Case: Central Coalfields Limited &amp; Others Vs. SLL - SML (Joint Venture Consortium) &amp; Others

The facts5. On 5th August, 2015 the Central Coalfields Limited (for short CCL) issued a Notification Inviting Tenders (for short NIT). The name of the work was: "Out sourcing for Overburden Removal (1050.00 L. CuM) and Coal Extraction (975.00 L. Te) and transportation by deploying surface miner at Ashok OCP, Piparwar Area for a period of 8 years."6. The notice mentioned that for details of the NIT and online submissions, an interested person could visit https://eps.buyjunction.in.7. On a visit to the aforesaid website, details of thewere made available including further details of the work. It was stated that tenders could be submitted by experienced contractors having a Digital Signature Certificate issued from any agency authorized by the Controller of Certifying Authority, Government of India. This is being mentioned because anybody having a Digital Signature Certificate cannot be computer illiterate.8. Clause 3 of thecarried the heading "Deposit of EMD" and the relevant portion of this reads asMoney can be deposited in the form of Demand Draft (DD)/Bankers Cheque (BC)/Bankers payorder (BPO) from any scheduled Bank drawn in favour of "Central Coalfields Limited" payable at "Ranchi".EMD can also be deposited in the form of irrevocable Bank Guarantee (BG) from any scheduled Bank in the format given in the bid document. Bank guarantee issued by outstation bank shall be operative at their local branch i.e. at Ranchi. The validity of such BG should be minimum 90 days beyond the validity of the bid. BG shall be acceptable only when value of Earnest money (EMD) exceeds Rs. 5.00 Lakhs.What is of significance from the above is that the earnest money deposit was required to be made in the form of an irrevocable bank guarantee from any scheduled bank "in the format given in the bid document".10. Clause 4 of thementioned that for a clarification of the bid, a bidder may seek clarificationAccording to CCL it received 11 bids in response to theincluding that ofa Joint Venture Consortium (for short JVC). One of the bids was apparently rejected. Nine of the bidders submitted a bank guarantee strictly in accordance with the pro forma provided in the GTC. A bank guarantee was provided by JVCnot in the prescribed pro forma but in another format in respect of some other contract provided in the GTC of which bore the heading "Governing Contractual Transportation & Loading in Areas of Central Coalfields Limited".14. Under the circumstances, an email was sent on behalf of CCL on 11th September, 2015 to JVC rejecting its bid on the ground that the documents were incomplete. JVC was informed that it would not be allowed to participate in the price bid opening.15. In response, JVC sent an email on 15th September, 2015 to CCL that all documents as prescribed under the NIT had been submitted. Therefore, JVC was unable to understand the reason for rejection of its bid. The email was replied to on behalf of CCL on the same day in which it was stated that the bid given by JVC was cancelled as the bank guarantee submitted was not in the format given in the NIT read with the GTC.Proceedings before the learned Single Judge16. Feeling aggrieved by the rejection of its bid and CCLs response, JVC preferred a writ petition in the Jharkhand High Court being W.P (C) No.4559 of 2015. By a judgment and order dated 7th October, 2015 a learned Single Judge of the High Court dismissed the writ petition.

