Supreme Court settles interpretation of tender conditions in contract law: M/S Utkal Suppliers vs. M/S Maa Kanak Durga Enterprises & Ors. (09 April 2021)

LEGAL ISSUE: Whether a High Court can substitute its interpretation of tender conditions for that of the tendering authority.

CASE TYPE: Contract Law, Tender Disputes

Case Name: M/S Utkal Suppliers vs. M/S Maa Kanak Durga Enterprises & Ors.

[Judgment Date]: 09 April 2021

Date of the Judgment: 09 April 2021

Citation: [Not available in the provided text]

Judges: R.F. Nariman, J and B.R. Gavai, J

Can a court second-guess an authority’s interpretation of its own tender conditions? The Supreme Court recently addressed this crucial question in a case involving a tender for diet supply services. This judgment clarifies the extent to which courts can interfere in tender processes, emphasizing the need for judicial restraint and deference to the expertise of tendering authorities. The core issue revolved around whether a bidder’s labour license under the Orissa Shops and Commercial Establishments Act, 1956, could be considered equivalent to a labour license under the Contract Labour (Regulation and Abolition) Act, 1970, as required by the tender document.

Case Background

The case arose from a tender call notice (TCN) issued on 30th December 2019 by the Office of the Superintendent, SCB Medical College and Hospital, Cuttack. The TCN invited bids for diet preparation and catering services. Key eligibility criteria included a minimum of three years’ experience in diet preparation and supply to health institutions with at least 200 beds, and a valid labor license.

Four bids were received, including those from the Appellant (M/S Utkal Suppliers), Respondent No. 1 (M/S Maa Kanak Durga Enterprises), Respondent No. 5, and Respondent No. 6. The Technical Committee, on 17th February 2020, disqualified Respondent No. 1 and Respondent No. 6 for not submitting a valid labor license. The Appellant and Respondent No. 5 were shortlisted for the financial bid opening.

Respondent No. 1 filed a writ petition on 19th February 2020, which was dismissed as premature. On 24th February 2020, the financial bids were opened, with the Appellant emerging as the lowest bidder. Subsequently, Respondent No. 1 filed another writ petition on 13th March 2020, seeking to set aside the tender process and be awarded the contract. On 27th November 2020, the Appellant was awarded the tender, and an agreement was signed.

Timeline

Course of Proceedings

The High Court of Orissa, in its judgment dated 23rd March 2021, overturned the decision of the tender committee. The High Court held that the labor license required by the TCN did not necessarily mean a license under the Contract Labour (Regulation and Abolition) Act, 1970, and that a license under the Odisha Shops and Commercial Establishments Act, 1956, was sufficient. The High Court also found that Respondent No. 1 met the three-year experience criteria, despite a gap in their experience certificate. The High Court further concluded that the actions of the authority in awarding the contract to the Appellant were mala fide and directed the authority to issue the work order to Respondent No. 1 if their financial bid was lower than Respondent No. 5.

Legal Framework

The key legal provisions discussed in the judgment include:

• Clause VI.3.3 of the Tender Call Notice (TCN), which requires bidders to have a minimum of three years’ experience in diet preparation and supply to health institutions with at least 200 beds.
• Clause VI.3.9 of the TCN, which requires bidders to have a valid labour license from the Labour Department.
• Clause VI.16(f) of the TCN, which states that the administration of the SCB Medical College Hospital reserves the right to disqualify any bid if a labor license from a competent authority is not submitted.
• Clause VI.20.6 of the TCN, which states that the agency would recruit required number of staff for cooking and serving so that diet can be supplied to the indoor patients in time and list of personnel with their Aadhar card copy should be submitted to the office positively.
• Clause VI.20.20 of the TCN, which states that the behaviour of the staff of the agency towards the patients/attendants should be conducive and disciplinary action would be taken by the Hospital Administration against the staff of the said agency violating the behavioural norm in consultation with the concerned agency.
• Clause VI.20.21 of the TCN, which states that the agency would be responsible to make alternative arrangements in cases of situations such as staff strike, local strike [Bandh/Hartal] etc. ensuring that the patients get diet in the appropriate time.
• Section 4 of the Orissa Shops and Commercial Establishments Act, 1956, which deals with the registration of establishments.
  
