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

Introduction

Date of the Judgment: 31 January 2022

Citation: (2022) INSC 85

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

Can a High Court interfere with the tender process of a foreign-funded project, especially when the funding agency has specific requirements? The Supreme Court of India addressed this critical question in a recent judgment, setting a precedent for future cases involving international funding and government contracts. This case revolves around a dispute over the rejection of a technical bid in a major infrastructure project, the Mumbai-Ahmedabad High-Speed Rail, also known as the Bullet Train project. The core issue is whether the High Court was correct in overturning the decision of the National High-Speed Rail Corporation Limited (NHSRCL) to reject a bid, given the project’s unique funding structure and contractual obligations. The judgment was delivered by a two-judge bench comprising Justice M.R. Shah and Justice A.S. Bopanna.

Case Background

The National High Speed Rail Corporation Limited (NHSRCL), a government company, issued a tender on 22 October 2020 for the design and construction of civil and building works for a depot at Sabarmati, Gujarat, as part of the Mumbai-Ahmedabad High-Speed Rail project. This project is fully funded by a concessional loan from the Japan International Cooperation Agency (JICA).
Montecarlo Limited, along with other bidders, submitted their technical bids. On 19 February 2021, NHSRCL opened the technical bids and subsequently declared Montecarlo Limited and four other bidders unsuccessful. NHSRCL informed Montecarlo Limited on 27 April 2021, that its bid was rejected at the technical stage. On 28 April 2021, NHSRCL communicated that the bid was not substantially responsive, citing clauses ITB 28.1 and 42.5, which restricted disclosure of evaluation details until after contract award.
Aggrieved by the rejection, Montecarlo Limited filed a writ petition before the High Court of Delhi, challenging the rejection. The High Court allowed the writ petition, quashing the communications rejecting Montecarlo’s bid and directed NHSRCL to re-evaluate the bid. NHSRCL then appealed to the Supreme Court against the High Court’s decision.

Timeline

Legal Framework

The case primarily revolves around the interpretation and application of tender conditions within the context of a foreign-funded project. The key clauses in the tender document, specifically ITB 28.1 and 42.5, were central to the dispute.

• ITB 28.1: This clause states that “information relating to the evaluation of the Bids and recommendation of the Contract award shall not be disclosed to bidders or any other persons, not officially concerned, with such process until information on Contract award is communicated to all bidders in accordance with ITB 42.” This clause ensures confidentiality during the evaluation process.
• ITB 42.5: This clause provides 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 and the Employer shall promptly respond, in writing, to any unsuccessful Bidders who, after the notification of the award in accordance with ITB 42.1, request a debriefing.” This clause specifies the process for unsuccessful bidders to seek reasons for their rejection after the contract has been awarded.

The Supreme Court also considered the broader legal framework governing government contracts, particularly the limited scope of judicial review in such matters, as established in previous judgments. The court emphasized that while fairness and transparency are essential, the judiciary should not interfere with the decision-making process of tender authorities unless there is evidence of mala fide intent, arbitrariness, or a decision that no reasonable authority would make. The court also highlighted the unique nature of foreign-funded projects, where the terms and conditions set by the funding agency must be respected.

Arguments

The arguments presented before the Supreme Court can be broadly categorized into those made by the appellant (NHSRCL) and the respondent (Montecarlo Limited).

Appellant (NHSRCL) Arguments:

