UFLEX LTD. versus GOVERNMENT OF TAMIL NADU & ORS.

[2021] 7 S.C.R. 571

UFLEX LTD.

GOVERNMENT OF TAMIL NADU & ORS.

(Civil Appeal Nos.4862-4863 of 2021)

SEPTEMBER 17, 2021

[SANJAY KISHAN KAUL AND HRISHIKESH ROY, JJ.]

Government contract: Tender – Award of – Scope of judicialreview – Held: Transparency is always required in such tendersbecause of the nature of economic activity carried on by the State –However, contours to examine are restricted – Objective is not tomake the Court an appellate authority to scrutinize as to whom thetender should be awarded – Economics must be permitted since thetendering authority knows best as to what is suited in terms oftechnology and price for them – In commercial tender matters thereis an aspect of commercial competitiveness – Merely because acompany is more efficient, obtains better technology, makes morecompetitive bids and, thus, succeeds more cannot be factor todeprive that company of commercial success on that pretext –Furthermore, for every succeeding party who gets tender theremay be parties who are not awarded the tender as there can be onlyone lowest tender – On facts, issuance of notice inviting tender forsupply of polyester bases hologram excise labels to be pasted acrossthe caps of bottles of liquor sold by the State Government withvarious technical specifications and eligibility criteria – Twoprospective tendering parties challenged the tendering process –Single Judge of the High Court dismissed the writ petitions –However, the Division Bench of the High Court by directing theState to float fresh tender, erred in almost sitting as an appellateauthority on technology and commercial expediency which is notthe role which Court ought to play – It appears that the twoprospective tendering parties endeavoured to continuously createimpediments in the way of the succeeding party merely because theycould not succeed – When the concerned Committees were lookinginto the suggestions of the prospective parties, the parties moved tothe court – Few issues raised by the parties have already beenaddressed by the Committees – Thus, the order passed by the

ADivision Bench cannot be sustained and is set aside – Constitutionof India – Art. 226.

Costs: Commercial matters – Award of costs – Held: Usuallythe judicial system hesitates to impose costs, presuming it to be areflection on the counsel – In tussle for enforcement of rightsBagainst State different principle apply – However, in commercialmatters costs must follow the cause – Tender jurisdiction was createdfor scrutiny of commercial matters – If parties continuously seek tochallenge award of tenders, the succeeding party must get costsand the party which loses must pay costs – On facts, parties litigatingare financially strong and took commercial decision to carry theCdispute right up to this Court – They must face the consequencesand costs of success or failure in the present proceedings –Furthermore, the instant proceedings do arise from writ proceedingu/Art. 226 but it is really commercial dispute, thus, the failingparty cannot contend that the present dispute is writ proceeding –DActual costs quantified on the basis of the bill of fee and costs –Issuance of direction to the respondent companies to pay Rs 23lakh to the appellant-successful tenderer, and Rs 7.5 lakhs to StateGovernment for defending the litigation.

Costs: Award of – Principles prevailing in England, UnitedEStates of America, Australia, Hong Kong and Canada while awardingCosts in Civil litigation and Commercial litigation – Stated.

Allowing the appeals, the Court

HELD: 1.1 In commercial tender matters there is an aspectof commercial competitiveness. For every succeeding party whoFgets tender there may be parties who are not awarded the tenderas there can be only one L-1. The question is should the judicialprocess be resorted to for downplaying the freedom which atendering party has, merely because it is State or publicauthority, making the said process even more cumbersome.GElement of transparency is always required in such tendersbecause of the nature of economic activity carried on by the State,but the contours under which they are to be examined arerestricted. The objective is not to make the Court an appellateauthority for scrutinizing as to whom the tender should beawarded. Economics must be permitted to play its role for whichH

the tendering authority knows best as to what is suited in termsof technology and price for them. [Para 40][600-D-F]

2.1 The instant dispute has its history in many priorendeavours by the original petitioners which have proved to beunsuccessful. It does appear that in competitive market theyhave not been so successful as they would like to be. Merelybecause company is more efficient, obtains better technology,makes more competitive bids and, thus, succeeds more cannotbe factor to deprive that company of commercial success onthat pretext. It does appear that this is what is happening; thatthe two original petitioners are endeavouring to continuouslycreate impediments in the way of the succeeding party merelybecause they themselves had not so succeeded. It is thus theview that the Division Bench has fallen into an error in almostsitting as an appellate authority on technology and commercialexpediency which is not the role which Court ought to play.[Para 41][600-G-H; 601-A-B]

2.2 The checks and balances before the tendering processitself has been provided by constitution of the various committees,more specifically the Technical Specification Committee and theTender Scrutiny and Finalisation Committee. The objective is tokeep the role of these Committees separately defined. [Para42][601-B-C]

2.3 The objective has been set out by the State Governmentto use such technology as would prevent spurious liquor frombeing sold. It is well-known fact that large revenue collectioncomes in Tamil Nadu through sale of liquor. It thus must be leftto the State to see how best to maximize its revenue and what isthe technology to be utilized to prevent situations like spuriousliquor, which in turn would impede revenue collection, apart fromcausing damage to the consumers. [Para 43][601-C-D]

2.4 grievance was made about what was stated to be“patented technology”. At the stage when the concernedcommittees were still looking to the objections/suggestions ofthe parties, K and rushed to the Court. The State Government

Adid provide relief by issuing corrigendum to address the issuerelating to hidden text being visible only through Polaroid, ascolour change background viewable with film as an identifier didnot attract the rigour of this stated patented technology. [Para44][601-E-F]

B2.5 As regards the participating entities, it cannot becontended that all and sundry should be permitted to participatein matters of this nature. In fact, in every tender there are certainqualifying parameters whether it be technology or turnover. TheCourt cannot sit over in judgment on what should be the turnoverrequired for an entity to participate. The prohibition arising fromConly Limited company being permitted to participate was againaddressed by the corrigendum permitting LLPs to participate. Ifentities like K and want to participate they must take somenecessary actions. is already an LLP. K cannot insist that it willcontinue to be partnership alone and, thus, that partnershipsDmust necessarily be allowed to participate. [Para 45][601-F-H;602-A]

2.6 Insofar as K’s plea based on the Tender Act isconcerned, reading of the provisions would show that somebenefit is sought to be given to MSMEs to the extent of 25% ofEthe order based on their willingness to match the price of thelowest tender. However, to be able to avail of that benefit, it mustbe an entity which is capable of bidding in terms of the tenderconditions. There is no prohibition against limiting theparticipation to Limited companies of LLPs. Domestic enterprisein the Tender Act is defined to mean any micro and smallFenterprise as defined in the MSMED Act. This argument alsoappears to be an afterthought, as it is not as if K participatedclaiming such right as an MSME. [Para 46][602-B-C]

2.7 There were three bidders and that one of them met thetechnical specifications but did not succeed further on financialGissues and turnover under the NIT. The same cannot be used tonullify the whole tendering process. While dealing with tenderof nature where there cannot be vacuum. If there is lessparticipation than necessary, it cannot be said that ipso facto theterms and conditions of tender have followed Decision Oriented

Systematic Analysis-DOSA, and to somehow give the tender toone of the parties. Similar terms have been set out in many tendersof different States and there have been varying succeeding parties.No doubt, the success rate of the two successful parties isdefinitely higher but it cannot be appreciated how that can formthe basis to come to conclusion that something must be doneto let other people get tender. If one may say, it will then becomea DOSA to see that the most competitive party does not succeedin the tender but that other parties who keep approaching theCourt must get some share of the pie. This cannot be theobjective. [Para 47][602-D-G]

2.8 The submissions based on the fact that repeatedendeavours of and K have failed not only before the High Courtbut before different High Courts based on similar challenge.Similar tender conditions have been upheld. It cannot be thatevery time tender is floated, K and would be permitted toseek toehold on one pretext or the other. It is not really thefunction of the Court to vet the terms of the NIT, as it is thedecision-making process which can be reviewed in judicialscrutiny. [Para 48][602-G-H; 603-A]

2.9 lot of emphasis has been placed by the Courts belowin seeking to go into the financial linkages between the twocompanies, i.e., appellant and M Company. The correct way ofexamining this issue should have been that whether under theterms of the NIT, any of the aspects which were examined by theCourts could be said to be disqualification. The answer to thesame was in the negative. One company had invested in anotherthrough certain preference shares without having any controllinginterest, this cannot be the basis of judicial scrutiny. The instantcase is not one of an intercorporate battle or of minorityshareholders claiming the rights or any debts due, where theprinciple of lifting the corporate veil should be applied. What onemay have said in some income tax proceedings, whether smallpercentage of the funds of one company have been utilized asinvestment in the other are hardly the principles which shouldcome into play in such tender matter. [Para 49][603-A-D]

[2021] 7 S.C.R.

