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2016 DIGILAW 828 (ORI)

SSMPLJRT (JV) v. Mahanadi Coalfields Ltd.

2016-09-19

B.R.SARANGI, VINEET SARAN

body2016
JUDGMENT : VINEET SARAN, J. The General Manager, (CMC), Mahanadi Coalfields Ltd., opposite party no.2 floated an e-tender vide NIT No. MCL/BSP/GM(CMC).NIT-738/2016/330 dated 25.06.2016 for “Hiring of Tippers for mechanical transportation of crushed coal from Kulda CHP/Stocks to Kanika Railway Sinding of Kulda OCP, Basundhara Area for a total quantity of 42.00 lakh Tes.” for the estimated cost of Rs.92,25,78,300/- and the period of contract was 1095 days. The petitioner, being a company registered under the Companies Act, participated in the said tender and through reverse bidding became L-1. The petitioner was called upon on 04.08.2016 to deposit the bank guarantee. As things stood thus, the petitioner, aggrieved by Clause-4.6 of the General Terms and Conditions of the tender call notice by which it has been stipulated that the petitioner has to deposit an additional performance security over the estimated cost of the work, has approached this Court by means of this writ application. 2. Mr. S. Mohanty, learned counsel for the petitioner contended that Clause-4 of the NIT specifies about the security deposit, which is divided into two parts, (a) performance security (b) retention of money. The said Clause of 4.2 and 4.6 are extracted herein below: “4.2 Performance Security (first part of security deposit) should be 5% of annualized value of contract amount and should be submitted within 28 days of issue of LOA by the successful bidder in any of the form given below: A Bank Guarantee in the form given in the bid document from any scheduled Bank. BG issued by outstation bank shall be operative at its local branch at Sambalpur or its Branch of the respective Area. Govt. Securities, FDR (Scheduled Bank) or any other form of deposit stipulated by the owner. Demand Draft drawn in favour of Mahanadi Coalfields Ltd. on any Schedule Bank payable at its Branch at the local Branch of the respective Area. The Earnest Money/Bid Security deposited in the form of Bank Guarantee shall be duly discharged and returned to the contractor. The Earnest Money/Bid Security deposited in the form of Demand Draft may be adjusted against the security deposit (Performance Security) at bidder’s option. xx xx xx xx xx 4.6 Additional Performance Security : Additional performance security shall be applicable if the bid price is below 15% of the estimated cost put to tender. The Earnest Money/Bid Security deposited in the form of Demand Draft may be adjusted against the security deposit (Performance Security) at bidder’s option. xx xx xx xx xx 4.6 Additional Performance Security : Additional performance security shall be applicable if the bid price is below 15% of the estimated cost put to tender. The amount of such additional performance security shall be the difference between 85% of the estimated cost put to tender and quoted price. Additional performance security shall be furnished by bidder along with normal performance security. Failure to submit such additional performance security may result into termination of the contract. This additional performance security will not carry any interest and shall be released in the following manner: (i) 30 % of the Additional performance security will be released after 60% of the total work is completed. (ii) 50% of the Additional performance security will be released after 80% of the total work is completed. (iii) 100% of Additional performance security will be released after total work is completed. Additional performance security may be furnished in any of the forms as applicable for performance security.” As per the aforesaid provisions, Clause-4.2 of the NIT stipulates for deposit of 5% of annualized value of contract amount, whereas Clause-4.6 deals with demanding additional performance security over the estimated cost. It is however, contended that demand of such additional performance security is in violation of Articles 14 and 19(1)(g) of the Constitution of India on the ground that there is no rationality for demanding such additional performance security on estimated cost instead of annualized value of contract amount. Consequentially, the additional performance security should be calculated on analyzed value of contract amount for smooth execution of the contract work. 3. Mr. S.D. Das, learned Senior Counsel appearing for the opposite parties justified the action of the authority in inserting Clause-4.6 in the general condition of contract and urged that the conditions contained in the tender call notice inviting tender are essential requirements and after reading the tender conditions the petitioner submitted a letter requesting to accept its bid and agreed to furnish performance security within 28 days from the date of letter of acceptance and to commence the work within 10 days from the date of issue of letter of acceptance. It is urged that the petitioner having accepted the conditions, cannot turn around and state that Clause-4.6 is unreasonable, arbitrary and contrary to the provisions of law. The incorporation of Clause 4.6 has been made as per the Manual for e-procurement of Works and Services/guidelines, circulated by General Manager (Civil)/HOD, CIL, Kolkata, Vide letter under reference No. CIL/Civil/192/488 dated 13.01.2016 for implementation of Reverse Auction at CIL and subsidiary