Supreme Court Upholds Tender Rejection in Foreign Funded Project: National High Speed Rail Corporation Limited vs. Montecarlo Limited & Anr. (31 January 2022)

Introduction

Date of the Judgment: 31 January 2022
Citation: Not Available
Judges: M.R. Shah, J. and A.S. Bopanna, J.

Can a High Court intervene in the tender process of a project funded by a foreign entity? The Supreme Court recently addressed this critical question in a case involving the National High Speed Rail Corporation Limited (NHSRCL) and Montecarlo Limited. The core issue revolved around whether the High Court was correct in overturning the rejection of a bidder’s technical bid in a foreign-funded project. This judgment clarifies the extent of judicial review in such cases, emphasizing the unique nature of foreign-funded contracts.

Case Background

The National High Speed Rail Corporation Limited (NHSRCL), a government company, initiated a tender for the design and construction of civil and building works for a depot in Sabarmati, Gujarat, as part of the Mumbai-Ahmedabad High-Speed Rail project. This project, commonly known as the Bullet Train Project, is funded by the Japan International Cooperation Agency (JICA). The tender notice was issued on 22 October 2020. Montecarlo Limited, along with other bidders, submitted their technical bids, which were opened on 19 February 2021. NHSRCL declared Montecarlo Limited unsuccessful on 27 April 2021, stating that its bid was non-responsive. Montecarlo Limited sought reasons for the rejection, and NHSRCL responded on 28 April 2021, citing clauses in the tender document that restricted disclosure of evaluation details before the contract award. Aggrieved, Montecarlo Limited filed a writ petition before the High Court of Delhi.

Timeline:

Course of Proceedings

The High Court of Delhi allowed the writ petition filed by Montecarlo Limited, quashing the communications dated 27 April 2021 and 28 April 2021, and the notification dated 28 April 2021, which had rejected Montecarlo’s technical bid. The High Court criticized Clauses 28.1 and 42.5 of the tender document, stating that withholding reasons for rejection at that stage would prevent bidders from approaching the court. The High Court also reviewed the reasons for rejecting Montecarlo’s bid and concluded that the bid was substantially responsive. Consequently, the High Court directed NHSRCL to re-evaluate Montecarlo’s bid along with other bids.

Legal Framework

The legal framework of this case is based on the tender document issued by NHSRCL, which includes clauses ITB 28.1 and 42.5. Clause 28.1 states that “information relating to the evaluation of the Bids and recommendation of the Contract award shall not be disclosed to bidders…until information on Contract award is communicated to all bidders.” Clause 42.5 states that “only after notification of award, unsuccessful Bidders may request, in writing, to the Employer a debriefing seeking explanations on the grounds on which their Bids were not selected.” These clauses are based on JICA’s Standard Bidding Documents and procurement guidelines, which are integral to the loan agreement between JICA and the Government of India. The project is funded through a concessional Official Development Assistance (ODA) loan from JICA.

Arguments

Appellant (NHSRCL) Arguments:

• The project is a foreign-funded project, and the bidding process was governed by JICA’s guidelines and loan agreement terms.
• JICA appointed JICC as a consultant, and JICC evaluated the technical bids. The decision to reject Montecarlo’s bid was made by JICC and approved by JICA.
• NHSRCL cannot deviate from JICA’s evaluation, as it would violate the terms of the loan agreement.
• The High Court erred in applying the doctrine of substantial compliance, which is not applicable in foreign-funded contracts.
• The High Court exceeded its jurisdiction by interfering with the tender process.
• Clauses ITB 28.1 and 42.5 are essential for maintaining confidentiality and preventing delays in the tender process.
• The decision to reject Montecarlo’s bid was based on non-signing of certain forms, which was a material deviation.
• The scope of judicial review in foreign-funded contracts is much less than in ordinary government contracts.

Respondent (Montecarlo Limited) Arguments:

• The project involves a substantial amount of public money, making it subject to judicial review.
• The High Court was correct in finding that the rejection of its bid was discriminatory.
• Montecarlo’s bid was substantially compliant, and the failure to sign some forms was a minor, inadvertent error.
• Other bidders with more serious non-conformities were given opportunities to rectify their bids, but Montecarlo was not.
• The clauses ITB 28.1 and 42.5 are unfair and curtail the rights of bidders to challenge the rejection of their bids.
• The decision to reject Montecarlo’s bid was arbitrary and mala fide.
• The terms of the tender must be applied uniformly to all bidders, even in a JICA-funded project.

Innovativeness of the argument: NHSRCL argued that foreign-funded contracts are a distinct category, subject to different standards of judicial review. Montecarlo Limited argued that despite being foreign-funded, the project involves public funds and should be subject to judicial review.

Issues Framed by the Supreme Court

The Supreme Court framed the following key issue:

1. Whether the High Court was justified in interfering with the tender process of a foreign-funded project, in the absence of specific allegations of mala fides and/or favoritism?

