The interpretation of the contractual terms given by the authority inviting tender should be deferred to unless there are good grounds to interfere with the same : Delhi High Court

IN THE HIGH COURT OF DELHI AT NEW DELHI W.P.(C) 8214 2021 & CM APPL. 25478 2021 URSAPHARM INDIA PRIVATE LIMITED Date of Decision: 27.08.2021 Petitioner Through: Mr. Ravi Gupta Sr. Advocate along with Mr. Jai Sahai Endlaw Mr.Achal Gupta Mr. Subhoday Banerjee Mr.Ashutosh Rana and Mr.Siddharth Kumar Advocates. EMPLOYEES STATE INSURANCE CORPORATION Through: Mr. Shlok Chandra Standing Counsel Respondent for respondent ESIC. HON BLE MR. JUSTICE VIPIN SANGHI HON BLE MR. JUSTICE JASMEET SINGH JUDGMENT VIPIN SANGHI J.The petitioner has preferred the present petition to assail the letter order dated 03.08.2021 passed by the respondent authority informing the petitioner of the rejection of its Bid in response to E Tender Enquiry No. U 25 12 142C 146C 2019 Med.V for DG ESIC rate Contract No. 142C for supply of Drugs for use of ESI institutions all over the country. The petitioner also seeks a direction to set aside the decision of the W.P.(C) 8214 2021 respondents contained in their communication dated 06.07.2021 as being non jurisdictional predetermined and arbitrary. Petitioner seeks a further direction to the respondents to issue the Letter of Award to the petitioner in terms of the aforesaid E Tender Enquiry for supply of drugs for use in ESI Institutions in the country. The case of the petitioner is that the petitioner is an Indian Company and is a subsidiary of the German Company namely Ursapharm Germany. Petitioner states that Ursapharm Germany is engaged in the manufacture of inter alia the drug Povidone: eye lubricant which is „preservative free‟ and „phosphate free‟. Petitioner also states that it is the alter ego of Ursapharm Germany and acts as the local supplier and marketer of the drugs manufactured by UrsaPharm Germany. Petitioner narrates that in the year 2018 the respondent issued a Tender Enquiry calling for submission of bids at fixed rates for several Drugs for supply to ESI Institutions across the country. The petitioner submitted its bid for the Drug Povidone: eye lubricant and the same was accepted by the respondent. The contract in relation to the said Tender Enquiry was for the period 2018 2020. The contract was further extended till 31.08.2021. The petitioner issued another identical Tender Enquiry calling for submission of bids for fixing the rates of several Drugs including „Povidone’ again for supply to ESI Institutions across the country for a period of 2 years. The petitioner again participated in the tender process and had a legitimate expectation of success in the present Tender process as W.P.(C) 8214 2021 well. On 06.07.2021 the petitioner received an E mail communication from the respondent informing the petitioner that its bid had been rejected. The petitioner states that no reasons were communicated except that “Annexure TS in the audited report of the principal firmdoes not adhere to the terms and conditions in pre bid Corrigendum”. The petitioner then sent a representation on 13.07.2021 seeking review of the respondent‟s decision to reject the petitioner‟s technical bid. On 03.08.2021 the respondent rejected the petitioner‟s representation. Consequently the petitioner has preferred the present petition. The relevant clause of the tender which forms the basis for rejection of the petitioner‟s bid may now be taken note of. Clause 7 of the RFP lays down the turnover criteria. The relevant part of the same reads as follows: “7. TURNOVER CRITERIA I. Turnover for schedule drugs a) Participating Pharmaceutical firm should have annual turnover of each of the last three preceding financial years 2016 17 2017 18 2018 19) equal or more than the sum total of the amount of individual turnover of the quoted list of the drugs. Individual Turnover for each drug has been indicated in drug Schedule. Example: If Drug A has X turnover Drug B has Y turnover and Drug C has Z turnover. W.P.(C) 8214 2021 S No. Name of the Drugs Annual Turnover of the bidder for the last three preceding years equal or more A B & C X+Y+Z A & B B & C x d. Group turnover will not be considered for determining the eligibility and such tenders will be rejected summarily. e. Please fill Annexure TO. …” It is not in dispute that the petitioner by itself does not meet the turnover criteria as prescribed in the RFP. The case of the petitioner however is that the petitioner being a substantially held subsidiary of the German Company which is the manufacturer of the Drug in question and of which the petitioner is the marketing arm in India the turnover of the German Company should have been taken into consideration to determine the eligibility of the petitioner vis a vis the turnover criteria fixed in the RFP. 11. Mr. Gupta has submitted that the Clause relating to turnover criteria in the RFP in question is identically worded as that in the tender floated in the year 2018 which was awarded to the petitioner. Therefore the respondents have already interpreted the identical turnover criteria Clause by taking into account Annual Turnover of the German Company. Mr.Gupta therefore submits that the petitioner had a legitimate expectation W.P.