R.B. Trading Agency and Others vs Steel Authority of India Ltd. and Others

Aparesh Kumar Singh, J.—The appellants in L.P.A. No. 521 of 2014 (Steel Authority of India Ltd. and others v. R.B. Trading Agency and others) were the respondents in the writ petition (civil) No. 4985 of 214 while the appellant in L.P.A. No. 527 of 2014 was the writ petitioner in the said writ petition. Both of them are aggrieved one way or the other by judgment dated 11th November, 2014 rendered by learned Single Judge in the writ petition. For the sake of convenience, appellant-Steel Authority of India Ltd. shall be referred to as ''SAIL'' hereinafter, while the appellant-R.B. Trading Agency in the connected appeal shall be referred to as the writ petitioner. SAIL is aggrieved against part of the judgment dated 11th November, 2014, whereby learned Single Judge in spite of holding that Clause 7.8 is valid, allowed the writ petition in part and directed the respondents-SAIL to refund the earnest money of Rs. 25 Lakhs deposited by the writ petitioner. The appellant-R.B. Trading Agency is also partly aggrieved by the same impugned judgment, as learned Single Judge refused to quash the letter dated 22nd September, 2014 impugned in the writ petition, whereby the letter of intent issued to the writ petitioner by respondent-SAIL was cancelled. Since both the appeals arise out of common judgment and are directed against part of the impugned judgment decided against the respective appellants herein, they have been heard together.

For the sake of convenience, the brief facts which are not in controversy and are relevant for arriving at the proper adjudication of the instant appeals are being referred to hereinafter. Pursuant to tender notice dated 13th May, 2014 issued by SAIL for appointment of Handling Contractor at SAIL Warehouse, Bokaro, the writ petitioner participated and was declared L-1. However, the writ petitioner was directed to justify the rates quoted by him. On the request of the writ petitioner, the dates were extended and finally on 22nd August, 2014, he furnished the cost breakup to justify the rates quoted by it. On 22nd August, 2014, a letter of intent was issued by SAIL in favour of the writ petitioner. On the same day another letter was issued directing the writ petitioner to submit Additional Performance Guarantee Bond of Rs. 2,51,66,800/- and also comply with the other conditions stipulated therein within a period of 30 days. The respondent- SAIL on failure of the petitioner to submit Additional Performance Guarantee Bond cancelled the letter of intent dated 22nd August, 2014 by letter dated 22nd September, 2014 impugned in the writ petition.

The writ petition was preferred by the petitioner-R.B. Trading Agency with a number of prayers:

"(a) For commanding the Respondents- SAIL to consider the justification of the petitioner for the quoted price after affording a reasonable opportunity and proper negotiations with him;

(b) For quashing Clause 7.8 contained in the "Instructions to Bidders";

(c) For quashing Clause 1(f) contained in letter dated 22nd August, 2014, whereunder the petitioner had been called to furnish additional performance guarantee bond of Rs. 2,51,66,800/-;

(d) For restraining the concerned respondents- SAIL from forfeiting the earnest money of Rs. 25 Lakhs deposited by the petitioner;

(e) For commanding the respondents to hold meaningful and proper negotiations with the petitioner for execution of the contract as well for fixation/determination of the lower limit of the estimated rate as per Clause 7.8 and

(f) For commanding the Respondents- SAIL to execute the contract with the petitioner pursuant to the Letter of Intent dated 22nd August, 2014 without imposing any irrational conditions for submitting additional performance guarantee bond."

During the pendency of the writ petition through Interlocutory Application No. 5353 of 2014, the petitioner was allowed to incorporate the prayer relating to quashing of letter dated 22nd September, 2014, whereby Letter of Intent issued to him, had been cancelled and the Earnest Money Deposit of the petitioner had been forfeited. Further prayers for converting the Earnest Money Deposit of the petitioner as security deposit and for restraining the respondents from floating a fresh tender for the work in question during the pendency of the writ petition were also allowed to be incorporated. Through Interlocutory Application no 5707 of 2014, further prayer to quash the Tender Notice dated 26th October, 2014 for fresh tender of the work in question was also allowed to be challenged by the same order dated 7th November, 2014. Thereafter, the writ petition was heard and finally decided at the admission stage on 11th November, 2014 by the impugned judgment in question, in both the appeals.

