Dismissed

M/S S P Enterprises v. State of Karnataka

Karnataka HC7 Aug 2024WP/18127/2024

Case brief

AI extract

What is this about?

Challenge to a fresh tender for procurement of Patchouli Oil issued while an earlier tender was pending. The court held the petitioner, having participated in the impugned tender process without objection, could not challenge it; part supplies had been made to the successful bidder, so interference was not warranted and the petition was dismissed.

What the court decided

AI extract

M/S S P Enterprises Vs State of Karnataka — Public Procurement and Tenders | Karnataka HC (2024)

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1 - NC: 2024:KHC:31518 WP No. 18127 of 2024

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 7^TH DAY OF AUGUST, 2024 BEFORE

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THE HON'BLE MR JUSTICE HEMANT CHANDANGOUDAR WRIT PETITION NO. 18127 OF 2024 (GM-TEN)

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BETWEEN:

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M/S S P ENTERPRISES A PROPRIETORSHIP CONCERN HAVING OFFICE AT NO.2916 SY NO.53, 53/16 AND 53/8 MAGADI MAIN ROAD KAVERIPURA, KAMAKSHIPALYA BENGALURU-560 079 REPRESENTED BY ITS PROPRIETOR SRI S R RENUKESHWARASWAMY.

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…PETITIONER

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(BY SRI. SANDEEP PATIL, ADVOCATE)

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AND:

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STATE OF KARNATAKA DEPARTMENT OF COMMERCE AND INDUSTRIES VIDHANA SOUDHA, BANGALORE-560 001 REPRESENTED BY ITS PRINCIPAL SECRETARY.

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Digitally signed by B K MAHENDRAKUMAR Location: HIGH COURT OF KARNATAKA

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M/S KARNATAKA SOAPS AND DETERGENTS LIMITED NO.27, INDUSTRIAL SUBURB BENGALURU PUNE HIGHWAY RAJAJINAGAR, BENGALURU-560 055.

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M/S KARNATAKA AROMAS

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REP BY VINAY S RAJ PARTNER OF KARNATAKA AROMASS NO. 160, KCI CHAMBERS 3^RD FLOOR, 5^TH MAIN ROAD CHAMRAJPET, BENGALURU-560 018.

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…RESPONDENTS

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(BY SMT. NAVYA SHEKHAR, AGA FOR R1; SRI. K N PHANINDRA, SENIOR COUNSEL FOR SMT. K H RACHITA, ADVOCATE FOR R2; MISS. SANJEEVINI PRABHULING NAVADGI, ADVOCATE FOR R3)

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NC: 2024:KHC:31518 WP No. 18127 of 2024

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THIS WP IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE TENDER NOTIFICATION BEARING NO. KSDL/2024-25/IND0420 DATED 25/06/2024 PRODUCED AS ANNEXURE-A AND ETC.

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THIS PETITION, COMING ON FOR ORDERS, THIS DAY, ORDER WAS MADE THEREIN AS UNDER:

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CORAM: HON'BLE MR JUSTICE HEMANT CHANDANGOUDAR

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ORAL ORDER

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The petitioner challenges the tender notifications dated June 25, 2024, issued by Respondent No. 2, which invited bids for the procurement of 10,600 kg of Patchouli Oil.

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On an earlier occasion, Respondent No. 2 had issued a tender notification dated June 8, 2024, inviting bids for the procurement of 13,100 kg of Patchouli Oil. The petitioner participated in this tender process and was the lowest bidder.

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Subsequently, the impugned tender notification was issued. The last date for submission of bids was July 3, 2024, with the technical bid scheduled to be opened on July 4, 2024, and the financial bid on July 9, 2024.

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The petitioner submitted his bid on July 7, 2024. The present petition was filed on July 3, 2024, after submitting the bid on July 7, 2024.

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Sri Sandip Patil, learned counsel representing the petitioner, presents the following arguments:

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a) During the subsistence of the tender notification dated June 8, 2024, issuing the impugned tender notification is impermissible and contrary to the provisions of the Karnataka Transparency in Public Procurement Act, 1999 (hereinafter referred to as "Act, 1999"). In support, reliance is placed on the decision of the coordinate Bench of this Court in WP No.100815/2022 (DD 3.3.2022).

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b) The general rejection of tenders submitted under the notification dated June 8, 2024, does not satisfy the requirements of Section 14 of the Act, 1999. Reliance is placed on the decision of the coordinate Bench of this Court in WP No.5449/2023 (DD 16.5.2023).

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c) The successful bidder under the notification dated June 25, 2024, was previously blacklisted. Following a settlement with Respondent No. 2, the order of blacklisting was set aside by this Court in WP No.15006/2024 (DD 12.7.2024). This establishes that the impugned tender notification was issued to favor the successful bidder, thereby rendering it malafide and illegal.

