IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE T.R.RAMACHANDRAN NAIR MONDAY, THE 16TH AUGUST 2010 / 25TH SRAVANA 1932 WP(C).No. 19620 of 2010(B) ---------------------------------------- PETITIONER(S): ------------------------ P.T.C INFRASTRUCTURES AND DEVELOPERS (P) LTD P.T.C TOWERS, S.S.KOVIL ROAD THAMPANOOR,THIRUVANANTHAPURAM-1 REPRESENTED BY ITS MANAGING DIRECTOR, MR.BIJU JACOB. BY SRI.M.PATHROSE MATTHAI, SENIOR ADVOCATE BY ADVS. SRI.SAJI VARGHESE SMT.MARIAM MATHAI RESPONDENT(S): ------------------------ 1. THE KERALA WATER AUTHORITY REPRESENTED BY ITS MANAGING DIRECTOR 2. THE SUPERINTENDING ENGINEER KERALA WATER AUTHORITY P.H.CIRCLE, KOLLAM. 3. THE REGIONAL TECHNICAL COMMITTEE REP BY ITS CHAIRMAN (THE CHIEF ENGINEER ) KERALA WATER AUTHORITY, SOUTHERN REGION 'JALA BHAVAN' VELLAYAMBALAM, THIRUVANANTHAPURAM. 4. STATE OF KERALA REP. BY THE SECRETARY, IRRIGATION DEPARTMENT GOVERNMENT SECRETARIAT,THIRUVANANTHAPURAM. 5. MR.SHIBU ZACHARIAH KOTTAVIRUTHIL HOUSE, ANAPRAMPAL, THALVADY PO. R1 TO R3 BY ADV. SMT.AMBIKA DEVI, SC, KWA THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 05/08/2010, THE COURT ON 16/08/2010 DELIVERED THE FOLLOWING: W.P.(C) NO.19620/2010 APPENDIX PETITIONER'S EXHIBITS P1:- COPY OF THE CLASS 'A' REGISTRATION CERTIFICATE ISSUED BY IST RESPONDENT TO M/S. HYDRO TECH ENGINEERS & CONTRACTORS. P2:- COPY OF THE PARTNERSHIP DEED OF M/S. HYDRO-TECH ENGINEERS & CONTRACTORS P3:- DETAILS OF WORKS UNDERTAKEN AND EXECUTED BY M/S. HYDRO-TECH ENGINEERS & CONTRACTORS. P4:- COPY OF THE PROFIT AND LOSS ACCOUNT OF M/S.HYDRO TECH ENGINEERS & CONTRACTORS FOR THE YEAR ENDED ON 31.3.2009. P5:- COPY OF THE SOLVENCY CERTIFICATE ISSUED BY FEDERAL BANK LTD., TO MR.BIJU JACOB, MANAGING DIRECTOR OF PETITIONER COMPANY. P6:- DETAILS OF WORKS UNDERTAKEN AND EXECUTED BY LATE SHRI. P.T.CHACKO, FORMER DIRECTOR OF PETITIONER-COMPANY. P7:- COPY OF THE PROFIT AND LOSS ACCOUNT OF PROPRICTARY CONCERN OF LATE SHRI. P.T.CHACKO FOR THE YEAR ENDED ON 31.3.2009. P8:- COPY OF THE CLASS 'A' REGISTRATION CERTIFICATE ISSUED BY IST RESPONDENT TO PETITIONER COMPANY. P9:- COPY OF THE TENDER CONDITINS PART I OF TENDER NO. 44/2008-2009/SE/Q DTD. 12.10.2009, ISSUED BY IST RESPONDENT P10:- COPY OF THE MINUTES OF TECHNICAL COMMITTEE DTD. 21.12.2009. P11:- COPY OF THE PROCEEDINGS OF TECHNICAL COMMITTEE DTD. 15.1.2010. P12:- COPY OF THE DECISION OF IST RESPONDENT DTD. 11.5.2010 TO AWARD THE WORK TO 5TH RESPONDENT. P13- COPY OF THE AGENDA NOTE NO.V(5) OF MANAGING DIRECTOR OF IST RESPONDENT SHOWING REASONS FOR REJECTION OF PETITIONER'S TENDER. P14:- COPY OF THE REGISTERED WILL EXECUTED BY LATE SHRI. P.T.CHACKO. P15:- COPY OF THE DETAILED TENDER NOTICE ISSUED BY THE RESPONDENT. RESPONDENT'S EXHIBITS R1:- COPY OF THE RECOMMENDATION OF KERALA WATER AUTHORITY'S HIGH LEVEL TECHNICAL COMMITTEE TO THE BOARD OF KERALA WATER AUTHORITY. R1(a):- COPY OF THE LETTER NO.28618/C1/08/WRD DTD. 4.6.2010 FROM THE PRINCIPAL SECRETARY TO THE GOVERNMENT TO THE IST RESPONDENT. R1(b):- COPY OF THE TENDER COMMITTEE RECOMMENDATION NO.KWA/JB/WS1/1713/10/TD. TRUE COPY P.S. TO JUDGE tss T.R. Ramachandran Nair, J. - - - - - - - - - - - - - - - - - - - - - - - - W.P.(C) No.19620 of 2010-B - - - - -- - - - - - - - - - - - - - - - - - - - - Dated this the 16th day of August, 2010. JUDGMENT The petitioner is a private limited company incorporated on 24.4.2009. It is represented by the Managing Director. The issue pertains to the rejection of a tender submitted by the company by the respondents and the tender submitted by the fifth respondent was accepted. 2. The reason for rejection of the tender is reflected in Ext.P13 minutes of the first respondent as per Agenda Note No.V(5). Mainly it was rejected for the reason that the financial standing of the petitioner cannot be verified since it is a newly registered firm and one of the partners of M/s. Hydro Tech Engineers, is having three Arbitration Cases against the first respondent. 3. The details regarding the formation of the company and the submission of its tender are the following: The Managing Director of the petitioner company is also the Managing Partner of M/s. Hydro-Tech Engineers & Contractors, a partnership firm which is a registered 'A' class contractor with the first respondent from 1987. He is holding 50% share in the said firm and the only other partner of the said firm is his wife who is wpc 19620/2010 2 also a Director of the petitioner company. The said firm was undertaking various contracts with the first respondent and the Public Works Department of the Government of Kerala, the details of which are produced as Ext.P3 statement and Ext.P4 is the profit and loss account for the year ended on 31.3.2009 and Ext.P5 is the solvency certificate issued by the Federal Bank, Pathanapuram Branch. The father of the Managing Director was one of the Directors of the petitioner company who also was one of the leading contractors in the State having 'A' Class registration with the first respondent and had successfully executed several major works of the first respondent during the past 50 years. Ext.P6 is a statement showing such details. Ext.P7 is the copy of the profit and loss account of the proprietary concern of “Mr. P.T. Chacko”. 