Kerela HC reiterates: No bar for state for the purpose of entering contracts

WHAT WAS THE CASE ABOUT?

In the case of Flemingo Travel Retails Ltd. v. Kannur Intl. Airport Ltd., the court held 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.”

A writ appeal was filed by Flemingo Travel Retail Ltd. (appellants) which challenged the award of the contract for operating duty-free shops at the Kannur International Airport, to the GMR Airports, India Gandhi International airports (GMR), the 3rd respondent.

The order was passed by a division bench which consisted of Justice C K Abdul Rehim and Justice T R Ravi. They elaborated that, “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, favoritism or nepotism and not discriminatory, arbitrary or unreasonable.”

FACTS OF THE CASE

1. Kannur International Airport wanted to select an agency for running the duty-free business at the airport, and hence they initiated a tender process.
2. When three such attempts failed, the Kannur airport went ahead and selected a JV partnerfor developing, operating and maintaining the duty-free outlets at KIAL. Subsequently, KPMG Advisory services (Financial consultant) was appointed to finalize 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.
3. After analysis, KPMG found that GMR had the highest score and hence following a private negotiation, on October 26, 2019, KIAL awarded the contract to GMR.
4. Kannur Airport had also informed the Flemingo about the rejection of their proposal and consequently on the same day, the appellant sent an objection against awarding of the contract to GMR.
5. A writ petition was also filed on November 13, 2019 before the Kerala High Court.
6. However, a single bench 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.”
7.  The petition was, therefore, dismissed by the single judge. Aggrieved by this decision, Flemingo preferred an appeal before the Division Bench.

CONTENTIONS OF THE PARTIES

Appellants: Kannur Intl. Airport should not have resorted to finalizing the contract on the basis of negotiation. Further contended that since procurements were supposed to be through e-tender, the airport was duty-bound to finalize the contract by inviting tenders and not by private negotiation. 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.

Respondents: The decision to finalise the contract on private negotiation was justified given that the tender process was initiated on three occasions, and that all the three attempts had failed as they did not bring in sufficient bidders.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”, it was asserted.

WHAT THE COURT HELD?

• 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."
• The court also held that Flemingo was clearly informed that the Kannur Airport management will have the discretion to hold negotiations with the selected party on the detailed terms of the concession agreement.
• The court also held 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."