This article analyses the Supreme Court judgment in Indore Vikas Praadhikaran (IDA) & Anr. v. Shri Humud Jain Samaj Trust & Anr. (Civil Appeal No. 13089 of 2024 arising out of SLP (Civil) No. 9940 of 2022), dealing with the highest bidder’s legal challenge following the cancellation of a tender process by the Indore Vikas Praadhikaran (“IDA”). This analysis delves into the case facts, the legal principles, relevant Indian law, and the potential impact of the judgment.
Background and Facts
The IDA issued a notice inviting tender (“NIT”) on July 17, 2020, for leasing land with a reserve price of INR 21,120 per square meter. Shri Humud Jain Samaj Trust (Respondent No. 1) submitted the highest bid at INR 25,671.90 per square meter. However, upon the Tender Committee’s discovery of an outstanding property tax of INR 1.25 crore on the land that had not been factored into the reserve price, the IDA Board, on July 27, 2021, rejected all bids and issued a fresh NIT with a higher reserve price of INR 26,000 per square meter.
Upon receiving information of the rejection and having the earnest money returned, Respondent No. 1 filed a writ petition before the High Court of Madhya Pradesh challenging the rejection and the new NIT. The Ld. Single Judge dismissed the petition, holding that the IDA and the highest bidder had not formed any contract and observed that the highest bidder acquired no vested right in the conducted auction. However, a Madhya Pradesh High Court Division Bench overturned this decision, directing the IDA to allot the land to Respondent No. 1 if they agreed to pay the revised reserve-price sum of INR 26,000 per square meter. Aggrieved by the decision of the Division Bench, the IDA appealed to the Supreme Court.
Legal Issues and Principles
The core legal issues in this case were as follows:
- The right of a tendering authority to reject bids: Does an authority have the right to reject all bids even if there is a highest bidder?
- The rights of the highest bidder: Does the highest bidder in a tender process have a vested right to be awarded the contract?
- Judicial review of administrative decisions: What is the scope of judicial review in tender matters?
The Supreme Court’s judgment hinges on established principles of contract law and administrative law. A crucial aspect to note is that a tender process does not automatically create a binding contract. The competent authority must accept the bid for a contract to be formed. Until acceptance, the tendering authority retains the right to reject bids, subject to principles of fairness and transparency.
Relevant Judicial Precedents on Tender Matters
Several Supreme Court judgments have established principles regarding tender processes.
- Tata Cellular v. Union of India (1994) 6 SCC 651: This case established the principle of judicial restraint in reviewing administrative decisions in contractual matters. It emphasised the Government’s right to choose the best offer and judicial review being limited to ensuring fairness and preventing arbitrariness.
- State of Jharkhand and others v. CWE-SOMA Consortium (2016) 4 Supreme Court Cases 172: This case reiterated the principle that the Government has the right to refuse the lowest or any other tender and that courts should not sit in appeal over the decisions of tender committees unless evidence is available to show mala fide exercise of power.
- Haryana Urban Development Authority and others v. Orchid Infrastructure Developers Private Limited (2017) 4 Supreme Court Cases 243: This case clarified that the highest bidder does not have a vested right to have the auction concluded in their favour. It also emphasized that only on the issuance of an allotment letter could form a concluded contract.
- Eva Agro Feeds Private Limited v. Punjab National Bank and Anr. 2023 INSC 809: This case established that the auctioning authority must adhere to the rule of law and cannot act arbitrarily.
Analysis of the Supreme Court Judgment
The Supreme Court, in its judgment, correctly applied the established legal principles. The Court emphasised that the highest bidder does not acquire a vested right merely by submitting the highest bid. The IDA had the right to reject all bids for valid reasons, in this case, the discovery of the outstanding property tax, which significantly altered the financial viability of the initial tender. The Court held that the Division Bench of the High Court had erred in directing the IDA to allot the land to Respondent No. 1, which was tantamount to enforcing a non-existent contract and usurping the IDA’s right to conduct the tendering process.
The Supreme Court relied on its previous judgments in State of Jharkhand v. CWE-SOMA Consortium and Haryana Urban Development Authority v. Orchid Infrastructure Developers Pvt. Ltd. to reinforce the principle of judicial restraint in tender matters. The Court reiterated that judicial review was limited to ensuring fairness and preventing arbitrariness, not substituting the court’s judgment for that of the tendering authority. The Court also distinguished this case from Eva Agro, which involved the arbitrary cancellation of the auction without any reason. In the present case, the Supreme Court observed a valid reason for cancellation, allowing the issue of a fresh NIT, which did not have the respondent’s participation.
Conclusion and Possible Effects of the Judgment
The Supreme Court’s judgment reinforces the following key principles:
- Tendering authorities have the right to reject all bids for valid reasons, despite a highest bidder.
- The highest bidder does not have a vested right to be awarded the contract until the formal acceptance of the bid.
- Courts should exercise restraint in reviewing tender matters and should not interfere with the tendering authorities’ decisions without clear evidence of arbitrariness or mala fides.
The judgment has significant implications for tender processes in India, providing clarity on the rights and obligations of tendering authorities and bidders and reinforcing the importance of fairness and transparency in tender processes. The judgment will likely deter frivolous litigation by unsuccessful bidders who claim a vested right merely by submitting the highest bid. It promotes efficiency, reduces unnecessary delays in public procurement, and underscores the importance of tendering authorities’ due diligence in accurately assessing all relevant factors, including financial implications, before issuing NITs.
By upholding the IDA’s decision, the Supreme Court has protected the public interest by allowing the IDA to generate potentially more revenue through a fresh tender process. Significantly contributing to the jurisprudence on tender law in India, this judgment will serve as a guiding precedent for future cases.
For further information, please contact:
Sumit Attri, Partner, Cyril Amarchand Mangaldas
sumit.attri@cyrilshroff.com
