IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA CWP No. 2748 of 2008 Reserved on: 2.7.2009 Date of decision: 07.10.2009. Reliance Infrastructure Limited Petitioner Versus State of H.P. and others Respondents. Coram The Hon’ble Mr.Justice Deepak Gupta, J. The Hon’ble Mr. Justice V.K.Ahuja, J. Whether approved for reporting?1 yes For the petitioner: Mr. Rajiv Nayar, Sr. Advocate with M/s Ajay Kumar, Rishi Agrawala and Akshay Ringe, Advocates. For the respondent No.1: Mr. R.K.Bawa, Advocate General with Mr. Ankush Sood, Addl. Advocate General For the respondents No.2 & 3: Mr. Baldev Singh, Advocate. For the respondents No. 4 & 5: Mr. Ranjeet Kumar, Sr. Advocate with M/s Vikram Nankani, Ishwar Nankani, Sanjeev Bhushan, Virender Thakur and Raj Kumar Negi, Advocates. Per Deepak Gupta, J. By means of this writ petition, the petitioner Reliance Infrastructure Limited (here-in-after referred to as RIL) has prayed for the issuance of an appropriate writ for quashing the decision taken by the State of Himachal Pradesh on 25.11.2008 in respect of the two hydro-electric projects, namely, Jangi Thopan and Thopan Powari of 480 MW each alongwith the letter of award in favour of 1 Whether the reporters of the local papers may be allowed to see the Judgment? 2 respondent No.4 (M/s Brakel Corporation NV (here-in-after referred to as Brakel). The petitioner has also prayed that respondent No.4 and respondent No.5 M/s Brakel Kinnaur Power Limited (here-in-after referred to as M/s Brakel Kinnaur) be restrained from entering into any other agreement on the basis of the decision dated 25.11.2008. The petitioner also prayed that the aforesaid hydro-electric projects be awarded to them. The Factual Matrix: The State of Himachal Pradesh issued an advertisement in October, 2005, which was a global invitation inviting bids for implementation of Hydroelectric projects in the State of Himachal Pradesh. The invitation inviting bids provided that the bidders should have strong financial and technical basis with adequate free investible reserves and surpluses necessary for development of the hydro- electric project(s). The bidders were also required to have requisite technical capability. As per this invitation, 50% of the upfront premium was to be paid immediately on the issuance of the letter of award. Last date for submission of bid document was 21.1.2006. The bid documents were issued in November, 2005. The petitioner and respondents both purchased the bid documents. Thereafter on 27.12.2005 the State issued a corrigendum to the notice inviting offers and a further condition was incorporated that the State of Himachal Pradesh shall have the right of equity participation upto 49% in the Hydro Electric Projects on selective basis. The last date for submission of bids was extended upto 16.3.2006. The petitioner as well as respondent No.4 submitted their bids for the Jangi Thopan and Thopan Powari Projects of 480 MW each. Certain queries were raised by the respondent No.2 H.P. State Electricity Board in respect 3 of the bids and finally the bids of all short-listed bidders were opened on 5.9.2006. Respondent No.4, Brakel, was found to be highest bidder for both the projects. On 16.11.2006, the petitioner offered to match the bid of respondent No.4. On 1st December, 2006 letter of intent was issued by the State in favour of respondent No.4 awarding it both the contracts, as it was the highest bidder having bid Rs.36 lacs per megawatt. It was directed to sign the Pre-Implementation Agreement and deposit the upfront premium. On 9.12.2006 Brakel accepted the letter of intent and informed the Government of Himachal Pradesh that they are going through the draft Pre Implementation Agreement (PIA). In the meantime, on 11.12.2006 the State of Himachal Pradesh notified the H.P. Hydro Power Policy. Admittedly, Brakel did not deposit the upfront premium. On 20.8.2007 the petitioner sent a letter to the Government that it was willing to match the bid of respondent No.4 and that since respondent No.4 had not deposited the upfront premium the projects be awarded to it. Again on 25.9.2007 and 1.11.2007 the petitioner wrote letters on similar lines to the Government. Finally on 17.11.2007 the petitioner filed a civil writ petition in this Court which was numbered as CWP No. 2074 of 2007. The matter was listed before the Court on 13th December, 2007 when notice was issued to the State to file its response. On 7th January, 2008 before filing reply to the writ petition, the State issued a show cause notice to Brakel asking it to show cause why allotment of the two projects be not cancelled in view of the fact that respondent No.4 had not paid any up front premium nor taken any steps to implement the projects. On 29.1.2008, respondent No.5 Brakel Kinnaur Pvt. Ltd, on