Karnataka Commercial And Industrial Corporation PVT LTD vs. State Of Karnataka

Facts

The petitioner, Karnataka Commercial and Industrial Corporation Pvt. Ltd., challenged a Request for Proposal (RFP) dated 21-02-2023 issued by the Deputy Director of Horticulture for collecting entry and parking fees at Lalbagh gardens for two years. This was the third tender notification. The petitioner had participated in the second tender (dated 05-12-2022), was declared the highest bidder (H1) with a quote of Rs. 7,69,60,000/- for two years, and had agreed to a price increase. Despite this, the respondents issued a new tender with a higher expected revenue of Rs. 9 crores for two years, without prior communication to the petitioner. The petitioner argued this action was arbitrary and lacked justification under the Karnataka Transparency in Public Procurements Act, 1999, and Article 14 of the Constitution. The respondents admitted the tender was recalled for financial reasons, citing a shortfall compared to the previous year's collection, and acknowledged no prior communication was made.

Held

The Court held that the respondents' action of issuing the fresh tender notification was arbitrary and violative of Article 14 of the Constitution. The Court found that the respondents, after declaring the petitioner as the highest bidder and engaging in negotiations, could not unilaterally recall the tender without providing any discernible reason or communicating their decision to the petitioner. The Court noted that while the respondents cited financial reasons, the lack of prior communication and the arbitrary increase in the expected revenue demonstrated a lack of fairness in action. The Court relied on the principles laid down in TATA CELLULAR v. UNION OF INDIA and MICHIGAN RUBBER (INDIA) LIMITED v. STATE OF KARNATAKA, emphasizing that State actions must be valid for a discernible reason and not whimsical. The Court found that the respondents' conduct in this case broke these tenets. Consequently, the Court quashed the Request for Proposal dated 21-02-2023 and directed the respondents to take the Request for Proposal dated 05-12-2022 to its logical conclusion.

Key Issues

1. Whether the respondents' action of issuing a fresh tender notification dated 21-02-2023, recalling the previous tender where the petitioner was declared the highest bidder, without prior communication and with an increased expected revenue, is arbitrary and violative of Article 14 of the Constitution of India and Section 14 of the Karnataka Transparency in Public Procurements Act, 1999? Petitioner's arguments: The petitioner contended that the respondents, having declared them the highest bidder and engaged in price negotiations, could not arbitrarily recall the tender without providing any reason or communicating their decision. They argued that this action was not covered by Section 14 of the Act and was contrary to the principles of fairness enshrined in Article 14 of the Constitution. Reliance was placed on the judgment in MAREGOWDA v. BRUHAT BENGALURU MAHANAGARA PALIKE. Respondents' arguments: The respondents argued that while the petitioner was the highest bidder, the quoted price was significantly lower than the previous year's collection, indicating a financial shortfall. They admitted the tender was recalled solely for financial reasons and that no prior communication was made to any tenderer before issuing the fresh notification. They also relied on judgments stating that judicial review is generally unavailable in tender processes, citing TATA CELLULAR v. UNION OF INDIA and MICHIGAN RUBBER (INDIA) LIMITED v. STATE OF KARNATAKA.