Kerala High Court
Kerala High Court
Litigation News

No legal bar for State to resort to negotiation or any other method other than auction to enter into contracts: Kerala HC [Read Judgment]

"All that the law requires is that, the method that is adopted, should be fair, transparent, not affected by bias, favouritism or nepotism and not discriminatory, arbitrary or unreasonable", the Court held.

Rintu Mariam Biju

In a judgment passed recently, the Kerala High Court has reiterated that there is no legal or constitutional bar for the State or its instrumentalities to resort to any other method, other than auction, for the purpose of entering into contracts.

The Court passed the above order while dealing with a writ appeal filed by Flemingo Travel Retail (appellants) filed challenging the award of the contract for operating the duty-free shops in the Kannur International Airport (KIAL), to the GMR Airports, India Gandhi International airports (GMR), the 3rd respondents.

The order passed by a Division Bench comprising of Justice C K Abdul Rehim and Justice T R Ravi reads,

"We are of the opinion that there is no legal or constitutional bar for the State or its instrumentalities to resort to any other method, other than auction, for the purpose of entering into contracts. All that the law requires is that, the method that is adopted, should be fair, transparent, not affected by bias, favouritism or nepotism and not discriminatory, arbitrary or unreasonable."

Kerala High Court

The Court also went on to reject the contentions of the appellant regarding malafides in the award of the contract in favour of GMR.

Factual Background

Kannur international airport (KIAL) wanted to select an agency for running the duty-free business at the airport and in this regard, a tender process was initiated.

When three such attempts failed, KIAL went ahead and selected a JV partner for developing, operating and maintaining the duty-free outlets at KIAL. Subsequently, KPMG Advisory services (Financial consultant) was appointed to finalise between the two companies – Flemingo Travel Retail and M/S Dufry. However, later, KIAL had asked KPMG to look at other major propositions before the contract is signed.

In an attempt to get the best deal, KPMG approached similar operators, such as M/s DFS, M/s Aer Rianta International and M/s GMR. After an analysis by KPMG , it was noted that GMR came out with the highest score of 49.8. Finding that the proposal of the GMR was more favourable and following a private negotiation, on October 26, 2019, KIAL awarded the contract to GMR.

KIAL had also informed the Flemingo about the rejection of their proposal. On the same day, the appellant sent an objection against awarding of the contract to GMR.

A writ petition was also filed on Novemver 13, 2019 before the Kerala High Court. However, a single judge held that the master of the contract has got sufficient discretion and play in the joints and liberty in order to conclude the contract. The petition was, therefore, dismissed by the single judge. Aggrieved by this decision, Flemingo preferred an appeal before the Division Bench.

Contentions of Parties

The main contention made by Senior Advocate, Joseph Kodianthara appearing for Flemingo was that KIAL should not have resorted to finalizing the contract on the basis of negotiation.

It was further contended that since procurements were supposed ro be through e-tender, KIAL was duty-bound to finalise the contract by inviting tenders and not by private negotiation.

It was additionally submittted that KIAL had floated about 30 tenders earlier and Flemingo was the only company which had been in the field right from 2017 onwards for running the duty-free shops.

It was further argued that even if the negotiation process was permissible, the only option available to the Managing Director was to select the better agency as between Flemingo and M/s Dufry, in consultation with the Financial Consultant. There was no question of including a third person for the purpose of negotiation. In other words, the GMR ought not to have even been invited for negotiation of contract, Kodiathara argued.

Contering these submissions, Senior Advocate EK Nandakumar argued for KIAL that the decision to finalise the contract on private negotiation was justified given that the tender process was initiated on three occasions 9November 2017, February 2018 and December 2018), and that all the three attempts had failed as the did not bring in sufficient bidders.

It was at this stage that negotiation was resorted to, KIAL submitted. Moreover, it was argued that after having participated in the negotiation throughout, it was not open to the appellant to challenge the very process after having found that they did not succeed in getting the contract. The appellant cannot be allowed to approbate and reprobate, Nandakumar asserted.

Advocate Raveendran, appearing for KPMG submitted that as Financial Consultants, it was their duty to find the best person suited to run the duty free shops, in the best interests of the KIAL. On evaluating the three proposals, the KPMG was of the opinion that the proposal submitted by GMR was the best proposal.

Senior Advocate Ramesh Babu appearing for GMR pointed out that, if the intention was to favour them, then there was no necessity of conducting negotiation with the appellant and M/s Dufry in the initial stage and for reaching out to other potential bidders.

What the Court held

Considering the arguments of all parties, the Court held that,

"The inclusion of the 3rd respondent(GMR) , according to us, is not in any way illegal or unreasonable or arbitrary or violative of any of the fundamental rights of the appellant. The appellant has no case that they had already been selected for the award of the contract, even before the 3rd respondent was included for negotiation. The appellant does not have any vested right on the basis of their proposal being found to be better than that of M/s Dufry."

Kerala High Court

Moreover, the Court observed that Flemingo was clearly been informed that the KIAL management will have the discretion to hold negotiations with the selected party on the detailed terms of the concession agreement.

"As such the appellant cannot have a grievance on that count also, since they entered into the negotiation process, knowing fully well of the above aspect. As held by the Single Judge, such play in the joints should always be available to the master of the contract, after the selection process is over", the Division Bench observed.

Further, the Court clarified that,

"The action of the respondents 1 and 2 cannot be termed to be arbitrary in any manner. Even after the 3rd respondent expressed their interest to participate, the respondents 1 and 2 gave equal chances to all the three participants to submit their best and final bid. It was only thereafter, the 2nd respondent who has expertise in the field, submitted their detailed analysis, which recommended the 3rd respondent’s proposal as the best suited for the 1st respondent, financially and otherwise. The actions of the respondents 1 and 2 thus satisfies all the requirements of law."

With these observations, the Court proceeded to dismiss the appeal.

[Read Judgment here]

Kerala HC - KIAL.pdf
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