IN THE HIGH COURT OF JUDICATURE: ANDHRA PRADESH AT HYDERABAD (SPECIAL ORIGINAL JURISDICTION) THURSDAY THE EIGHTEENTH DAY OF NOVEMBER TWO THOUSAND AND FOUR PRESENT: THE HONOURABLE SRI DEVINDER GUPTA, THE CHIEF JUSTICE AND THE HONOURABLE JUSTICE SRI C.V. RAMULU WRIT PETITION NO. 14872 OF 2004 BETWEEN: N. Dolendra prasad S/o N.V.S. Raghavayya Zamin Ryot Building, Pogathota, Nellore-524101. …Petitioner. And 1. Government of A.P., Irrigation and Command Area Development, represented by its Principal Secretary, Secretariat, Hyderabad. 2. Engineer-in-Chief, Irrigation Department, Erramanzil, Hyderabad. 3. I.V.R.C.L. Infrastructures and projects Ltd., M22, 3RT, Vijayanagar Colony, Hyderabad-57. 4. M/s Maytas Infra Limited, 6-3-1186/5/A, 3rd Floor, Amkogh Plaza, Begumpet, Hyderabad-16. 5. Hindustan Construction Company Limited Hincon House, L.B.S. Marg, Vikhroli (W) Mumbai-400083. 6. L & T Mount Poonamalle Road, Manapakkam, Chennai-600089. 7. Gaman India, Gaman House, Near Siddivinayaka Temple, Prabhadevi, Dadar, Mumbai. 8. Patel Engineering Limited, Engineers and Contractors, Patel Estate, S.V. Road, Jogeshwari (W), Mumbai-400102. 9. J.V. Gayatri, 6-3-1090/C/A/1, Lovely Mansiion, 1st Floor, Rajbhavan Road, Somajiguda, Hyderabad-82. 10. Progressive Constructiions, Progressive Towers, Kharatabad, Hyderabad. 11. Skanska Cementation India Limited, P.O. Box No.11006, Mumbai-400020. …Respondents. Petition under Article 226 of the Constitution of India praying that in the circumstances stated in the affidavit filed herein the High Court will be pleased to issue a Writ of Mandamus or any other appropriate writ, order or direction, declaring the action of the respondents 1 and 2 in resorting to the procedure of selecting pre- qualified tenderers for the purpose of limiting the awarding of the Water Resource & irrigation Development Projects in the State of Andhra Pradesh and in purporting to select respondents 3 to 11 alone as such pre-qualified tenders for the said purpose as being illegal, arbitrary, unconstitutional apart from being contrary to Public Interest and consequently set aside the same ad further direct respondents 1 and 2 not to give effect to the said decision of allotting works of Water resource and irrigation Development Projects only to pre-qualified tenderers and pass such further order or orders as this Hon’ble Court may deem fit and pr0per in the circumstances of the case. Counsel for the Petitioner : Sri D. Prakash Reddy, Fork Sri S. Niranjan Reddy. Counsel for the Respondent 1 & 2 : The Advocate General Counsel for the Respondent 4 : Sri C.V. Mohan Reddy Counsel for the Respondent 9 : Sri C.V. Nagarjuna Reddy. Counsel for the Respondent 6 : Sri C.R. Sridharan. Counsel for the Respondent 11 : Sri V. Ravinder Rao. The Court made the following JUDGMENT: (per THE HON’BLE THE CHIEF JUSTICE SHRI DEVINDER GUPTA) Petitioner, an Editor of Telugu News Weekly “Zamin Ryot” has filed this petition in Public Interest, alleging infirmities, irregularities and illegalities alleged to have been committed by respondents 1 and 2 in adopting a new procedure for short-listing Pre- qualified Contractors for entrusting the work of completing the on-going Water Resource and Irrigation Development Projects and such other like projects to be undertaken by the State Government. Challenge is also to the short-listing of nine Contractors (respondents 3 to 11), as arbitrary. 2. Petitioner claims that the News Weekly “Zamin Ryot” was established in 1930 and is the oldest Telugu News Weekly having wide circulation throughout the State of Andhra Pradesh and it has always focused on various issues relating to the problems of farmers in the State and has been striving for various agrarian reforms. It has been at the forefront of seeking implementation of land reforms and had also fought against the Zamindari System. The News Weekly has also sought to present various other problems and issues concerning the farmer community and others and has been striving to bring various issues to the notice of the concerned Governments. In this connection, the petitioner thought it fit to invoke the extraordinary jurisdiction of the Court in highlighting the alleged irregular mode adopted in resorting to short-list the pre-qualified Contractors for completing irrigation projects, which, according to the petitioner, is detrimental to the interests of the State and the farmers in the long run. 3. The facts-in-brief as highlighted by the parties are that soon after the present Government took over, a decision was taken for giving top priority to the Irrigation Projects, keeping in view the chronic drought conditions prevailing in the State resulting in large-scale suicides by farmers and for optimum utilization of available water resources. In order to achieve that objective, the Government decided to complete the on-going Irrigation Projects within a period of two years and to complete the remaining Major Projects in the next five years. The primary aim being to solve the water problem in the State and to improve irrigation potential. Thus, it was decided to empanel agencies to execute the projects possessing the