Splitting Clause in Public Procurement Does Not Confer an Enforceable Right to Quantity Allocation

The Petitioner, a DPIIT-recognized Startup and MSME, participated in a tender issued by Respondent No. 1 (through Patiala Locomotive Works) for the supply and installation of 15,184 Fog Pilot Assistance Systems (FOGPASS).

The Petitioner claimed to be the L2 bidder with a price difference of 2.08% from the L1 bidder (Respondent No. 2).

Relying on Clause 2.3.1 of the tender—which contemplates a 60:40 splitting ratio between L1 and L2 if the price difference is within 3%—the Petitioner challenged the award of the bulk quantity exclusively to Respondent No. 2.

Respondent No. 1 contended that the Petitioner was not L2 but ranked significantly lower (L8) and was a "developmental vendor," unlike Respondent No. 2, who was an "approved vendor".

1. Whether a bidder within a 3% price margin of L1 acquires an enforceable right to a portion of the tender quantity based on a pre-declared splitting clause.

2. Whether the decision to award the contract to the L1 bidder to the exclusion of the Petitioner was arbitrary or violative of Article 14 of the Constitution.

3. Whether the High Court of Delhi possesses territorial jurisdiction given that the tender was finalized in Patiala.

The Court applied the principles of judicial review in contractual matters under Article 226 of the Constitution, establishing that interference is limited to cases of arbitrariness, mala fides, or perversity.

It interpreted the "Splitting Clause" (Clause 2.3.1), noting that such clauses are illustrative and conditional rather than mandatory.

The Court also referenced established principles of territorial jurisdiction, noting that while agreement cannot confer jurisdiction, the place where the cause of action substantially arises is pivotal.

The Court found the Petitioner’s claim of being the L2 bidder factually incorrect, as the Petitioner was a "developmental vendor" and ranked lower than other bidders in that category, whereas Respondent No. 2 was an "approved vendor".

Even if the Petitioner were L2, the Court analyzed Clause 2.3.1 and determined it did not confer an enforceable right; the clause explicitly reserved the Purchaser's right to distribute quantity based on a "dynamic mix" of factors including capacity, past performance, and criticality of safety items.

The Court observed that splitting is not mandatory if deemed not feasible in the "administrative interest".

Furthermore, the Court noted that the procurement involved critical safety equipment for the Railways, and since execution had already commenced, interfering would harm public interest and unsettle third-party rights.

The Court dismissed the petition, holding that the Petitioner failed to demonstrate any arbitrariness or perversity in the decision-making process.

While raising serious doubts about territorial jurisdiction because the contract was executed in Patiala, the Court declined a final finding on that point, choosing instead to dismiss the case on its lack of merit.

All pending applications were closed.