A Request For Proposals (RFP) was issued by the Department of Medical, Health and Family Welfare of the Government of Uttar Pradesh in respect of a project under the aegis of the National Rural Health Mission (NRHM). The project which was labelled as '102 National Ambulance Services' envisaged the provision of ambulance facilities 24 X 7 in all the districts of the State that would be accessible through a 24 hour toll free number. The basic purpose of the project was to identify and respond to requests seeking transport and drop-back facility for pregnant women and sick neonates under the Janani Shishu Suraksha Karyakaram (JSSK) and Janani Suraksha Yojana (JSY) schemes. Consequently, under the scheme, a successful bidder was to establish and operate an exclusive 24 hour call centre for managing and coordinating ambulance services and to provide trained manpower and equipment that would stabilize the beneficiaries and transport them to the nearest designated facility within the shortest possible time.
2. The proposals were required to be submitted in the form of a qualification bid and financial bid. A pre-bid conference was proposed to held. The RFP document stipulates the following requirements in regard to technical eligibility and financial capacity :
"2.3.2 To be eligible for bidding under this RFP, an applicant/bidder shall fulfil following conditions of eligibility:
a. Technical Capacity: The Bidder should have at least 3 (three) years experience of running a minimum fleet of 100 Ambulances supported by a centralized call centre of at least 35 seats for last three years set up by the bidder; and b. Financial Capacity: The Bidder should have an average annual turnover/gross receipts of at least Rs.50.00 Crores for the last three financial years (i.e. FY 2010-11, 2011-12 and 2012-2013)."
3. The RFP stipulated that a bid security of Rs.2 crores would be furnished which had to be kept valid from the date of the submission of the bid for a period of 180 days.
4.In pursuance of the RFP, the petitioner submitted a bid. At this stage, it may be necessary to note that clause 2.3.2 and clause 2.3.6.2 of the RFP document were challenged in the first writ petition (Writ - C No. - 68462 of 2013) which was filed before this Court. Clause 2.3.2, as noted earlier, spelt out requirements in relation to technical capacity and financial capacity. Clause 2.3.6.2 is to the following effect:
"2.3.6.2 Any Entity which has been punished for any offence or the Director/President/Chairperson/Trustee of the that entity is convicted for any offence or against whom any criminal cases is/are pending before competent court, shall not be eligible to submit the proposal. The Bidder or each member of Consortium (if Consortium is Bidder), as the case may be, shall have to submit an affidavit to this effect as per Format 4 as part of the Qualification Proposal."
5.In the first writ petition which was filed by the petitioner before this Court, the legality of clause 2.3.6.2 was sought to be questioned on the ground that a mere pendency of a case against an entity or its Director/President/Chairperson cannot be a ground to determine the eligibility of an entity to participate in the bidding process. In paragraph 25 of the petition, the petitioner stated that the petitioner and its CEO had been 'falsely implicated' in one criminal case in which an FIR has been lodged and a charge sheet has been submitted. The petitioner referred to an order dated 15 November 2011 passed by this Court at Lucknow, in pursuance of which, the Central Bureau of Investigation was directed to conduct a preliminary enquiry in regard to the execution and implementation of the NRHM and the utilisation of funds at various levels in the State. After investigation, the CBI registered over 100 First Information Reports and on 19 November 2011, a preliminary enquiry was conducted. On 3 August 2013, CBI filed a charge sheet for the alleged commission of offences under Section 120B read with Section 420 of the Indian Penal Code and under Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, 1988. In paragraph 33 of the petition, the petitioner averred as follows :
"33. That the Petitioner Company further submits that the last date for submitting the bids is 16.12.2011 and the Petitioner Company apprehends that if Petitioner files the aforesaid tender it will be rejected on the grounds that there is a criminal case registered against it and it does not have the experience of two years in the manner as stipulated in the impugned clause, even though it is providing the said ambulance service since its inception in the year 2011 in the State of Bihar, which is one of the first state which started the said 102 ambulance service in the Country."
6. In view of this statement, a notice was issued to the petitioner on 21 December 2013, seeking its clarification on certain information with respect to its RFP document. More specifically, a disclosure was called from the petitioner of the following issues:
"As per the Writ petition C-68462 of 2013 at Hon'ble High Court of Allahabad filed by the Bidder and the Bidder has sought quashing the clause 2.3.2 and clause 2.3.6.2 in the RFP dated 22.10.2013.
Bidder may submit clarification on whether there is/are any criminal case pending on the Company Dr. Jain Video On Wheels Ltd. or through its Director before the competent court."
7.In response, the petitioner submitted a clarification on 26 December 2013 in the following terms:
"It is true that we have filed writ petition C-68462 of 2013 at Hon'ble High Court of Allahabad, wherein we have prayed for the quashing of Clauses 2.3.2 and 2.3.6.2 of the RFP. In view of the same, we request you to consider our letters dated December 14, 2013 and October 14, 2013 addressed to Principal Secretary (Law) and Principal Secretary (Health), respectively. Copies of said letters are enclosed herewith once again for your consideration."
