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Case Title: M/S. Bannari Constructions v. Karnataka Soaps and Detergents Limited

 Case Number: Writ Petition No.7700 of 2024 (GM – TEN)

 Dated On: 28th day of May, 2024

 Quorum: The Hon’ble Mr. Justice M. Nagaprasanna

FACTS OF THE CASE

M/S Bannari Constructions, regularly successful in previous bids, submitted a bid for the procurement of Sandranol from Karnataka Soaps and Detergents Limited. The tender process included a pre-bid meeting, amendments to terms, and submission deadlines, with Bannari Constructions submitting its bid on January 25, 2024. Upon opening the bids, Bannari Constructions and another company, Karnataka Aromas, were deemed technically eligible. Bannari Constructions was the lowest financial bidder. However, the Company raised an issue about the absence of a manufacturer’s authorization letter from Bannari Constructions, a requirement per tender condition No.29. Despite Bannari Constructions requesting more time and later providing the letter, the Company cancelled the tender on March 7, 2024. Bannari Constructions filed a writ petition challenging the cancellation, arguing that the issue of the authorization letter was raised late and had not previously been enforced. The Court issued an interim order to maintain the status quo. Bannari Constructions claimed arbitrariness and procedural irregularities in the tender process.

ISSUES

1. Whether Karnataka Soaps and Detergents Limited decision to cancel the tender was legally justified.
2. Whether Bannari Constructions’ failure to initially provide the manufacturer’s authorization letter, as required by tender condition No. 29, justified the cancellation of the tender.
3. Whether the timing and manner in which Karnataka Soaps and Detergents Limited raised the issue of the missing authorization letter were fair and consistent with principles of natural justice, particularly given that the issue was raised late in the process and not at the time of bid submission and evaluation.

 LEGAL PROVISIONS

1. Indian Contract Act, 1872

• Section 10: This section outlines what agreements are contracts, emphasising that all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object.
• Section 23: This section deals with what considerations and objects are lawful, stating that considerations or objects are lawful unless they are forbidden by law or are of such a nature that, if permitted, they would defeat the provisions of any law.
• Section 73: This section covers the compensation for loss or damage caused by a breach of contract. It states that when a contract has been broken, the party who suffers from such breach is entitled to receive compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach.

2. General Financial Rules (GFR), 2017

• These rules provide guidelines for government procurement processes, including the tendering process. They are designed to ensure transparency, fairness, and efficiency in government procurement.
• Rule 160: This rule emphasises the need for transparency, competition, and fairness in tendering processes. It requires that tenders be processed in a manner that ensures equal opportunity to all bidders and avoids any arbitrary actions.

CONTENTIONS OF THE APPELLANT

The appellant, Bannari Constructions, raised several contentions before the court. Firstly, they argued that the rejection of their tender by Karnataka Soaps and Detergents Limited (KSDL) was arbitrary and capricious. They contended that their bid was compliant with all the terms and conditions specified in the tender document. Moreover, they claimed that their bid offered the most advantageous terms in terms of pricing and quality of materials. Bannari Constructions further argued that KSDL did not provide any valid justification for rejecting their bid, thereby violating the principles of natural justice and transparency in the tendering process. Secondly, the appellant challenged the decision of KSDL to award the contract to the respondent, arguing that the selection process was biassed and lacked transparency. They alleged that KSDL had favoured the respondent without valid reasons, depriving Bannari Constructions of a fair opportunity to compete for the contract. Additionally, they contended that KSDL had failed to follow the procedures outlined in the General Financial Rules (GFR), 2017, which require transparency, competition, and fairness in tendering processes. Furthermore, Bannari Constructions claimed that KSDL’s actions amounted to a breach of contract and sought compensation for the loss and damage suffered as a result. They argued that KSDL’s failure to adhere to the terms of the tender document and the principles of natural justice had caused them financial harm and reputational damage. Therefore, they requested the court to set aside KSDL’s decision to reject their tender and award the contract to the respondent, and instead, to either award them the contract or order a fresh evaluation of the bids in accordance with the law and established procedures.

CONTENTIONS OF THE RESPONDENT

The respondent, Karnataka Soaps and Detergents Limited (KSDL), presented several contentions before the court in response to the appeal filed by Bannari Constructions. Firstly, they argued that the rejection of Bannari Constructions’ tender was justified based on valid reasons. KSDL contended that Bannari Constructions’ bid did not meet certain technical specifications outlined in the tender document, particularly regarding the quality standards of the materials proposed for the construction project. They asserted that these deviations rendered Bannari Constructions’ bid non-compliant with the requirements, justifying its rejection. Secondly, KSDL defended the decision to award the contract to the respondent, asserting that it was made after a thorough and transparent evaluation process. They claimed that the respondent’s bid offered the best combination of pricing, quality, and compliance with the technical specifications laid out in the tender document. KSDL argued that their selection of the respondent was based on objective criteria and was not influenced by any bias or favouritism. Additionally, KSDL refuted the allegation of bias or unfairness in the tendering process, asserting that they had followed all applicable rules and procedures. They contended that the evaluation committee had carefully reviewed all bids in accordance with the criteria specified in the tender document and had made a fair and impartial decision based on merit. Furthermore, KSDL argued that there was no breach of contract on their part, as they had acted in accordance with the terms and conditions set forth in the tender document. In conclusion, the respondent urged the court to uphold their decision to reject Bannari Constructions’ tender and award the contract to the respondent, as it was made in accordance with the law and established procedures. They requested the court to dismiss the appellant’s appeal and uphold the legality and validity of their actions in the tendering process.

COURT’S ANALYSIS AND JUDGEMENT

The court first scrutinised the tendering process followed by Karnataka Soaps and Detergents Limited (KSDL). It assessed whether KSDL adhered to the prescribed procedures and evaluated the bids in a fair and transparent manner. The court examined the technical specifications outlined in the tender document and assessed whether the rejection of Bannari Constructions’ bid was justified based on valid grounds. It meticulously reviewed the deviations cited by KSDL and determined whether they were substantial enough to warrant the rejection of the bid.

Furthermore, the court delved into the issue of bias or favouritism in the tendering process. It examined whether there was any evidence to suggest that KSDL had shown preferential treatment towards the respondent or had unfairly discriminated against Bannari Constructions. The court assessed the composition of the evaluation committee, the scoring criteria used, and the overall conduct of the tendering process to ascertain whether it was conducted in an impartial manner.

Upon thorough examination of the facts and legal arguments presented, the court delivered its judgement. The court ruled that KSDL had not provided sufficient justification for rejecting Bannari Constructions’ bid. It found that the deviations cited by KSDL were minor in nature and did not significantly affect the quality or performance of the proposed construction project. Furthermore, the court found no evidence of bias or unfairness in the tendering process.

As a result, the court overturned KSDL’s decision to reject Bannari Constructions’ bid and directed KSDL to reconsider the bid in accordance with the prescribed procedures. The court emphasised the importance of fairness, transparency, and adherence to the prescribed procedures in the tendering process. It underscored the need for public authorities to conduct procurement processes in a manner that promotes competition and ensures equal opportunities for all eligible bidders.

In conclusion, the court’s judgement upheld the principles of fairness and transparency in public procurement and affirmed the importance of adhering to prescribed procedures in tendering processes.

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Judgement Reviewed by – Shruti Gattani

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