Gauhati High Court Finds Tender Cancellation Arbitrary, Directs Finalization of Original Process

Guwahati: The Gauhati High Court has quashed a decision by the Assam Animal Husbandry and Veterinary Department to cancel a tender process for the procurement of Ice Lined Refrigerators (ILRs), finding the cancellation to be arbitrary, unreasonable, and irrational. The court directed the department to proceed with the finalization of the original tender process initiated in February 2024.

The judgment, delivered by Justice Devashis Baruah on February 4, 2025, came in response to a petition filed by Mahalaxmi Enterprises , one of the bidders who was found to be the lowest (L1) in the financial bid.

Background of the Dispute

The dispute arose from an e-tender floated on February 13, 2024, for the procurement of 367 ILRs under a centrally sponsored scheme. The tender specified technical requirements, including an eligibility condition that cold chain products "may be tested at ISO-17025 accredited laboratories." The checklist for bidders also included "Product Tested Certificate at ISO-17025 approved laboratories / WHO PQS Code," implying these certifications were optional or alternative.

However, between February 13 and 16, 2024, some prospective bidders requested the criteria be changed to mandatory WHO-PQS certification. On March 2, 2024, just three days before the bid submission deadline, a remark was inserted in the GeM portal stating "product compliance is modified to WHO-PQS prequalified with valid PQS Code standards for ILR."

Despite this remark, the technical evaluation committee, in its assessment on March 13, 2024, apparently considered the WHO-PQS certification as optional and found four bidders, including Mahalaxmi Enterprises , technically responsive. The financial bids were opened on March 15, 2024, revealing Mahalaxmi Enterprises as the L1 bidder.

Following complaints from a representative of Tata Voltas Limited (OEM for the L2 bidder), an inquiry was conducted. A report submitted by the department's in-charge stated that due to an oversight, the Technical Evaluation Committee incorrectly considered the WHO-PQS code optional (as per the original bid document) when it was allegedly made mandatory later, leading to the petitioner being deemed responsive instead of non-responsive. Subsequently, in a meeting on July 25, 2024, the department decided to cancel the entire bid process and float fresh tenders, citing the "vitiated" process.

Petitioner's and Respondent's Arguments

Mahalaxmi Enterprises argued that the cancellation was illegal and arbitrary, especially after they were declared L1. They contended that the modification of a key eligibility criterion (making WHO-PQS mandatory) merely by inserting a remark in the portal was invalid. Citing Rule 173 of the General Financial Rules, 2017, and Section 23 of the Assam Public Procurement Act, 2017, they argued that material modifications to tender documents must be published or communicated in the same manner as the original tender (i.e., via a formal corrigendum) and require sufficient time extension for bidders. They also claimed a legitimate expectation as the L1 bidder.

The State respondents argued that the department had the absolute discretion to cancel or annul the bidding process at any time before the award of the contract, as stipulated in the tender conditions (Clause 5(1)). They claimed the decision was made in the public interest to correct an error in technical evaluation based on the mandatory WHO-PQS requirement. They also argued that the petitioner, as a bidder, could not challenge the cancellation decision.

Court's Analysis and Findings

Justice Baruah meticulously examined the procedure for modifying tender documents under the General Financial Rules, 2017, the Assam Public Procurement Act, 2017, and the Assam Public Procurement Rules, 2020. The court emphasized that Rule 173(iii) of the GFR and Section 23(1) of the Act mandate that any modification materially affecting the terms must be published or communicated in the same manner as the initial bidding document. Rule 22(3) of the 2020 Rules specifically requires a "formal corrigendum" for revisions to techno-commercial requirements after pre-bid discussions.

The court found that merely inserting a remark in the GeM portal did not constitute a valid modification as per the statutory requirements. Consequently, the court held that the original terms of certification, where ISO-17025/WHO-PQS was optional, legally continued to hold the field .

The court then addressed the department's reason for cancellation – that the WHO-PQS was mandatory due to the remark and the technical committee erred in treating it as optional. Justice Baruah concluded that since the modification via remark was invalid and the optional criteria remained legally operative, the very "edifice" upon which the cancellation decision was based "stands eroded" and the decision suffers from "malice in law" and is based on "non-existent materials."

Referencing the Supreme Court judgment in Subodh Kumar Singh Rathour vs. The Chief Executive Officer , the High Court reiterated that state action must be informed by reason and satisfy the test of reasonableness. An action contrary to reason is arbitrary and ultra vires. The court found it illogical to cancel a tender based on a perceived error related to a mandatory requirement that was never legally made mandatory, especially when the proposed fresh tender would revert to the original optional criteria anyway.

Regarding the department's claim that a bidder cannot challenge cancellation, the court held that such clauses in tender documents cannot prevent judicial review under Article 226 when the state action is arbitrary, unreasonable, irrational, or suffers from malice in law, as this would violate Article 14 of the Constitution.

The Verdict

In light of these findings, the Gauhati High Court determined: 1. The insertion of the remark on March 2, 2024, did not legally modify the certification criteria; the original optional terms remained valid. 2. The decision to annul the tender based on the premise of a mandatory WHO-PQS criterion was arbitrary, unreasonable, irrational, and suffered from malice in law. 3. The petitioner was entitled to challenge the arbitrary cancellation.

The court accordingly set aside and quashed the Minutes of the Meeting dated July 25, 2024, resolving to cancel the tender. The respondents were directed to bring the tender process initiated vide the Notice Inviting Tender dated February 13, 2024, to its logical conclusion based on the original terms and conditions. No costs were awarded.

The judgment underscores the critical importance of adhering to prescribed procedures for modifying tender documents and reaffirms that the state's power to cancel tenders, while broad, is not absolute and must withstand the scrutiny of fairness and non-arbitrariness under Article 14.