M/S Subhash Projects &
Marketing Ltd. Vs. West Bengal Power Development Corporation Ltd. & Ors [2005]
Insc 581 (21 October 2005)
CJI R.C. Lahoti,G.P.
Mathur & P.K. Balasubramanyan (With C.A. No.5031/1999 and C.A. No.5032/1999) P.K.
Balasubramanyan, J.
1. These appeals arise from Writ Petition No.886 of 1997 filed by M/s Larson
& Toubro ('L & T' for short), in the High Court of Calcutta. Respondent
No.11 in the Writ Petition M/s Subhash Projects and Marketing Limited ('Subhash
Projects' for short) was the contesting respondent. By judgment dated
3.10.1997, a learned single Judge of the High Court dismissed the Writ
Petition. The Writ Petitioner thereupon filed appeal No. 559 of 1997 before the
Division Bench. By judgment dated 14.7.1998, the Division Bench came to the
conclusion that the appeal was liable to be allowed and the Writ Petitioner
granted relief.
Still, it did not grant the full relief to the Writ Petitioner, the
appellant before it, but directed the contesting respondent, Subhash Projects,
to pay a compensation of Rs.1 crore to the Writ Petitioner. This was on the
finding that the contract based on the tender floated by respondent No.1, the
West Bengal Power Development Corporation Limited (hereinafter referred to as
'the Power Corporation') ought to have been awarded to the writ petitioner-L
& T and the award of the same to respondent No.11 Subhash Projects was
illegal, but it was inexpedient at that stage to set aside the award of the
contract and the least that should be done was to direct Subhash Projects to
disgorge at least some portion of the profit it would have earned out of the
illegally awarded contract and make over the same as compensation to the writ
petitioner-L & T, who ought to have been awarded the contract. Feeling
aggrieved, respondent No.11 in the Writ Petition, Subhash Projects, has filed
Civil Appeal No. 5030 of 1999. M/s Larson & Toubro, the writ petitioner and
the appellant before the High Court has filed C.A. No. 5031 of 1999 submitting
that the High Court having found that the award of the contract to Subhash
Projects was illegal, and it should have been awarded to L & T, ought to
have gone ahead and struck down the award of the contract to Subhash Projects
and ought to have directed it to be awarded to L & T. The Union of India,
the Director (Thermal), Ministry of Power and the Central Electricity
Authority, who were respondents 8, 9 and 10 in the Writ Petition have filed
Civil Appeal No. 5032 of 1999 challenging the judgment of the Division Bench,
but essentially complaining, as was disclosed at the hearing, about the remarks
made by the Division Bench of the High Court about the interference of the
Ministry of Power and that of the Minister of State for Power and about its
impropriety. Since all the appeals arise from the same judgment, they have been
heard together.
2. With the aid of the Overseas Economic Corporation Fund, Japan
(hereinafter referred to as 'OECF'), the Power Corporation, decided to take up
the construction of Bakereshwar Thermal Power Project. Pursuant to that
decision, the Power Corporation issued a notice dated 19.7.1995 inviting
tenders for the work of water intake and plant water system package for 3 x 20
m.w. units of Bakereshwar Thermal Power Project. The bid was required to be
submitted in three separate covers, the first containing the earnest money
deposit, the second, the techno-commercial evaluation and the third, the price
bid. Pursuant to the tender notice, five bidders including Subhash Projects and
L & T submitted tenders. As per the instructions issued to the bidders,
bidders were not to be allowed to deviate from the principal requirements of
the tender specifications. It was provided that the price quoted should remain
firm throughout the period of the contract. In other words, no price variation
was permissible. The procedure for opening of the tenders was also set out.
Pursuant thereto, Cover-I containing the earnest money deposit and Cover-II
containing the techno-commercial evaluation, were opened and the tenderers were
found technically qualified. It was found that some vagueness had crept into
the notice inviting tenders and that the scope of certain works remained vague
or unclear. The technically qualified tenderers were called for discussion.
