=1= IN IN IN THE THE THE HIGH COURT OF JUDICATURE AT BOMBAY HIGH COURT OF JUDICATURE AT BOMBAY HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORDINARY ORDINARY ORIGINAL ORIGINAL ORIGINAL CIVIL JURISDICTION CIVIL JURISDICTION CIVIL JURISDICTION WRIT WRIT WRIT PETITION PETITION PETITION NO.2609 OF 2007 NO.2609 OF 2007 NO.2609 OF 2007 Bharat Electronics Ltd., Bangalore 560 045 ...Petitioner v/s 1. Member Secretary, SETU, Mantralaya, Mumbai 400 037 2. Indian Telephone Industries Ltd., Bangalore 560 016 ...Respondents Mr Rafiq Dada, Sr. Counsel with Ms Meena Doshi for Petitioner. Mr Ravi Kadam, Advocate General with Mr D.A. Nalawade, G.P. and Ms Uma Palsule Desai, AGP for Respondent No.1. Mr Iqbal Chagla, Sr. Counsel with Mr Milind Sathe, Sr. Counsel and Mr Rishab Shah i/b M/s Dhir and Dhir Associates for Respondent No.2. CORAM CORAM CORAM : F.I. REBELLO AND J.P. DEVADHAR JJ. : F.I. REBELLO AND J.P. DEVADHAR JJ. : F.I. REBELLO AND J.P. DEVADHAR JJ. DATE DATE DATE : 12TH DECEMBER 2008 12TH DECEMBER 2008 12TH DECEMBER 2008 =2= ORAL JUDGMENT ( PER F.I. REBELLO J.) :- 1. The petitioner and respondent No.2 are Public Sector Undertakings under the control of the Government of India. Respondent No.1 is a society formed by the Government of Maharashtra and has been identified as the implementation agency for the project known as Maharashtra State Wide Area Network (MSWAN) and to implement the project they had invited bids. It is registered under the Societies Registration Act. 2. The Government of Maharashtra had decided to set up a State Wide Area Network (SWAN) and was considering the appointment of a solution provider to implement and maintain the said network in an efficient and effective manner on an appropriate Public Private Partnership (PPP). The Scheme envisaged that the implementation, operation and maintenance of the said Network system will be based on BOOT (Build, Own, Operate and Transfer) model for the duration of five years on quarterly payment basis from the date of signing of the contract. Proposals were then invited vide tender No.DIT/File-06/2230/39. The tender prescribed the details for the project requirements and also laid down the mechanism for selection of the solution provider. The Request For Proposal (RFP) =3= consisted of three Volumes viz. Volume I - e-governance initiatives of Government of Maharashtra and project description, Volume II - scope of work and Volume III - selection criteria for bidders and bid evaluation mechanism. In terms of the said RFP, the bidders were required to submit three sealed Envelopes viz. Envelope I - three hard copies and one soft copy of the pre-qualification bid, Envelope II - three hard copies and soft copy of the technical bid and Envelope III - three hard copies and one soft copy of the commercial bid. The bidder was required to quote the price of the goods / services as mentioned in the RFP. The RFP provided that the tenderer whose total commercial offer as per price schedule (Form F4) has been determined to be the lowest evaluated offer will be awarded the contract. The petitioner submitted its bid for the project in partnership with a Maharashtra based networking company M/s GTL. 3. There was to be a pre-bid meeting before the submission of techno-commercial bid. The technical bids were to be opened after the declaration of the pre-qualification bid and upon the declaration of technically qualified bidders, the commercial bids were to be opened. The respondent No.2 was also one of the bidders. After the pre-bid meeting on 25th August 2006, the RFP was modified and a corrigendum was issued on =4= 27th September 2006. 4. The techno-commercial bid, according to the petitioner, was submitted by them on 7th November 2006. There were seven bidders including the petitioner for the project. During the pre-qualification bid evaluation, one of the bidders was disqualified. The criteria for pre-qualification of bidders provided among other conditions, that the net worth of the bidder must be at least Rs.75 crores in the previous three financial years. The respondent No.2, according to the petitioner, did not fulfil the said criteria and ought to have been disqualified at that stage despite the corrigendum. 5. The technical evaluation process took an unduly long time. After that, the eligible bidders had to make a technical presentation. In the meantime, due to long period taken for evaluation, the US dollar rate had come down from Rs.46/- per dollar to Rs.41/- per dollar. The Technical Evaluation Committee (TEC) then asked all the bidders to submit a revised commercial bid in sealed envelopes which was submitted by all the six bidders on 16th June 2007. On the technical evaluation, results were announced, two of the bidders were technically disqualified and therefore, their financial bids were not opened. On the commercial bids being =5= opened, the petitioner was found to be the lowest bidder (L-1). The next lowest bid (L-2) was of the respondent No.2. 