Supreme Court clarifies tender disqualification based on prior contract termination: Adani Ports Case (2022)

Date of the Judgment: 05 September 2022

Citation: 2022 INSC 740

Judges: M.R. Shah, J. and Krishna Murari, J.

Can a company be barred from participating in future tenders simply because a previous contract was terminated? The Supreme Court of India recently addressed this question in a case involving Adani Ports and Special Economic Zone Limited. The core issue revolved around whether the termination of a concession agreement by one port authority could disqualify a company from participating in tenders issued by other public authorities. The Supreme Court bench, comprising Justices M.R. Shah and Krishna Murari, delivered the judgment.

Case Background

The case involves two tenders issued by the Jawaharlal Nehru Port Authority (JNPA). Adani Ports and Special Economic Zone Limited (Adani Ports) was disqualified from participating in these tenders. The disqualification was based on the termination of a prior Concession Agreement dated 01.08.2011 by the Visakhapatnam Port Authority (VPA) vide letter dated 26.12.2020. JNPA relied on Clause 2.2.8 of the Request for Qualification (RFQ) documents to disqualify Adani Ports.

Adani Ports contended that JNPA had initially terminated the contract on 21.10.2020, and the VPA’s termination was a counterblast. The termination of the Concession Agreement is currently under dispute before an Arbitral Tribunal.

Adani Ports filed a writ petition before the High Court of Judicature at Bombay, which was dismissed. Subsequently, they filed a Civil Appeal before the Supreme Court and a Writ Petition under Article 32 of the Constitution of India.

Timeline

Course of Proceedings

Adani Ports challenged its disqualification before the High Court of Judicature at Bombay, which dismissed the writ petition. Aggrieved by this decision, Adani Ports approached the Supreme Court by way of a Civil Appeal. Additionally, Adani Ports filed a Writ Petition under Article 32 of the Constitution of India, seeking a declaration that its disqualification was illegal and unconstitutional, and challenging Clause 2.2.8 of the RFQ documents.

Legal Framework

The case primarily revolves around the interpretation and application of Clause 2.2.8 of the Request for Qualification (RFQ) documents. This clause was used by the Jawaharlal Nehru Port Authority (JNPA) to disqualify Adani Ports from participating in the tenders. The specific clause is not quoted in the judgment.

Arguments

Arguments by Adani Ports:

• Adani Ports argued that the termination of the Concession Agreement by the Visakhapatnam Port Authority (VPA) was a counterblast to the initial termination by JNPA on 21.10.2020.
• They contended that the termination of the Concession Agreement should not be treated as a disqualification for participating in other tenders.
• Adani Ports stated that the termination of the Concession Agreement is the subject matter of dispute pending before the Arbitral Tribunal.
• They withdrew their claim to participate in the two specific tenders in question, but sought a ruling that the VPA termination should not be a general disqualification for future tenders.
• They also sought liberty to challenge Clause 2.2.8 of the RFQ documents before the High Court.

Arguments by Jawaharlal Nehru Port Authority (JNPA):

• JNPA agreed that the termination of the Concession Agreement by VPA should not be a disqualification for future tenders, given the peculiar facts of the case.
• JNPA requested that the Supreme Court clarify that it has not expressed any opinion on the validity of Clause 2.2.8 of the RFQ documents.

Arguments by M/s. J.M. Baxi Ports & Logistics Ltd.:

• The contesting respondent, M/s. J.M. Baxi Ports & Logistics Ltd., stated that they had no objection if an appropriate order was passed, given that Adani Ports had withdrawn its claim to participate in the two tenders.

Issues Framed by the Supreme Court

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

1. Whether the termination of the Concession Agreement dated 01.08.2011 by the Visakhapatnam Port Authority should be treated as a disqualification for Adani Ports in future tenders issued by other public authorities.

Treatment of the Issue by the Court

Authorities

The judgment does not explicitly cite any case laws or legal provisions. It primarily relies on the specific facts and circumstances of the case and the consensus between the parties.

Judgment

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the unique circumstances of the case and the consensus among the parties. The fact that the termination of the Concession Agreement was disputed and pending before an Arbitral Tribunal, along with Adani Ports withdrawing its claims for the current tenders, played a crucial role in the Court’s decision. The Court also emphasized that it was not expressing any opinion on the validity of Clause 2.2.8 of the RFQ documents, which was the basis for disqualification.

Fact:Law Ratio

The Court’s decision was more influenced by the factual matrix of the case, rather than legal precedents or principles. The consensus among the parties, the ongoing arbitration, and the withdrawal of claims by Adani Ports were the primary drivers of the decision.

Key Takeaways

• Termination of a concession agreement by one public authority may not automatically disqualify a company from participating in tenders issued by other public authorities, especially when the termination is under dispute.
• Courts may consider the specific facts and circumstances of a case, including any consensus among the parties, when deciding on disqualifications in tender processes.
• Companies may be allowed to challenge specific clauses in tender documents, even if they withdraw their claims for the current tenders.
• The Supreme Court has not expressed any opinion on the validity of Clause 2.2.8 of the RFQ documents in this case.

Directions

The Supreme Court directed that the termination of the Concession Agreement dated 01.08.2011 by the Visakhapatnam Port Authority shall not be treated as a disqualification or ineligibility of the appellant/petitioner for the purpose of participating in any other tender issued by any public authorities in future.

Development of Law

The ratio decidendi of this case is that the termination of a concession agreement by one public authority should not automatically disqualify a company from participating in tenders issued by other public authorities, particularly when the termination is disputed and the affected party has withdrawn its claims for the current tenders. This case clarifies that disqualifications in tender processes should be assessed on a case-by-case basis, considering the specific facts and circumstances.

Conclusion

The Supreme Court disposed of the case by stating that the termination of a prior concession agreement by the Visakhapatnam Port Authority should not be treated as a disqualification for Adani Ports in future tenders. The Court emphasized the unique circumstances of the case, the ongoing arbitration, and the consensus between the parties. The Court did not rule on the validity of Clause 2.2.8 of the RFQ documents, allowing Adani Ports to challenge it separately before the High Court.