2018 (2) TMI 847 - HC - Companies Law

E-auction - non-deposit of the security money and request for adjustments - withdrawal of LOIs - Held that - The impugned letters of the NDMC withdrawing the LoIs is based on justifiable grounds, inter alia violation of the conditions of the NIT by the Petitioners (such as, non-deposit of the security money and request for adjustments not provided for in the NIT, in the case of Honshu), and engaging in business relationships with black-listed companies in violation of the conditions of the NIT. No reason to interfere with the decisions of the NDMC. The decision to award a public contract is not premised merely on fulfillment of technical qualification and financial viability of the offer of a given bidder; the larger public interest is a necessary condition which invariably informs every decision of the executive authority or agency that is to award the contract. The vital public interest in ensuring that contracts are awarded to genuine bidders, and not to those who devise myriad devices to keep out true competition on one hand, and corner contracts- in this case, in relation to parking lots cannot be undermined. The NDMC thus had a vital interest in ensuring that the group of individuals, who adopted the stratagem of ensuing that they rotated the contracts, through different entities, which came to light in the financial linkage between them as well as controls through the same set of people does not hamper the transparency of the bidding process. This linkage was also evident from other materials such as common email identities of some of the entities; common premises and, in some cases, common directors or individuals controlling the entities. Further, the cancellation of the letters of intent by NDMC and thereby rejecting the tender bids of the Petitioners cannot be accepted to be arbitrary and malafide as such decision is based on concrete grounds, and opportunity was afforded to the petitioners to negate the same and make their stance when Show Cause Notices to that end were sent to them by the NDMC, as mentioned previously.

Issues Involved:
1. Adjustment of security deposit and advance licence fee.
2. Alleged nexus with defaulter companies.
3. Cancellation of Letter of Intent (LoI) and forfeiture of Earnest Money Deposit (EMD).
4. Scope of judicial review in public contract matters.

Detailed Analysis:

1. Adjustment of Security Deposit and Advance Licence Fee:
Honshu Buildcom Private Limited ("Honshu") requested the NDMC to adjust the security deposit of ?72,09,330/- paid for previous allotments towards the advance licence fee and security deposit for the new allotment. The NDMC rejected this request, stating there was no provision for such adjustments in the Notice Inviting Tenders (NIT) or the licence agreement. Honshu's failure to deposit the required amounts by the stipulated date resulted in the NDMC demanding the balance amount with interest at 24% per annum from June 1, 2016, as per the terms of the agreement.

2. Alleged Nexus with Defaulter Companies:
The NDMC alleged that both Honshu and Reihen Infosolutions Private Limited ("Reihen") had financial dealings with defaulter companies, which violated the NIT conditions prohibiting participation by entities with connections to blacklisted firms. The NDMC cited bank statements showing significant transactions between the petitioners and defaulter companies such as Ashima Infrastructure Pvt. Ltd., Trigen Electronics Pvt. Ltd., and others. The petitioners denied these allegations, asserting that the transactions were legitimate business loans and repayments, and there was no substantial nexus with the defaulters.

3. Cancellation of LoI and Forfeiture of EMD:
The NDMC issued Show Cause Notices to both petitioners, alleging violations of the NIT terms due to their connections with defaulter companies. Despite the petitioners' responses denying any nexus, the NDMC cancelled the LoIs and forfeited the EMDs deposited by Honshu and Reihen. The NDMC justified its actions by highlighting the public interest in preventing monopolistic practices and ensuring transparency in the bidding process.

4. Scope of Judicial Review in Public Contract Matters:
The court emphasized the limited scope of judicial review in tender matters, focusing on whether the decision-making process was arbitrary, irrational, or affected public interest. The court referred to several Supreme Court decisions, including Central Coalfields Limited v. SLL-SML (Joint Venture Consortium) and others, which underscored the importance of adhering to NIT terms and exercising judicial restraint in administrative decisions. The court found that the NDMC's actions were justified and based on concrete grounds, including the petitioners' violation of NIT conditions and their financial dealings with defaulter companies.

Conclusion:
The court concluded that the NDMC's decision to cancel the LoIs and forfeit the EMDs was not arbitrary or mala fide. The petitioners' failure to comply with the NIT terms, coupled with their financial nexus with defaulter companies, justified the NDMC's actions. The writ petitions were dismissed, and the court upheld the NDMC's decision, emphasizing the importance of maintaining transparency and public interest in the tender process.

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