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2024 DIGILAW 2458 (ALL)

Sandeep Enterprises v. State of U. P.

2024-12-04

SHEKHAR B.SARAF, VIPIN CHANDRA DIXIT

body2024
JUDGMENT : (Shekhar B. Saraf, J.) We have heard learned counsel appearing on behalf of the petitioner, learned counsel appearing on behalf of the respondent No. 2, being the Uttar Pradesh Power Corporation Limited and learned Standing Counsel for the State respondents. 2. In the present writ petition, the petitioner has prayed for the following reliefs : ''(a) issue a writ, order or direction in the nature of certiorari calling for the record of the matter and quashing the order dated 19.7.2024 passed by the respondent No. 2. (b) issue a writ, order or direction in the nature of mandamus commanding the respondent No. 3 to exempt the petitioner from furnishing performance security pursuant to Offer (Letter of Intent) dated 15.5.2024 for supply of super enameled Aluminium winding wire manufactured by the petitioner in the light of provisions contained in para 9.17 of the U.P. Procurement Manual, 2016. (c) issue a writ, order or direction in the nature of mandamus commanding the respondent No. 3 to issue amended Offer (Letter of Intent) dated 15.5.2024 as per provisions contained in para 9.17 of the U.P. Procurement Manual, 2016. (d) issue any other or further order which this Hon'ble Court may deem fit and proper in the circumstances of the case. (e) Award the cost of writ petition to the petitioner.'' 3. The crux of the issue in this writ petition relates to a condition in the tender document issued by the respondent No. 3 for procurement of super enameled aluminium winding wire wherein a performance guarantee at the rate of 10% of the contract value is required to be furnished by the person, who is awarded the tender. FACTS 4. The facts of the case, in nutshell, are as under : (a) The tender was opened on 26.12.2023 and the petitioner applied for the same on 1.1.2024. Subsequent to the tender being filed by the petitioner, the petitioner raised an objection on 3.1.2024 with regard to the 10% performance security deposit on the ground that the said clause is in violation of the provisions of the Uttar Pradesh Procurement Manual, 2016 (hereinafter referred to as 'the Manual'). Thereafter, several such letters were written by the petitioner to the respondents. Thereafter, several such letters were written by the petitioner to the respondents. Furthermore, the Special Secretary, Government of U.P., Lucknow also issued several letters to the respondent No. 2, being the U.P. Power Corporation Limited, asking it to consider the performance guarantee and reduce the same from 10% to 1% in favour of the petitioner. (b) It is to be noted that the petitioner was granted tender and Letter of Intent was issued on 15.5.2024. It is to be further noted that the petitioner had come to this Court in an earlier round of litigation and the U.P. Power Corporation Limited was directed to decide the issue with regard to the performance guarantee by an order of the coordinate Bench of this Court dated 4.6.2024. The respondent in furtherance of the above order, has passed an order on 19.7.2024 which is the impugned order in the present writ petition. ARGUMENTS OF THE PETITIONER 5. Mr. Nikhil Kumar, learned counsel appearing on behalf of the petitioner has raised the following submissions : (i) Mr. Kumar has placed Clause 9.17 of the Manual to emphasise that since the petitioner is a micro and small enterprise, it is exempted from furnishing performance security/guarantee against contract for supply of goods manufactured by it. The relevant paragraph of aforesaid clause of the Manual is provided below for better reference : ''9.17 Micro and Small Enterprises and Industrial Co-operatives within State, which have been registered as such with the Commissioner and Director of Industries, on furnishing proof of such registration are exempted from furnishing performance security against contracts for supply of goods manufactured by them.'' (ii) Mr. Kumar has further relied on Paragraph 38 of a judgment of the coordinate Bench of this High Court in Maa Vind Vasini Industries v. Purvanchal Vidut Vitran Nigam Ltd., 2008(1) ADJ 75 (DB), to buttress his argument that even if the respondent Nos. 2 and 3 are independent companies, they are required to follow the statutory provisions especially one issued by the State Government. The relevant paragraph is provided below : ''38. Thus it is evident that once independent companies have come into existence, rights, property and obligations have also vested therein separately, they are all totally separate and individual bodies and have to function in an autonomous manner without any influence from any third party except to the extent the statutory provisions otherwise require. Thus it is evident that once independent companies have come into existence, rights, property and obligations have also vested therein separately, they are all totally separate and individual bodies and have to function in an autonomous manner without any influence from any third party except to the extent the statutory provisions otherwise require. We