South India Corporation Limited vs Ennore Port Limited Government of India Undertaking

D. Murugesan, J.—The issues involved in both the Writ Petitions are interlinked and therefore, they are disposed by this common order.

In both the Writ Petitions, the petitioner is M/s South India Corporation Limited and the first respondent is M/s Ennore Port Limited. In

W.P.No.23950/2004, the petitioner has questioned the communication of the first respondent(hereinafter referred to as "" Ennore Port"") dated

14.5.2003 and the consequential letter dated 4.6.2003. During October, 2002, an advertisement was issued by Ennore Port, calling for tenders

for selection of a developer for design, engineering, financial construction, operation, maintenance and market a common user coal terminal on

BOT basis at Ennore Port. Pursuant to the said advertisement, the respondent had also issued a request for qualification shortly known as RFQ.

The petitioner formed a Consortium consisting of itself and a leading UK based company Portia Management Services Limited and Navyuga

Engineering Company Limited, Vizag, having equities of 36%, 32% and 32% respectively. By the letter dated 18.12.2002, the petitioner

submitted its RFQ documents. However, the petitioner was informed by Ennore Port in its communication dated 14.5.2003 stating that the

petitioner''s consortium had not been short listed for participation in the further selection process as the Lead Consortium member viz., the

petitioner did not meet the minimum financial criteria. This decision of the Ennore Port was also communicated to the petitioner in letter of Ennore

Port dated 4.6.2003. In the said letter, it is specifically stated that the petitioner RFQ submission has indicated South India Corporation Limited to

be the Lead Consortium Member in the consortium. As per Clarification issued vide Ennore Port''s letter dated 28.11.2002, ""the Lead Consortium

Member who has to contribute the maximum to the project should firstly satisfy the minimum financial criteria. Subject to the above, the Lead

Consortium Member can nominate a Significant Consortium Member who should not contribute less than 26% of the equity for the purpose of

evaluation of financial criteria at RFQ stage"".

The above two communications are questioned basically on the ground that the decision of Ennore Port is wholly arbitrary, illegal and contrary

to the terms of its own documents. The clarificatory note issued by Ennore Port dated 28.11.2002 in Clause 1.4 is wholly arbitrary and contrary to

the terms of the tender itself and the tender conditions cannot be changed by issuing clarification. Clause 7.4 of RFQ documents has been totally

mis-interpreted by Ennore Port for not including the petitioner in the short list. As per Exhibit 6 of RFQ documents the terms and conditions of the

tender the financial eligibility of the consortium should be considered in its entirety and in any event, the Portia Management Services Limited

should be considered as entity with financial eligibility. Further, the Portia Management Services has 32% stake in the consortium which is more

than the minimum 26% requirement and the petitioner had it been given opportunity, should have explained the above and satisfy the Ennore Port

that the consortium satisfy clause 7.4 as well.

The Writ Petition is opposed by Ennore Port on the ground that the tender documents cannot be called in question and this Court would have

no jurisdiction to review the tender conditions. The condition imposed in RFQ documents as to the financial ability is only with the object that the

Lead Consortium Member should have the financial ability and such Lead Consortium Member alone is responsible in the event of violation of the

conditions of the tender in future. The clarification is only a reiteration of Clause 7.4 of the tender condition. Even the said clarification was made

with the knowledge of the petitioner and the petitioner having participated in the bid, cannot now question the clarification issued by Ennore Port.

In W.P.No.10781/2005, the petitioner has questioned the very tender notice itself published in Economic Times dated 19.10.2002. The

petitioner has questioned the tender notice basically on the ground that when the tender process remained in its preliminary stages and during

August,2004, the Ennore Port was seeking to induct outsiders, who had not even participated in the tender. It is the specific case of the petitioner

that though a bid was made only by M/s Leighton Contractors (Asia) Limited, M/s Leighton Contractors (Singapore) Private Limited, which has

not submitted the bid, was allowed to participate in the tender. The Writ Petition is opposed on the ground that the tender documents were

forwarded to M/s Leighton Contractors (Singapore) Private Limited, Singapore by mistake as the bidder was also M/s Leighton Contractors

(Asia) Limited, Singapore and the address of both the companies are one and the same. Though initially M/s Leighton Contractors (Singapore)

Private Limited, were allowed to submit tender documents, on coming to know the mistake in communication, M/s Leighton Contractors (Asia)

Limited, were asked to submit tender documents. However, they requested to accept the RFQ documents submitted by M/s Leighton Contractors

(Singapore) Private Limited, hence the same were accepted. Infact, at later point of time, M/s Leighton Contractors (Singapore) Private Limited,

has also withdrawn the tender. In the light of the above developments, the grievance of the petitioner does not survive as on today.

