Introduction:
Tender or offer of performance has been stated in Section 37 to Section 39 of the Indian Contract Act, 1872. Every contract makes an obligation on parties to perform their reciprocal promises. In some cases, the promisor offers to perform a promise in the stipulated time and place but the promisee refuses to accept that offer of performance, this is an attempted performance or tender. When the promisee refuses to accept the performance of the promisor, he is not bound to fulfill his part of the promise and not responsible for non-performance, neither he loses his rights under the contract. The parties to a contract have a requirement to perform or offer to perform their respective promises. Section 37, 38, and 39 of the Indian Contracts Act, 1872 specifically deals with the performance of the contract by the parties.
Section 37 states that unless proven otherwise by the provisions of the Indian Contract Act, 1872 the parties to a contract are obligated to perform their part of promises. Section 38 enunciates the effect of refusal to simply accept an offer of performance. It states that when a promisor has offered a performance of promise and the promisee refuses to accept his offer of performance, then the promisor is excused for his non-performance and does not lose any rights. According to the section, just like the actual performance, an offer of performance (or tender) by the promisor discharges a promisor from his obligation under a contract. Thus, if A offers to perform his part of the promise, but the other party, B, does not avail of such performance, A would be discharged from his obligation under the contract. The parties to a contract need not perform their promises when such performance is dispensed with or excused under the provisions of the Indian Contract Act, 1872 or of any other law.
Essentials of a Valid Tender
The offer must be unconditional
It means that there should be no stipulated condition for the tender. For example, the payment by means of cheques is considered to be an invalid tender as the clearance of cheques could be problematic sometimes. This principle was also held in the case of Navinchandra v. Yogendra Nath where the payment by means of the cheque was considered a conditional tender and thus it was regarded as an invalid tender.
The offer must be made at a proper time and place, and under such circumstances that the person to whom it is made or offeree might have a reasonable opportunity of ascertaining that promisor is able and willing to perform his part of the promise.
There should be a fair opportunity for the promisee to consider or establish the proper performance of tender by the promisor in the future, hence, it is crucial that tender should be made at a proper time and place. If a place and time are determined, the contract should be performed according to that place and time. In the famous case of Startup v. MacDonald, the plaintiff agreed to supply ten tons of linseed oil to the defendant. The delivery was agreed to be made within the last 14 days of March. The plaintiff supplied linseed oil at 9:00 p.m. on 31st March. As it was late at night, the defendant refused to take the oil. It was held that the defendant had full opportunity to examine the oil till midnight of 31st March and his refusal to receive oil breaches his promise. The tender was acceptable and valid; thus, the defendant was liable to pay damages for the non-acceptance of supplies.
If the offer made to the promisee is a kind of delivery, then there should be a reasonable opportunity for the promisee to check that the offered thing is the same which the promisor is bound by his promise to deliver.
If the offer is a suggestion to deliver anything to the promisee, the promisee must have a reasonable opportunity of seeing or examining that thing offered is that the thing which the promisor is bound by his promise to deliver.
An offer of performance to one of the joint promisees is a valid tender.
When there are several joint promises, an offer to one of them would mean similar legal consequences as an offer to all of them. It means that there are more than one joint promisees, an offer of performance to one of them would be treated as a valid tender.
If a party to a contract fails to fulfill his promise wholly or disabled himself from the performance of his promise in entirety, the promisee may put an end to the contract, unless it has been signified, by words or conduct, his acquiescence in its continuance. This has been mentioned in Section 39 of The Indian Contracts Act, 1872.
Case Brief: Tata Cellular India v. Union of India [1996 AIR 11] [1994 SCC (6) 651]
Summary:
Supreme Court held that the court does not have the expertise to correct the administrative decision. The quashing of decisions may impose a heavy administrative burden on the State and lead to increased unbudgeted expenditure. The Court can interfere if the order is affected by arbitrariness or bias or actuated by malafides. The case recapitulates Section 38 of The Indian Contracts Act, 1872 and iterates the requisites to constitute a valid tender. Where the Government of India has invited tenders from Indian telecom companies to license the operation in four cities of India. Some of the bidders questioned the selection process and alleged malpractice. The Delhi High Court scrutinized the tender acceptance process in great detail which led to a writ petition in the Supreme Court of India that the High Court has no jurisdiction to scrutinize the administrative process. The Apex Court held the High Court was justified in reviewing the process as there is no blanket ban on courts when it comes to the administrative process and to render justice, the judicial review becomes a prominent step.
