1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. Notice of Motion No.1458 of 2008 With Notice of Motion No.2853 of 2008 In Suit No.1233 of 2008 Satyagiri Shipping Co. Ltd. & anr. .. Plaintiffs v/s. Maharashtra State Road Development Corporation & ors. .. Defendants Mr.D.J. Khambata, Sr. Advocate with Mr.J.P. Sen and Mr.A. Khandeparkar i/by M/s.Khaitan Jayakar & Co. for Plaintiffs. Mr.D.D. Madon with Mr.M.H. Kane i/by M/s.Amarchand & Mangaldas & S.A. Shroff & Co. for Defendant No.1. ----- CORAM : SMT.ROSHAN DALVI, J. Dated : 4th September, 2008 P.C. : 1. Defendant No.1 issued a tender for development of the passengers' Water Transport system on the West Coast of Mumbai. The Plaintiffs were the highest bidders. A Bid Agreement came to be executed between the parties on 27.4.2003. As per the Bid Agreement, a preliminary Letter of Intent came to be issued on 5.2.2004 and a final Letter of Intent came to be issued on 19.6.2004 in favour of the Plaintiffs. Thereafter a Letter of Award dated 19.7.2006 2 came to be issued in favour of the Plaintiffs. Since certain conditions precedent were not complied, as per the contention of Defendant No.1, Defendant No.1 withdrew/revoked the Bid Agreement by their letter dated 7.2.2008. 2.The Plaintiffs have sued for a declaration that the aforesaid Letter of Intent and the Letter of Award are valid and the withdrawal letter is void. The Plaintiffs have applied for interim reliefs, inter alia, restraining Defendant No.1 from issuing fresh bids under any fresh tenders. The Plaintiffs failed to obtain any ad-interim reliefs. Hence, Defendant No.1 floated a fresh tender by their Tender Notice dated 12.7.2008 by amendment to the Plaint incorporating the said notice. The Plaintiffs have taken out a fresh Notice of Motion restraining Defendant No.1 from taking further steps under the said Tender Notice. 3.It is the case of the Plaintiffs that they have performed their reciprocal promises under the Bid Agreement executed between the parties and Defendant No.1 have wrongfully terminated the contract between the parties without following the prescribed procedure for such termination and despite the performance of the conditions by the Plaintiffs. 3 4.It is Defendant No.1' s case that the Plaintiffs have failed to comply with the conditions precedent set out in Clause 3.4 of the Bid Agreement as also the covenants which the Plaintiffs were required to comply under Clause 3.8 2)C of the Bid Agreement and consequently, the Agreement stood terminated and hence, there was no requirement for Defendant No.1 to terminate the contract under the Plaintiffs' events of defaults under Clause 3.54 read with Clause 3.52 of the said contract. Consequently, Defendant No.1 has tendered the equity of the Plaintiffs by way of a fresh bid. 5.The rights, liabilities, responsibilities and obligations of the parties to the Bid Agreement would determine the right of Defendant No.1 in revoking/withdrawing from the contract as per their letter dated 7.2.2008 or the Plaintiffs' right in enforcing the contract under the Letter of Intent read with the Letter of Award. Clause B of the bid document dated 17.4.2003 gives liberty to the Plaintiffs to contract on their own or in a consortium or as a Joint Venture. The Plaintiffs, as the highest bidders, were to be the “Lead Partners”/”Lead Promoters” and the Joint Venture/Consortium, if formed, the Plaintiffs would be referred to as the “Key Promoters”. 4 6.In Clause B (iii) and (iv) the Lead Promoter would be required to have a minimum equity of 26% and the Key Promoters would collectively be required to have a minimum 51% equity in the Company to be incorporated to pursue the project. 7.Under Clause-1(I) of the Bid Agreement the Plaintiffs, as the bidders, were to submit drawings with regard to the proposed passenger Water Transport for Terminals at the identified locations on the West Coast of Mumbai as set out in that clause. There were 7 identified locations including 2 at Borivali. A note appended to the said clause shows that one of the identified locations at Borivali which was at Charkop could be utilized for Maintenance & Repairs (M & R), office and crew accommodation, etc. 8.The definition of term “Terminals” in Clause 3.1.43 in the Bid Agreement shows the terminals proposed to be developed for landing of vessels and crafts to be used by the project for passenger transport. 5 9.Clause 3.3 of the Bid Agreement shows stage-wise break up of the stages of contract thus:- (i)Defendant No.1 would grant the Letter of Intent to the successful bidder. This letter would initiate the process of obtaining environmental clearances required. (ii)The Letter of Award would be issued by Defendant No.1 after obtaining environmental clearances. (iii)The Agreement would be signed with the successful bidder within 60 days of the Letter of Award, incorporating the terms and conditions between the parties. (iv)The date of signing the Agreement would be the effective date. (v)A notice to commence work would be issued by Defendant No.1 after the Agreement is signed. (vi)The Plaintiffs would have to obtain the necessary approvals, licence and complete the infrastructure required and commence commercial operation of the Water Transport System within 2 years of the signing of the Agreement. 