One M/s Adani Exports Limited, Ahmedabad, the 5th respondent in W.P.No.10781/2005 who is also one of the bidder, has also adopted the

stand of the Ennore Port and has pleaded that the Writ Petition should be dismissed as the 5th respondent''s bid has not been so far considered in

view of the pendency of the Writ Petitions and in view of the interim orders granted by this Court.

I have heard in detail Mr. P.S.Raman, learned senior counsel appearing for the petitioners, Mr. S. Venkiteswaran, senior counsel appearing for

the Ennore Port, Mr. Shivakumar, learned counsel appearing for the 2nd respondent and Mrs. Nalini Chidambaram, learned senior counsel

appearing for the 5th respondent in W.P.No.10781/2005.

For disposal of rival contentions, this Court shall consider the scope of review in matter of tenders. Though series of judgments of the Supreme

Court are on the point, the following few leading judgments on the issue alone are referred.

A) In Tata Cellular v. Union of India (1994(6)SCC 651), the Supreme Court has laid down the following principles.

(1)The modern trend points to judicial Restraint in administrative action,

(2) The Court does not sit as a Court of appeal but merely reviews the manner in which the decision was made.

(3) The Court does not have the expertise

To correct the administrative decision.

If a review of the administrative decision is permitted it will be substituting its own decision, without the necessary expertise which itself may be

fallible.

(4) The terms of the invitation to tender

Cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract. Normally speaking, the decision to accept the tender

or award the contract is reached by process of negotiations through several tiers. More often than not, such decisions are made qualitatively by

experts.

(5) The Government must have freedom of

Contract. In other words, a fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or

quasi-administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness

(including its other facets pointed out above) but must be free from arbitrariness not affected by bias or actuated by mala fides.

(6) Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure.

B) In the same judgment, the Supreme Court has also laid down two others facets of irrationality and they are as follows:-

1)It is open to the Court to review the decision-maker''s evaluation of the facts. The Court will intervene where the facts taken as a whole could

not logically warrant the conclusion of the decision-maker. If the weight of facts pointing to one course of action is overwhelming, then a decision

the other way, cannot be upheld.

2)A decision would be regarded as unreasonable if it is partial and unequal in its operation as between different classes.

C) In New Horizons Limited and Another Vs. Union of India (UOI) and Others, , after referring to Tata Cellular case, the Supreme court has held

that the Courts cannot review the conditions of tender. But, it was also held that the State in exercise of its various functions, is governed by the

mandate of Article 14 of the Constitution which excludes arbitrariness in State action and requires the State to act fairly and reasonably. It was

further held that the decision of the Court therefore insist that while dealing with the public, whether by way of giving jobs or entering into contracts

or issuing quotas or licences or granting other forms of largesse, the Government cannot act arbitrarily at its sweet will and be in conformity with

the standards or norms which are not arbitrary, irrational or irrelevant.

D) In Air India Ltd. Vs. Cochin Int., Airport Ltd. and Others, , the Supreme Court has held that while the State can choose its own method in

fixing the conditions it should comply with the norms, standard and procedure and the decision should be on the basis of overall view of the

transaction after weighing various relevant factors and having regard to commercial viability.

In matters of tender, the scope of judicial review is limited as it extends only to find out as to whether the tender Authority had acted arbitrarily

and in disregard to fairness and reasonableness. What is reasonableness, has been explained in Associated Privincial Picture Houses Limited v.

Wednesbury Corporation 1948 (1) KB 223. The said principle is known as ""Wednesbury Principle of reasonableness"". In that case it was held

that a decision of public authority is liable to be quashed or otherwise dealt with by an appropriate order in judicial review proceedings that the

decision is such that no authority properly directing itself on the relevant law and acting reasonably could have reached it.

11.On the above settled law, the facts of the case on hand must be considered. Bidding Company is defined as a company if the RFQ for the

project is submitted by a single corporate entity. Bidding consortium is defined if the RFQ for the project is submitted jointly by more than one

entity, then this group of entities shall be referred to as a Bidding Consortium. Each entity in the Bidding Consortium shall be referred to as a

Consortium Member. In case of Bidding Consortium, the Lead Developer/Lead Consortium Member shall be that Consortium Member vested

with the prime responsibility of developing the project. The Lead Consortium Member (including its Promoters and/or Affiliates in case they are

also members of the Consortium and provided all these entities are corporate entities) shall necessarily make the maximum entity contribution in the

project among the consortium members and this equity contribution shall not be less than 26%. Part VII of RFQ documents relates to ""Eligibility

criteria for the request for qualification"".

