# UFLEX LTD v. GOVERNMENT OF TAMIL NADU & ORS

- **Citation:** [2021] 7 S.C.R. 571
- **Court:** Supreme Court of India
- **Decided:** 2021-09-17
- **Case number:** Civil Appeal Nos.4862-4863 of 2021
- **Bench:** Sanjay Kishan Kaul, Hrishikesh Roy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/uflex-ltd-v-government-of-tamil-nadu-ors-35103
- **Pages:** 36

## Headnote

Government contract: Tender - Award of - Scope of judicial
review - Held: Transparency is always required in such tenders
because of the nature of economic activity carried on by the State -
However, contours to examine are restricted - Objective is not to
make the Court an appellate authority to scrutinize as to whom the
tender should be awarded - Economics must be permitted since the
tendering authority knows best as to what is suited in terms of
technology and price for them - In commercial tender matters there
is an aspect of commercial competitiveness - Merely because a
company is more efficient, obtains better technology, makes more
competitive bids and, thus, succeeds more cannot be a factor to
deprive that company of commercial success on that pretext -
Furthermore, for every succeeding party who gets a tender there
may be parties who are not awarded the tender as there can be only
one lowest tender - On facts, issuance of notice inviting tender for
supply of polyester bases hologram excise labels to be pasted across
the caps of bottles of liquor sold by the State Government with
various technical specifications and eligibility criteria - Two
prospective tendering parties challenged the tendering process -
Single Judge of the High Court dismissed the writ petitions -
However, the Division Bench of the High Court by directing the
State to float a fresh tender, erred in almost sitting as an appellate
authority on technology and commercial expediency which is not
the role which a Court ought to play - It appears that the two
prospective tendering parties endeavoured to continuously create
impediments in the way of the succeeding party merely because they
could not succeed - When the concerned Committees were looking
into the suggestions of the prospective parties, the parties moved to
the court - Few issues raised by the parties have already been
addressed by the Committees - Thus, the order passed by the
[2021] 7 S.C.R. 571
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Division Bench cannot be sustained and is set aside - Constitution
of India - Art. 226.
Costs: Commercial matters - Award of costs - Held: Usually
the judicial system hesitates to impose costs, presuming it to be a
reflection on the counsel - In a tussle for enforcement of rights
against a State different principle apply - However, in commercial
matters costs must follow the cause - Tender jurisdiction was created
for scrutiny of commercial matters - If parties continuously seek to
challenge award of tenders, the succeeding party must get costs
and the party which loses must pay costs - On facts, parties litigating
are financially strong and took a commercial decision to carry the
dispute right up to this Court - They must face the consequences
and costs of success or failure in the present proceedings -
Furthermore, the instant proceedings do arise from a writ proceeding
u/Art. 226 but it is really a commercial dispute, thus, the failing
party cannot contend that the present dispute is a writ proceeding -
Actual costs quantified on the basis of the bill of fee and costs -
Issuance of direction to the respondent companies to pay Rs 23
lakh to the appellant-successful tenderer, and Rs 7.5 lakhs to State
Government for defending the litigation.
Costs: Award of - Principles prevailing in England, United
States of America, Australia, Hong Kong and Canada while awarding
Costs in Civil litigation and Commercial litigation - Stated.
Allowing the appeals, the Court
HELD: 1.1 In commercial tender matters there is an aspect
of commercial competitiveness. For every succeeding party who
gets a tender there may be parties who are not awarded the tender
as there can be only one L-1. The question is should the judicial
process be resorted to for downplaying the freedom which a
tendering party has, merely because it is a State or a public
authority, making the said process even more cumbersome.
Element of transparency is always required in such tenders
be

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UFLEX LTD.
v.
GOVERNMENT OF TAMIL NADU & ORS.
(Civil Appeal Nos.4862-4863 of 2021)
SEPTEMBER 17, 2021
[SANJAY KISHAN KAUL AND HRISHIKESH ROY, JJ.]