• Nature of the Project: The NHSRCL argued that the Mumbai-Ahmedabad High-Speed Rail project is a foreign sovereign funded project, distinct from contracts funded by the Consolidated Fund of India. The project is financed by a loan from JICA, and the bidding process is governed by JICA’s standard bidding documents and procurement guidelines.
• JICA’s Role: The NHSRCL emphasized that JICA appointed JICC as a consultant, and the technical bid evaluation was conducted by JICC and approved by JICA. The NHSRCL cannot deviate from this evaluation process, as it is bound by the terms of the loan agreement.
• Rejection of Bid: The technical bid of Montecarlo Limited was rejected because of (i) Non-Signing of Form CON: 2.0 Pending Litigation and (ii) Non-Signing of 3.0 Litigation History in the physically submitted Bid by the authorized representative. These were considered material non-conformities.
• Limited Judicial Review: The NHSRCL contended that the scope of judicial review in foreign-funded contracts is very limited. Courts should not interfere unless there is evidence of mala fide intent or arbitrariness. The High Court exceeded its jurisdiction by interfering with the tender process.
• Substantial Compliance: The doctrine of substantial compliance should not apply to commercial contracts, especially in foreign-funded projects. Strict adherence to tender conditions is essential.
• Confidentiality Clauses: The NHSRCL defended Clauses ITB 28.1 and 42.5, stating that they are essential to maintain the integrity of the tender process and prevent delays. These clauses do not deny the right to challenge but defer it.
• No Discrimination: The NHSRCL argued that the tender process was fair and transparent, with no discrimination against any bidder. Clarifications were sought from other bidders who had cleared the initial stage, while Montecarlo’s bid was rejected at the first stage itself.

Respondent (Montecarlo Limited) Arguments:

• Public Exchequer Involvement: Montecarlo Limited argued that the project, though funded by JICA, involves a substantial outlay from the public exchequer as the loan needs to be repaid. Therefore, the tender process is subject to judicial review.
• Arbitrary Action: Montecarlo Limited contended that the NHSRCL acted arbitrarily and discriminatorily by rejecting its bid at Stage I (Evaluation of Administrative Requirements) while allowing other bidders to rectify similar or more serious non-conformities.
• Non-Material Deviation: The failure to sign Forms CON 2.0 and CON 3.0 was an inadvertent error and a non-material deviation that should have been waived, as was done for other bidders.
• Discrimination: Montecarlo Limited argued that the NHSRCL sought clarifications from other bidders but not from them, which was discriminatory.
• No Opportunity to Rectify: Montecarlo Limited contended that they were not given an opportunity to rectify the non-signing of forms, despite the fact that other bidders were given such opportunity for far more serious errors.
• Mala Fide: Montecarlo Limited alleged mala fide on the part of the appellant, stating that the appellant was changing the goal posts and adopting an allergic attitude towards the respondent.

The innovativeness in the argument by Montecarlo Limited was that even in a JICA funded project, the terms of the tender must be applied uniformly to all bidders and there can be no discrimination.

Issues Framed by the Supreme Court

The Supreme Court framed the following key issue for consideration:

1. Whether, in the facts and circumstances of the case and with respect to such a foreign funded project, the High Court is justified in interfering with the tender process in absence of any specific allegations of mala fides and/or favouritism?

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 key cases and legal provisions to support its decision. These authorities were categorized by the specific legal point they addressed.

Cases Relied Upon:

Legal Provisions Considered:

• Article 14 of the Constitution of India: This article guarantees equality before the law and prohibits discrimination. The court considered whether the actions of NHSRCL were discriminatory and violative of this article.

Judgment

How each authority was viewed by the Court?