Reasoning: 41. In appeal, this Court accepted the theory of essential andor ancillary or subsidiary terms of an NIT. It was held that the cheque of the Union Bank of India issued by Poddar Steel (though a deviation from the terms of the NIT) was sufficient for meeting the conditions of the NIT, the condition being ancillary or subsidiary to the main object to be achieved by the condition and that the employer could waive the "technical literal compliance" of the earnest money clause of the NIT "specially when it was in its interest not to reject the said bid which was the highest." In other words, this Court concluded that an essential term of the tender document could not be deviated from but an ancillary or subsidiary orterm could be deviated from, and that the deviation could be without any reference to potential bidders.42. Unfortunately, this Court did not at all advert to theprinciple laid down in Ramana Dayaram Shetty and accepted in G. J. Fernandez. In other words, this Court did not consider whether, as a result of the deviation, others could also have become eligible to participate in the bidding process. This principle was ignored in Poddar Steel.43. Continuing in the vein of accepting the inherent authority of an employer to deviate from the terms and conditions of an NIT, andon principle and the level playing field concept, this Court laid emphasis on the decision making process, particularly in respect of a commercial contract. One of the more significant cases on the subject is thedecision in Tata Cellular v. Union of India (1994) 6 SCC 651  which gave importance to the lawfulness of a decision and not its soundness. If an administrative decision, such as a deviation in the terms of the NIT is not arbitrary, irrational, unreasonable, mala fide or biased, the Courts will not judicially review the decision taken. Similarly, the Courts will not countenance interference with the decision at the behest of an unsuccessful bidder in respect of a technical or procedural violation.Rashmi Metaliks was a comparatively different case inasmuch as clause (j) of the NIT was the subject matter of consideration. This clause required a bidder to submit "Valid PAN No., VAT No., copy of acknowledgment of latest income tax return and professional tax return." The employer interpreted this to be an essential term for qualifying in the bidding process. This view was upheld by a learned Single Judge and the Division Bench of the Calcutta High Court. This Court reversed in the followingthink that the income tax return would have assumed the character of an essential term if one of the qualifications was either the gross income or the net income on which tax was attracted. In many cases this is a salutary stipulation, since it is indicative of the commercial standing and reliability of the tendering entity. This feature being absent, we think that the filing of the latest income tax return was a collateral term, and accordingly the Tendering Authority ought to have brought this discrepancy to the notice of the appellant Company and if even thereafter no rectification had been carried out, the position may have been appreciablytherefore, this Court substituted its view for that of the employer who interpreted this term of the NIT to be mandatory for compliance. Rashmi Metaliks followed Poddar Steel and apparently overlooked the dictum laid down in Ramana Dayaram Shetty, G. J. Fernandez, Tata Cellular and Jagdish Mandal and must be confined to its own peculiar facts. In any event, this decision does not advance the case of any of the parties before us.46. It is true that in Poddar Steel and in Rashmi Metaliks a distinction has been drawn by this Court between essential and ancillary and subsidiary conditions in the bid documents. A similar distinction was adverted to more recently in Bakshi Security and Personnel Services Pvt. Ltd. v. Devkishan Computed Pvt. Ltd. 2016 (7) SCALE 425  through a reference made to Poddar Steel. In that case, this Court held a particular term of the NIT as essential (confirming the view of the employer) and also referred to the "admonition" given in Jagdish Mandal followed in Michigan Rubber (India) Limited v. State of Karnataka, (2012) 8 SCC 216. Thereafter, this Court rejected the challenge to the employers decision holding Bakshi Security and Personnel Services ineligible to participate in the tender.47. The result of this discussion is that the issue of the acceptance or rejection of a bid or a bidder should be looked at not only from the point of view of the unsuccessful party but also from the point of view of the employer. As held in Ramana Dayaram Shetty the terms of the NIT cannot be ignored as being redundant or superfluous. They must be given a meaning and the necessary significance. As pointed out in Tata Cellular there must be judicial restraint in interfering with administrative action. Ordinarily, the soundness of the decision taken by the employer ought not to be questioned but the decision making process can certainly be subject to judicial review. The soundness of the decision may be questioned if it is irrational or mala fide or intended to favour someone or a decision "that no responsible authority acting reasonably and in accordance with relevant law could have reached" as held in Jagdish