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TMI Blog2022 (12) TMI 1486X X X X Extracts X X X X X X X X Extracts X X X X ..... cation of the terms of the tender conditions. In THE SILPPI CONSTRUCTIONS CONTRACTORS VERSUS UNION OF INDIA (UOI) AND ORS [ 2019 (6) TMI 1449 - SUPREME COURT] , the Supreme Court, while discussing the aspect of judicial intervention in matters of contract involving state instrumentalities had held that the authority which floats the contract or tender, and has authored the tender documents is the best judge regarding interpretation of the same. Any interference by the Court has to be for the purposes of preventing arbitrariness, irrationality, bias, mala fides or perversity. A perusal of the reasoning contained in the Final Evaluation Report indicates proper application of mind by the Financial Consultant. It cannot be said that the opinion of the Financial Consultant is so arbitrary that it would warrant interference by this Court under Article 226 of the Constitution of India. The contention of the learned Counsel for the Appellant, that restricting the reserves only to reserves arising out of revenue profit will have a disastrous effect on the Appellant company inasmuch as it cannot apply for the tenders floated by the NHAI and that this will go against the spirit of the orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ructure projects in the country. b) The Respondent had invited a Request for Proposal (RFP) for the abovementioned project and the Petitioner was one of the bidders in the said project. In response to the Petitioner s bid, the Respondent vide letter dated 15.07.2022 informed the Petitioner that the evaluation committee had noticed certain discrepancies in its bid, stating that the same was not adhering to clauses of the RFP. The Petitioner responded to the query of the Respondent on 21.07.2022 inter alia submitting an explanation as to how its balance Capital Reserve Account has been considered to calculate its Net Worth as per methodology specified in Clause 2.2.2.9 (ii) of the RFP and it has a Net Worth of 49.04 Crores, thereby meeting the Net Worth criteria under the RFP. c) On 22.07.2022, the Respondent informed the Petitioner that their bid was rejected on the ground that it does not satisfy the Net Worth criteria as defined under Clause 2.2.2 (b) of the RFP. The Petitioner, thereafter, made multiple representations to the Respondent protesting and seeking clarification regarding the decision taken by the Respondent. The representations made by the Petitioner were rejected vid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial creditors of the Petitioner, i.e., State Bank of India, Muscat Branch filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the Petitioner for initiation of the Corporate Insolvency Resolution Process (CIRP). The said application was admitted by the NCLT vide its Order dated 21.11.2019 resulting in the initiation of CIRP against the Petitioner. Vide the same Order an Interim Resolution Professional was appointed and later, on the same person was appointed as the Resolution Professional by the Committee of Creditors (CoC) by way of a resolution passed at the CoC meeting of the Petitioner on 20.12.2019. The Resolution Plan submitted by SMC Infrastructures Private Limited was accepted by the CoC in its 14th Meeting held on 28.10.2020 with a majority vote of 98.77%. g) Thereafter, the Resolution Professional had filed an Application under Section 30(6) and 31 of the Insolvency and Bankruptcy Code, 2016 read with Regulation 39 (4) of the IBBI (Insolvency Resolution for Corporate Persons) before the NCLT on 18.12.2020 seeking approval of the Resolution Plan submitted by SMC Infrastructure Private Limited. h) Vide an Order dated 30.03.2021, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the Technical Evaluation Committee that the Net worth should be calculated on the basis of reserves created only out of revenue profit alone is against Clause 2.2.2.9 and also universally accepted accounting principles which are applied across the board. 6. Mr. Kathpalia draws the attention of this Court towards certain other projects issued by the Ministry of Road, Transport and Highways which have the same criteria for calculating the Net Worth of the bidders as is given in the Clause 2.2.2.3 of the Impugned RFP in the present case. He submits that there is no reason as to why the Respondent/NHAI should take a different view than the one taken by the Ministry of Road, Transport and Highways. Mr. Kathpalia has also drawn the attention of this Court towards various Clauses in the tenders issued by the Ministry of Road, Transport and Highways which are identical to the present case. 7. Mr. Kathpalia further draws attention of this Court towards Public Enterprises Survey (Annual Report on the performance of Central Public Sector Enterprises) published by the Department of Public Enterprises, Ministry of Finance, Government of India, in which the Net Worth of various Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endering authority to clarify its doubts. The Respondent no. 1 should have been forthcoming with clarifications since the pre-bid meeting was over. We are at pains to understand the attitude of the tender floating authorities. The laudable objectives of ease of doing business in India was frustrated by this high-ended attitude of the respondent. If the aim and objective of an open bidding process is to encourage bidding, and maximize participation to get the optimum price, then the attitude of the Respondent cannot be countenanced. The act of not clarifying the Petitioner's doubt has prejudiced him and left him in the dark. This Act/omission of Respondent no. 1 cannot be to the disadvantage of the petitioner. ***** 50. The doctrine of contra proferentem states that the plain and express meaning of the contract has to be given heed to and in case there is any ambiguity in the contract, then the same is construed against the drafter of the said contract. 