Energy Ltd. & Anr Vs. M/S Adani Exports Ltd. & Ors  Insc 306 (3 May 2005)
R.C. Lahoti & G. P. Mathur
out of Special Leave Petition (C) No.7024 of 2005) With Civil Appeal No. of
2005 (Arising out of SLP (C) No.7032 of G. P. MATHUR, J.
These appeals have been preferred against the judgment and order dated
21.3.2005 of a Division Bench of Calcutta High Court by which the appeals
preferred against the interim order passed by a learned Single Judge on
15.3.2005 were allowed and the interim directions contained in the said order
were set aside.
West Bengal State Electricity Board (for short 'Electricity Board') issued a
notice on 8.3.2005 inviting tenders (for short NIT) for sale of its surplus
power to different State Electricity Boards or Power Utilities on short term
basis through Power Trading Agencies.
1 and 5 of the notice, which are relevant for the decision of controversy in
hand, are being reproduced below :
Sealed tenders are invited by the Chief Engineer, Central Commercial
Department, West Bengal State Electricity Board, Vidyut Bhawan, 8th Floor,
Block-A, Bidhannagar, Kolkata - 700 091 from experienced and interested Traders
and Business Enterprises having Power Trading License or Clearance from the
Central Electricity Regulatory Commission for export of following approximate
quantum of power.
of deposit of Earnest Money:
Every quotation must accompany 'Earnest Money' in the form of Demand Draft or
Pay Order drawn on any Scheduled Bank of India in favour of West Bengal State
Electricity Board payable at Kolkata amounting to Rs.30,00,000.00 (Rupees
thirty lakh) only. The Central/State Government Organization(s) and
CPSU(s)/PSU(s) are exempted from submission of Earnest Money.
Earnest Money shall be refunded to the successful bidder only after opening of
irrevocable and revolving LC by the successful bidder and commencement of
supply as per Payment Security Mechanism Clause. Earnest Money shall be
refunded to the unsuccessful bidder after finalization of Tender.
interest shall be paid by WBSEB on Earnest Money."
Global Energy Ltd. and H. Dhaul, the appellants herein, filed a writ petition
in the Calcutta High Court on 14.3.2005, where the principal relief claimed was
that the Electricity Board be restrained from enforcing the condition requiring
deposit of Rs.30 lakhs as earnest money in respect of the aforesaid tender and
an injunction may be issued directing the Electricity Board to accept and
evaluate their bid without requiring deposit of Rs.30 lakhs as earnest money.
plea taken in the writ petition was that the impugned condition for deposit of
earnest money of Rs.30 lakhs by licensed traders and not by Central/State
Government Organizations and Public Sector Undertakings showed undue favour to
them. It was further pleaded that the said condition was not only
discriminatory but was also contrary to express mandate of Electricity Act,
2003 and, therefore, the same was liable to be struck down. The writ petition
was taken up for admission hearing by a learned Single Judge on 15.3.2005 and
the following order was passed on the same day:
petitioners herein have challenged the action of the respondent authorities
regarding publication of the notice inviting tender and also the condition
regarding deposit of earnest money by the intending tenderers on various
grounds mentioned in the writ petition.
to the petitioners, the respondent authorities hereto have shown undue favour
to the public sector undertakings by granting exemption from submitting the
heard the learned counsel appearing on behalf of the parties and considering
the facts and circumstances of this case, I am of the view that this petition
should be decided only after filing of affidavits.
respondents are directed to file affidavit-in-opposition within three weeks
thereto, if any, be filed within a week thereafter and let this matter be
listed for hearing four weeks hence.
also be an interim order by granting liberty to the petitioners to participate
in the tender process in response to the notice inviting tender being Annexure
'P-1' to the writ petition subject to the condition that the said petitioners
will deposit the earnest money by furnishing a Bank Guarantee or Bankers' Cheque
in favour of the respondent No.2 within 18th March, 2005.
petitioners will, however, comply with the other tender conditions as mentioned
in the notice inviting tender."
Feeling aggrieved by the aforesaid order, M/s Adani Exports Ltd. and M/s PTC
India Ltd. filed two separate Letters Patent Appeals which were allowed by the
Division Bench on 21.3.2005 and the direction contained in the order under
challenge, permitting the writ petitioners (appellants herein) to deposit the
earnest money by furnishing a bank guarantee or bankers' cheque in favour of
the Electricity Board by 18.3.2005 was set aside.
