Supreme Court Ruling on Rajasthan Warehousing Contract Dispute: Public Interest vs. Tender Process

The case of Rajasthan State Warehousing Corporation vs. Star Agriwarehousing and Collateral Management Ltd. revolves around a dispute concerning the awarding of tenders for the management and operation of state-owned warehouses in Rajasthan. The Supreme Court was called upon to decide whether the interim orders issued by the Rajasthan High Court, which prevented the execution of contracts with successful bidders, were justified in light of public interest and state revenue concerns.

Background of the Case

The Rajasthan State Warehousing Corporation issued a tender on March 12, 2020, inviting bids for the operation and management of warehouses at 71 locations under a Public-Private Partnership (PPP) model. The bidding process included pre-bid conferences and clarifications issued on the tender conditions.

Certain bidders raised objections regarding Clause 5(5)(i) of the notice inviting bids, which required bidders to have experience in preserving, maintaining, and storing at least 4 lakh metric tons of government-procured food grains, pulses, and oilseeds over the past three financial years. After considering these objections, the Corporation retained the clause.

Several unsuccessful bidders filed writ petitions before the Rajasthan High Court, challenging the tender conditions and the selection process. A single bench of the High Court dismissed the petitions on May 19, 2020, allowing the Corporation to proceed with awarding contracts to the successful bidders. The technical bids were opened on May 20, 2020, and letters of intent were issued on May 21, 2020.

However, in an intra-court appeal, the division bench of the High Court issued an interim order on May 29, 2020, directing that the status quo be maintained, preventing the signing of contracts while allowing other formalities to proceed. This order was later extended on June 10, 2020.

Petitioner’s Arguments

Senior Advocate Kapil Sibal, representing the Rajasthan State Warehousing Corporation, contended:

• The eligibility criteria set in the tender were determined based on the Corporation’s requirements and could not be challenged merely because similar tenders in other states had different conditions.
• Short-term contracts had been granted to the writ petitioners for four months, expiring on July 3, 2020. Extending these contracts beyond their term would cause financial losses to the Corporation.
• Successful bidders under the new tender process had offered a revenue share of 71% to the state, whereas the short-term bidders were offering only 42%. The delay in contract execution would lead to a significant loss of public revenue.
• Once the bidding process was completed and the letter of intent was issued, the Corporation was entitled to finalize contracts and proceed with operations.

Respondent’s Arguments

Senior Advocates R.K. Mathur, Gourab Banerji, and Shyam Divan, representing the writ petitioners, argued:

• The appeals before the Supreme Court challenged an interim order, and interference by the Court at this stage was unnecessary.
• The petitioners were granted liberty by the High Court to seek leave for execution of contracts, but instead of availing this option, they approached the Supreme Court under Article 136 of the Constitution.
• The interim orders granted by the High Court were within its discretion, and the Supreme Court should not interfere unless there was a manifest injustice.

Supreme Court’s Observations

The Supreme Court examined whether the High Court’s interim orders were justified and whether public interest warranted intervention.

• “This Court does not generally interfere in an interim order passed in an appeal under Article 136 of the Constitution. However, when the Division Bench has passed an order of stay without recording any reason affecting revenue of the State, this Court cannot permit the public interest to suffer.”
• “The bidding process was conducted transparently, and successful bidders offered significantly higher revenue to the Corporation. Public revenue loss cannot be ignored in contractual matters.”
• “Once a tender process is completed and a letter of intent is issued, the state agency has the right to execute the contract unless there is evidence of arbitrariness, favoritism, or malafide intent.”

Final Judgment

The Supreme Court ruled in favor of the Rajasthan State Warehousing Corporation and set aside the High Court’s interim orders.

• The May 29, 2020, and June 10, 2020, orders of the Rajasthan High Court were quashed.
• The Corporation was allowed to execute contracts with the successful bidders.
• The execution of contracts would be subject to the final decision of the High Court in the pending intra-court appeals.

Implications of the Judgment

The Supreme Court’s ruling has significant implications for public contract management and judicial intervention in tender processes:

• Judicial Restraint in Interim Orders: The ruling emphasizes that courts must exercise caution while granting interim relief in contractual disputes, especially when public revenue is at stake.
• Finality of Tender Process: The judgment upholds the sanctity of a completed tender process and discourages undue delays in contract execution.
• Public Interest Consideration: The Court reiterated that public contracts should prioritize revenue generation and operational efficiency.

Conclusion

The Supreme Court’s decision in this case reaffirms the importance of fair and transparent tender processes while ensuring that judicial interventions do not cause unnecessary financial loss to the state. By setting aside the High Court’s stay order, the Court allowed the Rajasthan State Warehousing Corporation to proceed with its contracts, ensuring that public resources were utilized efficiently and in the best interest of the state.

Petitioner Name: Rajasthan State Warehousing Corporation.
Respondent Name: Star Agriwarehousing and Collateral Management Limited & Others.
Judgment By: Justice Hemant Gupta, Justice Aniruddha Bose.
Place Of Incident: Rajasthan.
Judgment Date: 24-06-2020.

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