There are two eligibility norms, Firstly in respect of minimum eligibility criteria for experience( Technical, Managerial, Operational,

Commercial). The said clause reads as under:

The bidding company( or any of its Promoters/Affiliates/subsidiaries) or for a Bidding Consortium, any consortium Member having a minimum

stake of 11% in the Bidding Consortium ( or any of its promoters/affiliates/ subsidiaries)should meet the following two eligibility criteria for

experience and track record specified below, as on the last date for submission of the Request for Qualification. It is not necessary that both

criteria be met by the same entity.

Handling experience of at least 2.0 million metric tones per annum of dry cargo in seaport operations in any of the last three financial years. The

cargo could include dry bulk, break-bulk or containerized cargo.

And

Successfully implemented, as an equity investor with not less than a 26% holding, an infrastruture/core sector project of project cost not less than

Rs.300 crores.

Secondly, in respect of the minimum eligibility criteria for financial capability which reads as under;

The bidding company or any one of the promoters'' or for a Bidding Consortium, the Lead Consortium Member of any one of its Promoters would

be evaluated for financial capability specified below, as on the last date for submission of the Request for Qualification.

As far as the minimum eligibility criteria for technical, managerial, operational and commercial experience, the bidding company or the bidding

consortium, or any member of the consortium having the minimum stake of 11% in the bidding company should meet the handling experience of at

least 2.0 million metric tones per annum of dry cargo in seaport operations in any of the last three financial year and should have successfully

implemented as an equity investor with not less than 26% holding an infrastructure/core sector project of project cost not less than Rs.300 crores.

Insofar as the experience as to the technical, managerial, operational and commercial, the two eligibilities are applied to the bidding companies

and Bidding Consortium, and no different norms are fixed as the consortium or the member of the consortium or lead promoter also can satisfy the

eligibility norms. In terms of the said clause, the eligibility norms could be satisfied either by a bidding consortium or by any member of the

consortium and the only condition for such consortium member is that he should have the minimum stake of 11% in the bidding company. There is

no dispute as to the minimum eligibility of the petitioner for experience as contemplated in clause 7.3.

The dispute is in respect of clause 7.4 relating to the minimum eligibility criteria for financial capability. In terms of the said clause, the financial

capability would be evaluated for bidding company or any one of its promoters. However, insofar as the bidding consortium, the financial

capability of a Lead consortium member or any one of its promoters would be evaluated. The grievance of the petitioner is that the refusal of the

petitioner to include in the short list by mis interpreting the said clause is liable to be set aside. In support of the same, it is submitted that the

financial capability in respect of bidding consortium can be evaluated on the basis of financial capability of Lead consortium member or any of its

promoters. It is the specific case of the petitioner that the bidding consortium has the petitioner as a lead promoter and two other companies as its

member viz., Portia Management Services Limited, a leading UK based company and Navyuga Engineering Company Limited Vizag. The

petitioner and other two companies have equity in consortium at the rate of 36%, 32% and 32% respectively. The Portia Management Services

has a Tangible Net Work of Rs.1155.53 in crores in the year 1999-2000, 1155.53 in the year 2000-2001 and Rs.1127.20 in the year 2001-

2002. The financial eligibility of Portia Management Services could have been taken by the respondent at the time of short listing the bid of the

petitioner. Based on the law laid down by the Supreme Court this Court would not be within its jurisdiction to review the conditions of tender.

However, this Court is competent to go into the question as to whether the conditions have been strictly complied with and applied uniformly and

in the said process, there is no arbitrariness and unreasonableness. Insofar as the minimum eligibility criteria for experience in technical, managerial,

operational and commercial, the respondent had recognized such experience for a bidding company or any of its promoters/affiliates/subsidiaries.

The same benefit has also been given to the bidding consortium as well whereby the experience of even the consortium member could be taken as

the compliance of Clause 7.3. While coming to clause 7.4 as to the minimum eligibility criteria for financial capability, the said clause must be read

in conjunction with clause 7.3. Under the said clause, the financial capability of a bidding company or any one of its promoters are accepted for

evaluation and on the other hand, it is the case of the respondent that in terms of the 2nd limb of the clause 7.4 only the financial capability of the

lead consortium member alone would be taken for evaluation. Whether eligibility norms contained in clause 7.4 as applied in the manner by which

ought to have been applied is the further question for consideration. A perusal of the said clause, in my opinion, shows that in the case of evaluation

of financial capability of bidding consortium, not only financial capability of lead consortium member would be taken but also the financial capability

of any one of its promoters also can be taken into consideration. Of course, this clause is sought to be clarified in letter dated 28.11.2002 by fixing

the financial para meter of Rs.150 crores net worth, Rs.300 crores of net tangible assets and Rs.25 crores as bridge financing capability. There is

no change in the clause 7.4 of the tender documents and Clause 1.4 of the said letter is only a clarification without affecting the condition in Clause

7.4.

