Afcons Infrastructure Limited v. Nagpur Metro Rail Corporation Limited Issues Raised (i) Whether GYT-TPL fulfilled the eligibility requirements as per

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1 AFCONS INFRASTRUCTURE LIMITED v. NAGPUR METRO RAIL CORPORATION LIMITED AND ANR. 1 A CASE ANALYSIS Sanjana Buch * 1. Introduction India s economic growth and prosperity has been on a steady rise over the last decade owing to rigorous policy changes thereby attracting higher levels of foreign investment in the country. The heightened reforms have promoted the development of several sectors in the economy such as the infrastructure sector paving the way for new regulations and laws on tendering, government contracts and public procurement. However, a rise in contractual activity has brought about not only the involvement of foreign players in the infrastructure space but also given rise to a number of contractual and other disputes pertaining to the award of a contract or the tendering process. The Hon ble Supreme Court has from time to time laid down the principles governing tendering process through some of its landmark precedents. However, a recent controversy relating to the award of a tender has again served a refresher to the aforesaid principles so laid down by the apex court in the past. Background of Facts The Nagpur Metro Rail Corporation Limited ( NMRCL ) floated a tender for the purpose of construction of a viaduct on its metro line to be undertaken in its Metro Rail Project to which one of the bidders was GYT-TPL, a joint venture entered into between Guangdong Yuantian Engineering Company, a Chinese company and Tata Projects Limited a company incorporated in India ( GYT-TPL ). The bid submitted by GYT-TPL was rejected on the ground of non-fulfilment of the eligibility criteria as laid down in the tender conditions being a certain level of experience in metro construction sector. The aforesaid communication by NMRCL was soon thereafter challenged by GYT-TPL by virtue of a writ petition before the Bombay High Court (Nagpur Bench). The Bombay High Court quashed the NMRCL s rejection communication pursuant to which a review petition was filed by Afcons Infrastructure Limited ( Afcons ), the lowest bidder to this tender. Upon rejection of the application for review, Afcons filed sought to challenge the same vide special leave petition before the Supreme Court of India. * Student, Gujarat National Law University, Gandhinagar 1 (2016) SCC OnLine SC 940 [Bench: Madan B. Lokur and R.K. Agrawal, JJ] 187

2 Afcons Infrastructure Limited v. Nagpur Metro Rail Corporation Limited Issues Raised (i) Whether GYT-TPL fulfilled the eligibility requirements as per Clause 4.2 (a) of the bid/tender document? The tender document was floated by NMRCL inviting bids for the construction of a viaduct between two stations in the metro east-west corridor. The terms of the tender document called upon all the participants to comply with two conditions under its eligibility criteria firstly, that the bidder should have completed during the last ten years or upto May 31, 2015 in the capacity of a contractor or a joint venture member a number of such contracts of a similar nature and the bidder should have received an investment upto 3200 million rupees for such contract. Moreover, the second condition being that specifically the bidder shall have also completed a viaduct length of 5 kilometres within the same contract relating to a metro civil construction work. It was found through the submissions and resultant order of the Bombay High Court that GYT-TPL completed the requirement with respect to the investment condition as elaborated in the tender document. However, there was a conflict of opinion between the parties as to the requirement of the metro civil construction work. It was contended by GYT-TPL that although the joint venture did not have experience in construction of an intra-city metro construction project, it did possess credible experience in the construction of viaduct for an inter-city metro construction project thereby making it an eligible bidder within the ambit of clause 4.2 (a) as mentioned earlier. The Bombay HC agreeing on this line of thought set aside the rejection letter of NMRCL as sent to GYT-TPL disqualifying them from the tendering process. However, the Supreme Court took a slightly different view to the same issue. A comprehensive assessment was made taking into account the definitions of the term metro as defined primarily under two statutes viz. the Metro Railway (Construction of Works) Act, 1978 and Metro Railway (Operation and Maintenance) Act 2002 ( Metro Railway statutes ). The Court took into account the meaning and context of the term metro as defined under both the Metro Railway statutes. The apex court looked into the difference between an intra-city railway project and inter-city railway project stating that there exists a stark difference between the two being the qualitative distinction when it came to the construction of these railway projects thus, making the entire a task of constructing a viaduct for an inter-city railway project qualitatively different from the construction of a viaduct for an intra-city railway project. Thus, the Supreme Court differed from the Bombay High Court s opinion in this case declaring that the Pearl River Delta Intercity High Speed Railway Project undertaken by GYT-TPL during the course of the ten years did not qualify under the ambit of the term metro civil construction work as expounded by NMRCL in the tender document. The court thus ruled GYT-TPL unfit for the purpose of meeting the eligibility criteria described in the tender document.