4. The work in question, viz. the Water Supply Scheme of WSS Pandalam was notified as per tender notice dated 12.10.2009 and the petitioner submitted the tender. The estimate of the work was Rs.440 lakhs. 5. The Regional Technical Committee after evaluation, recommended the tender of the petitioner and Ext.P10 is the true copy of the minutes of the Regional Technical Committee. Thus, the petitioner was prequalified after evaluation by the Technical Committee that it has a net worth of Rs.254.43 lakhs and the annual turn over is Rs.817 lakhs. Under the wpc 19620/2010 3 heading “financial standing”, the minimum requirement of annual turn over was Rs.88 lakhs and the net worth at Rs.35.20 lakhs. 6. The price bid was opened electronically on 28.12.2009 and the petitioner's tender was the lowest. Negotiations were undertaken and the third respondent recommended the tender submitted by the petitioner as per proceedings dated 15.1.2010, since the petitioner's offer is the lowest. This is evidenced by Ext.P11. 7. Since no further communications were being received, the petitioner enquired about the matter and then only it was understood that the tender submitted by the fifth respondent at the negotiated price of Rs.567.60 lakhs, was accepted. The view taken that the petitioner is not having financial standing, is attacked in this writ petition on various grounds: 8. It is pointed out that the Regional Technical Committee had certified that the petitioner's company is having a net worth of Rs.254.43 lakhs against the required amount of Rs.35.20 lakhs. The annual turn over was assessed at Rs.817 lakhs as against the required turnover of Rs.88 lakhs. The petitioner's price bid was thereafter opened and it was found to be the lowest also. Therefore, it is contended that the rejection of the lowest tender without disclosing reasons, is arbitrary and illegal. wpc 19620/2010 4 9. The stand taken that the petitioner's company is registered only in the year 2009, is also attacked by raising the following pleas. It is pointed out that the promoters/directors were registered 'A' class contractors of the first respondent for the last more than 50 years. The Managing Director of the petitioner company is the major partner of M/s. Hydro-Tech Engineers and Contractors and they have undertaken several contracts. The other partner of the said partnership is his wife who is also a shareholder and director of the petitioner company. The late father of the Managing Director was also one of the Directors. All the details regarding the profit and loss account of the director “Mr.P.T. Chacko” and also M/s. Hydro- Tech Engineers and Contractors, were produced by the petitioner along with the tender document. It is therefore submitted that the annual turn over of M/s. Hydro-Tech Engineers and "Mr.P.T. Chacko” together or separately, ought to have been accepted. “Mr. P.T.Chacko” passed away on 17.3.2010 and by a registered will all his assets have been assigned to his son who is the Managing Director of the company. 10. The respondents have filed a counter affidavit and the petitioner has filed a reply affidavit. The respondents have filed a rejoinder affidavit also. Mainly it is pointed out in the counter affidavit that when the High Level Technical Committee evaluated the tender, it is found that the wpc 19620/2010 5 company was incorporated only on 24.4.2009 with Shri Biju Jacob as Managing Director and Shri Nithin Jacob Binu and Renu Biju Jacob as shareholders. “M/s. Hydrotech Engineers & Contractors (Pvt) Ltd.” is another firm and “Mr. P.T. Chacko” who was a proprietary concern, is not having any relation with the work in question. For evaluating the tender, the net worth, annual turnover and experience of the tenderers are the first and foremost criteria for pre-qualification. As per the Notice Inviting Tenders, net worth shall be calculated from the certified annual accounts for the previous year and average annual turnover shall be calculated from the certified accounts of the preceding three financial years submitted by the tenderer. Herein, the certified annual accounts of the petitioner company were not enclosed along with the tender document. Instead, the annual accounts were those of “Mr.P.T. Chacko” and M/s. Hydrotech Engineers and Contractors which are not relevant and valid for the financial prequalification. 