Can High Court Direct State Instrumentality To Award Contract In Favour Of Bidder Under Article 226? Supreme Court Discusses

The Supreme Court in a recent decision disapproved of the direction issued by the Rajasthan High Court directing the Jaipur Vidyut Vitran Nigam Ltd to enter into a power purchasing agreement with a party.  

"In any case, the High Court, by the impugned judgment and order, could not have issued a mandamus to the instrumentalities of the State to enter into a contract, which was totally harmful to the public interest," observed a bench comprising Justices BR Gavai and PS Narasimha.

The Supreme Court held that the High Court must exercise its discretionary power under Article 226 with great caution and should exercise it only in furtherance of public interest and not merely on the making out of a legal point.

Background

In the instant case, the Respondent No 1 submitted the bid to supply the electricity at the tariff of Rs. 5.517 per unit, to the appellant, and the respondent's was able to find a place in top seven bidders, however, after due deliberations, the Bid Evaluation Committee (“BEC”) consisting of experts found that the prices quoted by L-4 and L5 bidders were exorbitantly high and it would result in additional financial burden of more than Rs.1715 crore on the consumers of the State as compared to the tariff of L-1 bidder. Hence, the appellant decided not to purchase the electricity from the respondent's.

After, an interim order been passed by the Supreme Court directing in the Interim Application filed by L-5 bidder-SKS Power, holding that the L-5 bidder was entitled to supply power to the appellants at the tariff of Rs.2.88 per unit, the Respondent No. 1 approached the High Court of Rajasthan under Article 226 seeking an appropriate Writ or order or direction in the nature of mandamus directing the Appellants to immediately issue a Letter of Intent in favour of the Respondent No.1, sign the power Purchase Agreement with the Respondent No. 1 as per its bid tariff, and take steps for adoption of tariff of the Respondent No. 1 and immediately commence supply of power, which was accordingly allowed by the High Court.

Observation of the Court

Reversing the finding made by the High Court, the Division Bench comprising of Justices B.R. Gavai and Prashant Kumar Mishra held that the High Court erred while entertaining a Writ Petition in the instant case.

While placing reliance on the case of Air India Ltd. v. Cochin International Airport Ltd. and others, the court noted that the State can choose its own method to arrive at a decision. It can fix its own terms of invitation to tender and that is not open to judicial scrutiny. It has further been held that the State can enter into negotiations before finally deciding to accept one of the offers made to it.

Further the court observed that:

“However, the State, its corporations, instrumentalities and agencies are bound to adhere to the norms, standards and procedures laid down by them and cannot depart from them arbitrarily. Though that decision is not amenable to judicial review, the court can examine the decision-making process and interfere if it is found vitiated by mala fides, unreasonableness and arbitrariness. It has further been held that even when some defect has been found in the decision-making process, the court must exercise its discretionary power under Article 226 with great caution and should exercise it only in furtherance of public interest and not merely on the making out of a legal point. The court should always keep the larger public interest in mind in order to decide whether its intervention is called for or not. Only when it comes to a conclusion that overwhelming public interest requires interference, the court should intervene.”

In a nutshell, it was held by the court that unless the High Court finds that the decision-making process is vitiated by arbitrariness, mala fides, or irrationality, it will not be permissible for the High Court to interfere with the same.

Conclusion

The Court noted that the High Court was not justified in issuing the writ in the nature of mandamus to the instrumentalities of the State to enter into a contract, which was totally harmful to the public interest as the rates quoted by the respondent no. 1 is higher than other bidders asking the state to purchase the electricity at higher prices whereby the financial burden would ultimately pass on the to the consumers. To this effect, the court's observation in Para 105 is meaningful: -

“As such, we are of the considered view that the mandamus issued by the Court is issued by failing to take into consideration the larger consumers' interest and the consequential public interest. We are, therefore, of the view that the impugned judgment and order passed by the High Court is not sustainable in law and deserves to be quashed and set aside.”

Case Title: JAIPUR VIDYUT VITRAN NIGAM LTD. & ORS. V. MB POWER (MADHYA PRADESH) LIMITED & ORS.

Citation : 2024 LiveLaw (SC) 24

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