3 (ii) Whether the award of tender by NMRCL warrants interference by the court and to what extent? The Court was of the view that interference with the decision making process or decision of the administrative authority are not reasonable grounds for which courts should exercise its power of judicial review under the Constitution. The court referred to a number of decisions earlier adjudicated on this issue leading to observe that the threshold to determine the extent of mala fides or arbitrariness is at quite a higher level before such interference is warranted. The bench took into reference a very recent judgment of the apex court itself in Central Coalfields Limited v. SLL-SML (Joint Venture Consortium) 2 wherein it was held that decisions of the employers or owners of projects in the tendering process should not be subject to interference by the courts. The Court then went on to lay down the following principles in respect of calling upon the court s judicial review over the award of tenders and tendering process: (i) The decisions on the award or rejection of tenders can be interfered with only in the event there exists mala fides in the decision making process or if the process was entirely perverse so as to conclude that no reasonable man could have come to the same conclusion or if the decision making process is made to favour one person over another; (ii) The language of the tendering document holds utmost importance at the time of interpreting the terms and conditions of the same so as to ascertain the intent of the entity floating the tender in the first place. It would thus be appropriate to read the terms of the bid document in context of their ordinary parlance and not be given a superfluous meaning; and (iii) The court is bound to give an interpretation to the tender documents on basis of an understanding and appreciation of the author of the tender documents. The interpretation on this ground shall be matched by the court at all times save for in cases where the understanding and appreciation of the document is based on mala fide and perverse conditions. These understandings and appreciations are to be adhered to even when the court is not in conformity with the interpretation given by the author of the tender document. Judgement of the Supreme Court The Court further went on to observe that the manner in which GYT-TPL was disqualified on ground of ineligibility under conditions of the tender document in no manner amounted to grave irrationality or arbitrariness on the part of NMRCL so as to (8) SCALE

4 Afcons Infrastructure Limited v. Nagpur Metro Rail Corporation Limited bring upon judicial review over the rejection of GYT-TPL and award of the tender to Afcons. Similarly, the court did not find ambiguity of any nature in respect of the tender conditions due to which GYT-TPL was disqualified from the tendering process. It held that NMRCL was justified and rightly so in disqualifying GYT-TPL from proceeding with its bid for the metro railway project. In fact, the bench criticised the Bombay High Court reprimanding the court of exceeding its jurisdiction in interfering with the tendering process undertaken by NMRCL. Analysis of the Judgement The judgement is a retake at an issue that remains an oft debated one in the field of infrastructure law specifically dealing with the law of tenders and award of government contracts viz. the extent of judicial review permitted to courts under the exercise of its writ jurisdiction. It offers a fresh insight into the position that remains in this field and the changing attitude of the courts that have utilised judicial restraint in the award of tenders by organisations right since decades with landmark cases such as Ramana Dayaram Shetty v. International Airport Authority of India 3 and Tata Cellular v. Union of India 4 posing as the guiding factors in the jurisprudence pertaining to the law of tenders. The judgement precedes with a critical analysis of the reasoning adopted by the Bombay High Court and the manner in which the decision has been arrived at by the bench exercising its writ jurisdiction. A remarkable feature highlighting this judgement is that the court has treaded carefully on exercising its power of judicial review over administrative action taken upon by the state. The rationale behind the exercise of limited judicial scrutiny in tendering processes has been explained by the apex court in Raunaq International Limited v. IVR Construction Limited 5 being that court intervention in tendering processes shall lead to delay in execution of public projects ultimately causing price escalation. Not only has the apex court exercised judicial restraint but gone to the extent of reprimanding the High Court s power to interpret the terms of the tender document. It thus paves the way for bringing about a smooth tendering process which can be completed in a timely and efficient manner. The Courts have time and again reiterated a limited level of interference in the acceptance and rejection of tenders as well as tendering process. The bench has clearly restricted its jurisdiction as well as evaluated the High Court s power under its writ jurisdiction leading to restore the confidence of entities that are serving or may serve as participants in the tendering process thereby making it a valuable addition in the tender jurisprudence. The present judgement succinctly highlights that a judicial review of administrative action in the award of tenders lies only if the decision or the decision 3 (1979) 3 SCC (1994) 6 SCC AIR 1999 SC 393

5 making process of the administrative authority is clearly perverse under the law thus paving the way for a new parameter to review the award or rejection of tenders by courts exercising writ jurisdiction. Perversity of the decision or decision making process in award of tenders is now another ground in addition to those elucidated in Tata Cellular s case. 6 Furthermore, an emphasis on ascertaining the language of the tender document through the author of the document rule brings out adherence to the five rules of interpretation culled out by Lord Hoffman in Investors Compensation Scheme v. West Bromwich Building Society 7 wherein utmost importance was given to the interpretation of the language of the contract by ascertaining the meaning of the words in light of the background knowledge available to reasonable person in the contractual situation. Its emphasis on placing the understanding and application of the author of the tender also upholds the principle that the language of a document is that which the parties using that language against the relevant background would have reasonably understood to mean. 2. Conclusion Infrastructure companies and other contractors specialising in infrastructure projects can breathe a sigh of relief as the attitude of the adjudicating authorities towards public private projects in the country is bent towards furthering the government s objective of carrying out a speedy and efficient manner of conducting business by way of undertaking infrastructure projects through public procurement. The award of government contracts through tendering process is a method of public procurement resorted to by the state most of the times to build infrastructure projects of greater intensity in order to make available basic amenities to be enjoyed by every citizen in the country. The present judgment places a strong emphasis on the spirit of contractual transactions that are visible from the letters of the tender document thereby rendering them as the sole repository of the aims and objectives of the procuring entity. The courts are bound at all times to uphold this spirit outlined in the document and never digress from the terms of the contract however absurd or erroneous the wording may be. 6 Supra note 4 7 (1998) 1 WLR