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Gujarat High Court · body

2018 DIGILAW 1274 (GUJ)

Sankalp Infracon v. State of Gujarat

2018-12-21

A.C.RAO, ANANT S.DAVE

body2018
JUDGMENT : A.C. RAO, J. 1. By way of present petition under Article 226 of the Constitution of India, petitioner Sankalp Infracon, through its sole proprietor Sureshkumar Babulal Vora, has challenged the impugned order dated 15.3.2018, by which the respondent No. 2 considered the petitioner as ineligible at pre-qualification stage for Tender ID No. 288455 for construction Polytechnic Building at Halol, District Panchmahal. The petitioner has also challenged the impugned order dated 25.4.2018, by which the respondent No. 3 disqualified the petitioner for three contracts for the very reason given in the order dated 15.3.2018 and by which the petitioner is considered ineligible for all other government tenders by the respondents. 2. Facts giving rise to the present petition, in nutshell are as under:- 2.1 The petitioner herein is a proprietorship concern and is doing its business in the name and style of Sankalp Infracon. It is the case of the petitioner that earlier sole proprietor of the petitioner herein - Mr. Suresh Vora was a partner in a partnership firm namely Shree Construction Company and there was another partner in the said partnership firm namely Jitendra Dhirubhai Patel and thereafter the said partnership firm has been converted into a Joint Stock Company as Shree Infracon Pvt. Ltd. (Company for short), as per the provisions of the Companies Act, 1956 and the same came to be registered on 20.10.2006 and the partnership firm in which the petitioner proprietor had 50% share was converted into a Joint Stock Company in which also the petitioner proprietor along with family members held 50% shareholding. It is the case of the petitioner that after working for nearly two decades, both the petitioner proprietor and Mr. Jitendra Dhirubhai Patel have separated and petitioner proprietor had resigned from the Company as on 14.4.2017 and has transferred his share being 50% shareholding in the Company in favour of Mr. Jitendra Patel and his nominees and petitioner started his own business in the name and style of Sankalp Infracon on and from 7.9.2016 as a sole proprietor of Sankalp Infracon, a proprietorship concern and the petitioner was qualified for 14 contracts in the name of Sankalp Infracon and the average turnover of the petitioner proprietor is around 33.54 Crores. Jitendra Patel and his nominees and petitioner started his own business in the name and style of Sankalp Infracon on and from 7.9.2016 as a sole proprietor of Sankalp Infracon, a proprietorship concern and the petitioner was qualified for 14 contracts in the name of Sankalp Infracon and the average turnover of the petitioner proprietor is around 33.54 Crores. 2.2 As per the case of the petitioner, that the respondent No. 1 floated a tender for “Construction of Government Polytechnic Building at Halol, District Panchmahal” work and pre-qualified bid was also floated for the said bid and as the petitioner was eligible to bid for the said contract, the petitioner applied for the said contract along with necessary documents, as per the conditions of the tender including balance-sheet and other documents for showing the average turnover, certificate of Chartered Accountant regarding turnover/experience and Certificate of shareholding, list of works completed, etc. However, the petitioner was considered ineligible in pre-qualification. The petitioner vide letters dated 13.2.2018, 17.2.2018 and 12.3.2018 requested the respondent No. 2 to give reasons for considering petitioner ineligible for pre-qualification stage. 2.3 The respondent No. 2 vide impugned order dated 15.3.2018 informed the petitioner that the petitioner is not eligible, because his past experience in Shree Infracon Pvt. Ltd. cannot be considered. That by the impugned order dated 25.4.2018, the petitioner is informed that the petitioner is not found eligible by the screening committee. It is the case of the petitioner that on account of the impugned orders, the petitioner is not found eligible for pre-qualification bid in all other future contracts also. Hence this petition. 3. Ms. Sangeeta Pahwa, learned advocate appearing on behalf of the petitioner has vehemently submitted that the impugned orders are illegal, bad in law, against the settled legal position and in violation of principles of natural justice and hence the same deserve to be quashed and set aside. 4. Ms. Hence this petition. 3. Ms. Sangeeta Pahwa, learned advocate appearing on behalf of the petitioner has vehemently submitted that the impugned orders are illegal, bad in law, against the settled legal position and in violation of principles of natural justice and hence the same deserve to be quashed and set aside. 4. Ms. Sangeeta Pahwa, learned advocate appearing on behalf of the petitioner has further submitted that the respondents have erred in not considering the past experience of the petitioner in the company though the petitioner was earlier a director of Shree Infracon Pvt. Ltd. and was holding 50% of shareholding and erred in not considering the past experience of work of 640 residential flats in Ahmedabad, when he was a Director of Shree Infracon Pvt. Ltd. It is submitted that the Company executed various government contracts successfully with the efforts and resources of the petitioner-proprietor and Mr. Jitendra Patel and both the partners devoted their time, energy and resources in earning the experience as a leading contractor Company and therefore, both are entitled to claim benefit of earning equal amount of experience in executing the government contracts, which are otherwise considered as eligible contracts and experience for the purpose of the tender. It is submitted that the respondents have erred in holding that as the petitioner was drawing salary and therefore, he was merely an employee of the Company and therefore, his experience in the Company cannot be counted. 4.1 Ms. Sangeeta Pahwa, learned advocate appearing on behalf of the petitioner has relied upon the decision of the Hon'ble Apex Court in the case of New Horizons Limited vs. Union of India, 1995 (1) SCC 478 (Para 23). 