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RAUNAQ INTERNATIONAL LTD VS IVR CONSTRUCTION LTD (1998) SCR 421

RAUNAQ INTERNATIONAL LTD. V. I.VR. CONSTRUCTION LTD., (1998) SCR 421

FACTS:

The particular case relates to a tender contract for design, engineering and manufacture, supply and commissioning of large diameter pipes and steel tanks with all accessories and auxiliaries with some other demands like the pipe should be of particular diameter and length etc.

M/s Raunaq and I.VR. construction ltd are two contestants before the state electricity Board.the board of directors of the state electricity decided to accept the offer of Raunaq International in view of the price advantage and adequate experience of having completed similar type of work. The IVR Construction challenged the decision of the board in a writ petition filed in the High Court of Bombay and it has passed an impugned interim order stayed the operation. Hence the present appeal.

ISSUE:

  1. Whether public interest litigation for challenging award of a contract can be filed against particular tenderer?
  2. Whether the decision of High Court of Bombay of interim order is correct?
  3. Whether the interference by the Court in contractual cases is relevant?
  4. The scope of judicial review is also applied to contractual transactions by government bodies?

REFERRED CASE LAWS:

  • Tata Cellular v. Union of India: This court acknowledged that the principles of judicial review can apply to the exercise of contractual powers by government bodies in order to prevent arbitrariness or favoritism.

 

PROCEDURAL HISTORY:

The High Court of Bombay has passed the impugned interim order which stayed the operation issued to Raunaq International ltd. Hence present appeal.

 

OBSERVATION:

  • The offer of Raunaq International was accepted on account of the price advantage and also, an adequate experience which IVR does not have.
  • When a writ petition is filed in the High Court challenging the award of a contract by a public authority or state, unless the court is satisfied that there is a substantial amount of public interest, or the transaction is entered into mala fide, the court should not intervene under Article 226 in disputes between two rival renders. Because intervention by the Court may ultimately result in delay in the execution of the project the obvious one is price escalation.
  • Even when the state or a public body enters into a commercial transaction, consideration which prevail in its decision to award the contract to a given party would be the same, an element of public law or public interest involved even in such a commercial transaction.
  • The petitioner asking for interim orders, in appropriate cases should be asked to provide security for any increase in cost as a result of such delay, or any damages suffered by the opposite party in consequence of an interim order; otherwise, public detriment may outweigh public benefit in granting such interim orders. Balance of convenience would play a major role in moulded interim relief.
  • In Fertiliser Corporation Union v. Union of India and Ors, the Court observed that if the Government acts fairly, though falters in wisdom, the Court should no interfere.
  • The Court has observed that the right to choose cannot be considered as an arbitrary power. And “judicial quest in administrative matters has been to find the right balance between the administrative discretion to decide matters and the need to remedy any unfairness. Such an unfairness is set right by judicial review”.

DECISION:

  • Hence the petition filed challenging the award of a contract by a public authority or the state, the court must be satisfied that there is some element of public interest involved in entertaining such petition.
  • The High court has seriously erred in granting the interim order. Because any interim order which stops the project from proceeding further, mist provide for the reimbursement of costs to the public in case ultimately the litigation started by such an individual or body fails. The public must be compensated for both i.e delay in implementation of project and the cost escalation resulting from it.
  • Unless Court is satisfied that there is substantial amount of public interest, or the transaction is entered into mala fide. The Court should not intervene under Article 226 in disputes between two rival tenders.
  • Judicial review of contractual transactions by government bodies is permissible to prevent arbitrariness, favoritism or use of power for collateral purposes .
  • Thus, there is no overwhelming public interest in stopping the project. There is no allegation whatsoever of any mala fides for granting the contract to Raunaq International ltd. The appeals , are therefore allowed and the impugned order is set aside IVR Construction shall pay appellant herein the costs of appeals.