Supreme Court quashes High Court order reinstating cancelled tender: Level 9 Biz vs. HIMUDA (2024)

Date of the Judgment: April 2, 2024

Citation: 2024 INSC 257

Judges: Bela M. Trivedi, J. and Pankaj Mithal, J.

Can a High Court overturn its own findings of irregularities in a tender process, simply based on the statements of the parties involved? The Supreme Court recently addressed this critical question in a case involving a cancelled tender by the Himachal Pradesh Housing and Urban Development Authority (HIMUDA). The court had to determine whether the High Court was correct in reinstating a tender that it had previously found to be tainted with irregularities, based solely on the statements of the parties involved, without considering the findings of its own independent committee. The Supreme Court bench comprised of Justice Bela M. Trivedi and Justice Pankaj Mithal, with the judgment authored by Justice Bela M. Trivedi.

Case Background

The case revolves around a tender issued by HIMUDA for the construction of a commercial complex in Shimla. The tender process was marred by allegations of irregularities, leading to multiple court interventions and ultimately, a cancellation of the tender. The appellant, Level 9 Biz Pvt. Ltd., was an unsuccessful bidder who challenged the tender process. The respondent, HIMUDA, initially awarded the tender to M/s. Vasu Constructions (Respondent No. 2), but later cancelled it due to identified irregularities. The High Court’s subsequent decision to reinstate the cancelled tender based on statements made by HIMUDA and M/s. Vasu Constructions led to the present appeal before the Supreme Court.

Timeline:

Course of Proceedings

Initially, the High Court of Himachal Pradesh at Shimla received writ petitions from Dalip S. Rathore and Level 9 Biz Pvt. Ltd. challenging the tender process. The High Court, after noting irregularities, appointed an independent committee to investigate. Based on the committee’s report, the High Court directed the registry to initiate separate proceedings against erring officials and observed that the tender needed to be cancelled. Consequently, HIMUDA cancelled the tender. M/s. Vasu Constructions then filed a new writ petition challenging the cancellation and also filed two LPAs against the order dated 08.01.2021. The Division Bench of the High Court, however, disposed of M/s. Vasu Constructions’ writ petition by accepting statements from HIMUDA and M/s. Vasu Constructions, effectively reinstating the cancelled tender. This decision was then appealed to the Supreme Court by Level 9 Biz Pvt. Ltd.

Legal Framework

The case primarily involves the principles of contract law and public procurement. A key aspect is the understanding of a Letter of Intent (LOI). The Supreme Court noted that, “the Letter of Intent is merely an expression of intention to enter into a contract. It does not create any right in favour of the party to whom it is issued. There is no binding legal relationship between the party issuing the LOI and the party to whom such LOI is issued.” The court emphasized that a detailed agreement is required to establish a binding contract, especially in large-scale projects.

Arguments

The arguments in this case revolve around the legality and propriety of the High Court’s decision to reinstate a cancelled tender based on the statements of the parties involved, without considering the findings of the independent committee and the previous order of the High Court.

Submissions on behalf of the Appellant (Level 9 Biz Pvt. Ltd.):

• The appellant argued that the High Court erred in reinstating the tender based solely on the statements of HIMUDA and M/s. Vasu Constructions, ignoring the previous findings of irregularities.
• The appellant contended that the High Court should have considered the independent committee’s report, which found that both Level 9 Biz and M/s. Vasu Constructions were wrongly declared eligible.
• The appellant submitted that HIMUDA, being a ‘State’ under Article 12 of the Constitution of India, acted malafide and in collusion with M/s. Vasu Constructions, misusing the process of law.

Submissions on behalf of the Respondent No. 1 (HIMUDA):

• HIMUDA initially stated before the Division Bench of the High Court that it wanted to withdraw the cancellation of the initial tendering process order dated 05.02.2021.
• HIMUDA stated that it had no objection to go ahead with the initial tendering process if M/s. Vasu Constructions was ready to execute the work at the same rates and terms as per the initial tender.