companies, which have been approved by the Company Board in its 177th meeting, held on 26.05.2016 on the basis of the revised Contract Management Manual circulated by General Manager (Civil)/HOD, CIL, Kolkata, vide letter under reference No. CIL/Civil/31/Pt.IB/476 dated 01./02.12.2014. Though this provision has been recently incorporated in the NIT of Service Tenders floated by the MCL, but as a matter of fact, this provision is quite prevalent in other organizations and has been incorporated in the works contracts done under Civil Engineering Manual in MCL. The Central Vigilance Commission in its guidelines published in 2002 for improvement in the award of contracts has also pointed out in Clause-15 with regard to reasonableness of price/market rate justification. The incorporation of Clause-15 has been made with a primary motive to discourage the non-serious and financially not so sound bidders from bidding process and also to prevent any loss to the company in the event of abandoning of work by the contractor on the plea of low rate quoted by him. Therefore, it is contended that there is no violation of Articles 14 and 19 (1)(g) of the Constitution of India. The tender documents have been published well in advance as per the approved procedure of the Company. In response to the same, as many as 10 bidders have participated in the bidding process. The petitioner, being the L-1 and agreed to the conditions stipulated in the tender notice, cannot approach this Court by filing the present writ application on the plea that the incorporation of Clause-4.6 is contrary to the provisions of law. 4. We have Heard Mr. S. Mohanty, learned counsel for the petitioner, Mr. S.D. Das, learned Senior Counsel along with Mr. H. Mohanty, learned counsel for opposite parties and perused the records. Pleadings having been exchanged, with their consent, the matter is being disposed of at the stage of admission. 5. 4. We have Heard Mr. S. Mohanty, learned counsel for the petitioner, Mr. S.D. Das, learned Senior Counsel along with Mr. H. Mohanty, learned counsel for opposite parties and perused the records. Pleadings having been exchanged, with their consent, the matter is being disposed of at the stage of admission. 5. It was provided in Clause 4.6 of the tender call notice that “additional performance security shall be applicable if the bid price is below 15% of the estimated cost put to tender”. The bid price of the petitioner was about 40% below the estimated cost put to tender, and thus, as per the said terms, the petitioner has been required to pay the additional performance security for the difference between 85% of the estimated cost put to tender and the bid price offered by the petitioner. 6. The contract was for a period of three years, and according to learned counsel for the petitioner, the same should have been annualized and additional performance security should not be required to be given by the petitioner for all the three years at one go prior to entering into the contract. At the time when the petitioner and other bidders had placed their bids, they were conscious of the position that for performance security, it would be 5% of the annualized value of the contract amount, which is to be provided by the bidders and for the additional performance guarantee, the annualized value was not to be seen, but for all the three years. 7. The interpretation, as advanced by the learned counsel for the petitioner, if accepted, would amount to changing the terms of the tender call notice after the bids have been submitted and the lowest bid has been accepted, which is not permissible in law. The apex Court in the case of Ramana Dayaram Shetty v. The International Airport Authority of India and others, AIR 1979 SC 1628 in paragraph 20, 21 and 34 held as follows: 20. Now, obviously where a corporation is an instrumentality or agency of Government, it would, in the exercise of its power or discretion, be subject to the same constitutional or public law limitations as Government. Now, obviously where a corporation is an instrumentality or agency of Government, it would, in the exercise of its power or discretion, be subject to the same constitutional or public law limitations as Government. The rule inhibiting arbitrary action by Government which we have discussed above must apply equally where such corporation is dealing with the public, whether by way of giving jobs or entering into contracts or otherwise, and it cannot act arbitrarily and enter into relationship with any person it likes at its sweet will, but its action must be in conformity with some principle which meets the test of reason and relevance. 21. This rule also flows directly from the doctrine of equality embodied in Art. 14. It is now well settled as a result of the decisions of this Court in E.P. Royappa v. State of Tamil Nadu, (1974) 2 SCR 348 : ( AIR 1974 SC 555 ) and Maneka Gandhi v. Union of India, (1978) 1 SCC 248 : ( AIR 1978 SC 597 ) that Article 14 strikes at arbitrariness in State action and ensures fairness and equality of treatment. It requires that State action must not be arbitrary but must be based on some rational and relevant principle which is non-discriminatory : it must not be guided by any extraneous or irrelevant consideration, because that would be denial of equality. The principle of reasonableness and rationality which is legally as well as philosophically an essential element of equality or non-arbitrariness is projected by Article 14 and it must characterise every State action, whether it be under authority of law or in exercise of executive power without making of law. The State cannot, therefore act arbitrarily in entering into relationship, contractual or otherwise with a third party, but its action must conform to some standard or norm which is rational and non-discriminatory. 