11. It is also pointed out that the petitioner company is not having any joint venture with “Mr.P.T. Chacko” and “M/s. Hydrotech Engineers & Contractors” and hence the annual accounts or experience certificates of “Mr.P.T. Chacko” and M/s. Hydrotech Engineers & Contractors cannot be considered for evaluation of the tender of the petitioner as the financial wpc 19620/2010 6 document of those two firms cannot have any relevance. It is also pointed out that certain arbitration cases are pending. 12. Shri Pathrose Mathai, learned Senior Counsel appearing for the petitioner heavily relied upon the principles stated by the Apex Court in New Horizons Ltd and another v. Union of India and others {(1995) 1 SCC 478) in support of the case of the petitioner. Learned Standing Counsel for the Water Authority relied upon the decision of the Apex Court in Tata Cellular v. Union of India [(1994) 6 SCC 651), Association of Registration Plates v. Union of India and others {(20050 1 SCC 679) and Shimnit Utsch India Pvt. Ltd. & another v. West Bengal Transport Infrastructure Development Corporation Ltd. and others (CDJ 2010 SC 481) to contend for the position that the rejection of the tender is not arbitrary or unreasonable on any count. 13. It is submitted by the learned Senior Counsel for the petitioner that the experience and financial documents of the firm wherein the Managing Director and his wife are partners and that of the proprietary concern of the father of the Managing Director are relevant. It is pointed out that to that extent the principle of 'lifting the veil' will apply as held by the Apex Court in New Horizons Ltd.'s case {(1995) 1 SCC 478). It is wpc 19620/2010 7 therefore contended that as the petitioner was prequalified finding that there is clear financial standing, the view taken by the High Level Technical Committee cannot be supported. 14. Learned Standing Counsel appearing for the respondents submitted that the view taken in New Horizons Ltd.'s case {(1995) 1 SCC 478) is confined to the particular facts of the case, since that was a case where the company was having joint venture with the other companies, etc. and herein the petitioner is not having any joint venture either with the proprietary concern “Mr.P.T. Chacko” or with the partnership firm, viz. M/s. Hydrotech Engineers & Contractors. It is therefore pointed out that the petitioner cannot bank upon their financial particulars which will be against the conditions to be fulfilled as per the tender documents. 15. In New Horizons Ltd.'s case {(1995) 1 SCC 478) the Apex Court considered the question that, when a new company or partnership is brought into effect and is participating in a tendering process how far the experience of the other firms wherein the directors or partners are actively interested, can be taken into consideration and how their past records will justify such consideration. In para 23, it was laid down thus: “It is possible to visualise a situation where a person having past wpc 19620/2010 8 experience has entered into a partnership and the tender has been submitted in the name of the partnership firm which may not have any past experience in its own name. That does not mean that the earlier experience of one of the partners of the firm cannot be taken into consideration. Similarly, a company incorporated under the Companies Act having past experience may undergo reorganisation as a result of merger or amalgamation with another company which may have no such past experience and the tender is submitted in the name of the reorganised company. It could not be the purport of the requirement about experience that the experience of the company which has merged into the reorganised company cannot be taken into consideration because the tender has not been submitted in its name and has been submitted in the name of the reorganised company which does not have experience in its name. Conversely there may be a split in a company and persons looking after a particular field of the business of the company form a new company after leaving it. The new company, though having persons with experience in the field, has no experience in its name while the original company having experience in its name lacks persons with experience. The requirement regarding experience does not mean that the offer of the original company must be considered because it has experience in its name though it does not have experienced persons with it and ignore the offer of the new company because it does not have experience in its name though it has persons having experience in the field. While considering the requirement regarding experience it has to be borne in mind that the said requirement is contained in a document inviting wpc 19620/2010 9 offers for a commercial transaction. The terms and conditions of such a document have to be construed from the standpoint of a prudent businessman. When a businessman enters into a contract whereunder some work is to be performed he seeks to assure himself about the credentials of the