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 several cases and legal provisions to support its decision:

Judgment

How each authority was viewed by the Court:

• CRRC Corporation Ltd. Vs. Metro-Link Express for Gandhinagar and Ahmedabad (MEGA) Company Ltd. [CITATION NOT AVAILABLE]*: The Court followed this case, emphasizing the importance of JICA’s concurrence in JICA-funded projects.
• Asia Foundation and Construction Ltd. Vs. Trafalgar House Construction (I) Ltd. and Ors. [CITATION NOT AVAILABLE]*: The Court followed this case, highlighting the need to adhere to the specifications of international financial institutions.
• Afcons Infrastructure Limited Vs. Nagpur Metro Rail Corporation Limited [CITATION NOT AVAILABLE]*: The Court followed this case, reiterating that courts should not interfere with the decision-making process unless it is mala fide or arbitrary.
• B.S.N. Joshi and Sons Ltd. Vs. Nair Coal Services Ltd. and Ors. [CITATION NOT AVAILABLE]*: The Court followed this case, emphasizing the need to adhere to essential tender conditions.
• Michigan Rubber (India) Limited Vs. State of Karnataka [CITATION NOT AVAILABLE]*: The Court followed this case, reiterating the principles for judicial review in tender matters.
• Central Coalfields Limited & Anr. Vs. SLL-SML [A Joint Venture Consortium] [CITATION NOT AVAILABLE]*: The Court followed this case, emphasizing that the employer’s decision on essential terms should be respected.
• Maa Binda Express Carrier & Anr. Vs. North Eastern Frontier Railway & Ors. [CITATION NOT AVAILABLE]*: The Court followed this case, reiterating the limited scope of judicial review in contractual matters.
• Tata Cellular Vs. Union of India [CITATION NOT AVAILABLE]*: The Court followed this case, emphasizing judicial restraint in administrative action.
• Poddar Steel Corporation Vs. Ganesh Engineering Works and Others [CITATION NOT AVAILABLE]*: The Court distinguished this case, stating that the doctrine of substantial compliance is not applicable in commercial contracts.
• Nazir Ahmad v. King Emperor [CITATION NOT AVAILABLE]*: The Court followed this case, stating that if a power is given to do a certain thing in a certain way, the thing must be done in that way or not at all.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the unique nature of foreign-funded projects and the need to respect the decisions of the funding agency (JICA). The Court emphasized that such projects are distinct from ordinary government contracts and require a different approach to judicial review. The Court also highlighted the importance of adhering to the terms and conditions of the tender document, particularly in projects funded by international agencies. The Court’s reasoning was also driven by the need to avoid delays and cost overruns in mega projects of national importance.

Fact:Law Ratio:

The Court’s reasoning was primarily based on legal principles and precedents, with a lesser emphasis on the specific factual aspects of the case.

Logical Reasoning:

The Supreme Court considered the unique nature of foreign-funded contracts, the importance of adhering to tender terms, and the limited scope of judicial review in such cases. The Court rejected alternative interpretations that would have favored the bidder, Montecarlo Limited.

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

• The project was a foreign-funded project, and the bidding process was governed by JICA’s guidelines and loan agreement terms.
• The decision to reject Montecarlo’s bid was made by JICC and approved by JICA, and NHSRCL could not deviate from this decision.
• The High Court erred in applying the doctrine of substantial compliance, which is not applicable in foreign-funded contracts.
• The High Court exceeded its jurisdiction by interfering with the tender process.
• Clauses ITB 28.1 and 42.5 are essential for maintaining confidentiality and preventing delays in the tender process.
• The non-signing of certain forms was a material deviation, justifying the rejection of the bid.
• The scope of judicial review in foreign-funded contracts is much less than in ordinary government contracts.

“The terms and conditions of the tender documents were settled by the JICA as per JICA’s International Guidelines, which are required to be followed by all Bidders including the original writ petitioner.”

“The decision to hold that the Bid was not responsive was of JICC. Under the contractual mechanism, the appellant had no authority to deviate from the evaluation done by JICC.”

“In such foreign funded contracts, the only ground for judicial review ought to be on a limited aspect, i.e., the action of the executing authority does not suffer from favouritism or nepotism and based on the grounds which have been concealed from the foreign financing authority, if disclosed, would have persuaded the financing authority to cancel the contract.”

Key Takeaways

• Foreign-funded projects are distinct from government-funded projects and require a different approach to judicial review.
• The decisions of the funding agency (JICA) should be respected in foreign-funded projects.
• The doctrine of substantial compliance is not applicable in foreign-funded contracts.
• Courts should exercise restraint and not interfere with the tender process unless there is evidence of mala fides or favoritism.
• Clauses that restrict disclosure of evaluation details until after the contract award are valid and serve to prevent delays.

This judgment clarifies the extent of judicial review in foreign-funded contracts and may impact future cases involving similar projects. It emphasizes the need to respect the terms and conditions of tender documents, particularly in projects funded by international agencies.

Directions

The Supreme Court did not give any specific directions other than quashing the High Court’s judgment and dismissing the writ petition filed by the original writ petitioner.

Development of Law

The ratio decidendi of this case is that in foreign-funded projects, the decisions of the funding agency (JICA) should be respected, and the scope of judicial review is limited. The Court’s decision clarifies that the doctrine of substantial compliance is not applicable in such contracts, and strict adherence to tender terms is required. This judgment also emphasizes the need for judicial restraint in interfering with tender processes, particularly in mega projects of national importance. The judgment has changed the previous position of law by clarifying that foreign-funded projects are a distinct category, subject to different standards of judicial review.

Conclusion

The Supreme Court’s judgment in National High Speed Rail Corporation Limited vs. Montecarlo Limited & Anr. upholds the rejection of a bidder’s technical bid in a foreign-funded project, emphasizing the limited scope of judicial review in such cases. The Court’s decision underscores the importance of adhering to the terms and conditions of tender documents and respecting the decisions of international funding agencies. This ruling sets a significant precedent for future cases involving foreign-funded projects, highlighting the need for judicial restraint and deference to the expertise of funding agencies.