IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.M.JOSEPH WEDNESDAY, THE 12TH DECEMBER 2007 / 21ST AGRAHAYANA 1929 WP(C).No. 12354 of 2007(U) -------------------------------------- PETITIONER: ------------------- LARSEN & TOUBRO LTD, A COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPANIESACT, 1956, HAVING ITS REG.OFFICE AT L&T HOUSE, BALLARD ESTATE, PO BOX NO.8278, MUMBAI-400001 REP.BY ITS POWER OF ATTORNEY HOLDER SRI.V.R.SUBRAMANIAN, BRANCH MANAGER, "SKYBRIGHT" BUILDING,M.G.ROAD, EKM BY ADV. SRI.K.P.DANDAPANI (SR.) SRI. PANKAJ SAVANTH FROM BOMBAY SRI.P.V.SREENIJIN SMT.K.B.SONY SRI.MATHEWS K.UTHUPPACHAN SRI.PAUL MATHEW (PERUMPILLIL) RESPONDENTS: ----------------------- 1. COCHIN SHIPYARD LIMITED,(A GOVT.OF INDIA ENTERPRISE), A COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT, 1956, HAVING ITS REGISTERED OFFICE AT PO BOX NO.1653, PERUMANOOR, COCHIN - 682 015. 2. GOA SHIPYARD LIMITED, (A GOVT. OF INDIA ENTERPRISE), A COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT, 1956, HAVING ITS REGISTERED OFFICE AT VASCO DO GAMA, GOA - 403802. R1 BY ADV. SHRI SAJI VARGHESE, SC. R2 BY ADV. SHRI SHAFFIQUE. BY ADV. SRI.TOM K.THOMAS SRI.A.M.SHAFFIQUE SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR SRI.ANIL D. NAIR THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 31.10.2007, THE COURT ON 12.12.2007 DELIVERED THE FOLLOWING: APPENDIX IN W.P.(C). NO.12354 OF 2007 U EXT.P1 TRUE COPY OF LETTER DATED 23.2.2006 ISSUED BY 1ST RESPONDENT TO PETITIONER. EXT.P2 TRUE COPY OF LETTER DATED 15.4.2006 SUBMITTED BEFORE THE 1ST RESPONDENT. EXT.P3 TRUE COPY OF LETTER DATED 28.8.2006 ISSUED BY 1ST RESPONDENT TO THE PETITIONER. EXT.P3(A) TRUE COPY OF LETTER DATED 7.12.2006 ISSUED BY PETITIONER TO 1ST RESPONDENT. EXT.P3(B) TRUE COPY OF RELEVANT PORTION OF CLAUSE 16 OF TENDER DOCUMENT. EXT.P4 TRUE COPY OF LETTER DATED 23.2.2007 ISSUED BY 1ST RESPONDENT TO PETITIONER. EXT.P5 TRUE COPY OF LETTER DATED 1.3.2007 ISSUED BY PETITIONER TO MINISTRY OF DEFENCE. EXT.P5(A) TUE COPY OF LETTER DATED 17.3.2007 ISSUED BY PETITIONER TO THE SECRETARY, MINISTRY OF SHIPPING. EXT.P5(B) TRUE COPY OF LETTER DATED 8.3.2007 ISSUED BY PETITIONER TO 1ST RESPONDENT. EXT.P5(C) TRUE COPY OF LETTER DATED 20.3.2007 ISSUED BY PETITIONER TO MINISTRY OF DEFENCE. EXT.P5(D) TRUE COPY OF LETTER DATED 21.3.2007 ISSUED BY PETITIONER TO CWP&A EXT.P5(E) TRUE COPY OF FAX DATED 5.3.2007 ISSUED BY PETITIONER TO 1ST RESPONDENT. EXT.P6 TRUE COPY OF FAX DATED 30.11.2006 ISSUED BY PETITIONER TO 1ST RESPONDENT. EXT.P7 TRUE COPY OF FAX DATED 3.4.2007 ISSUED BY 1ST RESPONDENT TO PETITIONER. EXT.P8 DIAGRAM SHOWING THE ITEMS THAT WERE REQUIRED TO BE INSTALLED/SUPPLIED AS PER THE QUOTATION. EXT.P9 RESUBMITTED PRICE BID DATED 27.11.2007. EXT.P10 SKETCH SHOWING VARIOUS PARTS OF TYPICAL AIRCRAFT CARRIERS. EXT.P11 A COMPARATIVE STATEMENT SHOWING THE BREAK-UP OF PRICES. EXT.P12 COPY OF THE RELEVANT EXTRACT (PARA 14.4) OF THE CVC GUIDELINES FROM THE DEFENCE PROCUREMENT MANUAL. EXT.P13 PETITIONER'S LETTER HED/CL-2/ASP/301261/P(BDS) DATED FEB. 12, 2007. EXT.P14 PETITIONER'S LETTER DATED 1.3.2007. EXT.P15 COPY OF REPLY DATED 3.3.2007 ADDRESSED BY CSL.. RESPONDENTS' EXHIBITS: EXT.R1(A) TRUE COPY OF THE COMMUNICATION DATED 28TH AUG. 06 SENT TO THE PETITIONER. EXT.R1(B) TRUE COPY OF THE COMMUNICATION DATED 28.8.06 SENT TO THE 2ND RESPONDENT REQUESTING THEM TO PLACE MOST COMPETITIVE PRICE BIDS. WPC, 12354/07 EXT.R1(C) TRUE COPY OF THE E. MAIL DATED 30TH NOV. 06 FROM THE PETITIONER TO THE 1ST RESPONDENT. EXT.R1(D) TRUE COPY OF THE SCHEDULE SHOWING THE DEVIATIONS TAKEN BY THE PETITIONER AND THE 2ND RESPONDENT, DATED NIL. EXT.R1(E) TRUE COPY OF THE MINUTES OF THE MEETING DATED 19.12.2006. EXT.R1(F) TRUE COPY OF THE MINUTES OF THE MEETING DATED 20.2.2007. EXT.R1(G) TRUE COPY OF THE MINUTES OF THE MEETING DATED 20.4.2007. EXT.R1(H) TRUE COPY OF DETAILED CALCULATION OF THE ORIGINAL QUOTE SUBMITTED BY L & T AND GSL DATED NIL. EXT.R1(I) TRUE COPY OF TENDER COMPARISON WORK SHEET IN REGARD TO ON BOARD AND LONG LEAD SPARES OF ORIGINAL