6 10.It is admitted that the Letter of Intent and the Letter of Award have been issued on 19.6.2004 and 19.7.2006, respectively. The Agreement would have to be signed by about 19.9.2006. It has not yet been signed. The effective date has, therefore, not been arrived at. 11.Clauses 3.1.21 and 3.6 define “Effective Date” to mean that the date on which all the conditions precedent are satisfied and the Agreement between the parties is signed. 12.The conditions precedent not having been satisfied, the Agreement has not been signed. Consequently, the time- bound programme set out in Clause 3.3 has not been adhered to. The conditions precedent are set out in Clause 3.5 of the Bid Agreement. Under that clause, the Agreement between the parties would become effective only upon the fulfillment of the three conditions mentioned therein. Those are : (a) obtaining environmental clearances from MoEF, and GOI, (b) obtaining clearances required from Central and State Governments' agencies and-(c) submitting personal security. Under the said clause, the Agreement would stand terminated forthwith if the conditions precedent were not achieved within 13 months from the Letter of Intent unless it 7 is otherwise extended. In that case, neither party would incur any liability towards the other except for the enforcement of the personal security provided by the Plaintiffs. This clause, therefore, contemplates termination ipso facto without any notice of termination by Defendant No.1. As aforesaid, the final Letter of Intent was issued on 19.7.2004. Consequently, the conditions precedent would have to be achieved by about 19.7.2005. Several extensions have admittedly been given for obtaining certain clearances. The contract period would be deemed to be extended accordingly. 13.Clause 3.8 sets out covenants to be performed by the parties. Under Clause 3.8.2C the shareholding pattern of the Plaintiffs is required to be finalized as specified in Clause 3.12.2 and is to be submitted to Defendant No.1 for approval before the effective date i.e. before the Agreement is signed. For a breach in that covenant Defendant No.1 would be entitled to forthwith terminate the Bid Agreement and encash the personal security given by the Plaintiffs under Clause 3.7.4. It is an admitted position that Defendant No.1 has from time to time extended the date for allowing the Plaintiffs to finalize their shareholding pattern as required under the Agreement. It may be remembered that this 8 shareholding pattern must fall within the ambit of the principal requirement of the Plaintiffs as the Lead Promoters having 26% of the equity share capital and the Key Promoters collectively would have minimum 51% of the equity share capital of the Company incorporated for the project. 14.The Letter of Intent dated 19.6.2004 refers to the shareholding pattern of the consortium of the Plaintiffs. It shows the Plaintiffs with four other Key Promoters. These are KJMC Financial Services Limited (KJMC), Videocon International Ltd. (VIL), Gammon Infrastructure Projects Ltd. (Gammon) and TULIP Hospitality Services Ltd. (TULIP). This was the initial shareholding pattern provided by the Plaintiffs to Defendant No.1. Clause 3 of the Letter of Intent shows that the said equity contribution of the consortium shows the Plaintiffs having met the requirement of financial strength. The Letter of Intent shows the key activities to be performed by the Plaintiffs for being issued the Letter of Award. Under Clause 12 of the Letter of Intent it would form a part of the Bid Agreement. The validity of the Letter of Intent expires at the end of thirteen months from date of its issue. It has, therefore, expired on or about 19.7.2005. The key activities to be performed by the Plaintiffs were annexed 9 to the Letter of Intent. The schedule of the activities in the Annexure shows three aspects to be performed after which the Letter of Award would be granted. Those were Form SPV, Environmental Clearance from GOI and Other State Local Bodies. The Letter of Award has been issued on 19.7.2006 and those conditions must be taken to have been complied. [It may be clarified that these environmental clearances were required from GOI and State and Local Bodies but not from MoEF]. Within 60 days of the Letter of Award, three other steps would have to be taken as per the Schedule of activities annexed to the Letter of Intent. Those are payment of performance security, finalizing shareholding pattern and executing the Agreement. The performance security is given. That condition is complied. The shareholding patter as specified in Clause 3.8. 