Supreme Court Strikes Down Himachal Pradesh Housing Authority's Collusive Tender Award

The Supreme Court of India recently ruled against the Himachal Pradesh Housing and Urban Development Authority (HIMUDA) in a contentious tender dispute involving allegations of collusion and irregularities in awarding a commercial complex construction project in Shimla. The case, Level 9 BIZ Pvt. Ltd. vs. HIMUDA & Vasu Constructions, highlights significant lapses in public procurement, judicial oversight, and state accountability.

Background of the Case

The dispute arose from a tender issued on November 15, 2018, for the construction of a commercial complex in Vikas Nagar, Shimla. The estimated project cost was Rs. 45.05 crore. Following technical and financial evaluations, M/s. Vasu Constructions (Respondent No.2) was awarded the contract, while Level 9 BIZ Pvt. Ltd. (Appellant) was the second-lowest bidder.

However, the process was challenged due to alleged irregularities:

One unsuccessful bidder, Dalip Singh Rathore, filed a writ petition (CWP 3021/2018) alleging that Vasu Constructions was not eligible for the contract.
The appellant (Level 9 BIZ Pvt. Ltd.) also filed a petition (CWP 363/2019), seeking cancellation of the tender due to procedural violations.
In response, HIMUDA withdrew the Letter of Intent (LOI) issued to Vasu Constructions on January 2, 2019, citing the pending High Court case.
HIMUDA later constituted a committee to investigate the tendering process, which identified several violations and recommended corrective measures.

High Court’s Intervention and Findings

The Himachal Pradesh High Court, recognizing the gravity of the allegations, appointed an independent committee in November 2020 to review the tendering process. The committee found:

Several officers within HIMUDA had acted irresponsibly and appeared to favor certain contractors.
The tender evaluation process was manipulated to eliminate eligible bidders and benefit favored companies.
Both Vasu Constructions and Level 9 BIZ Pvt. Ltd. were wrongly deemed eligible in the technical evaluation.

Based on these findings, the High Court ordered the cancellation of the tender on February 5, 2021. A fresh Notice Inviting Tender (NIT) was issued on November 17, 2021.

Legal Twist: Reinstating the Cancelled Tender

Despite the High Court’s clear findings, Vasu Constructions filed another writ petition (CWP 1481/2021) challenging the tender cancellation. In an unusual turn, HIMUDA supported Vasu Constructions in reversing the cancellation.

On October 18, 2022, the Division Bench of the High Court disposed of the petition based on a statement from HIMUDA’s Executive Engineer that the agency wanted to reinstate the initial tender due to public interest and cost concerns.

The High Court’s decision effectively allowed Vasu Constructions to proceed with the project under the original 2018 contract, ignoring the established irregularities. This prompted Level 9 BIZ Pvt. Ltd. to approach the Supreme Court.

Arguments by the Appellant (Level 9 BIZ Pvt. Ltd.)

The High Court erred in reinstating a contract that was already deemed illegal.
By disposing of the case based on mere statements from HIMUDA officials, the High Court ignored findings of collusion and procedural misconduct.
Vasu Constructions’ appointment was invalid as per the independent committee’s report.
The reinstatement bypassed proper bidding procedures, violating public procurement laws.

Arguments by the Respondents (HIMUDA & Vasu Constructions)

HIMUDA argued that reinstating the original contract would serve public interest by preventing cost escalation.
Vasu Constructions claimed it was ready to execute the project at the original rates.
The High Court’s decision to dispose of the case without full hearings was justified as the matter had already been litigated previously.

Supreme Court’s Judgment

The Supreme Court ruled in favor of Level 9 BIZ Pvt. Ltd., quashing the High Court’s order and reinstating the tender cancellation.

1. Collusion and Procedural Manipulation

The Court criticized HIMUDA’s conduct, stating that it had acted in collusion with Vasu Constructions to circumvent the tender process.
The reinstatement attempt was a clear effort to cover up irregularities and evade proper procurement procedures.

2. Flawed Judicial Disposition

The Supreme Court expressed surprise that the High Court disposed of the case based on mere statements from the Executive Engineer.
It emphasized that judicial decisions should be based on due process and substantive review of evidence, not verbal assurances.

3. Public Interest Considerations

The Court rejected HIMUDA’s argument that the project should proceed in public interest, noting that proper bidding procedures are essential for fairness and transparency.
If the project was genuinely urgent, all eligible bidders from the original tender should have been invited to negotiate.

4. Final Orders

The Supreme Court set aside the High Court’s order and reaffirmed the cancellation of the 2018 tender.
HIMUDA was directed to initiate a fresh bidding process following proper legal procedures.
A penalty of Rs. 5,00,000 was imposed on HIMUDA for misusing judicial processes.

Legal Implications of the Judgment

This ruling has far-reaching consequences for public procurement and state accountability:

Strengthening Public Procurement Rules: The judgment reinforces the principle that irregular tenders cannot be revived without due process.
Judicial Review of Administrative Actions: Courts must ensure that state agencies do not manipulate legal proceedings to override procurement rules.
Accountability for State Agencies: HIMUDA’s actions were deemed malafide, setting a precedent for penalizing public bodies engaging in favoritism.

Conclusion

The Supreme Court’s ruling in Level 9 BIZ Pvt. Ltd. vs. HIMUDA & Vasu Constructions underscores the importance of transparency and due process in government contracting. By striking down the collusive reinstatement of an illegal tender, the judgment upholds the integrity of public procurement laws and ensures fair competition in state projects.

Petitioner Name: Level 9 BIZ Pvt. Ltd..
Respondent Name: Himachal Pradesh Housing and Urban Development Authority & Another.
Judgment By: Justice Bela M. Trivedi, Justice Pankaj Mithal.
Place Of Incident: Shimla, Himachal Pradesh, India.
Judgment Date: 02-04-2024.

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