8.On 27 December 2013, the Bid Evaluation Committee took three decisions. Firstly, the Committee held that the petitioner did not meet the requirements of technical eligibility which stipulated that the bidder should have operated a minimum fleet of 200 Ambulances supported by a Centralized Call Centre of at least 25 seats during the previous two financial years. The petitioner was found to be compliant of the condition for sixteen months during financial years 2011-12 and 2012-13. Secondly, the Bid Evaluation Committee came to the conclusion that the petitioner had made a misrepresentation when it submitted its qualification bid stating that (i) the Company had not been punished for any offence; (ii) the Director/President/Chairman/Trustee had not been convicted of any offence nor was any criminal case pending before any competent Court. The Committee noted that under clause 2.3.6.2 of the RFP, an entity, against whom a criminal case is pending before a competent Court, is not eligible to submit a bid for the project. Moreover, clauses 2.8.2(a), 2.8.3 and 2.22.2(a) of the RFP document provided that in the evaluation of bids, if it was found that the bidder had made a material misrepresentation or had furnished incorrect or false information, the Authority had the right to disqualify the bidder and reject its bid. The minutes of the meeting of the Bid Evaluation Committee provide as follows :
"5.1. Misrepresentation in Affidavit 4:
The Bidder was asked to submit a clarification in respect to the Declaration submitted by it in the Format 4 of the Qualification Bid wherein it has claimed in point 4 that "The undersigned further certifies that: a) Our Company Dr. Jain Video On Wheels has not been punished for any offence and b) The Director/ President/ Chairman/ Trustee of our company Dr. Jain Video On Wheels Ltd. have/has neither been convicted of any offence nor any criminal case(s) is/are pending before any Competent Court." However, the Bidder has filed a Writ Petition no. 68462 of 2013 in the Hon'ble High Court of Allahabad on 13.12.2013 and in the fact of the petition it has stated in para no. 25 "That the petitioner company humbly submits before this Hon'ble Court that even the petitioner company along with its CEO has been falsely implicated in one criminal case in which an FIR has been lodged and charge sheet has been submitted against the petitioner company along with CEO Sri Atul Prakash Nigam. A copy of the above referred FIR is annexed hereto and marked herewith as Annexure No. 5 to this writ petition" and it has also stated in para no. 28 "That on 03.08.2013 the CBI filed charge sheet No. 01/2013, EOU-IV/EO-II/CBI/New Delhi for the alleged commission of the offences U/s 120B r/w 420 IPC and S13(2) r/w 13(1)(d) of PC Act, 1988".
The EC noted that as per Clause of 2.3.6.2 of the RFP, any entity against whom any criminal case is pending before a competent court is not eligible to submit the bid/proposal for the Project. That is to say, as per the terms of the RFP an entity, against whom a criminal case is pending, is not qualified to submit the bid for the Project.
Further, Clauses 2.8.2(a), 2.8.3 and 2.22.2(a) of the RFP inter-alia, provides that if during evaluation of bid it is found that the bidder has made material misrepresentation or has given incorrect or false information, then the Authority (Govt. of U.P.) will have the right to forthwith disqualify the bidder and reject its bid.
In the present case, the EC observed that while Dr. Jain Video on Wheels Ltd. has submitted a bid for the Project it was prima-facie not eligible /qualified to submit the bid in terms of the RFP for the reason that a criminal case is pending against Dr. Jain Video on Wheels Ltd. and its Vice President and/or CEO.
However, despite the said position Dr. Jain Video on Wheels Ltd. has submitted its proposal for the Project and has also given incorrect and false information by way of an affidavit (as per Format 4) that there is no criminal case pending against it or any of its President, Directors, etc. The incorrect information given by Dr. Jain Video on Wheels Ltd. in its bid amounts to misrepresentation and in these circumstances, the Authority i.e. Govt. of U.P. can exercise the right to reject the bid of the Dr. Jain Video On Wheels Ltd.
It was deliberated in the meeting and decided that the Bidder has misrepresented the information and concealed information in its bid and has tried to mislead the Government of Uttar Pradesh and therefore as per the Clause 2.8.2 (a), 2.8.3 and 2.22.2 (a) of the RFP Part I, proposal submitted by the Bidder shall be rejected."
Thirdly, the Bid Evaluation Committee decided to forfeit the bid security of the petitioner in the amount of Rs.2 crores and to debar the petitioner from participating in future tenders for a period of two years under clause 4.2 of the RFP document. The decision of the Bid Evaluation Committee was communicated to the petitioner by a letter dated 15 January 2014.
9. The second writ petition (Writ - C No. - 7737 of 2014) has been filed in order to challenge the legality of clauses 2.13.3, 4.1 and 4.2 of the RFP document. The petitioner also seeks to challenge a communication dated 15 January 2014 and seeks consequential relief including the refund of the bid security of Rs.2 crores.
10. Following the decision of the Bid Evaluation Committee, the second respondent has invoked the unconditional and irrevocable bank guarantee which was furnished by the petitioner as bid security by addressing a communication to the issuing bank.
11.Broadly, in these proceedings, three distinct issues arise for the determination of the Court. The first relates to the decision which has been taken to reject the bid submitted by the petitioner on the ground, inter alia, that the petitioner had made a misrepresentation and had concealed the fact that a charge sheet had been filed by the Central Bureau of Investigation, both against the Company and its Chief Executive officer. The second issue relates to the forfeiture of the bid security in the amount of Rs.2 crores. The third issue pertains to the decision which has been taken by the Authority to debar the petitioner from bidding for any future contract of the second respondent for a period of two years.