The requisites of tender stated under Section 38 of The Indian Contract Act, 1872 underlies the obligation of parties to abide by their promises. The scope of the section is to prevent any unfair practice or mala fide intention to stain the sacrosanct nature of the promise to perform or offer of performance. In the case of Tata Cellular v. Union of India, the Supreme court also upheld the requisites of the tender which need to follow along with holding the power of judicial review when arbitrariness is sensed in administrative decisions. Scope of Judicial review in examining the fairness of decisions made by government rejuvenates the spirit of people living in a democratic country. The allegation on basis of biasedness or hidden criterion for selection of bidders leaves turmoil in minds of citizens. The last resort for inspiring confidence is the judiciary and in this case, Apex Court preserved the confidence of people.
Facts:
The Department of Telecommunications, Government of India, invited tenders from Indian Companies to license the operation of “Cellular Mobile Telephone Service” in four metropolitan cities of India, namely, Delhi, Bombay, Calcutta, and Madras. The tender process was in two stages- technical evaluation and financial evaluation. Those who were short-listed in the first stage were invited for the second stage. Thirty bidders participated initially at the first stage. Telecom Commission short-listed 16 companies, 12 of which were eligible without any defect. However, in the case of BPL Systems and Projects limited, Mobile Telecommunication Limited, Mobile Telecom Services, and Indian Telecom Limited the Committee recommended condonation of certain defects. The matter came up before the Commission and the Commission accepts the Technical Evaluation Committee’s recommendations. At this stage, a Selection Committee was made with Mr. B.R. Nair as a member of the committee. The committee not only de novo exercised but also modified the short-list prepared by the Technical Evaluation Committee and approved 14 companies. Then, the revised financial bid and short-list were approved by the Telecom Commission and placed before the Minister for approval. Two bidders, namely, M/s Ashok Leyland Ltd. and M/s Vam Organics Ltd. were dropped from the short-list of 16 bidders. Mr. Nair was appointed as Director General of Telecommunications. The Minister approved the issue of financial bids with modification to the short-listed companies as recommended by the Selection Committee. the financial tenders were issued. It contained seven criteria that had been approved by the Selection Committee. However, no marks were earmarked for any of the criteria. Another Departmental Tender Evaluation Committee consisting of senior officers examined the financial bids of the 14 short-listed companies. It adopted some parameters and devised the marking system which was not done by the Selection Committee. The Adviser operations recommended only 4 operators based on the evaluation and financial bids. Bharati Cellular was recommended as a first choice for all the four cities, BPL as the second choice for both Delhi and Bombay, Tata Cellular, and Skycell as the second choice for Calcutta and Madras. This was done since in his view no other bidder qualified for a license. The file was put up to the minister and he made three important noting – the selection process be completed by DoT internally; one party may be granted a license for one city, and the actual selection of licensee be made on consideration of rentals and the marks obtained in respect of foreign exchange inflow and outflow criterion and experience of the licensee.
In accordance with this, a list of 8 short-listed companies was prepared. The reasons for the rejection of the 6 companies were recorded. The Chairman, in his final recommendation, noted that Bharati Cellular, Modi Telecom, and Mobile Telecom did not fulfill the conditions of the financial bid which requires that foreign exchange requirements be met by foreign collaborators. With regard to the rejection of 6 bidders, Sterling Cellular was rejected because some investigation against them was pending before the CBI. However, the Minister reversed that decision as to the exclusion of Sterling Cellular and Indian Telecom Limited from the list of finally approved bidders and directed that the same be considered. Sterling Cellular was provisionally selected for the city of Madras. In these circumstances, four writ petitions were made by Indian Telecom, Adino Telecom Limited, Tanzania Digital System, and Hutchison Max Telecom Private Limited.
It was urged before the High Court of Delhi that the decision of the Government in selecting 8 parties, two for each of the cities, was bad on the following grounds- (i) bias (ii)invoking certain hidden criteria (iii) irrelevant considerations (iv) bypassing the Selection Committee (v) selecting otherwise underqualified parties (vi) marketing system which was evaluated by the second Technical Evaluation Committee for grading various bidder. On consideration of those arguments, the writ petitions of Adino Telecom and Kanazia Digital System were dismissed but a petition filed by India Telecom and Hutchison Max Telecom Private Limited was allowed. To that extent the order granting license to 8 parties (2 for each of the cities) was set aside.
After the judgment of the Delhi High Court, the matter was reconsidered and a revised list was prepared and Tata Cellular which had been initially selected for Delhi was left out. Therefore, it preferred an appeal whereas Hutchison Max Private Ltd. Apprehended that if the judgment of Delhi High Court is not accepted, it would be displaced from the selection list for Delhi. Indian Telecom Private Limited also preferred an appeal.