6. The Central Vigilance Commission (CVC) has issued guidelines which are applicable to all Government agencies. These guidelines are also incorporated in the pre-qualification criteria. Office Memorandum dated 17th December 2002 issued by the CVC prescribes the provisions which must be made while stipulating the pre-qualification conditions in the RFP. According to the petitioner, the requirement of the net worth as stipulated in Clause No.1.7.3, Volume III of the RFP was not satisfied by the respondent No.2. In the guidelines dated 25th October 2005 issued by the CVC vide Office Order No.68/10/05, it has been specifically stated that there should not be any negotiations and that if at all such negotiations were necessary, it should be only as and by way of exception. Counter offers were also tantamount to negotiations and should be treated at par with negotiations as per the said guidelines. These guidelines, according to the petitioner, were superseded vide Circular No.4/3/07 dated 3rd March 2007. One of the requirements was as under :- "Prices quoted by the bidder must be all inclusive, firm and final and shall not be =6= subject to any escalation whatsoever during the period of the contract. Prices should indicate the prices at site and shall include by State and Central Taxes viz. Excise / Custom duty on the final finished supplies tendered for." . This clause was amended by clause 21 of the corrigendum and the amended clause reads as under :- "Prices quoted by the bidder must be all inclusive, firm and final and shall not be subject to any escalation whatsoever during the period of the contract. Prices should indicate the prices at site and shall include by State and Central Taxes viz. Excise / Custom duty on the final finished supplies tendered for but any changes to the service tax shall be considered for services beyond the current value of 12.24 % ." 7. As service tax was a major variable component on the Central Government budget, the RPF was modified after discussions during pre-bid conference. The corrigendum provided for payment of service tax to the successful bidder on the actual basis for full contract period of five years on quarterly payment. =7= 8. At the price bid opening, it was observed that the bid submitted by the petitioner showed that the price was not inclusive of service tax. The representative of TEC announced that all the taxes which are mentioned as extras will be added before declaring the L-1 bidder. According to the petitioner, on 2nd July 2007, the Projection Implementation Committee (PIC) invited the petitioner and its partners M/s GTL for discussions on the price bid. The committee asked the petitioner and its partners whether the price quoted by the petitioner i.e. Rs.104 crores can be made inclusive of service tax. The petitioner was directed to respond immediately to the said query. After contacting the headquarters of both the petitioner and its partners, the petitioner informed and confirmed in writing to the PIC that the price of Rs.104 crores did not include service tax and that the service tax would have to be added to Rs.104 crores quoted by the petitioner. 9. During the pendency of the petition, the tender was awarded in favour of the respondent. Consequently, chamber summons was taken up for amendment of the petition, which was allowed. According to the petitioner, the record now indicates that PIC had not only negotiated with the respondent No.2 but asked whether it would match the discovered price. The =8= petitioner relies on letters dated 4th July 2007 and 10th July 2007 addressed by respondent No.2 to the respondent No.1. According to the petitioner, the negotiations took place between the respondents in flagrant violation of the CVC guidelines and behind the back of the petitioner and without giving a hearing to the petitioner. According to the petitioner, after perusing with the vendor, the petitioner reviewed its price quoted by them in the commercial bid and indicated its acceptance to the respondents vide its letter dated 16th August 2007. The petitioner accepted that the price quoted by them at Rs.104 crores would be treated as inclusive of service tax. The respondent No.1 on 16th November 2007 issued a letter of intent to the respondent No.2. 