12. Since these issues are interrelated, it would be appropriate for the convenience of the exposition to deal with them seriatim. The first issue pertains to the rejection of the bid submitted by the petitioner. Clause 2.3.6.2 of the RFP document specifically provides that an entity, which has been punished for any offence or if the Director/President/Chairperson/Trustee of that entity is convicted, or against whom any criminal case is pending before the competent Court, shall not be eligible to submit a proposal. Essentially, clause 2.3.6.2 is in three parts. The first part pertains to a situation where a bidding entity has been punished for an offence. The second part refers to a situation where one or more of the named personnel of the bidding entity are convicted of any offence. The third refers to the pendency of a criminal case. Now, in the present case, it is not in dispute that a First Information Report was lodged on 5 March 2012 under Section 120-B read with Sections 409 and 420 of the Indian Penal Code, both against the Company and Atul Prakash Nigam, who is described as the Vice President of the Company.
13. Significantly, the investigation by the Central Bureau of Investigation took place in compliance with an order passed by this Court at Lucknow on 15 November 2011 and an enquiry was required to be made in regard to the alleged irregularity in the procurement of medicines, medical equipments and information and expenditure on information, education and communication projects of the NRHM for the period from 2005 to 2011. The allegation, inter alia, is that the Principal Secretary (Health) and Family Welfare and Mission Director of the NRHM together with the Director General, Family Welfare and other officials entered into a criminal conspiracy for the award of contracts in excess of Rs.42 crores, for the operation of mobile medical units in 15 districts of the State of Uttar Pradesh at exorbitant rates, in violation of tender procedures.
14. In the first writ petition, which the petitioner filed before this Court, it specifically sought to question the legality and validity of clause 2.3.6.2 of the RFP document, apprehending that its tender would be rejected on the ground that there is a criminal case registered against it. The Bid Evaluation Committee called upon the petitioner by a notice dated 21 December 2013 to clarify the position specifically with reference to whether a criminal case had been registered against the Company or its Director before a competent Court. In the clarification which was submitted by the petitioner on 26 December 2013, all that was stated was that the Company had filed a writ petition which was pending before this Court challenging clauses 2.3.2 and 2.3.6.2. In this background, the Bid Evaluation Committee noted that the petitioner had made a material misrepresentation and has furnished incorrect or false information which entitled the Authority to disqualify the bidder and reject its bid. The Committee noted that despite the factual position of the pendency of a criminal case, the Company had submitted its proposal for the project and had furnished incorrect or false information on affidavit that there was no criminal case pending against it or any of its named personnel. Now, in this background, it would be material to have regard to the relevant provisions of the RFP document. Under clause 2.8.2, the Authority reserves to itself the right to reject a bid on account of a material misrepresentation or if the bidder does not provide supplemental information as sought by the Authority. Clause 2.8.2 reads as follows:
"2.8.2 The Authority reserves the right to reject any bid if:
(a) at any time, a material misrepresentation is made or uncovered, or
(b) the Bidder does not provide, within the time specified by the Authority, the supplemental information sought by the Authority for evaluation of the Bid."
15.In our view, the requirement of disclosing as to whether a criminal case was pending, was not extraneous to the basic purpose and object of the project. The entire project for the provision of ambulance services was conceived under the NRHM. Hence, while inviting proposals, the State was entitled to apply its mind to any previous record of a conviction or in regard to the pendency of a criminal case. But, it is urged on behalf of the petitioner that the form in which the affidavit was required to be filed, namely, Format 4, made a distinction between whether the Company had been punished for any offence and whether any of its named personnel had been convicted of an offence or if any criminal case was pending against them. Clause 4 of Format 4 reads as follows:
"4. The undersigned further certifies that
a) Our Company/Society/Trust...................has not been punished for any offence and
b) the Director/President/Chairman/Trustee of our Company/Society/Trust.............have/has neither been convicted of any offence nor any criminal case (s) is/are pending before any Competent Court."
16.Hence, it has been submitted that there was some variation between what is envisaged in clause 2.3.6.2 of the RFP document and clause 4 of the Format 4 in which the affidavit was required to be filed. The issue, however, before the Court is as to whether the petitioner was oblivious of what was the real intent and purpose of the condition. Significantly, when the petitioner approached this Court in the first writ petition, it did so on the apprehension that it was liable to be disqualified as a result of the operation of clause 2.3.6.2. As we have noted, the specific averment in paragraph 33 of the writ petition was that the petitioner apprehended that its tender would be rejected on the ground that there is a criminal case registered against it and that it did not have the experience of two years. Now, the subsequent conduct of the petitioner when it filed the second writ petition, needs to be referred to at this stage. In the second writ petition, a contrary factual position has been stated as follows:
"21. That it is submitted here that a glance at the First Information Report and charge sheet would reveal that absolutely no insinuation has been cast on the petitioner-Company. Only its Chief Executive Officer has been arraigned as an accused. Thus, it is evident that no case is pending against the petitioner-Company as such, which may go to disqualify the petitioner-Company from being considered for award of contract. It is against the aforesaid arbitrary provisions contained in the tender document that the petitioner-Company has instituted Civil Misc. Writ Petition No.68462 of 2013 (Dr. Jain Video on Wheels Ltd. Vs. State of U.P. and Others).The same is still pending consideration before this Hon'ble Court. The respondents and the private person, to whom the contract has been awarded, have appeared before the Court."
