1 IN THE HIGH COURT OF BOMBAY AT GOA WRIT PETITION NO. 594 OF 2008 M/s LANCO INFRATECH LIMITED ) A Limited Company, constituted and ) incorporated under the Companies Act, 1956 ) having its registered office at Plot No. 4 ) Software Units Layout, Infocity, Madhapur ) Hyderabad 500 081, through its ) Authorized Signatory Shri B Srinivas Rao ) Bodduluri, 40 years old, married ) Indian National, Resident of 302, Murthy ) Enclave, Ameerpet, Hyderabad 500 063 ).. PETITIONER Versus MORMUGAO PORT TRUST ) A Trust incorporated and constituted under ) the Major Port Trusts Act, 1963 for the ) Port of Mormugao, Administrative Office ) Building, Headland, Sada, Mormugao ) Goa 403 804 ) and through its Chief Engineer. ).. RESPONDENT Mr S G Dessai, Senior Advocate with Mr Preetam Talaulikar, Advocate, for the Petitioner. Mr V B Nadkarni, Senior Advocate with Mr Y V Nadkarni, Advocate, for the Respondent. 2 CORAM : SWATANTER KUMAR, C.J. AND N.A. BRITTO, J. JUDGMENT RESERVED ON : 20TH NOVEMBER 2008 JUDGMENT PRONOUNCED ON : 11TH DECEMBER 2008 JUDGMENT (PER SWATANTER KUMAR, C.J.) Heard. 2. Rule, returnable forthwith. By consent of parties, the Petition is taken up for hearing and final disposal at the admission stage itself. 3. Mormugao Port Trust, a Trust constituted and incorporated under the Major Port Trust Act, 1963, issued a global tender notice, on its website, inviting tenders from interested parties in accordance with Request for Qualification (hereinafter referred to as “RFQ”), in order to shortlist competent bidders for developing a Coal Import Terminal at Port of Mormugao, Goa on design, build, operate and transfer (DBOT) basis. Originally, the project cost was estimated at Rs.170 crores which was subsequently increased to Rs.332 crores. 3 4. In order to submit their bids for the project, three Companies, namely, Lanco Infratech Limited (hereinafter referred to as “LITL”), Pembinaan Redzai Sdn. Bhd. (hereinafter referred to as “PRSB”) and M/s Emirates Trading Agency LLC (hereinafter referred to as “ETA”) entered into a Joint Bidding Agreement dated 24 th June 2008 in response to the invitation of the Respondent Trust. Recitals of this Consortium Agreement specifically referred to initiation of tender process for the said project and desire of the members of the Consortium to submit the contract. It was stated that the parties wished to associate themselves as a Consortium for submitting the competitive bid for the project to develop, implement, operate and manage the project in the event the project being awarded to it. Thus, the parties submitted the documents in response to RFQ and LITL was the lead member of the Consortium. 5. A clarification was sought on 7 th July 2008 from the Petitioner with regard to percentage of ownership of voting share held by the Petitioner in respect of associate companies as on due date of making RFQ and also the basis of claiming experience by the 4 members of Consortium in respect of the project in terms of Clause 3.2.3(b) and Clause 2.2.9 of the RFQ document. This clarification was submitted by the Petitioner to the Respondent Trust stating that the project experience of Westports Malaysia Bhd, the project company, was available as claimed by the Petitioner, as PRSB was holding 42.9% equity in Westports Holdings Sdn Bhd which, in turn, holds 100% equity of the project company and, as such, one of the members of the Petitioner was entitled to claim the experience benefit in terms of the Clauses of the RFQ document. 6. On 18 th August 2008, the Respondent shortlisted five tenderers other than the Petitioner and their names were displayed on the website of the Trust. 7. Vide letter dated 16/18 th August 2008, the Petitioner was informed that it was not shortlisted at RFQ stage and the results thereof had been published on the website of the Port Trust. The Petitioner, vide its letter dated 19 th August 2008, averred that PRSB and the Petitioner had the experience of Category 1 at more than 77 5 times at the threshold limit. Therefore, it was not understandable as to how the Consortium did not meet threshold technical capability and asked for appropriate reasons from the Respondent. This was replied to by the Respondent Trust, vide their letter dated 26 th August 2008 whereby they confirmed that the evaluation of the pre-qualification of the parties had been carried out as per the requirements laid down in the RFQ and in terms of Clauses 2.17.4, 2.21 and 2.24 of the RFQ, no explanation or justification was required to be given and they would not entertain correspondence any further in that regard. 8. Aggrieved by this attitude of the Respondent Trust and particularly letters dated 16/18 th August 2008 and 26 th August 2008, the Petitioner has filed the present Writ Petition praying for quashing of these two communications and has further prayed that the Respondent Trust be directed to hold the Petitioner eligible for participation in the second stage of the bidding process of the tender. 