Case Background
The Bihar Medical Services and Infrastructure Corporation Limited (BMSICL), a State agency, issued a tender to empanel agencies for outsourcing different job profiles in government health institutions. These positions included Manager, Assistant Manager, Electrician, Sweeper and other support staff.
Out of ten job categories, only one category related to deployment of security guards, office boys, lift operators and firemen. For this category, the Private Security Agencies (Regulation) Act, 2005 (Act of 2005) applied because it governs the business of private security agencies.
In the “Instructions to the Bidder” section of the tender document, BMSICL inserted a relaxed condition. It stated that for outsourcing security guards, if an agency or bidder did not have a licence under the Act of 2005, it could still participate, provided it sourced security personnel from another security firm that held a proper licence in the State.
This effectively allowed even unlicensed bidders to take part in a process that, for at least one category of work, required a licence under the Act of 2005.
Several companies, including JMD Services Private Limited, Shiva Protection Force (P) Ltd., Intelligence Security of India and M/s Lion Security Guard Services, participated in the tender. Their bids were evaluated, they were declared successful, BMSICL entered into contracts with them, and work orders were issued for supplying manpower for all relevant positions, including security guards.
Later, the Health Department reviewed the tender process. It noticed that the relaxed condition permitting unlicensed bidders to participate in security-related work was not in conformity with Section 4 of the Act of 2005. A high-level Committee under the Chairmanship of the Secretary, Health, deliberated on this issue and other related concerns.
On the Committee’s recommendations, the Government decided to cancel the entire tender and directed that a fresh tender be issued within a week, strictly complying with the Act of 2005 and other applicable rules, and that the new process be completed within a month. As an interim arrangement, the currently working agencies, including the petitioners, were allowed to continue supplying manpower till the new tender was finalized, to avoid disruption of services in hospitals.
Aggrieved by this decision, the empanelled and contracted agencies approached the Patna High Court in a batch of writ petitions under Article 226 of the Constitution of India.
What the Court Examined and Decided
The Patna High Court, speaking through the Acting Chief Justice with a concurring opinion by the companion Judge, identified five central issues common to all writ petitions:
(a) Whether the Government or its agency was justified in cancelling the tender only because one condition in the tender was technically incorrect and not in conformity with the Act of 2005.
(b) Whether contracts with successful bidders could be cancelled without issuing notice to them.
(c) Whether the faulty condition could be segregated and the contracts otherwise saved.
(d) Whether the State had the authority to cancel the tender when there was no adverse comment on the selection process or default by contractors.
(e) Whether the cancellation of the entire tender was tainted by mala fides.
The core factual trigger was Clause 8 of the tender, which prohibited any subletting or subcontracting; if a service provider sublet the work, the contract was liable to be terminated. This clashed with the relaxed condition that allowed unlicensed bidders for security work on the understanding that they would “source” security staff from licensed agencies. In effect, this opened the door to an indirect form of subcontracting in an area governed by a strict statutory licensing regime.
The Court first traced Section 4 of the Act of 2005. It provides that no person shall carry on or commence business as a private security agency without holding a licence under the Act. The first proviso permits pre-existing agencies to continue for a limited period and echos a one-year window tied to licence applications. The second proviso deals with security services abroad and is not central to this dispute.
The petitioners argued that only one out of ten job categories involved security guards, and that the licence requirement of the Act of 2005 applied only to that single category. For the other posts – Manager, Assistant Manager, Electrician, Sweeper and others – there was no statutory requirement for a security agency licence. Therefore, the petitioners contended, even if the security-guard related condition was technically faulty, that part could be separated and the rest of the tender and contracts maintained.
They emphasised that the tender had been taken to its logical conclusion. There were no complaints regarding the selection process, nor any allegation of lethargy, unpreparedness or lack of infrastructure. They said public tenders are the backbone of government procurement, and sanctity of contracts is vital for stability and predictability in commercial dealings with the State. Abrupt cancellation after award, in their view, eroded legitimate expectations and trust.
The petitioners also claimed that eight of the ten enlisted contractors already had valid licences under the Act of 2005, and the remaining two obtained licences later. They argued that, in such circumstances, the tender did not practically violate the Act and could have been salvaged by allowing only licensed agencies to handle security work.
A second limb of their case was based on natural justice. They argued that cancellation of the tender and termination of contracts without issuing any prior notice or hearing to the petitioners was impermissible, especially when the tender process itself had not been challenged by any rival bidder or third party.