17. This statement was made in a petition which has been filed in February 2014. The statement that there is no insinuation against the Company in the First Information Report and the charge sheet and that only its Chief Executive Officer has been arraigned as an accused, is factually contrary to the material on the record. Similarly, the statement that no case is pending against the Company as such, which would lead to disqualify it from being considered for the award of the contract, is contrary to the record. In this state of the matter, we are of the view that, in the exercise of writ jurisdiction under Article 226 of the Constitution, this conduct of the petitioner must certainly weigh in the balance and would dis-entitle the petitioner to seek relief challenging the termination of the contract. The petitioner was conscious of the fact that a charge sheet has been filed by the Central Bureau of Investigation, both against the Company as well as against its Chief Executive Officer, in spite of which, this fact was withheld in the RFP application. Despite a clarification which was sought during the bidding process, the petitioner continued to maintain a misleading silence over the issue. Finally, the petitioner had prevaricated in making averments which are contrary to each other in the two writ petitions which have been filed before this Court. Hence, we are of the view that the petitioner would be dis-entitled to any relief against the order of rejection of the bid.
18. Since we have come to the conclusion that the rejection of the bid was on account of the failure of the petitioner to disclose the pendency of the criminal case which has been registered by the Central Bureau of Investigation, it would now be necessary to deal with the challenge to the legality of clause 2.3.2 and clause 2.3.6.2 of the tender conditions. Clause 2.3.2 of the tender conditions stipulates requirements in regard to the technical capacity and financial capacity of the bidder. As regards the technical capacity, the clause provides that the bidder should have at least three years' experience, which was subsequently reduced to two years in the course of the pre-bid meeting of running a minimum fleet of 100 Ambulances supported by the Centralized Call Centre with stipulated number of seats for the previous three years. As regards financial capacity, the clause contains a stipulation of an average annual turnover or gross receipts of at least Rs.50.00 crores during the financial years 2010-11, 2011-12 and 2012-13. The bid submitted by the petitioner has been rejected on the ground of want of technical capacity and hence, it is not necessary to address the challenge to the requirement of financial capacity.
19. While dealing with the challenge to the tender conditions, at the outset, it would be necessary to specify the parameters for judicial intervention in regard to the validity of a tender condition. A body which invites tenders is entitled in law to prescribe terms and conditions governing the tender. It is commonplace that requirements in regard to technical eligibility and compliance of financial norms, are laid down in notices inviting tenders. The object of specifying norms in regard to technical capacity is to ensure that the bidder should have sufficient experience to manage a project of the dimension for which tenders have been floated and the expertise and infrastructure required to successfully fulfill the contract. The technical capacity must be demonstrated to exist with reference to certain objective criteria. Hence, tenders specify requirements of experience, expertise and infrastructure while defining technical eligibility. Financial capacity is defined with regard to norms such as average annual turnover, net worth or profitability so as to provide an assurance to the Authority which invites tenders that the bidder, upon the award of a contract, would be capable of performing the contract and would have under its control sufficient financial resources to fulfill the contractual obligations. Specification of norms of technical capacity and financial ability lie within the discretion of a body which invites tenders. The Court will not be in a position to evaluate wisdom of the norms or to substitute a norm which the Court considers to be more appropriate for the requirement, which has been specified by the Authority. The intervention of the Court is confined to an arena where the norms are completely extraneous to the fulfilment of the object and purpose of the contract or, where there is material on the record to establish a challenge on the ground that the norms have been specified to create a monopoly or to exclude competition. The object of inviting tenders is to enable the Authority to have a wide field of choice amongst eligible participants. This object cannot be negated by prescribing norms, which exclude competition or by prescribing norms which would ensure that only one bidder would ultimately be left in the fray. Similarly, where the norms prescribed are clearly ultra vires a statutory provision or are found to be suffering from malice in law or fact, the Court may consider interference. Save and except for this limited area, it is well settled that designing and laying down norms lies in the exclusive domain of the body which invites tenders. These principles have been laid down in several judgments of the Supreme Court and for the purpose of the present case, it may be appropriate to refer to one of the recent judgments in Michigan Rubber (India) Limited Vs. State of Karnataka and others1. The Supreme Court, while dealing with the extent of judicial intervention in regard to tender requirements, held as follows:
"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 the 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;
(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 the 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 a fundamental right to carry on business with the Government.
20. Now, it is from this perspective that the validity of clause 2.3.2 must be assessed. The contract in the present case that is sought to be awarded was for the operation of National Ambulance Services in the State under the NRHM. The contract envisaged round the clock provision of ambulance services across all the 75 districts of the State. The service was to be provided on every day of the year and every hour of the day. The nature of the services, it must be emphasized, is to attend to medical emergencies when a pregnant woman is required to be transported to a hospital. Similarly, the contract envisages the provision of transport facilities to sick neonates. These contractual requirements must be construed in the background of the prevalent maternal and infant mortality across various parts of the country to which the State of Uttar Pradesh is no exception. Social welfare schemes, as is the one in the present case, are extended to ensure that timely medical services are provided so as to reduce the incidence of maternal and infant mortality and to protect the health and well being both of the mother and the child.