6 9. In the Writ Petition, the Petitioner had prayed for certain interim directions and/or orders which were not granted by the Bench while issuing the notice to the Respondent vide its order dated 29th September 2008. 10. Reply was filed on behalf of the Respondent to which no rejoinder has been filed and the Court heard the matter on the adjourned date for final disposal. 11. The Petitioner's challenge to the impugned communications is primarily based on the following submissions :- (a) The Respondent has acted arbitrarily in not including the name of the Petitioner in the list of companies shortlisted for subsequent participation in the tender process; (b) The decision making process adopted by the Respondent Trust is defective thus rendering the decision unsustainable in law. The reason for 7 excluding the Petitioner is based upon misreading and misconstruction of the relevant clauses of RFQ Document. The eligibility of the Petitioner has been determined on irrelevant consideration. While ignoring the relevant facts, this defective decision making process adopted by the Respondent has prejudicially affected the interest of the Petitioner. Thus, the impugned communications are liable to be quashed. 12. It will be appropriate to refer to the reason for declaring the Petitioner unsuccessful at the very initial stage of the tender process. Vide letter dated 18 th August 2008, the result of the RFQ was communicated to the Petitioner wherein out of 13 applications, only 5 had been short-listed, while other bids were found to be non- responsive or not eligible for similar reason like the Petitioner or for such other reasons. As far as the Petitioner is concerned, the reason for rejecting the Petitioner's bid reads as under :- 8 “Did not meet eligibility of “Threshold Technical Capability” as per clause no. 2. 2. 2(A) in case of projects in category 1 and/or 3.” 13. Clauses which have bearing on the controversies raised in the present Writ Petition can also be usefully referred to and reproduced at this stage itself :- “2.2 Eligibility of Applicants 2.2.1 (a) The Applicant for pre-qualification may be a single entity or a group of entities (the “Consortium”), coming together to implement the Project. However, no applicant applying individually or as a member of a Consortium, as the case may be, can be member of another Applicant Consortium. The term Applicant used herein would apply to both a single entity and a Consortium. (b) An Applicant may be a natural person, private entity, government-owned entity or any combination of them with a formal intent to enter into an agreement or under an existing agreement in the form of a Consortium. A Consortium shall be eligible for consideration subject to the conditions set out in Clause 2.2.6 below. (c) An Applicant shall not have a conflict of interest (the “Conflict of Interest”) that affects the Bidding Process. Any Applicant 9 found to have a Conflict of Interest shall be disqualified. An Applicant shall be deemed to have a Conflict of Interest that affects the Bidding Process, if : (i) the Applicant, its Member or Associate (or any constituent thereof) and other Applicant, its Member or Associate (or any constituent thereof) have common controlling shareholders or other ownership interest; provided that this disqualification shall not apply in cases where the direct or indirect shareholding of an Applicant, its Member or Associates (or any shareholder thereof having a shareholding of more than five percent of the paid up and subscribed share capital of such Applicant, Member, or Associates, as the case may be) in the other Applicant, its Member or Associates as the case may be, is less than one percent of the paid up and subscribe share capital thereof: provided further that this disqualification shall not apply to a bank, insurance company, pension fund or a Public Financial Institution referred to in section 4A of the Companies Act, 1956; or (ii) a constituent of such Applicant is also a constituent of another Applicant; or (iii) such Applicant receives or has received any direct or indirect subsidy from any other Applicant, its Member or Associate or has provided any such subsidy to any other Applicant; or 10 (iv) such Applicant has the same legal representative for purposes of this Application as any other Applicant; or (v) such Applicant has a relationship with another Applicant, directly or through common third party/parties, that puts either or both of them in a position to have access to each others' information about, or to influence the Application of either or each other; or (vi) such Applicant has participated as a consultant to the Authority in the preparation of any documents, design or technical specifications of the Project. (d) An Applicant shall be liable for disqualification if any legal, financial or technical adviser of the Authority in relation to the Project is engaged by the Applicant in any manner for matters related to or incidental to the Project. 