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2008 DIGILAW 862 (GAU)

G. R. Engineering Works Ltd. v. Oil India Ltd.

2008-12-22

BROJENDRA PRASAD KATAKEY, J.CHELAMESWAR

body2008
JUDGMENT J. Chelameswar, J. 1. Aggrieved by judgment dated 19.3.2007 in WP(C) No. 4672/07 the unsuccessful Petitioner preferred the present appeal. 2. The 1st Respondent, which is a Govt. of India enterprise, wanted to replace some of its existing equipments. The brief scope of the work is specified in the Notice Inviting Tender (NIT) as follows: Brief scope of work and time schedule. - The scope of the work envisaged is residual design, detailed engineering procurement of materials and bought out components, fabrication, post weld heat treatment, inspection, testing, coating and painting, cathodic protection, instrumentation, supply, construction, civil works, erection and commissioning of following mounded storage vessel systems on turnkey basis. Total single point responsibility of satisfactory execution of entire work shall rest with the Bidder. 3. For the purpose of securing the implementation of the above mentioned work the 2nd Respondent herein, which is also a Govt. of India enterprise, was appointed as consultant by the 1st Respondent. The 2nd Respondent on an appropriate assessment of the situation got a NIT dated 26.4.2006 published on behalf of the 1st Respondent. It was followed by a corrigendum dated 29.5.2006. By the NIT it was required the prospective bidders to furnish "sealed bids under single stage two envelope system". While the 1st envelope should contain the bid regarding technical suitability of the tenderer in terms of the eligibility criteria notified under the NIT the 2nd envelope is required to contain the financial bid of the tenderer for executing the work. The qualification criteria are specified under Clause 6 of the NIT. While Clause 6.1 deals with the technical criteria Clause 6.2 deals with the financial criteria. The Appellant/writ Petitioner and the 3rd Respondent responded to the NIT and filed their bids. Eventually the 3rd Respondent was identified by the 2nd Respondent to be the best bidder and recommended that the contract be entrusted to the 3rd Respondent by the 1st Respondent. Challenging the recommendation by the 2nd Respondent the Appellant herein approached this Court by way of the writ petition from out of which the present appeal arises. Eventually the 3rd Respondent was identified by the 2nd Respondent to be the best bidder and recommended that the contract be entrusted to the 3rd Respondent by the 1st Respondent. Challenging the recommendation by the 2nd Respondent the Appellant herein approached this Court by way of the writ petition from out of which the present appeal arises. The prayer in the writ petition is as follows: It is therefore, prayed that your Lordship may be pleased to issue rule calling upon the Respondent to show cause as to why the tender of the Respondent No. 3 against Tender documents No. 6675/T-101/05-06/VKG/01 dated 26.4.1996 and 29.5.2006 shall not be declared as invalid and defective and cannot be accepted and why the recommendation of Respondent No. 2 for allotment of the work of the aforesaid tender in favour of Respondent No. 3, shall not be quashed and why the Respondent No. 1 shall not restrained from allotting the work to Respondent No. 3 against tender No. 6675/T-101/05-06/VKG/01 dated 26.5.1996 and 29.5.2006 and on the basis of the recommendation given by Respondent No. 2 and why on rejection of the tender of Respondent No. 3 the Petitioner's tender against the aforesaid tender notice shall not be accepted and in pursuance of that the allotment shall be made in its favour and after hearing the causes that may be shown, the Rule may be made absolute and any further order/orders as your Lordship may deem fit and proper may also be passed. 4. Pending the writ petition the writ Petitioner/Appellant prayed that the award of the contract in favour of the 3rd Respondent be stayed. By an interim order dated 15.9.2006 this Court granted stay as prayed for which order came to be vacated by the judgment and order under appeal. As a consequence the 1st Respondent entered into a contract with the 3rd Respondent. In response to a query by this Court at the time of hearing of the present appeal the Respondents informed this Court that 60% of the works has already been executed. Though the Appellant disputes the said fact but according to the Appellant at least 40% of the work is executed. 5. In response to a query by this Court at the time of hearing of the present appeal the Respondents informed this Court that 60% of the works has already been executed. Though the Appellant disputes the said fact but according to the Appellant at least 40% of the work is executed. 5. The learned Judge by the judgment under appeal not only rejected all the contentions of the Petitioner on merits but also recorded a finding that the Petitioner/Appellant did not approach the Court with clean hands, that is, the Petitioner suppressed certain materials which were within his knowledge at the time of filing of the writ Petitioner. 6. Insofar as the merits of the case are concerned the case of the Appellant, both in the writ petition and in the writ appeal, is that (i) the 3rd Respondent is not technically qualified in terms of the eligibility criteria stipulated under the NIT and, therefore, the decision of the Respondent Nos. 1 and 2 to entrust the work to the 3rd Respondent is contrary to the terms of the NIT and, therefore, illegal and arbitrary decision; (ii) even otherwise, since both the 3rd Respondent and the writ Petitioner quoted substantially higher amounts, when compared to the amount estimated by the 1st Respondent to be the cost of the work, the decision of the 1st Respondent to invite only the 3rd Respondent for negotiation, without inviting the Petitioner, and awarding the contract to the 3rd Respondent, on the terms and conditions arrived at in the process of negotiation with the 3rd Respondent, is illegal. 