Supreme Court Upholds Airport Authority’s Tender Conditions in Ground Handling Services Case (30 September 2022)

Date of the Judgment: 30 September 2022

Citation: Civil Appeal Nos. 6615-6616 of 2022

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

Can a court interfere with the terms and conditions of a tender set by a government authority? The Supreme Court of India recently addressed this question in a case involving the Airport Authority of India (AAI) and a non-profit organization. The core issue was whether the High Court was correct in striking down certain tender conditions set by AAI for ground handling services at various airports. The Supreme Court bench, comprising Justices M.R. Shah and Krishna Murari, overturned the High Court’s decision, holding that the High Court should not have interfered with the tender conditions set by AAI.

Case Background

The Airport Authority of India (AAI) issued a Request for Proposal (RFP) on 01 May 2018, for ground handling services at Group ‘A’, ‘B’, and ‘C’ airports. Following this, on 02 May 2018, AAI released another RFP for Group ‘D’ airports. The RFP for Group ‘D’ airports went through several modifications, culminating in Corrigendum No. 21. However, on 10 June 2019, AAI cancelled the Group ‘D’ tender. Subsequently, on 28 July 2020, AAI published a fresh RFP for Group ‘D1’ airports, which included specific technical and financial eligibility criteria.

The Centre for Aviation Policy, Safety & Research (CAPSR), a non-profit organization, filed a writ petition challenging the eligibility criteria of the RFPs for Groups ‘C’, ‘D1’, and ‘D2’ airports. CAPSR argued that the criteria were a radical departure from the past and imposed onerous technical and financial qualifications, making most existing Ground Handling Agencies (GHAs) ineligible, especially those operating at smaller airports. CAPSR contended that these qualifications were not related to the services required and were designed to exclude existing service providers.

AAI countered that the objective was to exclude GHAs lacking expertise and infrastructure, and those using unskilled labor. AAI justified the experience requirement for scheduled flights due to the nature of work involved. AAI also stated that the earnest money deposit and annual turnover criteria were reasonable. The High Court directed AAI to reduce the annual turnover requirement to INR 18 crores for Group ‘D1’ airports.

The High Court ultimately set aside the region-wise sub-categorization of 49 airports under Group D-1, the requirement for experience in providing GHS to scheduled aircrafts, and the revised minimum annual turnover criteria of INR 18 crores, deeming them discriminatory and arbitrary.

Timeline:

Course of Proceedings

The Centre for Aviation Policy, Safety & Research (CAPSR) filed a writ petition before the High Court of Delhi, challenging the eligibility criteria and the respective RFPs with respect to Group ‘C’, ‘D1’ and ‘D2’ airports. The High Court allowed the writ petition, striking down the region-wise sub-categorization of airports, the requirement for experience in providing GHS to scheduled aircrafts, and the minimum annual turnover criteria. AAI then filed a review petition, which was also rejected by the High Court. AAI subsequently appealed to the Supreme Court of India.

Legal Framework

The judgment primarily revolves around the interpretation of Article 226 of the Constitution of India, which grants High Courts the power to issue writs. The Supreme Court also considered the principles governing judicial review of tender conditions, emphasizing that such conditions are generally within the domain of the tender-making authority unless they are arbitrary, discriminatory, or mala fide. The Court also discussed the applicability of the Micro, Small and Medium Enterprises (MSME) orders of 2012 and 2018.

Arguments

Arguments by AAI (Appellant):

• Locus Standi: The writ petitioner, CAPSR, being an NGO, lacked the locus standi to challenge the tender conditions, as it was not an affected party and the matter was not a Public Interest Litigation.
• Judicial Scrutiny: The terms and conditions of a tender are contractual matters and not open to judicial review unless arbitrary, discriminatory, or mala fide.
• Rationale for Conditions:
  • Clustering of Airports: The clustering of 49 airports into four regions was to promote regional connectivity and avoid cumbersome administrative tasks.
  • Experience Criteria: The requirement of 36 months of experience in handling scheduled airlines was justified due to the larger aircrafts and higher volume of passengers and cargo.
  • Financial Capacity: The annual turnover requirement of INR 30 crores (later reduced to INR 18 crores) was necessary to ensure the financial strength of the bidders.
• MSME Orders: The MSME orders of 2012 and 2018 do not apply to the current tender, as it involves the selection of GHS providers, which is akin to granting a license, not procurement of goods and services.

Arguments by CAPSR (Respondent):

• Locus Standi: CAPSR’s members were Ground Handling Agencies (GHAs) who were to participate in the tender. They were affected by the arbitrary and illegal tender conditions.
• MSME Violation: AAI disregarded Section 12(5) of the AAI Act, 1994, and the MSME Act and Orders, which mandate procuring 25% of services from the MSME sector.
• Discriminatory Criteria: The tender conditions were discriminatory, restrictive, and exclusionary. The clustering of small airports was not based on any rational criteria. The requirement of experience in providing GHS to scheduled airlines was an artificial differentiation.