person who is to be entrusted with the performance of the work. Such credentials are to be examined from a commercial point of view which means that if the contract is to be entered with a company he will look into the background of the company and the persons who are in control of the same and their capacity to execute the work. He would go not by the name of the company but by the persons behind the company. While keeping in view the past experience he would also take note of the present state of affairs and the equipment and resources at the disposal of the company.” In para 27 also the process of “lifting the veil” was also explained and it was found thus: “The conclusion would not be different even if the matter is approached purely from the legal standpoint. It cannot be disputed that in law, a company is a legal entity distinct from its members. It was so laid down by the House of Lords in 1897 in the leading case of Salomon v. Saloman & Co. (1897 AC 22). Ever since this decision has been followed by the courts in England as well as in this country. But there have been inroads in the doctrine of corporate personality propounded in the said decision by statutory provisions as well as by judicial pronouncements. By the process, wpc 19620/2010 10 commonly described as “lifting the veil”, the law either goes behind the corporate personality to the individual members or ignores the separate personality of each company in favour of the economic entity constituted by a group of associated companies. This course is adopted when it is found that the principle of corporate personality is too flagrantly opposed to justice, convenience or the interest of the Revenue.” 16. The facts of the said case show that New Horizons Ltd. (NHL) tendered for the work of printing, binding and supply of specified number of telephone directories. The said company was a joint venture company of four other companies. Such details were furnished along with the tender. It was explained that the company will have access to expertise in database management, sales and publishing of its parent group companies. The High Court took the view that as the company is an independent person, the experience of a shareholder cannot be experience of a company. 17. The argument raised by the Appellant Joint Venture company is evident from para 15, wherein, the contention was that “the authorities should have taken into consideration the experience of the constituents of NHL which is a joint venture company.” Their Lordships examined the details of the formation of the company as well as the concept of joint venture business. It was found on the merits also that NHL has been wpc 19620/2010 11 constituted as a joint venture by the group of Indian companies and IIPL which is a Singapore based company and accordingly it was held in para 26 that “once it is held that NHL is a joint venture, as claimed by it in the tender, the experience of its various constituents namely, TPI, LMI and WML, as well as IIPL had to be taken into consideration if the Tender Evaluation Committee had adopted the approach of a prudent businessman.” By applying the principles of lifting the veil, it was also found in para 38 that “NHL is functioning as a joint venture and the different groups have contributed towards the resources of the joint venture in the form of machines, equipment and expertise in the field.” It was held as follows: “The Company is in the nature of a partnership between the India group of companies and the Singapore-based company who have jointly undertaken this commercial enterprise wherein they will contribute to the assets and share the risks. In respect of such a joint venture company the experience of the company can only mean the experience of the constituents of the joint venture, i.e. the Indian group of companies (TPI, LMI and WML) and the Singapore-based company (IIPL).” It is accordingly that the view taken by the High Court was reversed. 18. Herein, a perusal of Ext.P9 shows that certain important tender conditions should be satisfied, which are the following: “7.17.1: MINIMUM ELIGIBILITY CRITERIA FOR wpc 19620/2010 12 PREQUALIFICATION. The applicant must be a well-established contractor/reputed firm/manufacturer with experience and capabilities in executing works similar to the work tendered. The applicant can either be a single or a joint venture as per clause 7.4.1 of this NIT. The minimum qualification expected for eligibility for pre qualification will be based on the following: 1. Financial standing 2. Past experience 3. Organizational capacity 4. Technical capacity 7.17.1.1 FINANCIAL STANDING In case of joint venture/partnership, financial standing of all partners may be added together for explaining the capacity for pre- qualification subject to clause 7.4.1. of this NIT. It should be ensured by the tenderer that all the documents furnished are duly verified and authenticated by him. No additional documents will be called for or accepted after the submission of the tender to prove financial standing. (A) Net worth 1. For all works above 300 lakhs, net worth alone shall be the main criteria for qualifying the tenderer financially irrespective of the bid capacity. From certified annual accounts for the previous financial year submitted by the contractor, his net worth shall be evaluated based on what he owns and owes. The amount owned consists of total assets in the form of fixed and current assets and the amount wpc 19620/2010 13 owed are the total liabilities. The details shall be furnished in the format Q4. 