7. The technical qualifications expected of the prospective bidders are specified in Clause 6.1 of the NIT which reads as follows: 6.1 Experience criteria.-6.1.1. The bidder must be an established fabricator of mounded vessels/reactors/columns/spheres/vessels of carbon steel and should have fabricated at least two such items with thickness above 25mm and total erection weight (excluding refractory and internals) of single equipment not less than 185 MT (may be in multiple lift and weld in-situ), in the past seven years. 6.1.2. The Bidder on his own must have successfully executed at least on installation of two or more mounded storage vessels meeting requirements of thickness and weight as per 6.1.1. 6.1.2. The Bidder on his own must have successfully executed at least on installation of two or more mounded storage vessels meeting requirements of thickness and weight as per 6.1.1. above, in a single mound and his scope of work and supply must include design, engineering, procurement, fabrication, erection and hydro test including all connected works and commissioning of the complete mounded storage system on a turnkey basis as single point responsibility which should have been working satisfactory for at least one year (8000 hours). Period of one year (8000 hours) shall be reckoned from the due date of opening of the bids. 6.1.3. If the Bidder has no past experience of his own as per 6.1.2 above, but meets the requirements of 6.1.1 above, then he shall engage services of a reputed back up consultant for design, engineering, construction supervision and performance guarantees. The back up consultant must be acceptable to Owner/EIL. The back up consultant must have the relevant experience of his own as defined in 6.1.2. The back up consultant shall be engaged for carrying out: (a) Either the complete design and engineering or the review of design, drawings/data sheets prepared by bidder. (b) Provide or review the construction and erection procedures prepared by bidder and shall provide supervision during construction and commissioning, and (c) Provide back up guarantees for performance and defect free job carried out by the bidder. 8. It can be seen from the above that under Clause 6.1.1. it is stipulated that the bidder must be an established fabricator of the items specified therein. Under Clause 6.1.2 the bidder must also have successfully executed at least one installation of the nature specified under the said clause. Clause 6.1.3 it is specified that if the bidder does not have the qualification of successfully executing at least one installation contemplated under Clause 6.1.2 the bidder is required to engage the services of a reputed back up consultant for the purposes specified under Clause 6.1.3. 9. Coming to the financial criteria for qualified bidder Clause 6.2 stipulates as follows: 6.2 Financial criteria.-6.2.1. The minimum annual turnover of the Bidder should be equal to or more than INR 2325 Lakhs during any one of the last three financial year (i.e. 2002-2003, 2003-2004 and 2004-2005). 6.2.2. The net worth of the Bidder during last financial year i.e. 2004-2005 shall be positive. The minimum annual turnover of the Bidder should be equal to or more than INR 2325 Lakhs during any one of the last three financial year (i.e. 2002-2003, 2003-2004 and 2004-2005). 6.2.2. The net worth of the Bidder during last financial year i.e. 2004-2005 shall be positive. However, Bidder having negative net worth will also be considered provided all his annual reports for the last 3 years indicate profit after tax. 4.2.3 Working Capital Ratio (Current assets to current liability) of bidder shall be minimum 1.5). 4.2.4 The minimum net working capital of the Bidder shall be 25% of annual turnover during last financial year. Alternatively, Bidder should submit an unconditional certificate from Schedule "A" Bank for providing working capital equivalent to 25% of value of work. 10. Relevant in the context of the present case is Clause 6.2.1 which requires the bidder to have an annual turnover of the minimum of Rs.2325 lakhs during any one of the three years commencing from 2002 and ending with 2005. The specific pleading of the Appellant/writ Petitioner in this regard is as follows: ...From the aforesaid documents, it was found that the Respondent No. 3 cannot fulfill the criteria of Technical Experience as required under Clause 6.1 of NIT and also cannot fulfill the financial criteria required under Clause 6.2.1 in as much as the documents obtained from Registrar of Companies shows that the Respondent No. 3 Company did not even start any manufacturing activities not only in year 2002-2003 but also in the year 2003-2004, 2004-2005. The above documents also proves that the share capital of the Company is Rs.1.1 lakh only and the assets as per balance sheets as on 31.3.2005 is Rs.37,346/- (Rupees Thirty Seven Thousand Three Hundred and Forty Six) only which clearly shows that the Respondent No. 3 neither technically fit nor qualified nor the said Company is financially sound for the aforesaid work and therefore, it is totally clear that the Respondent No. 3 was unable to fulfill the terms and condition of the NIT and so the tender submitted by the Respondent No. 3 is totally invalid and the same cannot be accepted for the aforesaid work. 11. It is an admitted fact that the 3rd Respondent company came to be incorporated on 11.6.2002. 