21. Having regard to this social purpose implicit in the scheme, it was but necessary for the State to prescribe that in order to be eligible, the bidder should have the experience of running a minimum fleet of Ambulances together with a Centralized Call Centre. Such a requirement was necessary, since the fleet of Ambulances had to be operated in the entire 75 districts of the State. The experience in regard to conducting a Centralized Call Centre was similarly necessary so as to enable a bidder to demonstrate that it runs an organisation of that nature to attend to emergent calls. In this view of the matter, it is not possible for the Court to hold that the tender condition is arbitrary.
22. Admittedly, the petitioner failed to fulfil the requirements as specified in clause 2.3.2 (a) over the entire period of two years, immediately previous to the award of the contract. But, learned counsel appearing on behalf of the petitioner sought to rely upon the judgment of the Supreme Court in B.S.N. Joshi & Sons Ltd. Vs. Nair Coal Services Ltd. and others,2 where it was held thus:
"Whereas a contractor was required to handle 30 million metric tonnes of coal during last five years, the appellant had handled more than 49 million metric tonnes of coal. The Scrutiny Committee appointed by MAHAGENCO noticed that the appellant had enclosed three copies of the PF challans for the year 2003-2004 showing that provident fund for more than 100 employees had been deposited. According to the authorities of the Provident Fund, the financial year is taken to be from March to February in the sense that dues in respect of March are deposited in April and those of February are deposited in March. Yet again, the same logic would apply in regard to the intention of MAHAGENCO which according to them was to ascertain that the contractor should have minimum 100 number of employees on its roll so that its works ultimately do not suffer."
23. Now, it must be noted that in the said case, the facts which emerged on the record, indicated that a group of bidders had formed a cartel. Moreover, it was found that the Special Committee which had been constituted by the Authority had recorded that the appellant had substantially complied with all the essential conditions. This view of the Authority was specifically adverted to in the judgment of the Supreme Court. In contrast, in the present case, it must be noted that it was the Authority which, upon evaluation of the technical requirements submitted by the petitioner, found that the petitioner was not compliant with the norms in regard to technical capacity. The petitioner cannot insist that the Authority must relax the norms. The decision of the Supreme Court, while formulating the legal principles, holds that the essential conditions of tender must be adhered to and if there is no general power of relaxation, it should not ordinarily be exercised. However, if a deviation is made in relation to all the parties in regard to any of the conditions, ordinarily, the power of relaxation may be held to be existing. Hence, when a decision was taken by the Authority upon due consideration of the tender document submitted by all the tenderers and it was ultimately found that the successful bidder had substantially complied with the purport and object of the essential conditions, this should not ordinarily result in interference with the award of the contract to that successful bidder. This is, in our view, the distinguishing aspect of the case.
24. For the aforesaid reasons, we are not in a position to accept the challenge to clause 2.3.2 (a) of the tender requirement.
25. Clause 2.3.6.2, which is challenged, provides for a disqualification in three situations (i) when an entity has been punished for any offence; or (ii) the Director, President, Chairperson or Trustee of the entity is convicted of an offence; or (iii) where a criminal case is pending against the entity or as the case may be, its Director, President, Chairperson or Trustee before the competent Court.
26. In the present case, the challenge to clause 2.3.6.2 cannot be considered in the abstract, but regard must be had to the nature of the allegations in the charge sheet which has been filed against the petitioner and its CEO. It must be noted that the charge sheet which has been filed relates specifically to allegations of wrong doing in regard to the operation of mobile and medical units in the course of the programmes of the National Rural Health Mission itself. Undoubtedly, at this stage, the allegations have to be proved in the Court of competent criminal jurisdiction. However, the issue before the Court is as to whether a party against whom a criminal case is pending before the competent Court on an allegation pertaining to commission of offences under the Penal code in collusion with officers of the State against whom, in addition, there are charges under the Prevention of Corruption Act, should be regarded as eligible, notwithstanding the pendency of the criminal case. In our view, the State is entitled to prescribe such a norm of eligibility so as to ensure that the bidding process is not tainted. There is nothing arbitrary or improper in the action of the State in excluding such a bidder from the fray of contesting parties.
27. In the second writ petition, the petitioner has also sought to question the legality of clauses 2.13.3, 4.1 and 4.2. Clause 2.13.1 provides for a bid security of Rs. 2 crores which is refundable not later than 270 days from the proposal due date, except in the case of the selected bidder whose bid security has to be retained till it has provided a performance security. Clause 2.13.3 provides for circumstances in which the bid security shall be forfeited as damages. Under the clause, the bid security shall be forfeited as damages where the bidder has engaged in a corrupt practice, fraudulent practice, coercive practice, undesirable practice or restrictive practice as specified in Section 4 of the RFP document. The second situation is where a bidder withdraws its bid during the period of bid validity. The third is where the selected bidder fails within the specified time limit to accept the letter of intent, sign the agreement or to furnish the performance security. The fourth situation is in accordance with the relevant provisions of the RFP and the agreement. Clause 2.13.3 is as follows:
"2.13.3 The Bid Security shall be forfeited as damages without prejudice to any other right or remedy that may be available to the Authority under the Bidding Documents and/or under the Agreement, or otherwise, under the following conditions:
(a) If an Bidder engages in a corrupt practice, fraudulent practice, coercive practice, undesirable practice or restrictive practice as specified in Section 4 of this RFP;
(b) If an Bidder withdraws its Bid during the period of Bid validity as specified in this RFP and as extended by mutual consent of the respective Bidder(s) and the Authority;
(c)In the case of the Selected Bidder, if it fails within the specified time limit-
(i) to sign and return the duplicate copy of LOI;
(ii) to sign the Agreement; or
(iii) to furnish the Performance Security within the period of 30 (Thirty) days from the date of issue of LOI; or
(d) As per the relevant provisions of this RFP and Agreement."