A2.10 The impugned order cannot be sustained and is setaside. [Para 50][603-D]

3.1 The costs following cause is principle which is followedin most countries. There seems to be often hesitancy in thejudicial system to impose costs, presuming as if it is reflectionBon the counsel. This is not the correct approach. In tussle forenforcement of rights against State different principle apply butin commercial matters costs must follow the cause. [Para 51][603-E-F]

3.2 The salutary principles to be followed while awardingCcosts are that costs should ordinarily follow the event; realisticcosts ought to be awarded keeping in view the ever increasinglitigation expenses; and the cost should serve the purpose ofcurbing frivolous and vexatious litigation. This endeavour in Indiais not unique to our country and in way adopts the principleprevalent in England of costs following the event. The positionDmay be somewhat different in the United States but then thereare different principles applicable where champerty is prevalent.No doubt in most of the countries like India the discretion is withthe Court. There has to be proportionality to the costs and ifthey are unreasonable, the doubt would be resolved in favour ofEthe paying party. As per Halsbury’s Laws of England, thediscretion to award costs must be exercised judicially and inaccordance with reason and justice. The following principles havebeen set out therein in deciding what order (if any) to make aboutcosts, the court must have regard to all the circumstances,including: the conduct of all the parties; whether party hasFsucceeded on part of his case, even if he has not been whollysuccessful; and any payment into court or admissible offer to settlemade by party which is drawn to the court’s attention. Similarprinciples are followed in Australia, Hong Kong and Canadalargely based on the Common Law principle. In fact in Canada,Gthe Manitoba Law Commission Report analysed the ‘CostsAwards in Civil Litigation’ and referred to broad goals. [Para 53,54, 55][604-B-G; 605-C-D]

3.3 The said has been set forth so that there is appreciationof the principles that in carrying on commercial litigation, partiesHmust weigh the commercial interests, which would include the

consequences of the matter not receiving favourableconsideration by the courts. Mindless appeals should not be therule. In the given facts of the case, the respondents havesucceeded before the Division Bench though they failed beforethe Single Judge. Suffice to say that all the parties are financiallystrong and took commercial decision to carry this legal battleright up to this Court. They must, thus, face the consequencesand costs of success or failure in the present proceedings. [Para56][605-F-H; 606-A]

3.4 The best reflection of what costs have been incurred iswhat the parties have paid towards the counsel fee and out ofpocket expenses. The instant proceedings do arise from writproceeding under Article 226 of the Constitution but it is really acommercial dispute. Thus, the failing party cannot hide behindthe veneer of the present dispute being in the nature of writproceeding. The tender jurisdiction was created for scrutiny ofcommercial matters and, thus, where continuously parties seekto challenge award of tenders, the succeeding party must getcosts and the party which loses must pay costs. This was really abattle between two commercial entities on one side seeking toget set aside an award of tender to two other entities. Whatelse would be commercial interest! [Para 57][606-B-D]3.5 It is with the said objective that the parties were askedto file their bill of costs. The objective was to bring forth thisprinciple into force by quantifying actual costs for the succeedingparty. The bill of fee and costs are scrutinised. There is inclinationto allow actual costs. However, the costs have been modulatedinsofar as appellant is concerned to the extent of the indicatedamount of the Advocate-on-Record and allow 50% of the same.The total costs, thus, payable to the petitioner/appellant wouldbe Rs.23,25,750/- (Rupees twenty three lakh twenty five thousandseven hundred fifty only). The State Government cannot be leftbehind so far as their compensation of costs in defending such alitigation is concerned and thus, the costs of Rs.7,58,000/- (Rupeesseven lakh fifty eight thousand only) is allowed. The costs beaccordingly paid by K and in equal share to the two parties.[Para 58-60][606-D-F]

Tata Cellular v. Union of India (1994) 6 SCC 651 –relied on.

Jagdish Mandal v. State of Orissa (2007) 14 SCC 517;Michigan Rubber v. State of Karnataka (2012) 8 SCC216 : [2012] 8 SCR 128; Misrilall Mines Pvt. Ltd. &BAnr. v. MMTC & Ors. (2013) SCC Online Del 563;CaretelInfotech Ltd. v. Hindustan Petroleum CorporationLimited & Ors. (2019) 14 SCC 81 : [2019] 6 SCR 950;Air India v. Cochin International Airport (2000) 2 SCC617 : [2000] 1 SCR 505; Raunaq International Ltd. v.IVR Construction Ltd. (1999) 1 SCC 492 : [1998] 3CSuppl. SCR 421; Master Marine v. Metcalfe andHodkinson (2005) 6 SCC 138 : [2005] 3 SCR 666;Bharat Cooking Coal v. AMR Dev (2020) 16 SCC 759;Monarch Infrastructure v. Ulhasnagar Municipal Corp.(2000) 5 SCC 287 : [2000] 3 SCR 1159; AssociationDof Registration Plates v. Union of India (2005) 1 SCC679 : [2004] 6 Suppl. SCR 496; Ashok Kumar Mittal v.Ram Kumar Gupta (2009) 2 SCC 656 : [2009] 1 SCR125; Vinod Seth v. Devinder Bajaj (2010) 8 SCC 1 :[2010] 7 SCR 424; Sanjeev Kumar Jain v. RaghubirSaran Charitable Trust (2012) 1 SCC 455 : [2011] 12ESCR 744 – referred to.

Case Law Reference

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.4862-4863 of 2021.

From the Judgment and Order dated 29.04.2021 of the High Courtof Judicature at Madras in Writ Appeal Nos.848 and 854 of 2021.

Mukul Rohatgi, Sr. Adv., Abhishek Singh, Arun Sinha, ShreshthArya, Advs. for the Appellant.

Amit Anand Tiwari, Addl. AG, Ranjit Kumar, Ms. Meenakshi Arora,Dr. A. M. Singhvi, P. S. Narasimha, K. V. Vishwanathan, Sourab Kirpal,Sr. Advs., Dr. Joseph Aristotle S., Ms. Preeti Singh, Ms. Ripul SwatiKumari, Vivek Jain, Sandeep Bagmar R., Siddhant Buxy, L. NidhiramSharma, Nirvikar Singh, T. Mahipal, Abhinav Agrawal, Rajiv K. Virmani,Mohit D. Ram, Advs. for the Respondents.

The Judgment of the Court was delivered by

SANJAY KISHAN KAUL, J.

1. The enlarged role of the Government in economic activity andits corresponding ability to give economic ‘largesse’ was the bedrock ofcreating what is commonly called the ‘tender jurisdiction’. The objectivewas to have greater transparency and the consequent right of anaggrieved party to invoke the jurisdiction of the High Court under Article226 of the Constitution of India (hereinafter referred to as the‘Constitution’), beyond the issue of strict enforcement of contractualrights under the civil jurisdiction. However, the ground reality today isthat almost no tender remains unchallenged. Unsuccessful parties orparties not even participating in the tender seek to invoke the jurisdictionof the High Court under Article 226 of the Constitution. The PublicInterest Litigation (‘PIL’) jurisdiction is also invoked towards the sameobjective, an aspect normally deterred by the Court because this causesproxy litigation in purely contractual matters.