QUOTE DATED NIL. EXT.R1(J) TRUE COPY OF THE NPV CALCULATIONS IN RESPECT OF L& T AND GSL IN REGARD TO ORIGINAL QUOTE. EXT.R1(K) TRUE COPY OF THE DETAILED CALCULATION STATEMENT IN REGARD TO L& T AND GSL IN RESPECT OF THE REVISED QUOTE DATED NIL. EXT.R1(L) TRUE COPY OF THE NPV CALCULATIONS OF THE REVISED QUOTE OF GSL AND L& T. EXT.R1(M) TRUE COPY OF THE PRICE BID DATED 27.11.2006 ISSUED BY THE PETITIONER IN RESPECT OF ON BOARD AND BASE AND DEPOT SPARES AND TOOLS. EXT.R1(N) TRUE COPY OF THE E. MAIL DATED 13.3.2007 ISSUED BY THE FIRST RESPONDENT TO THE PETITIONER. EXT.R1(O) TRUE COPY OF THE E. MAIL DATED 13.3.2007 ISSUED BY PETITIONER TO THE SECOND RESPONDENT. EXT.R1(P) TRUE COPY OF THE REPLY MAIL DATED 14.3.2007 ISSUED BY PETITIONER TO THE FIRST RESPONDENT. EXT.R1(Q) TRUE COPY OF THE E. MAIL DATED 14.3.2007 ISSUED BY SECOND RESPONDENT TO THE FIRST RESPONDENT. EXT.R1(R) TRUE COPY OF THE CONTRACT NO. PO/ADS/ACI/000552/07-08 DATED 7.8.2007 BETWEEN FIRST RESPONDENT AND SECOND RESPONDENT. EXT.R2(A) TRUE COPY OF THE LETTER DATED 28.3.2007. EXT.R2(B) TRUE COPY OF THE TERMS AND CONDITIONS. // TRUE COPY// PS TO JUDGE K. M. JOSEPH, J. -------------------------------------- W.P.C. NO. 12354 OF 2007 U -------------------------------------- Dated this the 12th December, 2007 JUDGMENT Petitioner Company has approached this Court impugning Exts.P4 and P6. A mandamus is sought directing the first respondent to consider the bids received in response to the original tender enquiry as per Ext.P1 from the petitioner and the second respondent and to award the contract to the petitioner being the lowest bidder. A further mandamus is sought commanding the first respondent not to consider the bid offered by the second respondent as it was against the basic terms and conditions of the tender. Finally, a declaration is sought that the tender offered by the second respondent is invalid and further to declare that the petitioner is entitled to be awarded the contract in question. 2. The case of the petitioner, in brief, is as follows: Petitioner is a Company carrying on business, inter alia, in Design, Manufacture, Engineering, Installation and WP(C) NO.12354/07 U 2 Commissioning of Defence, Nuclear Power and Aerospace Equipment, Process Plant Equipment, Fertilizer, Petrochemicals and Heat Transfer Equipments, Coal Glasifiers & Thermal Power Plant Equipment, Refinery, Cracker Plant and Oil and Gas Equipment. The Government treats the petitioner as a strategic Company for the country's interest which is evident from the share holding of Public Financial Institutions, which is almost 35%. The first respondent is the Cochin Shipyard Limited. It is a Government of India Enterprise, carrying on business, inter alia, in Ship Building, including building of Naval Ships for the Defence of the country (It is hereinafter referred to as CSL). The second respondent is also a Government of India Enterprise, carrying on business, inter alia, in construction of Naval Ships and also deals in Marine Engineering Equipments for Indian Navy (hereinafter referred to as GSL). CSL invited tender on 23.2.2006 for shafting system for manufacture of Indigenous Aircraft Career Project of Indian Navy. The invitation by the CSL was limited to the petitioner WP(C) NO.12354/07 U 3 and GSL. Both the petitioner and GSL are nominated by the Indian Navy. Petitioner and GSL submitted their bids in response to the said tender. The technical bids were opened earlier and the price bids were opened on 4.12.2006 at the office of the CSL and negotiations were held both on technical and commercial aspects. It is the further case of the petitioner that as per the clarifications offered by CSL, delivery of the equipment in two groups and quoting of payments accordingly was considered as mandatory by it. The first group consisted of Intermediate shafts OD Box, Plummer Box, Bulk Head Seals, Stern Tube and Water Lubricated Bearings, Hydraulic Units and all accessories to be positioned inside the main hull. The first grouped items are to be