28. Clause 4.1 and 4.2 of the bid document are to the following effect:
"4.1 The Bidders and their respective officers, employees, agents and advisers shall observe the highest standard of ethics during the bidding process and subsequent to the issue of the LOI and during the subsistence of the Agreement. Notwithstanding anything to the contrary contained herein, or in the LOI or the Agreement, the Authority may reject a bid, withdraw the LOI, or terminate the Agreement, as the case may be, without being liable in any manner whatsoever to the Bidder or Operator, as the case may be, if it determines that the Bidder or Operator, as the case may be, has, directly or indirectly or through an agent, engaged in corrupt practice, fraudulent practice, collusive practice, coercive practice, undesirable practice or restrictive practice in the bidding process. In such an event, the Authority shall be entitled to forfeit and appropriate the Bid Security or Performance Security, as the case may be, as damages, without prejudice to any other right or remedy that may be available to the Authority under the Bidding Documents and/or the Agreement, or otherwise.
4.2 Without prejudice to the rights of the Authority under Clause 4.1 herein above and the rights and remedies which the Authority may have under the LOI or the Agreement, or otherwise if a Bidder or Operator, as the case may be, is found by the Authority to have directly or indirectly or through an agent, engaged or indulged in any corrupt practice, fraudulent practice, coercive practice, collusive practice, undesirable practice or restrictive practice during the Bidding process, or after the issue of the LOI or the execution of the Agreement, such Bidder or Operator shall not be eligible to participate in any tender or RFP issued by the Authority during a period of 2 (two) years from the date such Bidder or Operator, as the case may be, is found by the Authority to have directly or indirectly or through an agent, engaged or indulged in any corrupt practice, fraudulent practice, coercive practice, collusive practice, undesirable practice or restrictive practices, as the case may be."
29. The expressions corrupt practice, fraudulent practice, coercive practice, collusive practice, undesirable practice and restrictive practice are defined in clause 4.3 which reads as follows:
"(a) "corrupt practice" means (i) the offering, giving, receiving, or soliciting, directly or indirectly, of anything of value to influence the actions of any person connected with the bidding process (for avoidance of doubt, offering of employment to or employing or engaging in any manner whatsoever, directly or indirectly, any official of the Authority who is or has been associated in any manner, directly or indirectly, with the bidding process or the LOI or has dealt with matters concerning the Agreement or arising therefrom, before or after the execution thereof, at any time prior to the expiry of one year from the date such official resigns or retires from or otherwise ceases to be in the service of the Authority, shall be deemed to constitute influencing the actions of a person connected with the bidding process); engaging in any manner whatsoever, whether during the bidding process or after the issue of the LOI or after the execution of the Agreement, as the case may be, any person in respect of any matter relating to the Project or the LOI or the Agreement, who at any time has been or is a legal, financial or technical adviser of the Authority in relation to any matter concerning the Project;
(b) "fraudulent practice" means a misrepresentation or omission of facts or suppression of facts or disclosure of incomplete facts, in order to influence the Bidding process;
(c) "coercive practices" means impairing or harming, or threatening to impair or harm, directly or indirectly, any person or property to influence any person's participation or action in the Bidding process;
(d) "Collusive Practices" means a scheme or arrangement between two or more Operators, with or without the knowledge of Authority designed to influence the action of any party in the Bidding process;
(e) "undesirable practice" means (i) establishing contact with any person connected with or employed or engaged by the Authority with the objective of canvassing, lobbying or in any manner influencing or attempting to influence the Bidding process; or (ii) having a Conflict of Interest; and
(f) "restrictive practice" means forming a cartel or arriving at any understanding or arrangement among Bidders with the objective of restricting or manipulating a full and fair competition in the Bidding process."
30. Clause 4.3 adequately places all bidders on notice of the consequence that would follow, if they resort to any of the prohibited practices. There is nothing arbitrary or irrational about such a clause. Surely, a bidder cannot be heard to complain, if stringent action is taken for having indulged in a corrupt practice, which is essentially attempting to influence the bidding process by offering directly or indirectly anything of value to influence the decision making process. The expression 'fraudulent practice' is defined to mean a misrepresentation or omission of facts or a suppression of facts or disclosure of incomplete facts in order to influence the bidding process. A bidder must, during the course of the bid, make a full and complete disclosure of all facts, which have a bearing on the contract. The Authorities would be justified in taking a serious view of a misrepresentation, omission or suppression of fact by a bidder. Such a conduct would tend to derail the entire tendering process and bring the performance of the entire contract ultimately in jeopardy. Hence, we see no reason to accept the submission that the imposition of such a condition is arbitrary or violative of Article 14 of the Constitution.
