Supreme Court Allows Road Project Completion, Emphasizes Minimal Interference in Tenders: N.G. Projects vs. Vinod Kumar Jain (21 March 2022)

Introduction

Date of the Judgment: 21 March 2022
Citation: 2022 INSC 189
Judges: Hemant Gupta, J. and V. Ramasubramanian, J.
Can a court halt a crucial infrastructure project due to a minor technicality in a tender bid? The Supreme Court of India recently addressed this critical question, emphasizing the importance of minimal judicial interference in ongoing infrastructure projects. The case involved a dispute over the rejection of a tender bid for a road construction project in Jharkhand, where the High Court had overturned the award of the contract. The Supreme Court, however, reversed this decision, allowing the project to proceed, highlighting the need for judicial restraint in such matters. The judgment was delivered by a two-judge bench consisting of Justice Hemant Gupta and Justice V. Ramasubramanian, with Justice Hemant Gupta authoring the opinion.

Case Background

The Road Construction Department of Jharkhand invited tenders on 7 June 2019 for the reconstruction of the Nagaruntari – Dhurki – Ambakhoriya Road. Respondent No. 1 participated in this tender process, submitting a bid security in the form of a Bank Guarantee. However, this initial tender was canceled on 20 August 2019, and a fresh tender was issued for the same project. In the subsequent tender process, the Technical Evaluation Committee found that 13 out of 15 bids, including that of Respondent No. 1, were non-responsive due to deviations from the Standard Bidding Document (SBD). Specifically, Respondent No. 1 had submitted a letter along with the amended Bank Guarantee, stating that the letter was an integral part of the Bank Guarantee, which was not in the prescribed format. Additionally, the Bank Guarantee’s validity period was from 8 July 2019 to 7 March 2020, predating the new tender notice of 20 August 2019, and the amounts mentioned in numerical and words were different. The bid capacity of Respondent No. 1 was also found to be less than the estimated cost of the project, and the supporting affidavit and undertaking were not properly notarized. The appellant’s technical bid was deemed substantially responsive, and after evaluating its financial bid, the work contract was awarded to the appellant on 3 October 2019. The appellant commenced work on 22 October 2019, completing 21.9 km of earthwork out of the proposed 24 km. Respondent No. 1 then filed a Writ Petition on 11 October 2019, challenging the decision to deem its bid non-responsive.

Timeline

Course of Proceedings

The learned Single Bench of the High Court passed a common order on 14 January 2020, setting aside the award of the contract to the appellant. The High Court directed the State to issue a fresh tender for the work. The Division Bench of the High Court, on 6 January 2022, dismissed the appeal filed by the State, noting that the appellant had already started the execution of the work but found no valid distinction with the cases of two other works where the appeals were dismissed on 7 October 2021. The Division Bench observed that both the appellant and the writ petitioner had failed to adhere to the specifications of the bid security document. The High Court concluded that the Tender Evaluation Committee’s decision to accept the appellant’s technical bid while rejecting the petitioner’s did not conform to uniform standards.

Legal Framework

The primary legal framework relevant to this case includes the principles of judicial review in contract matters and the provisions of the Specific Relief Act, 1963. The Supreme Court referred to the principles laid down in Tata Cellular v. Union of India [(1994) 6 SCC 651] regarding the scope of judicial review in contractual powers of government bodies. The Court emphasized that while judicial review is necessary to prevent arbitrariness or favoritism, there are inherent limitations to this power. The Court also referred to the amendment to the Specific Relief Act, 1963, specifically the insertion of clause (ha) in Section 41, which states that an injunction cannot be granted if it would impede or delay the progress or completion of any infrastructure project. This amendment reflects the legislative intent to prioritize the timely completion of infrastructure projects. The Court also discussed the principles laid down in Central Coalfields Limited & Anr. v. SLL-SML (Joint Venture Consortium) & Ors. [(2016) 8 SCC 622] which stated that when a particular format for a bank guarantee is prescribed, the bidder is required to stick to that particular format alone. The Court also cited Afcons Infrastructure Limited v. Nagpur Metro Rail Corporation Limited & Anr. [(2016) 16 SCC 818] to emphasize that the owner or employer of a project is the best person to understand and interpret tender documents.

The relevant legal provisions are:
✓ Section 41(ha) of the Specific Relief Act, 1963: “(ha) if it would impede or delay the progress or completion of any infrastructure project or interfere with the continued provision of relevant facility related thereto or services being the subject matter of such project.”