2. The judicial review of such contractual matters has its ownlimitations. It is in this context of judicial review of administrative actionsthat this Court has opined that it is intended to prevent arbitrariness,irrationality, unreasonableness, bias and mala fide. The purpose is to

Acheck whether the choice of decision is made lawfully and not to checkwhether the choice of decision is sound. In evaluating tenders andawarding contracts, the parties are to be governed by principles ofcommercial prudence. To that extent, principles of equity and naturaljustice have to stay at distance.[1]B3. We cannot lose sight of the fact that tenderer or contractorwith grievance can always seek damages in civil court and thus,“attempts by unsuccessful tenderers with imaginary grievances, woundedpride and business rivalry, to make mountains out of molehills of sometechnical/procedural violation or some prejudice to self, and persuadecourts to interfere by exercising power of judicial review, should beCresisted.”[2]

4. In sense the Wednesbury principle is imported to the concept,i.e., the decision is so arbitrary and irrational that it can never be thatany responsible authority acting reasonably and in accordance with lawwould have reached such decision. One other aspect which wouldDalways be kept in mind is that the public interest is not affected. In theconspectus of the aforesaid principles, it was observed in MichiganRubber v. State of Karnataka[3] as under:

“23. From the above decisions, the following principles emerge:

E(a) the basic requirement of Article 14 is fairness in action by theState, and non-arbitrariness in essence and substance is theheartbeat of fair play. These actions are amenable to the judicialreview only to the extent that the State must act validly for adiscernible reason and not whimsically for any ulterior purpose. Ifthe State acts within the bounds of reasonableness, it would beFlegitimate to take into consideration the national priorities;

(b) fixation of value of the tender is entirely within the purviewof the executive and courts hardly have any role to play in thisprocess except for striking down such action of the executive asis proved to be arbitrary or unreasonable. If the Government actsGin conformity with certain healthy standards and norms such asawarding of contracts by inviting tenders, in those circumstances,the interference by Courts is very limited;

1 Jagdish Mandal v. State of Orissa, (2007) 14 SCC 517.

H3 (2012) 8 SCC 216

(c) In the matter of formulating conditions of tender documentand awarding contract, greater latitude is required to be concededto the State authorities unless the action of tendering authority isfound to be malicious and misuse of its statutory powers,interference by Courts is not warranted;

(d) Certain preconditions or qualifications for tenders have to belaid down to ensure that the contractor has the capacity and theresources to successfully execute the work; and

(e) If the State or its instrumentalities act reasonably, fairly and inpublic interest in awarding contract, here again, interference byCourt is very restrictive since no person can claim fundamentalright to carry on business with the Government.”

5. One other aspect examined by this Court is whether the termsand conditions of the tender have been tailor-made to suit person/entity. In fact, this is what is sought to be contended in the facts of thepresent case by the respondents who were the original petitioners beforethe Court. In order to award contract to particular party, reverseengineering process is evolved to achieve that objective by making thetender conditions such that only one party may fit the bill. Such anendeavour has been categorized as “Decision Oriented SystematicAnalysis” (for short ‘DOSA’).[4]6. The burgeoning litigation in this field and the same being carriedto this Court in most matters was the cause we set forth an epilogue inCaretel Infotech Ltd. v. Hindustan Petroleum Corporation Limited& Ors.[5] Even if it amounts to repetition, we believe that it needs to beemphasized in view of the controversy arising in the present case toappreciate the contours within which the factual matrix of the presentcase has to be analysed and tested.

“37. We consider it appropriate to make certain observations inthe context of the nature of dispute which is before us. Normallyparties would be governed by their contracts and the tender terms,and really no writ would be maintainable under Article 226 of theConstitution of India. In view of Government and public sectorenterprises venturing into economic activities, this Court found itappropriate to build in certain checks and balances of fairness in

4 Misrilall Mines Pvt. Ltd. & Anr. v. MMTC & Ors, 2013 SCC OnLine Del 563.

5 (2019) 14 SCC 81.

procedure. It is this approach which has given rise to scrutiny oftenders in writ proceedings under Article 226 of the Constitutionof India. It, however, appears that the window has been openedtoo wide as almost every small or big tender is now sought to bechallenged in writ proceedings almost as matter of routine. Thisin turn, affects the efficacy of commercial activities of the publicsectors, which may be in competition with the private sector. Thiscould hardly have been the objective in mind. An unnecessary,close scrutiny of minute details, contrary to the view of thetendering authority, makes awarding of contracts by Governmentand Public Sectors cumbersome exercise, with long drawn outlitigation at the threshold. The private sector is competing often inthe same field. Promptness and efficiency levels in privatecontracts, thus, often tend to make the tenders of the public sectora non-competitive exercise. This works to great disadvantageto the Government and the public sector.

D38. In Afcons Infrastructure Limited v. Nagpur Metro RailCorporation Limited & Anr.[6], this Court has expounded furtheron this aspect, while observing that the decision-making processin accepting or rejecting the bid should not be interfered with.Interference is permissible only if the decision-making process isarbitrary or irrational to an extent that no responsible authority,Eacting reasonably and in accordance with law, could have reachedsuch decision. It has been cautioned that Constitutional Courtsare expected to exercise restraint in interfering with theadministrative decision and ought not to substitute their view forthat of the administrative authority. Mere disagreement with theFdecision-making process would not suffice.

39. Another aspect emphasised is that the author of the documentis the best person to understand and appreciate its requirements.In the facts of the present case, the view, on interpreting the tenderdocuments, of Respondent No.1 must prevail. Respondent No.1Gitself, appreciative of the wording of Clause 20 and the format,has taken considered view. Respondent No.3 cannot compel itsown interpretation of the contract to be thrust on RespondentNo.1, or ask the Court to compel Respondent No.1 to accept thatinterpretation. In fact, the Court went on to observe in the aforesaid

judgment that it is possible that the author of the tender may givean interpretation that is not acceptable to the constitutional Court,but that itself would not be reason for interfering with theinterpretation given. We reproduce the observations in this behalfas under:

“15. We may add that the owner or the employer of project,having authored the tender documents, is the best person tounderstand and appreciate its requirements and interpret itsdocuments. The constitutional courts must defer to thisunderstanding and appreciation of the tender documents, unlessthere is mala fide or perversity in the understanding orappreciation or in the application of the terms of the tenderconditions. It is possible that the owner or employer of projectmay give an interpretation to the tender documents that is notacceptable to the constitutional courts but that by itself is not areason for interfering with the interpretation given.”

40. We may also refer to the judgment of this Court in NabhaPower Limited (NPL) v. Punjab State Power CorporationLimited (PSPCL) & Anr.,[7] authored by one of us (Sanjay KishanKaul, J.). The legal principles for interpretation of commercialcontracts have been discussed. In the said judgment, referencewas made to the observations of the Privy Council in AttorneyGeneral of Belize v. Belize Telecom Ltd.[8] as under:

“45. … 16. Before discussing in greater detail the reasoningof the Court of Appeal, the Board will make some generalobservations about the process of implication. The court hasno power to improve upon the instrument which it is calledupon to construe, whether it be contract, statute or articlesof association. It cannot introduce terms to make it fairer ormore reasonable. It is concerned only to discover what theinstrument means. However, that meaning is not necessarilyor always what the authors or parties to the document wouldhave intended. …”

........

7 (2018) 11 SCC 508.

8 (2009) 1 WLR 1988.

A“19. .....In Trollope & Colls Ltd. v. North West MetropolitanRegional Hospital Board[9] Lord Pearson, with whom Lord Guestand Lord Diplock agreed, said:

“…the court does not make contract for the parties. Thecourt will not even improve the contract which the parties haveBmade for themselves, however desirable the improvement mightbe. The court’s function is to interpret and apply the contractwhich the parties have made for themselves. If the expressterms are perfectly clear and free from ambiguity, there is nochoice to be made between different possible meanings: theclear terms must be applied even if the court thinks some otherCterms would have been more suitable. An unexpressed termcan be implied if and only if the court finds that the partiesmust have intended that term to form part of their contract: itis not enough for the court to find that such term would havebeen adopted by the parties as reasonable men if it had beenDsuggested to them: it must have been term that went withoutsaying, term necessary to give business efficacy to thecontract, term which, though tacit, formed part of the contractwhich the parties made for themselves.”