11. It is an admitted fact that the 3rd Respondent company came to be incorporated on 11.6.2002. According to the 3rd Respondent a partnership firm carrying on business under the name and style M/s. Fabtech Engineers was formed in the year 1994 initially with two partners for the purpose of fabricating, welding, manufacturing and selling, marketing, and importing the engineering goods. The said partnership firm came to be reconstituted in the year 1999 by taking a third partner and continued the business. The said three partners of the above mentioned firm floated the 3rd Respondent private limited company in the year 2002. The main object of the 3rd Respondent was to take over the existing business of the above mentioned partnership firm with all its assets and liabilities and continue the business. In pursuance of the main object of the 3rd Respondent company the Board of Directors of the 3rd Respondent resolved in a meeting dated 30.3.2005 to take over the business of the partnership firm mentioned earlier. Consequently an agreement dated 1st April, 2005 was entered into between the 3rd Respondent and the partnership firm for effectuating the takeover of the assets and liabilities of the partnership firm. It appears that consequent upon the takeover of the assets and liabilities the partnership firm also stood dissolved by a deed of resolution dated 1st April, 2005. Obviously the resolution was a mutual consent of the partners. Therefore, it is case of the 3rd Respondent that in view of the takeover of the assets and liabilities of the partnership firm by the 3rd Respondent company the experience of the partnership firm devolved upon the 3rd Respondent and, therefore, the 3rd Respondent company satisfied the eligibility criteria specified under the NIT. Consequently the decision of the Respondent Nos. 1 and 2 to chose the 3rd Respondent for awarding the contract cannot be faulted. 12. The learned Judge by the judgment under appeal accepted the stand of the 3rd Respondent and dismissed the writ petition. The learned Judge for such a conclusion relied upon a judgment of the Supreme Court reported in (1995) 1 SCC 478 New Horizons Limited and Anr. v. Union of India and Ors. 12. The learned Judge by the judgment under appeal accepted the stand of the 3rd Respondent and dismissed the writ petition. The learned Judge for such a conclusion relied upon a judgment of the Supreme Court reported in (1995) 1 SCC 478 New Horizons Limited and Anr. v. Union of India and Ors. In New Horizon's case the Appellant before the Supreme Court challenged the decision of the Department of Telecommunications to reject the tender of the Appellant on the ground that the Appellant, a limited company, did not satisfy the requisite experience criteria specified in the advertisement calling for tenders. It appears from the judgment that the Appellant did not have the requisite experience in its own name but the Appellant was a joint venture company established by four other companies and one of such companies had considerable experience in the nature of the work that was the subject-matter of the tender process. Dealing with the said question the Supreme Court held: 23. Even if it be assumed that the requirement regarding experience as set out in the advertisement dated 22.4.1993 inviting tenders is a condition about eligibility for consideration of the tender, though we find no basis for the same, the said requirement regarding experience cannot be construed to mean that the said experience should be of the tenderer in his name only. It is possible to visualise a situation where a person having past experience has entered into a partnership and the tender has been submitted in the name of the partnership firm which may not have any past experience in its own name. That does not mean that the earlier experience of one of the partners of the firm cannot be taken into consideration. Similarly, a company incorporated under the Companies Act having past experience may undergo reorganization as a result of merger or amalgamation with another company which may have no such past experience and the tender is submitted in the name of the reorganised company. It could not be the purport of the requirement about experience that the experience of the company which has merged into the reorganized company cannot be taken into consideration because the tender has not been submitted in its name and has been submitted in the name of the reorganised company which does not have experience in its name. It could not be the purport of the requirement about experience that the experience of the company which has merged into the reorganized company cannot be taken into consideration because the tender has not been submitted in its name and has been submitted in the name of the reorganised company which does not have experience in its name. Conversely there may be a split in a company and persons looking after a particular field of the business of the company form a new company after leaving it. The new company, though having persons with experience in the field, has no experience in its name while the original company having experience in its name lacks persons with experience. The requirement regarding experience does not mean that the offer of the original company must be considered because it has experience in its name though it does not have experienced persons with it and ignore the offer of the new company because it does