  “4. Registration of establishment.– (1) Within the period specified in sub-section (4), the employer of every establishment shall send to the Inspector of the area concerned, a statement in the prescribed form, together with such fees as may be prescribed, containing– (a)the name of the employer arid the manager, if any; (b)the postal address of the establishment; (c)the name, if any, of the establishment; (d)the category of the establishment, that is whether it be a shop, commercial establishment, hotel, restaurant, cafe, boarding or eating house, theatre or other place of public amusement of entertainment; and (e)such other particulars as may be prescribed.”
• Section 1(4) of the Contract Labour (Regulation and Abolition) Act, 1970, which specifies the applicability of the Act.
  
  “1. Short title, extent, commencement and application .—
  xxx xxx xxx
  (4) It applies—
  (a) to every establishment in which twenty or more workmen are employed or were employed on any day of the preceding twelve months as contract labour;
  (b) to every contractor who employs or who employed on any day of the preceding twelve months twenty or more workmen:
  Provided that the appropriate Government may, after giving not less than two months’ notice of its intention so to do, by notification in the Official Gazette, apply the provisions of this Act to any establishment or contractor employing such number of workmen less than twenty as may be specified in the notification.”

Arguments

Appellant’s Arguments:

• The High Court erred in substituting its interpretation of the tender conditions for that of the authority. The authority had clearly specified that a labor license under the Contract Labour Act was required, and the High Court should not have deemed a registration under the Orissa Shops and Commercial Establishments Act as equivalent.
• Respondent No. 1 did not meet the three-year experience requirement as there was a gap in their experience certificate. The High Court should not have overlooked this gap.
• The High Court’s finding of mala fide against the authority was perverse and unfounded. There was no evidence of mala fide intention.
• The High Court exceeded its jurisdiction by directing the authority to grant the work order to Respondent No. 1 after quashing the work order in favor of the Appellant.

Respondent No. 1’s Arguments:

• The Contract Labour Act applies only to establishments with 20 or more workmen, and the TCN did not specify this requirement. Thus, the labor license requirement could be satisfied by a registration under the Orissa Shops and Commercial Establishments Act.
• Respondent No. 1 met the three-year experience requirement, as evidenced by certificates issued by the All India Institute of Medical Sciences, Bhubaneswar.
• The High Court was justified in its judicial review, as it found mala fides on the part of the authority. The contract should be awarded to Respondent No. 1 if their financial bid was lower than that of the Appellant.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues, but the core issue was whether the High Court was correct in substituting its interpretation of the tender conditions for that of the tendering authority, and whether the High Court had correctly determined that the Respondent No. 1 was eligible for the tender.

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

How each authority was viewed by the Court?

• Tata Cellular v. Union of India, (1994) 6 SCC 651: The Court used this authority to reinforce the principle of judicial restraint in administrative action and highlighted that courts should not substitute their decisions for those of the administrative authorities.
• Afcons Infrastructure Ltd. v. Nagpur Metro Rail Corpn. Ltd., (2016) 16 SCC 818: The Court relied on this authority to emphasize that the owner of a project is the best person to interpret the tender documents, and courts should defer to this interpretation unless it is mala fide or perverse.
• Montecarlo Ltd. v. NTPC Ltd., (2016) 15 SCC 272, Caretel Infotech Ltd. v. Hindustan Petroleum Corpn. Ltd., (2019) 14 SCC 81, and State of Madhya Pradesh v. U.P. State Bridge Corporation Ltd., 2020 SCC OnLine SC 1001: These cases were cited to further support the principle of judicial restraint and the deference that courts should give to the interpretation of tender documents by the tendering authority.
• Galaxy Transport Agencies v. New J.K. Roadways, 2020 SCC OnLine SC 1035 and Silppi Constructions Contractors v. Union of India, 2019 SCC OnLine SC 1133: These authorities were used to reinforce that the tendering authority is the best judge of its requirements and that courts should not interfere unless the interpretation is arbitrary, irrational, or mala fide.
• Bharat Coking Coal Ltd. v. AMR Dev Prabha, 2020 SCC OnLine SC 335: The Court cited this case to distinguish between the interpretation of commercial contracts and statutes, emphasizing that the tendering authority’s interpretation of its own documents should be given due weight.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the principle of judicial restraint in matters of contract and tender. The Court emphasized that the tendering authority is best placed to understand and interpret its own tender documents. The Court was also swayed by the fact that the High Court had not provided sufficient evidence of mala fide on the part of the tendering authority. The Court’s reasoning was grounded in the need to respect the expertise of administrative bodies and to avoid substituting judicial opinions for those of the authorities who are best equipped to make such decisions.

