This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its April 2014 decision in Rishi Kiran Logistics Ltd. v. Board of Trust of Kandla Port, the Supreme Court of India dismissed a legal challenge flowing out of the government’s decision to cancel a public tender for land leasing rights. One of the bidders appealed to the Supreme Court after a lower court rejected its initial legal challenge. In dismissing the bidder’s appeal, the Supreme Court articulated the governing principles for the judicial review of government procurement decisions.
The Supreme Court noted that a government procurement decision is subject to judicial review where that decision is made arbitrarily, but that this would not prevent the government from cancelling a tendering process with a view to obtaining more favourable financial terms for the disposal of public assets:
When competing claims are private interest v. public interest, then in the case of disposal of public property the question would be whether the right of the person, who has earned the right to the public property in a public auction, is to be preferred over the right of the public in ensuring that valuable public assets were not disposed of except for a fair price and in a fair and transparent manner. Whether this court should, in judicial review, sit in judgment over the decision of a public body which is of the view that it need not go further ahead with the tender process. It is true if such a decision is taken without any reasons to support it or mere ipsi dixit it would be arbitrary. In this case there are reasons. The High Court analysed the reasons and has taken the view that those reasons are valid. In our view in matters particularly to the disposal of valuable assets by the State when the State seeks to explore the possibility of getting higher price.
As the Supreme Court noted, the review of government decision-making to ensure due process must be balanced against the need to enable government bodies to make decisions in the public interest:
Lucid enunciation on the scope of judicial review of administrative action, that too in tender matters can be found in Tata Cellular v. Union of India [1994] INSC 401; (1994 (6) SCC 651), where following discussion is worthy of extraction:
It cannot be denied that the principles of judicial review would apply to the exercise of contractual powers by Government bodies in order to prevent arbitrariness or favouritism. However, it must be clearly stated that there are inherent limitations in exercise of that power of judicial review. Government is the guardian of the finances of the state. It is expected to protect the financial interest of the State. The right to refuse the lowest or any other tender is always available to the Government.
But the principles laid down in Article 14 of the Constitution have to be kept in view while accepting or refusing a tender. There can be no question of infringement of Article 14 if the government tries to get the best person or the best quotation. The right to choose cannot be considered to be an arbitrary power. Of course, if the said power is exercised for any collateral purpose the exercise of that power will be struck down.
Judicial review is concerned with reviewing not the merits of the decision in support of which the application for judicial review is made, but the decision making process itself. The duty of the court is to confine itself to the question of legality. Its concern should be: (i) Whether a decision making authority exceeded its powers? (ii) Committed an error of law, (iii) Committed a breach of rules of natural justice, (iv) reached a decision which no reasonable tribunal would have reached or, (v) Abused its powers.
Therefore, it is not for the court to determine whether a particular policy or particular decision taken in the fulfilment of that policy is fair. It is only concerned with the manner in which those decisions have been taken. The extent of the duty to act fairly will vary from case to case. Shortly put, the grounds upon which an administrative action is subject to control by judicial review can be classified as under: (i) Illegality: This means the decision maker must understand correctly the law that regulates his decision making power and must give effect to it. (ii) Irrationally, namely Wednesbury unreasonableness. (iii) Procedural impropriety.
As these governing principles illustrate, government procurement decisions remain subject to legal challenge. Those decisions may be reversed by the courts if they are made in a procedurally improper manner. Public institutions should therefore ensure that they conduct their tendering processes in accordance with clearly defined rules that comply with applicable legal requirements.
