Full Judgment Text
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PETITIONER:
COCHIN INTERNATIONAL AIRPORT LTD.
Vs.
RESPONDENT:
CAMBATTA AVIATION LTD. & ORS
DATE OF JUDGMENT: 31/01/2000
BENCH:
G.T.Nanavati, S.N.Phukan
JUDGMENT:
JUDGEMENT
G.T.NANAVATI
Both these appeals arise out of the judgment of Kerala
High Court in Writ Appeal No. 462 of 1999. Cambatta
Aviation Ltd. 9hereinafter referred to as ’Cambatta’) had
filed that appeal against the decision of a learned Single
Judge of that High Court in O.P. No. 25560 of 1998 whereby
its said petition was dismissed. Cambatta had challenged
the action of the Cochin International Airport Ltd. (for
brevity sake referred to as the ’CIAL") of awarding contract
for ground handling services at the new Cochin Airport at
Nedumbassery to Air India Ltd. The learned single Judge
held that the impugned action of CIAL was neither arbitrary
nor illegal. On appeal Division Bench of that Court held
that the said action was vioiative of principles of natural
justice, arbitrary and illegal.
CIAL is a public sector undertaking. Some other
public sector undertakings and the State of Keraia are its
shareholders. It has been established for setting up and
maintaining a new International Airport at Cochin. For
awarding a contract for ground handling facilities at the
new Airport it invited offers by writing letters to some
companies having experience of that type. The letters were
written on 12.11.1997 to Cambatta;Air India and six others.
Proposals were ^o^e’ submitted by 31.12.1997. Kambatta, Air
India, M/s DNATA of Dubal, M/s Ogden Aviation Services of
Hong Kong and M/s P.S.M. Aviation Pvt. Ltd. - responded.
Proposals of some of them contained alternative proposals
also. On 13.7.1998 CIAL again wrote to them to make their
best offers on or before
3
28.7.1998. Air India submitted its proposal on
20.7.1998.
Cambata did so on 28.7.1998.
The Committed constituted by CIAL for evaluation of
the offers met on 28.9.1998. It found that Cambatta, Air
India, DNATA and Ogden Aviation were on par as regards
technical competence, organisationai capacity and past
experience. It took note of the fact that Cambatta and Air
India are Indian organisations, operate mainly in India and
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have better proven adaptability for operating in Indian
conditions. Out of those two it recommended Cambatta for
awarding the work. On 11.8.1998 the Government of India
wrote a letter to the Government of Kerala recommending Air
India for awarding the contract on the ground that Air India
is the national carrier and has better experience.
Thereafter a meeting took place between the Managing
Director of Air India and the Chief Minister of Kerala.
That was followed by a letter dated 29.10.1998 by Mr. P.
Mascarenhas, Managing Director of Air India to the Chief
Minister of Kerala seeking an opportunity to make a more
detailed presentation to the Board of CIAL on the advantages
CIAL would derive if Air India was appointed its exclusive
handling agent. The Board of Directors met on 7.11.1998 and
decided to have a
4 detailed discussion with Air India before taking a
final decision and informed it to give a presentation before
the Board on 27.11.1998. Having come to know about this
development^ Cambatta wrote a letter on 10.11.1998 to the
Chief Minister of Kerala pointing out that their company is
also an Indian company and they also have experience of over
30 years in ground handling work. It also took exception to
the effort made by Air India to revise its offer on the
ground that it was unethical and deserved to be condemned by
the Board. It again wrote to the Chief Minister on
12.11.1998 against giving preference to a national carrier
in view of the policy of liberlisation. On 23.11.1998
Cambatta wrote to CIAL that it was extremely perturbed over
the fact that Air India was given a further opportunity to
make a presentation to the Board and requested it not to go
back upon its earlier decision to give the contract to
Cambatta. It also warned that not adhering to its earlier
decision would be a retrograde step and shake the confidence
of the people in fairness and impartiality of CIAL. Air
India gave the presentation and by its letter dated
1.12.1998, reaffirmed its proposal With some changes as
discussed and requested CIAL to accept it as it was better
than the offer made by any other party. Cambattta again
protested by its letter dated 7.12.1998 and
informed CIAL that to accept the revised offer of Air
India and not to accept its offer would be unfair and
unethical and violative of Limited Global Competitive
Building Norms. On 12.12.1998 the first respondent awarded
the contract to Air India.
