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TMI Blog2023 (4) TMI 668X X X X Extracts X X X X X X X X Extracts X X X X ..... t, on a winding up, of the amounts specified in sub-clause (b) of clause (ii). A perusal of Section 55, provides that preference shares cannot be redeemed within the share capital of the company. It, therefore, means that other than two sources i.e., out of profits and out of proceeds of fresh issue of shares, no other source can be used for redemption of preference shares. Clause 4.3.1 (c) of the NIT states that net-worth is to be considered in accordance with the Companies Act, 2013. In the NIT, the tenderer has not specifically excluded preference shares from the definition of net-worth. The mode of calculation of net worth which has been adopted by the Respondents to exclude the Petitioner from further stages of the tendering process is contrary to the Sections of the Companies Act. Clause 4.3.1(c) of the NIT does not exclude preference shares from the definition of net-worth rather it states that net-worth is to be considered for this clause shall be the total net worth as calculated in accordance with the Companies Act, 2013, then the net-worth has to be calculated as per the Companies Act, 2013 and no other method can be permitted to be adopted. There is no reason as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to as Impugned Decision ) rendered by the Respondent, REMC Limited, in terms of which, the Respondent has declared the Petitioner to be technically ineligible to participate in the procurement process of 1000 MW of Round-the-Clock Power from Grid-Connected Renewable Energy Power Projects, issued vide the Request for Selection bearing reference number REMCL/CO/PP/P-85/RTC/1000MW/2022 dated 14 July 2022 (hereinafter referred to as Request for Selection ). Shorn of details, the controversy that has arisen before this Court is that the Petitioner was found ineligible to participate in the tender process since the net worth quoted by it was inclusive of the value of its preference shares, which, in the view of the Respondent ought to be excluded from such net worth and pursuant to such exclusion, the net worth criteria set out under the Request for Selection is not being satisfied. The short issue that is to be decided in this case is whether the value of preference shares can be included while computing net worth and accordingly, whether the Respondent erred in declaring the Petitioner ineligible to participate in the tender process in terms of the Request for Selection. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equest made by the petitioner vide letter dated 14.12.2022 (Annexure P-8), the respondent shall communicate its decision to the petitioner and in the meanwhile, e-reverse auction (e-RA) will remain in abeyance till expiry of one week commencing from the communication of the said decision to the petitioner. 8. Taking the aforesaid statement on record, and binding the respondent to the same, the present petition along with pending applications, is disposed of with liberty to the petitioner to approach the court in altered circumstances vi. In furtherance of the directions of the Ld. Single Judge, on 16.12.2022, the Respondent issued the Impugned Decision, inter alia communicating that the Petitioner s bid stood excluded on the grounds that it is disqualified at Technical Stage based on the Net Worth of the Parent company is less than the required criteria after exclusion of redeemable preference shares in net worth calculation . 4. Challenging the decision of the Respondent disqualifying the Petitioner from further stage of the tender process, the Petitioner has approached this Court by filing the instant petition. 5. Mr. Jayant Mehta, learned Senior Advocate for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial review on administrative action is only intended to prevent arbitrariness, irrationality, unreasonableness, bias and malafide and the purpose is only to check whether the decision is made lawfully. She states that if the decision taken by the tender issuing authority is made applicable across the board and when there is no evidence of the tenderer adopting the policy of pick and choose, then Writ Courts must not interfere exercising its jurisdiction under Article 226 of the Constitution of India. 8. Ms. Anand places reliance on a Judgment dated 19.12.2022 passed by this Court in GKC Projects Limited v. National Highways Authority of India, W.P.(C) 11752/2022, wherein this Court had refused to interfere with the decision of the tenderer to restrict net worth only on the basis of reserves created out of revenue profits alone. She has relied on Section 129 of the Companies Act read with Schedule III Clause 9 under which a preference share is classified as a liability and redeemable preferences are classified under non-current borrowings or liabilities. She contends that applying the said principles, preference shares are liabilities and, therefore, the decision to exclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osite to refer to the relevant clauses of the Request for Selection that set out the requisite criteria for net-worth to be satisfied by a bidder. The same is reproduced hereunder: - .4.3.1 Net-worth (a) The Net Worth of the Bidder should be equal to or greater than INR 3.00 Crores per MW, during the previous financial year i.e., immediately preceding the due date of bid submission ... b) The net worth to be considered for the above purpose will be the cumulative net-worth of the Bidding Company or Consortium together with the Net Worth of those Affiliates of the Bidder(s) that undertake to contribute the required equity funding and performance bank guarantees in case the Bidder(s) fail to do so in accordance with the RfS. (c) Net Worth to be considered for this clause shall be the total Net Worth as calculated in accordance with the Companies Act, 2013 and any further amendments thereto (emphasis supplied) 13. Under Clause 4.3.1 net worth of a bidder is required to be equal to or greater than Rs. 3 Crore per MW during the financial year preceding the submission of the bid, computed