Allowed

M/S. Precision Infratech Ltd. v. State of Kerala

Kerala HC1 Jul 2014WP(C)/4135/2014

Case brief

AI extract

What is this about?

This writ petition challenged the prequalification of two consortium tenderers in a tender for Kuttanad SWB modernisation. The court held that the tender committee failed to verify the consortium agreement which did not mandate joint and several liability as per the NIT. The petition was allowed, setting aside the prequalification. Directions were issued to reconsider the matter.

What did the court decide?

Prequalification of respondents 6 and 7 set aside; authorities directed to reconsider the issue and take a final decision.

M/S. Precision Infratech Ltd. Vs State of Kerala — Public Procurement and Tenders | Kerala HC (2014)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT:

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THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE

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TUESDAY, THE 1ST DAY OF JULY 2014/10TH ASHADHA, 1936

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WP(C).No. 4135 of 2014 (N)

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PETITIONER :

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M/S. PRECISION INFRATECH LTD., HAVING THE REGISTERED OFFICE AT 7, C/D, SURYARATH, PANCHWATI, ELLISBRIDGE, AHEMEDABAD, GUJARAT-380 006, REP. BY DIRECTOR, NALIN P.VIBHAKAR, AGED 62 YEARS, S/O.LATE SRI. PRANLAL VIBHAKAR.

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BY SRI.C.C.THOMAS,SENIOR ADVOCATE ADVS.SRI.T.A.JOY SRI.PRAVEEN K. JOY

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RESPONDENT(S):

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1. STATE OF KERALA, REP. BY SECRETARY (WATER RESOURCE DEPARTMENT), SECRETARIAT, TRIVANDRUM.PIN-695 001

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2. THE SECRETARY, WATER RESOURCE DEPARTMENT, SECRETARIAT, TRIVANDRUM. PIN-695 001

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3. THE PREQUALIFICATION COMMITTEE OF CHIEF ENGINEER FOR KUTTANAD PACKAGE-MODERNIZATION OF SWB AT THANNEERMUKKOM (MECHANICAL),TRIVANDRUM-695 001

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4. THE CHIEF ENGINEER, (MECHANICAL), IRRIGATION, PUBLIC OFFICE BUILDING, TRIVANDRUM-33.

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5. THE SUPERTENDING ENGINEER (MECHANICAL) IRRIGATION, CIVIL STATION, KAKKANAD-682 030.

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6. M/S SRI.KRISHNA ENGINEERS-SIVASWATHY CONSTRUCTION PVT.LTD., L.R.F THANEERMUKKOM CONSORTIUM S.F.NO.496,ANNAIAPPAR NAGAR STREET, NALLAMPALAYAM ROAD, GURUPATHY, COIMBATORE-641 006.

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7. M/S MARY MATHA,TOMAR CONSORTIUMS, C/O MARYMATHA CONSTRUCTION CO., MARYMATHA SQUARE, ARAKUZHA ROAD, MUVATTUPUZHA-686 661.

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R1 TO R5 BY SPL.GOVERNMENT PLEADER SRI.TOM K. THOMAS R6 BY SRI.T.SETHUMADHAVAN,SENIOR ADVOCATE ADV. SRI.RAJESH SIVARAMANKUTTY R7 BY SRI.T.A.SHAJI,SENIOR ADVOCATE ADV. SRI.P.SHANES METHAR

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THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 27-06-2014, THE COURT ON 01-07-2014 DELIVERED THE FOLLOWING:

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WP(C).No. 4135 of 2014 (N)

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APPENDIX

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PETITIONER(S)' EXHIBITS

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P1THE TRUE PHOTOCOPY OF THE TENDER INVITATION OF THE 5TH RESPONDENT.

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P2THE TRUE PHOTOCOPY OF THE ENTIRE SET OF SUBMISSION MADE ON 2.12.2014 BEFORE THE 5TH RESPONDENT.

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P3THE TRUE PHOTOCOPY OF THE NOTICE INVITING TENDER DATED 15.11.2013.