Contention:
Tata Cellular argues that the tender was two-staged and in the first stage, the evaluation had to be made based on technical and commercial considerations while the second should be based on the financial bid. The three criteria mentioned are (i) Entire foreign exchange requirement shall be met by the foreign collaborator. (ii) Minimum reliance on Indian public financial institutions will be preferred. (iii) Debt equity ratio should not be more than 2: 1. It is borne out by records that out of the seven criteria in evaluating the financial bid, six parameters alone were taken into consideration.
The second ground of contention was bias. In that, Mr. B.R. Nair, Member of Production in the Telecom Commission participated and he agreed with the recommendation of TEC that BPL Systems and Projects, Mobile Telecom, Mobile Communications, and Indian Cellular, which had some deficiencies should be included in the short-list. Therefore, BPL was approved by Mr. Nair. Admittedly, Mr. Nair’s son is employed in BPL Systems and Projects.
The High Court of Delhi held that in relation to the second contention of the appellant, there was no bias on part of Mr. Nair and held “Nexus of father and son in the chain of decision-making process is too remote to be of any consequence. It is quite interesting to note that of the four companies which were having some deficiencies in their tender documents in the first stage and were recommended for consideration by the first TEC, three companies including BPL made it to the final list of eight. Plea of bias is not alleged in the selection of other two companies. In the circumstances, it is not possible for us to hold any allegation of bias made against Nair.”
It further held that in the case of most of the bidder’s foreign exchange was not met by foreign collaborator and this was a fundamental breach of bid thus would constitute a disqualification which was a bar at the threshold. Had this condition been strictly applied Bharati Cellular, Modi Telecom, Mobile Communications, Hutchison Max, Skycell Communication would have been eliminated. Likewise, Sterling Cellular also did not fulfill this condition. Pursuant to the High Court directions, the matter was reconsidered and selections have been made as was done earlier. The matter went to Supreme Court.
The principal objection of the Union of India is that the High Court was not justified in scrutinizing the tendering process in such detail. The minute examination is unwarranted because the High Court cannot constitute itself the selecting authority.
Judgment:
It cannot be denied that the principles of judicial review would apply to the exercise of contractual powers by Government bodies in order to prevent arbitrariness or favoritism. However, it must be clearly stated that there are inherent limitations in the exercise of that power of judicial review. Judicial quest in administrative matters has been to find the right balance between the administrative discretion to decide matters whether contractual or political or issues of social policy; thus, they are not essentially justifiable and the need to remedy any unfairness. Such unfairness is set right by judicial review. Therefore, it is not for the court to determine whether a particular policy or particular decision taken in the fulfillment of that policy is fair. It is only concerned with how those decisions have been taken. Two other facets of irrationality may be mentioned. (1) It is open to the court to review the decision-maker’s evaluation of the facts. The court will intervene where the facts taken as a whole could not logically warrant the conclusion of the decision-maker. If the weight of facts pointing to one course of action is overwhelming, then a decision the other way, cannot be upheld. (2) A decision would be regarded as unreasonable if it is impartial and unequal in its operation as between different classes. The argument that the financial projection of the proposed Cellular Mobile Cellular and one of the criteria having been left out of consideration cannot be accepted and Mr. Nair was only a recommending authority thereby he could not be held liable for biasedness.
Conclusion
The principles of judicial review would apply to contractual powers by government bodies in order to prevent arbitrariness or favoritism provided that limitations would be there on the exercise of such powers. In Tata Cellular v. Union of India, the Apex Court upheld the importance of Judicial Review even in flawed administrative matters. A broad analysis of the case law would demonstrate the application of the requisites of tender as stated in Section 38 of the Indian Contracts Act, 1872. Furthermore, the case affirmed that judicial review lies against the decision-making process and not the decision itself.
This principle was reiterated in the case along with mentioning the requisites of the valid tender which are:
- It must be unconditional.
- Must be made at the proper place.
- Must conform to the terms of the obligation.
- Must be made at the proper time.
- Must be made in the proper form.
- The person by whom the tender is made must be able and willing to perform his obligations.
- There must be a reasonable opportunity for inspection.
- Tender must be made to the proper person.
- It must be of the full amount.
References:
- Lex Life India, May 10, 2020, Constitutional Law: Doctrine of Judicial Review – Lexlife India, lexlife.in/2020/05/10/constitutional-law-doctrine-of-judicial-review/, Constitutional Law: Doctrine of Judicial Review – Lexlife India
- Contract-I, By R.K. Bangia, Chapter 8, Page no. 272-278
- https://indiankanoon.org/doc/884513/
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