•.'Ss.':::w:^::S''- ^S^SfiSa \y;- ^ /o-r^-G^ HIGH COURT OF CHHAmSGARH, ^ILASPUR CORAM: Hon'ble Shri Rajeev Gupta. C.J. & Hpn'ble Shri Sunil Kumar Sinha, J. Writ Petition (C) No. 4739 of2009 The Indure Private Limited Vs. Chhattisgarh State Power Generation Company Ltd. 8s others JUDGMENT For consideration Sd/- Sunil Kumar Sinha Judge HON'BLE SHRI JUSTICE RAJEEV GUPTA 3 ^ c_-^_ Sd/- Chief Justice r ' Post for Judgment : /O/12/2009 7/i Sd/- AP r\'. ^ • 1-, HIGH COURT OF CHHATTISGARH, BILASPUR CORAM: Hpn'ble Shri Rajee\LGupta, C.J. & Hon'ble Shri SunU Kumar Sinha, J. Writ Petition (C) No. 4739 of 2009 PETITIONER The Indure Private Limited, Through its Vice President, Mr. Y.A. Ismail/Executive Director, Mr. Rakesh Bhargava, 'Indure House' Greater Kailash II, NewDelhi 110048 RESPONDENTS 1 4, Versus Chhattisgarh State Power Generation Corapany Ltd. a Govemment of Chhattisgarh Undertaking 101, 1st Floor, Vidyut Seva Bhawan, Ddngia, Raipur 492013 (Chhattisgarh) Chief Engineer (PRG-II) Chhattisgarh State Power Generation Company Ltd. a Government of Chhattisgarh undertaking 101, 1st Floor, Vid^t Seva Bhawan, Dangia, Raipur 492013 (Chhattisgarh) State of Through Department Mantralay, Chhattisgarh, Secretary, of Energy, DKS Bhawan, Raipur (Chhattisgarh) Union of India, through Ministry of Power, Shramshakti Bhawan, New Delhi M/s. TECPRO SYSTEMS LIMITED, Unit No. 02, 1st Floor, No. 25, First Main Road, Gandhi Nagar, Adyar, Chennai - 600 02 \K ,!>. •\ ^ W.P.CC) No 473 9 of 2009 (Writ Petition under Article 226 ofthe Constitution oflndia) Appearance: Mr. M.L. Verraa, Senior Advocate with Mr. Sanjay K. Agrawal, Mr.Ankit Shah and Mr. Sudeep Agrawal, Advocates for the petitioner. Mr. Prashant Mishra, Advocate General with Mr. D.K. Gwalre, Govt. Advocate and Ms. Suparna Shrivastava, Advocate for respondents 1 to 3. Mr. Abhishek Sinha, Advocate for respondent No.4. Mr. Ravishankar Prasad, Senior Advocate with Mr. P.S. Koshy, Dr. Harish Pathak, Dr. Saif Mahmood and Mr. Naushad Alam, Advocates for respondent No.5. JUDGMENT (10.12.2009) Following judgment of the Court was delivered by Sunil Kuinar Sinha, J. (1) Chhattisgarh State Power Generation Company Limited (hereinafter referred to as CSPGCL/Employer) issued notice inviting tenders (NIT) for awarding contract of work of Balance of Plant (BOP) Package for 1x500 MW Korba West, Thermal Power Project (TPP) Extension stage III. The scope of work as shown in the NIT was Design, Engineering, Manufacture, Assembly, Testing at Works, Supply, Civil and Structural Works, Erection, Testing and Commissioning of Balance of Plant Package^ as per Bid Specification No. 03-06/KORBA WEST/BOP-ICB/T-01/09. (2) The tender had to be submitted in 3 Envelopes. Envelope No.l containing bid security; Envelope No.-2 containing technical ^ W.P.('C)No4739of2QQ9 SE commercial bids and Envelope No.3 containing price bid. The bidder found to be qualified after opening Envelope No. 1 was to be considered for next stage, i.e. for opening of Envelope No.2, and envelope No.3 was to be opened if the bid of concerned bidder is found responsive. (3) Clause 3 of Instructions to bidders (ITB) deals with Qualification and Eligibility Requirements of Bidders. The relevant sub-clauses of Clause 3 of ITB read as follows:- "3.1 The bid is open for participation to the bidders who fulfill the following qualification requirements either: The bidder should have executed contracts on Engineering, Procurement and Construction (EPC) basis for at least one (1) No. coal based/lignite based/gas based combined cycle power plant of installed unit capacity not less than 100 MW which has been commissioned during the last seven (7) years and has been in successful operation for a period of not less than one (1) year as on the date for bid opening. The scope of work of such a reference plant should have necessarily included design, engineering, supply, installation (with all associated mechanical, electrical, C 65 I systems, civil and structural works), testing and commissioning on turnkey basis. OR The bidder should have executed contracts on Engineering, Procurement and Construction (EPC) basis in at least 4 (four) out of 5 (five) /' ./ ^ {<• W.P.rciNo 4739 of2009 Balance of Plant Systeras namely (a) Coal/lignite handling plant, (b) ash handling plant, (c) cooling tower, (d) water system (Raw water/ DM Plant/Circulating water system/Auxiliary Cooling Water System) and (e) Switchyard for 400 or 220 KV (minimum five bays) for at least one (1) No coal/lignite based power plant of installed unit capacity not less than 100 MW which has been comniissioned during the last seven (7) years and is in successful operation for a period of not less than one (1) year as on the date of bid opening. The scope of work of such a reference plant should have necessarily included design, engineering, supply, installation (with all associated mechanical, electrical, C 8s I systems, civil and structural works), testing and commissioning on turnkey basis. 