Further, though there was no specific pleading, counsel suggested that the unilateral decision of the Government, allegedly triggered by a starred question raised in the Legislative Assembly, “smacked of malafides”. According to them, this created suspicion that favoured contractors were to be accommodated under a fresh tender.
On the other side, the State and BMSICL submitted that the relaxed tender condition directly violated the mandatory requirement of Section 4 of the Act of 2005. According to them, the purity of the tender process itself was compromised when unlicensed bidders were allowed to participate in a domain where a statutory licence was essential. In such circumstances, partial segregation of one faulty condition was not appropriate, because the initial eligibility field itself had been widened improperly.
They stressed that cancelling the entire tender and directing a fresh process, without any bar on the existing petitioners participating again, was a step taken in fairness and in the “fitness of things” to preserve sanctity and legality in public procurement. The interim arrangement allowing existing agencies to continue till new contracts were awarded was highlighted to show absence of vindictiveness or oblique motives.
The Court then applied settled principles of judicial review in tender matters. It relied on:
• Sterling Computers Limited v. M & N Publications Limited & Ors., (1993) 1 SCC 445, where the Supreme Court held that in contracts of the State, courts examine the decision-making process, not the merits of the decision like an appellate forum. The focus is on reasonableness and Article 14 compliance.
• Tata Cellular v. Union of India, (1994) 6 SCC 651, which affirmed that the Government enjoys freedom in contractual matters, subject to Wednesbury reasonableness and absence of arbitrariness, bias or mala fides. A “fair play in the joints” is allowed in administrative decisions.
• Jagdish Mandal v. State of Orissa & Ors., (2007) 14 SCC 517, where the Supreme Court clarified that in tender cases, courts must ask two key questions: (i) Is the process or decision mala fide, intended to favour someone, arbitrary or irrational? and (ii) Is public interest affected? Only if either is answered in the affirmative should courts interfere.
The Court also considered Subodh Kumar Singh Rathour v. Chief Executive Officer & others, 2024 SCC OnLine SC 1682. There, a tender was cancelled due to alleged technical faults and potential financial loss. The Supreme Court found no real evidence of loss or better revenue possible and directed that the original tender be salvaged. It held that public interest cannot be equated merely with getting more money, and that public interest cannot be a pretext for arbitrary termination of contracts.
The Patna High Court distinguished this precedent on facts. In the present case, the flaw was not a mere technicality related to revenue but a relaxation in direct derogation of the Act of 2005. Because the tender allowed participation of unlicensed agencies for security services, the Court noted that others, particularly licensees under the Act, might have been kept out or discouraged. If the Act-compliant condition had been insisted from the start, BMSICL would have had a larger, lawfully eligible pool of bidders to choose from.
The Court further observed that the enlistment concerned agencies supplying manpower in hospitals. In the recent past, offences by outsourced personnel had created controversy regarding the selection of such agencies. Against that backdrop, strict compliance with statutory safeguards in security agency licensing was especially important.
On mala fides, the Court accepted that the re-examination of the tender began after a starred question in the Legislative Assembly, but held that this did not by itself establish bad faith. The ultimate decision rested on a report of a high-level committee that considered all aspects. The Court stated that it was unable to “diagnose any malafides” in the State’s action.
On the argument that BMSICL alone should have taken the decision and that the State wrongly entered the arena, the Court noted that even if another corrective path was available, once the State chose a legally sustainable course of cancelling the tender and starting afresh, the Court could not interfere merely because an alternative approach might appear preferable.
The Court also took into account that, in this type of manpower supply contract, contractors were not expected to make any substantial infrastructure investment. Hence, the cancellation did not overlook heavy sunk investments of the petitioners. Additionally, the interim arrangement keeping them in place until fresh tender finalization, and the absence of any bar on them in the new process, reduced the prejudice.
In this backdrop, applying the Jagdish Mandal test, the Court found that the State’s decision was neither mala fide, nor arbitrary or irrational, nor contrary to public interest. It was rather a course correction to align the tender with a mandatory statute.
Accordingly, the Court upheld the State’s decision to cancel the tender in its entirety and dismissed all the writ petitions.
Why This Judgment Matters
This judgment has significant consequences for private security and manpower outsourcing agencies dealing with government tenders, especially in Bihar’s health sector.