(C) 8214 2021 bid. that on this occasion as well the respondent would entertain the petitioner‟s 12. Another reason pointed out by Mr. Gupta as to why the petitioner‟s bid should be entertained is that the Drug in question is manufactured only by the petitioner and there is no other manufacturer of the same. Disqualification of the petitioner from the tender in question would mean that the patients being treated in ESI hospitals all over the country would be deprived of the supply of said drug and the same would not be in the interest of public at large since lakhs of patients are receiving treatment at ESIC 13. Mr. Gupta has also argued that the rejection of the petitioner‟s technical bid is premised on a pre bid corrigendum. He submits that the pre bid corrigendum relied upon by the respondent is not relevant for the present purpose. In this regard Mr. Gupta has drawn our attention to the pre bid corrigendum dated 11.02.2021 and the relevant entry in this Corrigendum is to be found at Serial No. 11. Various pleas and suggestions to reduce the turnover requirement were turned down. We extract the relevant portion of the Corrigendum at Sl. No.11 hereinbelow: Clause of 11. Clause no 7 I)Query Issue Name of the Firm Item no 1471 TE 144C Human Albumin 20% Inj : Each but to contain: Human Albumin 20 % Turnover in the last tender is Rs. 8 Crore only Annual demand was 69515428. In the around Rs. Pvt. Ltd No Change W.P.(C) 8214 2021 Alpha Drugs ical firm should have turnover of each of the last three financial yearsequal or more than the sum amount of turnover of the quoted list of the drugs. for each drug has indicated in current tender annual turnover is Rs. 434471000 Requested to keep turnover Rs. 8 Crore. Item no. 1471 TE 144C Human Albumin 20% Inj Each bot to contain: Human Albumin 20% Turnover i.e. Rs. 434471000 for this item has been kept on a very higher side which would abstain many importers to participate as only be maintained by manufacturers. turnover can is dependent mainly on Import of such drugs. These are used in some most critical life saving conditions and do not enjoy huge volume sales. to meet Blood firm dealing with various other products may be Annual turnover clause but the firm who specialized and pioneers in Blood Plasma products will be deprived to participate in the bid which may lead to impose gross monopoly by those few eligible companies. NIT requirement of other Medical Services corporations with respect to turnover for the same products. The turnover requirement is much lesser or the turnover of the principal manufacturer is CAPD bags to be clubbed as one qualifying criteria of Company Turnover commensurate with the procurement by ESIC rather than For item no 1409a 1410a 1411a 1455a 1455b TE 144c Pvt Ltd. No Change W.P.(C) 8214 2021 items with Turnover and EMD Criteria. Accordingly please amend Turnover Criteria to Rs.10Cr for the Company and EMD @2% for the tentative procurement value by Bank Guarantee of Rs. Individual Turnover for item no 122 64 44 000 Analgesic Cream Only MNC or participate for this item. As MSME firm requested to kindly reduces receive more bidder for this items. item no 1866 Item no 2414 TE 146C Surgical Spirit— 1ltr Turnover 10 Crore: and Item no 1265a TE 146C Antiseptic Liquid 500ml to reduce 5 Cr 14. Mr. Gupta submits that query raised by various bidders including M s Paviour Pharmaceuticals Pvt. Ltd. And M s Alpha Drugs were raised in their capacity as importers of the said Drugs whereas the petitioner‟s case is one where the petitioner is the subsidiary of the German manufacturer Company. 15. Mr. Gupta has also placed reliance on the judgment of the Supreme Court in New Horizons Limited & Anr. Vs Union of India & Ors. 1 SCC 478. By placing reliance on this decision Mr. Gupta submits that the Supreme Court had accepted the submission of the appellant to the effect that the bidder company NHL being a joint venture company was entitled to claim the experience of its constituents. The submission of the appellant in that case was recorded in Paragraph 15 of the said decision which reads W.P.(C) 8214 2021 as follows: into consideration “15. Shri Soli Sorabjee the learned counsel appearing for the appellants has submitted that the High Court was in error in considering whether NHL fulfilled the condition regarding experience contained in the tender notice and that the authorities should have experience of the constituents of NHL which is a joint venture company duly approved by the Government of India in which 40% equity is owned by IIPL and the remaining 60% equity is held by Indian group of companies consisting of TPI LMI WML and Mr Aroon Purie and that the constituents of NHL had expertise and experience in publishing yellow page directories as well as telephone directories and had necessary resources for that purpose. Shri Sorabjee has also submitted that it is a fit case in which the authorities should have lifted the corporate veil and if they had done so they would have seen the reality. Shri Sorabjee has emphasised that there is a difference of more than three and a half crore rupees between the amount of royalty offered by NHL and that offered by Respondent 4 to whom the contract has been awarded.” 