IN THE HIGH COURT OF GUJARAT AT AHMEDABAD LETTERS PATENT APPEAL No 53 of 2000 in SPECIAL CIVIL APPLICATIONNo 10548 of 1999 with CIVIL APPLICATION NO. 1173 OF 2000 For Approval and Signature: Hon'ble CHIEF JUSTICE MR DM DHARMADHIKARI and Hon'ble MR.JUSTICE C.K.THAKKAR ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 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? : NO -------------------------------------------------------------- LARSEN AND TOUBRO LIMITED Versus GUJARAT STATE PETROLEUM CORPORATION LIMITED -------------------------------------------------------------- Appearance: Mr. K.K. Venugopal, Sr. Counsel With Mr. S.N. Shelat, Sr. Counsel Mr. Mihir H. Thakur, Ld. counsel And SINGHI & BUCH ASSO. for Appellants Mr. Mukul Rohtagi, Addl. Solicitor General With Ms. Ritu Bhalla Mr. Saurabh Kirpal Mr. Arvind Nayar Mr. Jayesh Odera, Ld. counsels for Res.No. 1 & 2 Mr. C.S. Vaidyanathan, Sr. Counsel With Mr. B.J. Shelat, Sr. Counsel Mr. G.N. Shah, Sr. Counsel Mrs. Minoo Shah & Mrs. Sonali Desai, Ld. counsels, for Res. No.3. -------------------------------------------------------------- CORAM : CHIEF JUSTICE MR DM DHARMADHIKARI and MR.JUSTICE C.K.THAKKAR Date of decision: 15/03/2000 CAV JUDGEMENT Per: D.M. Dharmadhikari, C.J. :- 1. This Letters Patent Appeal was listed for admission, but we have heard all the parties at length for decision of the case finally, keeping in view the urgency of the subject matter, and the interim directions which were sought by the petitioner appellant. 2. This Letters Patent Appeal has been preferred under Clause 15 of the Letters Patent, against the order of learned Single Judge dated 7th February 2000, dismissing the Special Civil Application No. 10548 of 1999, preferred by the present appellant M/s. Larsen and Toubro Limited (hereinafter shortly referred as " L & T Ltd. " ); seeking intervention and directions in the matter of award of contract to Respondent No.3 ABB Kraftwerke AG, ABB Power Generation Limited (hereinafter shortly referred as " ABB Ltd" ), for setting up of 160 MW NATURAL GAS FIRED COMBINED CYCLE POWER PLANT AT HAZIRA, in the State of Gujarat. The two main contenders for the contract aforementioned are the appellant company L & T Ltd. and respondent no.3 ABB Ltd. 3. Learned Single Judge by the impugned order went in great and minutest details of the technical and financial aspects of the contract in coming to a conclusion that, there has been no unfairness in the decision making process for selecting respondent No.3 ABB Ltd., for grant of contract by the Gujarat State Petroleum Corporation Limited, the Respondent No.1 (shortly referred hereinafter as " Corporation " ). According to the Corporation, as far as possible complete objectivity was maintained in making selection in consultation with technical, financial and management experts on the selection board, which is demonstrated from the minutes of the meeting of the 4th Management Committee of the Directors of the Company held on 4th September 1999 in Udyog Bhavan, Gandhinagar. In the process of selecting a suitable contractor for the project, on various attributes and qualifications of the competing companies, marks were allotted, and on the basis of those marks final selection was made. The basic challenge on behalf of the petitioner L & t Ltd is about the evaluation procedure adopted in making the final selection. Learned Sr. Counsel Shri. Venugopal appearing on behalf of the appellant company L&T Ltd., limited his arguments to challenging the lower marks allotted to the appellant company and higher marks allotted to the respondent ABB Ltd., to deprive the petitioner company of the contract. The evaluation method and the allotment of marks on each head as per the laid down criteria have been given in a tabular chart as under:- --------------------------------------------------------- Criteria Weightage ABB L & T --------------------------------------------------------- 1. Per MW cost 75 75 71.469 2. Financial Package Offered 15 15 0.0 3. Equity offered 5 5 5 4. Quality of Proposal and 5 5 4 Back Ground/Experience in respect of succesful com- pletion of EPC Contracts in Power Sector. ------------------------------------ Total: 100 100 80.469 4. For understanding above objective criteria adopted for making selection , a brief reference to the method of evaluation of the bids offered by the competing parties in response to the invitation for offer described as "REQUEST FOR PROPOSAL" (shortly mentioned by parties as "RFP" ) would be necessary. The main challenge on behalf of the appellant L&T Ltd is to the award of zero mark to it on the criteria of FINANCIAL PACKAGE OFFERED in comparison to full 15 marks awarded to ABB Ltd. The method of evaluation as indicated "RFP" Financial Package is as under:- " GSPC require Contractor's plan (including strategy and approach) for securing Supplier's