34. It is, therefore, obvious that both having regard to the constitutional mandate of Article 14 as also the judicially evolved rule of administrative law, the 1st respondent was not entitled to act arbitrarily in accepting the tender of the 4th respondents, but was bound to conform to the standard or norm laid down in paragraph 1 of the notice inviting tenders which required that only a person running a registered IInd Class hotel or restaurant and having at least 5 years' experience as such should be eligible to tender. It was not the contention of the appellant that this standard or norm prescribed by the 1st respondent was discriminatory having no just or reasonable relation to the object of inviting tenders, namely, to award the contract to a sufficiently experienced person who would be able to run efficiently a IInd class restaurant at the airport. Admittedly the standard or norm was reasonable and non-discriminatory and once such a standard or norm for running a IInd class restaurant should be awarded was laid down, the 1st respondent was not entitled to depart from it and to award the contract to the 4th respondents who did not satisfy the condition of eligibility prescribed by the standard or norm. If there was no acceptable tender from a person who satisfied the condition of eligibility, the 1st respondent could have rejected the tenders and invited fresh tenders on the basis of a less stringent standard or norm, but it could not depart from the standard or norm prescribed by it and arbitrarily accept the tender of the 4th respondents. When the 1st respondents entertained the tender of the 4th respondent even though they did not have 5 years' experience of running a IInd class restaurant or hotel, it denied equality of opportunity to others similarly situate in the matter of tendering for the contract. There might have been many other persons, in fact the appellant himself claimed to be one such person, who did not have 5 years' experience of running a IInd class restaurant, but who were otherwise competent to run such a restaurant and they might also have competed with the 4th respondents for obtaining the contract, but they were precluded from doing so by the condition of eligibility requiring five years' experience. The action of the 1st respondent in accepting the tender of the 4th respondents, even though they did not satisfy the prescribed condition of eligibility, was clearly discriminatory, since it excluded other persons similarly situate from tendering for the contract and it was also arbitrary and without reason. The acceptance of the tender of the 4th respondents was, in the circumstances invalid as being violative of the equality clause of the Constitution as also of the rule of administrative law inhabiting arbitrary action. The apex Court in Tata Cellular v. Union of India, AIR 1996 SC 11 , in paragraph 84 and 85 held as follows; 84. The acceptance of the tender of the 4th respondents was, in the circumstances invalid as being violative of the equality clause of the Constitution as also of the rule of administrative law inhabiting arbitrary action. The apex Court in Tata Cellular v. Union of India, AIR 1996 SC 11 , in paragraph 84 and 85 held as follows; 84. A tender is an offer. It is something which invites and is communicated to notify acceptance. Broadly stated, the following are the requisites of a valid tender : 1. It must be unconditional. 2. Must be made at the proper place. 3. Must conform to the terms of obligation. 4. Must be made at the proper time. 5. Must be made in the proper form. 6. The person by whom the tender is made must be able and willing to perform his obligations. 7. There must be reasonable opportunity for inspection. 8. Tender must be made to the proper person. 9. It must be of full amount. 85. It cannot be denied that the principles of judicial review would apply to the exercise of contractual powers by Government bodies in order to prevent arbitrariness or favouritism. However, it must be clearly stated that there are inherent limitations in execises of that power of judicial review. Government is the guardian of the finances of the State. It is expected to protect the financial interest of the State. The right to refuse the lowest or any other tender is always available to the Government. But, the principles laid down in Article 14 of the Constitution have to be kept in view while accepting or refusing a tender. There can be no question of infringement of Article 14 if the Government tries to get the best person or the best quotation. The right to choose cannot be considered to be an arbitrary power. Of course, if the said power is exercised for any collateral purpose the exercise of that power will be struck down. 8. In view of the above, we are of the opinion that if we accept the contention of the petitioner and interpretation given by the petitioner, then the same would amount to change in the terms of the contract, which is not permissible in law, and, as such, the prayer made in this petition does not deserve to be granted. Accordingly, the writ petition is dismissed.