North China Petroleum Steel Pipe Co. Limited vs. Gail (INDIA) Limited & Anr

Held

The Court held that the decision to cancel the tender process was not arbitrary. While acknowledging the petitioner's argument that the Ministry of Steel's notification dated 08.05.2017 was prospective, the Court found that GAIL's decision was not solely based on this notification. The primary consideration for GAIL was the economic infeasibility and potential monetary outflow if the contract was awarded to the petitioner. The Court noted that the new GST regime had a positive effect on domestic manufacturers, potentially leading to price reductions if steel was sourced indigenously. The Tender Evaluation Committee's re-evaluation considered GST rates, input tax credit availability for domestic manufacturers, and the price of domestic steel, leading to the recommendation for cancellation. The Court found that the petitioner's claim of legitimate expectation did not create an indefeasible right to compel GAIL to award the contract. Citing *Union of India & Ors. Vs. Hindustan Development Corporation & Ors.* and *Sethi Auto Service Station & Anr. Vs. Delhi Development Authority & Ors.*, the Court stated that legitimate expectation is not a key to unlock an indefeasible right to a contract. Therefore, the relief claimed by the petitioner could not be granted.

Facts

The petitioner, North China Petroleum Steel Pipe Co. Limited, participated in a tender process initiated by GAIL (India) Limited, through its consultant Mecon, for procuring steel pipes for a pipeline project. The petitioner was declared the lowest bidder after participating in a reverse auction on April 24/25, 2017. However, on May 8, 2017, the Ministry of Steel issued a notification introducing a policy of preference for domestically manufactured iron and steel products (DMI&SP), effective from the date of notification for tenders where price bids had not been opened. Subsequently, on June 16, 2017, GAIL annulled the entire tender process via an impugned letter. The petitioner challenged this annulment, arguing it was arbitrary and prejudiced its rights.

Key Issues

1. Whether the cancellation of the tender process by GAIL, after the petitioner was declared the lowest bidder, was arbitrary and unreasonable, violating Article 14 of the Constitution of India, particularly in light of the prospective nature of the Ministry of Steel's notification dated 08.05.2017 regarding preference to domestically manufactured iron and steel products (DMI&SP)? Petitioner's arguments: The petitioner contended that the respondents' decision to cancel the tender was arbitrary and unreasonable. They argued that their right to be awarded the contract had crystallized after being declared the lowest bidder in the reverse auction. The petitioner asserted that the Ministry of Steel's notification was expressly prospective and therefore did not apply to the ongoing tender process. They relied on the principle of legitimate expectation and the duty to act fairly, citing *Food Corporation of India Vs. Kamdhenu Cattle Feed*. The petitioner argued that GAIL could not take shelter under the new policy as it was not applicable and that the cancellation was whimsical. Respondents' arguments: GAIL and Mecon argued that the decision to cancel a tender process is dependent on various circumstances, including larger economic considerations. They pointed out that the full implications of the Goods and Services Tax (GST) regime on procurement, especially from foreign suppliers, became evident after the reverse auction. The respondents submitted that proceeding with the tender would have resulted in a substantial higher outflow compared to sourcing from domestic suppliers, leading to significant savings. They contended that the Tender Evaluation Committee re-evaluated the matter based on these economic factors and recommended cancellation.