pre-qualified criterion. Accordingly, on 27.6.2004, a Tender Notice was published in the newspapers inviting offers for selection as pre-qualified tenderers for entrustment of Water Resource Development Projects. The said notice specified that the Government of Andhra Pradesh had proposed to complete all the important Projects in progress and also to take a number of new projects and to complete the same within a period of five years to augment the irrigation potential. The main component of the Projects were identified as the Earth Dams, Spillway Structures, Concrete/Masonary, Non-overflow Dams, Lift irrigation Dams and Canal system. The tender notice specified that the works would be divided into suitably large convenient packages and bids would be invited for Engineering Procurement Construction (EPE) on turn-key system (including investigation, design, preparation of construction drawings, cost estimates, construction, maintenance and operation of the same etc.) only from pre-qualified bidders. 4. The Pre-qualification Documents issued by the Government includes general instructions to be followed by the applicants. The same laid down the conditions to be fulfilled by the applicants, which, inter alia, provide that only applicants registered with the Government of Andhra Pradesh with valid registration under Special Class in Civil, in terms of various G.Os, are only eligible for participation. Clause 1 of General Instructions to applicants laying down the essential conditions reads: The notice is issued to apply for consideration to be included in the panel of agencies to be short-listed and prescribe the following qualification criteria: a. The bidder/firm/company registered with Government of Andhra Pradesh with valid registrations under special class, Civilian terms of the following G.Os are only eligible for participation i.e. 1. G.O.Ms.No.521, I & CAD dt. 10.12.1984 2. G.O.Ms.No.178, I & CAD dt.27.9.19973. G.O.Ms.No.132, I & CAD Dt.11.8.1998 Special Class with specialization in 1. Earth-work & canal lining.2.Construction of bridges and other structures. 4. G.O.Ms.No.94, I & CAD Dt.1.7.2003. Special Class Civil Works. b. Annual turn over: the bidder/firm/company on his name should have achieved in at least two financial years a minimum annual financial turn over in all class of Civil Engineering Works of value not less than Rs.400 crores in block period of preceding five financial years. c. The bidder/firm/company should have satisfactorily completed not less than 90% of contract value as a prime contractor of at least one similar work of magnitude not less than Rs.100 cores in the block period preceding five financial years. d. Similar works are the works of Dams/Barrages/Canal system including CM & CM works & Hydraulic tunnels/Lift irrigation Canal Schemes/Hydro-Electric Projects. e. The bidder/firm/company must have a net worth of Rs. 100 crores. f. The bidder/firm/company must have been making a net profit (before tax) for the last three years. g. The bidder/firm/company should have ISO certification. h. In case if the application is from a joint venture, it should satisfy the following minimum criteria. i. The No. of partners in the Joint Venture shall not be more than three. ii. One partner of the joint venture should meet the requirement as prescribed at para 1(b) and all partners should meet 25% of the annual turn over as prescribed at para 1(b) individually. iii. One partner of joint venture should meet similar work criteria as prescribed at para 1(c). iv. All partners of joint venture should meet ISO Certificate as prescribed in para 1(g). vi. All the joint venture partners should have registered with Government of Andhra Pradesh with valid registration under special class, civil terms of the aforesaid GOs and are only eligible for participation. Vii. The joint venture partner of one bidder/firm/company shall not enter into joint venture partnership with another bidder/firm/company for the empanelment. viii. All the joint venture partners should meet the criteria as prescribed at para 1(f) individually. 5. Expressing some doubts the petitioner alleged that the same are genuine as regards the bona fides of the State Government in resorting to the procedure of selecting Pre-qualified Tenderers. The petitioner alleged that the very procedure adopted by respondents 1 and 2 in selecting Pre-qualified Tenderers is not in the general interest of the public or the State. The possibility of competitive bidding, which is the essence of the tender process, is greatly reduced and the procedure of having Pre-qualified Tenders would result in reduced competition and the perpetuation of only a few pre-qualified contractors being considered for various Water Resource and Irrigation Development Projects. The probabilities of cartelization and the formation of syndicates would also be much higher. The petitioner also entertained some more doubts saying that it is also quite probable that with the magnitude of works that are being professed to be taken up in the next few years, any contractor having successfully offered its bid for one work may not be interested for bidding