SUPREME COURT UPHOLDS HIGH COURT ORDER OF DISMISSAL OF WRIT PETITION AS THE CONTRACT INVOLVED COMPLEX TECHNICAL ISSUES

INTRODUCTION
A Division Bench of the Supreme Court comprising of Justice Dr Dhananjaya Y Chandrachud, Justice J B Pardiwala and Justice Manoj Mishra passed a Judgement dated 18.09.2023 in BTL EPC Ltd Vs. Macawber Beekay Pvt Ltd and Others in Civil Appeal No 5969 of 2023 (Arising out of SLP (C) No 18574 of 2023) and Civil Appeal No 5970 of 2023 (Arising out of SLP (C) No 19227 of 2023) and observed that the Single Judge Bench of the High Court did not commit any error in dismissing the Writ Petition filed by the Respondent-competing bidder, as it is settled law that in contracts involving complex technical issues, the Court should exercise restraint in exercising the power of judicial review, even if the party to the contract is ‘State’ within the meaning of Article 12 of Constitution.

FACTS

1) That one, Bharat Heavy Electrical Limited (“BHEL”) was awarded a contract for setting up of the 5×800 MW Yadadri Thermal Power Station by the Telangana State Power Generation Company Limited (“TSPGCL”). BHEL wanted to subcontract a part of the work and therefore, invited bids, vide Notice of Tender, for undertaking the work of design engineering, manufacturing, supply and other related works pertaining to an Ash Handling Plant.

2) The Appellant, BTL EPC Ltd. submitted its bid for the said work. Subsequently, a Letter of Intent dated 29.9.2022 was issued to the Appellant for a total work value of Rs. 378.64 Crores.

3) In the present case, the primary point of contention revolved around the pre-qualification requirements established by BHEL. The requirements were outlined in Clause 1 of Notice of Tender, which pertained to the technical criteria for prospective bidders. Clauses 1.1.1, 1.1.2, and 1.1.3 of Notice of Tender as described below, were also material in the present case.

4) That Clause 1.1.1 contained certain specific requirements that bidders had to fulfill, which read as follows:

“The bidder should have executed at least one (1) number Ash Handling Plant (AHP) in India/abroad for a thermal power station using seawater/plain water involving design, engineering, manufacture, procurement, supply, erection & commissioning (or supervision of erection & commissioning) comprising the following systems which should be in successful operation for at least (1) year as on date of submission of the bid:

A) Bottom ash handling system comprising jet pump system in conjunction with water impounded bottom ash hopper designed from minimum 50 TPH (on dry ash basis) capacity or more for pulverized coal-fired boilers.

B) First stage fly ash handling system for conveying fly ash from ESP hoppers to Intermediate Surge Hopper (ISH) by vacuum conveying system designed for minimum 30 TPH capacity (dry ash basis) per stream.

C) Second stage fly ash handling system for conveying fly ash from Intermediate Surge Hopper (ISH) to Fly ash silos by pressure conveying system designed from minimum 20 TPH capacity (dry ash basis) per line for a distance not less than 500 mtrs.

D) High Concentration Ash Slurry Disposal (HCSD) System for minimum 40 TPH capacity (dry ash basis) per line.

The above Clauses 1.1.1 (a), (b), (c) and (d) can be in one single plant or in a combination of plants.”

5) That Clause 1.1.2 stipulated that a bidder who was a supplier of bulk material handling system, but did not fulfil the requirements under Clause 1.1.1 could also participate, subject to certain stipulations.

6) Further, these Clauses were followed by the documents which was required to be furnished. One of the documents was a consortium agreement, which if the bidder had entered into the same to meet the requirements of Clauses 1.1.1 and 1.1.2, had to submit a copy of the same along with the tender documents.

7) Subsequently, if the bidder was a foreign party, there was a mandatory requirement of having a collaboration / consortium agreement with an Indian agency for erection and commission at site.

8) Further, Clause 1.1.2 permitted a bidder who did not meet the criteria specified in Clause 1.1.1, to enter into a consortium agreement.

9) Subsequently, the Appellant entered into a Consortium Agreement with a Chinese Company namely, Fujian Longking Company Limited, the Fourth Respondent.

10) Thereafter, the Public Procurement Division in the Department of Expenditure of the Union Ministry of Finance issued an Order dated 23.07.2020 imposing certain restrictions under Rule 144(xi) of the General Financial Rules 2017 (Fundamental principles of public buying), whereby a prospective bidder from a country that shares a land border with India, would be eligible to bid, only if such bidder is registered with the Competent Authority.

11) The First Respondent then, instituted a Writ Petition under Article 226 of the Constitution (Power of High Courts to issue certain writs) before the High Court of Karnataka contending that the award of Contract to the Appellant was in breach of the conditions imposed in the Order dated 23.07.2020 of the Ministry of Finance, as the Appellant had entered into a Consortium Agreement with a Chinese Company that was not registered with any Authority(s) in India.

12) The Respondent contended that the Chinese Company which had entered into a Consortium Agreement with the Appellant so as to enable the Appellant to fulfill the eligibility conditions under the tender floated by BHEL was required to be registered with the competent Authority, according to the Public Procurement Order dated 23.07.2020. Subsequently, it was urged that in the absence of such registration, the tender submitted by the Appellant did not meet the technical criteria and could not have been considered by BHEL.