Credit support or any other form of Financial Assistance and commitment for the equipment and the terms and conditions of the same. Please document your response using the format of Exhibit PR-C." 5. The Financial Package offered by appellant L & T Ltd in the prescribed format PR-C was as under:- FINANCIAL PACKAGE OFFERED BY APPELLANT L&T LTD Document Contractor's organization plan to secure supplier's credit / any form ofFinancial assistance. --------------------------------------------------------- Source : Indian Bank --------------------------------------------------------- Quantum of Finance Offered : Upto 55 Crores --------------------------------------------------------- Repayment Profile . Tenor : 7 years . Installments : Quarterly . Moratorium : Till Capitalisation -------------------------------------------------------Rate : 16.75 PTPM -------------------------------------------------------- Currency : INR -------------------------------------------------------- Details of Credit Enhancement Requires. : As per Annexure I -------------------------------------------------------- Other terms & conditions, major covenants : The lease is applicable for financing the Heat Recovery Steam Generator and its accessories. An interest of 15.3% will be charged on all outstanding advances till the lease is capitalised. Taxes and duties will be borne by GSECL. Rest of the conditions are as per Annexure I. --------------------------------------------------------- The alternative Financial Package offered by the appellant was as under:- --------------------------------------------------------- Source : Indian Banks/FIs etc. --------------------------------------------------------- Quantum of Finance Offered : Upto 500 Crores comprising of Rupee term loan, Secured Redeemable Nonconvertible Debentures and Government Guaranteed Bonds --------------------------------------------------------- Repayment Profile . Tenor 7 Years . Installments Quarterly . Moratorium 2 years --------------------------------------------------------- Rate : Weighted average coupon rate of 14.5 % (exclusive of interest tax) payable semi annually. --------------------------------------------------------- Currency : INR --------------------------------------------------------- Details of Credit Enhancement Required : As per Annexure I --------------------------------------------------------- Other terms & conditions, major covenants : As per Annexure I --------------------------------------------------------- 6. The Selection Body called " Management Committee" consisting of technical, financial and management experts in its final decision taken, and contained in the minutes of the meeting of 4th September 1999 found the Financial Package offered by the appellant L & T Ltd., as non-responsive and awarded them zero mark. The relevant part of the minutes of the meeting of the management committee reads as under:- " The specifics of the financing package offered by L&T and ABB were discussed in the light of foregoing. L&T's financing had a tenor of Seven years and ABB's average tenure was more than Ten years. The PPA allows for recovery of capital or principal payment of loans through depreciation, which was about 7.98 % per year. Any financing that had short tenure such as L&T's would tend to reduce the Return on Equity. Also, financing tenure of 7 years will cause low cash flow resulting in very low debt service coverage ratio which itself will render financing not feasible. The indicative calculations, prepared in house on the basis of common assumptions, confirmed the foregoing and showed that L&T's offer of financing will result in an equity IRR of about 10.42 % and that of ABB in an equity IRR of 17.47 %. Moreover, it had been laid down that where in the opinion of GSPCL the financing package stipulates norms not in line with the prudent financial practices, such a financing package will be considered non responsive and no marks will be awarded under this category. The committee deliberated the issue at length and in view of: (i) Cash flow problems, (ii) Poor Return on Equity, in case of financing package of L&T, decided to allocate Zero marks to L&T's offer, ABB's financing package was given 15 marks. " 7. The contention advanced on behalf of the appellant L&T Ltd., is that, the Financial Package offered by them in the prescribed format was deliberately misconstrued by the selection committee only to favour the respondent No.3 ABB Ltd., with the award of contract. The appellant Company wrote letters to the Corporation questioning their evaluation method of Financial Package. In response thereto the Managing Director by their letters informed the appellant Company that the Financial Package offered by the appellant with tenor of 7 years was not practically feasible. The appellant company was also informed that 7 years tenor