our eyes to the fact that the bidder, who is a B
defaulter, merely because the State Electricity Board for some reasons,
fails to declare such bidder a defaulter, however, in absence of such
)
declaration, the bidder, in our view does not cease to be a defaulter..... "
)
The observations were made out of context. The Madhya Pradesh High
Court did not declare Appellant to be a defaulter. So was the Madhya Pradesh c
State Electricity Board. They could not have declared Appellant to be a
defaulter. It had no jurisdiction to do so. In the said writ petition filed by
Appellant before the Madhya Pradesh High Court, the Madhya Pradesh State
Electricity Board took a categorical stand in its counter affidavit that it had
not declared Appellant to be a defaulter, stating : D
" ... So far as the perfomJance of the petitioner is concerned, it was
found satisfact,1fy he has supplied the coal to the destination and
there was no default on his part. On he has delayed in making
payment to the Railway authorities on which 15% surcharge was
imposed and virtually recovered from the Board but now the E
Respondent no.3 has undertaken to pay said amount. So far as the

- award of Labour Court is concerned the Board has no knowledge
about it because Board was not party in the Labour Court."

It was further stated : F
"That till today the Respondent no. 3 has not been blacklisted by
tl.e Board. There are various decisions of this Hon'ble High Court and
Supreme Court that unless a contract declared black listed, the tender
document cannot be refused to him. Though there is Rs. 97 lacs
-· recoverable from Respondent no.3 but he has given undertaking that
he will pay the amount to the Board."
G

The High Court, thus, failed to notice the materials placed on records
by the parties. The matter was internally examined by the officers of
MAHA GENCO. The opinion of the Law Officer was sought for. The Law
Officer of MAHA GENCO clearly opined : H

.)..
34 SUPREME COURT REPORTS (2006] SUPP. 8 S.C.R.

A "... Considering their business rivalry it is advisable not to pay much
attention to such pressure tactics in the interest of the Board. Merely
because some litigations are pending between MPSEB and BSN Joshi
and Sons, it may not be proper to hold them declared defa~lter..... "

The said opinion of the Law Officer was accepted by the Scrutiny
B Committee. The Scrutiny Committee as also the competent authority of
MAHA GENCO thought it fit to relax the conditions keeping in view the fact
that the same would create a healthy competition.

The rates quoted by the parties have been considered at great details.
The difference of the amount in view of the rates quoted by Appellant vis-
C a-vis the other three finns was of the order of about Rs. 52 crores. Thus, a
decision was taken in the interest of the organization. Such a decision taken
in public interest should ordinarily be not interfered with.

We, however, at the cost of repetition would place on record that the
D other three bidders had clearly stated that they would not be able to match
the rates of Appellant. It is also relevant to note here the categorical st~nd
taken by MAHAGENCO before the High Court in its counter affidavit was
that the contract had been awarded in favour of Appellant in its own interest.
In regard to the order passed by the Madhya Pradesh High Court, it stuck
to its st;:md that a clear finding was arrived at therein that the observations
E which were incidentally made in the judgment should not come in the way
of Appellant in securing other contracts.

In its counter affidavit it was contended by MAHAGENCO before the
Higl, Court :

F "It is denied that there was any question of reasonable expectation
to ou~t the respondent no.3 from the tender process on the ground
that the Respondent No. 3 did not satisfy the basic qualifying criteria,
as alleged. The petitioner has referred to seve1al communications
annexed to the Petition at Annexures-N to X. The contents of all these

G
communications are taken into consideration by the Respondents
while taking the ultimate decision in the matter." '·
A contention has also been raised that the rates quoted by Appellant
were unrealistic. MAHAGENCO denied or disputed the said stand, stating :

"It is denied that the rates quoted by the Respondent No. 3 are
H
B.S.N. JOSHI AND SONS LTD. v. NAIR COAL SERVICES LTD. [S.B. SINHA, J.) 35
unrealistic according to estimates of the Respondent No. I, as alleged. A
The Petitioner has not placed on record any material to substantiate
the contention. As a matter of fact, it is submitted that presently, the
petitioner is carrying out the work in question at the rate of Rs.6.50
as against the rate of Rs. 12.5 which he has quoted in the tender
document. As a matter of fact, the rates quoted by the Respondent B
No. 3 are even lower than the rates at which the petitioner is presently
working. Presently, the work is being carried out by the Petitioner and

-
) the Respondents Nos. 4 and 5 at the very same rate i.e. Rs.6.50. Thus,
it is apparent that the Petitioner and the Respondents No. 4 and 5
have formed a Cartel. The rates quoted by them are really unrealistic
and not competitive. Hence, keeping in view a huge difference and the C
interests of the Respondent No. I, the decision taken by the Respondent
No.I Company is legal, correct and proper."