16. The relevant discussion found in the judgment of the Supreme Court reads as follows: “38. Seeing through the veil covering the face of NHL it will be found that as a result of reorganisation in 1992 the Company is functioning as a joint venture wherein the Indian group and Mr Aroon Purie hold 60% shares and the Singapore based company holds 40% shares. Both the groups have contributed towards the resources of the joint venture in the form of machines equipment and expertise in the field. The Company is in the nature of a partnership between the Indian group of companies and the Singapore based company who have jointly undertaken this commercial enterprise wherein they will contribute to the assets and share the risks. In respect of such a joint venture company the W.P.(C) 8214 2021 experience of the company can only mean the experience of the constituents of the joint venture i.e. the Indian group of companies and the Singapore based company28 DRJ 425] wherein it has been held that the expression “tenderer should possess such experience” would mean the experience of the tenderer itself and not that of its collaborator. It has been pointed out that SLPNo. 1484 of 1994 filed against the said judgment has been dismissed by this Court by order dated 28 1 1994. It has been urged that on the same logic the experience of a shareholder would not be included within the expression “experience of the tenderer”. We fail to appreciate the relevance of this judgment. There can be no comparison between a collaborator who has no stake in the business of the company and a constituent of a company such as NHL constituted as a joint venture wherein the constituents in the joint venture have a substantial stake in the success of the venture. 40. Thus the approach from the legal standpoint also leads to the conclusion that for the purpose of considering whether NHL has the experience as contemplated by the advertisement for inviting tenders dated 22 4 1993 the experience of the constituents of NHL i.e. the Indian group of companies TPI LMI and WML) and the Singapore based company IIPL) has to be taken into consideration. As per the tender of NHL one of its Indian constituents had printed and bound the telephone directories of Delhi and Bombay for the years 1992 and its Singapore based constituenthas 25 years experience in printing the telephone directories with “yellow pages” in Singapore. The said experience has been ignored by the Tender Evaluation Committee on an erroneous view that the said experience was not in the name of NHL and that NHL did not fulfil the conditions about eligibility for the award of the contract. In proceeding on that basis the Tender W.P.(C) 8214 2021 Evaluation Committee has misguided itself about the true legal position as well as the terms and conditions prescribed for submission of tenders contained in the notice for inviting tenders dated 26 4 1993. The non consideration of the tender submitted by NHL has resulted in acceptance of the tender of Respondent 4. The total amount of royalty offered by Respondent 4 for three years was Rs 95 lakhs whereas NHL had offered Rs 459.90 lakhs i.e. nearly five times the amount offered by Respondent 4. Having regard to this large margin in the amount of royalty offered by NHL and that offered by Respondent 4 it must be held that decision of the Tender Evaluation Committee to refuse to consider the tender of NHL and to accept the tender of Respondent 4 suffers from the vice of arbitrariness and to be quashed.”(emphasis supplied) irrationality and 17. Mr. Gupta submits that after rejection of the petitioner‟s technical bid the petitioner had also placed before the respondent material to establish that it is a subsidiary of the German Company. The Letter Head of the petitioner clearly indicates so. Mr. Gupta submits that the turnover criteria itself prescribes that group turnover would not be considered. However the same does not apply to Drugs and their formulations. The petitioner‟s bid relates to a Drug and its formulation. Thus in the petitioner‟s case group turnover namely that of the petitioner and the German Company should have been considered. Petitioner had provided alongwith its bid the turnover of the German Company as well. 18. On the other hand Mr. Chandra who appears for the respondent has submitted that the respondents had made clear their stand well in advance at the pre bid meeting by issuing the aforesaid pre bid corrigendum. The pre bid corrigendum had been published on the respondent‟s website and all the bidders were obliged to follow up the same. He submits that this procedure W.P.(C) 8214 2021 year 2018. of inviting objections suggestions at the pre bid stage and sharing the same with all the bidders was not adopted in the RFP which was issued in the 19. He submits that the petitioner being the bidder had to fulfill the turnover criteria on its own. Since it does not fulfill the same the petitioner‟s bid has rightly been rejected by the respondent. In these proceedings we have only to examine whether the action of the respondents in rejecting the petitioner‟s bid on technical grounds could be said to be unreasonable or arbitrary or whimsical or mala fide. We cannot step into the shoes of the respondent and reassess the correctness of the commercial decision taken by them while assessing the petitioner‟s technical bid. As to whether the turnover criteria should have been less the respondents should have adopted a different mechanism to determine the turnover of the bidder and the manner in which the expression „Bidder‟ should be understood are all issues of policy and are commercial decisions which only the respondent could take. It is not for this Court to dwell into those aspects. Pertinently the petitioner has participated in the tender process and never challenged any of the tender conditions or even the pre bid corrigendum. Thus the petitioner is precluded from doing so now. 21. The turnover criteria as laid down in Clause 7 of the Tender apply to the participating pharmaceutical firms. It is not the petitioner‟s case that the petitioner and its German supplier of which the petitioner claims to be a subsidiary jointly made the bid. The bid had been made only by the petitioner company which is an Indian registered company. The turnover W.P.