2. The net worth of the applicant shall be more than Rs.35.20 Lakhs. 3................... 4................... B) Annual Turnover The minimum average annual turn over of the tenderer submitting this bid shall be greater than 20% of the estimated cost of the work subject to a maximum requirement of Rs.500 lakhs. Example: PAC = 600,00,000 Completion period = 18 months Minimum annual turn over = 20% of the PAC subject to a maximum of 500 lakhs, i.e. 600,00,000 x 20 / 100 = 1,20,00,000 1. The minimum average annual turnover of the tenderer submitting this bid shall be greater than Rs.88 lakhs 2. The average annual turn over of the tenderer shall be calculated from the certified annual accounts of the preceding 3 financial years.” It is pointed out by the learned Senior Counsel for the petitioner that the petitioner satisfies the above conditions which were evaluated by the third respondent Regional Tender Committee. Accordingly, the petitioner was prequalified and the price bid was opened. Negotiations were undertaken also. It is thereafter that the petitioner has been excluded by the High Level wpc 19620/2010 14 Technical Committee which is unheard of. 19. The pendency of any arbitration cases, that too by the firm, etc. cannot be taken as a ground to reject the tender. Resort to arbitration is in respect of other works which have been tendered in their favour and that cannot evidently disqualify the petitioner which is a new company. Further, resort to arbitration evidently is for settling disputes arising out of a contract and the said aspect, i.e resort to legal remedies cannot be taken as a ground to disqualify a tenderer for considering a tender submitted for a different work. Therefore, the said reason could not have been taken as a ground against the petitioner. 20. The next aspect is whether the financial documents of the partnership, viz. M/s. Hydrotech Engineers & Contractors wherein the Managing Director of the petitioner company is the managing partner along with his wife as a partner and that of Mr. P.T. Chacko, a proprietary concern, could have been accepted. Herein, one aspect that is evident is that the petitioner company is not having any joint venture with those concerns. Even if the experience of the directors in the firm and the proprietary concern can be considered, but the petitioner will have to fulfill the financial standing as per the tender conditions. The crucial documents required to prove the financial standing, going by para 7.17.11. are the wpc 19620/2010 15 certified annual account for the previous financial year. In para 7.17.1.6 it is provided that in case of joint venture partnership, bid capacity and financial standing and machinery and personnel of all partners may be added together for explaining the capacity for pre-qualification. Clause 7.4.1. of the Notice Inviting Tenders, provides the parameters to be satisfied if the tender is submitted by a joint venture. Thus, only in a case of joint venture alone the financial standing of other partners/participants are taken for consideration. Under sub heading 'B' of para 7.17.1.1, it is stated that “the average annual turn over of the tenderer shall be calculated from the certified annual accounts of the preceding three financial years.” Thus, the word “tenderer” in these paragraphs is quite important while considering the questions raised herein. Herein, the tenderer being a company, what is relevant are the accounts in respect of the said company alone. In the absence of a joint venture with the other firm/concern, the financial particulars of those could not form the basis for considering the financial standing of the petitioner company, unless otherwise provided in the conditions itself. The maximum that could be said is that the same may probably help the directors to establish their credentials and past experience. 21. Going by the counter affidavit, these aspects have been highlighted, as the foremost criteria for prequalification. At the wpc 19620/2010 16 prequalification stage, evidently the net worth of the company was found at Rs.254.43 lakhs and annual turnover at Rs.817 lakhs which was based on the documents relating