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Report No. 145

5.15. Situation regarding lowest tender.-

It will appear from some of the letters on the Law Commission file (as received from the public sector undertakings through the Bureau of Public Enterprises) that an impression seems to prevail that the person who has given the lowest tender must be awarded the contract, whatever be the credentials or background of the tenderer. It is because of this impression that the suggestion has been made1, that if the public sector undertakings are excluded from the applicability of Article 12, it would help the functioning of the undertakings.

"This would provide flexibility to the undertakings to reject the lowest tender in case the performance of the tenderer is regarded as unsatisfactory or his credentials are considered to be questionable." It is further stated that similarly, the requirement of a show cause notice before stopping dealings with a contractor or debarring him from preferring tenders "is always onerous and open to challenge in courts of law and in case this requirement is removed, it would strengthen the hands of the undertakings because their action will not be subjected to judicial scrutiny".

While we appreciate the desire for quick and efficient functioning of undertakings in the matter of award of contracts, we would like to point out that it is not the law that the lowest tender can never be rejected. What the law insists upon, is that the action of this nature, if taken in regard to a tenderer should be based on some reasons and should be taken after giving the tenderer an opportunity of hearing. The law does not even require that the reason given by a department or undertaking for not accepting the lowest tender should be one which is necessarily acceptable to the court.

All that the courts demand is that there should exist on the file some plausible justification for the State action and that the opportunity to be given should be reasonable. NO elaborate or lengthy inquiry is contemplated and it is believed that the court will pay attention to the substance of the matter rather than to the form. At the same time we would like to point out that the law regarding the duty of public authorities to avoid arbitrariness in the matter of acceptance or rejection of tenders is a part of the much wider concept of the rule of law.

In a fairly recent Case2, the Supreme Court, while dealing with the question of acceptance of tenders by a Government company, held that it was too late in the day to contend that an institution like a Government company should be exempt from judicial review where it was carrying on a commercial activity. "An instrumentality of the State has to act within the ambit of Rule of Law and would not be allowed to conduct it self arbitrarily and, in its dealings with the public, would be liable to judicial review."

It was on this reasoning that the court expressed itself to be in agreement with the submission of the counsel for the petitioner (namely) "that when highest offers of the type in question are rejected, reasons sufficient to indicate the stand of the appropriate authority should be made available and ordinarily, the same should be communicated to the concerned parties unless there be any specific justification not to do so."

1. Letter dated 13th February, 1989.

2. Star Enterprises v. City and Industrial Development Corporation of Maharashtra Ltd., 1990 (1) SCC 280.

Article 12 of the Constitution and Public Sector Undertakings Back

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