WP/572/2014 of The Krishna District Petrol AND H.S.D.Dealers Association, Vs The Executive Director, on 30 December 2014

Conclusion

ORDER:

HONOURABLE SRI JUSTICE P. NAVEEN RAOWRIT PETITION No. 572 of 2014

The writ petitioner is association of Krishna District Petrol & H.S.DDealers. In this writ petition, the petitioner sought for writ of mandamusdeclaring the action of the respondent corporation in insisting the members ofpetitioner association to accept the transportation charges at Rs.2.06 Ps perkilo liter and kilo meter as unfair, arbitrary and sought for consequentialdirection to respondent corporation to take estimated rate of Rs.2.29 per KLand KM as minimum rate and to consider the tenders offered by members ofpetitioner association for awarding the contract of transportation of the oil andpetrol to their retail outlets.

2. The respondent corporation issued tender notification dated1.4.2013 for transportation of bulk petroleum products i.e., MS/HSD/brandedfuel from Vijayawada terminal. The free-lance transporters as well as theexisting retail outlet dealers are entitled to compete for awarding of thecontract. The contract was to commence from 1.1.2014, initially for a periodof two years which is extendable by one year. Three different rates arementioned in the tender notification, i.e., estimated rate as Rs.2.29 Ps,minimum rate as Rs.2.06 Ps and maximum rate as Rs.2.52 Ps. The tendernotification says that tenderer can quote within minus or plus of 10 % of theestimated rate. The members of the petitioner association offered toundertake the transportation of petroleum products to the respective retailoutlets at the rate of Rs.2.50 KL and KM. Whereas lowest tender offered wasof Rs.2.06 KL and KM. After opening of the tenders, the petitionerassociation was given counter offer by the respondent corporation vide itsletter dated 30.12.2013 to accept the transportation contract at the rate offeredby L-1 tenderer.

3. Contending that the letter of counter offer dated 30.12.2013 wasserved on members of petitioner association on 3.1.2014 and that suchcounter offer is contrary to the tender conditions and without grantingsufficient time the counter offer could not have been made as contract was tocommence from 1.1.2014, this writ petition is instituted.

4. Heard learned counsel for petitioner Sri C.Ramachandra Raju and learned standing counsel for respondent corporation Sri DeepakBhattacharjee and with the consent of the learned counsel the writ petition is disposed of finally.

5. Sri C Ramachandra Raju contended that tender documentprescribed minimum and maximum rates and gives opportunity to theparticipants to quote within range of 10 % plus or minus and also mentionedthe estimated rate, thus it is permissible for the participant to quote anythingabove estimated price also. At any rate, the offer cannot be less thanRs.2.29 Ps i.e. price estimated by the respondent corporation whichaccording to them is minimum viability criteria. He further contended thatmembers of the petitioner association are the owners of retail outlets. Therespondent corporation cannot compel the members of the petitionerassociation to scale down to Rs.2.06 Ps offered by the private truck ownersand such mandate amounts to exercise of power in arbitrary manner and isdiscriminatory.

6. Learned counsel further contended that different tariff rates areprescribed to different places, i.e., for Hyderabad location tariff prescribedwas minimum rate at Rs.2.40 Ps, estimated rate at Rs.2.67 PS and forRajahmundry minimum rate prescribed was Rs.2.24 Ps and estimated rate atRs.2.48 Ps, i.e., prescription of different prices at different locations isarbitrary and discriminatory. He contended that there is no valid explanationby respondents to support their stand on different tariffs prescribed at differentlocations. He contended that payment for supply of bulk petroleum productsis on the basis of per kilo meter rate, therefore, it hardly matters on thelocation where the products are to be supplied. Therefore he contended thatthere is no justification for prescribing different tariffs to different locations.

7. Learned counsel further submitted that the private truck ownersare indulging in illegalities in supplying the petroleum products whichultimately causing huge loss to the retail outlets. There is pilferage beforedelivery of petroleum products or manipulation at the time of delivery andadulteration of the product and the quantity loaded from the company is notdelivered. Therefore dealers are not happy with the manner in which privatetruck owners are supplying the products and in spite of pointing out severalirregularities, the respondent corporation is not taking appropriate safety measures to ensure proper supply and therefore, retail dealers are in favourof undertaking the supplies themselves so that loss caused due to illegalitiescommitted by the private truck owners can be avoided.

