Since no one more knowledgeable has posted an answer, here is my best attempt at an answer. I suggest that the OP, or other interested party, treat this as an initial overview rather than a final answer, and do some more research themselves. I hope that the provided links are helpful in that endeavor.
Source: Tender Rules from the Indian Central Vigilance Commission (hereafter referred to as "CVC")
Disclaimer: IANAL; I am also not familiar with Indian law or legal system, nor the specific state rules (as the Indian state is not specified).
1. What is the tender process, and what is its purpose?
Tender is, in essence, a public quote and public application process for a business to be hired for a job the public sector. It exists for three reasons:
1) Accessibility: New companies should be able to compete with existing companies, and not be shut out due to political and personal connections (or lack thereof).
2) Transparency: The public of a democracy, in general, should know what their money is being spent on, and what actions their government are taking.
3) Accountability: Even in ideal circumstances, decision makers need to weight different factors such as price and safety records. In a democracy, decision makers can be held accountable (directly or indirectly) for their decisions, which means the public should be able to make themselves aware of the factors considered by decision makers.
2. Are the described actions in violation of the CVC guidelines? Is is illegal?
It certainly may be a violation of CVC guidelines. One CVC circular (PDF#2) explicitly states that awarding a contract "on nomination basis without adequate justification amounts to a restrictive practice eliminating competition, equity, and fairness", but in that circular at least, fails to describe what constitutes "adequate justification".
However, that an action violates CVC guidelines does not necessarily mean that it is illegal. From what I could gather (and this is where I would hope someone more knowledgable than I ), the CVC is an advisory body only, and exists to give guidance and recommendations to lawmakers, at the federal and state levels, and to its state-level counterparts, which may or may not have regulatory authority (and if those counterparts have regulatory authority, then violations of their rules are illegal).
3. Is the described behavior corruption?
Possibly, but not necessarily. It certainly could be a corrupt scenario of kickbacks or other forms of graft. However, if multiple (if limited and preselected) vendors are offered a bid, then in my experience the likelihood of corruption drops, as bribes more likely to be payed to secure a job, rather than to secure the ability to bid for a job (barring an endemic corruption problem resulting in a "pay-to-play" environment).
More over, the CDC notes(PDF#1) that some projects require iteration and consultation of the technical requirements, and as someone with an engineering degree(disclaimer: software engineering), I would heartily suggest that a electrical generator, and especially a geothermal electrical generator, would be such a project. In such a case, the CDC recommends first reaching out to "knowledgable and experienced" suppliers to find solutions.
Indeed, depending on the various requirements, which may include locality (because local governments tend to favor work by companies in their geographic area) and a record of reliability(because some projects have massive consequences if done poorly, such as a electrical generator which if it something goes wrong, fails to give the nearby area power in the best case, and in worse cases can do damage to the electrical grid, which can prevent power from being sent from other working generators, and even cause fires), the limited list of vendors may be the only companies who are eligible to perform the project.
TLDR: Its probably against the CVC guidelines, but may or may not be illegal or unethical based on specific facts.