quoted by them in general parlance of financial market clearly intended to mean ' total duration of the loan ' that is Sum of Moratorium And Repayment Period. They were therefore informed that, interpretation of their offer made was based on the common understanding of the word "Tenor". On behalf of the appellants heavy reliance has been placed on the opinion of the Financial Consultants, Kishore And Shastry Consultants Pvt. Ltd. It is submitted that the financial consultants Kishore And Shastri were duly appointed by the Corporation for evaluating the financial packages. Disregarding their opinion in favour of the appellant company, an opinion was sought from other consultants Fieldstone Capital Services Pvt. Ltd. It is contended that, ignoring the opinion of Kishore And Shastri Consultants and seeking opinion of Fieldstone Capital Services Pvt.Ltd. was a deliberate act of favoritism for awarding contract to respondent ABB Ltd. Heavy reliance is also placed on a letter of the financial institution ICICI, which states that their financial package actually meant 7 years tenor for actual repayment and 2 years moratorium, that is total 9 years. The repayment was to be made in 28 quarterly installments. It is submitted that the financial package of the appellant company has been deliberately misconstrued and the same is evident from the letter of ICICI written to the appellants financial company, namely L & T Finance Ltd. Copy of the letter of ICICI has been produced in the appeal for reliance. 8. Whether the final package proposed by the petitioner L & T Ltd was workable or not is a subject matter requiring expertise. It is not for this Court to go into the merits of the decision taken by the financial experts. The accusation made against the Corporation is that, by bye-passing and ignoring the opinion of Kishore And Sastri, who were duly appointed consultants on remuneration, a committed opinion was sought from M/s. Fieldstone Capital Services Pvt. Ltd. The answer on behalf of the Corporation is that, Kishore And Sastri in its opinion had not dealt with the evaluation methodology. The committee thought it prudent to take independent opinion on evaluation methodology from Fieldstone Capital Services Pvt. Ltd. In the opinion of this Court no malice can be inferred only because expert opinion on evaluation methodology was obtained from Fieldstone Capital Service Pvt. Ltd. It was upto the managing committee to take a decision to obtain one or two opinions. Before the committee there were the opinion of Kishore And Sastri on financial package and opinion of Fieldstone Capital Services Pvt. Ltd on evaluation methodologies. The two opinions together informed the Managing Committee the relevant grounds on which the final decision was to be taken. This court finds no merit in the allegation that the opinion of Fieldstone Capital Services Pvt. Ltd. was deliberately obtained to bye-pass the opinion of Kishore And Sastri only to favour ABB Ltd. 9. Challenge to award of full 15 marks to ABB Ltd., on Financial Package :- ------------------------------------------------ On behalf of L & T Ltd, the contention advanced is that, there was no firm offer on financial package by ABB Ltd. The appellant submits that, Exhibit PR-C ( the format in which the financial package was to be offered) submitted by ABB Ltd places a condition to the following effect:- " The above terms and conditions are indicative. They do not constitute any commitment for any ABB company or the above parties to arrange financing to the above terms and conditions " 9.1 It is submitted that, the above quoted condition mentioned by ABB Ltd was clearly with a view to get out of commitment,though it is expected from them under the RFP. It is argued that the offer of ABB Ltd was not an offer in eye of law. Such an offer should have been treated as non-responsive and given zero mark. Reference is made to the provisions of Contract Act to point out that:- " An offer is an expression of willingness to contract on certain terms, made with the intention that it shall become binding as soon as it is accepted by the person to whom it is addressed. Under the objective test of agreement, an apparent intention to be bound may suffice, i.e. the alleged offerer may be bound if his conduct is such as to induce a reasonable person to believe that he intends to be bound. " In reply to the above contention, on behalf of ABB Ltd, it is submitted that under the RFP document what was expected from bidders was to give a plan or scheme for arranging finance. They were not expected to give any firm or definite offer in that behalf. It is submitted that the proposal or plan submitted by ABB cannot be said to be non responsive merely because it bluntly said that the terms & conditions are only indicative and the decision would depend upon the ultimate terms & conditions proposed by the creditor or the financier. 