have not been shown any provision under which an officer of UPPCL can issue binding orders to other companies like various Discerns including the respondent No. 1. It appears to us that though the UPSEB has been disbanded and its entire functions and obligations etc. have been decentralised in various companies yet the authorities of erstwhile UPSEB who have now been transferred and absorbed in newly incorporated companies are yet working in the same old atmosphere as if the hierarchy as it was existing in the erstwhile UPSEB is still continuing. I he respondents, it appears, have not been able to accept and adopt the legal changes which have taken place in the last 6 or 7 years. The issuance of letter dated 24.7.2007 by Chief Engineer (Commercial). UPPCL to various Discoms is an illustration of the aforesaid continuing understating of the respondents. It cannot be disputed that even shareholders of company cannot interfere in the day to day functioning of the company which has to be managed by the Board of Directors of that company. In these circumstances, the officials of UPPCL, in our view. neither in any law nor under the provisions of Article of Association nor otherwise can have any power or authority to issue any direction to various other companies like respondent No. 1 to act and function in a particular manner. Issue No. 4 is answered accordingly.'' (iii) Mr. Kumar has also placed before this Court, Clause 1.2 of the Manual which relates to scope and applicability of the Manual. The said clause is provided below : ''1.2 These rules are applicable to the procurement of goods by the procuring entities of all Government departments, their attached and subordinate offices. Provided that the provisions of this manual, in so far as they are inconsistent with the procedure specified in respect of the schemes/projects funded by the Central Government, International Financial Agencies or schemes/projects covered under International Agreements, shall not apply to procurement of goods for such schemes/projects.'' (iv) Mr. Kumar has submitted that even though the respondent Nos. Provided that the provisions of this manual, in so far as they are inconsistent with the procedure specified in respect of the schemes/projects funded by the Central Government, International Financial Agencies or schemes/projects covered under International Agreements, shall not apply to procurement of goods for such schemes/projects.'' (iv) Mr. Kumar has submitted that even though the respondent Nos. 2 and 3 are independent companies under the Companies Act, 1956, the provisions of the Manual would apply to the same as the Government is 100% share holder in these companies. He has further submitted that the proviso to Clause 1.2 assists his arguments as the said proviso reads that unless the provisions in the Manual are inconsistent with the procedure prescribed in respect of schemes/projects funded by the Central Government, International Financial Agencies or schemes/projects covered under the International agreements, they shall not apply to procurement of goods for such scheme/projects. He argued that since there is no specific direction/decision taken by the Board of Directors of the respondent Nos. 2 and 3 with regard to non-exemption of the micro and small enterprises, the provisions in the Manual especially Clause 9.17 would apply. ARGUMENTS OF THE RESPONDENTS 6. Mr. Krishna Agrawal, learned counsel appearing on behalf of the respondent No. 2 has raised the following submissions : (i) Firstly, Mr. Agrawal relies on a letter written by the Managing Director of Uttar Pradesh Power Corporation Limited to all the distribution companies informing them of the tender that is being floated and the conditions attached to the same. In the particular letter, Clause 3 of the standard bidding documents for e-tender specifically mentions a contract performance guarantee for an amount of 10% of the contract value is to be furnished by the successful bidder. He, thereafter, relies on Clause 1.2 of the Manual and submits that by no stretch of imagination can the Uttar Pradesh Power Corporation Limited and the respondent No. 3 be termed as Government departments or ancillaries thereof. Mr. Agrawal thereafter relies on two coordinate Bench judgments of this Court in the case of Rajeev Kumar Jauhari and others v. State of U.P. and others, 2006(10) ADJ 729 and Maa Vind Vasini Industries (supra). He places reliance on the extract of the judgment in Rajeev Kumar Jauhari (supra) that is provided below : ''31. Mr. Agrawal thereafter relies on two coordinate Bench judgments of this Court in the case of Rajeev Kumar Jauhari and others v. State of U.P. and others, 2006(10) ADJ 729 and Maa Vind Vasini Industries (supra). He places reliance on the extract of the judgment in Rajeev Kumar Jauhari (supra) that is provided below : ''31. ....Merely for the reason that the State Government is 100% share holder of the company does not identify the company itself with the State Government. In Shrikant v. Vasant Rao, the Court held in para 24 that in the matter of a company where the entire share capital is held by the State Government, yet it cannot be identified