Conferences were held. Ultimately, at a Technical Evaluation Committee
meeting on 21.5.1996 for techno-commercial evaluation, it was decided to
suggest seven modifications. The proposed modifications were forwarded to OECF.
OECF suggested that the bidders may be allowed to submit price implications
strictly limited to the seven aspects suggested at the techno-commercial
evaluation and that bidders who agreed to withdraw the price variation clause
must submit a positive price implication for the same. It may be noticed here
that while L & T claims to have made a firm bid as per its original tender,
Subhash Projects had resorted to price variation clause and had not indicated
the positive price implication in its tender.
3. Pursuant to the communication in that behalf issued by the Power Corporation
regarding the seven deviations and the clarifications relating to the work made
at the conferences, Subhash Projects made a firm bid but increased its tender
amount. L & T indicated an increase of Rs. 35 lakhs in view of the seven
deviations mentioned in the communication, but indicated that it was willing to
reduce the original tender amount by Rs. 64 crores in view of the
clarifications issued about the work and in view of the proper understanding of
the real scope of the work. Thereafter, the price bids were opened. As per the
original price offered, L & T was placed as the fifth lowest and Subhash
Projects though it had resorted to price variation in the original tender, was
found the lowest bidder on the basis of the firm valuation offered by it subsequent
to the clarificatory letter issued by the Power Corporation.
But on taking note of the reduction proposed by L & T, while responding
to the subsequent communication, its bid was found to be the lowest.
4. The tenders were evaluated by the Tender Evaluation Committee. They were
also scrutinized by the technical experts appointed by the Power Corporation
and by OECF. Based on the assessment of all the three, it was decided at the
level of the Power Corporation, that L & T with its reduced offer, was the
lowest tenderer and it was recommended that the contract be awarded to L &
T. At this stage, Subhash Projects handed over a letter to the Minister of
State for Power in the Union Government, in person complaining that the placing
of L & T as the lowest tenderer, was not justified in view of the fact that
the acceptance of the reduction of Rs. 64 crores from its original bid was
against the tender conditions and that no such deviation could have been
permitted after the earnest deposit cover and the techno-commercial evaluation
offers had been opened, even though the price bids themselves had not been
opened. Based on this letter, a letter was written by a Secretary in the
Minister of State for Power to the Power Corporation, to look into the
complaint of Subhash Projects. When the Power Corporation stuck to its position
and the Government of West Bengal also agreed with the Power Corporation that
the contract be awarded to L & T, it being the lowest tenderer, the
Minister of State for Power and his ministry persisted in its direction seeking
a fresh evaluation to be made on the basis of the original bids, even going to
the extent of writing directly to the Government of West Bengal in that regard.
Ultimately, the Government of West Bengal and the Power Corporation were
compelled to make a fresh evaluation ignoring the reduction of Rs.64 crores
offered by L & T and to recommend the award of the contract to Subhash
Projects. On the letter in that behalf being issued to Subhash Projects, L
& T approached the High Court with the Writ Petition. No stay of the
working of the contract was granted, but the High Court permitted Subhash
Projects to continue the work, making it clear that it would not be entitled to
claim any equity, in case the Writ Petition was allowed. Thus, pending the Writ
Petition, Subhash Projects did a part of the work, obviously without any claim
in equity and subject to the result of the Writ Petition. Though, the learned
single Judge stated that, although he had no doubt that the Power Corporation,
ought not to have succumbed to the pressure of the Minister of State for Power,
and awarded the contract to Subhash Projects, it was not necessary to interfere
with the award of the contract in the peculiar circumstances of the case, since
before the contract was actually awarded to Subhash Projects, Subhash Projects
was persuaded to reduce the tender amount to just below that of the sum quoted
by L & T and it was not in public interest to interfere since a part of the
work had already been done by Subhash Projects. This judgment was modified by
the Division Bench which also found that the award of contract to Subhash
Projects was at the pressure of the Union Minister of State for Power, undue
pressure at that, and that though the contract itself was not liable to be
interfered with, Subhash Projects which had secured the contract by dubious
means, was liable to be compelled to disgorge at least a portion of the profits
that it would have earned from working the contract. The Division Bench
assessed the same as Rs. 1 crore which it found would be less than 10 per cent
of the profits that Subhash Projects would have earned and directed its payment
to L & T.