2.2.2 To be eligible for pre-qualification and short- listing, an Applicant shall fulfill the following conditions of eligibility. (A) Technical Capacity : For demonstrating technical capacity and experience (the “Technical Capacity”), the Applicant shall, over the past 5 (five) financial years preceding the Application Due Date, have : 11 (i) paid for, or received payments for construction of Eligible Project; and/or (ii) paid for development of Eligible Projects in Category 1 and/or Caregory 2 specified in Clause 3.2.1; and/or (iii) collected and appropriated revenue from Eligible Projects in Category 1, and/or Category 2 specified in clause 3.2.1, such that the sum total of the above is more than Rs.332 crores (Rupees Three Hundred and Thirty Two crores) (the “Threshold Technical Capability”). Provided that at least one fourth of the Threshold Technical Capability shall be from the Eligible Projects in Category 1 and/or Category 3 specified in Clause 3.2.1. (B) Financial Capacity : The Applicant shall have a minimum Net Worth (the “Financial Capacity”) of Rs.83 (eighty three) crore as at the close of the preceding financial year. In case of a Consortium, the combined technical capability and net worth of those members, who have an equity share of at least 26% each in such Consortium, should satisfy the above conditions of eligibility. 2.2.3 O&M Experience : The Applicant shall, in the case of a Consortium, include a member, having at least 26% (twenty six percent) equity participation in the Project company/ SPV, who has experience of five years or 12 more in operation and maintenance (O&M) of Category 1 projects specified in Clause 3.2.1, with an aggregate capital cost equal to the Estimated Project Cost. In case the Applicant is not a Consortium, it shall be eligible only if it has equivalent experience on its own. In the absence of such experience, the Applicant shall, for a period of at least 5 (five) years from the date of commercial operation of the Project, undertake to enter into an operations & maintenance (O&M) agreement with an entity having equivalent experience, failing which the Concession Agreement shall be liable to termination. 2.2.4 The Applicants shall enclose with its application, to be submitted as per the format at Appendix-I, complete with its Annexe, the following : (i) Certificate(s) from its statutory auditors' or the concerned client(s) stating the payments made/received or works commissioned, as the case may be, during the past 5 years in respect of the projects specified in paragraph 2.2.2(A) above. In case a particular job/ contract has been jointly executed by the Applicant (as part of a consortium), he should further support his claim for the share in work done for that particular job/contract by producing a certificate from its statutory auditor or the client; and In case duly certified audited and financial statements containing the requisite details are provided, a separate certification by statutory auditors would not be necessary in respect of Clause 2.2.4(i). 13 (ii) certificate(s) from its statutory auditors specifying the net worth of the Applicant, as at the close of the preceding financial year, and also specifying that the methodology adopted for calculating such net worth conforms to the provisions of this Clause 2.2.4(ii). For the purposes of this RFQ, net worth (the “Net Worth”) shall mean the sum of subscribed and paid up equity and reserves from which shall be deducted the sum of revaluation reserves, miscellaneous expenditure not written off and accrued liabilities. 2.2.5 The Applicant should submit a Power of Attorney as per the format at Appendix-II, authorizing the signatory of the Application to commit the Applicant. 2.2.6 Where the Applicant is a single entity, it may be required to form an appropriate Special Purpose Vehicle, incorporated under the Indian Companies Act, 1956 (the “SPV”) to execute the Concession Agreement and implement the Project. In case the Applicant is a Consortium, it should comply with the following additional requirements; (a) Number of members in a consortium should be limited to 6 (six), but information sought in the Application may be restricted to 4 (four) members in the order of their equity contribution; (b) subject to the provisions of clause (a) above, the Application should contain the information required for each member of the Consortium; 14 (c) members of the Consortium shall nominate one member as the lead member (the “Lead Member”), who shall have an equity share of at least 26% in the Consortium. The nomination(s) shall be supported by a Power of Attorney, as per the format at Appendix- III, signed by all the other members of the Consortium; (d) the Application should include a brief description of the roles and responsibilities of individual members, particularly with reference to financial, technical and O&M obligations; (e) an individual Applicant cannot at the same time be