Debarment for Six Months Proportionate to Bidder’s Failure to Submit Performance Guarantee on Time: Allahabad High Court

Allahabad High Court delivered a significant judgment in M/S Theme Engineering Services Pvt. Ltd. v. National Highway Authority of India (NHAI), Writ-C No. 8606 of 2024, upholding the six-month debarment imposed on the petitioner by the National Highways Authority of India (NHAI) due to errors in its financial proposal and failure to comply with contractual obligations. The Court ruled that the debarment was proportionate to the petitioner’s failure to submit a performance guarantee within the prescribed time, dismissing the petitioner’s claims of procedural unfairness and calculation errors.

The case arose from a tender floated by the NHAI for commissioning an independent engineering service to supervise the operation and maintenance of a highway section. The petitioner, M/S Theme Engineering Services Pvt. Ltd., submitted a financial proposal of Rs. 4.76 crores, which was accepted as the lowest bid. However, the petitioner later contended that there was an error in the tender evaluation process and that its actual bid should have been Rs. 6.08 crores. The petitioner sought a correction of the Letter of Acceptance (LoA) issued by the NHAI. When the petitioner failed to submit the required performance guarantee within the stipulated time, the NHAI issued a debarment order, barring the petitioner from participating in future tenders for six months.

The petitioner challenged the debarment order on several grounds, including allegations of a miscalculation in its financial bid by the Tender Evaluation Committee, procedural unfairness, and the failure of the NHAI to correct the error despite multiple requests. The petitioner also argued that the debarment was pre-determined and violated the principles of natural justice.

The core issue in the case was whether the Tender Evaluation Committee had made an error in calculating the petitioner’s financial proposal. The petitioner argued that it had quoted Rs. 6.08 crores, but due to an alleged calculation mistake by the Committee, the bid was reduced to Rs. 4.76 crores. The Court, however, found that the financial proposal was correctly filled out by the petitioner itself in Appendix C-1, showing Rs. 4.76 crores in both words and figures. The Court rejected the petitioner’s argument that the error was on the part of the NHAI.

“It is apparent from the conduct of the petitioner that he has not been honest and upfront with the Authority,” the Court noted [Para 40].

The petitioner argued that the debarment was premeditated and that the show cause notices issued by the NHAI were biased. The Court found that the NHAI had issued three show cause notices, provided personal hearings, and complied with the principles of natural justice throughout the process.

"Merely because the Show Cause Notice was issued after referring to the contents of the financial proposal and Appendix C-1 of the format submitted by the petitioner itself cannot be said that the order of blacklisting was predetermined," the Court observed [Para 35].

The Court emphasized the limited scope of judicial review in contractual matters, especially when complex technical issues are involved. Citing the Supreme Court’s rulings in BTL EPC Limited v. Macawber Beekay Pvt Ltd. and Tata Motors Limited v. Brihan Mumbai Electric Supply & Transport (BEST), the Court reiterated that judicial interference should be minimal unless there is clear evidence of mala fides, irrationality, or procedural impropriety.

"Courts must give fair play in the joints to the Government and public sector undertakings in matters of contract," the Court noted, echoing previous Supreme Court rulings [Para 41].

The petitioner also argued that the six-month debarment was disproportionate to the alleged breach of the Request for Proposal (RFP) guidelines. The Court, however, found that the NHAI had acted within its rights under Clauses 10.4 and 10.5 of the RFP, which allowed for debarment in cases where the bidder failed to submit performance security within the prescribed time.

"The period of six months is reasonable, as once the Letter of Acceptance issued to the petitioner is deemed to be withdrawn, fresh tenders would have to be issued," the Court ruled, affirming the NHAI’s decision to limit the debarment to six months instead of the maximum two years permitted under the RFP [Para 40].

The Allahabad High Court dismissed the writ petition, holding that the debarment order was justified and proportionate to the petitioner’s non-compliance with the tender conditions. The Court also stressed the importance of restraint in judicial review of technical and commercial matters, finding no grounds for interference in the NHAI’s decision.

Date of Decision: October 23, 2024

M/S Theme Engineering Services Pvt. Ltd. v. National Highway Authority of India & Another