10. Petitioners contend that the Respondent No.2 has an accumulated loss of Rs.22.25 billion as per Annual Report of the Company. The net worth of the Company does not fulfil the condition stipulated under clause 1.7.3 of the RPF. Further Annual Reports published by the respondent No.2 shows that it had been incurring continued losses from 2002 onwards and the loss after tax for the year 2006-07 was Rs.405.26 crores. According to the petitioner therefore, the decisions taken on 7th July 2007 by the PIC and High Power Committee in its meeting held on 13th November =9= 2007 waiving the requirement was bad-in-law, illegal as the said decisions are contrary to the CVC guidelines and appear to have been taken without rejecting the commercial bid of the petitioner and also without considering the offer made by the petitioner vide its letter dated 16th August 2007. 11. A reply has been filed on behalf of the respondent No.1. Respondent No.1 contends that the result of pre-qualification was announced before representatives of all the bidders including petitioner and the same was published on 17th November 2006 itself. All the bidders including the petitioner accepted the result. Based on the pre-qualification, technical bids of all six pre-qualified bids were opened on 17th November 2006 itself before the representatives of all six bidders including the petitioner. On technical evaluation by the Technical Committee, four bidders were found qualified including the respondent No.2 and the petitioner. Based on the result of the technical evaluation, commercial bids of all four technically qualified bidders were opened before the representatives of the bidders including the petitioner on 16th June 2007 and the rates quoted were announced. The evaluation / scrutiny of the commercial bids was done in which discrepancies in the bid of the petitioner were found. The petitioner was given an opportunity by the =10= Committee ion 2nd July 20076 to rectify the discrepancies but it declined in writing to rectify by its letter dated 2nd July 2007. As such, the bid of the petitioner became non-compliance and non-responsive. On account of non compliance of the requirement of the RFP, the commercial bid of the petitioner was rejected by the Committee. Among other three bids, the commercial bid of respondent No.2 was found by the Committee to match the discovered price, inclusive of all taxes including service tax / sales tax. On matching the price by the respondent No.2, the Committee in its meeting dated 7th July 2007 recommended to appoint respondent No.2 as service provider for MSWAN. The High Power Committee, headed by the Chief Secretary, Government of Maharashtra approved it in its meeting held on 13th November 2007 and the same was approved by the Government of Maharashtra. The respondent No.2 was asked immediately to commence the work. The respondent No.2 started maintenance work of VSAT from 20th November 2007. 12. An additional affidavit was filed on 16th July 2008 by one Sanjay Bhokare, Under Secretary. It is set out that the respondent No.1 has awarded the contract to the respondent No.2 by following the procedure and terms and conditions as laid down in RFP and also taking into consideration the CVC guidelines. Dealing with the net worth position of the respondent No.2, it is pointed out =11= that the decision to waive off the request of negative net worth of the respondent No.2 for the financial year 2003-04 and 2004-05 was taken in the meeting of the Technical Committee held on 17th November 2006 i.e. at the pre-qualification stage. The said position was published on the notice board and the same was orally communicated to all the bidders including the petitioner herein on the very same day. The Technical Committee in waiving the requirement, took into consideration that the current net worth of respondent No.2 was much more than the prescribed limit. The respondent No.2 is a reputed IT solution provider and also a PSU and has executed many big projects despite having negative net worth during the financial years 2003-04 and 2004-05. Considering these facts the Technical Committee unanimously decided to condone the negative net worth in past two years in the best interest of the State and ensuring more competition. 13. At this stage, one may note that there is no documentary evidence produced to show that the other bidders were informed that the Technical Committee has waived the requirement of net worth in respect of respondent No.2. 14. A reply has also been filed on behalf of the respondent No.2. It is their case that no case of =12= whatsoever nature has been made out by the petitioner in the entire petition to cancel the letter of intent / work order issued by the respondent No.1 in favour of the respondent No.2 and as such no relief can be granted to the petitioner. The respondent No.2 immediately on issuing LOI has started implementation of the target. Even prior to filing of the present petition, the respondent No.2 had completed site survey of 40 sites including State HQ, Divisional HQ, District HQ and Taluka HQ and also took over the entire VSAT network management which includes maintenance of equipments and ensuring network uptime. For day-to-day monitoring, functioning of the network and completion of the aforesaid work, the respondent No.2 have employed manpower at different sites. The bid of the petitioner was rejected as being non-responsive. 