8. Sri Dishit Bhattacharjee representing Sri Deepak Bhattacharjee,learned standing counsel for respondent corporation submitted that the reliefclaimed by the petitioner has become infructuous as members of petitionerassociation have agreed to supply the petroleum products at the rate offeredby L-1 tenderer and accordingly letters of intents were issued and productsare being transported by the members of the petitioner association.

9. Learned counsel further contended that the writ petition is notmaintainable against a tender notification as it is an invitation to offer andclauses contained in invitation to offer cannot be gone into by writ Court inexercise of power of judicial review under Article 226 of the Constitution ofIndia.

10. Members of the petitioner association have entered into contractfor transportation of petroleum products. Contract provides for an arbitrationclause and if the members of petitioner association are aggrieved by any ofthe terms of contract, they should invoke the arbitration clause and whenthere is effective remedy of arbitration provided, writ petition is notmaintainable.

11. Even otherwise the grievance agitated by the members of thepetitioner association is nothing but a civil dispute, therefore writ remedy isnot available to them.

12. Learned counsel further contended that tender documentcontained detailed terms and conditions of participation of the tenders. Clause B deals with evaluation of the tenders. According to Clause B.3tenderers quoting beyond minus or plus of 10% of the estimatedtransportation rates is liable to be disqualified. According to Clause B.4 andB.5 tenderers would be ranked based on the offer given by them in theascending order as per their ranking i.e., L-1, L-2, L-3 etc. Ranking of thetenderers would be decided on minimum financial outgo to the respondent corporation and expected volume of business. The above ranking isconfined to technically qualified tenderers based on the rates quoted by themon the number of tank trucks offered. According to Clause B.6 if thecorporation accepts the tender offered by L-1 tenderer, same rate would beoffered to all other tenderers and their tank trucks would be accepted onacceptance of L-1 rate. Learned counsel therefore contended that the offergiven by the respondent corporation is in accordance with the tenderconditions. The respondent corporation having accepted the offer given bythe lowest tenderer at the rate of Rs.2.06 Ps, the members of petitionerassociation were given the same offer asking them to accept the offer.

13. He contended that there is no illegality committed by therespondent corporation in giving such an offer and terms and conditions ofthe tender, offer and counter offer and ultimate awarding of the contractdepends on the financial feasibility and various other aspects of awarding ofthe contract and in such matters, jurisdiction of writ Court is very limited.

14. He further contended that there is sufficient justification inprescribing different rates at different locations. The estimated transportationrate is decided on the average running of the tank truck. Higher running ofthe tank truck leads to higher earnings which in turn culminate to higher profitmargins. He submitted that in Vijayawada the average running of tank truckis 4756 Kms per month, therefore estimated transportation price was arrivedat Rs.2.29 KL and KM whereas in Rajahmundry the average running of tanktruck is 4018 KMs per month and in Hyderabad it is 3041 per month, thus inRajahmundry the estimated price was fixed at Rs 2.48 Ps per KL and KM andfor Hyderabad it was fixed at Rs.2.67 Ps per KL and KM. Lot of exercise wasundertaken by the respondent corporation and after assessing the financialviability and estimated outgo for the respondent corporation for payment oftransportation the rates were determined. He contended that it is not possibleto have a common estimated rate for all locations and that would be a case ofreverse discrimination.

15. Learned counsel for Respondent Corporation further contendedthat there is no national policy and the local office of the respondentcorporation determines the price for transportation of the petroleum products depending on the above parameters.

16. He further contended that there are instances of private truckoperators indulging in illegal activities. The respondent corporation is evervigilant and monitoring such illegalities and whenever it comes to the noticeof the respondent corporation action is being taken. He further contendedthat merely because some private truck owners are indulging in illegalactivities, cannot be a ground to accept the offer of the members of thepetitioner association.