The crux of the issue as it appears from the pleadings and submissions of the rival parties is in essence relating to invocation of Clause 7.8(b) by SAIL, asking the petitioner to furnish Additional Performance Guarantee Bond of Rs. 2,51,66,800/- through letter dated 22nd August, 2014. While learned Single Judge held that Clause 7.8 to be valid, but found the stand of the respondent-SAIL in not disclosing the estimated price to the petitioner-Agency, demanding Additional Performance Guarantee Bond as arbitrary and against the Rules of natural justice. Therefore, the learned Single Judge did not find any justification for forfeiting Earnest Money Deposit of Rs. 25 Lakhs deposited by the petitioner. However, learned Single Judge also held that since the petitioner had failed to comply with the condition of 1(f) contained in letter dated 22nd August, 2014, asking for Additional Performance Guarantee Bond within stipulated time, the cancellation of Letter of Intent did not require any interference by the Court though, forfeiture of Earnest Money Deposit was held to be bad in law. Thus, learned writ court directed the respondent- SAIL to refund the earnest money of Rs. 25 Lakhs deposited by the petitioner. For better appreciation of the controversy as aforesaid in the backdrop of the factual matrix briefly noticed hereinabove Clause 7.8(b) of the Instructions to Bidders issued under the tender notice is being quoted hereinbelow:

"7.8 Negotiation/Justification of rates quoted

(a) Order in the Contract will be placed on the basis of L-1 quotation. If required, negotiations will be held with L-1 bidder only. If a bidder quotes un-workable rates i.e. if the quoted price is less than the lower limit of the estimated rate (as determined by the Company), the bidder will be asked to justify the rates quoted.

(b) On non-acceptance of justification/refusal of the same, the bidder will be asked to furnish Additional P G Bond equal to the amount which will be the difference between lower limit of the estimated rate and the quoted rate of the bidder. The amount of PG Bond to be furnished will be calculated by multiplying such differential rate with the estimated quantity for first year of operation. The bidders, who refuse to comply with this, their EMD shall be forfeited and they will not be considered for participating in the retendering process if the contract is not finalized from the present tender."

As is apparent from the stand of the respective parties the writ petitioner admittedly was the lowest bidder having quoted weighted average rate of Rs. 85.95 per tone as handling rates for execution of work at Warehouse of Steel Authority of India Ltd. The rates quoted by other tenderers were much higher while petitioner''s rate was much less than 15% of cost as assessed by Technical Evaluation Committee which as per the respondent- SAIL was unworkable. In fact, as per the statements made at paragraph 33 and 34 of their counter affidavit in the writ petition the petitioner''s rate was lower by 54.32% of the departmental estimate and 46.25% lower than the lower band of the estimated rate. Therefore, SAIL had sought for justification from the petitioner for quoting such rate as per Clause 7.8(b) of the instruction of bidders. The respondent- SAIL took the stand in their counter affidavit that since unworkable rates were provided by the petitioner there were high probabilities that the work will suffer and the person may quit or would not perform the job in its true spirit which would frustrate the entire work and will hamper Warehouse Handling of Steel Authority of India Ltd. Clause 7.8, according to them, was incorporated in the instructions to bidders under the tender notice and in full knowledge of the petitioner in order to save guard such a situation were wholly unworkable rate is quoted by a bidder. The respondent-SAIL also took the plea that the bench mark which they have fixed on the basis of internal assessment of the company to come to a conclusion whether rate furnished by the bidder is workable or not cannot be disclosed to the bidders as it may affect the interest of the respondent-SAIL. According to the stand of the SAIL taken before writ court issuance of Letter of Intent did not confer any right upon the petitioner to get the contract. Since the justification of the rates furnished by the petitioner was found to be unacceptable, the petitioner was asked to furnish additional performance guarantee bond in terms of Clause 7.8 of NIT. On failure to furnish the same the respondent SAIL cancelled the Letter of Intent and forfeited the amount of earnest money deposit as per Clause 7.8(b).

Challenge to Clause 7.8(b) was made by the petitioner in the writ petition but though the learned writ court did not consider it proper to quash the said Clause 7.8(b), the writ petitioner in the instant appeal has not laid any challenge on that score. The petitioner is aggrieved by the impugned judgment so far as the letter dated 22nd September, 2014, whereby a Letter of Intent issued to the writ petitioner was cancelled, has not been quashed by learned Single Judge though it was held that the procedure adopted by SAIL in not disclosing the estimated price to the petitioner, demanding additional performance guarantee bond is arbitrary and against the Rules of natural justice. Essentially, the petitioner appears to be aggrieved by the stand of the respondent-SAIL in not disclosing the estimated price to the writ petitioner for asking additional performance guarantee bond under Clause 7.8(b).

