HEADLINE: Tenderers May Be Disqualified Based on Financial Defaults or NPA Status of Their De Facto Promoters

The appellants challenged an interim order by a Single Judge declining to stay the disqualification of appellant No. 1 (MTL) from a tender issued by Bank of Baroda (BoB) for printing self-service passbooks.

MTL was disqualified under Clause 14 of the Request for Proposal (RFP), which barred entities whose "Promoter Directors" were defaulters or held Non-Performing Accounts (NPA).

MTL argued that Sri T. Gautham Pai, who was associated with a defaulting entity, had been redesignated from "Promoter Director" to "Professional Director" as of January 21, 2026, and thus the clause did not apply.

BoB contended that the redesignation (filed via Form DIR-12 on the same day as the bid submission) was a facade to bypass eligibility criteria.

1. Whether Clause 14 of the RFP is invalid for being manifestly arbitrary and violative of Article 14 of the Constitution of India.

2. Whether the involvement and status of Sri T. Gautham Pai in MTL renders it ineligible under the "Promoter Director" disqualification criteria.

The court applied the principle of "judicial restraint" in administrative and contractual matters, establishing that the state has "fair play in the joints" to set tender conditions unless they are manifestly arbitrary.

It relied on New Horizons Ltd. v. Union of India, which permits "piercing the corporate veil" to assess the credentials of the individuals in control of a company for commercial contracts.

The court used the definition of "control" under Section 2(27) of the Companies Act, 2013, and the definition of "promoter" under Section 2(69), interpreted through Arcelormittal India Pvt. Ltd. v. Satish Kumar Gupta, which includes both de jure and de facto control.

The Court reasoned that Clause 14 is not arbitrary because a bidder's financial creditworthiness is a legitimate commercial consideration, and the standing of promoters is intrinsically linked to the company's reliability.

the Court found MTL's attempt to redesignate Sri T. Gautham Pai as a "Professional Director" irrelevant to his actual status. It noted that Pai remained the Executive Chairman and a whole-time director with vast strategic and management powers.

Applying the de facto control test from Arcelormittal, the Court held that since Pai—a signatory to the MOA/AOA and long-time Managing Director—continued to exercise "control" over MTL’s policy decisions, he remained a "Promoter Director" regardless of the formal nomenclature in RoC filings.

Furthermore, by participating in the tender without initial protest, MTL was estopped from challenging the conditions after disqualification.

The disqualification was found prima facie sustainable, though parties were permitted to agitate specific factual issues regarding the alleged default in the pending writ petition.