Cambatta filed a writ petition in the Kerala High
Court challenging that action of CIAL. Its contention was
that its offer was the highest and it had fulfilled all the
conditions. The offer given by Air India did not come
anywhere near their offer, yet the contract was given to Air
India because of influence exerted by Air India and the
Secretary of Ministry of Civil Aviation. It was also
challenged on the ground that CIAL had not acted fairly and
impartially as It had carried on negotiations with Air India
behind the back of Cambatta and no opportunity was given to
Cambatta to give a better offer. In the counter affidavit
filed on behalf of CIAL it was stated that this was not a
case where tenders were invited. It was a project to be
implemented by raising finances from various sources and,
therefore, it was decided to invite offers from reputed
agencies in order to decide best terms and conditions and
then to award the contract to the best suited party in order
to make the project viable and successful. It was further
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stated that individual offers
6 were assessed considering the background and
Infrastructure of the companies, their financiat capacity,
expertise and future benefits likely accrue to CIAL. While
awarding the contract to Air India what had weighed with it
was, apart from it selection by the evaluating Committee,
that it is a public sector unit, the national carrier under
the Government of India and that it had offered to support
CIAL in a big way byshowing its willingness in equity
participation. It had also taken into consideration the
fact that Cambatta was not a airline operator like Air India
and its interest and expertise was limited to ground
handling work alone. Air India had also offered to help in
improving the revenue of CIAL by increasing Air Traffic
through the Cochin Airport. Thus, on a comparative analysis
of the offers made by Cambatta and Air India it was found
that the offer made by Air India was better and more
beneficial to CIAL. The petition was heard by a learned
Single Judge of the High Court who held that there was no
illegality, arbitrarmess or un reasonableness in the
decision making process of CIAL and the decision was taken
bonafide afterevaluating both the offers and on being
satisfied that in the matter of experience, expertise,
infrastructure and financial capacity the offer of Air India
was superior and more bsneficiai. As regards the allegation
of actual mala fides the
9 exercising Its power under Article 226 ought not to
have Interfered as no substantial amount of public interest
was Involved.
The law relating to award of a contract by the State,
its corporations and bodies acting as instrumentalities and
agencies of the Government has been settled by the decision
of this Court in R.D. Shotty vs.Intarnational Airport
Authority [(1979) 3 SCC 483J, Fertilizer Corporation Kamgar
Union vs. Union of India 1(1981) I SCC 568], Asstt.
Collector, Central Excise vs. Dunlop India Ltd. [(1985) I
SCC 260], lata Cellular vs. Union of India f(1994) 6 SCC
651J, Ramnikial N. Phutig vs. State of Maharaslitra
[(1997) I SCC 134] and Bauliaq Inlernationa! Ltd. vs.
I.V.R. Construction Ltd.[(1999) I SCC 4923. The award of a
contract, whether it is by a private party or by a public
body or the State, is essentially a commercial transaction.
Inarhvingat acommercial decision considerations which are of
paramount are commercial considerations. The State can
choose Its own method to arrive at a decision. It can fix
its own terms of Invitation to tender and that is not open
to judicial scrutiny. It can enter into negotiations before
finally deciding to accept one of the offers
10 made to it. Price need not always be the sole
criterion for awarding a contract. It is free to grant any
relaxation, for bona fide reasons, if the tender conditions
permit such a relaxation. It may not accept the offer even
though it happens to be the highest or the lowest. But the
State, its corporations,. instumentalities and agencies are
bound to adhere to the norms, . standards and procedures
laid down by them and cannot depart from them arbitrarily.