Submissions on behalf of the Respondent No. 2 (M/s. Vasu Constructions):

• M/s. Vasu Constructions stated before the High Court that it was ready to execute the project on the same terms and conditions and rates as per the initial tender dated 15.11.2018.

Innovativeness of the argument: The appellant’s argument highlighted the malafide intent of HIMUDA and M/s. Vasu Constructions, emphasizing the misuse of the legal process to circumvent the findings of the independent committee and the High Court’s earlier order. This argument effectively framed the case as a matter of public interest and transparency, rather than a simple contractual dispute.

Issues Framed by the Supreme Court:

The primary issue framed by the Supreme Court was:

1. “Whether the High Court could have disposed of the CWP filed by the respondent no. 2 by simply accepting the statements made on behalf of the learned advocates for the respondent no. 1 and respondent no. 2, virtually permitting the respondent no.1 HIMUDA to withdraw the cancellation of initial tendering process order dated 05.02.2021 and permitting the respondent no. 2 M/s Vasu Constructions to execute the project on the same terms and conditions and at the rates as per the initial tender dated 15.11.2018, though the said tender was already withdrawn by the Respondent No.1 HIMUDA in view of the report made by the independent Committee constituted by the High Court confirming gross irregularities and illegalities committed by the officers of HIMUDA and in view of the order dated 08.01.2021 passed by the Single Bench?”

Treatment of the Issue by the Court:

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

Authorities

The Supreme Court primarily relied on the facts and circumstances of the case, including the reports of the independent committee appointed by the High Court, and the previous order of the High Court itself. The court also considered the fact that the Letter of Intent (LOI) does not create a binding legal relationship.

Judgment

How each authority was viewed by the Court?

• The report of the Independent Committee was [Report of the Independent Committee]* relied upon heavily by the Supreme Court. The Court emphasized that the High Court should not have ignored the findings of its own committee, which had identified serious irregularities and illegalities in the tender process.
• The Order dated 08.01.2021 was [Order dated 08.01.2021]* given significant weight by the Supreme Court. The Court noted that the High Court had previously accepted the findings of the independent committee and had directed the registry to initiate separate proceedings against erring officials. The Supreme Court found it improper for the High Court to disregard its own previous order.
• The concept of Letter of Intent (LOI) was [Letter of Intent (LOI)]* clarified by the Supreme Court. The Court reiterated that the LOI does not create any binding legal relationship and is merely an expression of intention to enter into a contract.
• The Supreme Court noted that HIMUDA, being a ‘State’ under Article 12 of the Constitution of India, is expected to act fairly and transparently. The Court found that HIMUDA had acted malafide and in collusion with M/s. Vasu Constructions, misusing the process of law, which is against the principles of [Article 12 of the Constitution of India]*.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the need to uphold transparency and fairness in public procurement. The Court was deeply concerned by the fact that the High Court had ignored its own findings of irregularities and the recommendations of the independent committee. The Court emphasized that a High Court cannot reinstate a cancelled tender based solely on the statements of the parties involved, without considering the substantive findings of irregularities and the need for a fair and transparent process. The Court also highlighted the malafide conduct of HIMUDA and M/s. Vasu Constructions, who colluded to circumvent the legal process.

The Court’s reasoning was primarily driven by the factual irregularities and the malafide conduct of the parties. The legal aspects, such as the interpretation of the LOI and the principles of public procurement, were secondary to the factual findings of the case.

Logical Reasoning:

The Supreme Court considered the alternative interpretation that the High Court might have acted in good faith, believing that reinstating the tender would serve public interest. However, the Court rejected this interpretation, emphasizing that the High Court’s decision was not based on a proper application of mind and ignored the substantive findings of the independent committee and its own previous order. The Court’s final decision was based on the need to ensure transparency and fairness in public procurement and to prevent the misuse of legal processes.

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

• The High Court ignored the findings of its own independent committee.
• The High Court disregarded its previous order.
• HIMUDA acted malafide and in collusion with M/s. Vasu Constructions.
• The tender was cancelled due to irregularities, and there was no basis to reinstate it.
• The High Court did not ensure transparency and fairness in the process.