Mandal followed in Michigan Rubber.48. Therefore, whether a term of the NIT is essential or not is a decision taken by the employer which should be respected. Even if the term is essential, the employer has the inherent authority to deviate from it provided the deviation is made applicable to all bidders and potential bidders as held in Ramana Dayaram Shetty. However, if the term is held by the employer to be ancillary or subsidiary, even that decision should be respected. The lawfulness of that decision can be questioned on very limited grounds, as mentioned in the various decisions discussed above, but the soundness of the decision cannot be questioned, otherwise this Court would be taking over the function of the tender issuing authority, which it cannot.49. Again, looked at from the point of view of the employer if the Courts take over thefunction of the employer and make a distinction between essential andterms contrary to the intention of the employer and therebythe arrangement, it could lead to all sorts of problems including the one that we are grappling with. For example, the GTC that we are concerned with specifically states in Clause 15.2 that "Any Bid not accompanied by an acceptable Bid Security/EMD shall be rejected by the employer asSurely, CCL ex facie intended this term to be mandatory, yet the High Court held that the bank guarantee in a format not prescribed by it ought to be accepted since that requirement was aterm of the GTC. From the point of view of CCL the GTC has been impermissiblyby the High Court.50. Yet another problem could be faced by an employer (such as CCL) if the language used in the terms of the NIT or the GTC is not adhered to and its plain meaning discarded. A problem could be faced by an employer if every bidder furnishes a bank guarantee in a different format or one that it is comfortable with. In such a situation, CCL would have to scrutinize each bank guarantee to ascertain whether it meets with its requirements and the NIT and the GTC. Apart from the text of the bank guarantee, minor changes could be made by a bidder such as enforceability in a place other than Ranchi (but in Jharkhand) etc. This would place an avoidable and undue burden on the employer particularly if there are a large number of bidders.51. Not only this, any decision taken by the employer in accepting or rejecting a particular bank guarantee in a format not prescribed by it could lead to (avoidable) litigation requiring the employer to justify the rejection or acceptance of each bank guarantee. This is hardly conducive to a smooth andbidding process.52. There is a wholesome principle that the Courts have been following for a very long time and which was articulated in Nazir Ahmad v. King Emperor AIR 1936 PC 253 namely "Where a power is given to do a certain thing in a certain way the thing must be done in that way or not at all. Other methods of performance are necessarily forbidden." There is no valid reason to give up this salutary principle or not to apply it mutatis mutandis to bid documents. This principle deserves to be applied in contractual disputes, particularly in commercial contracts or bids leading up to commercial contracts, where there is stiff competition. It must follow from the application of the principle laid down in Nazir Ahmed that if the employer prescribes a particular format of the bank guarantee to be furnished, then a bidder ought to submit the bank guarantee in that particular format only and not in any other format. However, as mentioned above, there is no inflexibility in this regard and an employer could deviate from the terms of the bid document but only within the parameters mentioned above.53. Nazir Ahmed has been followed in dozens of decisions rendered by this Court and by other constitutional Courts in the country. The Central Vigilance Commission has accepted this principle in a modified form as a guiding principle in its circular dated 31st December, 2007 wherein it is mentioned that all organizations ought to evolve a procedure for acceptance of bank guarantees that is compatible with the guidelines of banks and the Reserve Bank of India. One such requirement is that the bank guarantee should be in a proper prescribed format and should be verified verbatim on receipt with the original. Adherence to this principle of verbatim verification would not only avoid undue problems for the employer but would also virtually eliminate subjectivity on the part of the employer.54. In this context, and in the present times, it is important to note that the World Bank has ranked India extremely low in matters relating to enforcement of contracts and ease of doing business. Out of 189 countries worldwide, India is ranked 178 in the matter of enforcement of contracts and 130 in the matter of ease of doing business (www.doingbusiness.org/rankings (World Bank Group). One of the possible reasons for this extremely low ranking given to our country is the failure of all parties concerned in strictly adhering to the terms of documents such as the NIT and the GTC. In so far as the present case is concerned, the NIT was floated on 5th August, 2015 and one year later, we are still struggling with the issue of acceptance of a bank guarantee for a contract of about Rs. 2000 crorescertainly not a small sum.