Government contract: Tender - Award of - Scope of judicial
review - Held: Transparency is always required in such tenders
because of the nature of economic activity carried on by the State -
However, contours to examine are restricted - Objective is not to
make the Court an appellate authority to scrutinize as to whom the
tender should be awarded - Economics must be permitted since the
tendering authority knows best as to what is suited in terms of
technology and price for them - In commercial tender matters there
is an aspect of commercial competitiveness - Merely because a
company is more efficient, obtains better technology, makes more
competitive bids and, thus, succeeds more cannot be a factor to
deprive that company of commercial success on that pretext -
Furthermore, for every succeeding party who gets a tender there
may be parties who are not awarded the tender as there can be only
one lowest tender - On facts, issuance of notice inviting tender for
supply of polyester bases hologram excise labels to be pasted across
the caps of bottles of liquor sold by the State Government with
various technical specifications and eligibility criteria - Two
prospective tendering parties challenged the tendering process -
Single Judge of the High Court dismissed the writ petitions -
However, the Division Bench of the High Court by directing the
State to float a fresh tender, erred in almost sitting as an appellate
authority on technology and commercial expediency which is not
the role which a Court ought to play - It appears that the two
prospective tendering parties endeavoured to continuously create
impediments in the way of the succeeding party merely because they
could not succeed - When the concerned Committees were looking
into the suggestions of the prospective parties, the parties moved to
the court - Few issues raised by the parties have already been
addressed by the Committees - Thus, the order passed by the
[2021] 7 S.C.R. 571
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Division Bench cannot be sustained and is set aside - Constitution
of India - Art. 226.
Costs: Commercial matters - Award of costs - Held: Usually
the judicial system hesitates to impose costs, presuming it to be a
reflection on the counsel - In a tussle for enforcement of rights
against a State different principle apply - However, in commercial
matters costs must follow the cause - Tender jurisdiction was created
for scrutiny of commercial matters - If parties continuously seek to
challenge award of tenders, the succeeding party must get costs
and the party which loses must pay costs - On facts, parties litigating
are financially strong and took a commercial decision to carry the
dispute right up to this Court - They must face the consequences
and costs of success or failure in the present proceedings -
Furthermore, the instant proceedings do arise from a writ proceeding
u/Art. 226 but it is really a commercial dispute, thus, the failing
party cannot contend that the present dispute is a writ proceeding -
Actual costs quantified on the basis of the bill of fee and costs -
Issuance of direction to the respondent companies to pay Rs 23
lakh to the appellant-successful tenderer, and Rs 7.5 lakhs to State
Government for defending the litigation.
Costs: Award of - Principles prevailing in England, United
States of America, Australia, Hong Kong and Canada while awarding
Costs in Civil litigation and Commercial litigation - Stated.
Allowing the appeals, the Court
HELD: 1.1 In commercial tender matters there is an aspect
of commercial competitiveness. For every succeeding party who
gets a tender there may be parties who are not awarded the tender
as there can be only one L-1. The question is should the judicial
process be resorted to for downplaying the freedom which a
tendering party has, merely because it is a State or a public
authority, making the said process even more cumbersome.
Element of transparency is always required in such tenders
because of the nature of economic activity carried on by the State,
but the contours under which they are to be examined are
restricted. The objective is not to make the Court an appellate
authority for scrutinizing as to whom the tender should be
awarded. Economics must be permitted to play its role for which
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the tendering authority knows best as to what is suited in terms
of technology and price for them. [Para 40][600-D-F]
2.1 The instant dispute has its history in many prior
endeavours by the original petitioners which have proved to be
unsuccessful. It does appear that in a competitive market they
have not been so successful as they would like to be. Merely
because a company is more efficient, obtains better technology,
makes more competitive bids and, thus, succeeds more cannot
be a factor to deprive that company of commercial success on
that pretext. It does appear that this is what is happening; that
the two original petitioners are endeavouring to continuously
create impediments in the way of the succeeding party merely
because they themselves had not so succeeded. It is thus the
view that the Division Bench has fallen into an error in almost
sitting as an appellate authority on technology and commercial
expediency which is not the role which a Court ought to play.
[Para 41][600-G-H; 601-A-B]
2.2 The checks and balances before the tendering process
itself has been provided by constitution of the various committees,
more specifically the Technical Specification Committee and the
Tender Scrutiny and Finalisation Committee. The objective is to
keep the role of these Committees separately defined. [Para
42][601-B-C]
2.3 The objective has been set out by the State Government
to use such technology as would prevent spurious liquor from
being sold. It is a well-known fact that a large revenue collection
comes in Tamil Nadu through sale of liquor. It thus must be left
to the State to see how best to maximize its revenue and what is
the technology to be utilized to prevent situations like spurious
liquor, which in turn would impede revenue collection, apart from
causing damage to the consumers. [Para 43][601-C-D]
2.4 A grievance was made about what was stated to be
"patented technology". At the stage when the concerned
committees were still looking to the objections/suggestions of
the parties, K and A rushed to the Court. The State Government
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS.