41. Nabha Power Limited (NPL)[10] also took note of the earlierEjudgment of this court in Satya Jain v. Anis Ahmed Rushdie[11],which discussed the principle of business efficacy as proposed byBowen, L.J. in the Moorcock[12]. It has been elucidated that thistest requires that terms can be implied only if it is necessary togive business efficacy to the contract to avoid failure of the contractand only the bare minimum of implication is to be there to achieveFthis goal. Thus, if the contract makes business sense without theimplication of terms, the courts will not imply the same.

42. The judgment in Nabha Power Limited[13] concluded with thefollowing observations in para 72:

G“72. We may, however, in the end, extend word of caution.It should certainly not be an endeavour of commercial courts

9 (1973) 1 WLR 601 (HL).10 Nabha (supra).11 (2013) 8 SCC 131.12 (1889) LR 14 PD 64 (CA).H13 Nabha (supra).

to look to implied terms of contract. In the current day andage, making of contracts is matter of high technical expertisewith legal brains from all sides involved in the process of draftinga contract. It is even preceded by opportunities of seekingclarifications and doubts so that the parties know what theyare getting into. Thus, normally contract should be read as itreads, as per its express terms. The implied terms is concept,which is necessitated only when the Penta-test referred toaforesaid comes into play. There has to be strict necessityfor it. In the present case, we have really only read the contractin the manner it reads. We have not really read into it any‘implied term’ but from the collection of clauses, come to aconclusion as to what the contract says. The formula for energycharges, to our mind, was quite clear. We have only expoundedit in accordance to its natural grammatical contour, keeping inmind the nature of the contract.”

43. We have considered it appropriate to, once again, emphasisethe aforesaid aspects, especially in the context of endeavours ofcourts to give their own interpretation to contracts, more specificallytender terms, at the behest of third party competing for thetender, rather than what is propounded by the party framing thetender. The object cannot be that in every contract, where someparties would lose out, they should get the opportunity to somehowpick holes, to disqualify the successful parties, on grounds on whicheven the party floating the tender finds no merit.”[14]

7. It may also be pertinent to note the principles elucidated in thecase of Tata Cellular v. Union of India:

“94. The principles deducible from the above are:

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

(2) The court does not sit as court of appeal but merely reviewsthe manner in which the decision was made.

(3) The court does not have the expertise to correct theadministrative decision. If review of the administrative decision

14 Caretel (supra).

is permitted it will be substituting its own decision, without thenecessary expertise which itself may be fallible.

(4) The terms of the invitation to tender cannot be open to judicialscrutiny because the invitation to tender is in the realm of contract.Normally speaking, the decision to accept the tender or awardBthe contract is reached by process of negotiations through severaltiers. More often than not, such decisions are made qualitativelyby experts.

(5) The Government must have freedom of contract. In otherwords, fair play in the joints is necessary concomitant for anCadministrative body functioning in an administrative sphere orquasi-administrative sphere. However, the decision must not onlybe tested by the application of Wednesbury principle ofreasonableness (including its other facts pointed out above) butmust be free from arbitrariness not affected by bias or actuatedby mala fides.D

(6) Quashing decisions may impose heavy administrative burdenon the administration and lead to increased and unbudgetedexpenditure.”[15]

8. On having set forth the contours of our analysis we now proceedEto deal with the factual matrix so that we do not deviate from the pathwe have set for ourselves aforesaid.

The facts:

9. On 24.08.2020 vide G.O. (Ms.)/No.23 (for short ‘G.O.’) issuedby the Government of Tamil Nadu inter alia appointed the JointFCommissioner-II as the Tender Inviting Authority while the Commissionerof Prohibition and Excise was appointed as the Tender AcceptingAuthority apart from the appointment of Technical SpecificationCommittee (for short ‘TSC’) and Tender Scrutiny and FinalisationCommittee (for short ‘TSFC’) for purposes of production and supply ofpolyester based hologram excise labels on turnkey basis. The stickersGwere to be pasted across the caps of bottles of liquor sold by the StateGovernment through one of its instrumentalities, the Tamil Nadu StateMarketing Corporation (for short ‘TASMAC’). The tender required theprospective bidders and existing suppliers of hologram excise labels to

H15 (1994) 6 SCC 651.

submit necessary documents on the label features and security standardby 07.09.2020.

10. The first meeting of the TSC was held on 09.09.2020 where itwas inter alia decided that it would be appropriate to have technicalspecifications which are generic in nature so as to ensure widerparticipation by incorporating those features that are available with atleast three bidders. In the second meeting held on 18.09.2020, threetechnical specifications for non-holographic features along with hiddentext on colour change background were formulated, which read as under:

i.A stripe of design transferred, but not laminated, on the topof the hologram with visual holographic design on top;

ii.Hidden texts/images encrypted on second layer on differentcolour background; and

iii.The hidden colour should change at every 45 degree angle,this hidden text “Tamil Nadu Excise” should be visible onlythrough special Polaroid identifier.

11. The TSC thereafter sought to determine the eligibility criteriafor the commercial bid in addition to the already existing criteria so as to“enhance the security features, ensure better participation, and to restrictfly-by-night operators.” Thus, in the third meeting held on 23.09.2020 itwas recommended that supplier should have been continuously doingbusiness activities in the same field for the past 8 to 10 years. The drafttender document consisting of technical specification, productspecification, eligibility criteria and general terms and conditions wasapproved in the fourth meeting held on 24.09.2020 and Notice InvitingTender (for short ‘NIT’) was issued on 01.10.2020 with various technicalspecifications and eligibility criteria. The pre-bid meeting was held on08.10.2020 wherein the respondents before us conveyed their objectionsand concerns highlighting that wider participation as mandated by theG.O. should be adhered along with making grievance about somearbitrary conditions in the tender notice.

12. However, without waiting for the final decision in respect ofthe aforesaid, two of the prospective tendering parties, viz., M/s. KumbhatHolographics (for short ‘Kumbhat’) and M/s. Alpha Lasertek India LLP(for short ‘Alpha’) filed writ petitions in October, 2020 where interventionwas also permitted by two other parties. These petitions were dismissedby the learned single Judge vide order dated 10.02.2021.

A13. The material aspect to be taken note of is that there werecertain developments during the pendency of the petition. But we mustnote what is the principal grievance made by these parties before thelearned single Judge. The primary contention both by Kumbhat and Alphawas that the terms of the tender were skewed in favour of Uflex Limited(for short ‘Uflex’) and Montage Enterprises Private Limited (for shortB‘Montage’). The grievance which was made was that certainrequirements were introduced in the tender to ensure that only Uflexand Montage would be able to qualify under the tender requirements,i.e.: (i) requirement of 8 years of experience in the field of manufactureof security holograms; (ii) requirement of bidders to have supplied fullCpolyester based security hologram labels to the tune of at least Rs. 20crores to any state excise department during any one of the last threefinancial years (with additional requirement under Clause 4.6 in Part 4of the NIT that the said supply should only have been made to any of thestate excise departments to be considered valid for this purpose); and(iii) the bidders should also submit satisfactory performance certificateDfrom the competent authority or the end user.

14. The other aspect was the grievance made about the technicalrequirement of “Hidden Text on Colour Change Background” featurestated to be based on patented technology. Holograms with this featurewere supplied to other public sector undertakings such as the IRCTC inEthe past by the suppliers other than Uflex and Montage. However, thosesuppliers had never supplied to any State excise department and, thus,could not meet the two conditions cumulatively. Montage and Uflex werealleged to be the only two bidders who would qualify under the existenttender conditions as they held the license to use the patented technology.FThe writ petition was resisted by the State inter alia on the ground ofbona fide exercise and the factum of clarification being issued on27.10.2020 on the objections of Kumbhat and Alpha, petition having beenfiled even without waiting for the clarification to be issued. Corrigendum2 to the tender conditions was issued whereby the condition as to theidentification of hidden text by special Polaroid identifier was relaxed byGproviding that in addition to Polaroid identifier, the hidden text could alsobe identified by film. The grievance about only limited companies beingpermitted to participate was also met by permitting LLPs to participatein the tender.