5. It was argued by the learned Senior Counsel for the appellant-Subhash
Projects that the Division Bench of the High Court was in error in finding that
the award of the contract to Subhash Projects was illegal and that the due
award of the contract to L & T, was unduly interfered with by the Minister
of State for Power in the Union Government and that such interference by him
was unwarranted and uncalled for. Learned counsel submitted that the Minister's
Secretariat and the notings of the Minister had only directed the following of
the guidelines and norms and issuance of such a direction could not be
considered to be undue or improper interference in the matter of the award of
the contract. As a representative of the public, nothing stood in the way of
the Minister receiving a representation made to him personally on behalf of
Subhash Projects and there was nothing sinister in the Minister receiving it or
directing it to be forwarded to the Power Corporation for action. There was
also nothing improper in the Minister taking up the matter with the State
Government and seeking its intervention to have the directions issued by him
obeyed by the Power Corporation. That apart, the offer of L & T as
originally made, was higher than that of Subhash Projects and if the rebate
offered by L & T of Rs. 64.40 crores was kept out, no fault could be found with
the award of the contract to Subhash Projects. Learned counsel submitted that
the guidelines were mandatory and clause 5.03 thereof justified the rejection
of the reduced offer of L & T and in that situation, the High Court was not
justified in inferring that the award of the contract to Subhash Projects was
not justified in this case. There was also nothing illegal or improper in
permitting Subhash Projects to reduce its offer to below that of L & T once
it was found that Subhash Projects was the lowest tenderer and there was a
decision to award the contract to it. Learned counsel submitted that in the
matter of award of contracts, the `jurisdiction of the High Court was limited
and it was not as if the High Court was sitting in appeal over the evaluation
and award of the contract.
There was, therefore, no justification in the High Court directing Subhash
Projects to pay compensation to L & T on the basis that the contract ought
to have been awarded to L & T. To a question put to him specifically, he
has submitted that in case, at the end of it, this court came to the conclusion
that the submissions on behalf of the Subhash Projects are not sustainable, he
would prefer the judgment of the Division Bench of the High Court to be left as
it is, rather than the accepting of the appeal filed by L & T and setting
aside the award of the contract to Subhash Projects since the adoption of such
a course may lead to other consequences which would be more serious as far as
Subhash Projects is concerned.
6. On behalf of the Union of India, the learned Additional Solicitor General
submitted that the inference by the High Court that there was undue
interference by the Minister of State for Power in the Union Government was not
justified. Learned counsel submitted that the strong observations made are not
warranted in the circumstances of the case. He submitted that the Minister had
acted only in public interest and he had no axe to grind in the matter. The
receiving of a representation personally, or the forwarding of it for being
considered could not be said to be acts not befitting a Minister, a
representative of the people. Thus, he submitted that C.A. No.5032 of 1999
filed by the Union of India was liable to be allowed at least to the extent of
removing the observations about the role played by the Minister of State for
Power in the Union Government and his Ministry.