behalf of the respondent No.4 Brakel 4 Corporation sought to deposit a sum of Rs. 173.43 crores. On 7.3.2008 the petitioner filed an application in CWP No. 2074 of 2007 requesting that the upfront amount be not accepted. An application for amendment of the writ petition was also filed. The matters were heard by this Court on 22.4.2008. Thereafter the State of Himachal Pradesh issued another show cause notice to Brakel directing it to pay interest on the delayed payment of upfront premium. Respondent No.5 then deposited the interest also. On 1.5.2008 counsel for respondents in CWP 2074 of 2007 stated that they will not enter into the pre implementation agreement. On 3.6.2008 this Court passed the following order in the writ petition:- “The respondent-State has filed various affidavits during the pendency of this petition. We have noticed the contents of the affidavits filed from time to time by the State. We are of the prima facie opinion that the pleadings are contradictory though they are supposed to be precise and concise besides being consistent. Confronted with this, the learned Advocate General prays for and is granted four weeks time to explain the stand of the State in the present case. Consequently, the State shall take a decision duly supported by reasons. The decision of the State will be placed on record of this case on the affidavit of the Chief Secretary to the Government of Himachal Pradesh. It is clarified that this exercise has been undertaken by the Court to adjudicate upon the case effectively and to arrive at a just conclusion. The decision taken by the State Government will be without prejudice to the rights of all the parties.” Pursuant to the directions issued by this Court a memorandum was prepared for consideration of the Council of Ministers. Relevant portion of it reads as follows:- “34. In nutshell, the following important points concerning this Company are required to be noted in this case before proceeding further with any conclusion: 5 1. Mis-statement of fact that the Company is incorporated on 13.2.2005 when it seems that it was actually incorporated on 13.2.2006. 2. Claim that M/s SNC-Lavalin is an equity partner of 30% made in the bid documents (Pre Contract JV Agreement dated 13.3.2006 supplied by Brakel NV), a fact which is denied by the said company during inquiry. 3. Claim that M/s Standard Bank is an equity partner of 45% made in the bid documents (Pre Contract JV as mentioned above), a claim that is denied and asserted false by the Standard Bank in their response to the SV and ACB. 4. As per Pre Contract JV Agreement dated 13.3.2006 supplied by the Company as clarification, the Company M/s Brakel has no Equity in the Company/JV. The entire equity of the Company is divided to others as SNC Lavalin (30%), M/s Standard Banka (45%), Eco Securities (5%) and Energy Infrastructure Overseas (10%) and M/s Halcrow Consulting the balance (10%). In effect this means that the allottee firm is nothing but a simple name for an association of diverse companies which was sought to be presented as a Joint Venture Company. As is now coming out from the scrutiny of documents submitted as also from the inquiries made, these constituents of the JV never agreed to pay any equity stake in the Joint Venture and all claims made in this regard by Brakel NV seem false. 5. Brakel NV have accepted in their response to the Department of Power (Letter dated 21.5.2008) that they have agreed to transfer 49% equity to M/s Adani Power. This is against the terms of allotment and the clauses of PIA prescribed for signing. 6. While taking shelter behind their Company of Foreign Origin status all the time for delay in payment of Upfront Premium, finally deposited the UFP amount from Indian sources only. 7. Claims of being a Netherlands based company highly doubtful. Company’s Incorporation in Curacao, an island (Tax Heaven -?) in the pacific raises serious doubts. Netherlands address is just a P.O. Box Number. 8. Paid up Capital of M/s Brakel Corp. NV is only (one) Dollar at the time of incorporation and at the time of bidding for a project that is likely to cost Rs.6000 crores ($ 1.5bn). 9. Paid up capital of the Indian company created by M/s Brakel Corporation NV in the name and style of M/s Brakel Kinnaur Power Pvt. Ltd. is INR 1 lakh only. Company registered at ROC Jalandhar (Punjab) on 9.3.2007. 6 10. There are no common Directors or Promoters in the 2 companies above. 11. Contrary to the claims made in the bid documents, M/s SNC-Lavalin, M/s Standard Bank, M/s Eco Securities and M/s Halcrow Consulting are not partners of share holders in the Indian JV Company M/s Brakel Kinnaur Power Pvt. Ltd. 12. Amount of Upfront Premium deposited under the letter head of Brakel Corp. NV whereas the money has actually come from the account of M/s Brakel Kinnaur Power Ltd. a fact ascertained and admitted by Brakel during our inquiry. 