17. In support of his contentions, learned counsel placed reliance onfollowing decisions:

RAUNAQ INTERNATIONAL LTD Vs. I.V.R. CONSTRUCTION

LTD[[1]],MICHIGAN RUBBER (INDIA) LTD. V. STATE OFKARNATAKA[[2]],MAA BINDA EXPRESS CARRIER AND ANOTHER VsNORTHEAST FRONTIER RAILWAY AND OTHERS[[3]], AIR INDIA LTDVs. COCHIN INTERNATIONAL AIRPORT LIMITED[[4]]RED ROSECOOPERATIVE LABOUR AND CONSTRUCTION (LOC) LTD Vs STATEOF PUNJAB AND OTHERS[[5]], KAZY SILKS PVT LTD VS THECHAIRMAN MADRAS PORT TRUST, MADRAS-1 AND OTHERS[[6]],UFLEX LIMITED Vs. STATE OF SIKKIM[[7]]

18. In reply learned counsel for petitioner contended that writ petitiondoes not become infructuous as the members of the petitioner associationhave not entered into contract and are only operating the trucks based on theletter of intents. Under protest only supplies are undertaken.

19. He further contended that the decisions relied upon by thelearned counsel for respondent are not relevant and are not applicable to thefacts of the case on hand. The grievance of the writ petitioner is against fixingdifferent rates to different locations, which amounts to arbitrary exercise ofpower and is discriminatory. Similarly when two rates are fixed i.e., estimatedand minimum rates, the counter offer should not be below the estimated rate.

Therefore, writ petition is maintainable. He further contended that asillegalities of private truck owners is accepted, more leverage ought to havebeen given to the trucks operated by the dealers. This would avoid loss ofpetroleum products. Learned counsel further contended that he has beenagitating about a national policy but the national policy is not placed beforethis Court.

20. The point that arises for consideration in this writ petition iswhether the decision of the respondent corporation to insist the members ofpetitioner association to provide transportation of bulk petroleum products atthe rate offered by the lowest tenderer i.e. Rs 2.06 Ps per KL and KM is valid?

21. Shorn of details, the issue is in a narrow compass. Whether therespondent corporation is justified in prescribing different rates fortransportation of petroleum products in different locations and whetherRespondent Corporation can insist the members of petitioner to accept theoffer given by L1 bidder.

22. Before appreciating the rival contentions, it is necessary tounderstand the contours of jurisdiction of writ court in such matters as itevolved through long line of precedents.

23. The Supreme Court in TATA CELLULAR Vs UNION OF

INDIA[[8]], held as under :

94. The principles deducible from the above are:

(1) The modern trend points to judicial restraint in administrative action.

(2) The court does not sit as a court of appeal but merely reviews the manner inwhich the decision was made.which the decision was made.

(3) The court does not have the expertise to correct the administrative decision. Ifa review of the administrative decision is permitted it will be substituting itsown decision, without the necessary expertise which itself may be fallible.(4) The terms of the invitation to tender cannot be open to judicial scrutinybecause the invitation to tender is in the realm of contract. Normallyspeaking, the decision to accept the tender or award the contract is reachedby process of negotiations through several tiers. More often than not, suchdecisions are made qualitatively by experts.a review of the administrative decision is permitted it will be substituting itsown decision, without the necessary expertise which itself may be fallible.(4) The terms of the invitation to tender cannot be open to judicial scrutinybecause the invitation to tender is in the realm of contract. Normallyspeaking, the decision to accept the tender or award the contract is reachedby process of negotiations through several tiers. More often than not, suchdecisions are made qualitatively by experts.

(5) The Government must have freedom of contract. In other words, a fair play inthe joints is a necessary concomitant for an administrative body functioning inan administrative sphere or quasi-administrative sphere. However, thedecision must not only be tested by the application of Wednesbury principle ofthe joints is a necessary concomitant for an administrative body functioning inan administrative sphere or quasi-administrative sphere. However, thedecision must not only be tested by the application of Wednesbury principle of reasonableness (including its other facts pointed out above) but must be freefrom arbitrariness not affected by bias or actuated by mala fides.from arbitrariness not affected by bias or actuated by mala fides.