11. Mr. Kathpalia further places reliance upon a Judgment passed by the Apex Court in Reliance Energy Ltd. and Another vs. Maharashtra State Road Development Corpn. Ltd and Others, (2007) 8 SCC 1 wherein the Apex Court dealt with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s one more aspect which needs to be mentioned in the matter of implementation of the aforestated doctrine of ―level playing field‖. According to Lord Goldsmith, commitment to the ―rule of law‖ is the heart of parliamentary democracy. One of the important elements of the ―rule of law‖ is legal certainty. Article 14 applies to government policies and if the policy or act of the Government, even in contractual matters, fails to satisfy the test of ―reasonableness‖, then such an act or decision would be unconstitutional. ***** 38. When tenders are invited, the terms and conditions must indicate with legal certainty, norms and benchmarks. This ―legal certainty‖ is an important aspect of the rule of law. If there is vagueness or subjectivity in the said norms it may result in unequal and discriminatory treatment. It may violate doctrine of ―level playing field . 39. In Reliance Airport Developers (P) Ltd. v. Airports Authority of India [(2006) 10 SCC 1] the Division Bench of this Court has held that in matters of judicial review the basic test is to see whether there is any infirmity in the decision-making process and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the actual timing of cash spent on capital expenditure and cash inflow on account of capital receipt. Thus the financial statements prepared on accrual basis do not reflect the timing of the cash flow and amount of cash flow. The object of the cash flow statement is to assess the company's ability to generate the cash flow in future and to assess reasons for difference between ―net profit‖ and ―net cash flow‖ from operations. ***** 50. Taking into account the above principles, it is clear that there are two methods of ―cash flow reporting‖ i.e. direct and indirect. Both give identical results in the matter of the final total. They differ only in presentation of the data. They differ only in presentation of the data contained in the cash flows from operational activities. No reason has been given by the consultants of msrdc for rejecting the indirect method invoked by KPMG, chartered accountants of rel/hdec in their letter dated 12-8-2005. The said method is known as ―reconciliation method . 51. In this case, as stated above, the only reason given by the consultants of msrdc to exclude rel/hdec was the negative impact on the future cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the RFP, but also the scheme of the Resolution Plan approved by the NCLT and objectives of the Insolvency and Bankruptcy Code, 2016. 14. Per Contra, Mr. Jayant K. Mehta, learned Senior Counsel appearing for the Respondent/NHAI, contends that the tenders in which the Ministry of Road, Transport and Highways has accepted the Net Worth of the company to include reserves arising out of capital, have not been tested in a Court of law and need not be accepted by the Respondent. The Respondent being the tenderer should be permitted to decide the same on the basis of the eligibility of the bidder. According to him, the purpose of finding out the financial capacity of the bidder is to ascertain as to whether the bidder would be in a position to complete the project and for which purpose the decision of the NHAI to restrict the reserves only to reserves arising out of revenue profit cannot be found fault with. It cannot be said that the decision of NHAI is arbitrary and violative of Article 14 of the Constitution of India. He states that evaluation by the tendering authority should be respected. 15. Mr. Mehta also contends that the definition of Net Worth can differ depending upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.3.(b)(ii) and 11.6.(c) below. 11.3 Financial Capability shall be calculated as follows: a) Net Worth means the aggregate value of the paid-up equity share capital and all reserves created out of the profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet. Provided that for determining the Net Worth, any reserves created out of revaluation of assets, write-back of depreciation and amalgamation, intangible assets, redemption reserves, reserves made for any specific purpose shall not be included. Such methodology shall be applicable even to entities that are not incorporated in India ( Net Worth ). b) Apart from the Net Worth criteria as set out under 11.3 (a), IBs may also qualify on the basis of: (i) In case of Funds, .... (ii) IB, other than Funds, may also qualify on the basis of Net Worth of its Affiliate, provided such IB itself has a positive Net Worth computed in terms of Clause 11.3 and 11.4. ***** 6) As quoted above, Net Worth means the aggregate value of the paid-up equity share capital and all reserves created out of the prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 14. Moreover, since Petitioner had raised the issues of treating the amalgamation reserve as ―general reserve‖ in light of an order by the Hon ble High Court and a legal opinion, the Respondent No. 3 also advised the Respondent No. 1 and 2 to seek legal advice on the same. 15. Accordingly, it is the Respondent No. 3 humble submission that the Petitioner was not eligible in accordance with the eligibility criteria set out in Clause 11 of the PIM.