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did provide relief by issuing a corrigendum to address the issue
relating to hidden text being visible only through Polaroid, as
colour change background viewable with film as an identifier did
not attract the rigour of this stated patented technology. [Para
44][601-E-F]
2.5 As regards the participating entities, it cannot be
contended that all and sundry should be permitted to participate
in matters of this nature. In fact, in every tender there are certain
qualifying parameters whether it be technology or turnover. The
Court cannot sit over in judgment on what should be the turnover
required for an entity to participate. The prohibition arising from
only a Limited company being permitted to participate was again
addressed by the corrigendum permitting LLPs to participate. If
entities like K and A want to participate they must take some
necessary actions. A is already an LLP. K cannot insist that it will
continue to be a partnership alone and, thus, that partnerships
must necessarily be allowed to participate. [Para 45][601-F-H;
602-A]
2.6 Insofar as K's plea based on the Tender Act is
concerned, a reading of the provisions would show that some
benefit is sought to be given to MSMEs to the extent of 25% of
the order based on their willingness to match the price of the
lowest tender. However, to be able to avail of that benefit, it must
be an entity which is capable of bidding in terms of the tender
conditions. There is no prohibition against limiting the
participation to Limited companies of LLPs. Domestic enterprise
in the Tender Act is defined to mean any micro and small
enterprise as defined in the MSMED Act. This argument also
appears to be an afterthought, as it is not as if K participated
claiming such right as an MSME. [Para 46][602-B-C]
2.7 There were three bidders and that one of them met the
technical specifications but did not succeed further on financial
issues and turnover under the NIT. The same cannot be used to
nullify the whole tendering process. While dealing with a tender
of a nature where there cannot be a vacuum. If there is less
participation than necessary, it cannot be said that ipso facto the
terms and conditions of tender have followed a Decision Oriented
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Systematic Analysis-DOSA, and to somehow give the tender to
one of the parties. Similar terms have been set out in many tenders
of different States and there have been varying succeeding parties.
No doubt, the success rate of the two successful parties is
definitely higher but it cannot be appreciated how that can form
the basis to come to a conclusion that something must be done
to let other people get a tender. If one may say, it will then become
a DOSA to see that the most competitive party does not succeed
in the tender but that other parties who keep approaching the
Court must get some share of the pie. This cannot be the
objective. [Para 47][602-D-G]
2.8 The submissions based on the fact that repeated
endeavours of A and K have failed not only before the High Court
but before different High Courts based on a similar challenge.
Similar tender conditions have been upheld. It cannot be that
every time a tender is floated, K and A would be permitted to
seek a toehold on one pretext or the other. It is not really the
function of the Court to vet the terms of the NIT, as it is the
decision-making process which can be reviewed in judicial
scrutiny. [Para 48][602-G-H; 603-A]
2.9 A lot of emphasis has been placed by the Courts below
in seeking to go into the financial linkages between the two
companies, i.e., appellant and M Company. The correct way of
examining this issue should have been that whether under the
terms of the NIT, any of the aspects which were examined by the
Courts could be said to be a disqualification. The answer to the
same was in the negative. One company had invested in another
through certain preference shares without having any controlling
interest, this cannot be the basis of judicial scrutiny. The instant
case is not one of an intercorporate battle or of minority
shareholders claiming the rights or any debts due, where the
principle of lifting the corporate veil should be applied. What one
may have said in some income tax proceedings, whether a small
percentage of the funds of one company have been utilized as
investment in the other are hardly the principles which should
come into play in such a tender matter. [Para 49][603-A-D]
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS.
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2.10 The impugned order cannot be sustained and is set
aside. [Para 50][603-D]
3.1 The costs following cause is a principle which is followed
in most countries. There seems to be often a hesitancy in the
judicial system to impose costs, presuming as if it is a reflection
on the counsel. This is not the correct approach. In a tussle for
enforcement of rights against a State different principle apply but
in commercial matters costs must follow the cause. [Para 51][603E-F]
3.2 The salutary principles to be followed while awarding
costs are that costs should ordinarily follow the event; realistic
costs ought to be awarded keeping in view the ever increasing
litigation expenses; and the cost should serve the purpose of
curbing frivolous and vexatious litigation. This endeavour in India
is not unique to our country and in a way adopts the principle
prevalent in England of costs following the event. The position
may be somewhat different in the United States but then there
are different principles applicable where champerty is prevalent.
