IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No 9015 of 2000 For Approval and Signature: Hon'ble MR.JUSTICE M.S.SHAH ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements? 2. To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : A copy of this judgment be sent to the Collector of Central Excise, Bharuch, Ankleshwar. -------------------------------------------------------------- MAN INDUSTRIES (INDIA) LTD Versus STATE OF GUJARAT -------------------------------------------------------------- Appearance: Mr.Yatin Oza with MR DC DAVE for Petitioner Mr.K.T. Dave, AGP for Respondent No.1 Mr.S.B.Vakil with Mr.A.M.Kapadia for Respondent No.2 Mr.P.M.Thakkar with MR.A.S. VAKIL for Respondent No. 3 -------------------------------------------------------------- CORAM : MR.JUSTICE M.S.SHAH Date of decision: September 6 & 7, 2000 ORAL JUDGEMENT Rule. Mr.Kapadia waives service of rule for respondent No.2. Mr.A.S.Vakil waives service of rule for respondent No.3. With the consent of learned counsel for parties, the petition has been finally heard and is being disposed of by this judgment. 2. In this petition under Article 226 of the Constitution, the petitioner has challenged the letter of intent dated 17.8.2000 issued by the respondent No.2-Gujarat State Petronet Ltd (hereinafter referred to as "the Second respondent" or "the Petronet Ltd") in favour of respondent No.3-Welspun Gujarat Sthal Rohren Ltd. (hereinafter referred to as "the Welspun") in respect of item Nos 1.1 and 3.1 of API 5L pipes of 18" and 24' size as per the tender specifications for Ankleshwar (Amboli)-Dahej gas pipeline. The tenders were called for by inviting 10 parties including the present petitioner and Welspun Ltd. The tenderers were invited for the following items: --------------------------------------------------------- Item Description Quantity --------------------------------------------------------- Pipe in accordance with: "Particular technical specification 87290/740/PTS/901: Specification for coated line pipes. "Pipes Sizes: 18" and 24" API 5L X 60 Longitudinal welded 1 Line pipe 457 x 9.5 mm with coating 5000 and with internal lining. 2. Line pipe 610 x 17.5 mm with coating 6000 and with internal lining. 3. Line pipe 610 x 11.9 mm with coating 32500 and with internal lining. --------------------------------------------------------- Out of the aforesaid parties six parties submitted their bids. The bids were invited in two parts, i.e. technical bids and price bids. The technical bids of all the parties were opened on 19.6.2000. On 21.6.2000 the second respondent addressed letter to the petitioner and other bidders suggesting clarifications for technical aspects and also inviting revised price bids, if any. The letter dated 21.6.2000 addressed to the petitioner is at annexure "1" to the reply affidavit on page 63 relevant part of which reads as under: "You are advised to indicate the quality assurance and testing procedures to be adopted for the raw materials as well as finished product/coatings. Also indicate whether the coating shall be carried out using your own internal resources or from outside source. In either case indicate the available resources for application and testing. We have gone through the Techno-commercial part of your offer and on preliminary scrutiny we require your clarification/confirmation as noted in the attached annexure. In case there is any price implication on account of any confirmation/clarification or withdrawal of deviation taken in the original offer, you may submit revised price bid in the format specified in the tender document. Please note that such revised prices should be accompanied by note on justification for revision in the price on account of each and every item. Such note of justification and the revised price offer as above shall be submitted in sealed cover. Revised offer as above should reach our office by 18.10 hours IST on 26.6.2000. Please note that supporting documents, in case any exemption from applicable taxes/duties etc have been claimed, should also be submitted along with. During the evaluation process, if there is a high probability of claimed exemption with respect to any tax/duty not becoming available in the opinion of GSPL bid price will be appropriately loaded." The petitioner offered the clarification and also submitted his revised price bid on 30.6.2000( annexure "B" to the petition). On 1.7.2000 the second respondent addressed another letter to the petitioner soliciting further clarifications on some technical aspects relevant part of which reads as under: "Please confirm if cold expansion of pipes is included. This is shown in the flow chart for the pipe manufacturing process submitted by you." The petitioner replied to the aforesaid letter on 4.7.2000( annexure "3" to the affidavit reply) interalia stating as under: "Confirm that we will perform Cold expansion of pipes". On 8.7.2000 the second respondent sent another letter (annexure "4" to the affidavit reply on page 78), inter alia, requiring as under: "1. Confirmation that your bid price is inclusive of cold expansion process to be performed on line pipes. 