Issues Framed by the Supreme Court

1. Whether the original writ petitioner before the High Court has locus standi to maintain the writ petition?
2. Whether the terms and conditions of the invitation to tender, being in the realm of contract, are open to judicial scrutiny?
3. Whether MSME order of 2012 and MSME order of 2018 are applicable in the facts of the present case?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court:

• Anand Sharadchandra Oka v. University of Mumbai, (2008) 5 SCC 217: The Court relied on this case to support its view that NGOs do not have locus standi to maintain a writ petition challenging tender conditions.
• Maa Binda Express Carrier v. North-East Frontier Railway, (2014) 3 SCC 760: The Court relied on this case to support its view that the scope of judicial review in tender matters is limited.
• Directorate of Education v. Educomp Datamatics Limited, (2004) 4 SCC 19: The Court relied on this case to support its view that the terms of the invitation to tender are not open to judicial scrutiny.
• Meerut Development Authority v. Assn. of Management Studies, (2009) 6 SCC 171: The Court relied on this case to support its view that the terms of the invitation to tender are not open to judicial scrutiny.
• Michigan Rubber (India) Limited v. State of Karnataka, (2012) 8 SCC 216: The Court relied on this case to support its view that the government must have a free hand in setting the terms of the tender and that courts should not interfere unless the terms are arbitrary, discriminatory, or mala fide.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle that the judiciary should not interfere with the commercial and policy decisions of government authorities unless there is clear evidence of arbitrariness, discrimination, or mala fide intent. The Court emphasized that tender conditions are within the domain of the tender-making authority and should not be subjected to judicial scrutiny unless they violate fundamental principles of fairness and equality. The Court also noted that the High Court had erred in entertaining a writ petition filed by an NGO that was not directly affected by the tender conditions.

Logical Reasoning:

The Court considered the arguments and evidence presented by both parties and concluded that the High Court had erred in its decision. The Supreme Court reasoned that the High Court had exceeded its jurisdiction by interfering with the tender conditions, which were within the domain of AAI. The Court also rejected the argument that the tender conditions were arbitrary or discriminatory. The Court emphasized that the tender-making authority has the right to set its own terms and conditions, and the judiciary should not interfere unless there is clear evidence of mala fide intent.

The Court stated, “As per the settled position of law, the terms and conditions of the Invitation to Tender are within the domain of the tenderer/tender making authority and are not open to judicial scrutiny, unless they are arbitrary, discriminatory or mala fide.”

The Court also noted, “The Government/tenderer/tender making authority must have a free hand in setting the terms of the tender.”

The Court further stated, “In the present case, the AAI explained before the High Court the rationale behind the respective conditions…we are of the opinion that the same cannot be said to be arbitrary and/or mala fide and/or actuated by bias.”

The Court did not find any evidence of mala fide intent or arbitrariness in the tender conditions set by AAI. The Court also rejected the argument that the MSME orders were applicable in this case, as the tender was for selecting GHS providers, not for procurement of goods and services.

Key Takeaways

• The Supreme Court has reaffirmed that courts should be hesitant to interfere with tender conditions set by government authorities.
• Tender conditions are generally considered to be in the realm of contract and are not open to judicial scrutiny unless they are arbitrary, discriminatory, or mala fide.
• NGOs generally do not have the locus standi to challenge tender conditions unless they are directly affected by them or the matter is in the nature of a Public Interest Litigation.
• The MSME orders related to procurement of goods and services do not apply to tenders for selecting service providers.

Directions

The Supreme Court did not give any specific directions, other than setting aside the High Court’s judgment and dismissing the writ petition.

Development of Law

The ratio decidendi of this case is that the judiciary should not interfere with the terms and conditions of a tender set by a government authority unless there is clear evidence of arbitrariness, discrimination, or mala fide intent. This judgment reinforces the principle that tender conditions are within the domain of the tender-making authority and are not generally open to judicial scrutiny. There is no change in the previous position of law, but this judgment reaffirms the existing principles related to judicial review of tender conditions.

Conclusion

In conclusion, the Supreme Court allowed the appeals filed by the Airport Authority of India, setting aside the High Court’s judgment. The Supreme Court held that the High Court had erred in interfering with the tender conditions set by AAI and that the NGO lacked the locus standi to challenge the tender conditions. The Court also held that the MSME orders were not applicable in this case. The judgment reinforces the principle that courts should be hesitant to interfere with tender conditions set by government authorities unless there is clear evidence of arbitrariness, discrimination, or mala fide intent.