No doubt in most of the countries like India the discretion is with
the Court. There has to be a proportionality to the costs and if
they are unreasonable, the doubt would be resolved in favour of
the paying party. As per Halsbury's Laws of England, the
discretion to award costs must be exercised judicially and in
accordance with reason and justice. The following principles have
been set out therein in deciding what order (if any) to make about
costs, the court must have regard to all the circumstances,
including: the conduct of all the parties; whether a party has
succeeded on part of his case, even if he has not been wholly
successful; and any payment into court or admissible offer to settle
made by a party which is drawn to the court's attention. Similar
principles are followed in Australia, Hong Kong and Canada
largely based on the Common Law principle. In fact in Canada,
the Manitoba Law Commission Report analysed the 'Costs
Awards in Civil Litigation' and referred to broad goals. [Para 53,
54, 55][604-B-G; 605-C-D]
3.3 The said has been set forth so that there is appreciation
of the principles that in carrying on commercial litigation, parties
must weigh the commercial interests, which would include the
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consequences of the matter not receiving favourable
consideration by the courts. Mindless appeals should not be the
rule. In the given facts of the case, the respondents have
succeeded before the Division Bench though they failed before
the Single Judge. Suffice to say that all the parties are financially
strong and took a commercial decision to carry this legal battle
right up to this Court. They must, thus, face the consequences
and costs of success or failure in the present proceedings. [Para
56][605-F-H; 606-A]
3.4 The best reflection of what costs have been incurred is
what the parties have paid towards the counsel fee and out of
pocket expenses. The instant proceedings do arise from a writ
proceeding under Article 226 of the Constitution but it is really a
commercial dispute. Thus, the failing party cannot hide behind
the veneer of the present dispute being in the nature of a writ
proceeding. The tender jurisdiction was created for scrutiny of
commercial matters and, thus, where continuously parties seek
to challenge award of tenders, the succeeding party must get
costs and the party which loses must pay costs. This was really a
battle between two commercial entities on one side seeking to
get set aside an award of a tender to two other entities. What
else would be commercial interest! [Para 57][606-B-D]
3.5 It is with the said objective that the parties were asked
to file their bill of costs. The objective was to bring forth this
principle into force by quantifying actual costs for the succeeding
party. The bill of fee and costs are scrutinised. There is inclination
to allow actual costs. However, the costs have been modulated
insofar as appellant is concerned to the extent of the indicated
amount of the Advocate-on-Record and allow 50% of the same.
The total costs, thus, payable to the petitioner/appellant would
be Rs.23,25,750/- (Rupees twenty three lakh twenty five thousand
seven hundred fifty only). The State Government cannot be left
behind so far as their compensation of costs in defending such a
litigation is concerned and thus, the costs of Rs.7,58,000/- (Rupees
seven lakh fifty eight thousand only) is allowed. The costs be
accordingly paid by K and A in equal share to the two parties.
[Para 58-60][606-D-F]
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Tata Cellular v. Union of India (1994) 6 SCC 651 -
relied on.
Jagdish Mandal v. State of Orissa (2007) 14 SCC 517;
Michigan Rubber v. State of Karnataka (2012) 8 SCC
216 : [2012] 8 SCR 128; Misrilall Mines Pvt. Ltd. &
Anr. v. MMTC & Ors. (2013) SCC Online Del 563;
CaretelInfotech Ltd. v. Hindustan Petroleum Corporation
Limited & Ors. (2019) 14 SCC 81 : [2019] 6 SCR 950;
Air India v. Cochin International Airport (2000) 2 SCC
617 : [2000] 1 SCR 505; Raunaq International Ltd. v.
IVR Construction Ltd. (1999) 1 SCC 492 : [1998] 3
Suppl. SCR 421; Master Marine v. Metcalfe and
Hodkinson (2005) 6 SCC 138 : [2005] 3 SCR 666;
Bharat Cooking Coal v. AMR Dev (2020) 16 SCC 759;
Monarch Infrastructure v. Ulhasnagar Municipal Corp.
(2000) 5 SCC 287 : [2000] 3 SCR 1159; Association
of Registration Plates v. Union of India (2005) 1 SCC
679 : [2004] 6 Suppl. SCR 496; Ashok Kumar Mittal v.
Ram Kumar Gupta (2009) 2 SCC 656 : [2009] 1 SCR
125; Vinod Seth v. Devinder Bajaj (2010) 8 SCC 1 :
[2010] 7 SCR 424; Sanjeev Kumar Jain v. Raghubir
Saran Charitable Trust (2012) 1 SCC 455 : [2011] 12
SCR 744 - referred to.
Case Law Reference
(2007) 14 SCC 517
referred to
Para 2
[2012] 8 SCR 128
referred to
Para 4
[2019] 6 SCR 950
referred to
Para 6
[2000] 1 SCR 505
referred to
Para 28
[1998] 3 Suppl. SCR 421
referred to
Para 28
[2005] 3 SCR 666
referred to
Para 28
(2020) 16 SCC 759
referred to
Para 28
[2000] 3 SCR 1159
referred to
Para 33
[2004] 6 Suppl. SCR 496
referred to
Para 38
(1994) 6 SCC 651
relied on
Para 40
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[2009] 1 SCR 125
referred to
Para 52
[2010] 7 SCR 424
referred to
Para 52
[2011] 12 SCR 744
referred to
Para 52
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.48624863 of 2021.