7. On behalf of L & T, which has also filed the appeal C.A.
No. 5031 of 1999, it was submitted that this was a case where the original
tender notification was not clear, the scope of the work was not precisely made
known; that conferences had to be held, discussions had to take place,
clarifications had to be issued, scope of the work had to be defined and the
tenderers apprised of the real extent and nature of the work. In that
situation, the tenderers had necessarily to clarify their offers especially
since firm offers were not made by some of the tenderers, including Subhash
Projects who had resorted to price variation clause. He submitted that the
consultants appointed by the Power Corporation, the OECF, and the Tender
Evaluation Committee had recommended the award of the contract to L & T and
the Central Electricity Authority on being apprised of all the relevant facts,
had also agreed with that view and the State Government had concurred with the
proposal and it was only the undue and persistent interference by the Minister
of State for Power in the Union Government, without even seeking properly, the
opinion of the OECF in that regard by apprising it of all the factors relevant
to the issue and without taking into account the opinion of the Central
Electricity Authority, that had resulted in the contract being awarded to
Subhash Projects and in that situation, the High Court ought to have struck
down the award of the contract to Subhash Projects and should have directed the
award of the contract to L & T. He pointed out that clause 5.03 relied on
had been given the go-by and had no application to the case on hand and if one
were to go strictly by the tender conditions, the bid of Subhash Projects was
liable to be rejected and Subhash Projects should not have been permitted to
sub- contract or directed to sub-contract, against the terms of the original
notice inviting tenders. He pointed out that whereas the stand was taken that
the reduction offered by L & T should not be taken note of, Subhash
Projects was permitted to reduce its offer to a figure little below that
offered by L & T and that the whole exercise was mala fide and was at the
instance of the Minister of State for Power in the Union Government and the
action in that behalf has been rightly found to be not proper by the High
Court. He pointed out that the learned single Judge has also held that pressure
had been brought to bear on the Power Corporation by the Minister of State for
Power in the Union Government. He submitted that logically, the award of
contract to Subhash Projects should be set aside and it should be directed that
the contract be awarded to L & T. As regards the appeal C.A. No. 5030 of 1999
filed by the Subhash Projects, learned counsel submitted that in any event,
there was no reason to interference with the judgment of the High Court
awarding a sum which was not even 10 per cent of the profits that Subhash
Projects would have earned out of the contract. He referred to the decision in
M/s A.T. Brij Paul Singh & Ors. Versus State of Gujarat [(1984)4 SCC 59] to
submit that in such cases, the profit could be normally estimated at 15 per
cent of the contract amount and here, the High Court had taken a gross figure,
which was only two-thirds of that.
8. The voluminous correspondence and materials produced by the parties have
been adverted to and evaluated both by the learned single Judge and by the
Division Bench of the High Court. The learned single Judge of the High Court,
in fact, found that clause 5.03, Part II of the guidelines of OECF, had no
application in the case in the circumstances referred to by him. He also found
that contemporaneous documents clearly showed that all concerned preceded on
the basis that clause 5.03, part II of the guidelines, would not be applicable.
This view was not disagreed to by the Division Bench. It appears to us that
while issuing the notice inviting tenders, the Power Corporation had not
clarified the scope and the extent of the work that was being tendered.
Offers were made by the tenderers. Obviously, there was considerable
confusion and clarificatory meetings and conferences had to be held, clarifying
the scope of the work and clarifying other technical details.
Ultimately seven deviations were also proposed in writing and the offers of
the bidders invited based on those seven variations. This was, therefore a case
where considerable confusion prevailed and the bidders, including Subhash
Projects were forced to make renewed offers including the deletion of the price
variations clause. It must be noticed that the price bids had not been opened
when these negotiations were being carried on and the tenderers were given an
opportunity to make revised offers in the light of the clarifications and in
the light of the seven deviations made. In that sense, the bids had not been
opened, since the relevant bid, the price bid, still remained to be opened. If,
at that stage, the tenderers, on understanding the real scope of the work and
the magnitude of the work, offered to reduce the amount that had originally
been offered on the basis of misconceptions arising out of the confusion
created by the vagueness in the notice inviting tenders, it could not be said
that such offers were liable to be rejected on the ground that they were
variations against the terms of clause 5.03 of the guidelines. This aspect has
also been found by the learned single Judge in his judgment. The argument on
behalf of Subhash Projects that the variation in the offers should have been
ignored cannot, therefore, be accepted. In any event, when after consulting its
own consultants and the independent consultants appointed by OECF and based on
the evaluation of its own Tender Evaluation Committee, the Power Corporation
placed L & T as the lowest tenderer, there was no justification at all in
the Ministry of State for Power harping on that aspect, on the facts of the
case, even without obtaining a proper opinion from OECF and Central Electricity
Authority after appraising them of all the relevant facts. The persistence of
the Ministry of State for Power and the manner of it, in the circumstances,
looks strange.
