2006 (10) TMI 471 - SC - Indian Laws

Notice inviting tender issued by Maharashtra State Power General Co. Ltd. ( MAHAGENCO ) - coal liaisoning quality and quantity supervision for its Thermal Power Station - failed to fulfill the essential qualifications of the notice inviting tender - whether having regard to the fact that tender document issued on 03.03.2005 the requirement to engage minimum 100 persons in the previous year would mean financial year 2003-04 or 2004-05 - violation of Condition No.1.5(vii) - declared defaulter - HELD THAT - The expression declaration has a definite connotation. It is a statement of material facts. It may constitute a formal announcement or a deliberate statement. A declaration must be announced solemnly or officially. It must be made with a view to make known or to announce . When a person is placed in the category of a declared defaulter it must precede a decision. The expression declared is wider than the words found or made . Declared defaulter should be an actual defaulter and not an alleged defaulter. In this case Appellant had made a counter claim. It had raised a bona fide dispute. It may be true that when the tender document was not furnished to Appellant by the Madhya Pradesh State Electricity Board on the premise that he is a defaulter it filed a writ petition. A learned Single Judge of the Madhya Pradesh High Court while passing an order recorded a finding that it was a defaulter in respect of the said demand. We however at the cost of repetition would place on record that the other three bidders had clearly stated that they would not be able to match the rates of Appellant. It is also relevant to note here the categorical stand taken by MAHAGENCO before the High Court in its counter affidavit was that the contract had been awarded in favour of Appellant in its own interest. In regard to the order passed by the Madhya Pradesh High Court it stuck to its stand that a clear finding was arrived at therein that the observations which were incidentally made in the judgment should not come in the way of Appellant in securing other contracts. Law operating in the field is no long res integra. The application of law however would depend upon the facts and circumstances of each case. It is not in dispute before us that there are only a few concerns in India who can handle such a large quantity of coal. Transportation of coal from various collieries to the thermal power stations is essential. For the said purpose apart from transportation job the contractor is required to see that coal of appropriate grade is supplied. Appellant herein is in business for the last 52 years. It had been taking part in contracts involving similar jobs in various parts of India. It had all along been quoting a low rate. According to it despite the same it has been generating profits. The employer concededly is not bound to accept a bid only because it is the lowest. It must take into consideration not only the viability but also the fact that the contractor would be able discharge its contractual obligations. It must not forget the ground realities. MAHAGENCO considered all aspects of the matter while accepting Appellant s offer. In its counter affidavit it categorically stated that Appellant would be able to perform the contractual undertaking even at such a low rate. While saying so however we would like to observe that that having regard to the fact that a huge public money is involved a public sector undertaking in view of the principles of good corporate governance may accept such tenders which is economically beneficial to it. It may be true that essential terms of the contract were required to be fulfilled. If a party failed and/or neglected to comply with the requisite conditions which were essential for consideration of its case by the employer it cannot supply the details at a latter stage or quote a lower rate upon ascertaining the rate quoted by others. Keeping in view a particular object if in effect and substance it is found that the offer made by one of the bidders substantially satisfies the requirements of the conditions of notice inviting tender the employer may be said to have a general power of relaxation in that behalf. Once such a power is exercised one of the questions which would arise for consideration by the superior courts would be as to whether exercise of such power was fair reasonable and bona fide. If the answer thereto is not in the negative save and except for sufficient and cogent reasons the writ courts would be well advised to refrain themselves in exercise of their discretionary jurisdiction. What relief can be granted - The private respondents who had formed a cartel have successfully obtained the contract after the judgment of the High Court. Award of such contract although was subject to the decision of this appeal this Court cannot ignore the fact that if Appellant is permitted to take over forthwith supply of coal to the Thermal Power Station may be affected. We therefore intend to give another opportunity to MAHAGENCO. It shall consider the offer of Appellant upon consideration of the matter afresh as to whether it even now fulfils the essential tender conditions. If it satisfies the terms of the tender conditions the contract may be awarded in its favour for a period of one year; but such contract shall take effect after one month from the date of the said agreement so as to enable the private Respondents herein to wind up their business. This order is being passed in the interest of MAHAGENCO as also the private Respondents herein. Private Respondents however shall be paid their dues in terms of the offer made by them and accepted by MAHAGENCO. The appeal is allowed. All the Private Respondents shall pay and bear their cost of Appellant which is quantified at 50, 000/- each.

Summary

Issues Involved:
1. Validity of the tender process and compliance with essential conditions.
2. Qualification of the appellant based on handling of coal quantity.
3. Requirement of engaging a minimum number of employees.
4. Allegation of the appellant being a declared defaulter.
5. Formation of a cartel by other bidders.
6. Judicial review and interference in tender processes.

Issue-wise Detailed Analysis:

1. Validity of the tender process and compliance with essential conditions:
The High Court quashed the order awarding the contract to the appellant, stating that the appellant failed to fulfill essential qualifications in the tender. The tender documents required bidders to meet nine conditions before their financial bids could be opened. The High Court emphasized strict compliance with these essential conditions, noting that deviations could only be made for ancillary or subsidiary conditions.

2. Qualification of the appellant based on handling of coal quantity:
The appellant was required to handle 30 million metric tons of coal over the last five years but had handled more than 49 million metric tons. The High Court found that the appellant did not fulfill the condition of handling a quantity of 5 million metric tons in the financial year 2004-04. However, the Supreme Court noted that the appellant had provided evidence of handling sufficient quantities of coal, as confirmed by various power station authorities.

3. Requirement of engaging a minimum number of employees:
The tender required bidders to have a minimum of 100 employees on their roll and proof of payment of provident fund for the preceding year. The appellant provided proof of provident fund contributions for more than 100 employees for the period from March 2004 to February 2005. The High Court's interpretation of the financial year was questioned, and the Supreme Court noted that the intention of MAHAGENCO was to ensure the contractor had sufficient manpower.

4. Allegation of the appellant being a declared defaulter:
The High Court opined that the appellant was a defaulter, but the Supreme Court clarified that being a declared defaulter required a formal announcement or proclamation, which had not occurred. The Madhya Pradesh State Electricity Board had not declared the appellant a defaulter, and the High Court's observations were deemed out of context.

5. Formation of a cartel by other bidders:
MAHAGENCO found that the other bidders had formed a cartel, quoting rates significantly higher than the appellant. This cartel formation was considered an unfair trade practice, and MAHAGENCO decided in favor of the appellant to save approximately Rs. 52 crores.

6. Judicial review and interference in tender processes:
The Supreme Court emphasized that judicial interference in tender processes should be minimal unless there is apparent illegality or arbitrariness. The decision to award the contract to the appellant was taken in public interest and after due consideration of all relevant factors. The Supreme Court noted that the employer is the best judge of the viability and capability of the bidders.

Conclusion:
The Supreme Court allowed the appeal, directing MAHAGENCO to reconsider the appellant's offer and, if found compliant with essential conditions, award the contract for one year. The private respondents, who had formed a cartel, were to wind up their business within one month, and their dues were to be settled by MAHAGENCO. The decision was made in the interest of MAHAGENCO and public interest, with costs awarded to the appellant.