Gauhati High Court Strikes Down Arbitrary Tender Cancellation

The Gauhati High Court recently delivered a significant judgment in the case of Mahalaxmi Enterprises v. The State of Assam and 5 Ors (WP(C)/3832/2024), highlighting the importance of due process in public procurement tenders. The court quashed the Assam Animal Husbandry and Veterinary Department's decision to cancel a tender process for Ice Lined Refrigerators (ILRs) after Mahalaxmi Enterprises had been declared the lowest bidder.

Case Overview

The Assam Animal Husbandry and Veterinary Department issued an e-tender for 367 ILRs through the GeM portal. The initial tender specifications allowed for certification under either ISO-17025 accredited laboratories or WHO-PQS Code. Following requests from prospective bidders, a remark was added on the GeM portal making WHO-PQS certification mandatory. Mahalaxmi Enterprises submitted its bid, but the subsequent evaluation revealed a procedural irregularity regarding the WHO-PQS certification criteria. The department then canceled the entire tender process.

Arguments Presented

Mahalaxmi Enterprises argued that the alteration of the certification criteria lacked proper legal basis, violating Article 14 of the Constitution of India (right to equality) and the General Financial Rules, 2017 (GFRs). They claimed the change was made improperly, without a formal corrigendum as required by the GFRs. They further asserted a legitimate expectation of being awarded the contract, having submitted the lowest bid.

The State of Assam, on the other hand, defended its action by citing a clause granting the Director absolute discretion to cancel the tender before contract award. They also argued that the improper application of the WHO-PQS criteria necessitated cancellation to ensure fairness.

The Court's Reasoning

Justice Devashis Baruah meticulously analyzed the relevant provisions of the GFRs, the Assam Public Procurement Act, 2017, and the Assam Public Procurement Rules, 2020. The court noted that Rule 173(iii)(a) of the GFRs mandates that any modification affecting the bidding document's terms must be published in the same manner as the original document – in this case, a formal corrigendum on the GeM portal. The simple addition of a remark in the GeM portal was deemed insufficient.

The judge emphasized the importance of following established procedure: "Where a mode is prescribed for doing an act and there is no impediment in following that procedure, the performance of the act otherwise... may itself attract the vice of arbitrariness."

Furthermore, the court found the State's decision to cancel the tender process arbitrary and unreasonable, particularly since the proposed new tender would revert to the original, less stringent, certification criteria.

The Court's Decision

The Gauhati High Court quashed the decision to cancel the tender process and directed the authorities to proceed with the original tender, concluding the process according to its initial terms and conditions. The court found that the actions of the respondent authorities violated the principles of fairness, transparency, and due process enshrined in Indian law.

Implications

This decision carries significant implications for public procurement in India. It underscores the necessity for strict adherence to established rules and regulations in the tendering process. Arbitrary cancellations without proper justification will likely face judicial scrutiny. The judgment reinforces the rights of bidders who have followed the rules and have a legitimate expectation of fairness. This decision sets a precedent for similar cases and clarifies the legal requirements for modifying tender specifications.