Tender Process and CVC Guidelines: Supreme Court Decision in Haffkine Bio-Pharmaceutical Corp. Ltd. vs. Nirlac Chemicals (27 July 2017)

Can a tender process be invalidated if Central Vigilance Commission (CVC) guidelines are not followed? The Supreme Court of India addressed this key question in a dispute over a tender for polio vaccine bulk drugs. This case highlights the importance of transparency and adherence to guidelines in government procurement processes. The judgment was delivered by a bench of Justices Madan B. Lokur and Deepak Gupta, with Justice Deepak Gupta authoring the opinion.

Case Background

Haffkine Bio-Pharmaceutical Corporation Ltd., a Maharashtra government undertaking, sought to procure bulk drugs for polio vaccine production. They issued a tender on January 20, 2016, specifying that the drugs must be manufactured by M/s. P.T. Biofarma, Indonesia. M/s. Nirlac Chemicals, a distributor for P.T. Biofarma, had been supplying these drugs to Haffkine for 15 years. Nirlac participated in the tender process, along with M/s. Bionet Asia Co. Ltd.

Nirlac protested the tender issuance on January 25, 2016, but still participated. The tender opening date was changed to February 12, 2016. Nirlac claimed that while their bid was opened on February 12, 2016, Bionet’s bid was not opened in their presence. They were later shown a comparative chart indicating their bid was technically disqualified. Nirlac objected, alleging that the tender conditions were tailored for Bionet.

Timeline

Course of Proceedings

The High Court of Bombay allowed Nirlac’s writ petition. It found that Haffkine violated CVC guidelines by not opening Bionet’s bid in Nirlac’s presence. The High Court also concluded that Nirlac met all tender conditions and was wrongly rejected. Consequently, the High Court quashed the tender dated January 20, 2016, the rejection letter dated June 22, 2016, and the contract awarded to Bionet. However, it allowed Haffkine to procure drugs from Bionet until a fresh tender was finalized, directing the State Government to issue a fresh tender within eight weeks.

Haffkine and Bionet appealed the High Court’s decision to set aside the tender and contract. Nirlac also appealed, arguing that they should have been awarded the tender instead of a fresh tender being called.

Legal Framework

The Supreme Court considered the Central Vigilance Commission (CVC) guidelines, which emphasize transparency in the tendering process. According to the guidelines, tenders must be opened in the presence of the bidders’ representatives. The guidelines also specify that each page of the tender, especially the price and important terms, should be initialed and dated. Any cuttings or overwriting should be marked in red ink by the tender opening officer.

The CVC guidelines also mandate the maintenance of a tender opening register with details like the date of opening, names, and signatures of all persons present, including bidders’ representatives. In a two-bid system, the guidelines require the tender opening officer to sign the envelope containing the price bids, with the due date of opening clearly mentioned.

Arguments

Haffkine argued that Bionet’s bid was indeed opened in the presence of Nirlac’s representatives, though the documents were not shown. They contended that only the bid was shown. Nirlac argued that the entire tender process was fraudulent and that they should be compensated for the loss suffered by them. Nirlac also contended that they had fulfilled all the tender conditions.

Nirlac also argued that condition ‘j’ of the tender, which stated that the bidder should be able to generate business for the Corporation, minimum 70 million doses, was meaningless. They contended that it only meant that they should supply sufficient bulk quantity of oral vaccine for the manufacture of 70 million doses of oral polio vaccine.

Bionet argued that the tender process was valid and that they were rightly awarded the tender.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues but considered the following points:

1. Whether the tender process was vitiated due to violation of CVC guidelines?
2. Whether Nirlac was technically qualified as per the tender conditions?
3. What is the correct interpretation of condition ‘j’ of the tender?

Treatment of the Issue by the Court

Authorities

The Supreme Court primarily relied on the Central Vigilance Commission (CVC) guidelines regarding tender processes. There were no other cases or books cited in the judgment.

Judgment

The Supreme Court held that the tender process was vitiated due to the violation of CVC guidelines. The court emphasized that tenders must be opened in the presence of bidders’ representatives and that all documents attached to the bid must be shown.

The Court also held that Nirlac was not technically qualified as they did not fulfill condition ‘j’ of the tender, which required the bidder to generate business for Haffkine for the sale of 70 million doses of the finished product.

The court noted that while the tender awarded to Bionet was invalid, Nirlac was also not eligible to be awarded the tender.

The Court directed Haffkine to procure bulk drugs for 120 million doses from Nirlac at the price quoted by them. Haffkine was also directed to supply and Bionet to purchase 66 million doses of oral vaccine as per the confirmed order.

The court permitted Haffkine to float a fresh e-tender with clear and unambiguous terms. If Haffkine wanted a buy-back or business generation clause, it must clearly specify the rate at which the finished product must be purchased by the successful tenderer.

The court quoted from the judgment:

“Be that as it may, at about 1.00 p.m. (on 12th February, 2016) the Petitioners’ techno-commercial bid was opened and the Petitioners were informed that they would have to return after the lunch break. What is important to note and which fact is now admitted before us, is that the bid submitted by Respondent No.3 was not opened by Respondent No. 1 in the presence of the Petitioners and the Petitioners were asked to return after the lunch break without opening the tender of Respondent No. 3.”

“According to us, the violation of CVC guidelines is itself sufficient to vitiate the entire tender process.”

“This condition clearly postulates that the bidder should be able to generate business for Haffkine for sale of minimum 70 million doses.”

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to uphold the sanctity of the tendering process and ensure compliance with CVC guidelines. The Court emphasized the importance of transparency and fairness in government procurement. The Court was also influenced by the fact that Nirlac was not technically qualified as it did not fulfill condition ‘j’ of the tender.

Key Takeaways

• ✓ Tendering processes must strictly adhere to CVC guidelines to ensure transparency and fairness.
• ✓ Bidders have a right to witness the opening of all bids and review the attached documents.
• ✓ Tender conditions must be clear and unambiguous, with the tender issuing authority being the best judge of its requirements.
• ✓ Parties cannot claim restitution if they do not meet the tender requirements.
• ✓ Government undertakings should float e-tenders to avoid allegations of fraud.

Directions

The Supreme Court directed Haffkine to procure bulk drugs for 120 million doses from Nirlac at the price quoted by them. Haffkine was restrained from purchasing further bulk drugs from Bionet. Haffkine was also directed to supply and Bionet to purchase 66 million doses of oral vaccine as per the confirmed order. Haffkine was permitted to float a fresh e-tender with clear and unambiguous terms.

Development of Law

The ratio decidendi of the case is that the tender process was vitiated due to violation of CVC guidelines and that the tender conditions must be clear and unambiguous. This case reinforces the importance of transparency and adherence to guidelines in government procurement processes. There was no change in the previous position of law.

Conclusion

The Supreme Court’s decision in Haffkine Bio-Pharmaceutical Corporation Ltd. vs. Nirlac Chemicals underscores the critical need for transparency and adherence to CVC guidelines in government tender processes. While the court invalidated the tender awarded to Bionet, it also found Nirlac ineligible, directing Haffkine to procure a specific quantity of bulk drugs from Nirlac and ordering a fresh e-tender with clear terms. This judgment serves as a reminder of the importance of fairness and procedural integrity in public procurement.