Learned counsel for the appellants has submitted that the condition requiring
deposit of Rs.30 lakhs as earnest money by Power Utilities other than
Central/State Government Organizations and Public Sector Undertakings is
discriminatory and illegal. He has further submitted that the notice inviting
tenders (NIT) was published on 8.3.2005 which required that every quotation
must accompany earnest money in the form of a demand draft or pay order in favour
of the Electricity Board amounting to Rs.30 lakhs and the last date fixed for
submission of the tender was 14.30 hrs. on 15.3.2005. A very short notice had
been given by the Electricity Board in which it was difficult for the
appellants to make arrangement for the amount of Rs.30 lakhs. In these
circumstances, the learned Single Judge was perfectly justified in issuing an
interim direction, whereby the appellants were permitted to deposit the earnest
money by furnishing a bank guarantee or bankers' cheque by 18.3.2005. Learned
counsel for M/s Adani Exports Ltd. and M/s PTC India Ltd., who are respondents
in the appeals, have submitted that an important clause regarding deposit of
earnest money in a NIT cannot be altered or changed by Court as the said clause
has to be strictly complied with, being in the realm of contract. The learned
single Judge, therefore, committed manifest error of law in issuing the interim
direction on 15.3.2005 right on the first day of admission hearing of the writ
petition, which was rightly set aside by the Division Bench.
Before examining the contention raised it is important to understand the real
import of the order passed by the learned Single Judge on 15.3.2005. Though,
apparently the order looks innocuous in the sense that it has permitted the
appellants (writ petitioners) to deposit the money by furnishing a bank
guarantee or a bankers' cheque by 18.3.2005, but in reality it completely
altered the NIT in two ways. It allowed the appellants to participate in the
tender process without depositing any earnest money as the tenders/offers were
to be opened at 15.00 hrs. on 15.3.2005 and thus the appellants' tender was
directed to be considered even though the same was not accompanied with the
earnest money. Secondly, once the tenders are opened, the relative position of
each bidder is known and the appellants would have avoided depositing any
earnest money, had they felt that their bid was not competitive and there was
no chance of getting the contract. It is averred in the counter affidavit that
the appellants adopted a similar device while making bid for purchase of power
in Orissa where they obtained a somewhat similar order of not making the
deposit of earnest money by the date fixed. When after opening the tenders it
was revealed that their bid was not competitive and they had no chance of
getting the contract they did not at all deposit the earnest money, which was a
mandatory condition of NIT.
Clause 5.1 of NIT clearly provided that every quotation must accompany earnest
money amounting to Rupees thirty lakhs in the form of demand draft or pay order
drawn on any Scheduled Bank of India in favour of West Bengal State Electricity
Board payable at Kolkata. However, the learned Single Judge in his order dated
15.3.2004 also gave an option to the appellants to furnish a bank guarantee of
the said amount. Deposit of some amount of earnest money is a normal condition
of tender. The object is that only such parties who are financially sound and
are serious in getting the work or contract, should make a bid. Otherwise any
number of persons who have no capacity, financial or otherwise, would like to
take a chance by making a bid. Normally, State/Central Government Organizations
or Central or State Public Sector Undertakings would not make a bid unless they
are serious in getting the work. The shareholding of the Government (State or
Central) in any Public Sector Undertakings is always more than 50 per cent.
They cannot be equated with a company whose net worth may be very small or may
have a small shareholding. Therefore, the exemption granted in favour of State
Government Organizations and Public Sector Undertakings from making deposit of
earnest money of Rs.30 lakhs was based upon a rational criteria and could not
be faulted on any ground whatsoever. Order XXVII Rule 8A CPC provides that no
such security as is mentioned in rules 5 and 6 of Order XLI shall be required from
the Government or, where the Government has undertaken any defence of the suit,
from any public officer sued in respect of an act alleged to be done by him in
his official capacity.
provision shows that Government is always treated as a separate class. Even
assuming for the sake of argument that the exemption from depositing earnest
money made in favour of Central/State Government Organizations and Public
Sector Undertakings was illegal, it could only result in such exemption being
struck down. This could not lead to a result where the condition in the NIT
requiring deposit of earnest money itself being set aside.
9. In Tata
Cellular v. Union of India AIR 1996 SC 11, a Three Judge Bench has explained
what is a tender and what are the requisites of a valid tender. It has been
held that the tender must be unconditional and must conform to the terms of the
obligation and further the person by whom the tender is made must be able and
willing to perform his obligations. It has been further held that the terms of
the invitation to tender cannot be open to judicial scrutiny because the
invitation to tender is in the realm of contract. In Air India Ltd. v. Cochin
International Airport Ltd. 2000 (2) SCC 617 the same view was reiterated that
the State can fix its own terms of invitation of tender and that it is not open
to judicial scrutiny.