member of a Consortium applying for pre-qualification. Further, a member of a particular Applicant Consortium cannot be member of any other Applicant Consortium applying for pre-qualification; (f) the parties to a Consortium shall form an appropriate SPV to execute the Project if awarded to the Consortium; and (g) members of the Consortium shall enter into a binding Joint Bidding Agreement (the “Jt. Bidding Agreement”) for the purpose of making the Application and submitting Bid in the event of being short-listed. The Jt. Bidding Agreement shall, inter alia; (i) convey the intent to form an SPV with shareholding/ownership equity commitment(s) in accordance with the RFQ, which would enter into the 15 Concession Agreement and subsequently carry out all the responsibilities as Concessionaire in terms of the Concession Agreement, in case the concession to undertake the Project is awarded to the Consortium; (ii) clearly outline the proposed roles and responsibilities of each member at each stage; (iii) commit the minimum equity stake to be held by each member; and (iv) include a statement to the effect that all members of the Consortium shall, till the occurrence of the Appointed Date/ Financial Close under the Concession Agreement, be liable jointly and severally for all obligations of the Concessionaire in relation to the Project. (Note: A copy of the Jt. Bidding Agreement should be submitted along with the Application. The Jt. Bidding Agreement entered into between the members of the Consortium should be specific to the Project and should fulfill the above requirements, failing which the Application shall be considered non-responsive). 2.2.7 Any entity which has been barred by the Central/State Government, or any entity controlled by them, from participating in any project (BOT or otherwise), and the bar subsists as on the date of Application, would not be eligible to submit an Application, either individually or as member of a Consortium. 16 2.2.8 An Applicant/Consortium member should, in the last three years, have neither failed to perform on any contract, as evidenced by imposition of a penalty by an arbitral or judicial authority or a judicial pronouncement or arbitration award against the Applicant, nor been expelled from any project or contract nor have had any contract terminated for breach by such Applicant/ Consortium member. 2.2.9 In computing the Technical Capacity and Net Worth of the Applicant/Consortium members under Clauses 2.2.2, 2.2.4 and 3.2, the Technical Capacity and Net Worth of their respective Associates would also be eligible hereunder. For purposes of this RFQ, Associate means, in relation to the Applicant/Consortium member, a person who controls, is controlled by, or is under the common control with such Applicant/Consortium member (the “Associate”). As used in this definition, the expression “control” means, with respect to a person which is a company or corporation, the ownership, directly or indirectly, of more than 50% (fifty per cent) of the voting shares of such person, and with respect to a person which is not a company or corporation, the power to direct the management and policies of such person, whether by operation of law or by contract or otherwise. 2.2.10 The following conditions shall be adhered to while submitting an Application: 17 (i) Applicants should attach clearly marked and referenced continuation sheets in the event that the space provided in the prescribed forms in the Annexes is insufficient. Alternatively, Applicants may format the prescribed forms making due provision for incorporation of the requested information; (ii) information supplied by an Applicant (or other constituent Member if the Applicant is a Consortium) must apply to the Applicant, Member or Associate named in the Application and not, unless specifically requested, to other associated companies or firms. Invitation to submit Bids will be issued only to Applicants whose identity and/or constitution is identical to that at pre- qualification; (iii) in responding to the pre-qualification submissions, Applicants should demonstrate their capabilities in accordance with Clause 3.1 below; and (iv) in case the Applicant is a consortium, each member of the Consortium should substantially satisfy the pre-qualification requirements to the extent specified herein. 2.2.11 While Qualification is open to persons from any country, the Qualification of such Applicant or in case of any subsequent change in its shareholding or the shareholding in the consortium members, shall be subject to approval of the Authority from national security and public interest perspective. The decision of the Authority in this behalf shall be final and conclusive and 18 binding on the Applicant. Subsequent change shall include change in the holding or acquisition of equity or control, by persons acting for themselves or in concert and in determining such holding or acquisition, the Authority shall be guided by the principles, precedents and definitions contained in the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, or any substitute thereof, as in force on the date of acquisition. The Applicant shall promptly inform the Authority of any change in its shareholding, as above, and failure to do so shall render the Applicant liable for disqualification from the Bidding Process. 