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P4THE TRUE PHOTOCOPY OF THE MINUTES OF PREQUALIFICATION COMMITTEE DATED 20.1.2014.

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P5THE TRUE PHOTOCOPY OF THE SUBMISSION OF THE 6TH RESPONDENT.

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P6THE TRUE PHOTOCOPY OF THE SUBMISSION OF THE 7TH RESPONDENT.

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P7THE TRUE PHOTOCOPY OF THE MINUTES MEETING OF PQ COMMITTEE OF 28.1.2014.

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P8THE TRUE PHOTOCOPY OF THE REPRESENTATION BEFORE HONOURABLE MINISTER FOR WATER RESOURCE DEPARTMENT DATED 4.2.2014.

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P9THE TRUE PHOTOCOPY OF THE APPLICATION BEFORE THE 2ND AND 3RD RESPONDENT DATED 7.2.2014.

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P10THE TRUE COPY OF THE REGISTRATION OF COMPANY OF M/S SIVASWATHY CONSTRUCTION (P) LTD DATED 10/1/2014 FROM WEBSITE OF MINISTRY OF CORPORATE AFFAIRS.

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P11THE RELEVANT PAGES OF THE CONSORTIUM AGREEMENT OF THE 6TH RESPONDENT DATED 30/11/2013

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RESPONDENT(S)' EXHIBITS

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R3(A) COPY OF THE LEGAL OPINION DATED 23/01/2014 RECEIVED FROM THE LAW OFFICER

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R6(A) COPY OF THE DETAILS OF WORK COMPLETED BY THE 6TH RESPONDENT

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R6(B) COPY OF THE CERTIFICATE ISSUED BY THE EXECUTIVE ENGINEER, PWD/WRD, SPECIAL PROJECT DIVISION, MAYANUR, KARUR DISTRICT, TAMIL NADU, DATED 3/1/2014

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R6)C) COPY OF THE LETTER OF INDENT ISSUED BY THE 5TH RESPONDENT DATED 6/02/2014

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R6(D) COPY OF THE CONSORTIUM AGREEMENT DATED 26/06/2014

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P.A.TO.JUDGE

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**A.M.SHAFFIQUE, J * * * * * * * * * * * * *** W.P.C.No.4135 of 2014

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Dated this the 1^st day of July 2014

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J U D G M E N T

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Petitioner in the above case challenges the prequalification of respondents 6 and 7 with reference to a work relating to fabrication, erection and replacement of 52 Nos. of Stainless Steel Ordinary Shutters and Hoisting Mechanism for 1^st and 2^nd phase for Kuttanad package - Modernisation of SWB (Salt Water Bund) at Thanneermukkam. The tender was invited by the Superintending Engineer (Mechanical), Irrigation, Ernakulam, as per e-tender dated 15/11/2013. The tenders were to be submitted by 05/12/2013. There were three tenderers, petitioner and respondents 6 and 7. The initial scrutiny is to consider the pre-qualification criteria. Ext.P7 is the minutes of the meeting of Prequalification Committee of Chief Engineers held on 28/01/2014. It is inter alia observed that the Committee considered the documents of the pre-qualification tenders

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and decided to pre-qualify the petitioner as they satisfied all the conditions as per the notice inviting tender (NIT). In respect of respondents 6 and 7, it was inter alia stated that since they submitted their documents as a consortium, it was decided to seek legal opinion from the Law Officer regarding the legal validity of awarding works to a Consortium. The Committee discussed the matter in detail and decided to pre-qualify the 6^th respondent based on the remarks of the Law Officer. In regard to the 7^th respondent, it is observed that since one of the Consortium partner is a foreign company and they had produced an experience certificate of a single work issued by the Ocean County Utility Authority, New Jersey, the Committee decided to prequalify the bidder based on the remarks of the Law Officer. The petitioner’s contention is that the very pre-qualification of respondents 6 and 7 was bad in law in so far as the respondents had not complied with the pre-qualification criteria by producing necessary documents as is required by

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a Consortium. Petitioner therefore submitted a representation before the Minister for Water Resources Department on 04/02/2014 inter alia stating the reasons as to why the pre-qualification carried out by the department has to be rejected. According to the petitioner, they alone have pre-qualified for the tender having all necessary experience and financial capability in accordance with the terms of NIT.