To find out the purport of clause 7.4 in relation to the financial capability of bidding consortium, useful reference can be made to the judgment

New Horison Limited case referred to above. In that case, the eligibility as to the experience of the a joint venture company was considered. Their

Lordships after a detailed discussion finally held that in a bid by joint venture company the experience of constituents of the joint venture company

should be treated as its own experience. The said finding was rendered on consideration of the power of the Court to see through corporate veil to

ascertain the true nature of the company. The doctrine of lifting the veil, piercing the veil or peeping or seeing through the veil is invoked when the

corporate personality is found to be opposed to justice, convenience or interest of revenue. By applying the principles as Joint venture concept the

Supreme Court in Para 26 has held as follows:

Once it is held that NHL is a joint venture, as claimed by it in the tender, the experience of its various constituents namely, TPI, LMI and WML

as well as IIPL had to be taken into consideration if the Tender Evaluation Committee had adopted the approach of a prudent businessman

On the facts of this case, it is not in dispute that the consortium has three members including the petitioner and two other companies. There is also

no dispute as to the financial capability in respect of tangible net worth, tangible assets and bridge financing capability of Portia Management

Services Limited as could be seen as follows

- - - - - - - - - - - - - - - - - - - - - - -

Rupees in Crores

1999-2000 2000-2001 2001-2002

Tangible Net 1155.53 1155.53 1127.20

Worth

Tangible Assets 1209.95 1213.67 1118.33

Bridge Financing

capability 374.24 389.9 447.3

- - - - - - - - - - - - - - - - - - - - - - - -

In terms of clause 7.4 even the financial capability of any one of the promoters can be taken into consideration. When once this conclusion is

arrived, the impugned communication in refusing to short list the petitioner consortium on the ground that the petitioner, the lead consortium

member has not satisfied the minimum eligibility criteria of financial capability cannot be sustained. As the consortium is more than one entity and

each entity in the Consortium is a Consortium Member, they have common interest in the bid. Even when the Lead Developer/Lead Consortium

Member is defined, the definition included its promoters and/or affiliates subject to the only condition that such promoters/or affiliates should have

not less than 26% of equity contribution. In the event, the Consortium Member has equity contribution of not less than 26% his net worth, assets

can also be taken into consideration. In my opinion, the decision of Ennore Port in excluding the financial capability of of the Portia Management

Services Limited would be arbitrary and irrational apart from unreasonable. On the facts of the case, the Wednesbury principle of reasonableness

should be made applicable. This would be in the interest of the revenue also. As against a project involving crores as on today, this correct is

informed only the 5th respondent bid is kept alive and other bidders have withdrawn. No prejudice would be caused to the Ennore Port in

allowing the Petitioners also by including in the Short list. Hence, the impugned communications dated 14.5.2003 and the consequential letter dated

4.6.2003 are liable to be set aside. Accordingly, they are set aside. As a necessary corralary the petitioner''s bid shall be considered with reference

to the minimum eligibility criteria of financial capability of Portia Management Services Limited as the said member of consortium should be treated

as a promoter as included in clause 7.4 in case of consortium company for evaluation.

Coming to Writ Petition No.10781/2005, the petitioner has questioned the decision of Ennore Port to allow one M/s Leighton Contractors

(Singapore) Limited to furnish tender documents, when it did not even bid. This challenge does not hold good as on today. After Ennore Port

communicated the tender documents to M/s Leighton Contractors(Singapore) Private Limited instead M/s Leighton Contractors (Asia) Private

Limited which was the bidder by mistake as the address of both the companies is one and the same. It requested M/s Leighton Contractors (Asia)

Limited to submit tender documents. However, M/s Leighton Contractors (Asia) Private Limited had informed Ennore Port to accept the bid of

M/s Leighton Contractors (Singapore) Private Limited and the bid was also accepted. In law, Ennore Port which is only bound to consider the

RFQ documents filed by the company and not by any outsider or the company which is not even bid. Therefore, I find every merit in the grievance

of the petitioner that the 4th respondent ought not to have allowed M/s Leighton Contractors (Singapore)Private Limited to submit the RFQ

documents. Nevertheless, Mr. S. Venkiteswaran, learned senior counsel appearing for the Ennore Port during the course of arguments brought to

my notice that the 4th respondent has withdrawn from the bid and in that view of the matter, the cause of action in the Writ Petition does not

survive. The said submission of the learned senior counsel is acceptable and in view of the subsequent development, M/s Leighton Contractors

(Singapore) Private Limited has withdrawn the bid, the issue need not be adjudicated and decided as it is only academic. Hence, no specific

orders are necessary in the Writ Petition.

In view of the above, W.P.No.23950/2004 is allowed and W.P.No.10781/2005 is closed. No costs. Consequently, all connected W.P.M.Ps

and W.V.M.P. are closed.