(C) 8214 2021 criteria set out in Clause 7(1) therefore had to be met by the petitioner on the strength of its own financial performance during the Financial Years 2016 17 2017 18 and 2018 19. Admittedly the petitioner did not meet the same. The pre bid corrigendum which the petitioner claims is not relevant in fact has the effect of informing the petitioner well in advance that the petitioner would not be entitled to add or count the turnover of its German supplier as its own. 22. Several bidders including Paviour Pharmaceutical Pvt. Ltd. and Alpha Drugs raised the specific issue that they could not meet the turnover criteria on account of the demand of the Drug in which they were dealing not being much. Paviour Pharmaceutical Limited raised a grievance that in the tender in question annual turnover requirement is Rs. 43 44 71 000 . They requested that the same be limited to Rs. 8 crores. Alpha Drugs offered their justification for lowering of the turnover criteria in relation to the item 1471 TE 144C Human Albumin 20% Inj by stating that the turnover criteria had been kept on a very high side which would abstain many importers to participate as this turnover can only be maintained by manufacturers. They stated that India is dependent mainly on import of such drugs which are used in some most critical life saving conditions and do not enjoy huge volume sales. The firm dealing in Blood Plasma products alongwith various other products may be eligible to meet the Annual Turnover Clause but the firm who are typically specialized and pioneers in Blood Plasma products will be deprived to participate in the bid which may lead to monopoly by those few eligible companies. 23. The respondents however did not accept these suggestions as is W.P.(C) 8214 2021 evident from the pre bid corrigendum dated 11.02.2021. It is not in dispute that answers to pre bid queries i.e. the pre bid corrigendum is published on the website of the respondent and therefore all the bidders are expected to be aware of the same as they are obliged to keep themselves abreast of all developments in relation to the tender they are interested in. 25. The submission of Mr. Gupta that the queries raised suggestions made by the aforesaid prospective bidders were not relevant for the petitioner cannot be accepted. The petitioner also claims to be acting as a importer of the Drug „Povidone’. Merely because the petitioner claims to be subsidiary of the German manufacturer of the drug in our view makes no difference. 26. Therefore the petitioner participated in the bidding process knowing fully well that the pre bid corrigendum at Serial No. 11 may act as a stumbling block. The petitioner did not challenge either the turnover criteria as laid down by the respondent in the RFP or the pre bid corrigendum. Having participated in the bidding process with open eyes it is not open to the petitioner to now question either the turnover criteria or the pre bid corrigendum. 27. The prescription of the turnover criteria in any tendering process is done for a very good reason. The authority inviting the bids wishes to be satisfied that the bidder has the requisite financial and supply capacity to make supplies in case the tender is awarded to the bidder. This means that the bidder has to show not only its capacity to either manufacture or W.P.(C) 8214 2021 otherwise procure and supply the goods in question for the quantities required but also that it has the financial capacity to deal with large volumes of supplies. Constraints of working capital and liquidity are bound to affect the delivery schedules. The benchmark turnover criteria tells the authority inviting the bids that the bidder has the financial and logistical wherewithal to perform the contract. 28. The holding company of the bidder company may have the requisite turnover but that does not mean that the holding company is obliged to commit to meet the monetary requirements of the bidder to fulfill its contractual obligations. There is no binding obligation cast on the holding company to do so and the same cannot be enforced either by the bidder or the authority inviting the bids. The approach of the respondents in insisting that the bidder itself has met the turnover criteria therefore cannot be faulted and there is nothing unreasonable or arbitrary about the same. 29. Reliance placed on New Horizonsin our view is misplaced. In New Horizons the Supreme Court was firstly dealing with a case where the bidder NHL was claiming the requisite experience on the basis of the experience of its promoters. It was not a case relating to fulfillment of financial criteria like the present. Secondly the two sets of promoters of NHL had formed the Joint Venture to promote the bidder company i.e. NHL and therefore the Supreme Court held that the experience of the two Joint Venture partners enured for the benefit of the Joint Venture bidder company. In the present case there is no Joint Venture between the petitioner and the German company. The absence of the Joint Venture has the effect of not binding the German company with any of the W.P.