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The main contention urged by the petitioner is that when the Committee decided to pre-qualify them, the Committee did not verify the documents produced by them to ascertain whether it is a proper Consortium formed which could undertake the work relating to the same. As per NIT specific provision had been made to enable a Consortium to submit their bid. Reference is made to Clauses 10.13 and 10.14 to indicate that any Consortium or Joint Venture if they want to participate in the tender have to submit certain documents in accordance with the specific provisions made

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under the said Clauses. It is inter alia contended that though the matter was referred by the Committee to the Law Officer, the Law Officer did not give any final opinion in regard to the validity or otherwise of the Consortium agreements or the documents produced by them. Whereas the Law Officer had only opined that the Consortium or Joint Venture is permissible. The Law Officer, however, referred the matter relating to the 7^th respondent to the Government for a proper decision. It is pointed out that as far as the 6^th respondent is concerned, their consortium agreement has several infirmities which were not taken into consideration by the Committee.

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In addition to challenging the manner in which the Committee had pre-qualified respondents 6 and 7, it is inter alia contended that the Consortium of the 6^th respondent included three parties out of which one of the parties M/s.Sivaswathy Constructions (P) Ltd. is stated to have their Registered Office at Puthukottai. It is inter alia contended

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that when verification was made through Registrar of Companies and other sources, it is found that the said Company’s Registered Office is at Hyderabad and that apart, the Consortium agreement was signed by a person stated to be an authorised signatory. It is further contended that the Consortium agreement does not create any joint and several liability on all the Consortium partners as envisaged under the NIT.

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Counter affidavit is filed by the 6^th respondent inter alia contending that the allegations raised by the petitioners were absolutely false. The Consortium agreement has been executed in terms with Clause 10.14 and 10.15 of Ext.P1, the NIT and after taking into consideration the documents produced, the Committee had pre-qualified the 6^th respondent and hence there is no basis for the petitioner to challenge the same as the said decision is not actuated by any arbitrariness or illegality or favouritism as alleged by the petitioner. It is further

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contended that after pre-qualifying the 6^th respondent, the price bid was opened and it was found that the price bid of the 6^th respondent was 3.8 % below the Probable Amount of Contract (PAC), that of the petitioner was 13.5% above the PAC and that of the 7^th respondent was 1.1% below the PAC. In so far as the 6^th respondent is the lowest bidder, a letter dated 06/02/2014 was issued by the 5^th respondent calling upon the 6^th respondent to carry out the work on the terms and conditions stipulated therein and the 6^th respondent was called upon to execute an agreement.

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Counter affidavit is filed by the 3^rd respondent supporting the stand taken by the Committee. It is stated that respondents 6 and 7 were pre-qualified and they had produced all necessary documents required for prequalification. They being Consortiums, the matter was referred to the Law Officer to verify whether the Consortium agreement can be accepted. After receiving the opinion of the Law Officer especially in regard to the fact that the 7^th

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respondent had a foreign company as a consortium partner, a decision was taken to pre-qualify all the tenders. The price bids were opened 24 hours after the decision taken for pre-qualifying the tenderers. It is after opening the price bid that the petitioner sought to challenge the pre-qualification criteria of respondents 6 and 7. It is therefore submitted that there is absolutely no illegality or irrationality in the decision making process of the Committee and therefore there is no basis for the challenge made by the petitioners.

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The short question to be considered in the above writ petition is whether the decision making process of the respondent authority is either arbitrary, irrational or illegal or not confirming with the provisions of the NIT.

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The first argument is with reference to the fact that petitioner alone was pre-qualified. Perusal of Ext.P7 would show that the Committee had pre-qualified the petitioner but in respect of respondents 6 and 7 it is indicated that their pre-qualification will depend upon the

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verification report of the Law Officer. Apparently, the Law Officer was addressed to verify whether the consortium agreement is with reference to the provisions of the NIT.

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Ext.R3(a) is the opinion given by the Law Officer.