3.2 The bidder can submit the bid in his individual capacity or in consortium with other partner(s). In case of consortium, nuinber of consortium partners should be limited to Four (4) and all consortium partners should jointly meet the requirement of clause 3.1 above. One of the consortium partners shsdl be the consortium leader. The consortium partners shall be jointly and severally responsible for the execution of contract. The consortium agreement shall be furnished clarifying the split of scope between consortium partners (Format for the same is enclosed as Annexure F (ITB). In case of award: If the bidder is qualified on individual basis (without consortium partners), the bidder shall ^^ ^" .'';'"' '^i1^-. /<.;'r '"'"esre-^1" W.P.fONo 4739 of 2009 be required to furnish Contract Performance Security for 10% (Ten percent) of Contract Price. If the bidder is qualified on the basis of consortium partners, each consortium partners excluding consortium leader shall be required to furnish Contract Performance Security for 5% (five percent) of contract Price. In addition to this, the consortium leader shall be required to furnish the Contract Performance Security for 10% (ten percent) ofthe Contract Price. 3.4 The average annual turnover of the bidder/consortium leader should be at leastINR 4000 Million or equivalent USD during the preceding three consecutive financial years. Net worth of fhe bidder/consortium leader as on the last day of the preceding Gnancial year should not be less than INR 400 Million or equivalent USD. The bidder should submit along with the bid a letter from any schedule commercial bank (as per the enclosed Annexure-2) containing approval/undertaking/commitment in-principle to provide working capital to the bidder for minimum of INR 1000 Million for the execution of the contract. 3.6 The bidder must submit the relevant information regarding financial and commercial particulars in the appropriate columns of annexure 1A and the details regarding his experience to meet the qualiGcation requirement in the annexure 1B, enclosed with the bid specification. 3.7 Not withstanding anything stated above, the Owner reserves the right to assess bidders W.P.CQNo 4739 of2009 capability and capacity to perform, should the circumstances warrant such assessment in the overall interest of the Owner. & 3.8 Bidders not fulfilling qualifying requirements are advised not to subm.it their offer against this bid specification. The offer of the bidder not fulfilling the qualifying requirements shall not be considered for further evaluation and will be rejected." (4) Thus the bids were permitted to be submitted by a bidder in his individual capacity or in consortium. In case of offer by consortium, the partner(s) of the consortium were required to execute the consortium agreement in the prescribed forniat Annexure-F annexed with the tender documents. So far as the financial requirements are concemed, it was required fhat the average annual turnover of the consortium leader should be at least INR 4000 Million during the preceding three consecutive financial years and, that, net worth of the consortiuni leader as on the last day of the preceding financial year should not be less than INR 400 Million. (5) Five bidders namely Larsen 8s Toubro, Tata Projects Ltd., M/s TECPRO Systems Ltd., M/s McNally Bharat Engineering Co. Ltd. 85 The Indure Pvt. Ltd. submitted their bids. Larsen & Toubro and Tata Projects Ltd. submitted their bids in individual capacity, whereas, the remaining 3 bidders submitted their bids in consortium. As per consortium agreement submitted by the 8.^ W.P.fQNo 4739 of 2009 petitioner, it has 2 consortium partners (I) M/s Paharpur Cooling Towers Ltd. 85 (II) Crompton Greaves Ltd. According to the consortium agreement of M/s McNally Bharat Engineering, it has also 2 consortiuni partners (I) M/s Techno Electric and Engineering Co. Ltd, (II) M/s Paharpur Cooling Tower Ltd. Therefore M/s Paharpur Cooling Tower Ltd. was a common consortium partaier in the offers made by M/s McNally Bharat as well as the petitioner. Respondent No.l/employer, after evaluation of the Techno-Commercial bid of the petitioner through the tender evaluation committee found that the bid of the petitioner suffers with dual participation defect and held it to be non-responsive and decided not to open the price bid of the petitioner. Sarne was the fate of M/s McNally Bharat Engineering Co. Ltd. (6) Apart from the above, the petitioner was also held disqualifled on the ground of not satisfying the qualification requirement of sub-clause 3.1 of the ITB, as according to the certificates produced by the petitioner showing their past performance, the employer held that on the scrutiny of the said documents they do not satisfy the said requirement ofthe ITB. (7) Respondents 1 8s 2/employer have also taken a ground in Para-22 of their return that according to the documents filed to show the credential, capability 8s capacity, the petitioner did not satisfy the financial criteria as desired in sub-clause 3.4. of the ITB. y ^^ \"J' ^i^. '""aES^"'' W.P.