15. In the course of scrutiny by the learned single Judge, therespondents were permitted to accept the bids from prospective biddersand process the same with the report being submitted with details ofqualified bidders under the technical specifications of the tender. Thereport of the TSC dated 24.12.2020 was, thus, submitted, which recordedthat among the three bidders who had submitted the bids, all three satisfiedall the technical and product specifications as per NIT including Uflexand Montage. The High Court while dismissing the writ petition notedthat the requirement of having minimum three successful bidders wasthus satisfied.

Writ Appeal Round:

16. The aforesaid conclusion by the learned single Judge in theconspectus of facts gave rise to writ appeals being filed by Kumbhatand Alpha impugning the order dated 10.02.2021.

17. The grievance inter alia was that copy of the report dated24.12.2020 had not been furnished to either Kumbhat or Alpha deprivingthem of the opportunity to scrutinize the report. In effect, the allegationof DOSA qua Uflex and Montage was once again made while allegingthat there had been deviations from the mandate of setting generictechnical specification as per the G.O.

18. The financial structure of Uflex and Montage was sought tobe examined by lifting the corporate veil and contending that the annualreport of Uflex for 2019-20 showed that it had invested approximatelyRs.152 crores in preference share capital of Montage and thus exercisedconsiderable influence in the affairs of Montage. The third bidder whoconstituted the Trimurti along with Uflex and Montage was HololiveCorporation Industries (for short ‘Hololive’). It was actually not eligibleto participate on multiple parameters as it was partnership firmregistered on 01.07.2017 and thus did not meet the requirement of beingeither limited company or an LLP.

19. The report called for by the learned single Judge was ontechnical specifications and, thus, while Hololive fulfilled those technicalspecifications, it had not qualified as per commercial terms on theaforesaid account. Further, Kumbhat being partnership firm, sought tocontend that the exclusion of partnership firms was arbitrary. Therelationship between Uflex and Montage was in breach of the spirit ofRule 15 of the Tamil Nadu Transparency in Tender (Public-Private

APartnership Procurement) Rules, 2012 (hereinafter referred to as the‘Rules’), which pertains to conflict of interest even though the Rules didnot apply to the facts of the case. The said Rule reads as under:

“15. Conflict of Interest.- (1) It shall be the responsibility ofTender Inviting Authority and Tender Accepting Authority to ensureBthat the prospective tenderers do not have conflict of interestthat affects the Tender Proceedings.

(2) An Applicant or prospective tenderer shall be deemed to havea Conflict of Interest, if,-

(a) any other prospective tenderer or member of consortium orCany associate or constituent thereof have common controllingshareholders or other ownership interest; or

(b) constituent of such prospective tenderer is also constituentof another prospective tenderer.

Provided that ‘constituent’ in such cases will not include theDprovider of proprietary technology to more than one applicant;or

(c) such prospective tenderer, or any associate thereof receivesor has received any direct or indirect subsidy, grant, concessionalloan or subordinated debt from any other Applicant or Respondent,Eor any associate thereof has provided any such subsidy, grant,concessional loan or subordinated debt to any other Applicant orRespondent, its member or any associate thereof; or

(d) such prospective tenderer has the same legal representativefor purposes of the Tender Proceedings as any other prospectiveFtenderer; or

(e) such prospective tenderer, its member or any associate thereof,has relationship with another prospective tenderer, or anyassociate thereof, directly or through common third party/ parties,that puts either or both of them in position to have access toGeach other’s information about, or to influence the Response ofeither or each other; or

(f) such prospective tenderer, its member or any associate thereof,has participated as consultant to the Tender Inviting Authorityand Tender Accepting Authority in the preparation of any

documents, design or technical specifications of the Public PrivatePartnership (PPP) Project; or

(g) if any legal, financial or technical advisor of the Tender InvitingAuthority and Tender Accepting Authority in relation to the Projectis engaged by the prospective tenderer, its member or any associatethereof, as the case may be, in any manner for matters related toor incidental to the Project:

Provided that this clause shall not apply where such advisor wasengaged by the Applicant or Respondent, its member or associatein the past but such engagement expired or was terminated 6(six) months prior to the date of issue of concerned TenderDocument or where such advisor is engaged after period of3(three) years from the date of commercial operation of theProject.”

20. An alternative argument which Kumbhat sought to developwas that it is registered as Small Industry in terms of the classificationunder the Micro, Small and Medium Enterprises Development Act, 2006(for short ‘MSMED Act’) and, thus, qualifies as domestic enterpriseas defined in the Tamil Nadu Transparency in Tenders Act, 1998(hereinafter referred to as the ‘Tender Act’). Thus, as per proviso tosub-section 2 of Section 10 of the Tender Act, it was entitled to be calledupon to supply maximum of 25% of the total procurement if it waswilling to match the price of the lowest bidder. Rule 30-A of the TamilNadu Transparency in Tender Rules, 2000 (hereinafter referred to asthe ‘Tender Rules’) was also relied upon to contend that the purchasepreference is required to be extended to domestic enterprises.

21. On the other hand, it was urged by Uflex that Alpha andKumbhat lack the locus as they did not even participate in the tender.Alpha did not qualify as it did not have the requisite experience in supplyingholograms and its business was actually in the nature of trading. In oneof the relevant financial years, the income and expenditure statementshowed zero turnover from the sale and manufacture of goods. Theparticipation by LLPs was permitted which enabled Alpha to bid but incase of Kumbhat it was only partnership firm without being an LLP. Itwas sought to be contended that it was justifiable for Governmententity to procure goods exclusively from corporate entities so as to ensurestability and existence of such entities.

A22. The grievance regarding patented technology, Uflex contended,does not subsist in view of the corrigendum having been issued wherebyfilm could be used for identification of the hidden text in addition toPolaroid. The technology of producing latent images which are invisibleto the naked eye and can be viewed only through polarizer is genericand Uflex and Montage do not have monopoly over the same.BTechnology not infringing the patent could be deployed, thereby meetingthe technical requirements.

23. The other aspect arising from lifting the corporate veil andreferring to the investment of Uflex in Montage was dealt with by thesubmission that the investment was in redeemable, non-voting, non-Cparticipating preference shares of Montage and, thus, Uflex was neithera holding company nor an associate company of Montage.

24. Insofar as the rejection of the bid of Hololive was concerned,the counsel for the State sought to explain the same by submitting thatthe bid was only rejected at the second stage against the requirement ofDPart 4 of the tender.

25. The Division Bench, however, allowed the writ appeal in termsof the impugned judgment dated 29.04.2021 giving the State four monthstime to float fresh tender while permitting the existing successfultenderers to continue to provide the supplies under the same terms andEconditions. The fresh tender was directed to be floated with technicalspecifications that are generic so as to ensure wider participation or, ifthe State was of the view that the technical specifications are at theheart of the tender, opt for single source procurement, albeit by adheringstrictly to the requirements of the Tender Act, which has been enactedFto provide transparency in public procurement and to regulate theprocedure in inviting and accepting the tenders and matters connectedtherewith or incidental thereto.