From the Judgment and Order dated 29.04.2021 of the High Court
of Judicature at Madras in Writ Appeal Nos.848 and 854 of 2021.
Mukul Rohatgi, Sr. Adv., Abhishek Singh, Arun Sinha, Shreshth
Arya, Advs. for the Appellant.
Amit Anand Tiwari, Addl. AG, Ranjit Kumar, Ms. Meenakshi Arora,
Dr. A. M. Singhvi, P. S. Narasimha, K. V. Vishwanathan, Sourab Kirpal,
Sr. Advs., Dr. Joseph Aristotle S., Ms. Preeti Singh, Ms. Ripul Swati
Kumari, Vivek Jain, Sandeep Bagmar R., Siddhant Buxy, L. Nidhiram
Sharma, Nirvikar Singh, T. Mahipal, Abhinav Agrawal, Rajiv K. Virmani,
Mohit D. Ram, Advs. for the Respondents.
The Judgment of the Court was delivered by
SANJAY KISHAN KAUL, J.
1. The enlarged role of the Government in economic activity and
its corresponding ability to give economic 'largesse' was the bedrock of
creating what is commonly called the 'tender jurisdiction'. The objective
was to have greater transparency and the consequent right of an
aggrieved party to invoke the jurisdiction of the High Court under Article
226 of the Constitution of India (hereinafter referred to as the
'Constitution'), beyond the issue of strict enforcement of contractual
rights under the civil jurisdiction. However, the ground reality today is
that almost no tender remains unchallenged. Unsuccessful parties or
parties not even participating in the tender seek to invoke the jurisdiction
of the High Court under Article 226 of the Constitution. The Public
Interest Litigation ('PIL') jurisdiction is also invoked towards the same
objective, an aspect normally deterred by the Court because this causes
proxy litigation in purely contractual matters.
2. The judicial review of such contractual matters has its own
limitations. It is in this context of judicial review of administrative actions
that this Court has opined that it is intended to prevent arbitrariness,
irrationality, unreasonableness, bias and mala fide. The purpose is to
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check whether the choice of decision is made lawfully and not to check
whether the choice of decision is sound. In evaluating tenders and
awarding contracts, the parties are to be governed by principles of
commercial prudence. To that extent, principles of equity and natural
justice have to stay at a distance.1
3. We cannot lose sight of the fact that a tenderer or contractor
with a grievance can always seek damages in a civil court and thus,
"attempts by unsuccessful tenderers with imaginary grievances, wounded
pride and business rivalry, to make mountains out of molehills of some
technical/procedural violation or some prejudice to self, and persuade
courts to interfere by exercising power of judicial review, should be
resisted."2
4. In a sense the Wednesbury principle is imported to the concept,
i.e., the decision is so arbitrary and irrational that it can never be that
any responsible authority acting reasonably and in accordance with law
would have reached such a decision. One other aspect which would
always be kept in mind is that the public interest is not affected. In the
conspectus of the aforesaid principles, it was observed in Michigan
Rubber v. State of Karnataka3 as under:
"23. From the above decisions, the following principles emerge:
(a) the basic requirement of Article 14 is fairness in action by the
State, and non-arbitrariness in essence and substance is the
heartbeat of fair play. These actions are amenable to the judicial
review only to the extent that the State must act validly for a
discernible reason and not whimsically for any ulterior purpose. If
the State acts within the bounds of reasonableness, it would be
legitimate to take into consideration the national priorities;
(b) fixation of a value of the tender is entirely within the purview
of the executive and courts hardly have any role to play in this
process except for striking down such action of the executive as
is proved to be arbitrary or unreasonable. If the Government acts
in conformity with certain healthy standards and norms such as
awarding of contracts by inviting tenders, in those circumstances,
the interference by Courts is very limited;
1 Jagdish Mandal v. State of Orissa, (2007) 14 SCC 517.
2 Id.
3 (2012) 8 SCC 216
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(c) In the matter of formulating conditions of a tender document
and awarding a contract, greater latitude is required to be conceded
to the State authorities unless the action of tendering authority is
found to be malicious and a misuse of its statutory powers,
interference by Courts is not warranted;
(d) Certain preconditions or qualifications for tenders have to be
laid down to ensure that the contractor has the capacity and the
resources to successfully execute the work; and
(e) If the State or its instrumentalities act reasonably, fairly and in
public interest in awarding contract, here again, interference by
Court is very restrictive since no person can claim fundamental
right to carry on business with the Government."
