The Supreme Court of India has delivered a significant judgment reinforcing the doctrine of judicial restraint in matters involving complex technical contracts, particularly when courts exercise their powers of judicial review. This ruling resulted from a dispute between Bharat Heavy Electricals Limited (BHEL) and competing bidders, specifically concerning the construction of the 5x800 MW Yadadri Thermal Power Station.
The bench after careful consideration of the facts, issues involved and the competing arguments of the parties held that courts must exercise considerable restraint when reviewing commercial contracts involving complex technical issues, even when the parties involved include a 'State' entity under Article 12 of the Constitution. The bench observed that while the high courts possess writ jurisdiction under Article 226, their role in commercial disputes should be confined to evaluating the decision-making process, particularly for signs of arbitrariness, mala fides, or procedural impropriety, rather than engaging in technical assessments themselves.
The dispute arose when BHEL, acting under a contract from the Telangana State Power Generation Corporation Limited (TSPGCL) to establish the 5x800 MW Yadadri Thermal Power Station, awarded a subcontract to BTL EPC Ltd (the appellant) for the construction of an Ash Handling Plant. The appellant, BTL EPC Ltd, was issued a Letter of Intent (LoI) for a contract valued at Rs. 378.64 crores on September 29, 2022. The rival bidder, Macawber Beekay Pvt Ltd (MBP Ltd), challenged this award on the grounds that the appellant's collaboration with a Chinese company, Fujian Longking Company Ltd, violated a July 2020 Ministry of Finance order concerning bidders from countries sharing land borders with India. This order, issued under Rule 144(xi) of the General Financial Rules 2017, mandates the registration of such bidders with the Competent Authority before participating in government tenders.
The Karnataka High Court, Division Bench, had earlier quashed the LoI awarded to the appellant and directed BHEL to reconsider the bid submitted by MBP Ltd. The High Court held that the consortium agreement between BTL EPC Ltd and Fujian Longking constituted a violation of the Finance Ministry's 2020 procurement order, as the Chinese entity had not been registered with the Competent Authority, which is mandatory for entities from countries sharing land borders with India.
The Supreme Court, however, overturned the High Court’s decision, pointing out several critical factors. The appellant argued that its bid was submitted as a standalone entity, and the Chinese company’s involvement was limited to a service agreement, not a consortium arrangement as defined under clause 7.2 of the pre-qualification requirements. Clause 7.2 mandates that a consortium agreement must involve equity participation by the members of the consortium, with at least 51% of the ownership stake held by one member acting as the lead. The Supreme Court observed that the Chinese company, in this case, had no such equity stake and was only providing technical design support, making the agreement a service arrangement rather than a joint bidding consortium.
The Court emphasized that the Public Procurement Order dated July 23, 2020, was later clarified by an Office Memorandum (OM) issued on February 8, 2021, which stated that the registration requirement for entities from countries sharing land borders with India did not apply to the procurement of services but only to goods and turnkey contracts. Since the Chinese company's role in the project was confined to providing technical support services, and no goods were being procured from it, the registration requirement under the original order did not apply.
The Court reiterated that BHEL, as the tender-inviting authority, is best placed to interpret its own tender conditions and assess whether bidders meet the technical and commercial criteria. In this case, BHEL and TSPGCL had both determined that the appellant’s agreement with the Chinese company was not a violation of the 2020 order and did not constitute a consortium requiring registration. The Supreme Court stressed that judicial intervention should not replace the discretion and technical judgment of tender authorities, especially when no evidence of mala fides or bias is presented.
MBP Ltd offered to match the appellant’s lower bid, but the Supreme Court found that allowing this substitution at an advanced stage of the project would lead to substantial delays and increased costs. BHEL argued that replacing the contractor would necessitate the redesign of the entire project, which was design-intensive, thereby imposing significant additional expenses on the public exchequer. The Court took note of the progress already made, stating that over 80% of the civil work and 72% of the structural work had already been completed, and further delays would be contrary to the public interest.
The Supreme Court established several important principles concerning judicial intervention in technical and commercial contracts. It noted that the Courts should defer to the technical expertise of tender-inviting authorities, which are best placed to assess whether bidders meet the requirements outlined in tender documents. Courts should not act as appellate authorities in such cases. The Court reiterated that judicial review in contractual matters should focus on examining the decision-making process for arbitrariness, mala fides, or irrationality, rather than re-evaluating the merits of technical qualifications. Even in writ appeals, Division Benches should exercise restraint and only interfere with Single Judge rulings when there is clear evidence of perversity or error. The Court highlighted that judicial interference should be avoided where it would result in significant financial loss to the public exchequer or cause delays in projects of national importance.
The Supreme Court set aside the Division Bench's order and restored the Single Judge’s decision, emphasizing the principle of judicial restraint in matters involving complex technical contracts. This ruling has broad implications for future cases involving public procurement and technical contracts, especially those involving State entities, reaffirming that courts should not overstep into technical domains unless there is clear evidence of procedural violations.