22 July 2019


High Court of Delhi

Offshore Infrastructure Limited Vs. Indian Oil Corporation Limited




While exercising judicial review, the Court should be circumspect in contractual matters as quashing decisions can result in unforeseen economic consequences

The Petitioner is aggrieved by the rejection of its bid submitted in response to the Notice Inviting Tender (NIT) for combined station works, including, civil, mechanical, electrical, telecom and instrumentation works at Paradip, Vizag, Rajamundry and Vijayawada stations and two 10000 KL capacity cone roof fire water storage tank at Vizag station under the PHPL Project ("the work"). The petitioner's bid was rejected on the ground of technical unfeasibility.

The record thus reveals that the Petitioner's bid was found suitable and technically feasible, except in regard to the unsatisfactory rating given to it by the PJ Construction division of the IOL. The Petitioner argues that consideration of performance in a previous contract, without reference to it or its involvement in the appraisal, amounts to debarring it; it questions the tender rejection, as it is based on a performance rating which did not involve a fair procedure.

Ordinarily, Courts defer to executive judgments in regard to public activities that involve award of contracts. The executive and the public authorities have freedom of contract and even if the Court finds some infirmity in the decision making process, unless there is illegality, patent arbitrariness, unreasonableness or mala fides evident on the face of the record, the Court should in the larger public interest, not interfere with the process.

The distinguishing factor, or the tipping consideration, in the opinion of the Court, that distinguishes the present case from facts in others is that IOL considered the performance appraisal of the Petitioner, in its previous contracts, based on an unfair procedure. By itself, the inclusion of performance appraisal reports as factors to consider whether to award or not award contracts is not arbitrary. However, in the application of the CPU guidelines- which was used by IOL, there is apparent and glaring procedural irregularity.

In the present case, the CPU guidelines were never published or made known to the Petitioner at any stage, either during the contract period relating to the Mohanpura Hookup work or later. The show cause notice did not spell out any consequence, much less the consequence of a negative appraisal report, leading to a possible denial of contract at a later stage. Furthermore, the final recommendation and approval of performance rating was not shared with the petitioner, contrary to the CPU guidelines.

These consequences were unknown to the Petitioner, when it received the show cause notice. Furthermore, the parties are also in litigation, since the IOL has invoked the arbitration clause; the petitioner is claiming some amounts as payable under the Mohanpura contract as outstanding unpaid dues, etc. Therefore, the failure to firstly inform the Petitioner, about the consequence of the show cause notice, i.e., that it could result in an adverse appraisal report, leading to denial of future work, the omission to comply with Para 5.7.6 and share the performance ratings with it and lastly the omission to indeed share the CPU guidelines, rendered the decision a result of unfair procedure. It was also contrary to the CPU guidelines. Resultantly, the Court holds that the exclusion of the Petitioner's tender was unfair and arbitrary.

It is well settled that while exercising judicial review, the Court should also be circumspect in contractual matters as quashing decisions can result in unforeseen economic consequences. As a result, the appropriate course would be not to set aside or quash the tender proceeding, but only the decision to reject the Petitioner's bid. Therefore, IOL's decision to reject the Petitioner's bid is quashed; consequently, the said bid shall be considered on its merits, having regard to the tender terms and provisions of law. The writ petition is allowed.

Tags : Bid Rejection Validity

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