3. You must specify the location/party wherefrom coating of line pipes is proposed to be arranged". The petitioner replied to the same on 12.7.2000 (annexure "5" on page 69) confirming that the petitioner's bid price is inclusive of cold expansion process to be performed on pipes, and that coating of pipes will be done at petitioner's plant at Pithapur. On 19.7.2000 the petitioner was informed that the price bid would be opened on 24.7.2000. On 22.7.2000 the technical consultant appointed by the second respondent, i.e. Tractebel Engineers & Constructors visited the manufacturing plant of the petitioner at Pithapur near Indore in Madhya Pradesh. On 23.7.2000 the Technical Consultant wrote a letter (annexure "D" page 38) seeking following information: "As requested during our visit please arrange to send us copies of the purchase orders placed by you for internal and external coating machineries and cold expansion machinery and also furnish shipping related documents. Please inform us the schedules of delivery at your works, commissioning and trial runs separately for the coating plant and the cold expansion machineries. Please also confirm whether the machineries being procured by you are new or second hand". The petitioner submitted their response (annexure "E" at page 39") which reads as under: "That we are in a position to supply the coated pipes from our own facilities within the delivery schedule of GSPL tender. Our facilities will be ready in next 30 to 45 days time. "Further, we undertake, that in the event of delay in commission of our facilities, for whatever reasons, we shall have the pipes coated within India through an established and approved coating plant who would meet the technical parameters for coating and in this eventuality also, we will honour the delivery schedule of the GSPL tender". On 24.7.2000 the technical consultant forwarded the clarifications from the petitioner to the second respondent and another party, namely, SAW Pipes. The technical consultant made the following observations regarding coating plant to be installed in the petitioner's factory: "However, in case of MAN industries, our team was informed that the Coating Plant is likely to be shipped from Europe in the near future. Taking into account the shipping time, customs clearance and inland transport, commissioning and trial runs, the entire process may take much more time.30-45 days stated by the party for plant readiness is, therefore, highly optimistic". On 1.8.2000 the petitioner sent another letter (annexure "E" page 41) to the technical consultant stating that the cold expander has reached Indian port and has also been custom cleared and currently is enroute the petitioner's works at Pithampur, where it will reach on or before 4.8.2000 and that the trial production should be taken by the 4th week of August 2000. As regards the coating facility, the petitioner made following statement in the letter: "We have already apprised and shown you the relevant papers and we once again confirm that the coating plant would be available at our works in next 30-45 days time. However, currently as a matter of abundant precaution, we are once again ready to show you the documents for your reference, but we would like to be excused in submitting those documents, as it may hit our interest adversely, if anybody else other than Tractebel and GSPCL (second respondent) have a look at them. You will appreciate our contention considering the cut throat competition currently existing in the Indian business market. However, should you require any additional information, we shall be too pleased to submit the same for your consideration and evaluation". On 7.8.2000 the petitioners sent another letter to the technical consultant stating that the petitioner had already started installation and commissioning of cold expander and that the trial run shall be completed by the end of August 2000. As regards the coating facilities the petitioner stated as under: "Kindly note that the entire plant and machinery which also is brand new shall be available at our works in next 30-35 days time. Thereafter, we shall require around 30 days time to complete the installation, commissioning and successful trial runs. Thus, it will not be out of place to mention that our facilities shall be ready for commercial production by the end October 2000. Further, we also wish to draw your attention to our letter dated 24th July where we have given you an undertaking in the event we envisage any delay in achieving our deadline towards commissioning our coating facility, we shall have the pipes coated within India through an established and approved coating plant, who would also meet the technical