Full Judgment Text
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CASE NO.:
Appeal (civil) 5030 of 1999
PETITIONER:
M/s Subhash Projects & Marketing Ltd.
RESPONDENT:
West Bengal Power Development Corporation Ltd. & Ors.
DATE OF JUDGMENT: 21/10/2005
BENCH:
CJI R.C. LAHOTI,G.P. MATHUR & P.K. BALASUBRAMANYAN
JUDGMENT:
J U D G M E N T
(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.
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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
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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
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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
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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
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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
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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
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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.