and in what conditions the terms of a notice inviting tenders can be a subject
matter of judicial scrutiny, has been examined in considerable detail in
Directorate of Education v. Educomp Datamatics Ltd. 2004(4) SCC 19. The
Directorate of Education, Government of National Capital Territory of Delhi had
taken a decision to establish computer laboratories in all Government schools
in NCT area and tenders were invited to provide hardware for this purpose. For
the final phase of 2002-03, tenders were called for 748 schools and the cost of
project was approx. Rs.100 crores. In view of the difficulty faced in the
earlier years where the lowest tenderers were not able to implement the entire
project, a decision was taken to invite tenders from firms having a turnover of
Rs.20 crores or more for the last three financial years ending with 31.3.2002,
as it was felt that it would be easier for the department to deal with one company
which is well managed and not with several companies. Some of the firms filed
writ petitions in Delhi High Court challenging the clause of the NIT whereby a
condition was put that only such firms which had a turnover of Rs.20 crores or
more for the last three financial years would be eligible. It was contended
before the High Court that the aforesaid condition had been incorporated solely
with an intent to deprive a large number of companies imparting computer
education from bidding and monopolize the same for big companies. The writ
petition was allowed and the clause was struck down as being arbitrary and
irrational. In appeal, this Court reversed the judgment of the High Court
basically on the ground that the terms of the invitation to tender are not open
to judicial scrutiny, the same being in the realm of contract and the
Government must have a free hand in settling the terms of the tender. The
courts would not interfere with the terms of the tender notice unless it was
shown to be either arbitrary or discriminatory or actuated by malice. It was
further held that while exercising the power of judicial review of the terms of
the tender notice, the Court cannot order change in them.
The principle is, therefore, well settled that the terms of the invitation to
tender are not open to judicial scrutiny and the Courts cannot whittle down the
terms of the tender as they are in the realm of contract unless they are wholly
arbitrary, discriminatory or actuated by malice. This being the position of law,
settled by a catena of decisions of this Court, it is rather surprising that
the learned Single Judge passed an interim direction on the very first day of
admission hearing of the writ petition and allowed the appellants to deposit
the earnest money by furnishing a bank guarantee or a bankers' cheque till
three days after the actual date of opening of the tender. The order of the
learned Single Judge being wholly illegal, was, therefore, rightly set aside by
the Division Bench.
Learned counsel for the appellants has submitted that the appellant M/s Global
Energy Ltd. had submitted a tender for Rs.436 crores while M/s Adani Exports
India Ltd. had submitted a tender for Rs.396 crores and as the tender of the
appellants was Rs.40 crores more than that of respondent No.1 the Electricity
Board would gain the said amount if the contract is awarded to the appellant.
Learned counsel for the contesting respondents have submitted that appellant
no.1 is not technically qualified to be awarded the contract for the sale of
electricity as it does not possess the requisite license for the said purpose.
appellant no.1 applied for grant of license for interstate trading in
electricity in all the five electricity regions in the country for trading of
100 million units in a year to the Central Electricity Regulatory Commission.
The Commission vide its order dated 6.9.2004 granted an interim license for
category 'A'. The appellant no.1 challenged the said order before the Delhi
High Court in which initially an order was passed on 26.10.2004 and the interim
license granted to it was extended till the next date of hearing.
order was extended and finally on 3.2.2005, the High Court directed that the
interim license granted to appellant no.1 shall be extended till further
orders. It is, therefore, clear that appellant no.1 is having an interim
license of category 'A' in its favour on the basis of the order passed by the
High Court. It is averred in the counter affidavit filed by the Electricity
Board that the total units of power intended to be traded are 1471 million
units. For trading over 1000 million units of power in any year the license
required is that of category 'F'. The computer website of Central Electricity
Regulatory Commission, as on 14.3.2005, contains the names of 12 licensed
electricity traders, but the name of the appellant no.1, M/s Global Energy Ltd.
does not find mention therein. It is also averred in the counter affidavit that
the Electricity Board had been selling surplus power to electricity traders
since 1st April, 2003. In the course of such
negotiations, the Electricity Board came to be associated with appellant no.1
for entering into power purchase agreement for the period March to June 2004.
the appellant no.1, after accepting the terms and conditions offered by the
Electricity Board and after issuance of letters of awards, failed at the last
moment to open the letter of credit for requisite amount and submitted
unacceptable letter of credit making the Electricity Board as a second beneficiary.
Due to this reason, the power purchase agreement failed to materialize at the
last moment, due to which the Electricity Board could not sell surplus power
resulting in a loss of revenue to the extent of about Rs.10.86 crores.
view of these facts, the contract was not awarded to appellant no.1.
The fact that M/s Global Energy Ltd. has a license of category 'A' and that the
said licence is subsisting in its favour on the basis of an interim order
passed by the High Court is not in dispute. Under the regulations of Central
Electricity Regulatory Commission, a holder of category 'F' license is entitled
to trade in over 1000 million units of power in a year. The total power
intended to be traded by the Electricity Board is 1471 million units for which
appellant no.1 does not possess the requisite license. Having regard to these
facts, we are clearly of the opinion that no ground has been made out by the
appellants, which may warrant interference by this Court with the decision
taken by the West Bengal State Electricity Board in not awarding the contract
to the appellant No. 1 as price offered cannot be the sole criteria in the
matter of trading of power where holding of relevant licence is mandatory under
the Regulations of Central Electricity Regulatory Commission.
The appeals lack merit and are hereby dismissed with costs, which we quantify
as Rs.25,000/-. The cost shall be paid by the appellants to the West Bengal
State Electricity Board (respondent no.2).