Though that decision Is not amenable to judicial review, the
Court can examine the decision making process and interfere
if it is found vitiated by mala fides, unreasonableness and
arbitrariness. The State, Its" corporations,
instumentalities and agencies have the public duty to be
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fair to all concerned. Even when some defect is found in
the decision making process the Court must exercise Its
discretionary power under Article 226 Wlth great caution and
should exercise it only in furtherance of public interest
and not merely on the making out of a legal point. The
Court should always keep the larger public interest in mind
In order to decide whether its Intervention «s called for or
not. Only when It comes to a conclusion that overwhelming
public interest requires interference the court should
intervene.
-"."’>o ^’’
II In view of this settled legal position, Mr.
Andhyarujina, learned senior counsel appearing for Cambatta
rightly and fairly did not dispute that CIAL was not bound
to accept the highest offer or that It was entitled to enter
Into negotiations with Air India. What he contended was
that CIAL ought to have treated all the tenderers fairly.
As Air India was given an opportunity to give a presentation
and revise Its offer It ought to have given a chance to
Cambattaalso-to have Its say with respect to the offer made
by Air India and to match its offer with the offer of Air
India. He submitted that the evaluation committee had
recommended Cambatta for awarding the contract after
considering all the relevant factors and, therefore, it was
incumbent upon the Board of Directors to disclose why they
differed from the said recommendation and decided to accept
the offer of Air India. He also submitted that the decision
of CIAL was vitiated because of the influence exercised by
Air India and the Ministry of Civil Aviation and also
because It took Into consideration an irrelevant
consideration that Air India is a public sector undertaking
and a national carrier.
What was emphasised by Mr. Nariman and Mr. Venugop^i
is that CIAL was incorporated to set up a new private
12 Internat’onal Airport. At all airports,
permissions for operating aircraft, maintenance, licensing
of crew and flying schedules of airlines is controlled by
the Directorate General of Civil Aviation. Applications for
hangar space, landing and parking facilities and ground
handling are made to and granted by the Airport Authority of
India. This was the first attempt to privatise. Therefore,
CIAL,’ in order to make its project viable and successful,
after taking into consideration various factors, decided to
entrust the task of providing ground handling services for
all airlines operating from the airport to one single
agency. For achieving this purpose it invited offers by
writing letters to eight reputed agencies to enable it to
decide the best terms and conditions for awarding the
contract .and to select the best agency. They submitted
that, for these reasons, it did not choose to adopt the
public tender mode. In its counter affidavit filed in the
High Court this position was made clear. What was stated in
the counter affidavit was as under:
"The object of inviting their offers was only to get
the terms and conditions of the respective companies for
consideration by the Board of Directors of this respondent
and to select the best suited to the interest of the
respondent. Being a new project implemented by raising
finance from various sources all
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13
efforts were made to make the project viable. Hence
when Ext. Rl (a) letter was sent inviting offers the
paramount consideration was to get the best offer for the
benefit of the 1st respondent. There was no minimum
estimated amount or other conditions for acceptance and
rejection like the usual tender procedure."
The High Court was also of the view that if the offers
were made only pursuant to the letter dated 12.11.1997 the
respondents would have a good case. But in view of Board of
Directors’ decision to be fair and the ClAL’s letter dated
13.7.1998 calling upon the tenderers to give the best offer
before it took a final decision and informing them that the
contract period would be 10 years and the subsequent letter
dated 5.8.1998 requiring the tenderers to give a bank
guarantee, CIAL was bound to treat this case as a case of
public tender and for that reason It was not open to it to
say that it was free to accept that offer which was best
suited to it. It js, however, not necessary to deal with
this aspect more elaborately and point out how the High
Court’s view is wrong as it was not disputed by the learned
counsel appearing for Cambatta that it was open to CIAL not
to accept the highest offe. of Cambatta if it had good
reasons to do so. It was at no point of time dedared by
CIAL that it would accept the highest offer or accept the
offer on a particular basis. All along it had
14 made clear that it would accept that offer which
was found to be the best in their interest.