(C~)No 4739 of 2009 (8) After rejection of the Techno-Commercial bid of the petitioner and McNally, the price bids of Larsen & Toubro, Tata Projects and respondent No.5 were opened and ultimately, respondent No.5 being the L-l by quoting 999.00 crores was issued a letter of award (LOA) dated 25.8.2009 at the rate of 993.00 crores agreed acceptance after the negotiation. (9) The petitioner has pleaded that if the petitioner's bid 1S opened, it would result in an advantage to the State Exchequer in excess ofRs.125 crores. (10) In the background of these facts, the following questions that arise for our consideration are: (i) Whether rejection of the Techno-Commercial bid of the petitioner on account of dual consortium participation by its partner was arbitrary and unreasonable ? (ii) Whether the petitioner satisfied the qualification requirement of sub-clause 3.1 of the ITB and rejection of its bid on non-satisfaction was further arbitrary and unreasonable ? (iii) Whether the petitioner's bid was liable for rejection on account of non-fulfilling of the financial criteria as per sub-clause 3.4 ofthe ITB ? (11) Mr. M.L. Verma, learned Senior Counsel appearing on behalf of the petitioner firstly argued on principles, test of reason and relevance and arbitrariness in State action. He referred to the three decisions of the Apex Court rendered in the matters of E.P. Royappa -Vs- State ofTamil Nadu and Another, (19741 4 SCC, / W.P.CQNo 4739 of2009 3; MSR. Maneka Gandhi -Vs- Union of Indja, and Another, (1978) I SCC 248 &^7?amana^ Dasiaram Shettv -Vs- Intemational Airport Authority oflndia and Others, (1979) 3 SCC 489. He then contended that dual participation by the consortium partner was never prohibited by an expressed provision in the tender document. It is also not prohibited in law. One partner can enter into consortium with more fhan one. Therefore, rejection of the bid on this account saying it to be non- responsive was arbitrary and unreasonable. If such participation in consortium was not permissible it should have been mentioned specifically in the tender document with legal certainty. He relied on the decision of the Apex Court in Reliance Energv Ltd. and Another -Vs- Maharashtra State Road Development Corpn. Ltd. and Others, (2007) 8 SCCJ,. He further contended that the petitioner fulfills the qualification requirement of sub-clause 3.1. of the ITB and the scrutiny in this regard was not proper. About financial credential, capability and capacity, he argued that the same was not a ground for rejection of the Techno-Conimercial bid of the petitioner but it's a new ground taken in the return which shows that respondents 1 & 2, are suppleraenting reason for a decision already taken. Moreover, the petitioner fulfills the financial criteria as per sub-clause 3.4. of the ITB. In this regard he referred to the judgment of Mohinder Sinah Gill and Another -Vs- The Chief Election Commissioner, New Dethi and Others, (1978) I SCC405. 10 W.P.CCTNo 4739 of 2009 (12) On the other hand, Mr. Prashant Mishra, learned Advocate General appearing on behalf of respondents 1 to 3, opposed these arguments supporting the decision taken by the Tender Evaluation Committee. He argued that the dual consortium participation was never permissible which would be clear from various sub-clauses of the tender conditions. He very specifically referred to particular forraat of the consortium agreement. According to him, the consortium agreement executed by the partners was made irrevocable document. Therefore, entering into a subsequent agreement by a common consortiun'i partner would be bad-in-law and the bid would be non-responsive on this account. He also argued that the bidding essentially and inherently means "competitive bidding". The element of "competition" is inherent in the concept of bidding, "competition" and "bidding" are so intrinsically intertwined that there cannot be any bidding without a fair competition. He further argued that any procedure or act of the bidder that impinges on the competitiveness of the bidding process, therefore, militates against the veiy purpose and spirit of bidding. He argued that the principle that one bidder may submit only one bid is inherent in every bidding process lest the process itself will be frustrated. (13) Mr. Ravishankar Prasad, learned Senior Counsel appearing on behalf of respondent No.5 supported the contentions raised by the Advocate General and argued that dual participation in bidding cannot be permitted. Permitting dual participation in '/ / .^^ssssas^ ~-s\ '•'; •^ ^ '' i'.'