26. The rationale of the judgment of the Division Bench can besummarized as under:Ga. The Government Order had stated that technical specificationshould be such that “multiple vendors” qualify whereas theCommissioner of Prohibition and Excise has used the phrase“more than three bidders”. The phrase “multiple vendors” wasused as rough equivalent of expression of “more than threebidders” and the minutes of the second and third meeting did

not contain any discussion as to whether the proposed changeswould make the technical specification non-generic. Thus, TSCwas held to have deviated from the mandate of prescribinggeneric technical qualifications.

b. The technical requirements as per NIT had features whichwere not noticeable from specifications as was explained bythe patenting process. However, it was noticed that wherevertechnical specifications were substantially if not wholly similarto the impugned specifications, the successful bidder wasalways Uflex or Montage.

c. The material on record supported an inference that theimpugned technical specifications, when coupled with therequirements of having made such supplies of specifiedminimum value to State Excise Department in any of thepreceding three years had the effect of eliminating all biddersother than Uflex or Montage. Thus, eliminating reasonablecompetition came within the domain of judicial review.

d. Technical bid evaluation was done on the same day as thereport dated 24.12.2020 but yet the learned single Judge wasnot informed that Hololive did not fulfill all the technicalspecifications. Had the single Judge been aware of this adifferent view may have been taken by the learned single Judgewho proceeded on the premise of three eligible bidders.

e. Uflex and Montage were not sister or associate companies inthe technical sense. However, the High Court proceeded toexamine the nexus between the two entities and whether thesame would impair the integrity of the tender process.Montage’s total equity share capital was about Rs.6 crore andUflex’s investment of about Rs.152 crore in preferential sharecapital of Montage brought in the possibility of Uflex exercisinginfluence over Montage, which could not be disregarded. Uflexwas public listed company and Montage was one of Uflex’stop non-promoter shareholders with holding of approximately4%.

f. Uflex and Montage both derived their technology for producingthe latent image from common source, i.e., patented technology

Aof ATB Latent Export Import Limited (for short ‘ATB’). Thisaspect had to be read with what has been stated aforesaid.

g. The existing records result in definitive conclusion that tenderconditions were tailor-made in favour of Uflex and Montageand, thus, judicial review was necessary and in public interestBand the same undermining the tendering process.

Contentions before us:

Submissions on behalf of Uflex:

27. The broad contours of the submissions advanced on behalf ofCUflex assailing the impugned order are as under:

i. Learned counsel for the appellant relied on the judgment in TataCellular v. Union of India[16]to submit that Alpha and Kumbhat havefailed to demonstrate any public interest, any flaw in the tender processor for that matter any mala fide or arbitrariness. In the face of thisDsubmission, the terms of the NIT were not open to judicial scrutiny andthe Court can only review the decision-making process.

ii.The endeavour of Alpha and Kumbhat is an attempt to use thejudicial process to somehow frustrate the award of the tender to Uflex,having not succeeded as competitive commercial enterprise. The samewas true not only in this case but even in other tenders, as is reflectedEfrom their submission that Uflex has been successful in number oftenders across the country. Their endeavour to challenge the tender onsimilar grounds was unsuccessful in Writ Appeal No.509/2016 beforethe Madras High Court itself against which the Special Leave Petitionwas dismissed. similar fate was met in their endeavour before theFMadhya Pradesh High Court in WP No.4448/2016 where also the SLPwas dismissed.

iii. The petitioner has invested huge amount of about Rs. 10crore and has employed 87 people after the grant and issuance of workorder. The adjudication of civil dispute, the present one being reallyGakin to the same, is based on the preponderance of probabilities. Theimpugned order visits Uflex with adverse civil consequences based onsome “justifiable doubts” as is found in the impugned judgment. In thisbehalf, reference was invited to para 47 of the impugned judgment opiningso, i.e., “the evidence on record is insufficient to draw the definitive

H16 Id.

conclusion that the tender conditions were tailored to suit only the twoeligible bidders, although there is sufficient basis for justifiable doubts onthat count.”

We may note that these observations have, however, been followedby observations to the effect that evidence was sufficient to concludethat the tender specifications were not generic and had, thus, not beenprepared with the mandate of the G.O.

iv. The approach adopted by the Division Bench of the High Courtin what may be categorized as lifting the corporate veil and thenendeavouring to threadbare scrutinize the business relations of the twocompanies, i.e., Uflex and Montage, is not an appropriate approach.Not only that, the alleged nexus had been examined by the MadhyaPradesh High Court in WP No.4448/2016 and judgment was pronouncedon 06.09.2016 opining that Uflex and Montage are neither holding –subsidiary company nor associate company. The SLP filed against thesame, as noted above was dismissed.

v. There was failure on part of Alpha and Kumbhat to establishthat the technical specifications were patented and Uflex and Montagehad monopoly over the same.

vi. The counsel for Uflex placed reliance on the judgment in TataCellular[17] and the principles culled out hereinabove at the inceptionwhile submitting that this view has been followed in various judicialpronouncements, viz., Air India v. Cochin International Airport[18],Raunaq International Ltd. v. IVR Construction Ltd.[19], Master Marinev. Metcalfe and Hodkinson[20], Michigan Rubber[21] and BharatCooking Coal v. AMR Dev[22].

Submissions on behalf of Montage:

28. Montage sought to support the plea of Uflex largely aggrievedby the High Court’s findings to the effect that Uflex and Montage arerelated entities as it may have an adverse impact on Montage in othercontractual and tender matters. This is more so in the context that in

17 (supra)18 (2000) 2 SCC 617.

19 (1999) 1 SCC 492.

20 (2005) 6 SCC 138.

21 (supra).22 (2020) 16 SCC 759.

Avarious tenders these two companies have actually competed againsteach other successfully. Damaging observations were made to the effectthat even the qualification under the NIT was restricted to the two eligiblebidders. This raises questions as to the integrity and reliability of theNIT, which has thus seriously been assailed.

BThe observations of the Madhya Pradesh High Court referring toaforesaid holding that Uflex and Montage are separate legal entitieswas again emphasized. Uflex had made financial investment of aboutRs.152 crore worth of preference shares in Montage due to Montage’sacquisition of Uflex’s subsidiary, Utech Developers Limited. Thesepreference shares are 7.50% redeemable, non-cumulative, non-Cparticipating, non-convertible preference shares and the same does notallow Uflex to exert any influence on Montage.

29. Similarly, supporting the plea of Uflex, Montage also contendedthat the allegation of common source of patent technology through ATBhas no basis as Montage does not have any license arrangement withDthe said Company nor had it paid any license fee to ATB. It has, however,access to technology to produce latent images because it procured therequisite machinery.

Submissions on behalf of Kumbhat:

E30. On the other hand, Kumbhat sought to emphasise the followingaspects in support of the impugned judgment:

i. The mandate of the G.O. stipulated that technical specificationshave to be generic in nature to ensure wider participation by incorporatingthose features which are available with more than three bidders and theFsame was accepted by the Government by reiterating that there must bemultiple bidders. The factum of Hololive disqualification on certainconditions of the NIT was not raised before the learned single Judgeand, thus, erroneous conclusion was arrived at as there were less thanthree bidders. There were only two eligible bidders.

ii. The scenario of there being only two eligible bidders and awardGgoing to the same party is apparent from the award of tenders withsame specifications by four other States. Thus, Uflex and Montage seemto be monopolizing the business.

iii. The two bidders are closely related to each other as found bythe Division Bench and even in income tax proceedings before the HighH

Court of Delhi in the order dated 06.09.2018, Montage had taken theplea that Uflex was sister company.

iv. The earlier judgment of the Madras High Court in Writ AppealNo.509/2016 was not relevant as there were five qualified bidders andthe tender had dissimilar conditions. There was also subsequentamendment to the Tender Act, 2017 by introduction of Section 2(aa)read with the proviso to Section 10(2), which introduced the participationby Domestic Enterprises. In this behalf, the relevant provisions arereproduced hereinunder:

“2. Definitions.- In this Act, unless the context otherwise requires,-

xxxxxxxxxxxxxxxxxxxx

[(aa) ‘Domestic Enterprise’ means any micro and small enterpriseas defined in the Micro, Small and Medium EnterprisesDevelopment Act, 2006 (Central Act 27 of 2006), whichmanufactures or produces goods, provides or renders serviceswithin the State and filed Part II of the EntrepreneursDMemorandum in the District Industries Centres or filed UdyogAadhaar portal.]”