parameters for coating as stipulated in the tender. Now, considering that we already have the expander in place and our coating facilities be ready by the end October 2000 we are all set and in a comfortable position to meet the delivery requirement of GSPL tender". On 10.8.2000 the technical consultant submitted their report (annexure "7" page 72 & 73) to the second respondent stating that after submitting technical comparison report dated 21.6.2000, the technical consultant sought clarifications and confirmation from five bidders including the petitioner. In view of the fact that the second respondent has heavily relied on the report dated 10.8.2000 of the technical consultant for passing the impugned resolution dated 11.8.2000 the relevant portion of the report is quoted in its entirety:- "In addition to various technical queries, MAN industries was specifically asked (vide reference No. GSPL/2000, dated 21st June 2000) to clarify whether coating shall be carried out in house or through external sources. In either case they were asked to submit details on application and testing. MAN however, did not reply to the above query regarding source of coating. However, they submitted the coating procedure and QAP vide their letter No. NIL dated 26th June, 2000. Tractebel's techno-commerciaL observations dated Ist July 2000 on clarifications from bidders, recorded the fact that MAN had not responded to the query on coating plant. GSPL and Tractebel decided (vide MOM of Ist/Second July, 2000) to seek a specific confirmation from MAN on the inclusion of cold expansion in the manufacturing process as shown in their flow chart submitted in their original offer. In their reply, vide letter No.MIL/IND.2K/0650 dated 4th July, 2000 MAN, however, mentioned that they will perform cold expansion of pipes. Tractebel team visited the MAN factory on 22nd July 2000 to assess their capabilities as mentioned in the original offer. During the visit, it was however, noted that the cold expansion unit and coating plant are not existing in the factory. MAN assured that coating plant would be made available for commercial production within two months and cold expansion unit will be made available for commercial production within three weeks. Tractebel vide letter No.TECPL/MAN/149 dated 23rd July 2000 sought from MAN the documentary evidence of having placed the orders for cold expansion as well as coating plant machineries. MAN replied vide letter ND/44/2K/2009 dated 24th July 2000 indicating the time frame for coating plant as 30-45 days for supply of coated pipes. However, MAN also mentioned in their letter that in case of delay in commissioning of coating plant, coating shall be carried out through an external agency but failed to name the agency which was the requirement as per GSPL letter dated 21st June 2000. This issue was discussed earlier with MAN but they could not provide any concrete details of their arrangements for outsourcing coating activities. Subsequently, MAN sent letters vide ND/44/2K/2025 dated Ist August and ND/44/2K/2037 dated 7th August 2000, indicating a new schedule of about 65 days, i.e. by end October 2000 for installation, commissioning and trial runs of coating plant. For cold expander, MAN expected completion date for installation, commissioning and the trial runs as end August 2000. Based on our assessment and reinforced by expert views from our Brussels office, we are of the view that these new plants, specially the coating plant would require minimum 203 months (post trial runs) to obtain consistent quality output. In addition, experience and trained skills are crucial in ensuring established quality production in a manufacturing plant specially where there is no previous experience existing. Based on careful consideration of facts stated above and taking into account the situation that their coating plant being not available and the Cold Expander not yet commissioned, MAN industries can not be qualified for any further consideration in this tender at this stage". Thereafter, on 11.8.2000 the Board of Directors of the second respondent passed the following resolution: "Resolved that the evaluation shall be on itemwise basis as specified in the tender. It is further resolved that M/s Man Industries be not considered any further for the purpose of placement of order in view of categorical recommendation of M/s Tractebel. It is further resolved that the preferred (lowest) bidders status be given to M/s Welspun in two categories (i.e. item No.1.1 and 3.1) and M/s Saw pipe in one category (i.e. No.2.1) and authorised Shri Sanjay Gupta, Director to further discuss and negotiate with the preferred bidders and finalise for the placement of order for supply of the line pipe. It is further resolved that the efforts should be made to bring down the item wise rate to the extent possible". Thereafter, the second respondent issued letter of intent dated 