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Perusal of the same apparently indicates that the consideration made is with reference to the bid submitted by the 7^th respondent. It is inter alia stated that rejection of the tender would amount to violation of Article 14 of the Constitution of India and that the clarifications or directions referred to in paragraph 9 of the said opinion has to be sought from the Government before accepting or rejecting the bid submitted by the 7^th respondent. That apart, it is mentioned that conditions to be imposed for considering and accepting a tender submitted by a Joint Venture/Consortium shall be discussed and finalised by the Chief Engineer and the same has to be submitted for approval to the Government. If Mary Matha company fails to comply with such conditions, the bid can be rejected. Apparently, no

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further steps were taken in that regard. Therefore, the Law Officer’s opinion was basically concerned with the bid submitted by the 7^th respondent.

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No Counter affidavit is filed by the 7^th respondent before this Court, though they were represented by Counsel.

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As far as the 6^th respondent is concerned, the main contention urged is with reference to their address as shown in the Joint Consortium agreement. This has been clarified by the learned Senior Counsel appearing on behalf of the 6^th respondent by stating that even in the tender documents which they have submitted, it was indicated that the office at Puthukottai was a branch office and it was by mistake that in the Joint Consortium agreement the Registered Office is shown as Puthukottai. Reference was made to the details furnished along with the tender which would apparently indicate that Puthukottai was only a branch office. At any rate, this cannot be considered as a major defect in the tender documents.

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The next contention urged by Sri.C.C.Thomas, the learned Senior counsel with reference to the Consortium agreement is that it does not contain any clause conferring on the Joint Venture partners joint and several liability as contemplated under Clauses 10.13 and 10.14 of the NIT. Clauses 10.13 and 10.14 inter alia states that the Joint Venture partners should give an undertaking that they will be jointly and severally liable to the employer for the performance of the contract. The Consortium agreement submitted by the 6^th respondent is Ext.P11. Article 3 refers to participation wherein it is stated that all the parties agree that their respective financial participation in the Joint Venture shall be 34% for the party of 1^st part, 33% for the party of 2^nd part and 33% for the party of 3^rd part. The first mentioned party namely Sree Krishna Engineers is the lead partner. Article 5 relates to joint and several liability. In Clause 5.1, it indicates that “The parties herein undertake that they are jointly and severally liable to the employer for

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the execution and completion of the Project on share basis agreed upon”. This Clause, according to the learned senior counsel, is totally against the NIT and therefore the consortium agreement ought not to have been taken into account.

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On the other hand, Sri.Sethu Madhavan, learned Senior Counsel for the 6^th respondent supported the stand taken by the Committee and indicated that the aforesaid clause was sufficient enough to conclude that there is a joint and several liability on the consortium partners.

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Having regard to the nature of joint and several liability required for a major project, I do not think that the joint venture agreement produced as Ext.P11 with reference to the 6^th respondent will not confer upon the respondent authority to treat the same as a joint and several liability of the Consortium partners with reference to the performance of the contract. By virtue of Article 5.1 of the Consortium agreement, they have limited their obligation to the

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percentage of investment they have made, that is on share basis which is again stated in Article 3. Therefore, they have confined their liability only to that extent. This aspect of the matter has not been considered by the Committee while prequalifying the 6^th respondent. That itself clearly indicates that the decision making process was not in accordance with the terms of the tender conditions. If the tender is not in accordance with the procedure prescribed as per the NIT, the Committee ought to have verified the same and arrived at an opinion by itself. Such an exercise is not seen done in this case. Even though the matter was referred to the Law Officer as well, the opinion of the Law Officer does not indicate a reference to the validity or otherwise of the Consortium agreement. Under such circumstances, I am of the view that the Consortium agreement executed by the 6^th respondent is not in conformity with the NIT and therefore the Committee ought not to have to accept the same.