15. Respondent No.2 contends that clause 1.2 of Volume III of RFP is relevant, which reads as under :- "In order to participate the bidding process, the bidders should follow, the procedure described below for submitting their bids. A failure to do so may result in the bid being eliminated at the examination stage as non responsive." =13= . The bid of the petitioner was further violative of clause 1.6.5 of RFP (amended vide clause 21 of the corrigendum) which reads as under :- "Firm Price - Prices quoted by the bidder must be all inclusive, firm and final and shall not be subject to any escalation whatsoever during the period of the contract. Prices should indicate the price at site and shall include all State and Central taxes, viz. excise / custom duties on the final finished supplies tendered for but any changes to the service tax shall be considered for services beyond the current value of 12.24 percent." . The bid submitted by the petitioner for Rs.104.3156 crores for work was not inclusive of service tax and hence was not as per the procedure mentioned in the RFP and was thus non responsive and was rightly declared as non confirming. Attention is invited to the petition filed by the petitioners and pending before the Punjab and Haryana High Court challenging clause 4.2(iv) of the eligibility criteria mentioned in RFP for HSWAN regarding the sound financial position and profitability status for last three years was being violative of CVC guidelines. In the additional affidavit filed in July 2008 by Y.S. Reddy, authorised signatory of respondent =14= No.2, it is pointed out that the net worth of the respondent No.1 is positive for the year ending 31st March 2006 on revaluation of reserves which is permissible as per clause 1.7.3 of RFP. As per the revaluation, the net worth of the company as on 31st March 2006 is Rs.852.93 crores, which is much more than the required net worth of Rs.75 crores as per clause 1.7.3 of RFP. 16. In the additional affidavit on behalf of the respondent No.1 dated 15th October 2008, it is pointed out that the agreement with the respondent No.2 was signed on 28th March 2008 and the activities for implementation of MSWAN were started on 16th November 2007 and significant progress has been made. The activities involved in implementation of MSWAN and its current status are set out. The time schedule for implementation of the project is given and the project is to be completed by January 2009. 17. The petition was filed on 5th December 2007. A learned Bench of this Court on 10th December 2007 did not grant any interim relief, however, observed that all actions taken shall be subject to further orders of this Court and would not entitle the petitioners to claim equities. =15= 18. At the threshold, it must be set out, that though the petitioner has amended the petition including the prayer clause, to impugn the letter of intent dated 16th November 2007, there is no challenge by the petitioner to their tender being declared as non-responsive. In other words, the petitioner has accepted that their tender was non responsive. The petition will have to be examined in that context. 19. The learned counsel for respondent No.2 submits that on this count alone, the petition ought to be dismissed. On behalf of the petitioner, the learned counsel submits that even if there is no challenge to rejection of tender bid, the petitioner has still locus standi to challenge the order of LOI in favour of the respondent. In a matter of public contract, the respondent - State or its instrumentalities while dealing with largesse, cannot act arbitrarily and at its sweet will. The learned counsel further submits that in that event, the process of retendering must take place so that other persons could have applied. The stand taken by the respondent No.2 has also been supported by others including the learned Advocate General. 