Hemalata Agarwal vs. The State Cooperative Federation Limited

Held

The Court held that the condition requiring a bidder to place a single bid for the entire quantity offered in the tender, coupled with the EMD clause, created an enormous entry barrier and was unreasonable, hindering participation. The Court found that the fixation of a 70% turnover to the value of goods to be sold was arbitrary and illegal. The Court reasoned that the objective of fetching the best price for the commodities should be pursued by framing terms and conditions like a prudent trader, not as a bureaucratic department. The Court noted that the objective of selling the commodity to fetch maximum price and clearing stock within the shortest possible time appeared impracticable given the spread of storage locations. The Court concluded that the fixation of pre-qualification criteria, including the turnover requirement, was not based on any intelligible criteria relevant to the stated objective. The Court allowed the Writ Petition, setting aside the condition of payment of EMD of Rs. 1,000/- per MT and the condition pertaining to turnover of Rs. 100 Crores for Red Gram, Rs. 75 Crores for Sunflower, and Rs. 7 Crores for Black Gram. The respondent Federation was directed to take necessary steps expeditiously. The Court did not expressly leave any issue undecided.

Facts

The petitioner, a woman entrepreneur engaged in trading agricultural commodities, filed a writ petition challenging the conditions imposed by the respondent Federation in a tender notification dated November 20, 2019. The conditions included bidding for the entire quantity of a lot and having an annual turnover of Rs. 100 crores in any of the last three financial years. The petitioner argued these conditions were arbitrary, unconstitutional, and violative of Article 19(1)(g), effectively eliminating local traders. The respondent Federation, in its counter, stated the tender was floated on government orders based on recommendations from a Disposal Committee to dispose of agricultural commodities procured under the state pool. The turnover criteria were intended to ensure financial soundness of bidders and were based on CVC guidelines. The respondent also cited past instances where bidders failed to lift stock, causing losses.

Key Issues

1. Whether the condition requiring a bidder to place bids for the entire quantity indicated in a lot is illegal, arbitrary, unconstitutional, and violative of Article 19(1)(g) of the Constitution of India? 2. Whether the condition requiring a bidder to have an annual turnover of Rs. 100 crores in any one of the last three financial years (2016-17, 2017-18, 2018-19) is illegal, arbitrary, unconstitutional, and violative of Article 19(1)(g) of the Constitution of India? Petitioner's Arguments: The petitioner contended that the conditions, particularly the requirement to bid for the entire quantity and the high turnover threshold, were unreasonable and arbitrary, designed to eliminate local traders and favour larger entities. They argued that these conditions were not based on any intelligible criteria and were introduced for the first time without justification. The petitioner also challenged the Earnest Money Deposit (EMD) clause. The petitioner relied on the principle that tender conditions should be reasonable and promote competition. Respondent's Arguments: The respondent argued that the conditions were necessary to ensure the participation of reputed and capable firms with proper track records and financial soundness, as per CVC guidelines. They stated the turnover criteria were based on 70% of the value of Red Gram stocks and were intended to ascertain the bidder's capacity to purchase the stocks. The respondent also cited past experiences where bidders failed to lift stock, causing losses, and asserted that the conditions were not meant to benefit multinational companies but to ensure responsible bidders participated.