delivered by August, 2008 and the second group comprised of tail shafts, stern tube shafts and CPP. The second grouped items are to be delivered by August, 2010. Ext.P3 is produced as the copy of the further clarification issued by CSL. It is stated that the petitioner submitted Ext.P3(a) requesting consideration of the credentials of the petitioner and WP(C) NO.12354/07 U 4 delineating the foreign exchange component submitted by GSL. Ext.P3(b) is produced to show that it is emphasised that all effort should be made by the supplier of propulsion equipment to establish local support. It is stated that it is learnt by the petitioner that it was the lowest bidder in respect of the main equipment. The petitioner's bid was for Rs.132.48 crores, while that of GSL was for Rs.142.95 crores. This was in respect of a main equipment, namely the shafting system. But, the price in respect of the Base and Depot Spares is stated to be higher than the price quoted by GSL. It is further stated that though C.P.P. is an item to be supplied in the second group, it is essentially to be used while delivering the first grouped items. It costs about Rs.30 crores. Petitioner alleges that it had quoted the price taking into consideration the fact that the Propeller which is to be supplied after four years in the second group, has to be procured at the time of testing the two items to be supplied in the first group. It is alleged that in pursuit of finalising the tender, many negotiations and correspondence had taken place WP(C) NO.12354/07 U 5 between the petitioner and CSL. During the course of the negotiations, petitioner explained that the price of the main equipment was most competitive and the price of the Base and Depot (hereinafter referred to as B & D) spares was high, since the validity required was four years upto 2010. It is also stated that the petitioner informed that if the spares were to be ordered around the same time as the main equipment, petitioner was further willing to reduce the price of the spares considerably. Petitioner has a case that the bid of GSL had foreign exchange content of 87.52 per cent against the generally accepted norms as per the DPP. While so, Ext.P4 was received by the petitioner which is a fax message from CSL and by which the CSL invited revised competitive price bids against the tender in question without any other changes in the techno-commercial requirements. Petitioner feeling aggrieved by Ext.P4, which is described as arbitrary and unscheduled, addressed the Ministry of Defence by Ext.P5 letter dated 1.3.2007. Ext.P5(a) dated 17.3.2007 is alleged to be a letter sent to the Secretary of WP(C) NO.12354/07 U 6 Ministry of Shipping. Thereafter, it is stated, however, that keeping in view the keen interest and commitment of the petitioner to participate in a programme of National importance, the petitioner had submitted the second bid with the clear understanding that the first bid by petitioner would be given due consideration. Ext.P5(b) is produced as a copy of the revised bid. It is stated that the petitioner participated in the revised bid negotiations on the advice of the Director of Naval Design which is referred to, inter alia, as follows: "While the subject letter is under examination of MOD, which may take time, M/s. L.& T is advised to participate in the tender process to reaffirm their commitment to service the armed forces." Petitioner also issued a letter to CSL dated 5.3.2007, producing it as Ext.P5(c). There is reference to the CSL having modified provisions relating to foreign exchange rate variation to suit the convenience of GSL. Ext.P6 was produced to show the WP(C) NO.12354/07 U 7 variation in tender terms regarding foreign exchange rate variation. Ext.P7 is the reply of CSL rejecting the contentions of the petitioner, which is stated to be without valid justification. It is the case of the petitioner that upon opening the revised bids during the deliberations it has come out that the foreign supplier has continued to use GSL as their front for an almost completely imported system with 91.32% import content. Petitioner raised objections and sent representations. There is considerable emphasis laid on the need for indigenisation. It is pointed out that as far as the petitioner is concerned, only 61.78 % of the equipments alone would be imported, while in the case of GSL, it is stated to be 91.32%. It is on these allegations that the petitioner has approached this Court and this Court on 10.4.2007 ordered that the award of contract will be subject to the orders in the Writ Petition. 