2.2.12 In the event that the Application Due Date falls within three months of the closing of the latest financial year of an Applicant, it shall ignore such financial year for the purpose of; its Application and furnish all its information and certification with reference to the five years preceding its latest financial year.” “3.2.1 Subject to the provisions of Clause 2.2., the following categories of experience would qualify as Technical Capacity and eligible experience (the “Eligible Experience”) in relation to eligible projects as stipulated in Clauses 3.2.3 and 3.2.4 (the “Eligible Projects”): Category 1: Project experience on Eligible Projects in Port sector that qualify under Clause 3.2.3. 19 Category 2: Project experience on Eligible Projects in core sector that qualify under Clause 3.2.3. Category 3: Construction experience on Eligible Projects in Port sector that that qualify under Clause 3.2.4. Category 4: Construction experience on Eligible Projects in core sector that qualify under Clause 3.2.4. For the purpose of this RFQ : (i) Port sector would be deemed to include Marine structures, On-shore and Off- shore Terminals, Berths, Jetties, Quays, Cargo-Handling System, Bulk/Liquid Material Handling System, Port based Terminal Facilities, CFS/ICDs, Storage Tanks/Tank Farms, Conveyors, Pipelines, Warehousing, etc., and (ii) core sector would be deemed to include power, telecom, highways, airports, railways, industrial parks, petroleum and natural gas, pipelines, irrigation, water supply, sewerage and real estate development.” “3.2.3 For a project to qualify as an Eligible Project under Categories 1 and 2 : (a) It should have been undertaken on BOT, BOLT, BOO, BOOT or other similar basis for providing its output or services to a public 20 sector entity or for providing non- discriminatory access to users in pursuance of its charter, concession or contract, as the case may be; (b) the entity claiming experience should have held, in the company owning the Eligible Project, a minimum of 26% equity during the period for which Eligible Experience is being claimed; (c) the capital cost of the project should be more than Rs.33 (thirty three) crore; and (d) the entity claiming experience shall, during the past 5 (five) financial years preceding the Application Due Date, have (i) paid for development of the project (excluding the cost of land), and/or (ii) collected and appropriated the revenues from users availing of non-discriminatory access to or use of fixed project assets, such as revenues from highways, airports, ports and railway infrastructure, but shall not include revenues from sale or provision of goods or services such as electricity, gas, telecommunications or fare/freight revenues and other incomes of the company owning the Project.” 14. With reference to the above Clauses, it is the case of the Respondent that the Petitioner did not possess requisite experience. Clause 3.2.1 stated that experience which would be qualified as technical capacity and eligible experience in relation to the eligible 21 projects in Port sector had two different kind of categories. Under Category 1 it was project experience while under Category 3 it was construction experience on eligible projects in Port sector. This concept of eligibility project is further controlled by Clause 3.2.3 which provides that eligible project under Categories 1 and 2 should have been undertaken on BOT, BOLT, BOO, BOOT or other similar basis for providing its output or service to a public sector entity and the capital cost of the project should be more than Rs.33 crores, entity claiming experience shall, during the past five financial years preceding the application due date should have paid for development of the project and/or collected and appropriated the revenues from users of the project. Besides this, Clause 3.2.3(b) is heavily relied upon by the Respondent which states that the entity claiming experience should have held in the company owning the eligible project, a minimum of 26% equity during the period for which eligible experience was being claimed. On the cumulative reading of these clauses, the Respondent rejected the technical bid of the Petitioner on the ground that they did not have adequate experience and directly did not hold minimum of 26% equity share in the company owning 22 the eligible project. However, while relying upon the same Clauses, the Petitioner claimed that they have adequate experience inasmuch as they hold 42% share holding in the financing company which in turn holds 100% share of the eligible project company and, therefore, the approach of