9. Even as regards Subhash Projects, it was given an opportunity to make a
firm offer which, in fact, it was bound to do on the terms of the notice
inviting tenders and it was also given an opportunity to reduce its price even
from the one subsequently quoted by it as its firm offer, before the award of
the contract to it. Therefore, this was a case where in any event, all the
tenderers should have been invited and given an opportunity to reduce their
bids before accepting the most competitive of them in public interest and in
the interest of the project.
The learned single Judge has, in fact, stated, "A revised bid also
became necessary in view of the changed situation, namely, alterations,
amendments and clarification in the schedules and the drawings, resulting in
alternations and amendments both in respect of part-A i.e.
supply of materials and part-B i.e. service." The said finding could
not be successfully assailed by Subhash Projects or by the Union of India, in
their appeals.
10. It is in this context that the Division Bench of the High Court came to
the conclusion that the consultants of the Power Corporation, the foreign
consultants of OECF, the tender evaluation committee and the Central
Electricity Authority, were justified in coming to the conclusion that the
offer of L & T as revised, was the lowest and in recommending that its
tender be accepted. It was in this context that the court also found that
approval of this recommendation by the State Government was also justified. It
is in this context that we have to consider the act of the Minister of State
for Power and his Ministry, in persisting in the stand that clause 5.03 should
be adhered to.
The Division Bench of the High Court called for the relevant records from
the Ministry and has noticed that the concerned file was never put up before
the Minister for Power and there was nothing to show that Minister of State for
Power had been delegated any function in such matters. In fact, the Division
Bench found that except as involving public interest, the matter concerned,
might not even have been within the purview of the Minister of State for Power.
We do not want to go further into that aspect, but we must notice that the
Ministry of State for Power, was not fair in not apprising OECF of the entire
facts with reference to the documents and seeking its advice before taking a
stand on the matter of identification of the lowest tenderer on the facts and
in the circumstances of the case. The manner in which the Minister of State for
Power in the Union Government went about it, has led to the observations of the
High Court, complained of in the appeal by the Central Government. On the
materials, we are not in a position to say that the Division Bench of the High
Court was not justified in drawing the inference it had drawn.
11. We were taken elaborately through a large number of documents including
the valuation process undertaken by the evaluation committee and the opinions
expressed by the other responsible bodies and a reappraisal of those materials,
only supports the conclusion of the Division Bench on the matters in
controversy. It may be noticed that the learned single Judge had also rejected
the contentions of Subhash Projects, and had held that it was difficult to
understand as to how the Power Corporation overlooked the original defect in
the tender of Subhash Projects which included a price variation clause and not
a firm price as stipulated and how it held negotiations only with it at the
price bid stage when Subhash Projects admittedly lowered its bid so as to make
its offer nearer to the offer of L & T, despite the restriction in that
regard as contained in OECF letter dated 1.7.1996 made much of to support the
contract given to it and how Subhash Projects was permitted to enter into
sub-contracts with other contractors, and that too, even prior to the entering
into an agreement by Subhash Projects itself. The learned single Judge had also
found that in any event, price variation became necessary in view of the
alterations, amendments and clarifications to the tender schedule. The Division
Bench had, by and large, agreed with that finding. These findings are seen to
be justified on the materials available on record and there is no justification
in this Court interfering with those findings in these appeals. Thus, it was a
case where different yardsticks were being used at different stages and the
persistence of the Ministry of State for Power in raising objections until
Subhash Projects was chosen as the lowest tenderer does look strange.
12. Thus, on a reappraisal of the relevant materials in the light of the
submissions before us, we are not satisfied that any interference is called for
with the judgment of the Division Bench in these appeals.