with the State Government and is always entitled to act and proceed in a manner a company function. This principle was recognized as long back as in 1970 also by a Constitution Bench in R.C. Cooper v. Union of India, and at page 584, the Apex Court held- ''A company registered under the Companies Act is a legal person, separate and distinct from its individual members. Property of the Company is not the property of the shareholders. A shareholder has merely an interest in the Company arising under its Article of Association measured by a sum of money for the purpose of liability, and by a share in the profit. *** 33. The aforesaid view was reiterated in Heavy Engineering Mazdoor Union v. State of Bihar and others, Andhra Pradesh State Road Transport Corporation v. Income Tax Officer, Western Coalfields Ltd. v. Special Area Development Authority. A Constitution Bench of the Apex Court in Electronics Corporation of India Ltd. v. Secretary, Revenue Department, Government of A.P., in Para-15 of the judgment held as under: ''A clear distinction must be drawn between a company and its shareholder, even though that shareholder may be only one and that the Central or a State Government. In the eye of the law, a company registered under the Companies Act is a distinct legal entity other than the legal entity or entities that hold us shares.'' 34. Thus we hold that a Company can determine terms and conditions of its employees as provided under Article of Association but since the Article of Association of a Company is neither a Rule nor Regulation and has no statutory force the conditions determined thereunder would also be not statutory. Thus we hold that a Company can determine terms and conditions of its employees as provided under Article of Association but since the Article of Association of a Company is neither a Rule nor Regulation and has no statutory force the conditions determined thereunder would also be not statutory. The UPRVUNL thus have the power to determine terms and conditions of its employees by making provisions in exercise of powers under provisions of Article of Association read with Companies Act.'' (ii) Mr. Agrawal relies on paragraphs 34, 35, 36, 37 and 38 of the judgment in Maa Vind Vasini Industries (supra), which are provided below : ''34. Another interesting aspect has been raised, inasmuch as UPPCL and various Discoms are admittedly, independent companies incorporated under the Companies Act, 1956. Though 100% share holding of UPPCL is owned by State Government and various Discoms and supplier i.e. respondent No. 1 are subsidiary companies of UPPCL but the fact remains that each company is an independent juristic personality having its own independent identity. That being so, whether an official of one company can issue an order to other companies having binding effect and, if so, in what capacity, is an incidental question needs to be answered to consider the validity and authority of the letter dated 24.2.2007 issued by the Chief Engineer (Commercial), UPPCL. The concept of subsidiary company only implies that the newly incorporated company which is a subsidiary company has its share holding owned by the promoting company hut neither it dilutes, in any manner the concept of conferment of legal personality nor the independence of the companies is effected. The distinction between the company and its share holder has been pointed out by the Apex Court in R.C. Cooper v. Union of India the Apex Court held as under: A company registered under the Companies Act is a legal person, separate and distinct from its individual members. Property of the Company is not the property of the shareholders. A shareholder has merely an interest in the Company arising under its Article of Association measured by a sum of money for the purpose of liability, and by a share in the profit. 35. The aforesaid view was reiterated in Heavy Engineering Mazdoor Union v. State of Bihar and others, Andhra Pradesh State Road Transport Corporation v. Income Tax Officer, Western Coalfields Ltd. v. Special Area Development Authority. 35. The aforesaid view was reiterated in Heavy Engineering Mazdoor Union v. State of Bihar and others, Andhra Pradesh State Road Transport Corporation v. Income Tax Officer, Western Coalfields Ltd. v. Special Area Development Authority. A Constitution Bench of the Apex Court in Electronics Corporation of India Ltd. v. Secretary, Revenue Department, Government of A.P. of the judgment held as under: A clear distinction must be drawn between a company and its shareholder, even though that shareholder may be only one and that the Central or a State Government. In the eye of the law, a company registered under the Companies Act is a distinct legal entity other than the legal entity or entities that hold its shares. 36. The company where shareholding is owned by the Government can never be treated to be a department of the Government and it has a separate legal existence for all purposes, and, has to function in accordance with the Article of Association and the provision of the Companies Act. 37. In (Praga Tools Corporation v. C.V. Imanual) it was held though 80% of the capital of the said company was subscribed by the Union Government and State Government, even then it cannot be regarded as equivalent to Government department, since, it is registered under the companies act. It has a separate legal existence and could not be a Government concern run by or under the authority of the Union Government. 