The only point that really falls for consideration is
whether CIAL had acted fairly after it had Invited fresh
offers by its letter dated 13.7.1998.. It was forcefully
submitted by Mr. Andhyarujina that after the High Level
Committee had evaluated the proposals and recommended Air
India for the job it was unfair on the part of CIAL to have
permitted Air India to make a fresh presentation and revise
its terms. Even while conceding that CIAL had aright to
enter into negotiations even at that stage, it was submitted
that Cambatta also should have been invited for negotiations
and informed about the revised terms of Air India. It was
submitted that like Air India, Cambatta should have been
given an opportunity to match the offer made by Air India.
From the letter written by CIAL to Cambatta on 13.7.1998 and
similar letters written to others also, it appears that the
Board of Directors had, in its meeting held on 29.6.1998,
taken certain decisions and felt that in fairness all
eligible agencies should be requested to give their best
offers. Air India had submitted its offer on 20.7.1998 and
stated therein that ;ts offer was opan for negotiations.
Cambatta had
15 submitted its offer on 28.7.1998. It was made on
the basis of certain assumptions. CIAL had in ail received
five offers. The High Level Committee constituted for
evaluation of offers did not consider the offer of M/s
P.S.M. Aviation Pvt. Ltd. as it had not submitted the
required bank guarantee. The other four agencies, namely,
Cambatta, DNATA, Air India and Ogden, were found on par ss
far as technical competence, organisational capacity and
past experience was concerned. It, however, short listed
Cambatta and Air India on the ground that they are Indian
organisations, operate mainly inindia and has better proven
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adaptability for operating in Indian conditions. It then
recommended Cambatta for undertaking the ground handling
services without giving any reason for its preference for
Cambatta. While making the decision the Committee observed
that it would be for the Board of Directors to consider
whether any- negotiation should be held with the qualified
agencies. The Board of Directors had then met on 7.11.1998
and after taking note of the minute? of the high leve!
committee and taking note of the fact that Air India is a
public sector undertaking and a national carrier, decided to
have a detailed discussion with Air India before taking a
final decision. It, therefore, invited the Managing
Director of Air India for giving a presentation before
16 the Board on 27. II. 1998. It was also felt
necessary to take a final decision in its next meeting to be
held on 27.11.1998 as the matter was pending since long and
it was necessary to solve the financial crunch of CIAL.
Cambatta had protested against giving of an opportunity to
Air India to make a presentation by its letters dated
12.11.1998 and 23.11.1998 on the ground that what was being
done by CIAL was Improper and In violation of globa!
competitive bidding norms. In spite of the protest of
Cambatta the Board of Directors of CIAL permitted Air India
to make a presentation for outlining in detail its ground
handling capabilities, packages of services which it wished
to offer and other relevant advantages including financial.