13) The Single Judge Bench of the High Court of Karnataka dismissed the Writ Petition by an Order dated 02.11.2022 and held as follows:

i) Entering into a consortium agreement was permissible under the terms of the tender;

ii) The submission of the tender by the appellant, along with the copy of the agreement, was proper;

iii) On the issue of mandatory registration under the Public Procurement Order, a clarification dated 8 February 2021 stated that a bidder can procure raw material, as opposed to finished goods, from an entity such as the fourth respondent even if the latter was not registered with the competent authority;

iv) Since the appellant was not even procuring raw materials but only sought support for design, erection and commissioning requirements, the bid did not violate the procurement order;

v) The Court’s scrutiny was limited to the decision-making process;

vi) The financial bid of the appellant was Rs 58 crores lower in value than the financial bid submitted by the first respondent; and

vii) The decision-making process was not arbitrary and did not merit interference, in line with the principle of limited judicial scrutiny of the discretion vested in a tendering authority.

14) Aggrieved by the High Court Order dated 02.11.2022, the Respondent (who is the Petitioner before the Single Judge) approached the Division Bench of the High Court in Appeal No. 1169 of 2022.

15) The Division Bench of the High Court reversed the Order dated 02.11.2022 of the Single Judge and allowed the Writ Appeal No. 1169 of 2022, vide Order dated 27.7.2023 and observed as follows:

(a) The agreement between the appellant and the Chinese Company is an undertaking to the tendering authority as to the due performance of the contract;

(b) The agreement is central to the appellant’s bid and is thus a consortium agreement;

(c) The bid was thus made on behalf of the bidding consortium;

(d) According to the Single Judge, the requirement of registration was not applicable in view of the clarification by the subsequent Office Memorandum dated 23 July 2020; this subsequent clarification applied in respect of import of raw material and whether the goods procured would be considered raw material or finished goods was relevant only after the award of the contract;

(e) The requirement of mandatory registration had not been done away with by the clarification contained in the Office Memorandum dated 23 July 2020;

(f) The Chinese company, as a part of the bidding consortium was required to register in the absence of which the bidding consortium was ineligible to participate in the tender process; and

(g) BHEL, in awarding the tender, had overlooked this violation and wrongly based its decision only on the financial bid.

16) The Division Bench thus, set aside the Single Judge’s decision. Subsequently, the Letter of Intent which was awarded to the Appellant had been set aside with the consequential directions to process the bids submitted by the first Respondent in terms of the Notice Inviting Tenders.

17) Further, beside the Appeal filed by the Appellant to whom the Contract was awarded by BHEL, Special Leave Petitions were filed before the Supreme Court by BHEL and Telangana State Power Generation Company Limited (“TSPGCL”). The Apex Court, vide Order dated 18-09-2023, made the following observations:

SUPREME COURT ANALYSIS

i) That Clause 1.1.1 of Notice of Tender stipulates four requirements that each bidder had to fulfil. Further, that all the requirements are cumulative as indicated by the use of word “and” after sub-clauses a, b and c.

ii) Thereafter, the Supreme Court said that neither TSPGCL nor BHEL raised any dispute with regard to eligibility of the Appellant to bid for the Contract. The challenge was addressed by the competing bidder i.e. the Respondent, whose bid was admittedly higher than the bid which was submitted by the successful bidder i.e. the Appellant, by approximately Rs. 58 Crores. It had been submitted by the First Respondent that they would be willing to match the bid submitted by the Appellant and if the Contract is awarded to it in pursuance of the Judgment of the Division Bench of the High Court, it would take over the Contract from the stage where it was left by the Appellant. However, BHEL and TSPGCL had stated that since the ongoing work is design intensive, substituting a new entity would require redesigning of the whole project at a significant cost to the exchequer.

iii) Further, BHEL did not find that there was a breach of the Office Memorandum (“OM”) dated 23.7.2020 which was relaxed by a subsequent OM dated 8.2.21.

iv) Subsequently, the Apex Court was of the opinion that the Division Bench which considered an Appeal against a Judgment of a Single Judge rejecting the Writ Petition ought to have proceeded with circumspection.

v) Further, the Supreme Court held that, “it is settled law that in contracts involving complex technical issues, the Court should exercise restraint in exercising the power of judicial review. Even if a party to the contract is ‘State’ within the meaning of Article 12 of the Constitution, and as such, is amenable to the writ jurisdiction of the High Court or the Supreme Court, the Court should not readily interfere in commercial or contractual matters”.

vi) Subsequently, even in Writ Appeal, it is well settled that the Division Bench would ordinarily not interfere with the Judgement of a Single Judge unless it suffers from perversity of error.

vii) Applying the aforesaid principles to the present case, the Apex Court held that interference of the Division Bench in the Judgement of the Single Judge was not warranted.

viii) The Supreme Court further held that, though during the course of the hearing, the first respondent had made a statement through senior counsel that it would match the bid which was submitted by the Appellant, there can be no gainsaying the fact that this would cause insuperable difficulties in the implementation of the Contract since the work had already progressed and TSPGCL and BHEL, both of which were public entities, had invested huge funds for the realization of the Project.

CONCLUSION

Thus, after considering all the facts and circumstances of the case, the Apex Court allowed the Appeal filed by the Appellant and thereby, allowed the Appellant to continue working on the Project. As a result, the Judgment of the Division Bench of the High Court of Karnataka was set aside and the Judgment of the Single Judge dismissing the Writ Petition filed by the competing bidder i.e. the Respondent was restored.

 

Kartik Khandekar

Associate

The Indian Lawyer and Allied Services