9.2 It is submitted on behalf of the ABB Ltd that, what ABB Ltd said bluntly, the appellant L & T Ltd has said mildly in its financial package, by stating that :- " The lenders would appraise the project and perform due diligence on the final terms and documents on award of the EPC Contract to Larsen & Toubro and on their satisfaction the loan will be disbursed. " 9.3 On behalf of appellant L & T Ltd., learned counsel argued that the difference between two financial packages are that in case of ABB Ltd there is no commitment from the tenderer in respect of quantum, rates, tenor etc., while in case of L & T Ltd there is the firm commitment from tenderer, that is L & T Ltd as to quantum, rates, tenor etc. 9.4 As we have understood, the bidders were required to give only a plan or a scheme for arranging finance as part of financial package. It could not be termed to be in the nature of an offer which on its acceptance would have become a binding contract. Naturally the tenderer had offered a financial package to which the lender or the financier was not a party. The terms & conditions were left to be finalised with the financier or the creditor after the package is accepted. For our purposes the Managing Committee of the Corporation did not consider any of the financial packages offered by appellant or the respondent Company to be not firm and we have no reason for want of financial expertise in us to take a contrary view with regard to one or the other financial package. We cannot hold that the financial package offered by ABB Ltd. should have been rejected on the sole ground that it was not firm. We have already indicted above the justification for awarding zero mark to L & T Ltd on its financial package. As has been mentioned above, the managing committee found that the financial package with the tenor and moratorium period given by L & T Ltd was impractical. In this regard learned counsel for the appellant L & T submitted that the fairness demanded that the committee ought to have sought clarification from L & T company if there was some doubt with regard to its financial package. 9.5 The reply given on behalf of the Corporation on the grievance of not seeking clarification on financial package and other technical aspects of the offer made by L & T, is that, clarification could not have been sought from bidders after price bid opening as per I C B Rules. This reply is in conformity with the opinion of the Consulting Engineers Desein Pvt. Ltd., which has given similar opinion in its letter dated 30th August 1999 sent to the Corporation. As a matter of fact, consultation and seeking of clarifications from bidders after price bid and its opening would have led to grievances from other bidders on accusation that negotiations contrary to the terms of RFP were held. Such procedure in fact would have brought in some unfairness in decision making process. In our opinion the committee cannot be held to have in any manner unfairly acted in not seeking any clarification from the bidders after the price bid opening. Such procedure if adopted would have exposed the committee to the charge of deviating from the laid down procedure as per the RFP norms. 9.6 Our conclusion, therefore, is that, the decision of the Managing Committee to evaluate the financial package of the bidders in consultation with financial experts to award full 15 marks to ABB Ltd and no mark to L&T Ltd cannot be faulted. 10. Techno-Commercial Evaluation (Per MW cost) : (Award of 75 marks to ABB and 71.469 marks to L&T) In regard to awarding less mark to appellant L & T and higher mark to ABB, the Managing committee have recorded in its meeting its decision as under:- " (vi) The evaluated per MW cost, was arrived at by loading quoted cost by missing items, mentioned above and considering offered output with 9 lac cubic meters / day gas and derated by 2 % to account for deterioration of SHR as per criteria already laid down. This was further loaded with differential "auxiliary power" and "heat rate" loading. The technical evaluation has awarded maximum 75 marks to the "lowest evaluated per MW cost" bid. Other bids are marked in inverse proportion of their "evaluated per MW cost". Thus, ABB gets 75 marks, L& T-Sumitomo & BSES-BHEL-Ansaldo get 73.86 and 62.26 marks respectively as shown in Recommendation report of M/s. Desein. This report was found to be in order and hence committee decided to accept it. RFP had required that in case of manufacturer being a licensee, the licensee should submit a back up guarantee from original manufacturer licensor in respect of performance guarantees and supply of spares. A format was also furnished to bidders. Hitachi had stated that for frame 6FA they are co-developers of GE. Subsequent GE clarification letter furnished by Hitachi states that gas turbine(s) will be