13. Inquiry Report dated 23.5.2008 received from the Income-tax (Inv) department suggests that the Company appears to be a paper company only with no capacity or expertise to develop the Project allotted. 14. Inquiry Report of the Vigilance Department of Himachal Pradesh also suggests that the matter of allotment to this Company needs further probe and a prima facie case under Section 420 is made out in the allotment of this Project to the Company. 15. All claims of Technical and Financial strengths of the company (based on the tie ups made with other companies) at the time of bidding for the projects seems doubtful in view of the denials already received from M/s SNC Lavalin and M/s Standard Bank.” It would be pertinent to mention that before this Cabinet memorandum was prepared inquiry was conducted both by the Police as well as Income-tax Department. It was on the basis of these enquiries that such preliminary conclusions were arrived at. The following points were put for consideration before the Cabinet:- “1. Whether the allotment of Jangi-Thopan Powari HEP (960 MW) made in favour of M/s Brakel Corporation NV vide Government letter dated 1.12.2006 may be cancelled? 2. If the (1) above is approved, whether the request dated 25.9.2007 of M/s Reliance Energy for allotment of the project to them on their matching the Upfront Premium amount quoted by M/s Brakel Corp. NV Project be rejected and the project be re-advertised for development in Private Sector on BOOT basis in terms of the present Hydro Power Policy of the State. 3. Whether a case under Section 420 of the IPC may be registered against M/s Brakel Corporation NV as has been 7 recommended by the State Vigilance and Anti Corruption Bureau in their preliminary Inquiry Report? 4. Whether M/s Brakel Corporation be issued a notice subsequent to cancellation of the allotment as to why the amount of Rs.193.98 crores received from them may not be forfeited to compensate the State Government for the loss caused to it due to the delay that may be caused in the development of the Project? This would, however, not absolve the Company from its liability to compensate the State Government for such losses as may be assessed as a result of appropriate civil proceedings that the State may initiate against the Company.” On 7th July, 2008 the Cabinet took the following decisions:- “(i) Show cause notice be issued to M/s Brakel Corporation NV as to why the allotment should not be cancelled for misrepresenting and giving wrong facts to the State Government with regard to its technical and financial competence and the upfront money forfeited for causing loss to the State. (ii) The Project will be re-advertised for fresh bids. (iii) Vigilance to continue inquiry separately. (iv) Action against those who evaluated this project in the HPSEB and Department wrongly. (v) A fool proof new system for evaluation of projects be developed for future.” On the basis of the aforesaid decisions, show cause notice was issued to Brakel on 19th July, 2008. In this notice, on the basis of the discreet inquiries conducted and the other material gathered the State leveled serious allegations against Brakel. It was alleged that Brakel had misled the State about the date of its incorporation and about the equity participation of the so called members of the consortium. It was also alleged that Brakel had transferred 49% equity to Adani, which is against the letter of allotment. It was also alleged that there was delay in payment of upfront premium. Other allegations relating to the lack of technical and financial strength of the consortium were also leveled. 8 On 31st July, 2008, CWP 2074 of 2007 came up for hearing when this Court came to the conclusion that the same had become infructuous in view of the decision of the State to issue show cause notice to respondent No.4 to cancel the allotment of the projects in its favour and to re-advertise the same. The relevant portion of the order reads as follows:- “The petitioner herein has prayed for quashing of Letter of intent issued to respondent No.4 for setting up of Hydro Power Project of 480 MW each at Jangi Thopan and Thopan Powari in District Kinnaur, H.P. and also for a prayer of mandamus that respondents No.1 to 3 i.e. State be directed to issue Letter of Intent in favour of the petitioner. This Court on 3rd June, 2008 had observed that the State Government had filed various contradictory affidavits. The matter was adjourned to enable the State to take a decision and place it on record through an affidavit of the Chief Secretary to the Government of Himachal Pradesh. The said decision was to be without prejudice to the rights of the