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Whether Article 226 Of The Constitution Be Invoked By High Court For Award Of Contract In Favour Of Bidder

The Supreme Court of India recently delved into the aspect of whether a High Court can direct a State Instrumentality to award a contract in favour of a bidder under Article 226 of the Constitution of India. The issue arose before the Court in a dispute between Jaipur Vidyut Vitran Nigam Ltd. & Ors. Vs. MB Power (Madhya Pradesh) Ltd. & Ors.[1]

Wherein appeals were filed against an Order passed by the Rajasthan High Court. The Rajasthan High Court had held that the Jaipur Vidyut Vitran Nigam and State of Rajasthan were bound to purchase 906 MW of electricity from the Respondents. The High Court vide its Order had directed that Letter of Intent be issued and a Power Purchase Agreement be executed within two weeks.

The Supreme Court considered the provisions of the Electricity Act, 2003 such as provisions relating to determination of tariff by bidding process, functions of Central Commission, and functions of the State Commission. The Court observed that Section 63 is a standalone provision and must be construed on its terms, and that, therefore, in the case of transparent bidding nothing can be looked at except the bid itself which must accord with guidelines issued by the Central Government.

The State Commission must adopt the tariff which has been determined through a transparent process of bidding, but this can only be done in accordance with the guidelines issued by the Central Government.[2]

Unlike Section 62 read with Sections 61 and 64, under the provisions of Section 63 of the Electricity Act, the appropriate Commission does not "determine" tariff but only "adopts" tariff already determined under Section 63 and such an adoption is only if such tariff has been determined through a transparent process of bidding, and this process must be in accordance with the guidelines issues by the Central Government.

The Court observed that Section 86(1)(b) of the Electricity Act, is analogous to Section 79. Section 79 determines the functions of the Central Commission, whereas Section 86 provides for functions of the State Commission. The Section 86(1)(b) of the Act, gives ample power to the State Commission to regulate electricity purchase and procurement process of distribution licensees.

It empowers the State Commission to regulate the matters including the price at which electricity shall be procured from generating companies. Therefore, the Supreme Court held that the High Court ordering that the bids quoted by the bidders are to be accepted without going into the question of it being market aligned or not is without substance.

The Electricity Act is an exhaustive code on all matters concerning electricity. Under the Electricity Act, all issues dealing with electricity must be considered by the authorities constituted under the said Act. The State Commission and the APTEL have ample powers to adjudicate matters regarding electricity. The Court observed that these Tribunals consist of experts having vast experience in the field of electricity.

Therefore, the High Court erred in directly entertaining the writ petition when Jaipur Vidyut Vitran Nigam Ltd. had ample remedy of approaching the State Electricity Commission. While exercising the power of judicial review, the Court can step in where a case of manifest unreasonableness or arbitrariness is made out.[3]

Since, in the present case there was not even an allegation with regard to that effect, the recourse to Article 226 in the availability of efficacious alternate remedy under a statute is not justified.

However, the Court clarified that availability of alternate remedy is not a complete bar in the exercise of the power of judicial review by the High Courts. But recourse to such a remedy would be permissible only if extraordinary and exceptional circumstances are made out.

The Court held that the award of a contract, whether it is by a private party or by a public body or the State, is essentially a commercial transaction. In arriving at a commercial decision, consideration which are paramount are commercial considerations. The State can choose its own method to arrive at a decision. It can fix its own terms of invitation to tender and that is not open to judicial scrutiny.

However, the State, its corporations, instrumentalities and agencies are bound to adhere to the norms, standards and procedures laid down by them and cannot depart from them arbitrarily. The Court has the power to examine the decision-making process and interfere if it is found vitiated by mala fides, unreasonableness, and arbitrariness.

Even if some defect is found in the decision-making process, the Courts must exercise its discretionary power under Article 226 with great caution and should exercise it only in furtherance of public interest in mind to decide whether its intervention is called for or not and only when it comes to a conclusion that overwhelming public interest requires interreference, the Court should intervene.

While perusing the fact of the appeal, the Supreme Court observed that the decision-making process was totally in conformity with the principles laid down by this Court from time to time. After considering the competitive rates offered in the bidding process in various States, it was concluded that rates quoted were not marked aligned. The said decision was approved by the State Commission and therefore, should not have been interfered with.

The High Court in any case could not have issued a mandamus to the instrumentalities of the State to enter into a contract, which was totally harmful to the public interest. The mandamus issued by the Court was issued by failing to take into consideration the larger consumers interest and the consequential public interest.

  1. Civil Appeal No. 6503 of 2022
  2. Energy Watchdog Vs. Central Electricity Regulatory Commission & Others. (2017) 14 SCC 80
  3. Reliance Infrastructure Ltd. Vs. State of Maharashtra & Ors. (2019) 3 SCC 352
Written By: Yuvraj Francis, Advocate - Delhi High Court

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