not have experience in its name though it has persons having experience in the field. While considering the requirement regarding experience it has to be home in mind that the said requirement is contained in a document inviting offers for a commercial transaction. The terms and conditions of such a document have to be construed from the standpoint of a prudent businessman. When a businessman enters into a contract where under some work is to be performed he seeks to assure himself about the credentials of the person who is to be entrusted with the performance of the work. Such credentials are to be examined from a commercial point of view which means that if the contract is to be entered with a company he will look into the background of the company and the persons who are in control of the same and their capacity to execute the work. He would go not by the name of the company but by the persons behind the company. While keeping in view the past experience he would also take note of the present state of affairs and the equipment and resources at the disposal of the company. 13. In the light of the said principle Laid down by the Supreme Court the learned Judge held as follows while dismissing the writ petition: 19. While keeping in view the past experience he would also take note of the present state of affairs and the equipment and resources at the disposal of the company. 13. In the light of the said principle Laid down by the Supreme Court the learned Judge held as follows while dismissing the writ petition: 19. Though a cursory reading of the above condition, as regards experience appearing in the advertisement, reflected as if the experience has to be of the tenderer himself, the Apex Court, having discussed the position of law as indicated hereinabove clearly held that while considering the past experience of a tenderer, the persons, behind the company which bids and the experience which the persons working behind the Company have, would be taken into consideration by a prudent businessmen and the same shall be the approach, in such a tender process by the State and its instrumentalities. In the present case, it is not in dispute that in terms of the volume of business, which M/s. Fabtech Engineers had carried out in the past, they had acquired such experience and they had reflected such financial soundness that had M/s. Fabtech Engineers not been dissolved M/s. Fabtech Engineers which made would have been competent to participate in the impugned tender process. When M/s. Fabtech Engineers was competent in terms of the relevant eligibility criteria fixed by the impugned NIT, it would be illogical to hold in the fact of the authoritative pronouncement by the Apex Court in New Horizons Limited (supra) that with the taking over of the running business of M/s. Fabtech Engineers by Respondent No. 3 the entire experience which M/s. Fabtech Engineers had acquired and the financial soundness which M/s. Fabtech Engineers enjoyed would instantly vanish, particularly, when with the taking over of business, the, Respondent No. 3 has also taken over the assets including goodwill and also liabilities of the said firm. In such circumstances, there was no impediment in law in taking into account the experience and financial soundness which M/s. Fabtech Engineers had, particularly, when the persons who were partners of M/s. Fabtech Engineers not only become the shareholders but directors of Respondent No. 3. In such circumstances, there was no impediment in law in taking into account the experience and financial soundness which M/s. Fabtech Engineers had, particularly, when the persons who were partners of M/s. Fabtech Engineers not only become the shareholders but directors of Respondent No. 3. When M/s. Fabtech Engineers was competent in terms of the relevant eligibility criteria to participate in the impugned tender process, their experience and financial capacity could have been counted in favour of the Respondent No. 3 when the business of the said firm was taken over (as already indicated hereinabove) by the Respondent No. 3. There was, therefore, no impediment in law in taking into account the experience and financial capability which M/s. Fabtech Engineers had, particularly, when, the persons who were partners of M/s. Fabtech Engineers became not only the shareholders but directors of Respondent No. 3. 20. Coupled with the above, a close scrutiny of Para 6.11, 6.12 and 6.13 clearly reveal that the personal experience is required only in respect of the conditions set forth in Para 6.1.2, for Para 6.1.2 clearly states that the bidder, on his own, must have successfully executed, at least, one installation of the type as mentioned in Para 6.1.2; but even this requirement is relaxed by Para 6.1.2. which enabled a bidder, who had no past experience of his own in respect of Para 6.1.2 to engage services of a reputed back up consultant, a What Para 6.1.1. required was that the bidder must be an established fabricator of mounded vessels/reactors/columns/spheres/vessels of carbon steel and should have fabricated at least two such items with thickness above 25 mm and total erection weight (excluding refractory and internals) of single equipment not less than 185 MT (may be in multiple lift and weld in situ), in the past seven years. Thus, when M/s. Fabtech Engineers had been an established fabricators for more then seven years and their business has been taken over by Respondent No. 3, the Respondent No. 3 could not have been disqualified by the Respondent No. 3 on the ground that the Respondent No. 2 had no business experience in their own name. 14. We do not see any fault in the reasoning adopted by the learned Judge. 