Reserve price is of paramount significance in an auction inasmuch as it constitutes the core of the bidding process in an auction, but not so in a techno-commercial bid, where reserve price is not the only consideration. The Kerala High Court in S. Mathai v. Union of India was seized of a matter involving tender invited by the Railways for handling of goods at various stations. It was a two-way tendering process with the commercial bid setting out a reserve price above which no one could quote and the tender being awarded to the one quoted the lowest for his handling services subject to the scrutiny of technical bids.
The High Court pointed out that the Indian Railways was well within its rights to award the contract to the one who quoted more for his services vis-à-vis others down below in the race, because his technical competence to do a satisfactory handling job can be evaluated only by the Railways.
Had it been a pure case of auction to the highest bidder, award of contract to the one quoting less than the highest bidder, could be assailed, but not in a situation where technical competence was as important as services charges expected.
(The writer is a New Delhi-based chartered accountant)