Arguments

The arguments presented by both sides are as follows:

• Appellant’s Submissions:
  • The appellant argued that the High Court’s interference in the contract awarded to them was unwarranted and caused loss to public interest. They emphasized that the construction of roads is crucial for infrastructure development.
  • The appellant contended that the High Court acted as an appellate authority rather than exercising judicial review to check for manifest arbitrariness or injustice, as laid down in Tata Cellular v. Union of India.
  • It was argued that the employer is the best judge of its requirements, and the courts should not substitute their opinion in respect of acceptance of bank guarantee as held in Central Coalfields Limited & Anr. v. SLL-SML (Joint Venture Consortium) & Ors.
  • The appellant further argued that the owner or the employer of a project, having authored the tender documents, is the best person to understand and appreciate its requirements and interpret its documents as held in Afcons Infrastructure Limited v. Nagpur Metro Rail Corporation Limited & Anr.
  • The appellant highlighted that the respondent’s bank guarantee was not in the prescribed format and that the relaxation given was not uniform, as the respondent was singled out.
  • They also pointed out that the respondent submitted a bank guarantee that was initially issued for a canceled tender, with an amendment letter, which was a substantial variation from the prescribed format.
  • The appellant emphasized the amendment in the Specific Relief Act, 1963, which restricts the grant of injunctions that would delay infrastructure projects.
  • The appellant argued that the Technical Evaluation Committee’s decision was not actuated by extraneous considerations or mala fides and that different conclusions can be arrived at in a bona-fide manner.
  • The appellant stated that they would not claim escalation costs for the period during which the writ petition was pending before the High Court.
• Respondent’s Submissions:
  • The respondent argued that the format for the bank guarantee was not followed strictly by the State and that the relaxation given was not uniform.
  • The respondent contended that their bid was wrongly rejected by the Technical Evaluation Committee.
  • The respondent argued that the decision of the Tender Evaluation Committee in accepting the technical bid of the successful tenderer while rejecting the technical bid of the petitioner did not conform to uniform standards.
  • The respondent argued that the selection of one and rejection of another was neither in consonance with the specific terms of the NIT and SBD read with the addendum, nor was on uniform yardstick.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue that the court addressed was:

1. Whether the High Court was justified in interfering with the tender process and halting the infrastructure project based on minor deviations in the bid documents.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on the following authorities:

• Judicial Review in Contract Matters:
  • Tata Cellular v. Union of India [(1994) 6 SCC 651] – Supreme Court of India. This case was cited for the principles of judicial review in contractual powers of government bodies, emphasizing that while judicial review is necessary to prevent arbitrariness or favoritism, there are inherent limitations to this power.
  • Central Coalfields Limited & Anr. v. SLL-SML (Joint Venture Consortium) & Ors. [(2016) 8 SCC 622] – Supreme Court of India. This case was cited to emphasize that when a particular format for a bank guarantee is prescribed, the bidder is required to stick to that format alone.
  • Afcons Infrastructure Limited v. Nagpur Metro Rail Corporation Limited & Anr. [(2016) 16 SCC 818] – Supreme Court of India. This case was cited to emphasize that the owner or employer of a project is the best person to understand and interpret tender documents.
  • Silppi Constructions Contractors v. Union of India and Ors. [2019 SCC OnLine SC 1133] – Supreme Court of India. This case was cited to emphasize that the Courts must realize their limitations and the havoc which needless interference in commercial matters could cause.
  • National High Speed Rail Corpn. Ltd. v. Montecarlo Ltd. [2022 SCC OnLine SC 111] – Supreme Court of India. This case was cited to caution against entertaining writ petitions that delay mega projects.
  • Uflex Ltd. v. Government of T.N. [(2022) 1 SCC 165] – Supreme Court of India. This case was cited to highlight that judicial review in contractual matters has its own limitations.
  • Galaxy Transport Agencies v. New J.K. Roadways [2020 SCC OnLine SC 1035] – Supreme Court of India. This case was cited to reiterate that the authority that authors the tender document is the best person to understand and appreciate its requirements.
• Specific Relief Act, 1963:
  • Section 41(ha) of the Specific Relief Act, 1963 was cited for the provision that an injunction cannot be granted if it would impede or delay the progress or completion of any infrastructure project.

Authorities Considered by the Court

Judgment

The Supreme Court overturned the High Court’s decision, allowing the appellant to complete the road construction project. The Court emphasized the need for judicial restraint in matters of contract, especially in infrastructure projects. The Court held that the High Court should not have interfered with the tender process based on minor deviations in the bid documents. The Court also highlighted the importance of adhering to the prescribed format for bank guarantees and the legislative intent to prioritize the timely completion of infrastructure projects. The court stated that the employer is the best judge of its requirements and that the courts should not substitute their opinion in respect of acceptance of bank guarantee. The court also stated that the owner or the employer of a project, having authored the tender documents, is the best person to understand and appreciate its requirements and interpret its documents.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to ensure the smooth and timely completion of infrastructure projects. The Court emphasized that minor deviations in tender documents should not be a basis for halting such projects, especially when the employer has acted in a bona fide manner. The Court also highlighted the importance of adhering to the prescribed format for bank guarantees, the need for judicial restraint in commercial matters, and the legislative intent to prioritize infrastructure development. The Court was also influenced by the fact that the appellant had already started the work and the termination of contract would cause additional financial burden on the State and also deprive the amenity of road for a longer period.