built pursuant to existing license or manufacturing associate agreement. Under the agreement, Hitachi is granted the right to manufacture entire gas turbine. The letter further states that GE provides Hitachi with technical information on numerous gas turbine models as well as technical support during manufacture, if required, including visits by GEPS engineering an technical specialists to Hitachi Ltd's factories. The aforesaid GE letter makes it clear that Hitachi is indeed a licensee of GE. And GE's back-up guarantees come with posting of supervisory specialists at manufacturer's works at cost and may involve some other costs. Desein has estimated cost of such effort at the level of US $ 2 to 3 million although they have not considered the same in evaluation. The Committee deliberated on the issue and decided to load L & T offer further by US $ 2 million. Similarly in case of BSES also the arrangement offered is not satisfactory as brought out in para 4.10 of Desein's Report. Hence Committee decided to load BSES bid also by the same amount of US $ 2 Million. The following resolution was passed. " RESOLVED THAT the recommendations as submitted by M/s. Desein in their report titled "Technical bid recommendations against 'Request for Proposal' for selection of EPC contractor" be and is hereby accepted and approved ". "RESOLVED FURTHER THAT M/S. BSES AND L&T's BID BE FURTHER LOADED BY US $ 2 MILLION AND M/s ABB be given full 75 marks out of possible 75 marks on account of their evaluated EPC price per MW being the lowest and M/s. L&T as well as M/s BSES be given marks in inverse proposition. " 10.1 Criticising the decision of the Managing Committee quoted above, on behalf of appellant L&T it is contended that, with a view to award contract to ABB, the Corporation not only loaded the appellant EPC price but also discriminatingly did not reduce the capacity offered by 2 %. It is also submitted that the appellant L&T price was arbitrarily loaded for sales tax at Rs.5.5 crores, With holding tax Rs. 1.68 crores, Works contract tax Rs. 0.5389 crores and Loading for non furnishing of back up guarantee, 2 million U.S. $. The appellant's price due to the above loading was valued at Rs.2.8020 crores, while that of the respondent ABB was valued at Rs.2.7596 crores. It was not reduced maximum capacity offered by ABB by 2 % as required by RFP document and subsequent clarification. This has resulted in not being awarded 75 marks which it was legitimately entitled, while it was awarded full 75 marks to ABB. 10.2 The justification offered by the Corporation is based on the interpretation of letter of 3rd April 1999. That the condition of 2 % deduction in the maximum capacity offerable was applicable only to those who utilise 9 lacs m3 of gas per day. The contention advanced is that the justification sought to be offered not to reduce 2 % from the maximum capacity offered by ABB is contrary to the language of the letter dated 3rd April 1999 and RFP requirement. It is submitted that this was deviation from laid down criteria and undue favour to the ABB. 10.3 We can not go into the niceties of Techno Commercial Evaluation which was basically a subject of the technical experts. We find that the decision was taken after obtaining opinion independently of technical and financial experts, including the technical experts who were members of the Managing Committee. It is neither possible nor desirable for this Court to go into the correctness of the decision with regard to Techno-Commercial Evaluation as this Court is ill-equipped to enter into that subject. As this Court can understand, per MW cost worked out in case of L & T had to be further loaded towards various account of taxes mentioned above. This Court cannot therefore find any error in the decision in awarding 71.469 marks to L & T and full 75 marks to ABB. 10.4 We seek support in refusing interference in the decision of the Committee based on the recommendation of technical experts, from the observations of Supreme Court in FERTILIZER CORPORATION KAMGAR UNION V. UNION OF INDIA, AIR 1981 SC 344, which reads as under:- " Certainly, it is not part of the judicial process to examine entrepreneurial activities to ferret out flaws. The court is least equipped for such oversights. Nor, indeed, is it a function of the judges in our constitutional scheme. We do not think that our internal management, business activity or institutional operation of public bodies can be subjected to inspection by the court. To do so, is incompetent and improper and, therefore, out of bounds, nevertheless, the broad parameters of fairness in administration, bona fides in action, and the fundamental rules of reasonable management of public business, if breached, will become justiciable. " 11. Quality of Proposal and Background/ Experience in respect of successful completion of EPC Contracts