Supreme Court Quashes High Court Order on Gas Allocation: Vaibhavi Enterprise vs. Nobel Cera Coat (21 October 2021)

Date of the Judgment: 21 October 2021

Citation: 2021 INSC 743

Judges: M.R. Shah, J. and A.S. Bopanna, J.

Can a High Court, in its writ jurisdiction, allow a bidder to modify their offer during a tender process without providing other bidders an opportunity to revise their offers as well? The Supreme Court of India recently addressed this question in a case concerning the allocation of natural gas. The core issue revolved around whether the High Court of Gujarat acted correctly in directing ONGC to finalize a contract with a bidder who had modified their offer during the proceedings, without considering other bidders. This judgment was delivered by a two-judge bench comprising Justice M.R. Shah and Justice A.S. Bopanna.

Case Background

The Oil and Natural Gas Corporation (ONGC) invited “Expressions of Interest” (EOI) on 22 July 2020, to assess the demand for natural gas from two fields. The EOI stated that ONGC would undertake the demand assessment, and the Ministry of Petroleum and Natural Gas, Government of India, would give the final approval for allocation. The gas supply was to operate for five years from the date of the award.

Three applicants showed interest: Nobel Cera Coat, Vaibhavi Enterprise, and Tanish Cerachem Private Limited. Nobel Cera Coat was interested in sourcing gas from both VAD#3 and VAD#5. Vaibhavi Enterprise was interested in VAD#3, and Tanish Cerachem Private Limited in VAD#5. ONGC sought approval from the Ministry for gas allocation. While the matter was pending, Tanish Cerachem Private Limited revised its offer in December 2020, proposing to commence gas offtake within 65 days of allotment. Nobel Cera Coat had initially offered to lift gas within 75 days.

ONGC then decided to re-invite bids from all three applicants on 8 March 2021. Vaibhavi Enterprise submitted a fresh bid, but Nobel Cera Coat did not. Nobel Cera Coat filed a writ petition before the High Court, challenging ONGC’s letter dated 8 March 2021, and sought a direction to ONGC to proceed with the award based on the original EOI. Initially, the Union of India and the other two applicants were not made parties to the writ petition.

Timeline

Course of Proceedings

The High Court initially heard the matter on 19 August 2021, and directed the Union of India to be added as a respondent. The matter was then heard on 16 September 2021, where the Union of India placed on record the communication dated 8 March 2021. During the hearing on 20 September 2021, Nobel Cera Coat reduced their offer to lift gas from 75 to 65 days. The High Court then directed ONGC to finalize the contract with Nobel Cera Coat, provided they lift the gas within 65 days. The High Court disposed of the writ petition instead of allowing it after issuing the writ of mandamus. This order was challenged by the other two applicants, Vaibhavi Enterprise and Tanish Cerachem Private Limited, before the Supreme Court.

Legal Framework

The judgment primarily concerns the exercise of writ jurisdiction by the High Court under Article 226 of the Constitution of India. Article 226 empowers High Courts to issue writs for the enforcement of fundamental rights and for any other purpose. The Supreme Court examined whether the High Court correctly exercised this power by allowing a bidder to modify their offer during the proceedings.

Arguments

Arguments on behalf of the Appellants (Vaibhavi Enterprise and Tanish Cerachem Private Limited):

• The High Court erred in allowing Nobel Cera Coat to modify its offer during the writ proceedings, especially without giving the other bidders an opportunity to revise their offers as well.
• The High Court should not have directed ONGC to finalize the contract with Nobel Cera Coat based on a modified offer made during the proceedings.
• The High Court’s order was passed ex-parte, without giving the appellants a chance to be heard, violating principles of natural justice.
• The High Court should have allowed the writ petition instead of disposing of it after issuing a writ of mandamus.
• The High Court did not provide any reasons on the merits of the case.

Arguments on behalf of the Respondent (Nobel Cera Coat):

• Nobel Cera Coat argued that its revised offer to lift gas within 65 days was competitive and should have been considered.

Arguments on behalf of ONGC:

• ONGC stated that it was in a dilemma because one of the applicants was ready to lift gas within 65 days.

Submissions of Parties

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a numbered list. However, the core issue addressed was:

• Whether the High Court was justified in allowing the writ petitioner to modify its offer during the writ proceedings under Article 226 of the Constitution of India, without affording a similar opportunity to other bidders.

Treatment of the Issue by the Court

Authorities

No specific cases or books were cited in the judgment.

Judgment

How each authority was viewed by the Court?

• Article 226 of the Constitution of India: The Court held that the High Court’s exercise of powers under Article 226 was improper in permitting the modification of the bid without giving opportunity to other bidders.

What weighed in the mind of the Court?

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

• Procedural Fairness: The Court emphasized that the High Court’s process was unfair to the other bidders, as they were not given a chance to respond to the modified offer.
• Principles of Natural Justice: The Court noted that the High Court’s order was passed ex-parte, violating the principles of natural justice.
• Proper Exercise of Writ Jurisdiction: The Court questioned whether the High Court could allow a bidder to modify its offer in a tender process while exercising its powers under Article 226 of the Constitution of India.
• Lack of Reasoning: The Court observed that the High Court’s order lacked any substantive reasoning on the merits of the case.

The Supreme Court’s decision was based on the premise that the High Court had acted improperly by allowing a bidder to modify its offer during the writ proceedings without providing other bidders an opportunity to revise their offers as well. The Court emphasized the importance of procedural fairness and adherence to the principles of natural justice. The High Court’s failure to provide adequate reasons for its decision also weighed heavily in the Supreme Court’s judgment.

The Supreme Court stated, “When High Court permitted / allowed the writ applicant to modify its offer, in that case, the opportunity ought to have been given to the other applicants.”

The Supreme Court also noted, “So the procedure adopted by the High Court while disposing of the writ petition by permitting / allowing the original writ applicant to modify its offer and that too in exercise of powers under Article 226 of the Constitution of India, as observed herein above, is unsustainable and unknown to law.”

Further, the court observed, “Even otherwise also, the impugned order passed by the High Court is unsustainable in as such no reasons whatsoever have been assigned by the High Court on merits.”

Key Takeaways

• High Courts should not allow writ petitioners to modify their bids in tender processes without giving other bidders an opportunity to revise their bids as well.
• Orders passed by High Courts must adhere to the principles of natural justice, ensuring that all parties have a chance to be heard.
• High Courts must provide clear and reasoned orders, particularly when exercising writ jurisdiction.
• The Supreme Court’s decision emphasizes the importance of procedural fairness in tender processes and judicial review.

Directions

The Supreme Court quashed the High Court’s order and remitted the matter back to the High Court for a fresh decision. The High Court was directed to allow the appellants to be impleaded as party respondents and to pass a fresh order after giving all parties an opportunity to be heard. The Supreme Court requested the High Court to dispose of the matter within four weeks.

Development of Law

The ratio decidendi of this case is that a High Court cannot allow a writ petitioner to modify its bid in a tender process under Article 226 of the Constitution of India without giving an opportunity to other bidders. This judgment reinforces the principles of fairness and natural justice in tender processes and judicial review. There is no change in the previous position of law, but this judgment clarifies the procedural requirements in such cases.

Conclusion

The Supreme Court’s decision in Vaibhavi Enterprise vs. Nobel Cera Coat & Ors. highlights the importance of procedural fairness and adherence to the principles of natural justice in tender processes. The Court set aside the High Court’s order, emphasizing that a High Court cannot allow a bidder to modify its offer during writ proceedings without giving other bidders an equal opportunity. The matter was remitted back to the High Court for a fresh decision, ensuring that all parties are heard and that the decision is based on merits.