• The Court distinguished the case of CRRC Corporation Ltd. Vs. Metro-Link Express for Gandhinagar and Ahmedabad (MEGA) Company Ltd., stating that while it did allow for review, it also highlighted the importance of JICA’s role in projects they fund.
• The Court relied on Asia Foundation and Construction Ltd. Vs. Trafalgar House Construction (I) Ltd. and Ors., noting that it is difficult to go ahead with high-cost projects unless financial institutions grant loan/subsidy, and that they insist on adherence to procedure.
• The Court relied on Afcons Infrastructure Limited Vs. Nagpur Metro Rail Corporation Limited, reiterating that interference is only permissible if the decision-making process is mala fide or intended to favor someone, or is arbitrary and irrational.
• The Court relied on B.S.N. Joshi & Sons Ltd. Vs. Nair Coal Services Ltd. and Ors., reiterating that if there are essential conditions, the same must be adhered to.
• The Court relied on Michigan Rubber (India) Limited Vs. State of Karnataka, highlighting that the basic requirement of Article 14 is fairness in action, and courts should not interfere unless the action is arbitrary or unreasonable.
• The Court relied on Central Coalfields Limited & Anr. Vs. SLL-SML [A Joint Venture Consortium], emphasizing that the terms of the tender cannot be ignored and the decision of the employer should be respected.
• The Court relied on Maa Binda Express Carrier & Anr. Vs. North Eastern Frontier Railway & Ors., reiterating that the scope of judicial review is limited, and the government has to act reasonably and fairly.
• The Court distinguished Poddar Steel Corporation Vs. Ganesh Engineering Works and Others, stating that the doctrine of substantial compliance may not be applicable in foreign funded projects.
• The Court relied on Siemens Public Communication Networks Private Limited and Anr. Vs. Union of India and Ors., reiterating that the scope of judicial review in contractual matters is limited.
• The Court relied on Tata Cellular v. Union of India, reiterating that judicial review of administrative action is intended to prevent arbitrariness, irrationality, unreasonableness, bias and mala fides.
• The Court relied on Jagdish Mandal Vs. State of Orissa, reiterating that the purpose of judicial review is to check whether the choice or decision is made lawfully and not to check whether the choice or decision is sound.
• The Court relied on Tejas Constructions and Infrastructure (P) Ltd. Vs. Municipal Council, Sendhwa, reiterating that the purpose of judicial review is to check whether the choice or decision is made lawfully and not to check whether the choice or decision is sound.
• The Court relied on Dwarkadas Marfatia and Sons v. Port of Bombay, reiterating that the constitutional courts are concerned with the decision-making process.
• The Court relied on G.J. Fernandez v. State of Karnataka, reiterating that the employer has the right to punctiliously and rigidly enforce the terms of the tender.
• The Court relied on Ramana Dayaram Shetty v. International Airport Authority of India, holding that the words used in a document are not superfluous or redundant but must be given some meaning and weightage.
• The Court relied on Nazir Ahmad v. King Emperor, reiterating that where 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 terms and conditions set by the funding agency. The Court emphasized that in such projects, the decision of the funding agency (JICA) and its consultant (JICC) should be given significant weight. The Court also noted that there were no allegations of mala fides or favouritism and that the High Court had erred in applying the doctrine of substantial compliance. The Court was also influenced by the need to avoid delays in mega projects of national importance.

Final Decision

The Supreme Court allowed the appeal filed by the National High Speed Rail Corporation Limited (NHSRCL), overturning the judgment of the High Court of Delhi. The Supreme Court held that the High Court was not justified in interfering with the tender process, given the nature of the foreign-funded project and the absence of any mala fides or favouritism. The rejection of Montecarlo Limited’s bid was upheld.

Key Takeaways

This judgment has significant implications for tender processes in foreign-funded projects in India:

• Limited Judicial Review: The scope of judicial review in tender processes for foreign-funded projects is very limited. Courts should not interfere unless there is evidence of mala fide intent, arbitrariness, or a decision that no reasonable authority would make.
• Respect for Funding Agency Terms: The terms and conditions set by the funding agency (such as JICA) must be respected. The decision of the funding agency and its consultant should be given significant weight.
• Strict Adherence to Tender Conditions: The doctrine of substantial compliance may not be applicable in foreign-funded commercial contracts. Strict adherence to tender conditions is essential.
• Confidentiality Clauses: Clauses that maintain the confidentiality of the tender evaluation process are valid and necessary to prevent delays and ensure fair competition.
• No Discrimination: While the court emphasized the limited scope of review, it was also clear that there can be no discrimination between bidders.
• Importance of Procedure: The court noted that it is difficult to go ahead with high-cost projects unless financial institutions grant loan/subsidy, and that they insist on adherence to procedure.
• Importance of the words used in a document: The court noted that the words used in a document are not superfluous or redundant but must be given some meaning and weightage.
• Procedure for exercising power: The court noted that where 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.

Flowchart of Tender Process and Court Decision