The Supreme Court quoted from the judgment: “We are at loss to understand as to how the said petition filed by the respondent no.2 could have been disposed of by the Division Bench by merely recording and accepting the statements of the learned counsels for the respondent nos. 1 and 2, when the tender in respect of NIT dated 15.11.2018 was cancelled by the respondent no.1 HIMUDA on account of the gross irregularities and illegalities in the tender process found by the Independent Committee constituted by the High Court and on account of the order passed by the High Court on 08.01.2021?”

The Supreme Court further quoted: “Having regard to the entire chain of events, and the conduct of the respondent nos. 1 and 2, we have no hesitation in holding that the respondent no. 1 in collusion with the respondent no. 2, had taken the High Court for a ride and misused the process of law for covering up the irregularities and illegalities committed in the tender process by the officers of the respondent no. 1 , and for anyhow awarding the contract to the respondent no. 2 under the guise of the court’s order.”

The Supreme Court also noted: “The impugned order having been passed without proper application of mind and without assigning any cogent reason for brushing aside the findings recorded by the Independent Committee and the observations made by the Single Bench in the order dated 08.01.2021, the same deserves to be quashed and set aside.”

There were no dissenting opinions in this case. The bench consisted of two judges, and both agreed on the judgment.

The Supreme Court’s analysis focused on the procedural impropriety of the High Court’s decision and the malafide conduct of HIMUDA and M/s. Vasu Constructions. The Court highlighted that the High Court should have considered the substantive findings of the independent committee and its own previous order. The Court’s interpretation of the law emphasized the need for transparency and fairness in public procurement and the importance of upholding the rule of law.

The judgment has significant implications for future cases involving public procurement and judicial review. It reinforces the principle that courts must not ignore their own findings of irregularities and must ensure that public authorities act fairly and transparently. The judgment also highlights the importance of an independent and impartial tender process. It also sets a precedent that courts cannot reinstate a cancelled tender based solely on the statements of the parties, without considering the substantive findings of irregularities.

The Supreme Court did not introduce any new doctrines or legal principles. However, it reinforced the existing principles of transparency, fairness, and due process in public procurement. The Court’s decision underscores the importance of upholding the rule of law and ensuring that public authorities act in accordance with legal and ethical standards.

Key Takeaways

• High Courts cannot reinstate a cancelled tender based solely on statements of parties without considering prior findings of irregularities.
• Public authorities must act fairly and transparently in procurement processes.
• Independent committee findings must be given due consideration by the courts.
• Letters of Intent (LOIs) do not create binding legal relationships.
• Courts must ensure that legal processes are not misused to circumvent the law.

The judgment emphasizes the importance of transparency and fairness in public procurement. It also highlights the need for courts to be vigilant against attempts to misuse legal processes. The decision serves as a reminder that public authorities must act in accordance with the law and ethical standards.

Directions

The Supreme Court quashed the impugned order passed by the High Court. The Court directed HIMUDA to deposit a cost of Rs. 5,00,000/- with the Supreme Court Advocates-on-Record Association within two weeks. The Court clarified that HIMUDA is at liberty to initiate a fresh tender process in accordance with the law and after following the due process.

Development of Law

The ratio decidendi of the case is that a High Court cannot reinstate a cancelled tender based solely on the statements of the parties involved, without considering the substantive findings of irregularities and the need for a fair and transparent process. This case reinforces the existing principles of transparency and fairness in public procurement and serves as a reminder that public authorities must act in accordance with the law and ethical standards. There is no change in the previous position of law but a reiteration of the same.

Conclusion

The Supreme Court’s judgment in Level 9 Biz Pvt. Ltd. vs. Himachal Pradesh Housing and Urban Development Authority & Another is a significant ruling that reinforces the principles of transparency, fairness, and due process in public procurement. The Court quashed the High Court’s order reinstating a cancelled tender, emphasizing that courts must not ignore their own findings of irregularities and must ensure that public authorities act in accordance with the law. The judgment also highlights the importance of an independent and impartial tender process and serves as a reminder that legal processes must not be misused to circumvent the law. The Court allowed the appeal with costs to be paid by HIMUDA.