LARSEN AND TOUBRO LIMITED v. GUJARAT STATE petroleum CORPORATION LIMITED
2000-03-15
C.K.THAKKER, D.M.DHARMADHIKARI
body2000
DigiLaw.ai
D. M. DHARMADHIKARI, J. ( 1 ). THIS Letters Patent Appeal was listed for admission, but we have heard all the parties at length for decision of the case finally, keeping in view the urgency of the subject-matter, and the interim directions which were sought by the petitioner-appellant. ( 2 ). This Letters Patent Appeal has been preferred under Clause 15 of the Letters Patent, against the order of learned single Judge dated 7th february, 2000, dismissing the Special Civil Application No. 10548 of 1999, preferred by the present appellant M/s. Larsen and Toubro Limited (hereinafter shortly referred as "l. and T. Ltd. "); seeking intervention and directions in the matter of award of contract to Respondent No. 3 A. B. B. Kraftwerke AG, A. B. B. Power Generation Limited (hereinafter shortly referred as "a. B. B. Ltd. "), for setting up of 160 M. W. Natural Gas Fired Combined cycle Power Plant at Hazira, in the State of Gujarat. The two main contenders for the contract aforementioned are the appellant company L. and T. Ltd. , and respondent No. 3 A. B. B. Ltd. ( 3 ). Learned single Judge by the impugned order went in great and minutest details of the technical and financial aspects of the contract in coming to a conclusion that, there has been no unfairness in the decision making process for selecting respondent No. 3 A. B. B. Ltd. , for grant of contract by the Gujarat state Petroleum Corporation Limited, the Respondent No. 1 (shortly referred hereinafter as "corporation" ). According to the Corporation, as far as possible, complete objectivity was maintained in making selection in consultation with technical, financial and management experts on the selection board, which is demonstrated from the minutes of the meeting of the 4th Management Committee of the Directors of the Company held on 4th September, 1999 in Udyog Bhavan, gandhinagar. In the process of selecting a suitable contractor for the project, on various attributes and qualifications of the competing companies, marks were allotted, and on the basis of those marks final selection was made. The basic challenge on behalf of the petitioner L. and T. Ltd. , is about the evaluation procedure adopted in making the final selection. Learned Sr.
In the process of selecting a suitable contractor for the project, on various attributes and qualifications of the competing companies, marks were allotted, and on the basis of those marks final selection was made. The basic challenge on behalf of the petitioner L. and T. Ltd. , is about the evaluation procedure adopted in making the final selection. Learned Sr. Counsel Shri. Venugopal appearing on behalf of the appellant-company L. and T. Ltd. , limited his arguments to challenging the lower marks allotted to the appellant-company and higher marks allotted to the respondent A. B. B. Ltd. , to deprive the petitioner company of the contract. The evaluation method and the allotment of marks on each head as per the laid down criteria have been given in a tabular chart as under :- ( 21 ). Quality of Proposal and Background/experience in respect of successful completion of E. P. C. Contracts in Power Sector : (5 marks to A. B. B. and 4 marks to L. and T. Ltd.) on behalf of appellant L. and T. it was submitted that there was no justification to award one mark less to L. and T. on the above criteria as against full marks to A. B. B. . The relevant part of the decision of the Managing Committee contained in its minutes read as under :-" (iv) The R. F. P. required that a G. T. manufacturer be a part of biding consortium. In respect of L. and T. bid, consortium comprise of L. and T. and sumitomo, and Sumitomo represents Hitachi in the consortium, the arrangement does not exactly fulfill the R. F. P. criteria in respect of consortium arrangement. The committee deliberated this issue and decided that one mark be deducted in case of L. and T. on above account. Consequently, A. B. B. , L. and T. and b. S. E. S. get awarded 5, 4 and 5 marks respectively. " ( 22 ) THE objective to giving of one mark less to L. and T. , on its behalf it is submitted that among the bidders A. B. B. were manufacturers of Gas Turbines (G. T. ). The other bidders like L. and T. , B. S. E. S. were not the manufacturers, but they had a consortium with Sumitomo and Sumitomo had a consortium with hitachi and Gujarat State Enegy Generation Limited (Respondent No. 2 ).