5. One other aspect examined by this Court is whether the terms
and conditions of the tender have been tailor-made to suit a person/
entity. In fact, this is what is sought to be contended in the facts of the
present case by the respondents who were the original petitioners before
the Court. In order to award a contract to a particular party, a reverse
engineering process is evolved to achieve that objective by making the
tender conditions such that only one party may fit the bill. Such an
endeavour has been categorized as "Decision Oriented Systematic
Analysis" (for short 'DOSA').4
6. The burgeoning litigation in this field and the same being carried
to this Court in most matters was the cause we set forth an epilogue in
Caretel Infotech Ltd. v. Hindustan Petroleum Corporation Limited
& Ors.5 Even if it amounts to repetition, we believe that it needs to be
emphasized in view of the controversy arising in the present case to
appreciate the contours within which the factual matrix of the present
case has to be analysed and tested.
"37. We consider it appropriate to make certain observations in
the context of the nature of dispute which is before us. Normally
parties would be governed by their contracts and the tender terms,
and really no writ would be maintainable under Article 226 of the
Constitution of India. In view of Government and public sector
enterprises venturing into economic activities, this Court found it
appropriate to build in certain checks and balances of fairness in
4 Misrilall Mines Pvt. Ltd. & Anr. v. MMTC & Ors, 2013 SCC OnLine Del 563.
5 (2019) 14 SCC 81.
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS.
[SANJAY KISHAN KAUL, J.]
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procedure. It is this approach which has given rise to scrutiny of
tenders in writ proceedings under Article 226 of the Constitution
of India. It, however, appears that the window has been opened
too wide as almost every small or big tender is now sought to be
challenged in writ proceedings almost as a matter of routine. This
in turn, affects the efficacy of commercial activities of the public
sectors, which may be in competition with the private sector. This
could hardly have been the objective in mind. An unnecessary,
close scrutiny of minute details, contrary to the view of the
tendering authority, makes awarding of contracts by Government
and Public Sectors a cumbersome exercise, with long drawn out
litigation at the threshold. The private sector is competing often in
the same field. Promptness and efficiency levels in private
contracts, thus, often tend to make the tenders of the public sector
a non-competitive exercise. This works to a great disadvantage
to the Government and the public sector.
38. In Afcons Infrastructure Limited v. Nagpur Metro Rail
Corporation Limited & Anr.6, this Court has expounded further
on this aspect, while observing that the decision-making process
in accepting or rejecting the bid should not be interfered with.
Interference is permissible only if the decision-making process is
arbitrary or irrational to an extent that no responsible authority,
acting reasonably and in accordance with law, could have reached
such a decision. It has been cautioned that Constitutional Courts
are expected to exercise restraint in interfering with the
administrative decision and ought not to substitute their view for
that of the administrative authority. Mere disagreement with the
decision-making process would not suffice.
39. Another aspect emphasised is that the author of the document
is the best person to understand and appreciate its requirements.
In the facts of the present case, the view, on interpreting the tender
documents, of Respondent No.1 must prevail. Respondent No.1
itself, appreciative of the wording of Clause 20 and the format,
has taken a considered view. Respondent No.3 cannot compel its
own interpretation of the contract to be thrust on Respondent
No.1, or ask the Court to compel Respondent No.1 to accept that
interpretation. In fact, the Court went on to observe in the aforesaid
6 (2016) 16 SCC 818.
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judgment that it is possible that the author of the tender may give
an interpretation that is not acceptable to the constitutional Court,
but that itself would not be a reason for interfering with the
interpretation given. We reproduce the observations in this behalf
as under:
"15. We may add that the owner or the employer of a project,
having authored the tender documents, is the best person to
understand and appreciate its requirements and interpret its
documents. The constitutional courts must defer to this
understanding and appreciation of the tender documents, unless
there is mala fide or perversity in the understanding or
appreciation or in the application of the terms of the tender
conditions. It is possible that the owner or employer of a project
may give an interpretation to the tender documents that is not
acceptable to the constitutional courts but that by itself is not a
reason for interfering with the interpretation given."
40. We may also refer to the judgment of this Court in Nabha
Power Limited (NPL) v. Punjab State Power Corporation
Limited (PSPCL) & Anr.,7 authored by one of us (Sanjay Kishan
Kaul, J.). The legal principles for interpretation of commercial
contracts have been discussed. In the said judgment, a reference
was made to the observations of the Privy Council in Attorney
General of Belize v. Belize Telecom Ltd.8 as under:
"45. ... 16. Before discussing in greater detail the reasoning
of the Court of Appeal, the Board will make some general
observations about the process of implication. The court has
no power to improve upon the instrument which it is called
upon to construe, whether it be a contract, a statute or articles
of association. It cannot introduce terms to make it fairer or
more reasonable. It is concerned only to discover what the
instrument means. However, that meaning is not necessarily
or always what the authors or parties to the document would
have intended. ..."
