Reliance Energy Limited & Another vs Maharashtra State Road Development ...

4. At this stage, it may be noted that the above Project is to be at the cost of Rs. 26000 million (Rs. 2600 crores). The bidders were required to submit RFQ Document by 10.1.2005. Under the PQ Document, M/s Jean Muller, France was appointed as consultant by MSRDC. Under the PQ Document, the bidders were required to submit financial statements of three financial years subject to the condition that the latest should not be earlier than the financial year ending 31.12.2002. REL/HDEC formed a consortium. As a consortium they were required to comply with clause 7.2.2 which stipulated net cash profit at Rs. 200 crores. The said consortium has been excluded from the second stage of bidding on the ground that it has not fulfilled the said criteria mentioned in clause 7.2.2. The consortium had submitted their RFQ Document on 9.1.2005. The said consortium had submitted three audited accounts for the financial years ending 31.12.2001, 31.12.2002 & 31.12.2003. At this stage it may be noted that the financial year for REL ended on 31st March whereas the financial year for HDEC, Korea ended on 31st December.

Lead Member (Holding a minimum of 26% equity in the project company) Total Consortium (to be satisfied jointly by the Lead member and those Consortium members committing to hold a minimum of 5% equity in the project company) Rs.500 million (or equivalent foreign currency) Rs.2,000 million (or equivalent foreign currency) All figures quoted in a currency other than Indian National Rupees (INR) would be converted into Indian National Rupees (INR) at an exchange rate, which is the Telegraphic Transfer (ASSESSEE- COMPANY) buying rate of State Bank of India as on the Due Date. In the event of non-availability of exchange rate for any currency from the above source, MSRDC reserves the right to use available from any other source.

11. In view of the position taken by MSRDC's Consultants, REL/HDEC stood excluded from the second stage of the bidding process.

27. In the present case, REL/HDEC claims adding back of the non-cash expenses of US$ 686,310 million for the year 2001, of US$ 200,753 million for the year 2002 and of US$ 199,084 million in the year 2003, to the net loss of US$ 610,507 million; net profit of US$ 15,963 million and US$ 65,545 million during the years 2001, 2002 and 2003. However, according to the Consultants of MSRDC, such "add back" was not possible because even though provisions are not "write-offs" the former should be treated as cash expense because once a provision is made, the "write-off" does not get routed through the P&L account and that in any event if such add back is allowed then it would result in "cash impact" in future.

34. We quote hereinbelow some of the illustrations of "Indirect Method" which shows that provision for bad debts can be added back to "net profit" in order to arrive at "net cash" from operating activities:

DIRECT VS. INDIRECT METHODS Direct Method Cash Flows from operating Activities (A) Cash receipts from customers.

(B) Cash paid to suppliers and employees. (A-B) Cash generated from operations.

Less: Interest and tax.

(C) Cash before extraordinary items. Adjust for extraordinary items to get:

Closing balance of cash and cash equivalents.

Indirect Method Net Profit as per Profit and Loss Account Adjusted for:

Some of the adjustments are discussed below :

36. In the result, we set aside the impugned judgment of the High Court; we hold that REL/HDEC (Consortium) was erroneously excluded from the second stage of bidding process. Accordingly, we allow this civil appeal with no order as to costs.

37. Since we have allowed this civil appeal, we extend the period for presenting financial bids by REL/HDEC up to 15.12.2007.