The Court also emphasized the importance of adhering to the specific requirements of the tender documents and held that the High Court had erred in equating a registration certificate under the Orissa Shops and Commercial Establishments Act with a labor license under the Contract Labour Act.

Logical Reasoning:

The Supreme Court held that the High Court had overstepped the bounds of judicial review. The Court emphasized that the interpretation of the tendering authority should be given due weight, unless it is arbitrary, perverse, or mala fide. The Court stated that the High Court should not have substituted its own interpretation for that of the authority.

The Court also held that the High Court was incorrect in equating a registration certificate under Section 4 of the Orissa Shops and Commercial Establishments Act with a valid labor license under the Contract Labour Act. The Court emphasized that the registration was for categorizing the establishment and not for issuing a labor license.

The Court also noted that the High Court’s finding of mala fide was not supported by the facts of the case. The plea of mala fide was only an incantation and did not have any factual basis.

The Supreme Court stated, “This Court has repeatedly held that judicial review in these matters is equivalent to judicial restraint in these matters. What is reviewed is not the decision itself but the manner in which it was made.”

The Supreme Court also said, “The constitutional courts must defer to this understanding and appreciation of the tender documents, unless there is mala fide or perversity in the understanding or appreciation or in the application of the terms of the tender conditions.”

The Court further stated, “The authority which floats the contract or tender, and has authored the tender documents is the best judge as to how the documents have to be interpreted. If two interpretations are possible then the interpretation of the author must be accepted.”

The Supreme Court set aside the High Court’s judgment and directed that the Appellant be put back to complete the performance of the contract.

Key Takeaways

• Courts must exercise judicial restraint in matters of contract and tender.
• The interpretation of tender documents by the tendering authority should be respected unless it is arbitrary, perverse, or mala fide.
• Courts should not substitute their own interpretation for that of the authority.
• A registration certificate under the Orissa Shops and Commercial Establishments Act is not equivalent to a labor license under the Contract Labour Act.
• Allegations of mala fide must be supported by factual evidence.

Directions

The Supreme Court directed that the Appellant be put back, within one week from the date of the judgment, to complete performance under the agreement entered into between the Appellant and the authority on 27th November 2020.

Development of Law

The ratio decidendi of this case is that in matters of tender and contract, the interpretation of the tendering authority should be given due weight, and courts should not substitute their own interpretations unless the authority’s interpretation is arbitrary, perverse, or mala fide. This case reinforces the principle of judicial restraint in administrative matters and emphasizes the expertise of the tendering authority in interpreting its own documents. This judgment reaffirms the existing position of law as laid down in previous judgments.

Conclusion

The Supreme Court’s judgment in M/S Utkal Suppliers vs. M/S Maa Kanak Durga Enterprises & Ors. clarifies the extent of judicial review in tender matters. The Court emphasized that the tendering authority’s interpretation of its own tender documents should be respected unless it is arbitrary, perverse, or mala fide. The judgment underscores the importance of judicial restraint and deference to the expertise of administrative bodies in contractual matters.