Air India by Its letter dated 1.12.1998 recapitulated the
details of the. offer which It had already made, and the
subsequent presentation and discussion on-27.II.1998. The
said letter discloses that some changes were made by Air
India in its original offer to make It more acceptable to
CIAL. In that letter it was also indicated that it wouid
try to enhance Air India and other Airlines’ - domestic and
international operations through CIAL and pointed out that
"n?y through maximisation of operations this new venture can
be a profitabiG one at an early date. Cambatta again by its
letter d^ted 7.12.1998 reiterated that its offer was the
highest (most
17 favourable to CIAL) and that it would be unfair to
accept the revised bid of Air India. In spite of the
protests of Cambatta, CIAL, by Its letter dated 12.12.1998,
informed Air India that the Board of Directors had decided
to accept the revised offer of Air India. ’
. . . This narration of facts makes it dear that
all along, after the High Level Committee had recommended
Cambatta for awarding the contract, what Cambatta was
contending was that CIAL having accepted the limited global
competitive bidding norms and having decided 28.7.1998 as
the last date for inviting final offer, it was not open to
it thereafter to negotiate with Air India behind the back of
Cambatta and permit Air India to revise its offer. Even
though Cambatta had written protest letters, it had not
requested CIAL to give it any opportunity to negotiate or to
improve upon Its offer. The decision of the High Level
Comrnuttee.was obviously not the final decision and
certainly it was not binding on the Board of Directors who
were the final authority to take the decision. The Board of
Directors, at the meeting heid on 7.11.1998, considered the
proposals of Air India and Carnbatts rnd appears to have
taken a tentative decision to award the contract to Air
India and, therefore, called It for
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negotiations with a view to have better terms and take
the final dedsion. The Board of Directors did take the
final decision on 27.11.1998 as Air India agreed to make its
offer more beneficial to CIAL. Thatat becomes apparent from
Air India’s letter dated 1.12.1998. The Board of Directors
having taken tentative decision on 7.11.1998 there was no
point in calling Cambatta thereafter for any negotiation.
It may be recalled that Cambatta was recommended over Air
India by the High-Level Committee only because Cambatta’s
financial rating was found higher. What is significant to
note is that even the High ’Level ’ Committee had in its
minutes noted that financial rating cannot’ be the sole
criterion for taxing the final decision. Moreover, ’in a
commercial transaction of such a complex nature a lot of
balancing work has to be done while weighing ail the
relevant factors and the final decision has to be taken
after takinging an overall view of the transaction. It is
true that even though Cambatta had called upon CJAL to
produce the minutes of the meeting of the Board of Directors
held on 27.11.1995 the same was not made available to
Cambatta. But that did not entitle the High Court to draw
any adverse inference. The High Court had not called upon
CIAL to produce those minutes.
19 As regards the merits of Cambatta’s proposal, it
was contended by Mr. Andhyarujina that all the three offers
of Cambatta were superior in terms of parameters laid down
by CIAL than Air India’s offer. He submitted that even
after CIAL unllaterally raised the license fee of Air India
from 17 per cent to 20 per cent in the 10th year to match
Cambatta’s offer and imposed a condition that Air India
would not sub-contract, it did not become comparabie with
the offer of Cambatta as Air India did not offer to pay 2
per cent bonus in license fee. It was also submitted that
Air India’s representation that it would be able to bring
more traffic was illusory and for that reason also Air
India’s proposal cannot be regarded as superior or even
comparable with the proposal of Cambatta. We do not think
that CIAL did any wrong in taking into consideration the
fact that Air India is an airline and being a national
carrier would be in a position to bring more traffic of Air
India and other domestic lines if It was awarded the
contract. As regards the merits of the rival offers, we do
not think it proper to look at only the financial aspect and
hold that CIAL did not accept Cambatta’s offer, even though
it was better, because it wanted to favour Air India or that
it had acted under the influence of Air India and the
Ministry of Civil Aviation. In a commercial transaction of
a complex
20 nature what may appear to be better, on the face of
it, may not be considered so when an overall view is taken.
In such matters the Court cannot substitute it’s decision
for the decision of the party awarding the contract. On the
basis of the material placed on record we find that CIAL
bona fide believed that involving a public sector
undertaking and a national carrier would, in the long run,
prove to be more beneficial to CIAL. For all these reasons
it is not possible to agree with the finding of the High
Court that CIAL had acted arbitrarily and unreasonably and
was also influenced by extraneous considerations during, its
decision making process. .--.-
We, therefore, allow these two appeals, set aside the
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judgment of the Division Bench of the Kerala High Court in
Writ Appeal No. 462 of 1999 and confirm the decision of the
learned Single Judge in O.P. No. 25560 of.1998.