38. Thus it is evident that once independent companies have come into existence, rights, property and obligations have also vested therein separately, they are all totally separate and individual bodies and have to function in an autonomous manner without any influence from any third party except to the extent the statutory provisions otherwise require. We have not been shown any provision under which an officer of UPPCL can issue binding orders to other companies like various Discerns including the respondent No. 1. It appears to us that though the UPSEB has been disbanded and its entire functions and obligations etc. have been decentralised in various companies yet the authorities of erstwhile UPSEB who have now been transferred and absorbed in newly incorporated companies are yet working in the same old atmosphere as if the hierarchy as it was existing in the erstwhile UPSEB is still continuing. have been decentralised in various companies yet the authorities of erstwhile UPSEB who have now been transferred and absorbed in newly incorporated companies are yet working in the same old atmosphere as if the hierarchy as it was existing in the erstwhile UPSEB is still continuing. I he respondents, it appears, have not been able to accept and adopt the legal changes which have taken place in the last 6 or 7 years. The issuance of letter dated 24.7.2007 by Chief Engineer (Commercial). UPPCL to various Discoms is an illustration of the aforesaid continuing understating of the respondents. It cannot be disputed that even shareholders of company cannot interfere in the day to day functioning of the company which has to be managed by the Board of Directors of that company. In these circumstances, the officials of UPPCL, in our view. neither in any law nor under the provisions of Article of Association nor otherwise can have any power or authority to issue any direction to various other companies like respondent No. 1 to act and function in a particular manner. Issue No. 4 is answered accordingly.'' ANALYSIS 7. Upon perusal of the materials on record and after hearing learned counsel appearing on behalf of the parties, it is clear that the only issue in the present writ petition relates to whether the petitioner is required to pay the 10% performance security guarantee as per the tender documents. The argument of the petitioner that it being a micro and small enterprise, Clause 9.17 of the Manual shall apply in the present tender bid appears to be far fetched. In our view, the scope and applicability of the Manual has been clearly culled out in Clause 1.2 that specifically states that the provisions of the Manual is to apply to Government departments and its ancillaries. As seen in both the judgments cited by learned counsel appearing on behalf of the respondents, one cannot in any manner treat companies enacted under the Electricity Act, 2003 and governed by the Companies Act, 1956 to be a part of the Government departments. In fact paragraph 36 of the judgment in Maa Vind Vasini Industries (supra) categorically states that even though 100% share holding is owned by the State Government, the company can never be treated as a department of the Government as the company has a separate legal existence for all intents and purposes. In fact paragraph 36 of the judgment in Maa Vind Vasini Industries (supra) categorically states that even though 100% share holding is owned by the State Government, the company can never be treated as a department of the Government as the company has a separate legal existence for all intents and purposes. In the present case, we find that the tender was issued after the Board of Directors finalised the same. The conditions in the tender have been decided in the Board meeting, and thereafter, letter was issued on 25.8.2019 by the U.P. Power Corporation Limited to the other distribution companies. As the U.P. Power Corporation Limited and the respondent No. 3 are not part of the any Government department, the person who participated in the tender issued by the above companies cannot seek to take the benefits of the provisions of the Manual. In fact, it is clear that the petitioner first applied for the tender and thereafter raised the objection with regard to the performance security deposit. 8. In any case, we are of the view that contracts given for supply of materials by infrastructure companies such as the respondent Nos. 2 and 3, that are independent companies, cannot be subject to any of the conditions in the Manual unless the companies themselves agree to the same. 9. In light of the above findings and the judgments cited, we do not find any merit in the arguments raised by the petitioner. 10. This Court thanks both counsel appearing on behalf of the parties for their ingenious arguments made before this Court. 11. With the above observations, this writ petition is dismissed.