4.2 Ms. Sangeeta Pahwa, learned advocate appearing on behalf of the petitioner has also relied upon the decision of the Madhya Pradesh High Court in the case of C.K. Asati (a Partnership Firm) vs. Union of India and Others, AIR 2005 MP 96 , wherein the Madhya Pradesh High Court relied upon the aforesaid decision of the Hon'ble Apex Court in the case of New Horizons Ltd. Present petition is opposed by Mr. Chintan Dave, learned Assistant Government Pleader appearing on behalf of the respondents. He has submitted that the impugned orders are just and legal and no illegality has been committed by the respondent authority in passing the orders impugned in the present petition. 5. Mr. Chintan Dave, learned Assistant Government Pleader appearing on behalf of the respondents. He has submitted that the impugned orders are just and legal and no illegality has been committed by the respondent authority in passing the orders impugned in the present petition. 5. Mr. Chintan Dave, learned Assistant Government Pleader appearing on behalf of the respondents has submitted that as the petitioner was drawing salary and as per Circular Book Part-I of Road and Building Department, experience gained by the individual as a servant cannot be counted. He has further submitted that experience certificate produced by the petitioner is of Private Limited Company which is separate legal entity and having independent experience and therefore, the experience certificate produced by the petitioner cannot be said to be of the petitioner himself and hence the respondent authorities have rightly rejected the experience certificate of the Company. 6. Heard Ms. Sangeeta Pahwa, learned advocate appearing for the petitioner and Mr. Chintan Dave, learned AGP appearing on behalf of the respondents-State authorities, at length. 7. Short question which arises for consideration of this Court is, whether prior experience of the petitioner herein as a Director in the earlier Company can be considered as experience in the subsequent proprietorship concern? 7.1 The respondent in the impugned decision has observed that the petitioner was drawing salary from the company and therefore he was employee of the company. Thereby he had refused to consider the experience of the petitioner in the company. It appears that the respondents have failed to consider the role of the director in its true prospective. 7.2 A company is a legal entity and does not have any physical existence. It can act only through natural persons to run its affairs. The person, acting on its behalf, is called Director. A Director is any person, occupying the position of Director, by whatever name called. They are professional men, hired by the company to direct its affairs. But, they are not the servants of the company. They are rather the officers of the company. 7.3 The definition of Director given in the Companies Act includes any person who occupies the position of a director is known as Director whether or not designated as Director. They are professional men, hired by the company to direct its affairs. But, they are not the servants of the company. They are rather the officers of the company. 7.3 The definition of Director given in the Companies Act includes any person who occupies the position of a director is known as Director whether or not designated as Director. It is not the name by which a person is called but the position he occupies and the functions and duties which he discharges that determine whether in fact he is a Director or not. So long as a person is duly, appointed by the company to control the company's business and, authorized by the Articles to contract in the company's name and on its behalf, he functions as a Director. 7.4 Directors play a key role in a public company, their relationship with the company is not like an employee of a company and they have the trustee relation between the government and the company. Directors are having the significant role over the affairs of the company subject to the superintendence and total control over the board of the company. In the existing global scenario, a maximum ceiling for remuneration for directors is an important issue, especially for public company. 7.5 In the competitive corporate global scenario to retain the talent of an employee, an adequate and reasonable remuneration is required. Remuneration drives the efficiency of managerial in order to get the maximum output of the company. 7.6 First time law has been prescribed in 1956 as company act for maximum remuneration of the managerial. Sections 198, 309, 310 and 311 read with schedule XIII of the Companies Act, 1956 regulate with the managerial remuneration in India. 7.7 Regular amendment has been made in the law regarding the company act. Recent amendment was made for remuneration of the managerial in 2013 as Company act 2013 which replaced the earlier company act 1956. Normally it could be presumed that the director is drawing salary he takes active part in to the management company. It does not mean that he is employee of the company. So decision of the respondent cannot sustain in eye of law. 7.8 The issue involved in the present petition is no more res-integra in view of decision of the Hon'ble Apex Court in the case of New Horizons Limited (supra). It does not mean that he is employee of the company. So decision of the respondent cannot sustain in eye of law. 7.8 The issue involved in the present petition is no more res-integra in view of decision of the Hon'ble Apex Court in the case of New Horizons Limited (supra). Relevant paragraphs of the said decisions are reproduced herein-below: “23. Even if it be assumed that the requirement regarding experience as set out in the advertisement dated April 22, 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 reorganisation as a result of merger of 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 reorganised 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 person 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. Conversely there may be a split in a company and person 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 borne 