31. The principle submission, however, in regard to clause 4.1 and 4.2 is with respect to the interpretation of the provisions. Two consequences follow from clause 4.1 where a bidder is found to have engaged in one of the prescribed practices. The first is that the Authority would be entitled to forfeit the bid security or performance security as damages. The second consequence is that the bidder would not be eligible to participate in any tender or RFP issued by the Authority during the period of two years following the determination made by the Authority. Having due regard to the consequences which follow such a determination, a close look at clauses 4.1 and 4.2 is in order. Clause 4.1 envisages that the conduct of the bidder must be fair, both during the bidding process and even thereafter subsequent to the issuance of a letter of intent and during the subsistence of the contract. Under clause 4.1, the Authority is empowered to reject a bid (where the bidding process has not been completed by the award of a contract) and where the contract has been awarded to withdraw the letter of intent or to terminate the agreement, if it determines that the bidder or operator, as the case may be, has directly or indirectly engaged himself in one of the prohibited practices. Under clause 4.2, where a bidder is found to have engaged in any of the prohibited practices, the bidder would not be eligible to participate in any tender or RFP issued by the Authority for a period of two years from the date on which he is found by the Authority to have engaged in one of the prescribed or prohibited practices.
32. At the outset, we must deal with the submission which has been made on behalf of the petitioner that the power to forfeit the bid security under clause 4.1 or to debar the bidder for a period of two years under clause 4.2 would cease to exist once a bid has been rejected. The submission is that once a bid which was submitted by one of the contesting bidders has been rejected, whatever be the reason, the Authority would cease to have the power to forfeit the bid security as damages and the security is liable to be returned. We are unable to subscribe to this submission. Clause 4.1 specifically deals with two situations. The first is where the bidder is found to have indulged in prohibited practices during the bidding process. The second is where after the issuance of a letter of intent and during the subsistence of the agreement, a bidder is found to have engaged in one of the prohibited practices. In the first case, the Authority is empowered to reject a bid. In the second, the Authority is empowered to withdraw the letter of intent or terminate the agreement. In either case, the Authority has to determine whether the bidder had engaged in one of the prohibited practices. In such an event, the Authority is entitled to forfeit and appropriate the bid security or the performance security, as the case may be, as damages. The forfeiture of the bid security is evidently even before a contract has been entered into. Once the letter of intent has been issued, the RFP stipulates that the bid security shall continue to be retained under clause 2.13.1 until the contractor has provided a performance security. Thus, it is evident that the power to forfeit the bid security is not brought to an end once the bid itself is rejected. Where the bid is rejected on the ground that the bidder has engaged in one of the prohibited practices, the Authority continues to retain the power to forfeit the bid security for damages. The reason for this reservation of power is that during the course of the bidding process, the Authority is required to dedicate its infrastructure, time and resources to the evaluation of bids. A bidder who submits a bid invites the Authority to process its bid in terms of the RFP. Where the bidder has failed to maintain an ethical standard of behaviour and has indulged in a prohibited practice, the Authority is permitted to recoup itself by way of damages through the bid security. Where the behaviour complained of has taken place after the award of a contract, the performance security can be utilised for the purpose of recouping the Authority of the damages which may have been sustained by it. Consequently, we are unable to subscribe to the contention that the power to forfeit the bid security comes to an end once the bid is rejected.
33. However, we now deal with the second leg of the submission, which is that both the forfeiture of the security under clause 4.1 and the debarment under clause 4.2 entail serious consequences and hence it is necessary that a notice is issued to the contractor before such action is taken. Now, it must be emphasized that both under clause 4.1 which provides for the consequence of a forfeiture of the security and under clause 4.2 which provides for debarment of two years, the underlying reason is the same, namely, whether the contractor has engaged in one of the prohibited practices as defined in clause 4.3. Under clause 4.1, the Authority is required to determine whether the contractor has engaged in one of those practices. Similarly, clause 4.2 speaks of the contractor being found by the Authority to have engaged in one of the prohibited practices. Thus, both in respect of the forfeiture under clause 4.1 and the debarment under clause 4.2, the underlying basis is the same, namely, a finding that the contractor has engaged in one of the practices referred to in clause 4.3. Moreover, another aspect to be noted is that under clause 4.1, the bid security or as the case may be, performance security is forfeited as damages. In other words, the forfeiture of the bid security or performance security need not follow as a matter of course unless the Authority comes to the conclusion that it has suffered damages on account of the conduct of the bidder or contractor. Both forfeiture of the security and the debarment entail serious consequences. It is well settled that a decision to debar a contractor from being eligible to bid for a contract on account of wrongful conduct involves serious consequences and hence compliance of the principles of natural justice is necessary.
34. Moreover, it must be noted that clause 4.3 (d) defines the expression 'fraudulent practice' as a misrepresentation or omission of facts or suppression of facts or disclosure of incomplete facts in order to influence the bidding process. In other words, it is not a mere misrepresentation, which is regarded as a fraudulent practice, but a misrepresentation in order to influence the bidding process. Before the Authority arrives at the determination under clause 4.1 or a finding under clause 4.2, it is, in our view, necessary that the basic principles of natural justice should be complied with.