(6) Quashing decisions may impose heavy administrative burden on theadministration and lead to increased and unbudgeted expenditure.administration and lead to increased and unbudgeted expenditure.

24. The Supreme Court in JAGDISH MANDAL Vs STATE OF

ORISSA[[9]], held as under:

22. Judicial review of administrative action is intended to preventarbitrariness, irrationality, unreasonableness, bias and mala fides. Its purpose isto check whether choice or decision is made “lawfully” and not to check whetherchoice or decision is “sound”. When the power of judicial review is invoked inmatters relating to tenders or award of contracts, certain special features shouldbe borne in mind. A contract is a commercial transaction. Evaluating tendersand awarding contracts are essentially commercial functions. Principles ofequity and natural justice stay at a distance. If the decision relating to award ofcontract is bona fide and is in public interest, courts will not, in exercise of powerof judicial review, interfere even if a procedural aberration or error in assessmentor prejudice to a tenderer, is made out. The power of judicial review will not bepermitted to be invoked to protect private interest at the cost of public interest,or to decide contractual disputes. The tenderer or contractor with a grievancecan always seek damages in a civil court. Attempts by unsuccessful tendererswith imaginary grievances, wounded pride and business rivalry, to makemountains out of molehills of some technical/procedural violation or someprejudice to self, and persuade courts to interfere by exercising power of judicialreview, should be resisted. Such interferences, either interim or final, may holdup public works for years, or delay relief and succour to thousands and millionsand may increase the project cost manifold. Therefore, a court before interferingin tender or contractual matters in exercise of power of judicial review, shouldpose to itself the following questions:

(i) Whether the process adopted or decision made by the authority is malafide or intended to favour someone;OR

Whether the process adopted or decision made is so arbitrary and irrationalthat the court can say: “the decision is such that no responsible authority actingreasonably and in accordance with relevant law could have reached”;

(ii) Whether public interest is affected.

If the answers are in the negative, there should be no interference under Article226. Cases involving blacklisting or imposition of penal consequences on atenderer/contractor or distribution of State largesse (allotment of sites/shops,grant of licences, dealerships and franchises) stand on a different footing asthey may require a higher degree of fairness in action.

25. The Supreme Court in GAIL (INDIA) LTD. v. GUJARAT STATE

PETROLEUM CORPORATION LTD[[10]].,held as under:

28. We also agree with Shri Nariman that the remedy of arbitration availableto the respondent under Para 15.5 of the GSA was an effective alternativeremedy and the High Court should not have entertained the petition filed underArticle 226 of the Constitution of India. The contents of the GSA, the price sideletters and the correspondence exchanged between the appellant and therespondent give a clue of the complex nature of the price fixation mechanism.Therefore, the High Court should have relegated the respondent to the remedy ofarbitration and the Arbitral Tribunal could have decided complicated disputebetween the parties by availing the services of experts. Unfortunately, the High

Court presumed that the negotiations held between the appellant and therespondent were not fair and that the respondent was entitled to the benefit of thepolicy decision taken by the Government of India despite the fact that it had notonly challenged that decision but had also shown disinclination to accept theoffer made by the appellant to supply gas at the pooled price and had insisted onmutually agreed price.

26. The Supreme Court in RAUNAQ INTERNATIONAL, held as under:

11. When a writ petition is filed in the High Court challenging the award of acontract by a public authority or the State, the court must be satisfied that thereis some element of public interest involved in entertaining such a petition. If, forexample, the dispute is purely between two tenderers, the court must be verycareful to see if there is any element of public interest involved in the litigation. Amere difference in the prices offered by the two tenderers may or may not bedecisive in deciding whether any public interest is involved in intervening in sucha commercial transaction. It is important to bear in mind that by courtintervention, the proposed project may be considerably delayed thus escalatingthe cost far more than any saving which the court would ultimately effect inpublic money by deciding the dispute in favour of one tenderer or the othertenderer. Therefore, unless the court is satisfied that there is a substantialamount of public interest, or the transaction is entered into mala fide, the courtshould not intervene under Article 226 in disputes between two rival tenderers.