It may be true that a contract need not be given to the lowest tenderer
but it is equally true that the employer is the best judge therefor; the same D
ordinarily being within its domain, court's interference in such matter should
be minimal. The High Court's jurisdiction in such matters being limited in a
case of this nature, the Court should normally exercise judicial restraint unless
illegality or arbitrariness on the. part of the employer is appare:it on the face
of the record.
E
This Court in Guruvayoor Devaswom Managing Committee and Anr.
v. C.K. Rajan and Ors., [2003] 7 SCC 546 observed:

"30. Dawn Oliver in Constitutional Reforms in the UK under the
heading "The Courts and Theories of Democracy, Citizenship and
Good Governance" at p. 105 states: F
"However, this concept of democracy as rights-based with limited
governmental power, and in particular of the role of the courts in a
democracy, carries high risks for the judges and for the public. Courts
may interfere inadvisedly in public administration. The case of Bromley G
London Borough Council v. Greater London Counci/ 11 is a classic
example. The House of Lords quashed the GLC cheap fares policy as
being based on a misreading of the statutory provisions, but were
accused of themselves misunderstanding transport policy in so doing.
The courts are not experts in policy and public administration hence
Jowell's point that the courts should not step beyond their institutional H
capacity (Jowell, 2000). Acceptance of this approach is reflected in the

).
36 SUPREME COURT REPORTS (2006] SUPP. 8 S.C.R.

A judgments of Laws, L.J. in International Transport Roth GmbH v.
Secy. of State for the Home Deptt. 12 and of Lord Nimmo Smith in
Adams v. Lord Advocate 13 in which a distinction was drawn between
areas where the subject-matter lies within the expertise of the courts
(for instance, criminal justice, including sentencing and detention of
individuals) and those which were more appropriate for decision by
B
democratically elected and accountable bodies. If the courts step
outside the area of their institutional competence, the Government
may react by getting Parliament to legislate to oust the jurisdiction of
the courts altogether. Such a step would undermine the rule of law.
The Government and public opinion may come to question the
c legitimacy of the judges exercising judicial· review against Ministers
and thus undermine the authority of the courts and the rule of law."

[See also State of U.P. and Anr. v. Johri Mal, [2004] 4 SCC 714]

In Jagdish Swamp's Constitution of India, 2nd Edition, page 286, it is
D stated:

"It is equally true that even in contractual matters, a public authority
does not have an unfettered decision to ignore the norms recognized
by the Courts, but at the same time if a decision has been taken by
a public authority in a bona fide manner, although not strictly following
E
the norms laid down by the Courts, such decision is upheld on the
principle that the Courts, while judging the constitutional validity of
executing decisions, must grant a certain measure of freedom of"play
in the joints" to the executive."

F Recently, in Master Marine Services (P) Ltd v. Metcalfe & Hodgkinson
(P) Ltd and Anr., [2005] 6 SCC 138, upon noticing a large number of decisions,
this Court stated :

"15. The law relating to award of contract by the State and public
sector corporations was reviewed in Air India Ltd. v. Cochin
G International Airport Ltd 4 - and it was held that the award of a
contract, whether by a private party or by a State, is essentially a
commercial transaction. It can choose its own method to arrive at a
decision and it is free to grant any relaxation for bona fide reasons,
if the tender conditions permit such a relaxation. It was further held
H that the State, its corporations, instrumentalities and agencies have
the public duty to be fair to all concerned. Even when some defect
...... t..{ B.S.N. JOSHI AND SONS LTD. v. NAIR COAL SERVICES LTD. [S.B. SINHA, J.] 37
is found in the decision-making process, the court must exercise its A
discretionary powers under Article 226 with great caution and should
exercise it only in furtherance of public interest and not merely 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 interest requires interference, the court should interfere." B

[See also Noble Resources Ltd. v. State of Orissa and Anr., (2006) 9 SCALE

-
..,
181]