(C) 8214 2021 may be awarded. terms & conditions of the tender in question or the eventual contract that 30. We may also take note of the decision of the Division Bench of the Punjab & Haryana High Court in A.G. Construction Co. Vs. Food Corporation of India & Others SCCOnline P&H 306. The petitioner had sought to place reliance on New Horizonsin this case as well for claiming the requisite experience on the basis of the experience of its partners. The Division Bench dealt with and explained the decision of the Supreme Court in New Horizons and inter alia observed as “34. Similarly even in the instant case the petitioner sole proprietorship concern having applied independently sought to rely on an experience certificate issued to a third partywith such third party erstwhile firm) does not engender any benefit to the petitioner concern for reasons already recorded in the preceding paragraphs. Therefore the petitioner herein having applied independently without any partners consortium or joint venture cannot rely upon the technical qualifications of a third partyto claim eligibility. In this respect the position of law emerging from Municipal Corporation Ujjainis that as long as a person or entity cannot in law validly claim experience that exists in the name of a third party that third party remains a stranger to the subject tender. 35. There cannot be any quarrel with the proposition of law either that the interpretation construction and as to how a provision clause or a condition of a tender document has to be construed is primarily the domain of the author of such W.P.(C) 8214 2021 document 31. The Division Bench went on to take note of several decisions including Central Coalfields Limited Vs. SLL SML (2016) 8 SCC 622 Afcons Infrastructure Ltd. Vs. Nagpur Metro Rail Corporation Ltd. 16 SCC 818 Montecarlo Limited Vs. NTPC Ltd. 15 SCC 272 State of Madhya Pradesh Vs. U.P. State Bridge Corporation Limited 13 Scale 774 and others to observe that the interpretation of the contractual terms given by the authority inviting tender should be deferred to unless there are good grounds to interfere with the same. The respondent ESIC is entitled to construe the clause relating to Turnover Criteria and the construction adopted by the respondent cannot be construed as either irrational arbitrary or whimsical. We therefore reject the petitioner‟s reliance on New Horizons8214 2021 

Summary: Company inviting tenders has the required liberty to reject tenders to their opinion based on contractual requirement not being met. This was held in the judgment passed by a two-bench judge comprising Hon’ble JUSTICES Mr VIPIN SANGHI and MR. JUSTICE JASMEET SINGH, in the matter URSAPHARM INDIA PRIVATE LIMITED V. EMPLOYEES STATE INSURANCE CORPORATION, dealt with an issue where the petitioner filed a petition against the respondent to assail the letter passed by the respondent authority informing the petitioner of the rejection of its Bid in response to E-Tender Enquiry contract for supply of Drugs for use of ESI institutions all over the country. Petitioner seeks a further direction to the respondents to issue the Letter of Award to the petitioner in terms of the aforesaid E-Tender Enquiry for supply of drugs for use in ESI Institutions in the country. The case of the petitioner is that the petitioner is an Indian Company, and is a subsidiary of the German Company, namely, Ursapharm Germany. In the year 2018, the respondent issued a Tender Enquiry calling for submission of bids at fixed rates for several Drugs for supply to ESI Institutions across the country. The petitioner submitted its bid for the Drug Povidone: eye lubricant and the same was accepted by the respondent. The contract in relation to the said Tender Enquiry was for the period 2018-2020. The contract was further extended till 31.08.2021. The petitioner issued another identical Tender Enquiry, calling for submission of bids for fixing the rates of several Drugs, including „Povidone’, again for supply to ESI Institutions across the country for a period of 2 years. The petitioner again participated in the tender process, and had a legitimate expectation of success in the present Tender process as well. On 06.07.2021, the petitioner received an E-mail communication from the respondent, informing the petitioner that its bid had been rejected. The petitioner states that no reasons were communicated except that “Annexure TS in the audited report of the principal firm (imported) does not adhere to the terms and conditions in pre-bid Corrigendum”. Counsel for the respondent, has submitted that the respondents had made clear their stand well in advance, at the pre-bid meeting, by issuing the aforesaid pre-bid corrigendum. The prebid corrigendum had been published on the respondent’s website and all the bidders were obliged to follow up the same. He also submits that they can reject the bid by placing reliance on the turnover clause.