27. In ARUN KUMAR AGARWAL v. UNION OF INDIA[[11]], Supreme Court held:

41. This Court sitting in the jurisdiction cannot sit in judgment over thecommercial or business decision taken by parties to the agreement, afterevaluating and assessing its monetary and financial implications, unless thedecision is in clear violation of any statutory provisions or perverse or taken forextraneous considerations or improper motives. States and its instrumentalitiescan enter into various contracts which may involve complex economic factors.State or the State undertaking being a party to a contract, have to make variousdecisions which they deem just and proper.There is always an element of risk insuch decisions, ultimately it may turn out to be correct decision or a wrong one.But if the decision is taken bona fide and in public interest, the mere fact thatdecision has ultimately proved to be wrong, that itself is not a ground to hold thatthe decision was mala fide or taken with ulterior motives.

In such circumstances, we find no merits in the writ petition which wasfiled without appreciating or understanding the scope of the decision or thedecision-making process concerning economic and commercial matters whichgives liberty to the State and its instrumentalities to take an appropriate decisionafter weighing the advantages and disadvantages of the same and this Courtsitting in this jurisdiction, as already indicated, is not justified in interfering withthose decisions, especially when there is nothing to show that those decisionsare contrary to law or actuated by mala fide or irrelevant considerations. The writpetition, therefore, lacks merits. Hence, the same is dismissed.

28. In CENTRE FOR PUBLIC INTEREST LITIGATION v. UNION

OF INDIA[[12]], Supreme Court held:

16. The price fixation in a contract of the nature with which we are concerned,is a highly technical and complex procedure. It will be extremely difficult for acourt to decide whether a particular price agreed to be paid under the contract isfair and reasonable or not in a contract of this nature. More so, because the fixation of price for crude to be purchased by GOI depends upon various variablefactors.

…..

20. It is clear from the above observations of this Court that it will be verydifficult for the courts to visualise the various factors like commercial/technicalaspects of the contract, prevailing market conditions, both national andinternational and immediate needs of the country etc. which will have to be takennote of while accepting the bid offer. In such a case, unless the court is satisfiedthat the allegations levelled are unassailable and there could be no doubt as tothe unreasonableness, mala fide, collateral considerations alleged, it will not bepossible for the courts to come to the conclusion that such a contract can beprima facie or otherwise held to be vitiated so as to call for an independentinvestigation, as prayed for by the appellants. Therefore, the above contention ofthe appellants also fails.

29. In MICHIGAN RUBBER Supreme Court held:

23. From the above decisions, the following principles emerge:

(a) The basic requirement of Article 14 is fairness in action by the State, andnon-arbitrariness in essence and substance is the heartbeat of fair play. Theseactions are amenable to the judicial review only to the extent that the State mustact validly for a discernible reason and not whimsically for any ulterior purpose. Ifthe State acts within the bounds of reasonableness, it would be legitimate to takeinto consideration the national priorities; (b) Fixation of a value of the tender is entirely within the purview of theexecutive and the courts hardly have any role to play in this process except forstriking down such action of the executive as is proved to be arbitrary orunreasonable. If the Government acts in conformity with certain healthystandards and norms such as awarding of contracts by inviting tenders, in thosecircumstances, the interference by courts is very limited;

(c) In the matter of formulating conditions of a tender document and awardinga contract, greater latitude is required to be conceded to the State authoritiesunless the action of the tendering authority is found to be malicious and a misuseof its statutory powers, interference by courts is not warranted; (d) Certain preconditions or qualifications for tenders have to be laid down toensure that the contractor has the capacity and the resources to successfullyexecute the work; and (e) If the State or its instrumentalities act reasonably, fairly and in publicinterest in awarding contract, here again, interference by court is very restrictivesince no person can claim a fundamental right to carry on business with theGovernment.

30. In AIR INDIA LTD, Supreme Court held that award of contract,whether it is by a private party or by a public body or the State, is essentially acommercial transaction. In arriving at a commercial decision considerationswhich are paramount are commercial considerations.