The other bidders like L. and T. , B. S. E. S. were not the manufacturers, but they had a consortium with Sumitomo and Sumitomo had a consortium with hitachi and Gujarat State Enegy Generation Limited (Respondent No. 2 ). The condition of a back-up guarantee from the manufacturers was not initially a condition in the R. F. P. It was introduced as a condition subsequently vide letter dated 15-3-1999, and this was done only to favour A. B. B. which alone was among the bidders manufacturer and required no back-up guarantee. The above arguments advanced has been replied on behalf of the Corporation stating that, where the bidder itself is not the manufacturer insistence of back up guarantee from the manufacturer was necessary in the event of technical deviation or breakdowns. According to the Corporation, past experience had been that in absence of back up guarantee from the manufacturer several working problems arose in running of the plant. ( 23 ) IT is not open for this Court to question the insistence on consortium and back-up guarantee in cases where the bidder itself is not the manufacturer. We find no ground to infer any mala fide on the basis that the Corporation insisted on a back-up guarantee from the manufacturers. The decision whether the consortium conformed to the R. F. P. requirement was also a matter for the technical and financial experts to decide. As per the decision recorded in the minutes of the Managing Committee, Somitomo and Hitachi were not directly a party to the consortium of appellant L. and T. . It was therefore open to the managing Committee to deduct one mark from the weightage to L. and T. on the criteria of quality of Proposal and background/experience as mentioned above. ( 24 ). Ground Urged on Public Interest :- according to the appellant L. and T. , appellants offer was with generating capacity of 189. 87 M. W. against the generating capacity of respondent No. 3s plant of 156. 1 M. W. There was clear difference in the output between the two plants. The appellant L. and T. s plant would generate approximately 33. 77 M. W. of additional power which would be available to the State. It is submitted that when 33.
87 M. W. against the generating capacity of respondent No. 3s plant of 156. 1 M. W. There was clear difference in the output between the two plants. The appellant L. and T. s plant would generate approximately 33. 77 M. W. of additional power which would be available to the State. It is submitted that when 33. 77 M. W. more power are available to the State, there was no justification to select a plant having power generation capacity of 156. 1 M. W. , when 9 lac M3 power per day of gas is available. Appellant submitted that, generation of additional power would have generated additional revenue to the tune of approximately 62. 5 crores. ( 25 ) THE R. F. P. (Request for Proposal) issued was to invite tenders for generating electricity in the capacity of 160 M. W. + - 10%. The said decision was taken in purusance of policy decision taken by the State Government as early as on December 1, 1998 even before inviting tenders by the Corporation. The answer of the Corporation appears to be acceptable that, merely because, as claimed on behalf of the appellant L. and T. , it would have generated 189. 87 m. W. from its plant, the same could not have been the sole consideration to select it for awarding contract, because additional generation of electricity would have also correspondingly increased the cost, other requirements towards infrastructure etc. for which no offers were called. The argument on this aspect advanced on behalf of the appellant L. and T. requires going into the justification of the tender condition contained in R. F. P. In taking a decision to peg up generating capacity to 160 M. W. + - 10 % was a decision taken by the corporation in consultation with the Government and other technical and financial experts with an intention to set up a plant for generating electricity for the state. Whether the public interest was advanced or harmed cannot be judged only on the higher generating capacity of the plant offered by the appellant without giving regard to other factors and considerations, such as cost, profit, tariff, taxes and other requirements of the State.