“10. Evaluation and Acceptance of Tender.-

xxxxxxxxxxxxxxxxxxxx

(2) After evaluation and comparison of tenders as specified insub-section (1), the Tender Accepting Authority shall accept thelowest tender ascertained on the basis of objective and quantifiablefactors specified in the tender document and giving relative weightsamong them:

[Provided that the Tender Accepting Authority shall accept thetender of domestic enterprises, not being the lowest tender, uponsatisfaction of such conditions as may be prescribed, in respectonly of goods manufactured or produced and services providedor rendered by them, and only to the extent of not exceedingtwenty five per cent of the total requirement in that procurement,if such domestic enterprise is willing to match the price of thelowest tender:

AProvided further that the Tender Accepting Authority shall acceptthe tender of department of Government, Public SectorUndertaking, Statutory Board and other similar institutions as maybe notified, not being the lowest tender, upon satisfaction of suchconditions as may be prescribed, in respect only of goodsmanufactured or produced and services provided or rendered byBthem, and only to the extent of not exceeding forty per cent of thetotal requirement in that procurement, if such tenderer is willingto match the price of the lowest tender:

Provided also that in case of single procurement, the totalprocurement under the above two provisos shall not exceed fortyCpercent of the total requirement in that procurement.]”Kumbhat being an MSME, thus, seeks right to participate intenders in Tamil Nadu.

31. We may note at this stage that Kumbhat did not even applyDand could not have applied being partnership firm while Alpha couldhave applied being an LLP but did not apply.

Submissions on behalf of Alpha:

32. Alpha sought to reiterate the submissions made by Kumbhatand sought to give examples from other States to support its adequacyEof manufacturing capacity: L-3 in 2019 in Chhattisgarh tender, L-2 inTamil Nadu in 2011 and 2015 tenders, and L-3 in 2021 in Andhra Pradeshtender. These tenders had generic specifications unlike the present tender.Alpha only got disqualified due to the technical specifications and itspast experience, i.e. clauses 4.6(b) and 4.6(c), which serve to eliminateFall bidders except two.

33. Alpha sought to emphasise the aspect of public interest as aground for judicial intervention by relying upon certain judicialpronouncements, viz., Monarch Infrastructure v. UlhasnagarMunicipal Corp.[23] and Jagdish Mandal[24].GSubmissions on behalf of the Government of Tamil Nadu:

34. Let us now turn to the most important stand which is of theTamil Nadu Government, which is the tendering entity. In this behalf

23 (2000) 5 SCC 287.H24 (supra).

what has been sought to be emphasized at the threshold is public interestitself as the tender conditions seek to prevent spurious liquor being pushedinto the market. Since 1999, only one supplier, Holostik India, had beensuccessful in all tenders except the present tender where it chose not toparticipate despite having the technical capability to do so and threefirms ultimately participated, i.e., Uflex, Montage and Hololive.

35. The State of Tamil Nadu sought to emphasise the importanceof transparency of the decision-making process. The TSC comprised ofeminent scientists in holography and printing technology and the NITwas formulated after their deliberations and after receiving input fromprospective bidders. The non-holographic feature of ‘hidden text on colourchange background’ was suggested by technical experts from IIT andAnna University as the same is the latest and most secure feature. Theobjective was to reduce chances of the hologram being counterfeited.

36. On the aspect of clauses 4.1, 4.5, 4.6(a) and 4.6(b), whichformed part of the general terms and the conditions of the technical bidand dealt with the aspect of the past experience in supply and turnover,it was submitted that these very conditions formed part of the 2015tender as well. These were challenged by Kumbhat and the writ appealwas dismissed, and this order was affirmed in the SLP, as already setout hereinbefore.

37. It was emphasized that Alpha’s grievance qua the door beingshut on them was addressed through corrigendum 2, which permittedLLPs to participate in the tender. The same very corrigendum addressedthe issue relating to hidden text being visible only through Polaroid byadding film. It was submitted that the Division Bench wrongly noted thatthe hidden colour specification was patented and there were no eligiblebidders who would qualify the same as the counter affidavit contains alist of tenders which had similar conditions and parties had succeeded inthe same. For example, the 2019-22 Excise Department Chhattisgarhtender had similar conditions and Prizm Holography succeeded. Thesame tender had two other entities who had qualified, including Alpha.

38. On the aspect of tender conditions being tailor-made and theprinciples of DOSA applying, it was submitted that the latitude must begreater where such high security features are involved.[25]

25 Association of Registration Plates v. Union of India (2005) 1 SCC 679.

A39. Lastly it was submitted that there was nothing so extraordinaryor unique which was being done by the respondents and the practicefollowed were similar to the practices of other States. The impugnedtechnical specifications have been utilized by several states and publicsector undertakings in the past and the tenders were awarded to otherplayers also apart from Uflex and Montage. This would belie theBcontention that the technology was patented and only few selectedcompanies were eligible. Not only that, in view of corrigendum 2, colourchange background viewable with film as an identifier did not attract therigour of patented technology. In almost an identical tender floated bythe State of Chhattisgarh, Uflex and Montage did not succeed duringCthe tendering process.

Conclusion:

40. We must begin by noticing that we are examining the case, asalready stated above, on the parameters discussed at the inception. Incommercial tender matters there is obviously an aspect of commercialDcompetitiveness. For every succeeding party who gets tender theremay be couple or more parties who are not awarded the tender asthere can be only one L-1. The question is should the judicial process beresorted to for downplaying the freedom which tendering party has,merely because it is State or public authority, making the said processEeven more cumbersome. We have already noted that element oftransparency is always required in such tenders because of the natureof economic activity carried on by the State, but the contours underwhich they are to be examined are restricted as set out in Tata Cellular[26]and other cases. The objective is not to make the Court an appellateauthority for scrutinizing as to whom the tender should be awarded.FEconomics must be permitted to play its role for which the tenderingauthority knows best as to what is suited in terms of technology andprice for them.

41. The present dispute has its history in many prior endeavoursby the original petitioners which have proved to be unsuccessful. It doesGappear that in competitive market they have not been so successful asthey would like to be. Merely because company is more efficient,obtains better technology, makes more competitive bids and, thus,succeeds more cannot be factor to deprive that company of commercial

success on that pretext. It does appear to us that this is what is happening;that the two original petitioners are endeavouring to continuously createimpediments in the way of the succeeding party merely because theythemselves had not so succeeded. It is thus our view that the DivisionBench has fallen into an error in almost sitting as an appellate authorityon technology and commercial expediency which is not the role which aCourt ought to play.

42. The checks and balances before the tendering process itselfhas been provided by constitution of the various committees, morespecifically the TSC and the TSFC. The objective is to keep the role ofthese Committees separately defined.

43. We are concerned with sale of liquor. The objective has beenset out by the State Government, i.e., use of such technology as wouldprevent spurious liquor from being sold. It is well-known fact that alarge revenue collection comes in Tamil Nadu through sale of liquor. Itthus must be left to the State Government to see how best to maximizeits revenue and what is the technology to be utilized to prevent situationslike spurious liquor, which in turn would impede revenue collection, apartfrom causing damage to the consumers.

44. grievance was made about what was stated to be “patentedtechnology”. At the stage when the concerned committees were stilllooking to the objections/suggestions of the parties, Kumbhat and Alpharushed to the Court. The State Government did provide relief by issuinga corrigendum to address the issue relating to hidden text being visibleonly through Polaroid, as colour change background viewable with filmas an identifier did not attract the rigour of this stated patented technology.The issue was actually over with that corrigendum.

45. Insofar as the participating entities are concerned, it cannotbe contended that all and sundry should be permitted to participate inmatters of this nature. In fact, in every tender there are certain qualifyingparameters whether it be technology or turnover. The Court cannot sitover in judgment on what should be the turnover required for an entity toparticipate. The prohibition arising from only Limited company beingpermitted to participate was again addressed by the corrigendumpermitting LLPs to participate. If entities like Kumbhat and Alpha wantto participate they must take some necessary actions. Alpha is alreadyan LLP. Kumbhat cannot insist that it will continue to be partnership

[2021] 7 S.C.R.

Aalone and, thus, that partnerships must necessarily be allowed toparticipate.

46. Insofar as Kumbhat’s plea based on the Tender Act isconcerned, reading of the provisions would show that some benefit issought to be given to MSMEs to the extent of 25% of the order based onBtheir willingness to match the price of the lowest tender. However, to beable to avail of that benefit, it must be an entity which is capable ofbidding in terms of the tender conditions. There is no prohibition againstlimiting the participation to Limited companies of LLPs. Domesticenterprise in the Tender Act is defined to mean any micro and smallCenterprise as defined in the MSMED Act. This argument also appearsto be an afterthought, as it is not as if Kumbhat participated claimingsuch right as an MSME.