14. We do not see any fault in the reasoning adopted by the learned Judge. As pointed out by the Supreme Court "...When a Businessman enters into a contract where under some work is to be performed he seeks to assure himself about the credentials of the person who is to be entrusted with the performance of the work. Such credentials are to be examined from a commercial point of view...." In view of the fact that the firm, whose business in taken over by the 3rd Respondent with all its assets and liabilities, was a partnership firm comprising of three partners all of whom have become Directors of the 3rd Respondent company and in view of the fact that such a firm did in fact have the necessary experience as is contemplated under the NIT in question it is the satisfaction of the Respondent Nos. 1 and 2 regarding the ability of the 3rd Respondent to execute the work which matters and the satisfaction as pointed out by the Supreme Court is from the commercial point of view but not from a legalistic point of view. We, therefore, are of the opinion that the learned Judge rightly rejected the submission of the Appellant/writ Petitioner. 15. Coming to the second submission that the Respondent Nos. 1 and 2 committed as illegality by inviting only the 3rd Respondent for negotiations without inviting the Appellant/writ Petitioner the learned Judge held as follows: 23. Reacting to the submission, so made on behalf of the Petitioner, Mr. N. Dutta, learned senior counsel, appearing on behalf of the Respondent No. 3 has pointed out that the letter dated 18.11.1998, read with the letter, dated 24.8.2000 and 3.8.2000, issued by the Central Vigilance Commission under Section 81(h) of the Central Vigilance Commission's Ordinance, 1998, clearly bars, with immediate effect, post tender negotiation, which forms the main source of corruption, except in the case of negotiation with the lowest tenderer (See Sargous Tours and Travels and Anr. v. Union of India and Ors. reported in (2003) 3 GLR 202. 24. v. Union of India and Ors. reported in (2003) 3 GLR 202. 24. In the face of the letter aforementioned, issued by the Chief Vigilance Commission, it is clear that neither the Respondent No. 2 could have suggested nor the Respondent No. 1 could have negotiated with the writ Petitioner, for, the price bid of the writ Petitioner was much higher than the offer, which had been made by the Respondent No. 3. Nothing is argued before us to demonstrate as to how the conclusion reached by the learned Judge is wrong. Therefore, the second submission is also rejected. 16. Coming to the last submission of the Appellant that the finding of the learned Judge that the Appellant/writ Petitioner approached this Court with unclean hands, that is, by suppressing material facts; it is the case of the Appellant/writ Petitioner in the writ petition that the Appellant was wholly unaware of the background of the 3rd Respondent until he obtained the information from the Registrar of Companies, Mumbai. First of all, in the writ petition the Petitioner/Appellant did not disclose as to when he obtained such information from the Registrar of Companies, Mumbai. The learned Judge by the judgment under appeal recorded as follows: 25. During the course of hearing, it has also been brought to the notice of this Court that all the relevant materials, which the Respondent No. 3 has relied upon, to show as to how the Respondent No. 3 happened to take over the business of M/s. Fabtech Engineers with the assets and liabilities of the latter, were available in the bidding documents of the Respondent No. 3. Hence, when the technical bid was opened on 15.6.2005, the writ Petitioner knew-the background in which the Respondent No. 3 had claimed itself as a person eligible to participate in the tender process. Hence, when the technical bid was opened on 15.6.2005, the writ Petitioner knew-the background in which the Respondent No. 3 had claimed itself as a person eligible to participate in the tender process. What the writ Petitioner claims to have found out from the office of the Registrar of the Companies was, as a matter of fact, available in the bidding documents on the very day, the technical bid was opened and yet not whisper was made by the writ Petitioner, in the writ petition, that it was on the basis of the past experience of M/s. Fabtech Engineers and on the basis of the fact that the business of the said firm had been taken over, with all its assets and liabilities by the Respondent No. 3 that the Respondent No. 3 had offered its bid in the tender process. The writ petition is completely silent and gives really no indication at all that even on the date, when the writ Petitioner had filed the present writ petition, it was within their knowledge as to why and how the Respondent No. 3 had considered themselves eligible and claimed to be eligible to participate in the tender process. Situated thus, there can be no escape from the conclusion that the writ Petitioner has come to the Court with unclean hands. 17. In the absence of a finding that the material which was available on record on the date when the technical bid was opened, i.e., 15.6.2005 the Appellant or its representatives did in fact examine available such materials. In our view the finding that the Appellant/Petitioner suppressed the information and, therefore, approached this Court with unclean hands was not justified. Nor there is any categoric pleading by any of the Respondents in this regard. Therefore we set aside the finding. 18. In the result the appeal stands dismissed. Appeal dismissed.