....
....
....
....
....
7 (2018) 11 SCC 508.
8 (2009) 1 WLR 1988.
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS.
[SANJAY KISHAN KAUL, J.]
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"19. .....In Trollope & Colls Ltd. v. North West Metropolitan
Regional Hospital Board9 Lord Pearson, with whom Lord Guest
and Lord Diplock agreed, said:
"...the court does not make a contract for the parties. The
court will not even improve the contract which the parties have
made for themselves, however desirable the improvement might
be. The court's function is to interpret and apply the contract
which the parties have made for themselves. If the express
terms are perfectly clear and free from ambiguity, there is no
choice to be made between different possible meanings: the
clear terms must be applied even if the court thinks some other
terms would have been more suitable. An unexpressed term
can be implied if and only if the court finds that the parties
must have intended that term to form part of their contract: it
is not enough for the court to find that such a term would have
been adopted by the parties as reasonable men if it had been
suggested to them: it must have been a term that went without
saying, a term necessary to give business efficacy to the
contract, a term which, though tacit, formed part of the contract
which the parties made for themselves."
41. Nabha Power Limited (NPL)10 also took note of the earlier
judgment of this court in Satya Jain v. Anis Ahmed Rushdie11,
which discussed the principle of business efficacy as proposed by
Bowen, L.J. in the Moorcock12. It has been elucidated that this
test requires that terms can be implied only if it is necessary to
give business efficacy to the contract to avoid failure of the contract
and only the bare minimum of implication is to be there to achieve
this goal. Thus, if the contract makes business sense without the
implication of terms, the courts will not imply the same.
42. The judgment in Nabha Power Limited13 concluded with the
following observations in para 72:
"72. We may, however, in the end, extend a word of caution.
It should certainly not be an endeavour of commercial courts
9 (1973) 1 WLR 601 (HL).
10 Nabha (supra).
11 (2013) 8 SCC 131.
12 (1889) LR 14 PD 64 (CA).
13 Nabha (supra).
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to look to implied terms of contract. In the current day and
age, making of contracts is a matter of high technical expertise
with legal brains from all sides involved in the process of drafting
a contract. It is even preceded by opportunities of seeking
clarifications and doubts so that the parties know what they
are getting into. Thus, normally a contract should be read as it
reads, as per its express terms. The implied terms is a concept,
which is necessitated only when the Penta-test referred to
aforesaid comes into play. There has to be a strict necessity
for it. In the present case, we have really only read the contract
in the manner it reads. We have not really read into it any
'implied term' but from the collection of clauses, come to a
conclusion as to what the contract says. The formula for energy
charges, to our mind, was quite clear. We have only expounded
it in accordance to its natural grammatical contour, keeping in
mind the nature of the contract."
43. We have considered it appropriate to, once again, emphasise
the aforesaid aspects, especially in the context of endeavours of
courts to give their own interpretation to contracts, more specifically
tender terms, at the behest of a third party competing for the
tender, rather than what is propounded by the party framing the
tender. The object cannot be that in every contract, where some
parties would lose out, they should get the opportunity to somehow
pick holes, to disqualify the successful parties, on grounds on which
even the party floating the tender finds no merit."14
7. It may also be pertinent to note the principles elucidated in the
case of Tata Cellular v. Union of India:
"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 in which the decision was made.
(3) The court does not have the expertise to correct the
administrative decision. If a review of the administrative decision
14 Caretel (supra).
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS.
[SANJAY KISHAN KAUL, J.]
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is permitted it will be substituting its own decision, without the
necessary expertise which itself may be fallible.
(4) The terms of the invitation to tender cannot be open to judicial
scrutiny because the invitation to tender is in the realm of contract.
Normally speaking, the decision to accept the tender or award
the contract is reached by process of negotiations through several
tiers. More often than not, such decisions are made qualitatively
by experts.
(5) The Government must have freedom of contract. In other
words, a fair play in the joints is a necessary concomitant for an
administrative body functioning in an administrative sphere or
quasi-administrative sphere. However, the decision must not only
be tested by the application of Wednesbury principle of
reasonableness (including its other facts pointed out above) but
must be free from arbitrariness not affected by bias or actuated
by mala fides.
(6) Quashing decisions may impose heavy administrative burden
on the administration and lead to increased and unbudgeted
expenditure."15
8. On having set forth the contours of our analysis we now proceed
to deal with the factual matrix so that we do not deviate from the path
we have set for ourselves aforesaid.
