Facts of the Case

The petitioners, M/s Verve Human Care Laboratories and M/s Maan Pharmaceuticals Ltd., challenged the decision of the Central Medical Services Society (CMSS) to cancel Tender No. CMSS/PROC/2021-22/NACO/011 relating to the procurement of Buprenorphine 2 mg and 0.4 mg tablets and to issue a fresh tender with relaxed eligibility conditions.

The petitioners had emerged as the successful bidders under the earlier tender, with M/s Maan Pharmaceuticals Ltd. declared as the L-1 bidder and M/s Verve Human Care Laboratories as the L-2 bidder. Negotiations had already taken place, and the petitioners had agreed to reduce their quoted prices. However, before the contract was awarded, CMSS cancelled the tender and floated a fresh tender by reducing the prior supply experience requirement from 50% to 25% of the quoted quantity.

Aggrieved by the cancellation and issuance of the fresh tender, the petitioners approached the Delhi High Court under Article 226 of the Constitution of India.

Issues Involved

  1. Whether CMSS was justified in cancelling the earlier tender without assigning reasons.
  2. Whether the relaxation of eligibility criteria in the fresh tender was arbitrary, irrational or mala fide.
  3. Whether the petitioners had acquired any enforceable or legitimate right to the award of the contract after being declared successful bidders.
  4. Whether the High Court should interfere with the tender process in exercise of its writ jurisdiction under Article 226.

Petitioner’s Arguments

  • The petitioners contended that they had successfully qualified in the technical and financial evaluation and were declared L-1 and L-2 bidders.
  • Negotiations had already concluded, and both petitioners had agreed to reduce their quoted prices by 1.5%.
  • CMSS cancelled the tender without issuing any notice or assigning reasons, which was arbitrary and contrary to fair administrative practice.
  • The relaxation of eligibility criteria from 50% to 25% supply experience was introduced solely to accommodate previously ineligible or disqualified bidders.
  • The cancellation exposed the petitioners' commercial prices to competitors, placing them at an unfair disadvantage.
  • CMSS had earlier failed to take action against bidders who allegedly submitted forged documents, demonstrating arbitrariness in the tender process.
  • The petitioners claimed a legitimate expectation that the contract would be awarded to them after being declared successful bidders.

Respondent’s Arguments

CMSS and the Union of India submitted that:

  • Judicial interference in tender matters is extremely limited.
  • The prices quoted by the petitioners remained significantly higher than prevailing market rates even after negotiations.
  • The fresh tender was issued to secure wider participation, better competition and more economical procurement in public interest.
  • The relaxation of eligibility criteria was introduced because only a limited number of bidders had participated in the previous tender.
  • Clause 11.3 of the tender expressly empowered CMSS to cancel the tender process before award of the contract without assigning any reason.
  • No bidder acquires any vested or enforceable right merely because it has been declared L-1 or L-2 before issuance of the formal award.
  • Allegations regarding forged documents submitted in earlier tenders were separately under consideration by the competent authorities.

Court Order / Findings

The Delhi High Court dismissed both writ petitions and upheld the cancellation of the earlier tender as well as the issuance of the fresh tender.

The Court held that:

  • Judicial review in government tender matters is confined to examining the legality, fairness and decision-making process and not the commercial wisdom of the authority.
  • CMSS had recorded valid reasons for cancelling the earlier tender, namely securing better prices and wider competition in public interest.
  • The relaxation of eligibility conditions to increase competition was a policy decision and did not suffer from arbitrariness or mala fides.
  • Clause 11.3 of the tender expressly authorised CMSS to reject or cancel the tender before award of contract without assigning reasons.
  • The petitioners did not acquire any vested right or enforceable legitimate expectation merely because they had emerged as successful bidders during the evaluation stage.
  • Any claim for damages arising from cancellation of a tender would lie before the competent civil forum and not ordinarily under Article 226.
  • The Court declined to issue directions regarding action against bidders alleged to have submitted forged documents, observing that such matters fall within the jurisdiction of the competent authorities.

Important Clarification

The judgment reiterates that:

  • Government authorities possess considerable discretion to cancel or reissue tenders before awarding contracts where the decision is taken in public interest.
  • Courts will interfere in tender matters only where there is clear evidence of illegality, arbitrariness, irrationality, procedural impropriety or mala fide action.
  • Being declared the lowest or successful bidder does not create an absolute or vested right to receive the contract.
  • Public interest and competitive procurement remain paramount considerations in government contracting.

Sections

  • Article 226 of the Constitution of India
  • Narcotic Drugs and Psychotropic Substances Act, 1985 (NDPS Act)
  • Tender Clause 11.3
  • Manual for Procurement of Goods, 2017
  • Principles governing Judicial Review in Government Tender Matters

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1785400142_2354compressed.pdf

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