. i 1 I 'SSBai1 1 'A^'jtesiS^5"^ 11 W.P.CONo 4739 of2009 consortium would go against the sprit of The Competition Act, 2002. Author of the ITB has chosen to interpret the ITB in a particular manner and has applied its said interpretation to all bidders uniformly. It is the domain of the employer to choose the best bidder in the public interest. The decision of the CSPGCL/employer is neither arbitrary nor unreasonable, therefore, it cannot be interfered within the scope of judicial review. He also argued supporting the decision of the employer regarding past performance and financial credentials of the petitioner. (14) We have heard the learned counsel for the parties at length and have also perused the records of fhe writ petition and the Tender Evaluation Committee. (15) Referring to the decisions of B.P. Rouappa & MSR. Maneka Gandhi (supra), the Supreme Court held in Ram.ana Dayaram. Shetty (supra) that "Where a corporation is an instrumentality or agency of Govemment, it would, in the exercise of its power or discretion, be subject to the same constitutional or public law limitations as Govemment. The rule inhibiting arbitrary action by Govemment must apply equally where such corporation is dealing with the public, whether by way of giving jobs or entering into contracts or ofherwise, and it cannot act arbitrarily and enter into relationship with any person it likes at its sweet will, but its action must be in conformity with some nnciple which meets the test of reason and relevance. This rule \ ;--\ 12 W.P.CQNo 4739 of 2009 also flows directly from the doctrine of equality embodied in Article 14 which strikes at arbitrariness in State action and ensures fairness and equality of treatment. It requires that State action must not be arbitraiy but must be based on sorae rational and relevant principle which is non-discriminatory. It inust not be guided by any extraneous or irrelevant considerations, because that would be denial of equality. The principle of reasonableness and rationality which is legally as well as philosophically an essential element of equality or non-arbitrariness is projected by Article 14 and it must characterize every State action, whether it be under authority of law or in exercise of executive power without making of law. The State cannot, therefore, act arbitrarily in entering into relationship, contractual or otherwise with a third party, but its action must conform to some standard or norni which is rational and non-discriminatory. (16) Now we shall examine the matter in light of the above principles ofArticle 14 ofthe Constitution. (17) The question raised before us is whether a dual participation by a common partner was permissible and rejection of the bid on account of dual participation was arbitrEuy and unreasonable ? According to the ITB, the consortium agreement was to be entered into in Annexure-F (ITB). Para-4 of the agreement reads as follows:- "4. We, the Contractor and the Partner(s) do hereby undertake and confirni that we will be jointly and 13 W.P.(QNo 4739 of2009 severally responsible for satisfactory execution and completion till Performance testing of complete Balance of Plant package for 1x500 MW Korba West TPP, however the split of scope amongst/between the Partners and their respective shares will be as stated hereunder : 1. M/s.... as Lead Partner/Bidder will execute Package(s) with ...... percent oftotal Contract price. 2. M/s ...... as Partner-1 will execute Package(s) with ...... percent oftotal Contract price. 3. M/s ...... as Partner-2 will execute Package(s) with ...... percent oftotal Contract price 4. M/s ...... as Partner-3 will execute Package(s) with ...... percent oftotal Contract price." A perusal of the contents of Para-4 of the agreement would show that the consortium partners had to agree and declare about the work which they have agreed to execute and also about the percentage of the total contract price. This shows the split and scope of work araongst the consortium partners and their respective shares qua the work and the contract price also. As soon as a declaration with relation to contract price has to be given in the agreement and a consortium partner is giving such declaration, it shall be presumed that the said consortium partner was fully aware about the price quoted by the consortium leader. In common trade practice in a commercial transaction, one cannot agree to take responsibility in the contract to be executed by the consortium leader unless he would know the price bid to be ,offered by him. Otherwise he would not be able to know the /' / . ^ ^:i 14 W.P.fQNo 4739 of2009 responsibility which he/it is going to take in terms of money. In the consortium agreeraent of Pharpur with McNally Bharat, Pharpur has agreed to execute the Cooling Tower Package(s) with 7.2. percent of the total contract price. However in the consortium agreement with the Indure (petitioner), Pharpur has agreed to execute Cooling Tower Package(s) declaring it to be minor portion of the total contract price. Unless Pharpur would be knowing that what contract price has been quoted or is going to be quoted by its consortium leader(s), it would not be able to know as to what liability in terms of money is going to come on them. In this connection