The facts:
9. On 24.08.2020 vide G.O. (Ms.)/No.23 (for short 'G.O.') issued
by the Government of Tamil Nadu inter alia appointed the Joint
Commissioner-II as the Tender Inviting Authority while the Commissioner
of Prohibition and Excise was appointed as the Tender Accepting
Authority apart from the appointment of a Technical Specification
Committee (for short 'TSC') and a Tender Scrutiny and Finalisation
Committee (for short 'TSFC') for purposes of production and supply of
polyester based hologram excise labels on turnkey basis. The stickers
were to be pasted across the caps of bottles of liquor sold by the State
Government through one of its instrumentalities, the Tamil Nadu State
Marketing Corporation (for short 'TASMAC'). The tender required the
prospective bidders and existing suppliers of hologram excise labels to
15 (1994) 6 SCC 651.
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submit necessary documents on the label features and security standard
by 07.09.2020.
10. The first meeting of the TSC was held on 09.09.2020 where it
was inter alia decided that it would be appropriate to have technical
specifications which are generic in nature so as to ensure wider
participation by incorporating those features that are available with at
least three bidders. In the second meeting held on 18.09.2020, three
technical specifications for non-holographic features along with hidden
text on colour change background were formulated, which read as under:
i.
A stripe of design transferred, but not laminated, on the top
of the hologram with visual holographic design on top;
ii.
Hidden texts/images encrypted on second layer on different
colour background; and
iii.
The hidden colour should change at every 45 degree angle,
this hidden text "Tamil Nadu Excise" should be visible only
through a special Polaroid identifier.
11. The TSC thereafter sought to determine the eligibility criteria
for the commercial bid in addition to the already existing criteria so as to
"enhance the security features, ensure better participation, and to restrict
fly-by-night operators." Thus, in the third meeting held on 23.09.2020 it
was recommended that supplier should have been continuously doing
business activities in the same field for the past 8 to 10 years. The draft
tender document consisting of technical specification, product
specification, eligibility criteria and general terms and conditions was
approved in the fourth meeting held on 24.09.2020 and a Notice Inviting
Tender (for short 'NIT') was issued on 01.10.2020 with various technical
specifications and eligibility criteria. The pre-bid meeting was held on
08.10.2020 wherein the respondents before us conveyed their objections
and concerns highlighting that wider participation as mandated by the
G.O. should be adhered along with making a grievance about some
arbitrary conditions in the tender notice.
12. However, without waiting for the final decision in respect of
the aforesaid, two of the prospective tendering parties, viz., M/s. Kumbhat
Holographics (for short 'Kumbhat') and M/s. Alpha Lasertek India LLP
(for short 'Alpha') filed writ petitions in October, 2020 where intervention
was also permitted by two other parties. These petitions were dismissed
by the learned single Judge vide order dated 10.02.2021.
UFLEX LTD. v. GOVERNMENT OF TAMIL NADU & ORS.
[SANJAY KISHAN KAUL, J.]
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13. The material aspect to be taken note of is that there were
certain developments during the pendency of the petition. But we must
note what is the principal grievance made by these parties before the
learned single Judge. The primary contention both by Kumbhat and Alpha
was that the terms of the tender were skewed in favour of Uflex Limited
(for short 'Uflex') and Montage Enterprises Private Limited (for short
'Montage'). The grievance which was made was that certain
requirements were introduced in the tender to ensure that only Uflex
and Montage would be able to qualify under the tender requirements,
i.e.: (i) requirement of 8 years of experience in the field of manufacture
of security holograms; (ii) requirement of bidders to have supplied full
polyester based security hologram labels to the tune of at least Rs. 20
crores to any state excise department during any one of the last three
financial years (with additional requirement under Clause 4.6 in Part 4
of the NIT that the said supply should only have been made to any of the
state excise departments to be considered valid for this purpose); and
(iii) the bidders should also submit a satisfactory performance certificate
from the competent authority or the end user.
14. The other aspect was the grievance made about the technical
requirement of a "Hidden Text on Colour Change Background" feature
stated to be based on a patented technology. Holograms with this feature
were supplied to other public sector undertakings such as the IRCTC in
the past by the suppliers other than Uflex and Montage. However, those
suppliers had never supplied to any State excise department and, thus,
could not meet the two conditions cumulatively. Montage and Uflex were
alleged to be the only two bidders who would qualify under the existent
tender conditions as they held the license to use the patented technology.
The writ petition was resisted by the State inter alia on the ground of
bona fide exercise and the factum of a clarification being issued on
27.10.2020 on the objections of Kumbhat and Alpha, petition having been
filed even without waiting for the clarification to be issued.