in respect of the other works, for various reasons. The competitive circle would thus get progressively reduced with each work. Therefore, even amongst the pre-qualified contractors, it is only the more resourceful of the contractors who would continue to have the ability for participating and availing works/contracts on a progressively diminishing competitive environment. It is also highly probable that in view of the limited number of pre-qualified contractors who would all be assured of getting adequate work for each of them, the tender and bidding process for works would not be completely fair and competitive which would result in higher tender rates and greater cost outlays. The same would result in the State exchequer spending more public funds to the detriment of the general public. 6. The petitioner alleged that most of the contractors in India do not have the technical wherewithal or ability for designing, preparation of construction, drawings, cost estimate etc. The practice hitherto being followed by public enterprises has been to engage technical personnel or the department personnel or preparing such design, construction, drawings, cost estimates etc. and thereafter to invite tenders. As works would now be allotted to contractors inclusive of all technical details, either there would be no supervision of the manner in which the qualified tenderers go about preparing the designs, drawings and estimates leading to severe deficiency in designing and execution or alternatively the same would be subjected to a subsequent supervision/ratification which would involve huge delay and unnecessary cost escalation. In either of the situations, the petitioner alleged that it is the Government and general public that would be subjected to tremendous loss inasmuch as all the costs are proposed to be recovered in the long run by way of water cess charges from the farmers. Otherwise the said costs or charges must be met from the funds of public exchequer. 9. By the time the writ petition had been filed, nine contractors had been declared as Pre-qualified Tenderers who have been impleaded in the petition as respondents 3 to 11. The petitioner has also challenged the action of the Government in selecting the nine contractors saying that the method and manner in which only nine contractors have been selected would show arbitrariness and colourable exercise of power. It was alleged that the whole exercise was done in a deliberate manner designed for achieving a purpose not otherwise provided for under law. The said action, therefore, suffers from malice in law and the same is not sustainable. 10. The petitioner also questioned the action of respondents 1 and 2 in relaxing some of the conditions which were insisted in the advertisement/tender notice saying that it could not be done after advertisement had been issued and that also selectively in favour of a few. The petitioner alleged that in view of the stringent eligibility conditions that were prescribed, several contractors were deterred from applying, as they did not completely satisfy the eligibility criteria. Respondents 1 and 2 have relaxed various eligibility conditions in respect of some of the pre-qualified tenderers, for the purpose of qualifying them as pre-qualified tenderers. Relaxations were granted in relation to the conditions specifying compulsory registration with the Government of Andhra Pradesh, the production of ISO 9000 Certification. The relaxation/exemptions granted by the respondents 1 and 2 were not notified in advance and were not done in a transparent and fair manner. Had the first respondent granted a general relaxation by notifying the same several other contractors would have also been eligible and could have applied and could have been selected as pre-qualified tenderers. The petitioner alleged that the action of respondents 1 and 2 in selectively granting exemptions/concessions of the eligibility conditions in favour of some of the selected tenderers would show that the entire exercise was not done in a bona fide and transparent manner and that the selection was also motivated by extraneous considerations. In any case, the petitioner alleged that the procedure did not satisfy the tests of ‘transparency’, ‘reasonableness’ and ‘fairness’, held by the Supreme Court as being intrinsic to the public tender system of the Government. 11. In nutshell, the petitioner alleged that the resultant effect of impugned action of respondents 1 and 2 in selecting nine pre-qualified tenderers would affect public interest and would continue to impair public finances and thus on 18.8.2004 he approached this Court to declare the actions of respondents 1 and 2 in resorting to the procedure of selecting the pre-qualified tenderers as illegal, arbitrary and unconstitutional apart from being contrary to public interest and to quash the subsequent proceedings in having selected the nine tenderers. 