parties. Initially the petition was being opposed by the State Government, but however, now the State Government has changed its stand and in view of subsequent decisions so taken by the State Government, it is contended by the learned Advocate General as also learned counsel for the private respondent that the present petition has become infructuous. On the other hand, learned counsel for the petitioner is of the view that keeping in view the orders dated 3.6.2008 and also the averments contained in paras 10 and 11 of the petition, it is not so. The State Government through affidavit dated 8.7.2008 filed by the Chief Secretary to the Government of Himachal Pradesh as also the affidavit dated 17.7.2008 of Special Secretary, MPP and Power, to the Government of Himachal Pradesh, has now placed on record a decision at the highest level (Cabinet), wherein it has been so decided that a show cause notice be issued to the private respondent No.4 asking as to why the allotment in question be not cancelled for misrepresenting and giving wrong facts to the State Government with regard to its technical and financial competence and also as to why the upfront money be not forfeited. It has also been decided that after the final decision the State shall re-advertise the projects inviting fresh bids. Importantly, the State has clarified 9 that the Vigilance inquiry against the private respondent shall continue separately and action against erring official for not having correctly evaluated the projects shall be taken. This decision has not been assailed by any of the parties before us. We do not intend to go into the merits of the matter in view of subsequent developments and are of the considered view that the present writ petition has become infructuous. Since we have not gone in the merits of the matter and expressed our opinion on the same, it shall always be open for the petitioner to assail any order passed by the State Government of which the petitioner may be aggrieved of.” Brakel filed reply to the show cause notice on 4.8.2008. Brakel also made written submissions to the Principal Secretary (Power) on 4.10.2008 and 9.10.2008. Another letter was sent by Brakel to the Principal Secretary(Power) on 13.10.2008. In all these letters Brakel was furnishing explanations and replying to the allegations made in the show cause notice. It would be pertinent to mention that Brakel admitted that it had identified Adani Power as a partner for 49% equity. It was also stated that the individual consortium members shall hold shares in Brakel Corporation NV. In the mean time, the petitioner filed another writ petition being CWP No. 1803 of 2008 in this Court. This case was taken up by the Court on 30th October, 2008, in which the following orders were passed:- ”This writ petition is directed against the order dated 7th July, 2008 contained in Annexure P-17 of this writ petition, whereby respondent No.1 has decided to call for fresh bids in respect of Jangi Thopan Powari Hydro Electric Project. From the perusal of the impugned order, it is apparent that show cause notice has already been issued to M/s Brakel Corporation NV as to why the allotment should not be cancelled for mis-representing and giving wrong facts to the State Government. We have heard the learned counsel for the parties. The decision on the reply to the show cause notice to opposite party No.4 is still pending with the State Government. The interest of justice will 10 suffice if final decision is taken by the State Government expeditiously preferably within a period of eight weeks. In light of the above, we are of the opinion that at this stage, the petition is premature. Therefore, we grant liberty to the petitioner to challenge any order passed by the State Government in this connection, including condition No.(ii) of impugned order dated 7th July, 2008 contained in Annexure P-17 of this writ petition, if it prevails. With these observations, the petition is disposed of.” Thereafter, a memorandum was prepared on 1st November, 2008 for consideration of the Council of Ministers and one of the items put up for consideration was in respect of the two projects in question. In the said memorandum again similar allegations were made against Brakel and the points put up for consideration of the Council of Ministers were whether allotment of the two projects in favour of Brakel be cancelled; whether the order of cancellation should be in terms of the draft order attached and whether the matter should be referred to the Vigilance Department for further investigation. A draft order had been prepared by the Special Secretary (Power) to the Govt. of H.P in which it was clearly found that there were material irregularities in the bid documents and that equity participation was not there and on various grounds it was recommended that the allotment in favour of Brakel be cancelled. The Cabinet considered the matter and took a decision which was conveyed by the Secretary(GAD) and reads as follows:- “While discussing item No.15 regarding Jangi-Thopan Powari Power Project, it was decided to set up a Committee under the Chairmanship of Chief Secretary with following as members. 