17.8.2000 (page 117) in respect of item Nos 1.1 and 3.1 at the rate of Rs.4292.10ps per diameter and Rs.6579.27ps per diameter respectively inclusive of Excise duty and also of customs duty if any. The Sales Tax not to be chargeable to the maximum extent, clauses regarding delivery period and liquidated damages are as under: "2.Delivery period: The delivery period shall be four months (120 days) from the date of LOI, ex-site of the entire quantity of the ordered linepipes. However, first delivery shall start earliest by 90 days after placing of LOI. 4.Liquidated Damages: If the contractor fails to deliver the line pipes within the agreed delivery schedule GPSL will recover as ascertained and agreed liquidated damages and not by way of penalty a sum equivalent to 1% of the total value of the order for each week of delay or part thereof in supply subject to a maximum of 10% of the total value of the order. LD will be imposed, on the total value of the order unless 75% of the value ordered is supplied within the stipulated delivery period. Where 75% of the value ordered has been supplied within stipulated delivery period, LD will be imposed on Contract value of delayed supply(ies). However, where in judgment of GSPL, the supply of partial quantity does not fulfill the operating need, LD will be imposed on full value of the supply order." After receiving the letter of intent the Welspun submitted performance guarantee dated 18.8.2000 with bank guarantee for a sum of Rs.2,35,50,000/- being the amount of 10% of the contract value. Along with acceptance letter dated 18.8.2000 the bank guarantee was validated upto 31.1.2002. 3. The present petition came to be filed on 22.8.2000 challenging the aforesaid letter of intent dated 17.8.2000. The second respondent appeared on caveat and the following order came to be passed on 22.8.2000: "Notice returnable on 24.8.2000. Mr.Vakil with Mr.Kapadia appearing for respondent No.2 on caveat waives service of notice. Mr.Y.N.Oza prays for ad interim injunction. No orders are passed for the present except that whatever steps the respondents take hereafter shall be subject to any further orders which may be passed in this petition." 4. Affidavits in reply have been filed on behalf of second respondent as well as on behalf of respondent No.3-Welspun Ltd. The petitioner has filed affidavit-in-rejoinder to said affidavits-in-reply. The affidavits-in-Surrejoinder have also been filed. The parties were permitted to complete their pleadings and with the consent of learned counsel for parties this petition has been taken up for final disposal and after hearing the learned counsel for parties at length, this petition is being disposed of by this judgment. 5. Mr.Yatin Oza with Mr.D.C.Dave, learned counsel for the petitioner have raised the following contentions: 5.1 The petitioner having fulfilled the terms and conditions of the tender notice including clauses 1.1 and 1.2 was fully eligible whereas the Welspun was not eligible and instead the second respondent has disqualified the petitioner and considered Welspun Ltd. as eligible party. 5.2 The petitioner has not been called for negotiations and the Welspun Ltd has been called for negotiations and thus the second respondent has acted arbitrarily in negotiating with the Welspun. 5.3 The second respondent and its technical consultant have taken a perverse view that the petitioner did not have cold expander facility when the petitioner had already informed that the cold expander had already reached the petitioner's factory on 7.8.2000 and the trial run was likely to be done by the end of August 2000. 5.4 The petitioner had made it clear that the petitioner was going to have coating facility and that the petitioner was in a position to apply coating on pipes to be manufactured by it in its own factory by the end of October, 2000 and in the alternative that the petitioner was going to get coating done by a well established agency within India, and that the petitioner was not in a position to disclose the name of such party/agency only because of cut-throat competition in the market and the petitioner was prepared to show the documents to show its preparedness for getting the coating work done by a well established agency. 5.5 Reliance has been placed on several decisions including (i) AIR 1979 SC 1628 ( Ramana Dayaram Shetty vs The International Airport Authority of India Ltd and others) (ii) AIR 1996 SC 11 (Tata Cellular vs Union of India), (iii) AIR 2000 SC 801 = JT 2000(1) 481 (Air India Ltd vs Cochin International Airport Ltd and (iv) the decision of this court dated 20.7.2000 in Special Civil Application No.7763/200--S.Kumar Transport vs State of Gujarat. 