12. After the writ petition was filed additional affidavit was filed by the petitioner saying that the works are also proposed to be given in a suitably large and convenient packages by clubbing different kinds of works like construction of dam, masonary projects, construction of spillways and canals, to name few. Various contractors have experience in different fields. Very rarely do the contractors have experience in all the fields. Except for calling for the particulars relating to the gross turn over of business, no care has been taken for assessing or scrutinizing the expertise of each contractor for all the works that would be involved in the handing over of such comprehensive purchase. When works are being awarded in large packages comprehensively by covering different kinds of works, the same would result in a person not having requisite experience for one or two items of works, also being allotted the same. For example, the petitioner alleged that a contractor conversant with bund construction and masonary construction of dams may not have any experience or expertise for construction of canals and vice versa. When a comprehensive work involving both is being granted the same would result in the work being carried on by an inexperienced and a non-proficient person, which would result in defeating the specified and proclaimed object of having works done only through experienced and expert contractors. 13. On 24.8.2004, when the petition came up for consideration before us, it was simply adjourned to next week to enable learned Advocate-General to have instructions in the matter. On 31.8.2004, we heard learned counsel for the petitioner. Considering the nature of controversy raised in the petition, we called upon the respondents to file their respective counters. The petitioner was asked to ensure service of notice on respondents 3 to 11. Learned counsel for the petitioner insisted for issuance of interim orders as regards award of the contracts to respondents 3 to 11. As the last date for submission of tenders was 30.9.2004 and since the Bench has decided to take up hearing of the writ petition on 16.9.2004, learned Advocate- General prayed that interim order as prayed be not granted. In those circumstances, interim order was not granted. On 28.9.2004, Rule Nisi was issued and the petition was directed to be posted for hearing. We commenced hearing on 6.10.2004. 14. During the course of hearing, learned Advocate-General tried to controvert the submissions made by the learned counsel for the petitioner that nine contractors who have been identified in the Pre-qualification Documents alone would be eligible for being awarded the eight on-going projects and 18 other major projects which the State Government had identified for being completed during the next five years at an estimated cost of Rs.26,000.00 Crores. Learned Advocate- General disputed that it is not the intention of the State Government, and, entrustment of all 26 projects is not intended to be made only in favour of nine identified firms. We noticed that such a stand taken on behalf of respondents 1 and 2 by the learned Advocate-General during the course of hearing of the writ petition is not reflected in the counter-affidavit filed by respondents 1 and 2 on 16.9.2004. We, therefore, directed fresh affidavit to be filed by the concerned Secretary of the Department of Irrigation clarifying the stand of the State Government. On 7.10.2004, fresh affidavit sworn to by Dr. C.V.S.K. Sarma, Principal Secretary to Government, I & CAD Department, was filed. On 8.10.2004, the matter was taken up, but, hearing could not be concluded, therefore, the petition was directed to be posted after Dasara Vacation ie on 25.10.2004. Learned counsel for petitioner insisted for grant of interim orders. This Court while declining to stop the on-going process of evaluating the bids, however, made it clear that bids if finalized would be subject to the result of the orders to be passed in the Writ petition. Thereafter the writ petition was heard on 25.10.2004 and 26.10.2004 and Judgment was reserved. 15. We may take on record the specific stand taken by respondents 1 and 2 in the affidavits of Dr.C.V.S.K. Sarma, Principal Secretary to Government, I & CAD Department and Sri T.S. Prakash Rao, Engineer-in-Chief (Irrigation) on the three issues arising for consideration before us, namely, (1) the change of the policy from the normal tender process to EPC turn-key system; (2) the transparency in tendering process in which nine contractors were empanelled and (3) on the question of relaxing some of the tender conditions while empanelling the nine pre-qualified contractors. It is averred in the counter-affidavits, that soon after the formation of the new Government, various developmental activities in the State were reviewed. While reviewing Irrigation Sector, it was noticed that the development in areas where the irrigation facilities are available is impressive. After taking into consideration all aspects, Government decided to go in a big way to invest in Irrigation Sector and accordingly announced to complete the eight on-going projects in two years and to take up the remaining 18 new projects and to complete them in five years. These 26 projects are estimated to cost Rs.26,000.00 crores, which include cost of land acquisition rehabilitation and