31. T h e Punjab and Haryana High court in RED ROSECOOPERATIVE held as under; “4. After hearing learned counsel for the petitioner and going through the records of the case, we find absolutely no merit in the contentions of the learnedcounsel, noted above. Issuance of a tender notice is only invitation to the eligiblepersons to apply. Someone making an offer pursuant to tender notice eventhough the rates quoted by it may be the lowest, does not get any vestedright….”

32. This Court in SURYODAYA INFRA PROJECTS (I) PRIVATE

LIMITED Vs NATIONAL MINERAL DEVELOPMENT CORPORATIONLIMITED AND OTHERS[[13]],held as under; ….

…..“This Court must ever remain conscious that, while exercising itsjurisdiction under Article 226 of the Constitution of India, it does not sit in appealover the decision of the Respondent- Company in rejecting the petitioner’s tender.It is only if the decision to reject the tender is so unreasonable, that noreasonable man could have taken such a decision, can the decision be said to bevitiated by arbitrariness violating Article 14 of the Constitution of India….” (para34)

33. The principles that emerge from the above precedents are, thewrit court has limited jurisdiction in matters concerning contracts andinvitation to bid for contract; Court must adopt restraint in contract matters; the Court does not sit as a Court of appeal in such matters; the State/itsinstrumentalities have to be given greater latitude in formulating tenderconditions and awarding of contracts; In matters concerning financialimplications it should be left to the concerned authority to decide theconditions of eligibility and the price at which contract can be awarded; Courts cannot interfere in terms of invitation to tender; No one has a right toinsist that the contract to be awarded to him; Courts can interfere only ifactions of tendering authority is found to be malicious or misused statutorypowers; That the process adopted and decision made is so arbitrary andirrational that no authority acting reasonably and in accordance with relevantlaw could have reached and if public interest is affected.

34. In the facts of this case, it cannot be said that fixing different tariffto different locations is arbitrary or discriminatory or irrational. There issufficient justification for such price variation. The price is fixed to a locationdepending on the number of times a truck supplies petroleum products. Onan analysis of the viability factor of truck owner and the financial obligation ofcorporation on such transportation the price is determined. When an average mileage of a truck to a location is less, more amount per KL/KM is paid, sothat it would be economical for a truck owner. Thus, more the mileagecovered to a location, the price offered comes down. Thus, pricedetermination is not linked only to total mileage a truck covers in a trip butoverall mileage it clogs in a period.

35. In the instant case there was no compulsion on the members ofpetitioner association to accept contract on the offer given by the respondentcorporation. Merely because it is not possible for them to undertake suchresponsibility, they cannot compel the respondent corporation to agree totheir terms. In fixation of value of contract Courts hardly have any role. Theprice fixation can not be said as arbitrary.

36. It cannot also be said that by such decision public interest isaffected. The counter offer made by respondent corporation is in accordancewith terms of tender notification, which terms are not under challenge. Thus, itcannot be said that giving of such offer was in illegal exercise of power.There is no compulsion on members of petitioner association to accept suchcounter offer. Court cannot mandate the respondent corporation to agree tothe price offered by the petitioner.

37. I see no merit in the writ petition. The writ petition is accordinglydismissed. No Costs. However, it is left open to the petitioner to work out itsremedies with reference to the terms of contract and any other issue related totransportation of petroleum products.

Sequel to the same, miscellaneous petitions if any pending, standdismissed.

DATE: 30.12.2014TVK

______________

P NAVEEN RAO,J

HONOURABLE SRI JUSTICE P. NAVEEN RAO

WRIT PETITION No. 572 of 2014Date : 30-12-2014

[1](1999) 1 SCC 492[2](2012) 8 SCC 216,[3]2013 (14) SCALE 226[4](2000) 2 SCC 617[5]AIR 1999 P & H 244[6]1999 (11) CTC 362[7]AIR 2014 SIKK 1[8](1994) 6 SCC 651[9](2007) 14 SCC 517[10](2014) 1 SCC 329[11](2013) 7 SCC 1[12] (2000) 8 SCC 606[13]2014(1)ALT 318