Should a Court Intervene in Matters Relating to Tenders and Contracts?

The Supreme Court (“SC“) recently held that a writ court ordinarily should not interfere in matters relating to tender or contract. It further opined that a writ court should exercise caution when attempting to impose its decision on an employer regarding the acceptance or rejection of a tender bid, unless there is a glaringly obvious and significant issue that is brought to light. In the case of Tata Motors Limited vs. The Brihan Mumbai Electric Supply & Transport Undertaking (Best) and Others, the SC observed that initiating a new tender process while a contract is already in progress results in time delays and financial losses for the public exchequer.

In the present case, the Brihan Mumbai Electric Supply & Transport Undertaking (“BEST“) published a tender in 2022 for provision of 1400 (+50% variation) single decker AC electric buses with driver for public transport service inside Mumbai (“Tender“). The Tender required, among other things, that the bidders submit single decker buses capable of travelling 200 kms on a single charge without stopping in ‘actual conditions’. TATA Motors Limited (“TATA Motors“) as well as EVEY Trans Private Limited (“EVEY“) submitted bids.

TATA Motors was deemed to be ‘technically non-responsive’ by BEST on May 06, 2022, as part of its technical suitability examination. EVEY was thereafter designated as the L1 bidder. Aggrieved by the technical suitability evaluation issued by BEST by which it rejected the bid of TATA Motors, TATA Motors approached the High Court of Judicature at Bombay by way of a writ petition bearing WP(L) No.15548 of 2022 in an effort to have BEST reconsider Tata Motors’ bid.

While the HC in this writ petition adjudged that TATA Motors’ bid was rightly disqualified by BEST, they additionally opined that even EVEY’s bid should have been disqualified as EVEY resubmitted certain annexures after the bid closure date. The HC nullified BEST’s acceptance of EVEY’s tender and ordered BEST to hold a new tender stating that no bidder was allowed to submit or rectify documents after the bid had been closed. In such circumstances referred to above, all the three parties – TATA Motors, EVEY and BEST approached the SC with their respective petitions.

While dismissing the appeal filed by TATA Motors, the SC emphasized on the following principles:

1. Courts to typically avoid getting involved in tender or contract matters –

The SC emphasized that a writ court should exercise restraint and avoid imposing its judgment on the employer’s decision regarding the acceptance or rejection of a tender bid, unless there is clear and substantial evidence of a gross and evident issue.

2. Courts to refrain from unnecessary intervention in contracts that involve technical issues

The SC acknowledged their limited expertise in adjudicating matters beyond their specific domain and emphasized that exercising restraint is crucial when the courts are aware that their interference in technical commercial matters could result in financial losses to the public exchequer and opined that “The courts must realise their limitations and the havoc which needless interference in commercial matters can cause. In contracts involving technical issues the courts should be even more reluctant because most of us in Judges’ robes do not have the necessary expertise to adjudicate upon technical issues beyond our domain. The courts should not use a magnifying glass while scanning the tenders and make every small mistake appear like a big blunder.”

3. Judicial review in commercial matters to only take place when there is evidence of arbitrariness, malicious intent, bias, or irrationality

The SC expressed the opinion that the court should not exercise its power of judicial review in commercial matters unless a compelling case demonstrating clear-cut instances of arbitrariness, malicious intent, bias, or irrationality is presented. Additionally, it noted that public sector undertakings often enter into contracts with private parties who are not subject to writ jurisdiction and observed that, “This Court being the guardian of fundamental rights is duty-bound to interfere when there is arbitrariness, irrationality, mala fides and bias. However, this Court has cautioned time and again that courts should exercise a lot of restraint while exercising their powers of judicial review in contractual or commercial matters. This Court is normally loathe to interfere in contractual matters unless a clear-cut case of arbitrariness or mala fides or bias or irrationality is made out. One must remember that today many public sector undertakings compete with the private industry. The contracts entered into between private parties are not subject to scrutiny under writ jurisdiction. No doubt, the bodies which are State within the meaning of Article 12 of the Constitution are bound to act fairly and are amenable to the writ jurisdiction of superior courts but this discretionary power must be exercised with a great deal of restraint and caution.”

The court also expressed the view that when exercising the power of judicial review in matters related to tenders or contract awards, certain specific aspects should be taken into consideration. It was acknowledged that the evaluation of tenders and the awarding of contracts are fundamentally commercial functions, where the principles of fairness and natural justice have limited applicability. If the decision regarding the contract award is made in good faith and serves the public interest, the courts will refrain from interfering through the exercise of judicial review, even if there are procedural irregularities, assessment errors, or potential harm to a tenderer. The power of judicial review will not be invoked to prioritize private interests over public interests or to resolve contractual disputes.