35. The law on the subject has been summarised in a recent judgment of the Supreme Court in M/s Kulja Industries Limited. Vs. Chief Gen. Manager W.T. Proj. BSNL & Ors3. The Supreme Court referred to the earlier decisions on the subject of black listing and held as follows:
"17. That apart the power to blacklist a contractor whether the contract be for supply of material or equipment or for the execution of any other work whatsoever is in our opinion inherent in the party allotting the contract. There is no need for any such power being specifically conferred by statute or reserved by contractor. That is because 'blacklisting' simply signifies a business decision by which the party affected by the breach decides not to enter into any contractual relationship with the party committing the breach. Between two private parties the right to take any such decision is absolute and untrammelled by any constraints whatsoever. The freedom to contract or not to contract is unqualified in the case of private parties. But any such decision is subject to judicial review when the same is taken by the State or any of its instrumentalities. This implies that any such decision will be open to scrutiny not only on the touchstone of the principles of natural justice but also on the doctrine of proportionality. A fair hearing to the party being blacklisted thus becomes an essential pre-condition for a proper exercise of the power and a valid order of blacklisting made pursuant thereto. The order itself being reasonable, fair and proportionate to the gravity of the offence is similarly examinable by a writ Court. The legal position on the subject is settled by a long line of decisions rendered by this Court starting with Erusian Equipment & Chemicals Ltd. v. State of West Bengal and Anr(1975) 1 SCC 70 where this Court declared that blacklisting has the effect of preventing a person from entering into lawful relationship with the Government for purposes of gains and that the Authority passing any such order was required to give a fair hearing before passing an order blacklisting a certain entity. This Court observed:
"20. Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist."
18. Subsequent decisions of this Court in Southern Painters v. Fertilizers & Chemicals Travancore Ltd. AIR 1994 SC 1277; Patel Engineering Ltd. Union of India (2012) 11 SCC 257; B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd. (2006)11SCC548; Joseph Vilangandan v. The Executive Engineer (PWD) Ernakulam (1978) 3 SCC 36 among others have followed the ratio of that decision and applied the principle of audi alteram partem to the process that may eventually culminate in the blacklisting of a contractor.
19. Even the second facet of the scrutiny which the blacklisting order must suffer is no longer res integra. The decisions of this Court in Radha krishna Agarwal v. State of Bihar (1977) 3 SCC 457; E.P Royappa v. State of Tamil Nadu (1974) 4 SCC 3; Maneka Gandhi v. Union of India (1978) 1 SCC 248; Ajay Hasia v. Khalid Mujib Sehravardi, (1981) 1 SCC 722; R.D. Shetty v. International Airport Authority of India (1979) 3 SCC 489 and Dwarkadas Marfatia and sons v. Board of Trustees of the Port of Bombay (1989) 3 SCC 293 have ruled against arbitrariness and discrimination in every matter that is subject to judicial review before a Writ Court exercising powers under Article 226 or Article 32 of the Constitution. It is also well settled that even though the right of the writ petitioner is in the nature of a contractual right, the manner, the method and the motive behind the decision of the authority whether or not to enter into a contract is subject to judicial review on the touchstone of fairness, relevance, natural justice, non-discrimination, equality and proportionality. All these considerations that go to determine whether the action is sustainable in law have been sanctified by judicial pronouncements of this Court and are of seminal importance in a system that is committed to the rule of law."
36. At this stage, it must be clarified that we do not lay down a general principle that in every instance of a forfeiture of security, compliance with the principles of natural justice is necessary. However, where a consequence of debarment is provided under the terms of the RFP, as in the present case, following the law which has been laid down by the Supreme Court, compliance of the basic principles of natural justice is required to subserve the principle of fairness on the part of the Government which is a requirement of Article 14 of the Constitution. In the present case, we have taken a view that compliance of natural justice is necessary even in respect of the forfeiture of a security for the reason that the foundation for the action of forfeiture under clause 4.1 is the same as the foundation of an action of debarment under clause 4.2. Hence, for these reasons, we are inclined to grant limited relief to the petitioner by directing that before the Authority imposes the consequence of a forfeiture or a debarment under clauses 4.1 and 4.2, a notice and an opportunity of being heard should be furnished to the petitioner.
37. In the circumstances, we dispose of the petition in terms of the following conclusions:
(i) The rejection of the bid submitted by the petitioner for the reasons, as communicated on 15 January 2014, is held to be valid and proper;
(ii) The challenge to the legality and validity of clauses 2.3.2, 2.3.6.2, 2.13.3, 4.1 and 4.2 of the RFP document is rejected;
(iii) The Authority is directed to comply with the principles of natural justice and to issue a notice to show cause to the petitioner before taking action for forfeiture of the security deposit of Rs.2 crores and for imposing a debarment of two years or any part thereof on the petitioner under clauses 4.1 and 4.2. This would, however, be conditional on the petitioner, within a period of two weeks from today, furnishing an extension of the bank guarantee to the satisfaction of the respondent, failing which, the Authority would be at liberty to encash the bank guarantee in terms of the invocation which has already been made. Upon extension, the bank guarantee shall be kept alive during the period that is taken by the Authority for the issuance of a notice and for determining as to whether any of the consequences envisaged in clauses 4.1 and 4.2 of the contract should ensue. The Authority would be at liberty to take a decision after furnishing to the petitioner a reasonable opportunity of being heard.
38. The petition is, accordingly, disposed of. There shall be no order as to costs.
Order Date :- 21.5.2014 VMA (Dr. D.Y. Chandrachud, C.J.) (Dilip Gupta, J.)