Legitimate Expectation of Highest Bidder in Tenders Not Enforceable Right When Fair Negotiations Secure Higher Public Revenue

SC allowed the appeal, setting aside the HC's interference with the tender process. It held that while a highest bidder may have a legitimate expectation that its tender will be accepted, this does not crystallize into an enforceable right. Failure to consider such expectation may render a decision arbitrary, but here the authority acted within law by negotiating with all tenderers during the period offers remained open, to secure a significantly higher price in public interest. The higher initial offer was lawfully superseded by a substantially better bid obtained through a fair, non-discriminatory negotiation process, satisfying the requirement of nonarbitrariness under the rule of law.

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Issues involved:
The judgment deals with the issue of whether a public authority's decision to reject the highest tender and engage in negotiations with all tenderers for obtaining a higher price is arbitrary and violative of Article 14 of the Constitution.

Summary:
The appellant, Food Corporation of India, invited tenders for sale of damaged foodgrains, and the respondent submitted the highest bid for a stock of damaged rice. However, the appellant was not satisfied with the amount offered in the highest tenders and decided to negotiate with all tenderers. The respondent refused to revise its rates during negotiations, resulting in a significantly higher bid from another party. The High Court held that switching to negotiations after inviting tenders was arbitrary and violated Article 14. The Supreme Court, however, found that the appellant's actions were not arbitrary and were based on the legitimate expectation of obtaining the highest price for the commodity.

In the contractual sphere, public authorities must adhere to Article 14, ensuring non-arbitrariness and fair play in their actions. The doctrine of legitimate expectation plays a crucial role in decision-making processes, requiring due consideration of reasonable expectations of affected parties. While the highest tenderer has no automatic right to acceptance, the power to reject tenders must be exercised reasonably with cogent reasons.

The Supreme Court emphasized that the objective of inviting tenders is to procure the highest price for public interest. Inadequacy of the price offered in the highest tender can justify negotiations with tenderers to obtain a better offer. Retaining the option to accept the highest tender unless a significantly higher bid is received during negotiations is fair to all parties involved.

In this case, the appellant's decision to engage in negotiations after opening tenders was deemed reasonable due to the significantly higher bid obtained during negotiations. The High Court's view that such actions were arbitrary was overturned, and the appeal was allowed, dismissing the respondent's writ petition.

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