2C and as specifically set out in the Annexure to the Letter of Intent has not been finalized by the Plaintiffs until the letter of withdrawal/revocation dated 7.2.2008 came to be issued by Defendant No.1. The Schedule of activities further shows all the aforesaid steps to be completed within 13 months from the issue of the Letter of Intent. The stages in the Schedule of activities were far more delayed. These 13 months' period was also specified in Clause 3.5 of the Bid Agreement. 10 15.Various specified periods show that the time was the essence of the contract. The time could be extended under Clause 3.5. It has come to be extended from time to time. Given the date of the Letter of Intent and the Letter of Award as aforesaid, the contract has indeed been too far delayed. 16.Clause 3.12 shows the corporate structure in the Bid Agreement. Under Clause 3.12.2 the Plaintiffs were to show the individual percentage shares in the consortium. They were to form (incorporate) a Company of the consortium members under the Indian Companies Act within 3 months of the issue of Letter of Intent. That covenant was to be performed by October 2006. That has not been performed. The Plaintiffs, who claim to be the highest bidders, and pray for rights under the Bid Agreement, have not incorporated such a Company. In fact, surprisingly, the Plaintiffs have sued the consortium members themselves. They are shown as Defendant Nos.2 to 10 in this Suit. Under Clause 3.12.3 the shareholding pattern was to be finalized before the effective date i.e. the date of the Agreement. The shareholding pattern not having been finalized, the Agreement has not been signed and the effective date has not been reached. 11 17.Consequently, it is contended on behalf of Defendant No.1 that Defendant No.1 can invoke the Drop Dead Date under Clause 3.7 of the Bid Agreement and hence, are entitled to terminate the Bid Agreement and encash the performance security, which they claim to have done. It must first be seen whether the shareholding pattern shown in the Letter of Intent dated 19.6.2004 has been adhered to. It is the case of Defendant No.1 that it has been amended time and again since the Plaintiffs have been unable to procure finance enough to carry out the project effectively. 18.A reading of the correspondence between the parties would be required to see whether this contention of Defendant No.1, which activated them to withdraw/revoke the Bid Agreement by their letter dated 7.2.2008 challenged in the Suit, is justified. 19.The relevant part of the correspondence between the parties as a chronology is required to be set out to understand this position. DATE LETTER FROM PARTICULARS 07/08/06 Defendant No.1 Defendant No.1 called upon the Plaintiffs, inter alia, to comply the Bid Agreement conditions of shareholding pattern. 12 DATE LETTER FROM PARTICULARS 15.9.06 Plaintiffs Several disputes between the Plaintiffs and KJMC arose for which they terminated their Agreement with the Plaintiffs and withdrew from the consortium. 15.9.06 Plaintiffs Defendant No.1 were informed that KJMC have withdrawn from the consortium. 18.12.06 Defendant No.1 Defendant No.1 called upon the Plaintiffs to tender documents, inter alia, relating to the proposed shareholding pattern, the combined financial strength and the MOU of the proposed new consortium to be able to evaluate the Plaintiffs' proposal. 10/01/07 Plaintiffs The Plaintiffs required allowances to restructure the consortium. The Plaintiffs mentioned that they were finalizing their shareholding pattern and Agreement and are ready to submit the same to Defendant No.1. 22.1.2007 Defendant No.1 Defendant No.1 expected the shareholding pattern to be finalized and forwarded within 15 days. 29.1.2007 Plaintiffs The Plaintiffs had “now” finalized the shareholding pattern showed Gammon, VIL, Moreshwar Trading Co.Pvt.Ltd. (Moreshwar) TULIP and proposed inductors to be Uttam Galva Steels Ltd./Financial Institution. KJMC withdrew and in its place Moreshwar and Uttam/Financial Institution were inducted to the extent of 23.5% of the shareholding. 06/12/07 Plaintiffs The shareholding of Uttam was fixed at 16.5%. The Financial Institutions were not considered. A fresh shareholding pattern was set out. 09/02/07 Defendant No.1 The documents for considering the shareholding were called for. The shareholding pattern was seen to be incomplete. Hence, the Plaintiffs' proposal could not be evaluated. 14.2.2007 Plaintiffs The Plaintiffs submitted the documents called for and showed the revised proposed 13 DATE LETTER FROM PARTICULARS consortium. 17.3.2007 Plaintiffs The Plaintiffs changed the shareholding pattern, showing VIL having left the consortium. Gammon India Ltd. was added to the list of consortium members. Consequently, the shareholdings of the other members changed. 