The Court considered the arguments presented by both parties, but ultimately sided with the appellant, emphasizing the importance of adhering to the prescribed format for bank guarantees and the need to avoid unnecessary delays in infrastructure projects. The court also considered the fact that the appellant had already started the work and the termination of contract would cause additional financial burden on the State and also deprive the amenity of road for a longer period.

The Supreme Court’s decision was based on the following reasons:

• The High Court exceeded its powers by acting as an appellate authority rather than exercising judicial review.
• The respondent’s bank guarantee was not in the prescribed format, which was an essential condition of the contract.
• The amendment to the Specific Relief Act, 1963, restricts the grant of injunctions that would delay infrastructure projects.
• The employer is the best judge of its requirements, and the courts should not substitute their opinion.
• The construction of roads is essential for infrastructure development, and unnecessary delays should be avoided.
• The termination of the contract would cause additional financial burden on the State and also deprive the amenity of road for a longer period.

The Court quoted from the judgment:

• “We find that the interference in contract awarded to the appellant is wholly unwarranted and has caused loss to public interest.”
• “The Specific Relief Act, 1963 was amended by Central Act 18 of 2018 when clause (ha) was inserted in Section 41 of the said Act to say: ‘(ha) if it would impede or delay the progress or completion of any infrastructure project or interfere with the continued provision of relevant facility related thereto or services being the subject matter of such project.’”
• “In view thereof, we find that the action of the respondent in setting aside the letter of acceptance granted to the appellant suffers from manifest illegality and cannot be sustained.”

Key Takeaways

• Courts should exercise restraint in interfering with tender processes, especially in infrastructure projects.
• Employers are the best judges of their requirements and should be given deference in interpreting tender documents.
• Bidders must adhere strictly to the prescribed formats for bank guarantees and other essential documents.
• Injunctions that would delay infrastructure projects should be avoided, in line with the legislative intent of the Specific Relief Act, 1963.
• Unnecessary delays in infrastructure projects should be avoided, as they cause loss to public interest.

Directions

The Supreme Court directed the respondent State to allow the appellant to resume and complete the work, excluding the period spent in the stay of execution of the contract. The Court also cautioned against lightly interfering with contracts of public service and emphasized that interim orders should not derail the process of services meant for the larger public good. The Court also suggested that High Courts may entrust such petitions to a Division Bench to avoid delays.

Specific Amendments Analysis

The judgment specifically discusses the amendment to the Specific Relief Act, 1963, which inserted clause (ha) in Section 41. This amendment was introduced to ensure that infrastructure projects are not unduly delayed by court interventions. The amendment reflects the legislative intent to prioritize the timely completion of such projects. The Court highlighted that the High Court should have taken this amendment into account while considering the case.

Development of Law

This judgment reinforces the principle of minimal judicial interference in tender processes, especially in infrastructure projects. It clarifies that courts should not act as appellate authorities in contract matters and should only intervene when there is clear evidence of arbitrariness or mala fide intent. The judgment also emphasizes the importance of adhering to prescribed tender formats and the need to prioritize the timely completion of infrastructure projects, as reflected in the amendment to the Specific Relief Act, 1963. The judgment serves as a reminder to High Courts to exercise restraint in granting injunctions that would delay or impede such projects. The case also reaffirms the principle that the employer is the best judge of its requirements and should be given deference in interpreting tender documents.

Conclusion

The Supreme Court’s decision in M/S. N.G. Projects Limited vs. M/S. Vinod Kumar Jain & Ors. is a significant judgment that underscores the importance of judicial restraint in matters of contract, particularly in infrastructure projects. The Court’s emphasis on adhering to prescribed tender formats, avoiding unnecessary delays, and respecting the employer’s judgment provides valuable guidance for future cases. The judgment also highlights the legislative intent to prioritize infrastructure development, as reflected in the amendment to the Specific Relief Act, 1963. This case serves as a reminder that courts should not interfere with the tender process unless there is clear evidence of arbitrariness or mala fide intent. The judgment reinforces the principle that the employer is the best judge of its requirements and should be given deference in interpreting tender documents. The case also emphasizes the need for timely completion of infrastructure projects, which are crucial for the economic and social development of the country.