1. Principal Secretary (Industry) 2. Principal Secretary to Chief Minister 3. Principal Secretary (Power) 4. Principal Secretary (Finance) and 5. Secretary (Law). 11 The Committee will come up with a proposal so as to decide this issue on merit by taking all aspects into account and place the matter in the next meeting of the Cabinet to be held on 12th November, 2008.” After this Committee was constituted, Brakel sent a letter to the Chief Secretary explaining their position. They also prayed that the Officer Shri Ajay Mittal, who had heard them and was the author of the draft order should not be a member of the Committee reviewing the said draft order. They requested that he should recuse from the said Committee. This is apparent from the letter of Brakel dated November 12, 2008. Whether it was for this reason or for any other reason but the fact is that Shri Ajay Mittal did not take any further part in the proceedings of the Committee. The Committee acceded to the quest of Brakel and gave a personal hearing to the representatives of Brakel. It is not disputed that even the representatives of Adani were present during the course of hearing. Thereafter, the Committee of Secretaries after considering the representation of Brakel came to the following conclusion:- “6. The Committee of Secretaries after having given this personal hearing to representatives of M/s Brakel and seeking clarifications thereof, internally deliberated extensively on the relevant issues pertaining to this case. The Committee was of the view that the technical bid submitted by M/s Brakel suffered from one serious infirmity to the extent that for purposes of financial strength evaluation, there had been no firm commitment made by Standard Bank of its equity participation in these projects. This was important because the financial marks awarded in favour of the consortium were largely dependent upon the financial strength of this consortium partner i.e. Standard Bank, Material due diligence should have been done at the evaluation stage to obtain a firm commitment from Standard Bank regarding its equity participation, before awarding marks for financial strength. However, the financial strength criteria was evaluated based upon a somewhat vague intent of such 12 participation by Standard Bank. The Committee of Secretaries viewed this as an infirmity in the evaluation process. 7. However, after going through the relevant record it also came to the notice of the Committee that this infirmity in the evaluation had been consciously over looked by the then Whole Time Members of the HPSEB on the premise that enlarging the competition would be in the interest of the State Govt. for getting better choice of financial bids. This matter was deliberated at great length by the Committee and it came to the conclusion that since suppression of material information by M/s Brakel and its consortium partners cannot be established and since Govt. is legally considered to be perpetual entity, (irrespective of change of political parties) it would therefore be legally difficult to sustain a cancellation now of the allotment already made by the previous Govt. 8. The Committee was thus unanimously of the view that though the evaluation process made by the previous Govt. can be considered to be vitiated on the ground that the lead member (M/s Brakel) of this consortium had no financial strength and the partner of the consortium whose financial strength was used for the bidding purpose had made no definite commitment of its equity participation in projects bid for this aspect having been consciously over looked by the previous Govt. the blame thereof cannot now at this belated stage be laid on M/s Brakel. 9. In light of the above chain of events, the Committee is therefore of the view that allotment already made of these projects to M/s Brakel by the previous Govt. may not stand the test of the legal issues now involved in cancellation at this stage because the blame for infirmity in the financial strength evaluation cannot be attributable to M/s Brakel Corporation NV, based upon the records in the notice of this Committee. It was decided that the proceedings of this Committee’s deliberation and conclusion may be placed for further consideration and final decision of the State Council of Ministers.” Thereafter, the matter was placed before the Council of Ministers, which in its meeting held on 25th