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d) Although the present petition was filed after participating in the tender process, the petitioner is entitled to challenge the validity of the tender notification issued in gross derogation of the provisions of the Act, 1999.

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NC: 2024:KHC:31518 WP No. 18127 of 2024

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In response, Sri K N Phanindra, learned Senior Counsel representing Respondent No. 2, presents the following arguments:

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a) The rejection of the tenders under the notification dated June 8, 2024, was due to the high prices quoted. The rejection of the general tenders was uploaded on the e-portal on July 2, 2024, and the earnest money deposited by the petitioner was refunded on July 3, 2024, which is not disputed by the petitioner. Therefore, the cancellation of the tender notifications dated June 8, 2024, is in accordance with Section 14 of the Act, 1999.

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b) The earlier tender notification was for the procurement of 13,100 kg of Patchouli Oil, while the impugned tender notification was for the procurement of 10,600 kg. Thus, the procurement under the impugned notification is distinct from the earlier notification.

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c) The petitioner, having participated in the tender process without protest, is estopped from challenging the validity of the impugned tender notification. In support, reliance is placed on the decision of the Apex Court in SGS India Private Limited and another vs. Union of India and others (2023 SCC OnLine Cal 1170).

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d) Although this Court granted an interim order on July 9, 2024, the same was communicated to Respondent No. 2

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on July 15, 2024. In the interim, the purchase order was issued to the successful bidder on July 13, 2024, and nearly 50% of the quantity of Patchouli Oil sought to be procured was supplied by the successful bidder. Therefore, when rights are created in favor of the successful bidder, the present petition is not maintainable, as an efficacious remedy of appeal is provided under Section 16 of the Act, 1999, challenging the rejection of the financial bid and acceptance of the financial bid.

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Upon examining the arguments presented by the learned counsel for the parties, the following is noted:

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The petitioner was declared to be the lowest bidder under the notification dated June 8, 2024. During the subsistence of this tender notification, the impugned tender notification was published on June 25, 2024. The last date for submission of bids under the latter was July 3, 2024. The technical bids were scheduled to be opened on July 4, 2024, and the financial bids to be opened on July 9, 2024. A pre-bid meeting was scheduled for June 28, 2024. The petitioner did not participate in this pre-bid meeting and filed objections to the impugned tender notification. The petitioner submitted his bid in respect of the impugned tender on July 3, 2024, without protest and subsequently filed the present petition on July 3, 2024. The financial bids were opened on July 9, 2024, and the petitioner, having quoted Rs.16,726.50 per kg of Patchouli Oil (tender commodity), was declared as L2, as the successful bidder quoted Rs. 13,570 per kg. However, in the earlier

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tender notification, the petitioner had quoted Rs. 22,303.18 per kg and was declared as the L1 bidder.

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The tender notification dated June 8, 2024, was recalled on July 2, 2024, due to the high prices quoted, and EMD was refunded to all bidders on July 3, 2024, as is evident from the information uploaded on the e-portal.

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The coordinate Bench of this Court in WP No. 100815/2022 has ruled that a fresh e-tender could not be issued without completing the earlier tender process.

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The coordinate Bench of this Court in WP No. 5449/2023 ruled that if the petitioner had been declared the successful bidder and the State called him for negotiations, the State could not use Section 14 of the Act, 1999, as a tool to cancel the tender without passing an order of rejection and communicating such rejection to the petitioner before calling for a fresh tender.

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I agree with the above propositions of law. However, the maintainability of the instant writ petition must be examined in light of the petitioner's conduct in challenging the tender notification after having submitted his bid.

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The Division Bench of this Court in WA No. 381/2024 ruled that a party who does not participate in the process loses the right to challenge the process. Such a person stands as a stranger

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in deriving locus to challenge. The challenge in the said decision was to a condition of the timeline to submit the bid.

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The Apex Court in the case of National Highways Authority of India vs. Gwalior-Jhansi Expressway Limited through Director (2018) 8 SCC 243, at para-20, held that the relief sought by the claimant should be tested on the touchstone of the principles governing the tender process, especially when the validity of the tender document has not been challenged before any competent authority. Therefore, when there is no doubt that the right of the claimant to match the bid of L1 would come into play only if the respondent participated in the tender process pursuant to the notice inviting tenders, it was held that the claimant was required to participate in the tender process by submitting its sealed bid. Having failed to participate in the tender process and despite the express terms in the tender document, which were not challenged, the respondent cannot contend that it had acquired any right. Only entities that participate in the tender process pursuant to a tender notice can make grievances about the non-fulfillment or breach of any terms and conditions of the tender document.

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The Apex Court in the case of Airport Authority of India vs. Centre for Aviation Policy, Safety, and Research (2022 SC OnLine 1334) held that non-participant petitioners could not challenge the tender conditions.

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The ratio enunciated by the Apex Court in the aforesaid decisions is summarized as follows:

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a) Only entities that have participated in the tender process can challenge the non-fulfillment or breach of any terms and conditions of the tender document.

