1992 (11) TMI 275 - SC - Indian Laws

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 ... Doctrine of legitimate expectation - stock of damaged rice - tenders have been invited and the highest bidder - compliance with the conditions stipulated in the tender notice - Whether the expectation of the claimant is reasonable or legitimate in the context is a question of fact in each case. - HELD THAT:- The mere reasonable or legitimate expectation of a citizen, in such a situation, may not by itself be a distinct enforceable right, but failure to consider and give due weight to it may render the decision arbitrary, and this is how the requirement of due consideration of a Legitimate expectation forms part of the principle of nonarbitrariness, a necessary concomitant of the rule of law. Procuring the highest price for the commodity is undoubtedly in public interest since the amount so collected goes to the public fund. Accordingly, inadequacy of the price offered in the highest tender would be a cogent ground for negotiating with the tenderers giving them equal opportunity to revise their bids with a view to obtain the highest available price. The inadequacy may be for several reasons known in the commercial field. Inadequacy of the prince quoted in the highest tender would be a question of fact in each case. Retaining the option to accept the highest tender, in case the negotiations do not yield a significantly higher offer would be fair to the tenderers besides protecting the public interest. A procedure wherein resort is had to negotiations with the tenderers for obtaining a significantly higher bid during the period when the offers in the tenders remain open for acceptance and rejection of the tenders only in the event of a significant higher bid being obtained during negotiations would ordinarily satisfy this requirement. This procedure involves giving due weight to the legitimate expectation of the highest bidder to have his tender accepted unless outbid by a higher offer, in which case acceptance of the highest offer within the time the offers remain open would be a reasonable exercise power for public good. In the present case, the last date upto which the offer made in the tender was to remain open for acceptance was 17.7.92. After opening the tenders on 18.5.92, the appellant decided to negotiate with all the tenderers on 9.6.92 when significantly higher amount, as indicated earlier, was offered above the amount quoted in the highest tender. In such a situation, if the negotiations did not yield the desirable result of obtaining a significantly higher price, the appellant had the option to accept the highest tender before the last date, viz., 17.7.92 upto which the offer made therein was to remain open for acceptance. In this manner, the respondent’s higher tender was superseded only by a significantly higher bid made during the negotiations with all tenderers giving them equal opportunity to compete by revising their bids. The fact that it was a significantly higher bid obtained by adopting this course is sufficient in the facts of the present case to demonstrate that the action of the appellant satisfied the requirement of nonarbitrariness, and it was taken for the cogent reason of inadequacy of the price offered in the highest tender, which reason was evident to all tenderers invited to participate in the negotiations and to revise their bids. The High Court was in error in taking the contrary view. Consequently, this appeal is allowed. 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.