3. The CSL has filed a Counter Affidavit, inter alia, stating as follows: The technical bids of the tenders, namely the petitioner and WP(C) NO.12354/07 U 8 CSL were scrutinised by the Technical Negotiation Committee. It was found that both the bidders had made a quite a few deviation from the tender terms in the techno-commercial bids placed by them. The Committee made attempts to make them accept the tender conditions as they are. But, both the bidders insisted to retain the same as per their respective tenders. The Committee decided to accommodate the deviations. The deviations were accepted without compromising the overall schedule of the project. The same was communicated to both the bidders and they were to submit their most competitive revised price bid in the light of the techno-commercial deviation accepted by the Committee. The Price Negotiation Committee comprised of Senior Officers of the Ministry of Defence, Ministry of Defence (Finance), Indian Navy and the Officials of CSL. Petitioner who was found to be L1, was asked to bring down its price, as it was found to be excessive and beyond estimate. But, the petitioner neither reduced the price, nor gave justification for the price resulting in the Price Negotiation WP(C) NO.12354/07 U 9 Committee recommending re-tendering of the contract, which is accepted by the competent authority. The price bids received pursuant to the re-tendering was opened on 16.3.2007. GSL was found to be the lowest bidder (L1). It is found that the re- tendering saved an amount of Rs.34.74 crores for the CSL in comparison with the earlier tenders placed. Any delay in placing orders would adversely affect the programme of construction. There was no relaxation of essential tender conditions. The tenders were finalised in accordance with the purchase procedure followed by the first respondent and the guidelines of the CVC. It is stated that there was no relaxation of any tender condition as alleged by the petitioner. It is stated that the techno-commercial bids of the two were opened on 17.4.2006 and it was found that both the tenders have taken a number of deviations from the tender conditions - petitioner (11) and GSL (3). Ext.R1(a) is a communication dated 28.8.2006 sent to the petitioner by which the Technical Negotiation Committee after examination of the offers decided to WP(C) NO.12354/07 U 10 accommodate the deviations including the time limit specified for delivery of lots, especially those required by the petitioner. It is stated that the price bid of the petitioner placed along with the technical bid on 17.4.2006 was not opened and it remains in sealed covers, and what was opened was the price bids placed by the tenders pursuant to Ext.R1(a) issued to the petitioner and Ext.R1(b) issued to GSL. Petitioner had quoted Rs.125.81 crores as the price of main items. The prices of spares were not considered for deciding the lowest bidder during the consideration of the price bids on 4.12.2006, and if the component of spares were also taken for deciding lowest bidder, GSL would still be the lowest bidder. Regarding the plea that as per DPP, a minimum of 30% indigenisation is the accepted norm, it is stated that compliance with DPP norms is not a tender requirement and it does not apply to the first respondent. It is stated that the delivery of Lot No.1 as offered by the petitioner and GSL were April 2009 and September, 2009 respectively and hence if the requirement of