From the tender notice and the instructions to bidders, it appears that bids were invited from interested persons, firms/companies capable of handling iron and steel materials at SAIL Warehouse located at Marafari, Bokaro. The nature and scope of the work as per clause 1 of the instructions to bidders required the contractor to assume full responsibility on behalf of the Company in regard to claiming and clearance of consignments arriving by Rail/Road. The work required the contractor to undertake frequent and adequate inquiries with Railways/BSL Traffic Department about arrival of wagons and for their unloading. Apart from other things it also required the contractor to satisfy himself that Seals and rivets of wagons were intact or whether there was any sign of tampering in respect of any consignment. The contractor was required to take delivery of all consignments meant for the company and stack them in the Warehouse in an orderly manner as per guidelines laid down by the company. He was also to be responsible for any damage caused during handling. The nature of the work as per clause 2.5 stipulated minimum equipment requirement such as enumerated at clause 2.1. i.e. mobiles cranes of different capacities from 25 metric tonnes to 40 metric tonnes and above as per the numbers specified; Pick and Carry type like HYDRA, Flat Bed Trailers having double differential of minimum capacity 20 metric tones as per the numbers specified. These equipments were to be deployed by the successful bidder for carrying out the operations.

The nature of work and schedule of operation indicated in the instruction, makes it obvious that the work was not only of specialized nature with requirement of sufficient expertise but also demanded resource worthiness of the intending bidder not only in terms of financial capacity but also in terms of equipments and machineries to be deployed for execution of the work. Clause 7.0 provides for opening of tenders and evaluation: the tender evaluation committee would decide the eligible tenderers and evaluate them based on the tonnage estimated to be handled in the first year as mentioned in the tender documents and rates quoted for; SAIL under Clause 7.0 reserved the right to accept or reject any or all tenderers without assigning any reason whatsoever. The material clause 7.8 (quoted hereinabove) stipulated negotiation/justification of rates quoted. If the lowest bidder has quoted unworkable rate i.e. price is less than the lower limit of the estimated rates (as determined by the company), the bidder would be asked to justify the rates quoted. Under Clause 7.8(b): if the bidder refuses to justify the rates quoted or if justification was not accepted, the bidder will be asked to furnish Additional PG Bond equal to the amount which will be the difference between lower limit of the estimated rates and the quoted rate of the bidder. The amount of PG Bond to be furnished will be calculated by multiplying such differential rate with the estimated quantity for first year of operation. It further stipulated that the bidders who refuse to comply with this, their EMD shall be forfeited and they will not be considered for participating in the re-tendering process if the contract is not finalized from the present tender. Since the petitioner in the present appeal has not persisted with his challenge to the instant clause 7.8 (b) we are only required to examine whether the impugned action of cancellation of LOI by SAIL and forfeiture of EMD as consequence thereof was proper in the eye of law or not, since both the appellants have assailed part of the impugned judgment on the aforesaid aspects.

We find sufficient justification in the stand of SAIL that if the lowest bidder has quoted unworkable rates i.e. price which is less than lower limit of the estimated rate (as determined by the company) and the bidder fails to justify the rates quoted, SAIL may ask for furnishing Additional P.G. Bond as per the formula stipulated in the said Clause 7.8. It is not in dispute that the petitioner along with other tenderers had participated in the tender process with full open eye and were aware of the terms and conditions stipulated in the instructions to bidders which also contains clause 7.8(b). Given the magnitude of the operation and the exigency with which work is to be executed by a successful bidder, SAIL can be said to have sufficient reason to satisfy itself that a tenderer who has quoted lowest bid which is less than lower limit of the estimated rate as determined by the company is required to justify it in the first place and on failure to do so is required to furnish additional performance guarantee bond. As it appears from the terms of the tender notice, the contract was not only for a year but spread over more than 1 year. For reasons of maintaining the sanctity of the tender process, SAIL may have good reason not to disclose the lower limit of estimated rate as determined by the company as in case if re-tender is undertaken the prospecting tenderer may have prior knowledge of estimated rates and may take undue benefit out of it. However, that issue may not affect the instant controversy as in the instant case it is found that SAIL in its counter affidavit had given at para 34 that the petitioner''s quoted rate of Rs. 88/- was in fact, lower by 54.32% of the departmental estimate and 46.25% lower than the lower band of estimated rate. On account of such a huge difference in the lowest rate quoted by the writ petitioner from the departmental estimate SAIL had enough reason to satisfy itself that the petitioner while quoting the lowest rate of Rs. 88 was indeed a serious tenderer who was capable of executing the work.