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 whereunder some work is to be performed he seeks to assure himself about the credientials 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 hot 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. The same has to be the approach of the authorities while considering a tender received in response to the advertisement issued on April 22, 1993. This would require that first the terms of the offer must be examined and if they are found satisfactory the next step would be to consider the credentials of the tenderer and his ability to perform the work to be entrusted. For judging the credentials past experience will have to be considered along with the present state of equipment and resources available with the tenderer. For judging the credentials past experience will have to be considered along with the present state of equipment and resources available with the tenderer. Past experience may be of much help if the machinery and equipment is outdated. Conversely lack of experience may be made good by improved technology and better equipment. The advertisement dated April, 22, 1993 when read with the notice for inviting tenders dated April 26, 1993 does not preclude adoption of this course of action. If the Tender Evaluation Committee had adopted this approach and had examined the tender of NHL in this perspective it would have found that NHL, being a joint venture, has access to the benefit of the resources and strength of its parent/owning companies as well as to the experience in database management, sales and publishing of its parent group companies because after reorganisation of the company in 1992 60% of the share capital of NHL is owned by Indian group of companies namely, TPI, LMI, WML, etc. and Mr. Aroon Puries and 40% of the share capital is owned by IIPL a wholly owned subsidiary of! Singapore Telecom which was established in 1967 and is having long experience in publishing the Singapore telephone directory with yellow pages and other directories. Moreover in the tender it was specifically stated that IIPL will be providing its uniquen integrated directory management system along with the expertise of its managers and that the managers will be actively involved in the project both out of Singapore and resident in India. 27. The conclusion would not be different even if the matter is approached purely from the legal standpoint. It cannot be disputed that, in law, a company is a legal entity distinct from its members. It was so laid down by the House of Lords in 1897 in the leading case of Salomon vs. Salomon and Co. 1897 AC 22. Ever since this decision has been followed by the courts in England as well as in this country. But there have been in-roads in the doctrine of corporate personality propounded in the said decision by statutory provisions as well as by judicial pronouncements. By the process, described as "lifting the veil" the law either goes behind the corporate personality to the individual members or ignores the separate personality of each company in favour of the economic entity constituted by an group of associated companies. By the process, described as "lifting the veil" the law either goes behind the corporate personality to the individual members or ignores the separate personality of each company in favour of the economic entity constituted by an group of associated companies. This course is adopted when it is found that the principle of corporate personality is too fragrantly opposed to justice, convenience or the interest of the revenue. [Gower's Principles of Modern Company Law, 4th Edn. p. 112]. This concept, which is described as "piercing the veil" in the United States, has been thus put by Sanborn, J. in JJ. S. vs. Milwaukee Refrigerator Transit Co. (1905) 142 Fed. 247, at p. 255: "When the notion of legal entity is used to defeat public convenience, justify wrong, pretext fraud, or defend crime, the law will regard the corporation as an association of persons." 31. In DHN Food Distributors Ltd. vs. London Borough of Tower Hamlets, (1976) All ER 462, the Court of Appeal was dealing with three companies, out of which one was the holding company and the other two were its subsidiaries. After quoting the views of Prof. Bower that "there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group" Lord Denning M. R. has observed: "This group is virtually the same as a partnership in which all the three companies are partners. They should not be treated separately so as to be defeated on a technical point" (p. 467) in the same case, Goff L.J. has said: "......this is a case in which one is entitled to look at the realities of the situation and to pierce the corporate veil." (p. 468) the observations of Shaw L.J. were to the following effect: "Why then should this relationship be ignored in a situation in which to do so does not prevent abuse but would on the contrary result in what appears to be a denial of justice?" (p. 473)” In this case the holding company was held entitled to compensation for disturbance from premises in its occupation on account of compulsory purchase of the property which belonged to one of the subsidiaries and in which the holding company had no interest. This was a case in which the court lifted the corporate veil so as to confer a benefit on the company.” 7.9 Applying the aforesaid ratio laid down by the Hon'ble Apex Court in the case of New Horizons Limited (supra) we are of the opinion that the respondent Nos. 2 and 3 have committed an error in passing the impugned orders and not considering the past experience of the petitioner as a Director of the Company and considering the petitioner ineligible at pre-qualification stage. 8. In the result, present petition is allowed. The impugned orders dated 15.3.2018 as well as 25.4.2018 passed by the respondent Nos. 2 and 3 are hereby quashed and set aside and the respondents are directed to consider the past experience of the petitioner as a Director in the Shree Infracon Pvt. Ltd. for evaluating experience of the petitioner as a proprietor of Sankalp Infracon. Rule is made absolute accordingly. In the facts and circumstances of the case, there shall be no orders as to costs.