resettlement, environment management package besides the cost on works. The Government has identified 51 major packages each costing above Rs.100.00 crores; 62 medium packages each costing around Rs.50.00 crores to Rs.100.00 crores and number of minor packages. These 51 major, 62 medium and other minor packages are for the 26 projects (8 on- going + 18 new). Out of 51 major packages, so far, tenders were invited for only 29 major packages: (i) (for 11 packages costing Rs.2100.00 crores due date was 8.10.2004); (ii) (for another 11 packages costing Rs.1656.00 crores the due date was 14.10.2004); and (iii) (for the remaining 7 packages costing Rs.1833.00 crores the due date was 20.10.2004). Thus, 29 major packages for which tenders have since been invited are costing Rs.5589.00 crores. It is further stated that nine firms were short listed on 13.8.2004, which alone are empanelled and which alone are eligible to qualify to bid and participate for 29 major packages. The remaining 22 major packages will be offered in due course of time. The nine firms, which have been short listed, vide G.O.Rt.No.971 dated 13.8.2004 alone will be eligible to quote for the remaining 22 major packages to be offered in due course of time. It is also stated that the Government has provided for the present year Rs.4,000.00 crores exclusively for construction and execution of projects, out of the total estimated amount of Rs.26,000.00 crores. 16. The affidavit of Sri T.S. Prakash Rao also states that the State Government intended to incur an expenditure of Rs.26,000.00 crores for the projects mentioned in his affidavit and an additional expenditure of Rs.19,000.00 crores for 4 Mega Projects on river Godavari to be taken up in a period of five years. Such projects are Yellampalli; Dummugudem; Polavaram and Itchampalli. The eight on- going projects identified are Vamasdhara Phase I of Stage II; Tadipudi LIS; Pushkaram LIS; Somasila Project; Telugu Ganga Project; Godavari LIS; Ali Sagar LIS and Gutpa LIS. These projects are scheduled to be completed in two years time and the remaining 18 projects identified to be completed in five years include Thotapally Barrage, Janjavathi Project, Pulichintala Project, Gudlakamma Project, Ramatheertham Balancing Reservoir, Guru Raghavendra Lift Irrigation Scheme, KJ.C. Canal Modernization Project, GNSS etc. 17. As regards the change in policy, it is stated that with a view to carry out the above programme in time bound manner, the Government took into consideration the existing practice in major projects including irrigation projects, both within and outside the country, and, observed that by breaking up the works in convenient packages and entrusting them to major construction companies on EPC turn-key system, the irrigation projects are liable to be completed in scheduled time. It is alleged that a typical irrigation project consists of some major components like dams, tunnels, main canals each costing over Rs.100 crores and some medium components like distributaries costing around Rs.50 crores and minor components like cross drainage works, minor and field channels costing between Rs.1.00 crores and Rs.10.00 crores. EPC turn key-system does not permit any cost variations or time escalations. The tenderers have to complete the assigned task within the specified time and within the quoted rate. The EPC turn-key system eliminates litigations arising out of deficiencies in designs, delays due to the reasons attributable to insufficient investigations by the department such as revision in soil classification, revision in leads and lifts in excavation and conveyance of soils. Because of these reasons, the prices quoted will be fixed and no escalations will be allowed. It is submitted that various criteria, which are prescribed for pre-qualification bids, are intended to choose competent and able contractors who have experience in execution of the irrigation projects, apart from financial capabilities. Since the State Government experienced that delay in construction of Irrigation Projects would result in escalation of cost and apart from not achieving the objects sought for within the time intended, the State Government adopted the pre-qualification bid procedure. The State Government is entitled to choose its procedure in the best interests of the State and such action cannot be found fault with. The works are being entrusted on turn-key basis ie. Engineering, Procurement and Construction (EPC) as it would considerably save escalation of the cost of the projects apart from saving the State Exchequer. 18. After assigning the reasons in resorting to EPC turn-key system as a policy matter, the affidavit further pointed out that nine firms empanelled for the major packages satisfied the qualifications and experience of man power as prescribed and the entire process was carried out in a transparent manner. Government had decided to entrust the execution of the work by prescribing pre-qualification criteria that the contractor should possess requisite pre-qualifications apart from specified financial capabilities. Accordingly, public notification inviting offers for pre- qualification