Whether the public interest was advanced or harmed cannot be judged only on the higher generating capacity of the plant offered by the appellant without giving regard to other factors and considerations, such as cost, profit, tariff, taxes and other requirements of the State. This Court finds no ground to come to a conclusion that any public interest was harmed in not selecting the appellant L. and T. in awarding the contract and in finding respondent A. B. B. to be a superior tenderer. ( 26 ) IN the course of arguments, learned Counsel Shri. Venugopal assisted by Shri. Mihir Thakore in their address on behalf of appellant L. and T. harped on one theme that, there was total lack of transparency in the evaluation process and this smacks of favouritism and procedural impropriety. It was argued that, after opening the technical-commercial and price bids of all the parties, on 19-8-1999 clarifications could have sought from appellant L. and T. on the issue, if the respondent-Corporation had doubts about the bids submitted by L. and T. It is submitted that unwarranted assessments were made against the bid of the appellant. We have already held above that post bid negotiations would have raised grievance and doubts about the fairness of the procedure adopted by the corporation. On behalf of the respondents, reference was made to a Circular dated 18-11-1998 by the. Central Vigilance Commissioner saying that post bid negotiations should not be made. After the bids were submitted and after their opening the respondents cannot be accused of acting in any manner unfair to any of the bidders in not making post bid consultations or negotiations. It acted as it was expected to act. The other allegations with regard to delay in replying to the letters sent by appellant L. and T. and not returning their Bank Guarantee also do not indicate that there was any secrecy maintained in the decision-making process. Allegations of mala fide against a body consisting of technical, financial and management experts so easily made are difficult of acceptance, unless this court finds grounds and circumstances strong enough on record to infer a collusion or conspiracy between all of them for an ulterior purpose of favouring a particular party. The evaluation methodology to certain extent was indicated in R. F. P. The consultant Kishore And Sastri Consultants (P) Ltd, who are appointed consultants had given their opinion.
The evaluation methodology to certain extent was indicated in R. F. P. The consultant Kishore And Sastri Consultants (P) Ltd, who are appointed consultants had given their opinion. Opinion was also sought from fieldstone Capital Services Pvt. Ltd. on evaluation methodology for a more and better objective assessment. Thus, an attempt was made by the Committee to be as far as possible objective in assessing the offers of the bidding parties. In our considered opinion, the accusation of arbitrariness or mala fide has no firm foundation. No grounds are made out to justify nullification of the decision of a body consisting of large number of individuals representing different fields of specialisation on the subject. ( 27 ) IT is settled principle of law that approach for judicial review is not an appeal against the administrative decision which is made here in consultation with experts. Judicial review is permissible only against decision-making process and not decision itself. This Court finds itself totally ill-equipped for want of knowledge of technical and financial intricacies in the matter of award of contract for setting up power plant, to come to a conclusion either way that the decision taken by the Managing Committee was erroneous or correct. We also do not find it to be against public interest. It is possible to project an opposite view on the financial and technical opinions formed by the experts and consequent decision taken by the Committee. But that can be no justification to upset their decision, as this Court finds the decision to have been taken objectively and bona fide. We have tried to understand the technical and financial information given to us by the parties before us, and we have tried to scrutinise the record. So far as we have understood, it is not possible for this Court with limited knowledge on the subject to come to a conclusion that the decision taken was either actuated by favouritism or was in utter disregard of public interest. We also find no force in the bald allegation that the R. F. P. was tailor-made to suit selection of A. B. B. Ltd. ( 28 ).