47. Now coming to the issue of the requirement of three biddersor more than three bidders, the factual position is that there were threeDbidders and that one of them met the technical specifications but did notsucceed further on financial issues and turnover under Part 4 of theNIT. The same cannot be used to nullify the whole tendering process.We are dealing with tender of nature where there cannot be vacuum.If there is less participation than necessary, it cannot be said that ipsofacto the terms and conditions of tender have followed DOSA, and toEsomehow give the tender to one of the parties. Similar terms have beenset out in many tenders of different States and there have been varyingsucceeding parties. No doubt, the success rate of the two successfulparties before us is definitely higher but we fail to appreciate how thatcan form the basis to come to conclusion that something must be doneFto let other people get tender. If one may say, it will then become aDOSA to see that the most competitive party does not succeed in thetender but that other parties who keep approaching the Court must getsome share of the pie. This cannot be the objective.

48. We have also noticed the submissions based on the fact thatGrepeated endeavours of Alpha and Kumbhat have failed not only beforethe Madras High Court but before different High Courts based on asimilar challenge. Broadly, similar tender conditions have been upheld. Itcannot be that every time tender is floated, Kumbhat and Alpha wouldbe permitted to seek toehold on one pretext or the other. As noticed, it

is not really the function of the Court to vet the terms of the NIT, as it isthe decision-making process which can be reviewed in judicial scrutiny.[27]

49. lot of emphasis has been placed by the Courts below inseeking to go into the financial linkages between the two companies,i.e., Uflex and Montage. The correct way of examining this issue shouldhave been that whether under the terms of the NIT, any of the aspectswhich were examined by the Courts could be said to be disqualification.In our view, the answer to the same was in the negative. One companyhad invested in another through certain preference shares without havingany controlling interest, this cannot be the basis of judicial scrutiny. Thepresent case is not one of an intercorporate battle or of minorityshareholders claiming the rights or any debts due, where the principle oflifting the corporate veil should be applied. What one may have said insome income tax proceedings, whether small percentage of the fundsof one company have been utilized as investment in the other are hardlythe principles which should come into play in such tender matter.

50. We are thus unequivocally of the view that the impugned ordercannot be sustained for all the aforesaid reasons and must be set asideand the appeals are accordingly allowed.

Costs:

51. The costs following cause is principle which is followed inmost countries. There seems to be often hesitancy in our judicial systemto impose costs, presuming as if it is reflection on the counsel. This isnot the correct approach. In tussle for enforcement of rights against aState different principle apply but in commercial matters costs must followthe cause.

52. The aspect of awarding the costs has received considerationof the Law Commission of India in its Report No.240, specifically inrelation to civil litigation. The trigger for this were the observations ofthe Supreme Court in Ashok Kumar Mittal v. Ram Kumar Gupta[28]and Vinod Seth v. Devinder Bajaj[29]. The judicial pronouncements tooknote of the levying meager costs in civil matters which did not act as adeterrent to vexatious or luxury litigation borne out of ego or greed or

27 Tata Cellular (supra).28 (2009) 2 SCC 656.29 (2010) 8 SCC 1.

Aresorted to as ‘buying time’ tactic. These two judicial pronouncementswere followed in Sanjeev Kumar Jain v. Raghubir Saran CharitableTrust[30]. In the said proceeding the Law Commission also presented itsviews. It is in that context that this Court observed that appropriatechanges in the provisions relating to costs contained in the report of theLaw Commission of India should be followed up by the Parliament andBthe respective High Courts.

53. We may note that the common thread running through allthese three cases is the reiteration of salutary principles: (i) costs shouldordinarily follow the event; (ii) realistic costs ought to be awarded keepingin view the ever increasing litigation expenses; and (iii) the cost shouldCserve the purpose of curbing frivolous and vexatious litigation.[31]

54. We may note that this endeavour in India is not unique to ourcountry and in way adopts the principle prevalent in England of costsfollowing the event. The position may be somewhat different in the UnitedStates but then there are different principles applicable where champertyDis prevalent. No doubt in most of the countries like India the discretion iswith the Court. There has to be proportionality to the costs and if theyare unreasonable, the doubt would be resolved in favour of the payingparty[32]. As per Halsbury’s Laws of England, the discretion to awardcosts must be exercised judicially and in accordance with reason andEjustice.[33] The following principles have been set out therein:

“In deciding what order (if any) to make about costs, the courtmust have regard to all the circumstances, including:

(i) The conduct of all the parties;

F(ii) Whether party has succeeded on part of his case, even if hehas not been wholly successful; and

(iii) Any payment into court or admissible offer to settle made bya party which is drawn to the court’s attention.

The conduct of the parties includes:

30 (2012) 1 SCC 455.

31 Report No.240 of the Law Commission of India.

32 U.K. Civil Procedure Rule 44.2.

H33 Vol. 10, 4th Ed. (Para 15).

a. Conduct before, as well as during, the proceedings and inAparticular the extent to which the parties followed any relevantpre-action protocol;

b. Whether it was reasonable for party to raise, pursue orcontest particular allegation or issue;

c. The manner in which party has pursued or defended hiscase or particular allegation or issue; and

d. Whether claimant who has succeeded in his claim, in wholeor in part, exaggerated his claim.”[34]

55. We may add that similar principles are followed in Australia,Hong Kong and Canada largely based on the Common Law principle.In fact in Canada, the Manitoba Law Commission Report analysed the‘Costs Awards in Civil Litigation’ and referred to six broad goals asunder:

a. indemnification – successful litigants ought to at least be partiallyindemnified against their legal costs;

b. deterrence – potential litigants should carefully assess the meritsof the claim and should refrain from taking any unnecessary legalactions;

c. rules should be made decipherable and simple to understand;

d. early settlement of disputes should be encouraged;

e. the costs regime should facilitate access to justice; and

f. there should be flexibility in rules to ensure that justice can bedone.[35]

56. We have set forth the aforesaid so that there is appreciationof the principles that in carrying on commercial litigation, parties mustweigh the commercial interests, which would include the consequencesof the matter not receiving favourable consideration by the courts.Mindless appeals should not be the rule. We are conscious that in thegiven facts of the case the respondents have succeeded before theDivision Bench though they failed before the learned single Judge. Sufficeto say that all the parties before us are financially strong and took

34 10th Vol. 4th Ed. (Para 17).

35 Law Commission (supra).

Acommercial decision to carry this legal battle right up to this Court. Theymust, thus, face the consequences and costs of success or failure in thepresent proceedings.

57. The best reflection of what costs have been incurred is whatthe parties have paid towards the counsel fee and out of pocket expenses.BThe present proceedings do arise from writ proceeding under Article226 of the Constitution but it is really commercial dispute. Thus, thefailing party cannot hide behind the veneer of the present dispute beingin the nature of writ proceeding. The tender jurisdiction was createdfor scrutiny of commercial matters and, thus, where continuously partiesseek to challenge award of tenders, we are of the view that the succeedingCparty must get costs and the party which loses must pay costs. This wasreally battle between two commercial entities on one side seeking toget set aside an award of tender to two other entities. What else wouldbe commercial interest!

58. It is with the aforesaid objective that we had asked the partiesDto file their bill of costs vide order dated 17.08.2021. The objective wasto bring forth this principle into force by quantifying actual costs for thesucceeding party.

59. We have scrutinised the bill of fee and costs. We are inclinedto allow actual costs. However, we have modulated the costs insofar asEappellant is concerned to the extent of the indicated amount of theAdvocate-on-Record and allow 50% of the same. The total costs, thus,payable to the petitioner/appellant would be Rs.23,25,750/- (Rupeestwenty three lakh twenty five thousand seven hundred fifty only). TheState Government cannot be left behind so far as their compensation ofFcosts in defending such litigation is concerned and we, thus, allow thecosts of Rs.7,58,000/- (Rupees seven lakh fifty eight thousand only).60. The costs be accordingly paid within period of four weeksby Kumbhat and Alpha in equal share to the two parties as aforesaid.

Nidhi Jain

Appeals allowed.