Himachal Pradesh Housing & Urban Development Authority though ‘State’ within meaning of Article 12 acted malafide: SC imposes cost of Rs 5 lakh on Authority for awarding tender to unqualified bidder
Justices Bela M. Trivedi & Pankaj Mithal [02-04-2024]

Read Order: LEVEL 9 BIZ PVT. LTD v. HIMACHAL PRADESH HOUSING AND URBAN DEVELOPMENT AUTHORITY & ANOTHER [SC- CIVIL APPEAL NO. 4626 OF 2024]

Tulip Kanth

New Delhi, April 2, 2024: The Supreme Court has imposed a cost of Rs 5 lakh on Himachal Pradesh Housing & Urban Development Authority for acting in collusion with a construction company, which was an unqualified bidder and covering up the irregularities as well as illegalities committed in the tender process.

The chronology of events suggested that the appellant Company and the respondent No. 2- M/s. Vasu Constructions were declared qualified in the Technical Bids opened on 15.12.2018 and on the same day, the financial bid of the said two parties were also opened. The respondent no.2 being L-1, the Letter of Intent was issued by the Respondent No.1 in favour of the respondent no.2.

Subsequently, an unsuccessful bidder M/s Dalip Singh Rathore filed a writ petition in the High Court, alleging irregularities and illegalities in the tender process and challenging the eligibility of the respondent no. 2, also seeking cancellation of the Tender. The appellant also filed a writ petition praying for the rejection of the Technical and Financial Bids of the respondent no.2.

The respondent no.1 HIMUDA in the meantime appointed a committee to review the tender process. The respondent no.1 also withdrew the Letter of Intent issued in favour of the respondent no.2. Subsequently, the High Court also appointed an Independent Committee to look into the alleged illegalities and irregularities, in order to instill confidence in the general public and to ensure transparency in the system.

The Appellant – Level 9 BIZ Pvt. Ltd., who was not a party to the proceedings, in a Civil Writ Petition filed by the Respondent No.2 – M/s. Vasu Constructions had challenged the impugned order of the Himachal Pradesh High Court.  The High Court passed the impugned order disposing of the said CWP by merely accepting the statement made on behalf of the Respondent No.1 – Himachal Pradesh Housing and Urban Development Authority (HIMUDA) that it wanted to withdraw the cancellation of initial tendering process and the statement made on behalf of the Respondent No. 2 that it was ready to execute the project on the same terms and conditions and the rates as per the initial tender. The said tender was already withdrawn by the Respondent no. 1 HIMUDA in view of the irregularities and illegalities committed by it, as recorded by an independent committee appointed by the High Court in earlier writ petitions filed by the present appellant and one Dalip S. Rathore.

The question that had been posed before the Division Bench of Justice Bela M. Trivedi and Justice Pankaj Mithal was whether the High Court could have disposed of the petition filed by the respondent no. 2 by simply accepting the statements made on behalf of the advocates virtually permitting the respondent no.1 HIMUDA to withdraw the cancellation of initial tendering process and permitting the respondent no. 2 M/s Vasu Constructions to execute the project on the same terms and conditions and at the rates as per the initial tender dated 15.11.2018.

“We are at loss to understand as to how the said petition filed by the respondent no.2 could have been disposed of by the Division Bench by merely recording and accepting the statements of the learned counsels for the respondent nos. 1 and 2, when the tender in respect of NIT dated 15.11.2018 was cancelled by the respondent no.1 HIMUDA on account of the gross irregularities and illegalities in the tender process found by the Independent Committee constituted by the High Court and on account of the order passed by the High Court on 08.01.2021”, the Bench said.

Initially an LOI was issued by the respondent no. 1 in favour of the respondent no. 2 but the same was withdrawn by the respondent no. 1 as per the letter dated 02.01.2019 on account of pending litigations in the High Court.

“In any case, it hardly needs to be reiterated that the Letter of Intent is merely an expression of intention to enter into a contract. It does not create any right in favour of the party to whom it is issued. There is no binding legal relationship between the party issuing the LOI and the party to whom such LOI is issued. A detailed agreement/contract is required to be drawn up between the parties after the LOI is received by the other party more particularly in case of contract of such a mega scale”, the Bench explained.

Since, there was no right whatsoever created in favour of the respondent no. 2, and since the respondent no. 1 HIMUDA had already accepted the recommendations of the Committee appointed by the High Court and the order dated 08.01.2021 passed by the High Court, and had cancelled the tender and issued fresh NIT on 17.11.2021, the Bench held that the respondent no. 1 could not have agreed to allow the respondent no. 2, who was found to be not technically qualified, to go ahead with the execution of the project in question and that too without giving the other two parties any opportunity to negotiate.

According to the Bench, if the respondent no. 1 was so keen to provide the facilities to the public without causing any additional burden on the public exchequer, all the three parties who had participated in the original tender should have been given the opportunity to negotiate with it.

The Bench further stated, “…we have no hesitation in holding that the respondent no. 1 in collusion with the respondent no. 2, had taken the High Court for a ride and misused the process of law for covering up the irregularities and illegalities committed in the tender process by the officers of the respondent no. 1, and for anyhow awarding the contract to the respondent no. 2 under the guise of the court’s order.”

The Top Court was surprised by the fact that the High Court also could not notice the ill-intention of the respondent nos. 1 and 2 and disposed of the petition, permitting them to go ahead with the original tender, ignoring the reports of the independent committee and the observations made by the Single Bench in the Order dated 08.01.2021 with regard to the irregularities and illegalities committed by the officers of the respondent no. 1 HIMUDA.

The Bench set aside the impugned order as it was having been passed without proper application of mind and without assigning any cogent reason for brushing aside the findings recorded by the Independent Committee and the observations made by the Single Bench.

“Since, we have found that the respondent no.1 HIMUDA, though ‘State’ within the meaning of Article 12 of the Constitution of India, had acted malafide and in collusion with the respondent no.2, and had taken the High Court for a ride, the present appeal deserves to be allowed with heavy cost”, the Bench said while allowing the appeal and asking respondent no. 1 HIMUDA to deposit cost of Rs 5,00,000 with the Supreme Court Advocates-on-Record Association.