Strong reliance has been placed by Mr. Tankha on G.J. Fernandez v.
State of Karnataka and Ors., [ 1990] 2 SCC 488 wherein this Court observed: c
"15. Thirdly, the conditions and stipulations in a tender notice like this
have two types of consequences. The first is that the party issuing
the tender has the right to punctiliously and rigidly enforce them.
Thus, if a party does not strictly comply with the requirements of para
III, V or VI of the NIT, it is open to the KPC to decline to consider
D
the. party for the contract and if a party comes to court saying that
the KPC should be stopped from doing so, the court will decline relief.
The second consequence, indicated by this Court in earlier decisions,
is not that the KPC cannot deviate from these guidelines at all in any
situation but that any deviation, if made, should not result in E
arbitrariness or discrimination. It comes in for application where the
... non-conformity with, or relaxation from, the prescribed standards results
in some substantial prejudice or injustice to any of the parties involved
or to public interest in general. For example, in this very case, the
KPC made some changes in the time frame originally prescribed
These changes affected all intending applicants alike and were not F
objectionable. In the same way, changes or relaxations in other
directions would be unobjectionable unless the benefit of those
changes or relaxations were extended to some but denied to others.
-~ The fact that a document was belatedly entertained from one of the
applicants will cause substantial prejudice to another party who wanted, G
likewise, an extension of time for filing a similar certificate or document
but was declined the benefit. It may perhaps be said to cause prejudice
also to a party which can show that it had refrained from applying for
the tender documents only because it thought it would not be able
to produce the document by the time stipulated but would have
H

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38 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A applied had it known that the rule was likely to be relaxed."

No such case of prejudice was made out by Respondent before the
High Court or before us.

Law on the similar term has been laid down in Puddar Steel Corporation
B v. Ganesh Engineering Works and Ors., (1991] 3 SCC 273 in the following
terms:

"6. It is true that in submitting its tender accompanied by a
cheque of the Union Bank of India and not of the State Bank clause
6 of the tender notice was not obeyed literally, but the question is as
c to whether the said non-compliance deprived the Diesel Locomotive
Works of the authority to accept the bid. As a matter of general
proposition it cannot be held that an authority inviting tenders is
bound to give effect to every term mentioned in the notice in meticulous
detail, and is not entitled to waive even a technical irregularity of little
or no significance. The requirements in a tender notice can be classified
D into two categories - those which lay down the essential conditions
of eligibility and the others which are merely ancillary or subsidiary
with the main object to be achieved by the condition. In the first case
the authority issuing ·the tender may be required to enforce them
rigidlv. In the other cases it must be open to the authority to deviate
E from and not to insist upon the strict literal compliance of the condition
in appropriate cases .... "

In Indian Railway Construction Co. Ltd v. Ajay Kumar, [2003] 4 SCC ...
579, this Court explained as to what would amount to bad faith and non-
application of mind in regard to exercise of power on the part of the employer.
F It further opined that the burden would be on the person who seeks to
invalidate or nullify the act or order to prove charge of bad faith and abuse
or mistake by the authority of its power. It opined that an attempt should be
made to balance the conflicting interest.

In Delhi Development Authority and Anr. v. VEE Electricals Engg. (P)
G Ltd and Anr., (2004] 11 SCC 213, the Court was considering a case where
conduct of the Director of the company was found to be relevant. However,
the Court opined that if the Authority felt that in view of the background
facts, it would be undesirable to accept the tender, the power of judicial
review should not be exercised in absence of any malafides or irrationality.
H
;.- ... B.S.N. JOSHI AND SONS LTD. v. NAIR COAL SERVICES LTD. [S.B. SINHA, J.] 39
In State of NCTof Delhi and Anr. v. Sanjeev alias Bittoo, [2005) 5 SCC A
181, the Court reiterated the principles of judicial review.