delivery of lot (1) by 2008 is strictly WP(C) NO.12354/07 U 11 allowed, both the tenders offered by the petitioner and GSL would be liable to be rejected. It is stated that since the petitioner and GSL were only the available suppliers of the tender items, their bids were not rejected and they were asked to improve their delivery schedules. Regarding the issue of foreign exchange rate variation, it is pointed out that both the tenders had taken deviation in regard to foreign exchange rate variation and the tender terms did not provide for any variation at the very outset. It was initially agreed to modify the tender condition and provide variation in excess of 2% and subject to a limitation of 10%. This was unacceptable to GSL and it was agreed to remove the upper limit. It is communicated to both the bidders requesting them to make changes in the quoted price, if any, on account of the same. Petitioner, however, by Ext.R1(c) E. Mail. dated 30.11.2006 stated that the decision regarding foreign exchange variation had no effect on their quoted price. It is stated that the tender condition does not debar a tenderer from participation on the ground of higher import content. Ext.R1(d) WP(C) NO.12354/07 U 12 is produced as the deviation taken by the petitioner and GSL. There is a denial of the allegation that the CSL has extended undue favouritism and weightage to GSL. It is their case that the petitioner and GSL were given equal opportunity. It is stated that in the first tender placed by the petitioner, it was shown delayed delivery of the tendered items by fortytwo months instead of twentyfour months and in two lots instead of one lot as was scheduled. This deviation was accepted by the TNC. There is a saving of Rs. 34.74 crores as a result of re- tendering. It is stated that taking advantage of the fact that cost of spares was not to be taken into consideration for ascertaining the L bidder, the petitioner has quoted abnormally high costs of spares. Realising the implication of cost of spares, the Indian Navy had recommended inclusion of spares while re-tendering. It is stated that that the price quoted by the petitioner was unjustified and CSL having decided on a re-tender and the petitioner having raised fresh bid, it cannot contend at this stage that the initial bid of GSL was defective. WP(C) NO.12354/07 U 13 4. A Reply Affidavit is filed by the petitioner on 23.7.2007, wherein, it is, inter alia, stated as follows: The revised bids were invited for the sole purpose of giving GSL a chance to improve its bid. The bid of the petitioner was reasonable and it is stated to be unreasonable only on account of the totally unrealistic and inaccurate tender estimate of CSL. It is pointed out that for the main equipment, the price of the petitioner was Rs.132.48 crores, while the price of GSL which has now been accepted is Rs.138.22 crores. The allegation that there was saving of Rs.34.71 crores is stated to be totally vague and baseless and without any particulars or calculations. It is stated that the original offer as well as the revised offer of GSL is not in accordance with the mandatory delivery requirements, stipulated in Ext.P3/R1(a). It is stated that GSL enjoyed an unfair and discriminatory cost advantage as a result of GSL offering delivery of the two items in the second lot, instead of the first lot. Petitioner has not been given an opportunity to submit its bids with the said two items to be WP(C) NO.12354/07 U 14 delivered in the second lot and GSL's offer is to be rejected at the threshold as it violates the essential terms of the tender relating to the delivery of the items in two specified lots. There is an allegation of undue favouritism, mala fides and arbitrariness vitiating the entire decision making process. Petitioner denies the allegation that GSL is the lowest bidder or that GSL was found to have fulfilled the requisite conditions stipulated in the tender. GSL has enjoyed price advantage against the petitioner by CSL entertaining the former's offer contrary to the essential terms. Such deviations are not listed as permitted in the list of deviations annexed to Ext.R1(d). Equal opportunity was not given to the petitioner and GSL, is the case of the petitioner. 