20. In our opinion, petitioner cannot be denied locus standi. The issue would be covered by the judgment of the Supreme Court in Ramana Dayaram Shetty =16= v/s International Airport Authority of India and others, (1979) 3 SCC 489. In that case, tenders were issued for awarding rights to run a canteen. The bid of the petitioner therein was rejected on the ground that the petitioner did not have necessary experience of running a IInd Class Restaurant. The successful bidder also did not have experience of running a IInd Class Restaurant. The Supreme Court, while rejecting the objection to the maintainability of the petition had observed that the State or its instrumentalities were bound to conform to the standard or norm laid down in the notice inviting tenders. In law if there is no acceptable tender satisfying the condition of eligibility, the respondent No.1 could have rejected the tenders and invited fresh tenders on the basis of less stringent standard and norms. It cannot depart from the standard and norm prescribed and arbitrarily accept tender even though contrary to the norm. Even though thereafter the petitioner’s bid was held to be non-responsive, it is still open to the petitioner to contend that the bid of respondent No.2 had to be rejected as it was not in conformity with the tender norms. . The principle behind the proposition is that there might have been many other persons who did not have experience but otherwise were competent. If therefore a clause or requirement had to be waived, it =17= had to be made known so that others similarly situated as could have applied. By not doing so, they were precluded by the condition of eligibility. Whilst considering the issue of locus, the question that the Court must ask itself is whether there was a public or statutory duty cast on the Respondent No.1. The duty is not only to act fairly as the issue involves public largesse but not to depart from the terms of the tender, if there was no discretion to waive the requirement. As there is a public element, it is not ’interest’ of the petitioner alone that has to be considered. Even if the petitioner’s bid was rejected, could respondent No.2 have been awarded the tender. 21. Respondents further plead that it was not open to the petitioner to contend that they were not aware of the waiver as it was notified. The learned Advocate General was asked to produce the record which would indicate that decision of the Committee to waive the requirement of net worth was disclosed to the other tenderers. The learned Advocate General fairly conceded that there is no supporting document except for the averments made in the petition. In our opinion therefore, the contention that the petitioner had the knowledge and yet did not challenge the same but waited for the result to be declared and as such precluded from maintaining this petition, must be rejected. The =18= petition as filed would be maintainable. 22. The question that remains to be answered is whether, the respondent No.1 was right in waiving the requirement of net worth for two years in favour of the respondent No.2 and or that matter to consider the net worth based on revaluation reserves. The reason given by the Committee and as placed on affidavit filed on behalf of respondent No.1 for waiving the requirement of net worth is that on account of revaluation result for the financial year 2005-06, the net worth had increased more than the requirement of Rs.75/- crores and further the respondent No.2 had the technical expertise and had also undertaken various large projects. 23. Net worth has been defined under section 2(29A) of the Companies Act to mean the sum total of the paid up capital and free reserves after deducting the provisions or expenses as may be prescribed. There is an explanation which reads as under :- "For the purposes of this clause, ’free reserves’ means all reserves created out of the profits and share premium account but does not include reserves created out of revaluation of assets, write back of depreciation provisions and amalgamation" =19= . To calculate net worth for the purposes of the clause, it does not include reserves created out of revaluation of assets. If this is considered, then the net worth of the respondent No.2 even for the financial year 2005-06 would be in the negative. The expression ’net worth’ in the absence of definition in the tender document, will have to be considered in the context of the Companies Act. The Supreme Court had occasion to consider the issue of net worth in Commissioner of Income Tax, Bombay and others v/s Mahindra and Mahindra Ltd. and others, AIR 1984 SC 1182. Dealing with the issue of net worth, the Court has observed as under :- "As regards the latter, according to well settled principles and practice of commercial accountancy (vide Cost and Management Accounting by J. Batly) the concept of ’Net Worth’ always denotes the excess of the book value of all assets over liabilities and market value of the assets is never taken into consideration, in fact the market value of assets which gives the ’current worth’ becomes a relevant factor when in liquidation the question has to be considered whether the company possesses assets which would be sufficient to meet all its creditors or not." =20= . It would thus be clear that the net worth considered by the High Power Committee in waiving the requirement in