20.3.2007 Plaintiffs The Plaintiffs submitted a MOU signed by revised consortium members annexing their Chartered Accountant's certificate showing the shareholding pattern without VIL. 07/04/07 Plaintiffs The Plaintiffs desired M/s.ABS Hovercraft Ltd. (ABS) to be invited to join the consortium. 19.4.2007 Plaintiffs The Plaintiffs stated that ABS would not take up subscription in the SPV and would only be a member of the project. 04/05/07 Plaintiffs The Plaintiffs called for a letter of approval of Defendant No.1 and submitted the addendum showing that the parties would be jointly and severally liable. 17.5.2007 Plaintiffs The Plaintiffs showed the restructured consortium, and stated that the Concession Agreement was delayed because of restructuring of the previous consortium and submitted revised consortium Agreement for approval of Defendant No.1. 01/08/07 Plaintiffs The Plaintiffs invited VIL to continue their initial 10% holding and called upon Defendant No.1 to consider the proposal and sign the Agreement. 11/08/07 Plaintiffs The Plaintiffs informed Defendant No.1 that they had not received feed back from VIL and showed the shareholding of the consortium with the members other than VIL. 03/09/07 Plaintiffs The Plaintiffs called upon Defendant No.1 to grant concurrence to the consortium as revised under their letter dated 11.8.2007. 14 DATE LETTER FROM PARTICULARS 11/09/07 Plaintiffs The Plaintiffs reminded Defendant No.1 for re- evaluating the revised consortium. 31.10.2007 Plaintiffs The Plaintiffs reminded Defendant No.1 to expedite the revaluation. 27.12.2007 Plaintiffs The Plaintiffs submitted a list comprising members of the consortium including VIL and without giving the percentage of the shareholding. The last shareholding pattern given on 11.8.2007 came to be amended by the induction of VIL. 5 consortium members in August 2007 came to be 6 consortium members in December 2007. The shareholding pattern, therefore, changed. The changed shareholding pattern was not shown. 14.1.2008 Plaintiffs The Plaintiffs reminded Defendant No.1 to approve the revised consortium of 27.12.2007 again without mentioning the percentage of shareholding of the consortium members. 01/02/08 Plaintiffs The Plaintiffs reminded Defendant No.1 that they were “a waiting final nod” for the revised consortium (the percentage of the shareholding not being given). 07/02/08 Defendant No.1 Defendant No.1' s letter of revocation/withdrawal setting out the aforesaid facts of change of consortium members and their shareholdings and since no shareholding percentage was given and the consortium underwent radical changes recorded that the Plaintiffs failed to comply with Clauses 3.3.1 and 3.7.4 read with Clause 3.8.2C of the Bid Agreement read with the Letter of Intent. 20.From the aforesaid correspondence, it can be seen that the Plaintiffs were not able to procure their requisite finance to 15 begin the project of Water Transport for the city of Mumbai. The shareholding pattern, which was to be given before an Agreement could be signed, was varied by the Plaintiffs several times. Defendant No.1 allowed expressly as well as impliedly various extensions for effectuating the Plaintiffs' covenants under Clause 3.8.2C. Defendant No.1 even resisted the claim of the other bidder in a Writ Petition filed by that bidder in favour of the Plaintiffs. It is contended on behalf of Defendant No.1 that the matter came to a head when in the letter dated 27th December 2007, the Plaintiffs did not even mention the shareholding pattern which had obviously changed upon VIL having been brought in as a consortium member. Consequently, Defendant No.1 withdrew from the Bid Agreement before the effective date and before the final Agreement could be arrived at between the parties. It is contended on behalf of the Plaintiffs that it was because Defendant No.1 did not obtain environmental clearances for the last terminal which was the Borivali Terminal at Charkop, meant for M & R that the Plaintiffs could not finalize the shareholding pattern. There is nothing on record to suggest that fact. Obtaining environmental clearances from the aforesaid Agencies was a condition precedent under Clause 3.5 of the Bid Agreement. Though the Plaintiffs were required to obtain it, initially Defendant 16 No.1 obtained the offer and did obtain environmental clearances from all passengers' terminals. They did not obtain environmental clearance only for terminal relating to M & R. The Plaintiffs never called upon Defendant No.1 to obtain the environmental clearance for that terminal also after their letter dated 6.6.2005 to Defendant No.1 where they mentioned that fact. In fact, Defendant No.1, by their letter dated 7.8.2006, called upon the Plaintiffs to obtain the environmental clearance for M & R facility at Charkop, Borivali. Based upon the Plaintiffs' own plans for the proposed facility, there has been no response to the said letter. 