6. On the other hand, Mr.S.B.Vakil with Mr.Kapadia for the second respondent have made the following submissions: 6.1 The petitioner did not have the cold expansion facility as well as coating plant in its own factory when the technical consultant visited the petitioner's factory on 22.7.2000 and therefore the technical consultant had submitted its report to the effect that the petitioner did not have these facilities with it and that therefore the petitioner was not in a position to supply the coated pipes manufactured with cold expander facility within the time schedule contemplated by the tender, and therefore, the petitioner was rightly excluded from consideration. 6.2 Once the petitioner went out of the picture in view of the aforesaid relevant facts, the petitioner has no right or locus to challenge the eligibility of Welspun Ltd and looking to the fact that the Welspun Ltd was an experienced company supplying such materials and considering the fact that the terms of tender required the party to have supplied similar pipes during last three years, the Welspun Ltd was eligible. In any view of the matter, the decision of the second respondent to consider the Welspun Ltd as eligible can not be said to be arbitrary or illegal. Reliance is placed on the decision of the Supreme Court in AIR 1990 SC 958 in M/s G.J.Fernandez vs State of Karnataka. 6.3 The petitioner did not have cold expansion facility when the technical consultant visited the petitioner's factory on 22.7.2000. It was noted that the cold expansion unit and coating plant were not existing in the factory and similarly the technical consultant had opined that even as per the petitioner's letters dated 1.8.2000 and 7.8.2000 the coating plant was to be installed and put to trial run by the end of October, 2000 and therefore there was full justification for excluding the petitioner from consideration when the second respondent was keen to get the coated pipes within four months from the date of issue of letter of intent for the purpose of transmitting the natural gas from Hazira Gas Field to Dahej for supply to Gujarat Alkalies and Chemicals Ltd (GACL) covering distance of about 45 Kms. If there is delay in laying down the pipeline the second respondent will be exposed to liability to pay damages of Rs.10 lacs per day to GACL. 6.4 Reliance is also placed on several decisions, i.e. (1991) 1 SCC 492--Raunaq International Ltd vs I.V.R. Construction Ltd AIR 1990 MP 49--M/s Malca Constructions (India) Pvt.Ltd vs The Madhya Pradesh Housing Board, Bhopal AIR 1990 SC 958 in M/s G.J.Fernandez vs State of Karnataka to contend that this Court would not sit in appeal over the decision of an authority in awarding a contract. 7. Mr.P.M.Thakkar with Mr.A.S.Vakil, learned counsel for Welspun Ltd have adopted the aforesaid arguments of Mr.S.B.Vakil and have further submitted as under: 7.1 The petitioner has acquired the cold expansion plant very recently in August 2000 whereas Welspun Ltd was already having the cold expansion plant which is being used for manufacturing the required pipes where the cold expansion is an important part of manufacturing process to give strength so as to carry high pressure gas. 7.2 The petitioner does not have any coating facilities whereas the Welspun Ltd has existing coating facilities next door in its sister concern, i.e. M/s EWPCIPL. 7.3 The petitioner's plant is situated near Indore in M.P. which is away from the place where pipes are required to be supplied. The manufacturing capacity of Welspun is two times that of the petitioner's capacity. The Welspun Ltd has technical collaboration with M/s Eupec Pipe Coatings GMBH, Germany, a world leader in manufacturing such pipes Engineers India Ltd (EIL). which is the most respected Government owned engineering consultant in the field of supply of longitudinal cross country line pipe which involves cold expansion of pipelines. Welspun was incorporated around April 1995 for the purpose of manufacturing 2,00,000 MTs of submerged Arc Welded (SAW) MS pipes i.e. 25000 MT of Spiral AAW pipes and 1,75,000 Longitudinal (SAW) pipes. The Welspun is promoted with the equity participation of and technical collaboration with Intertech GMBH, Germany. The Welspun also has equity participation of Gujarat Industrial Investment Corporation (GIIC). 7.4 The delivery period mentioned in the tender notice was five months from the date of issuance of Letter of Intent whereas the Welspun has agreed to supply all the required quantities of pipes within the period of four months from the date of Letter of Intent and the second respondent has requested the Welspun Ltd to supply the pipes even before the time schedule mentioned in the Letter of Intent and the Welspun Ltd is prepared to comply with such request. 7.5 As regards comparative prices offered by the parties, it is submitted that the rates offered by the petitioner and the rates on which the letter of intent is issued to Welspun Ltd are almost on par inasmuch as the petitioner has excluded the excise duty on the coating price for the purpose of showing lesser rates but excise duty is payable on coating facilities and therefore