5. An Additional Counter Affidavit is filed by the first respondent on 17.9.2007. Therein, the CSL has, inter alia, stated as follows: The net present value (hereinafter referred to as NPV) method is adopted for comparing the price bid of different WP(C) NO.12354/07 U 15 spares. The revised quotations of the parties are shown. The formula used for calculating the NPV is also given. It is pointed out that the original quote of the petitioner would show that the pay out with onboard & long lead spares was Rs.195.61 Crores while the revised quote of the petitioner was Rs.160.24 Crores. The revised quote of GSL is shown to be Rs.160.87 Crores. This is to show how the first respondent makes a saving of over Rs.34 Crores by not accepting the original bid of the petitioner. Ext.R1(h) is produced as the detailed calculation of the original quote submitted by the petitioner and GSL. It is on the basis of the same that the original quote of the petitioner was found to be Rs.138.16 Crores and that of GSL was found to be Rs.164.83 Crores. Ext.R1(i) is produced as the tender comparison work sheet in regard to the Onboard and long lead spares. Ext.R1(j) is the NPV calculations in respect of the petitioner and GSL. Ext.R1(k) is the detailed calculation statement in regard to the tenderers in respect of revised quote. The NPV calculations of the revised lot of GSL and the petitioner are produced as Ext.R1 WP(C) NO.12354/07 U 16 (L). 6. Petitioner has filed a Reply Affidavit dated 25.9.2007, purporting to be in relation to the Affidavit dated 11.9.2007 and the Additional Affidavit of first respondent as also to the Counter Affidavit dated 4.9.2007 and Affidavit dated 19.9.2007 of GSL. In the same, it is, inter alia, stated as follows: All the Rules and requirements of law have been modified, altered, amended, relaxed and/or violated with the sole intention of executing the pre-determined decision of awarding the contract to GSL on the basis of improper and/or invalid documents. It is stated that re-tendering was done only to give GSL a chance to submit valid bid and to improve its bid. It is stated further as follows: "GSL's bid did not comply even with the tender requirements as under: (i) GSL offered delivery of the `OD Box' and `Hydraulic Units' in the 2nd lot instead of the 1st lot. WP(C) NO.12354/07 U 17 (ii) As per the tender, the price was required to be quoted for delivery at 'FOR - CSL stores'. However, GSL had reported a price for delivery at ~C&F - Kochi Port'. (iii) Since the landed cost was to be compared, as required by the tender, 12.5% VAT would have to be loaded on GSL's price whereas only 4% CST was to be loaded on the petitioner's price. By calling for revised price bids, CSL has not only allowed GSL to correct its bid and to make it compliant with the tender requirement but CSL has also allowed GSL to lower its tax incidence resulting in lower landed cost thereby giving GSL an opportunity to improve its bid. (iv) GSL had given validity for two costly items of the B & D Spares (viz. Tail Shaft and Propeller Blades) as 3 months as compared to Tender Requirements of 4 years. This obviously lower price with validity of only three months (lower than the petitioner's price with four year validity), was accepted by CSL and eventually WP(C) NO.12354/07 U 18 used for NPV Calculations. (v) GSL has not quoted the delivery period at all for its spares, which has been accepted by CSL. Moreover, undue advantage was eventually given to GRSL by assuming delivery period which result in favourable NPV calculations. (vi) GSL has not quoted the payment schedule at all for its spares, which has been accepted by CSL assuming payment schedule which result in favourable NPV calculations. (vii) Clause 16 of tender terms regarding indigenisation has been overlooked to favour