We also find no force in the bald allegation that the R. F. P. was tailor-made to suit selection of A. B. B. Ltd. ( 28 ). In refusing to interfere after due consideration of the aspects brought before us, we are guided by the observations of the Supreme Court in the case of Air India Ltd. v. Cochin International Airport Ltd. , JT 2000 (1) SC 481, which read as under :-"the award of a contract, whether it is by a private party or by a public body or the State, is essentially a commercial transaction. In arriving at a commercial decision, consideration which are of paramount are commercial considerations. The State can choose its own method to arrive at a decision. It can fix its own terms of invitation to tender and that it is not open to judicial scrutiny. But the State, its corporations, instrumentalities and agencies are bound to adhere to the norms, standards and procedures laid down by them and cannot depart from them arbitrarily. The State, its Corporations, instrumentalities and agencies have the public duty to be fair to all concerned. Even when some defect is found in the decision-making process, the Court must exercise its discretionary power under Art. 226 with great caution and should exercise it only in furtherance of public interest and not merely on the making out of a legal point. The court should always keep the larger public interest in mind in order to decide whether its intervention is called for or not. Only when it comes to a conclusion that overwhelming public interest requires interference, the court should intervene. " ( 29 ). In Raunaq International Ltd. v. I. V. R. Construction Ltd. and Ors. , 1999 (1) SCC 492 it is observed as under :-". . . . . A mere difference in the prices offered by the two tenderers may or may not be decisive in deciding whether any public interest is involved in intervening in such a commercial transaction. Price may not always be the sole criterion for awarding a contract. Often when an evaluation committee of experts is appointed to evaluate offers, the expert committees special knowledge plays a decisive role in deciding which is the best offer. Price offered is only one of the criteria.
Price may not always be the sole criterion for awarding a contract. Often when an evaluation committee of experts is appointed to evaluate offers, the expert committees special knowledge plays a decisive role in deciding which is the best offer. Price offered is only one of the criteria. The past record of the tenderers, the quality of the goods or services which are offered, assessing such quality on the basis of the past performance of the tenderer, its market reputation and so on, all play an important role in deciding to whom the contract should be awarded. At times, a higher price for a much better quality of work can be legitimately paid in order to secure proper performance of the contract and good quality of work - which is as much in public interest as a low price. The Court should not substitute its own decision for the decision of an expert evaluation committee. "in the said case the Court has also given a caution against Courts intervention, by observing thus :-"by Court intervention, the proposed project may be considerably delayed, thus escalating the cost far more than any saving which the Court would ultimately effect in public money by deciding the dispute in favour of one tenderer or the other tenderer. Hence, in granting an injunction or stay order against the award of a contract by the Government or a government agency, the Court has to satisfy itself that the public interest in holding up the project for outweighs the public interest in carrying it out within a reasonable time. The Court must also take into account the cost involved in staying the project and whether the public would stand to benefit by incurring such cost. Only when it comes to a conclusion that there is an overwhelming public interest in entertaining the petition, the Court should intervene. ""where the decision-making process has been structured and the tender conditions set out the requirements, the Court is entitled to examine whether these requirements have been considered. However, if any relaxation is granted for bona fide reasons, the tender conditions permit such relaxation and the decision is arrived at for legitimate reasons after a fair consideration of all offers, the Court should hesitate to intervene. " ( 30 ).
However, if any relaxation is granted for bona fide reasons, the tender conditions permit such relaxation and the decision is arrived at for legitimate reasons after a fair consideration of all offers, the Court should hesitate to intervene. " ( 30 ). After reviewing the entire case law on the subject the principles deduced in Tata Cellular v. Union of India, 1994 (6) SCC 651 , by the Supreme Court, for exercising judicial restraint in administrative action are :- (1) The modern trend points to judicial restraint in administrative action. (2) The Court does not sit as a Court of Appeal, but merely reviews the manner in which the decision was made. (3) The Court does not have the expertise to correct the administrative decision. If a review of the administrative decision is permitted, it will be substituting its own decision, without the necessary expertise which itself may be fallible. (4) The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract. Normally speaking, the decision to accept the tender or award the contract is reached by process of negotiations through several tiers. More often than not, such decision are made qualitatively by experts. (5) The Government must have freedom of contract. In other words, a fair play in the joints is a necessary concomitant for an administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness, (including its other facts pointed out above) but must be free from arbitrariness not affected by bias or actuated by inala fides. (6) Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure. " ( 31 ). On examining the material brought before us, the decision of the corporation to award the contract to the respondent A. B. B. Ltd, cannot be held to be unfair or against public interest. Consequently, we dismiss this appeal and maintain the order of learned single Judge passed in Special Civil Application no. 10548 of 1999, but in the circumstances, without any order as to costs. ( 32 ). No order on civil application. .