First, it reinforces that tender conditions must strictly comply with statutory requirements. Where a statute like the Private Security Agencies (Regulation) Act, 2005 mandates licensing, the Government cannot dilute that requirement by “relaxed” clauses. Even if many selected contractors actually hold licences, the very design of the tender can be invalid if it allows unlicensed agencies to compete.
Second, it clarifies that courts will usually not interfere with a State decision to cancel a tender and restart the process, so long as the decision is taken to uphold legality and public interest, is supported by records like committee reports, and is not driven by mala fides or favouritism.
Third, the judgment shows that the Patna High Court gives weight to public safety and integrity in hospital staffing. Recent incidents involving outsourced staff were expressly noted. Agencies working in such sensitive spaces must expect stricter scrutiny of compliance.
Fourth, for contractors, the ruling is a reminder that even after being declared successful and receiving work orders, contracts with the State may be revisited if the underlying tender is found to be contrary to law. However, the Court also indicates that mitigating steps, such as interim continuation and the chance to participate in fresh tenders, can reduce harshness.
Legal Issues and Answers
-
Issue: Can the Government cancel a completed tender process solely because one condition was technically incorrect and violated the Act of 2005?
Answer: Yes. The Court held that where a tender condition relaxes a statutory requirement under the Act of 2005 and thereby compromises the purity of the tender, the State is justified in cancelling the entire tender and issuing a fresh one in compliance with law. -
Issue: Was the State required to segregate the faulty security-related clause and preserve the rest of the tender and contracts?
Answer: No. The Court held that segregation would be difficult and onerous, and could not address the impact of the relaxed condition on the initial pool of bidders. A fresh tender with correct conditions was a permissible course. -
Issue: Was the cancellation arbitrary, mala fide, or in violation of natural justice for want of notice to the contractors?
Answer: No. Applying Supreme Court precedents, the Court found no mala fides, bias, or arbitrariness. The decision rested on a high-level committee report aimed at course correction and public interest. In these circumstances, judicial interference was unwarranted.
Cases Cited by the Court
- Sterling Computers Limited v. M & N Publications Limited & Ors., (1993) 1 SCC 445.
- Tata Cellular v. Union of India, (1994) 6 SCC 651.
- Jagdish Mandal v. State of Orissa & Ors., (2007) 14 SCC 517.
- Subodh Kumar Singh Rathour v. Chief Executive Officer & others, 2024 SCC OnLine SC 1682.
Case Details
Case Numbers:
- Civil Writ Jurisdiction Case No. 14167 of 2024
- Civil Writ Jurisdiction Case No. 14186 of 2024
- Civil Writ Jurisdiction Case No. 14226 of 2024
- Civil Writ Jurisdiction Case No. 14739 of 2024
Case Title (Lead Matter):
- JMD Services Private Limited v. The State of Bihar & Ors.
- With connected matters: Shiva Protection Force (P) Ltd. v. The State of Bihar & Ors.; Intelligence Security of India v. The State of Bihar & Ors.; M/s Lion Security Guard Services v. The State of Bihar & Ors.
Court:
- High Court of Judicature at Patna
Coram:
- Hon’ble The Acting Chief Justice (Ashutosh Kumar, ACJ)
- Hon’ble Mr. Justice Partha Sarthy
Date of Judgment:
- 04-04-2025
Citation:
- 2025 (2) PLJR 635
Advocates:
- For the Petitioners: Mr. Y.V. Giri, Sr. Advocate; Ms. Shrishti Singh, Advocate; Mr. Pranav Kumar, Advocate; Mr. Devashish Giri, Advocate.
- For the State of Bihar: Mr. P.K. Shahi, Advocate General; Mr. P.K. Verma, AAG-3; Mr. Vikas Kumar, Advocate; Mr. Amish Kumar, Advocate; Mr. Arvind Kumar, AC to GA-9.
- For BMSICL: Mr. Lalit Kishore, Sr. Advocate; Mr. Vikash Kumar, Advocate; Mr. Ayush Kumar, Advocate; Mr. Kanishka Shankar, Advocate.
- For Respondent (in connected matter): Mr. Prabhat Ranjan, Advocate.
Nature of the Case:
- Batch of writ petitions under Article 226 of the Constitution challenging cancellation of a public tender and consequent termination of contracts for outsourcing manpower (including security guards) in government health institutions.
Outcome:
- All writ petitions dismissed; State’s decision to cancel the tender upheld; petitioners allowed to continue on interim basis till fresh tender is finalized.
Link to the Judgment:
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