We are not oblivious of the expansive role of the superior courts on
judicial review. We are also not shutting our eyes towards the new principles
of judicial review which are being developed; but the law as it stands now
having regard to the principles laid down in the aforementioned decisions B
may be summarized as under :

(i) If there are essential conditions, the same must be adhered to;
"
(ii) Ifthere is no power of general relaxation, ordinarily the same shall
not be exercised and the principle of strict compliance would be
applied where it is possible for all the parties to comply with all
c
such conditions fully;
(iii) If, however, a deviation is made in relation to all the parties in
regard to any of such conditions, ordinarily again a power of
relaxation may be held to be existing
D
(iv) The parties who have taken the benefit of such relaxation should
not ordinarily be allowed to take a different stand in relation to
compliance of another part of tender contract, particularly when
he was also not in a position to comply with all foe conditions
of tender fully, unless the court otherwise finds relaxation of a
E
condition which being essential in nature could not be relaxed
and thus the same was wholly illegal and without jurisdiction.
(v) When a decision is taken by the appropriate authority upon due
consideration of the tender document submitted by all the
tenderers on their own merits and if it is ultimately found that
successful bidders had in fact substantially complied with the
F
purport and object for which essential conditions were laid down,
the same may not ordinarily be interfered with.
(vi) The contractors cannot form a cartel. If despite the same, their
> bids are considered and they are given an offer to match with the
G
rates quoted by the lowest tenderer, public interest would be
given priority.
(vii) Where a decision has been taken purely on public interest, the
Court ordinarily should exercise judicial restraint.

H

•
40 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A Law operating in the field is no long res integra. The application of law,
however, would depend upon the facts and circumstances of each case. It is
not in dispute before us that there are only a few concerns in India who can
handle such a large quantity of coal. Transportation of coal from various
collieries to the thermal power stations is essential. For the said purpose,
apart from transportation job, the contractor is required to see that coal of
B appropriate grade is supplied. Appellant herein is in business for the last 52
years. It had been taking part in contracts involving similar jobs in various
parts of India. It had all along been quoting a low rate. According to it,
despite the same it has been generating profits. '

C The employer concededly is not bound to accept a bid only because
it is the lowest. It must take into consideration not only the viability but also
the fact that the contractor would be able discharge its contractual obligations.
It must not forget the ground realities. MAHAGENCO considered all aspects .
of the matter while accepting Appellant's offer. In its counter affidavit, it
categorically stated that Appellant would be able to perform the contractual
D undertaking even at such a low rate.

While saying so, however, we would like to observe that that having
regard to the fact that a huge public money is involved, a public sector
undertaking in view of the principles of good corporate governance may
accept such tenders which is economically beneficial to it. It may be true that
E essential terms of the contract were required to be fulfilled. If a party failed
and/or neglected to comply with the requisite conditiOns which were essential
for consideration of its case by the employer, it cannot supply the details at
a latter stage or quote a lower rate upon ascertaining the rate quoted by
others. Whether an employer has power of relaxation must be found out not
p only from the terms of the notice inviting tender but also the general practice
prevailing in India. For the said purpose, the court may consider the practice
prevailing in the past. Keeping in view a particular object, if in effect and
substance it is found that the offer made by one of the bidders substantially
satisfies the requirements of the conditions of notice inviting tender, the
employer may be said to have a general power of relaxation in that behalf. '-.
G Once such a power is exercised, one of the questions which would arise for
consideration by the superior courts would be as to whether exercise of such
power was fair, reasonable and bona fide. If the answer thereto is not in the
negative, save and except for sufficient and cogent reasons, the writ courts
would be well advised to refrain themselves in exercise of their discretionary
H jurisdiction.
B.S.N. JOSHI AND SONS LTD."· NAIR COAL SERVICES LTD. [S.B. SINHA, J.) 41
The question which arises for consideration is as to what relief can be A
granted in the instant case. The private respondents who had formed a cartel
have successfully obtained the contract after the judgment of the High Court.
Award of such contract although was subject to the decision of this appeal,
this Court cannot ignore the fact that if Appellant is permitted to take over
forthwith, supply of coal to the Thermal Power Station may be affected. We,
therefore, intend to give another opportunity to MAHAGENCO. It shall consider B
the offer of Appellant upon consideration of the matter afresh, as to whether
it even now fulfils the essential tender conditions. If it satisfies the terms of
the tender conditions, the contract may be awarded in its favour for a period
of one year; but such contract shall take effect after one month from the date
of the said agreement so as to enable the private Respondents herein to wind C
up their business. This order is being pas~ed in the interest of MAHA GENCO
as also the private Respondents herein.

Private Respondents, however, shall be paid their dues in terms of the
offer made by them and accepted by MAHAGENCO.
D
The appeal is allowed with the aforementioned observations and
directions. All the Private Respondents shall pay and bear their cost of
Appellant which is quantified at Rs.50,000/- each.

V.S.S. Appeal allowed.