21.It is argued on behalf of the Plaintiffs that the terminal includes the terminal at Charkop for M & R. The definition of “Terminal” in Clause 3.1.43 includes only Terminals for landing of vessels and crafts to be used by the project for passengers' transport. The terminal for M & R is, therefore, not included in the definition. All the relevant references to the terminals in the Bid Agreement as well as in the correspondence between the parties refer to the terminal at Borivali (Charkop) for M & R and other facilities separately by way of a note. Even though it is included in the listing of the terminals in Clause-I, the list of 7 terminals shows a 17 note that the Charkop Terminal can be used for maintenance and repairs, office and crew accommodation. 22.Clause 5.3 mentions the Terminals to be developed and which includes in their list 7 Terminals, including 2 at Borivali: one at Charkop – M & R; other facilities and one near the existing jetty. The note below the said listing shows that the landing at Charkop, Borivali, can be used for M & R, office and crew accommodation, etc. Similarly in the certificate of the Additional Chief Engineer of Defendant No.1 dated 21.8.2006 annexed to Defendant No.1' s letter dated 19.8.2006 the Plaintiffs were called upon to expedite the performance of the conditions precedent and warned that no extension will be given. The proposed passenger terminals are separately shown. The site at Borivali, Charkop is differently shown as required to be developed for M & R. The Plaintiffs' letter dated 1.8.2006 (wrongly shown as dated 7.4.2007) also shows the clearances obtained for 6 Terminals and not for the proposed M & R facility at Charkop, Borivali. The six Terminals are for passenger landings; the other terminal is distinctly and differently shown. In response to the Plaintiffs' letter dated 1.8.2006, Defendant No.1, by their letter dated 7.8.2007, called upon the Plaintiffs to obtain the environmental clearances for M & R facility based upon their 18 own plans of the proposed facilities to which there has been no response. Consequently, it is seen that though Defendant No.1 has taken over the obligations for obtaining the clearance for the terminals which were for the passengers' landing and called upon the Plaintiffs to obtain the environmental clearance for the terminal relating to M & R only, even that has not been obtained by the Plaintiffs. 23.The Plaintiffs have taken more than 13 months from the Letter of Intent to perform the conditions precedent. The Letter of Award has been issued on 19.7.2006 by Defendant No.1 after they obtained the environmental clearances for the six terminals themselves. The Plaintiffs have not obtained the environmental clearance for the M & R facility. The Plaintiffs have not specified the shareholding pattern and kept on amending it. The Plaintiffs have, therefore, not performed their covenants and given the composition of their shareholding. Consequently, the Concession Agreement between the parties could not be executed and the effective date could not be effectuated. The Agreement, therefore, could stand terminated as has been sought to be done after much patience by Defendant No.1 under its letter dated 17.2.2008. 19 24.It is contended on behalf of the Plaintiffs that the contract has not been validly terminated under Clause 3.54 of the Bid Agreement. Under that Clause, the contract would be terminated by Defendant No.1 in the event of defaults of the Plaintiffs specified in Clause 3.54. This clause shows the breaches after the conditions precedent are satisfied, the covenants are performed and the development phase commences. Hence, the Notice of intent to terminate the remedy period and the termination notice following thereupon would apply if Clause 3.52 comes into effect. 25.It is contended on behalf of Defendant No.1 that Clause 3.52 has not come into effect since the conditions precedent were not satisfied. The Bid Agreement was read along with the Letter of Intent since the final Letter of Intent dated 19th June 2004 made the said Letter of Intent a part of the Bid Agreement. Annexure thereto, which showed the key activities, required performance within specified time. The Bid Agreement set out the conditions precedent and the covenants to be performed. Since these were not performed, Defendant No.1 could only withdraw from the Agreement. 26.It must be appreciated that this Agreement is entered into by the Plaintiffs with the Government Authorities. It relates 20 to a public utility. It affects public service. It is to be carried out in public interest. It, therefore, requires and demands expedition as per the time-frame set out in the Agreement. Non-compliance with the requirements of the time schedule attracts revocation of the Agreement in public interest. The revocation/withdrawal is proper. The Plaintiffs cannot be granted the reliefs sought in either of their Notices of Motion. 27.Both the Notices of Motion are dismissed. [SMT.ROSHAN DALVI, J.]