Supreme Court Intervention in Tender Process: Rajasthan State Warehousing Corporation vs. Star Agriwarehousing and Collateral Management Limited & Ors. (2020)

Introduction

Date of the Judgment: 24 June 2020

Citation: 2020 INSC 457

Judges: Hemant Gupta, J. and Aniruddha Bose, J.

Can a High Court issue an interim order to halt a contract awarded through a tender process, especially when it affects public interest and state revenue? The Supreme Court of India addressed this critical question in a recent case involving the Rajasthan State Warehousing Corporation. The core issue was whether the High Court’s interim order to maintain status quo, which prevented the signing of a contract, was justified after the dismissal of the writ petition by the Single Judge. The Supreme Court, in this case, examined the balance between judicial intervention and the need for smooth public administration. The judgment was delivered by a two-judge bench comprising Justice Hemant Gupta and Justice Aniruddha Bose.

Case Background

The Rajasthan State Warehousing Corporation (the appellant) initiated a tender process on March 12, 2020, for the operation and management of warehouses at 71 locations under a Public-Private Partnership (PPP) model. The tender included a specific eligibility criterion in clause 5(5)(i), requiring bidders to have experience in preserving, maintaining, and storing at least 4.00 Lac MT of food grains for the past three financial years (2016-17 to 2018-19).

Several writ petitions were filed in the High Court of Judicature for Rajasthan by the respondents, challenging the tender conditions and clarifications. These petitions were dismissed by a single judge on May 19, 2020. Following this, technical bids were opened on May 20, 2020, and certain bidders were declared successful, leading to the issuance of letters of intent on May 21, 2020.

Aggrieved by the dismissal of their writ petitions, the respondents filed intra-court appeals. The Division Bench of the High Court, on May 29, 2020, issued an interim order for status quo, preventing the signing of the contract without the court’s permission. This order was maintained on June 10, 2020, prompting the Rajasthan State Warehousing Corporation to appeal to the Supreme Court.

Timeline

Course of Proceedings

The writ petitions challenging the tender conditions were initially dismissed by a single judge of the High Court. Subsequently, the respondents filed intra-court appeals. The Division Bench of the High Court issued an interim order on May 29, 2020, directing a status quo, which effectively halted the signing of the contract with the successful bidders. This order was continued on June 10, 2020. The Rajasthan State Warehousing Corporation then approached the Supreme Court under Article 136 of the Constitution of India, challenging these interim orders.

Legal Framework

The case primarily revolves around the interpretation and application of principles related to public procurement and the scope of judicial review in contractual matters. The Rajasthan Transparency in Public Procurement Rules, 2013, specifically Rule 70(8), was cited by the successful bidders to argue that the contract is complete once the letter of intent is issued.

Rule 70(8) of the Rajasthan Transparency in Public Procurement Rules, 2013 states:

“acceptance of an offer is complete as soon as the letter of intent is posted and/or sent by e-mail.”

Additionally, the Supreme Court considered its previous judgments on the grant of interim stays in contractual matters, particularly the principles laid down in Raunaq International Ltd. v. I.V.R. Construction Ltd. & Ors. [1999] 1 SCC 492 and Nitco Tiles Ltd. v. Gujarat Ceramic Floor Tiles Mfg. Assn. [2005] 12 SCC 454.

Arguments

The arguments presented before the Supreme Court were centered on the legality and propriety of the High Court’s interim orders.

Issues Framed by the Supreme Court

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

1. Whether the High Court’s interim order to maintain status quo, which prevented the signing of the contract, was justified after the dismissal of the writ petition by the Single Judge, especially considering the public interest and financial implications.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court relied on the following authorities:

Judgment

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The lack of reasons provided by the High Court for granting the interim order.
• The potential financial loss to the state due to the delay in executing the contract with the successful bidders.
• The public interest involved in the efficient management of state-owned warehouses, especially for storing food articles.
• The principle that the agency inviting bids is the best judge of its requirements.
• The completion of the tender process and the issuance of the letter of intent.

Key Takeaways

• Interim orders in contractual matters should be issued only after careful consideration of public interest.
• Courts should provide clear reasons when issuing interim orders that halt contracts.
• The agency inviting bids is generally considered the best judge of its requirements.
• The completion of a tender process and issuance of a letter of intent generally implies the completion of the contract.
• Interim orders should not cause unnecessary financial loss to the state.

Directions

The Supreme Court set aside the interim orders of the High Court dated May 29, 2020, and June 10, 2020. However, the grant of the contract was made subject to the final orders that may be passed by the High Court in the pending intra-court appeals.

Development of Law

The ratio decidendi of this case is that interim orders in contractual matters, especially those affecting public interest and state revenue, should be issued with caution and only after providing clear reasons. The Supreme Court reiterated the importance of balancing public interest and judicial intervention in contractual matters. This case reinforces the principle that the agency inviting bids is generally the best judge of its requirements, and courts should be hesitant to interfere with the tender process unless there are compelling reasons. There is no change in the previous position of law but the court has clarified the position of law with respect to interim orders in contractual matters.

Conclusion

In summary, the Supreme Court’s decision in Rajasthan State Warehousing Corporation vs. Star Agriwarehousing and Collateral Management Limited & Ors. sets aside the High Court’s interim orders that had halted the execution of a contract awarded through a tender process. The Supreme Court emphasized that such interim orders should not be issued without clear reasons, especially when they affect public interest and state revenue. The judgment underscores the need for a balanced approach in judicial intervention in contractual matters and reinforces the principle that the tender-inviting agency is the best judge of its requirements.