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b) There is no bar to challenging the validity of the tender document by entities that have not participated in the tender process.

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The instant petition having been filed after participating in the impugned tender process must be examined in consideration of the above principles.

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The petitioner did not file objections in the pre-bid meeting held on June 28, 2024. The petitioner submitted his bid on July 3, 2024, without any protest. The cancellation of the tender notification dated June 8, 2024, was uploaded on the e-portal on July 2, 2024, indicating that the petitioner was informed about the rejection of his bid due to high prices. The EMD was returned to the petitioner on July 3, 2024, and the present petition was filed on the same day.

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The High Court of Calcutta in the case of SGS India Private Limited and another vs. Union of India and others (2023 SCC OnLine Cal 1170) , in the context of challenging the eligibility criteria fixed under the notice inviting tender, with reference to the decision of the Apex Court in Air Commodore

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Naveen Jain vs. Union of India (2019) 10 SCC 34 , ruled that the applicant before the Court was estopped from challenging the policy after participating in the selection process. Therefore, the petitioner cannot challenge the term of the tender after participating in the tender process.

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The Div Bench of the High Court of Bombay in the case of Inducare Pharma Pvt Limited v. Chief Executive Officer, Z.P. Ratnagiri, (WP No. 11762/2023 : DD 01.11.2023 : BHC - AS : 32948-DB) placing reliance on its earlier decisions in the cases of Paldewar Prashant Agro Tech v. State of Maharashtra (WP No. 1021/2021 and connected matters : DD 28.06.2021) and Sai Agencies v. State of Maharashtra (WP No. 2076/2021 : DD 13.09.2021) , concluded that the petitioner bidder therein having participated in the tender process cannot lay a challenge to the tender conditions.

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On 9.7.2024, this Court granted an interim order staying all further proceedings related to the impugned tender notification. It is undisputed that this interim order was communicated to respondent No.2 on 15.7.2024. The financial bids were opened on 9.7.2024, and the petitioner's financial bid was rejected while the financial bid of respondent No.3 was accepted. Subsequently, on 10.7.2024, the purchase order was issued to respondent No.3 on 12.7.2024. Following the issuance of the purchase order, the quality assurance department of respondent No.2 certified that the sample of Patchouli Oil provided by respondent No.3 met the prescribed specifications and accepted

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the sample. According to the purchase order, 1300 kgs were to be delivered immediately in July 2024, and 1300 kgs each in August and September 2024. The successful bidder claims to have delivered more than 30% of the quantity prescribed under the tender document.

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Given that the successful bidder has supplied part of the quantity of Patchouli Oil following the purchase order, interference by this Court at this stage is not warranted. Respondent No.2, in its application for vacating the interim order, stated that the Patchouli Oil is required for the manufacture of soaps and incense sticks, without which production would come to a standstill. It was further stated that the daily production averages 130 metric tonnes, with sales amounting to approximately 4 to 5crore rupees. Failure to procure Patchouli Oil would result in significant losses for respondent No.2 and the Government exchequer.

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Although the impugned tender notification was published on 25.6.2024, the petitioner, after submitting his bid, filed the present petition on 3.7.2024 and obtained an interim order on 9.7.2024. The petitioner did not promptly communicate the interim order, instead notifying respondent No.2 on 15.7.2024, by which time the successful bidder had already supplied the Patchouli Oil.

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Under the earlier tender notification dated 8.6.2024, the petitioner had quoted a price of Rs.22,303.18 per kg, which was considered too high. The successful bidder under the

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impugned notification quoted a price of Rs.13,570 per kg compared to the petitioner's Rs.16,726.05 per kg. Thus, during the subsistence of the tender notification dated 8.6.2024, the State and its authorities can make economic and management decisions based on situational exigencies, guided by their policy in the public interest. This principle was upheld by the Apex Court in the case of Pathan Mohammed Suleman Rehmatkhan vs. State of Gujarat and others (2014) 4 SCC 156 and AIR India Ltd. vs. Cochin International Airport Ltd. and others (2000) 2 SCC 617 , where it was ruled that Courts should intervene only when overwhelming public interest requires such interference.

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Respondent No.2 issued a show cause notice to respondent No.3, questioning why they should not be disqualified from future tenders. This notice was challenged before this Court in WP No. 15006/2024. The action to blacklist was based on the successful bidder's failure to pay the difference amount of Rs.56 lakh for obtaining Patchouli Oil. After the successful bidder agreed to pay the difference amount, respondent No.2 filed a memo to dispose of the petition with suitable direction. Consequently, this Court set aside the show cause notice. Therefore, it cannot be concluded that the award of the tender was actuated by malafides and illegalities, especially when the petitioner was not blacklisted but merely issued with a show cause notice, and did not suffer any disqualification as of the date of the tender notification or the award of the contract.

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