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Sri.Sethu Madhavan, learned Senior Counsel relied upon the judgment of the Supreme Court to indicate that unless the decision taken is arbitrary or illegal, this Court should not interfere in the decision making process. In Tejas Constructions & Infrastructure (P) Ltd. v. Municipal Council, Sendhwa, [(2012) 6 SCC 464] wherein the Apex Court held as under:

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20. In Air India Ltd. v. Cochin International Airport Ltd. this Court held that the award of contract was essential in commercial transactions which involves commercial consideration and results in commercial decision. While taking such decision the State can choose its own method on terms of invitation to tender and enter into negotiations. The following passage from the decision is apposite: (SCC pp. 623-24, para 7) “7. … The award of contract, whether it is by a private party or by a public body or the State, is essentially a commercial transaction. In arriving at a commercial decision considerations which are paramount are commercial considerations. The State can choose its own method to arrive at a

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decision. It can fix its own terms of invitation to tender and that is not open to judicial scrutiny. It can enter into negotiations before finally deciding to accept one of the offers made to it. Price need not always be the sole criterion for awarding a contract. It is free to grant any relaxation, for bona fide reasons, if the tender conditions permit such a relaxation. It may not accept the offer even though it happens to be the highest or the lowest. But the State, its corporations, instrumentalities and agencies are bound to adhere to the norms, standards and procedures laid down by them and cannot depart from them arbitrarily. Though that decision is not amenable to judicial review, the court can examine the decision-making process and interfere if it is found vitiated by mala fides, unreasonableness and arbitrariness. … Even when some defect is found in the decision-making process the court must exercise its discretionary power under Article 226 with great caution and should exercise it only in furtherance of public interest and not merely on the making out of a legal point. The court should always keep the larger public interest in mind in order to decide

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whether its intervention is called for or not. Only when it comes to a conclusion that overwhelming public interest requires interference, the court should intervene.”

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21. To the same effect is the decision of this Court in Master Marine Services (P) Ltd. v. Metcalfe & Hodgkinson (P) Ltd. and Jagdish Mandal v. State of Orissa where this Court laid down the following tests for judicial interference in exercise of power of judicial review of administrative action: (Jagdish Mandal case, SCC p. 531, para 22)

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“22. … Therefore, a court before interfering in tender or contractual matters in exercise of power of judicial review, should pose to itself the following questions:

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(i) Whether the process adopted or decision made by the authority is mala fide or intended to favour someone.

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Whether the process adopted or decision made is so arbitrary and irrational that the court can say: ‘the decision is such that no responsible authority acting reasonably and in accordance with relevant law could have reached’.

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(ii) Whether public interest is affected. If the answers are in the negative, there should be no interference under Article 226.”

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Reference is also made to Michigan Rubber (India) Ltd.

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v. State of Karnataka, [(2012) 8 SCC 216] wherein Supreme Court has laid down a similar proposition.

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True that the proposition of law is well settled, but when it is found that the pre-qualification documents produced by one of the tenderers have not even been properly verified by the tender committee, it may not be possible for this Court to shut its eyes on such grave infirmities. This is a contract involving huge amounts and one of the basic features of permitting a consortium or a Joint Venture is on their undertaking that they will comply with the terms of the contract, they will perform the contract and they will be jointly and severally liable for any breach of the terms and conditions of the contract. Even though the lead partner may agree on the joint and several liability clause, that will not suffice. Lead partner alone signs the

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contract with the respondent authority. Later on, when an issue may arise regarding joint and several liability of other partners, it may be a situation where the respondent authority will be faced with the present Consortium agreement, which provides limitation on their liability.

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Hence, I am of the view that there is clear illegality on the part of the respondent authority in pre-qualifying the tender of the 6^th respondent. As far as the 7^th respondent is concerned, the opinion of the Law Officer was not taken into consideration and thereafter the price bid was opened. The entire procedure appears to be done in a hasty manner which should have been avoided by the respondent authority.

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Under such circumstances, I am of the view that this is an instance where this Court should interfere with the aforesaid pre-qualification of respondents 6 and 7. Accordingly the writ petition is allowed setting aside the prequalification of respondents 6 and 7 and the respondent

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authorities are directed to reconsider the whole issue and take a final decision in the matter.

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(A.M.SHAFFIQUE, JUDGE)

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