Since we are inclined to agree with the conclusion of the Division Bench
that the award of the contract to Subhash Projects was not legal, we see no
reason to interfere with the course adopted by the Division Bench in the matter
of awarding compensation to L & T payable by Subhash Projects. We also find
the sum fixed reasonable and to the advantage of Subhash Projects. We are not
inclined to entertain the plea of L & T in its appeal that the award of the
contract to Subhash Projects itself must be set aside and the contract directed
to be awarded to L & T or to order a fresh tender to be invited for the
work. The adopting of such a course would be counter productive in the
circumstances, considering the nature of the project and the steps that had
already been taken and the completion of the project itself during the pendency
of these appeals.
13. One aspect remains to be considered. The Division Bench had directed the
Power Corporation to pay out the sum of rupees one crore to L & T out of
the payments to be made to Subhash Projects. This Court while issuing notice on
31.8.1998 on the petition for special leave to appeal filed by the Subhash Projects,
stayed the direction regarding the payment of compensation. Thereafter, on
10.9.1999, leave to appeal was granted. According to Subhash Projects, the
project was completed and the final bill was submitted for payment. The payment
was not made by the Power Corporation without Subhash Projects depositing the
sum of one crore in a Fixed Deposit and handing over that receipt to the Power
Corporation. Thereafter, Subhash Projects filed a petition for release of the
Fixed Deposit receipt for Rs.1 crore retained by the Power Corporation. On
8.8.2003, this Court permitted the Power Corporation to return the Fixed
Deposit Receipt to Subhash Projects "subject to the condition that Subhash
Projects through its Managing Director will execute an undertaking before the
Registry of this Court to refund any amount that becomes payable in the event
of the above appeal being dismissed by this Court within four weeks from that
date." The Subhash Projects has, thus, got back the Fixed Deposit Receipt
for Rs. 1 crore in the light of the undertaking given by Subhash Projects
through its Managing Director. Pursuant to the order of 8.8.2003 and in view of
our conclusions, Subhash Projects has to be directed to deposit a sum of Rs.
1 crore in this Court, so that the same could be disbursed to L & T.
Subhash Projects has had the benefit of the money which should have been
disbursed to L & T in the light of the directions of the High Court, which
we have confirmed. So, Subhash Projects should be directed to pay some
reasonable interest to L & T for the amount. We feel that interest at the
rate of five per cent per annum would be reasonable under the circumstances.
We, therefore, direct Subhash Projects to deposit in this Court within four
weeks from today the sum of rupees one crore with interest thereon at five per
cent per annum from 8.8.2003 till the date of its deposit. The amount will then
be disbursed to L & T. It will be open to Subhash Projects to pay the sum
of rupees one crore with interest as aforesaid by way of a bank draft to L
& T within four weeks and to file an affidavit in this Court testifying to
that fact. The affidavit should be filed within six weeks from today. In case
Subhash Projects does not pay the amount of Rs. 1 crore with interest as
ordered to L & T by way of draft or deposit the same in this Court within
four weeks as originally undertaken by it, the amount of Rs. 1 crore will carry
interest at the rate of 10 per cent per annum (instead of five per cent per
annum as stipulated) from the date of the judgment of the Division Bench of the
High Court till the date of its recovery. L & T would be entitled to
execute this order for recovery as if it were a decree through the concerned
district court in Calcutta, charged on the assets of Subhash Projects and on
the properties of its Directors and personally from them.
14. In the result, C.A. No. 5030 of 1999 filed by Subhash Projects is
dismissed with costs. C.A. No. 5032 of 1999 filed by the Union of India is
dismissed with no order as to costs. C.A. No. 5031 of 1999 filed by L & T
is also dismissed, subject to the direction regarding the payment of Rs. 1
crore with the provision for interest and the recovery of the amounts as
provided hereinbefore. In this appeal also, the parties will suffer their respective
costs.
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