within the scheme and mandate of the Companies Act. The clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share capital. The Act sheds light on the kinds of share capital under Section 43, which states as follows:- The share capital of a company limited by shares shall be of two kinds, namely: (a) equity share capital (i) with voting rights; or (ii) with differential rights as to dividend, voting or otherwise in accordance with such rules as may be prescribed; and (b) preference share capital: Provided that nothing contained in this Act shall affect the rights of the preference shareholders who are entitled to participate in the proceeds of winding up before the commencement of this Act. Explanation- For the purposes of this section,- (i) equity share capital , with reference to any company limited by shares, means all share capital which is not preference share capital; (ii) preference share capital with reference to any company limited by shares, means that part of the issued share capital of the company which carries or would carry a preferential right with respect to (a) payment of dividend, either as a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income-tax; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the date of their issue subject to such conditions as may be prescribed: Provided that a company may issue preference shares for a period exceeding twenty years for infrastructure projects, subject to the redemption of such percentage of shares as may be prescribed on an annual basis at the option of such preferential shareholders: Provided further that (a) no such shares shall be redeemed except out of the profits of the company which would otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for the purposes of such redemption; (b) no such shares shall be redeemed unless they are fully paid; (c) where such shares are proposed to be redeemed out of the profits of the company, there shall, out of such profits, be transferred, a sum equal to the nominal amount of the shares to be redeemed, to a reserve, to be called the Capital Redemption Reserve Account, and the provisions of this Act relating to reduction of share capital of a company shall, except as provided in this section, apply as if the Capital Redemption Reserve Account were paid-up share capital of the company; and (d) (i) in case of such class ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... frastructure projects specified in Schedule VI. (emphasis supplied) 20. Section 55 of the Companies Act, 2013 prescribes that no company limited by shares shall, after the commencement of this Act, issue any preference shares which are irredeemable. Section 55(2) provides that preference shares are liable to be redeemed within a period not exceeding 20 years. The proviso (a) of Section 55 provides that no such shares shall be redeemed except out of the profits of the company which would otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for the purposes of redemption and no preference shares shall be redeemed unless they are fully paid. Section 55 also provides that preference shares may be redeemed within a period not exceeding 20 years from the date of their issue. A perusal of Section 55, therefore, provides that preference shares cannot be redeemed within the share capital of the company. It, therefore, means that other than two sources i.e., out of profits and out of proceeds of fresh issue of shares, no other source can be used for redemption of preference shares. Clause 4.3.1 (c) of the NIT states that net-worth is to be con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer SG PTE. LTD is governed by the Indian Companies Act (which is actually not as it is a company incorporated in Singapore and is governed by the laws of Singapore), the preference shares issued by O2 Power SG PTE. LTD are not redeemable at the option of shareholders, and therefore, cannot be categorized as a debt. 24. A perusal of the above would show that the mode of calculation of net worth which has been adopted by the Respondents to exclude the Petitioner from further stages of the tendering process is contrary to the Sections of the Companies Act. Clause 4.3.1(c) of the NIT does not exclude preference shares from the definition of net-worth rather it states that net-worth is to be considered for this clause shall be the total net worth as calculated in accordance with the Companies Act, 2013, then the net-worth has to be calculated as per the Companies Act, 2013 and no other method can be permitted to be adopted. There is no reason as to why the tender must exclude preference shares while calculating the net-worth. Respondents cannot be permitted to adopt a method which runs contrary to the provisions. Even though there are no allegation of mala fides or that the method h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Constitution of India in contractual matters is extremely limited. The Court interferes in contractual matters only when the decision making process is faulty or that the decision arrived at by tenderer is calculated to favour somebody or that the decision is so irrational that no man of prudence would have come to that conclusion. In the facts of the present case, it cannot be said that the decision that has been arrived at by the Respondent is to favour somebody yet the method adopted by the Respondent for calculating net worth is contrary to the definition of net worth given under the Companies Act. Reliance placed by the Respondent on the Judgment of GKC Projects (Supra) is not apt for the reason that in that case the tenderer had decided not to include only reserves arising out of the revenue profits alone while calculating the net worth which is not contrary to the statute. However, in the facts of the present case, the tenderer has decided to exclude preference shares from the definition of net worth on a wrong notion that preference shares is a liability which is contrary to the Sections in Companies Act. Only when the preference shares are redeemable at the instance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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