Para-7 of the agreement (Annexure-F) is also important. It says that apart from the Contractor s Perforraance Bank Guarantee, the partner(s) shall furnish 'as security' the performance Bank Guarantee from the Bank as per prescribed list in Annexure-2 of ITB in favour of the Employer in a form acceptable to Employer and the value of such Bank Guarantee shall be equal to five percent (5%) of the total contract price. Unless a person knows the contract price, how he/it would be agreeable to give the Bank Guarantee in the above percentage. That is to say that Pharpur, or any consortium partater must be knowing the contract price offered by the consortium leader(s). (18) Now the question arises that if a common consortium partner was knowing about the contract price offered by two or more consortium leaders or competitors, and then bids were offered by them, whether the bids were responsive bids or they 15 W.P.rONo 4739 of 2009 were the fair bids for the purpose of competition ? The competition is the effort of two or more parties, acting independently, to secure the custom of a third party by the offer of the niost favourable terms. In 'common trade practice and comraercial transactions, it is the struggle between rivals for the same trade at the same time; the act of seeking or endeavoring to gain what another is endeavoring to gain at the same time. The competition is the antithesis of inonopoly, and any elimination of competition would increase monopoly. In the realm of commercial law it is a contest for trade. Therefore, bidding for the competition should be fair and non-collusive as also responsive. Any act done in the bidding which eliminates the element of competitiveness or its policy, cannot be held to be responsive. Keeping in view the econoraic development of the country, The Competition Act 2002 (12 of 2003) has been introduced with various provisions to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interest of customers and to ensure freedom of trade carried on by other participant in markets in India. It has enacted various provisions relating to anti-competitive agreements which directly or indirectly results in bid rigging or collusive bidding, the overall effect of which is eliminating or reducing competition for bids or adversely affecting or manipulating the process for bidding. Therefore, if any action is done by a bidder which effects a fair competition or it eliminates or reduces competition in which there was directly or indirectly an element of bid rigging or collusiveness, would be 16 N W.P.(C')No 4739 of 2009 against public policy and the bids suffering from any of the aforesaid elenient would be a non-responsive bid. If a consortium partner is allowed to be a common partner in more than one consortium, it shall take away the element of competition in the bidding process. We may supplement our contentions by an example when one consortium partner becomes a partner in the consortium agreements of all the bidders and the bids are offered. It would be a situation in which he/it would be knowing the amount of price bids offered by each consortium leader and it can not be ruled out that the price bids may be offered accordingly and the very purpose of competition is frustrated. Therefore, in the facts and circumstance of the case, particularly in light of the content of the specified terms of the consortium agreement which was meant for the purposes of bidding, it was not permissible for a consortium partner to be a partner in more than one consortium agreement, otherwise it would amount to promoting cartelisation. (19) Apart from the above, CIause 5 of the consortium agreement provides that the said agreement shall be irrevocable and shall not be revoked till the expiiy of the warranty period of the Balance of Plant (BOP) under contract. It further stipulates that the agreement therein contained shall terminate upon satisfactory completion of such warranty period. If the said agreement was made irrevocable in the above terms, one consortium partner entering into agreement with the consortium leader would not be allowed to enter into a subsequent agreement with another b / ^?^a^ ^ :gs^s^~^^'i ••^'^-.^ /3^ss^' 17 W.P.fONo 4739 of 2009 consortium leader unless the earlier agreement is cancelled. In case on hand, Pharpur had entered into consortiuni agreement with McNally on 1.6.2009 and without cancellation of this consortium agreement, it again entered into a subsequent consortium agreement with the petitioner on 4.6.2009. Therefore, the subsequent agreement was bad-in-law. A conjoint reading of sub-clause 6 of the first part of the consortiura agreement and Para-10 of its second part, would further make it clear that the consortium agreement which the consortium leader would be filing along with the ITB was, in clear terms, an irrevocable document and was made as the integral part of the contract and it was prepared for the purpose of bidding. Mr. Verma has argued that according to