However, we do find that after giving extended time to the petitioner to provide justification of the quoted rates and on furnishing of its justification on 22nd August, 2014, SAIL issued the Letter of Intent on the same date i.e. 22nd August, 2014 in favour of the petitioner. The Letter of Intent dated 22nd August, 2014 which is two line letter does not at all indicate that the justification given by the petitioner has not been accepted. Even the letter of compliance for contract formalities dated 22nd August, 2014 issued by the respondent- SAIL to the petitioner, thereafter, on the same day also does not indicate any reason for non-acceptance of justification of the quoted rates furnished by the petitioner. However apart from directing the petitioner to complete various formalities and documents as per tender terms within a period of 30 days, SAIL by Clause 1(f) of the same letter directed the petitioner to furnish additional performance guarantee bond as per the proforma prescribed by the company. SAIL did not even communicate non-acceptance of justification of the rates quoted by the petitioner; in stead asked the petitioner to furnish Additional P.G. Bond of Rs. 2,51,66,800/- within 30 days. However, since the petitioner himself failed to furnish Additional P.G. Bond within the stipulated time, SAIL cancelled the Letter of Intent issued upon him through the impugned letter dated 22nd September, 2014. In the sequence of events, which have unfolded and have been referred to hereinabove and in relation to a contract of such a serious nature of work affecting large scale of handling operation of SAIL, we are of the view that the approach and conduct of the writ petitioner in not depositing the additional performance bank guarantee within the time stipulated and consequently undertaking to enter into the contract did not disclose seriousness of intent and purpose in executing the work. In such a scenario withholding of execution of work of such large scale of operation had wider ramification considering the fact that a whole lot of handling of products manufactured by Steel Authority of India Ltd. and to be used and transported to various other places could have been seriously jeopardized. As a matter of fact, on failure of the writ petitioner to furnish Additional P.G. Bond, the tender itself had to be cancelled and fresh tender had also been issued.

As has been stated by learned Senior counsel for the appellant-SAIL that all formalities in the said tender had been completed and it is only because of interim order passed in the instant appeal in favour of the writ petitioner that the contract could not be allotted to any other party. We therefore do not approve of the conduct of the petitioner so far the aforesaid aspect of the matter is concerned. As rightly held by learned Single Judge, we do not find any reason to interfere in the impugned order dated 22nd September, 2014 issued by SAIL, canceling the Letter of Intent issued in favour of the petitioner. However, for the reasons discussed hereinabove, we also find that SAIL had not even considered proper to communicate non-acceptance of the justification of the lowest rates quoted by the petitioner while issuing the Letter of Intent on 22nd August, 2014 in favour of the petitioner and also while asking for Additional P.G. Bond of Rs. 2,51,66,800/- within a period of 30 days by letter dated 22nd August, 2014 itself i.e. on the same day for compliance of the contract formalities as per tender terms. This stand of SAIL, does not appear to be in tune with requirement of Clause 7.8 where it was required to indicate whether justification furnished by lowest bidder i.e. the petitioner for quoting the lowest rate was not acceptable. Even otherwise, forfeiture of earnest money to the tune of Rs. 25 Lakhs does not appear to be reasonable, rather unduly harsh and therefore arbitrary. SAIL on its part has now been able to show any actual loss resultant from the cancellation of LOI issued to the writ petitioner. In the instant case, therefore though no agreement or contract was arrived at between the parties, but considering the fact that SAIL also has not been able to show any actual loss suffered or damage caused due to cancellation of LOI, the forfeiture of the entire amount for earnest deposit money of Rs. 25 Lakhs by SAIL, in our opinion, is not proper as the law does not provide for a windfall.

We are therefore in agreement with the finding of learned Single Judge that the action of SAIL, in forfeiting the entire amount of earnest money deposited by the petitioner of Rs. 25 lakhs was not proper in the eye of law. However concluding as above, we are of the considered view, that the conduct of the petitioner as discussed hereinabove while participating in such a contract of serious nature and large scale operation of handling of Warehouse of Steel Authority of India Ltd. was lacking in serious intent and had led to cancellation of first tender and considerable delay in finalization of the contract on re-tendering also because of the litigation that has been pursued by him. We, therefore, direct that a cost of Rs. 2 Lakhs be paid by the petitioner to SAIL, which shall be adjusted by SAIL, from the amount of earnest money deposit of the petitioner and the balance amount left shall be paid to the writ petitioner within a period of 6 weeks from the date of receipt/production of a copy of this order.

Accordingly, both the appeals are disposed of in the manner as indicated hereinabove. The interim order dated 18th December, 2014 passed in L.P.A. No. 527 of 2014 stands vacated.