Further Comments on Icomm v PSWSSB (March 2019: SCI)

In the previous post, we critiqued the decision of the Supreme Court in Icomm v PSWSSB (11 March 2019). Some more comments/ clarifications form the content of this post.

Whether High Courts Should Interfere in Government Contracts?

Generally, High Courts should not interfere in Government contracts unless the party will be unable to seek relief through the contracted dispute resolution mechanisms or the civil courts. Availability of alternative efficacious remedy is a well-entrenched defence in writs. Instead, courts have this nebulous test of arbitrariness and interfere at their discretion, especially when arbitrariness is such a nebulous term. 

In the instant case, the court could very well have interfered considering the contracted dispute resolution clause was onerous on the claimant. But for reasons stated in the previous post, such an argument is not well-founded. 

Another distinction in Government contracts must be kept in mind. There is a difference between commercial procurement by the state/ state entities as an end-in-itself and as a means to an end. For instance, procurement of 10 crores worth stationery for consumption by central government (end-in-itself) is totally different from procurement of goods for manufacture by a central PSU (means to an end). Although both are commercial and not sovereign acts of the state, there is a marked difference: The latter is usually a listed company competing in the market with other private players and should have a level playing field to enable it to compete. They are accountable to their shareholders ultimately. By ordering stay on their projects, the courts are only disabling them from being efficient by competing in open market. Therefore, the court interference in the latter cases should be only when absolutely necessary. There are agencies such as vigilance, government audit, etc. to take care of these things and court interfere in corrupt conduct is called for only if these institutions fail. 

Whether the fact that the Appellant in the instant case accepted the Tender Conditions meant that he had accepted it and cannot later complain?

This argument is well-founded. The Appellant, along with all other bidders, seem to have accepted the tender conditions, including the arbitration clause. It somehow does not comport with justice and prudence to challenge it much after accepting it, taking the benefit of being awarded the contract, and then later challenging it at its convenience.

Further, even in those judicial review cases, courts would not generally go into the question of invalidity of tender clauses but only of processes. Even when courts question tender clauses, such clauses should have laid down arbitrary processes. There are umpteen judgments which state that courts would not decide how tender conditions should be framed [See, for instance, Directorate Of Education v. Educomp Datamatics Ltd. (2004) 4 SCC 19]. The same principle would apply here. 

Now the question is whether the clause was a bad process. For reasons in the previous post, we disagree. Day in and day out, we see exaggerated claims being made in litigation/ arbitration. Many of the times, adjudicators don't really examine the evidence threadbare to see if the damages claimed is actually suffered.

Whether the Proportionality Test is Applicable only to Purely Public Law Aspects?

The proportionality test has been used in the realm of public law to review public law acts. While contracting by government is not a purely private act, contract law applies to it. 

The proportionality test looks at the following questions:

(a) the action must be sanctioned by law;

(b) the proposed action must be necessary in a democratic society for a legitimate aim; 

(c) the extent of such interference must be proportionate to the need for such interference;

(d) There must be procedural guarantees against abuse of such interference

How can one imagine to incorporate these sub-tests in the current context? Look at the second sub-test: "the proposed action must be necessary in a democratic society for a legitimate aim"? I am sure an expert in public law while provide us with insights on all the facets of the proportionality test as is applied in India. But even the most commonly found formulation of the test is wholly inappropriate for application in the present context.

Whether the Decision is Against the Party Autonomy Doctrine?

The doctrine of party autonomy cannot be simply raised as an argument because the dynamics of the party autonomy doctrine's application in government contracts has not yet been analysed theoretically in the Indian context. Many government contracts operate on a take it or leave it basis or government parties agree only to minor tweaks in the arbitration clause in the international context. A theoretical base has to be built in the Indian context before addressing the question. At the most, it could be argued that this clause found place in the tender document and was accepted by all the other bidders. It would now be unjust on the other bidders that Icomm should be awarded the contract and should then be allowed to say that certain clauses should not be applied to it.

[Post Script: Thanks to Ms. Juhi Gupta for raising somewhat similar questions on the decision and our previous post.]