(emphasis supplied) ***** 26) A bare perusal of Clause (f) of the Scheme of Amalgamation clearly shows that the so-called general reserve of the Petitioner is a surplus arising out of the difference between the value of the net assets to be transferred to the transferee company, i.e. the Petitioner Company, and the value of shares allotted to the shareholders of the Transfer Company. Firstly, we may observe that this General Reserve is only a notional book entry, since the value of the net assets transferred is something determined by the Transferor and Transferee Companies. This general reserve is not created out of the profits of the business conducted by the Transferee i.e. the Petitioner Company. Secondly, this general rese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. It is possible that the owner or employer of a project may give an interpretation to the tender documents that is not acceptable to the constitutional courts but that by itself is not a reason for interfering with the interpretation given. 17. The short questions which arises for our consideration is whether the decision taken by the Respondent while rejecting the bid of the Petitioner on the ground that the Net Worth of the Petitioner is less than Rs.42.98 crores is correct or not and whether it warrants interference by this Court while exercising its jurisdiction under Article 226 of the Constitution of India. 18. Along with the counter affidavit, the Respondent has also filed a Final Evaluation Report. The case of the Petitioner has been examined and the evaluation regarding Net Worth of the Petitioner as discussed in the Final Evaluation Report reads as under: 19. The reliance placed by Mr. Mehta, learned Senior Counsel appearing for the Respondent/NHAI, upon Kanti Commercials Private Limited (Supra) is squarely applicable to the facts of the present case. The facts of the said case are more or less identical to the facts of the present case. The Court in that case dealt w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OnLine SC 1133, the Supreme Court, while discussing the aspect of judicial intervention in matters of contract involving state instrumentalities had held that the authority which floats the contract or tender, and has authored the tender documents is the best judge regarding interpretation of the same. Any interference by the Court has to be for the purposes of preventing arbitrariness, irrationality, bias, mala fides or perversity. In paragraph 20 of the said Judgement, the Supreme Court observed as follows: 20. The essence of the law laid down in the judgments referred to above is the exercise of restraint and caution; the need for overwhelming public interest to justify judicial intervention in matters of contract involving the State instrumentalities; the courts should give way to the opinion of the experts unless the decision is totally arbitrary or unreasonable; the court does not sit like a court of appeal over the appropriate authority; the court must realise that the authority floating the tender is the best judge of its requirements and, therefore, the court's interference should be minimal. The authority which floats the contract or tender, and has authored the tend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itude is required to be conceded to the State authorities unless the action of the tendering authority is found to be malicious and a misuse of its statutory powers, interference by courts is not warranted; (d) Certain preconditions or qualifications for tenders have to be laid down to ensure that the contractor has the capacity and the resources to successfully execute the work; and (e) If the State or its instrumentalities act reasonably, fairly and in public interest in awarding contract, here again, interference by court is very restrictive since no person can claim a fundamental right to carry on business with the Government.‖ 22. Ultimately in a number of Judgments, the Apex Court has held that that the Courts before interfering in tender or contractual matters, in exercise of its power of judicial review, should pose to itself the following questions: (i) Whether the process adopted, or decision made by the authority is mala fide or intended to favour someone; or 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 coul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impropriety. No such case being made out, the decision of the tender inviting authority (NVS) in the present case was not required to be interfered with on the reasoning that according to the writ court, the product ―smartphone‖ ought to be taken as being of similar category as the product ―Tablet . 23. In view of the above, the Apex Court has categorically held that the Rule of contra preferentum shall not apply in tender matters for the reason that it is for the tenderer to decide as to who would be the best suitable bidder for award of the tender and unless the decision-making process is completely arbitrary and has been design only to favour some person or is accentuated by malafide, the Courts should not interfere under Article 226 of the Constitution of India. 24. A perusal of the reasoning contained in the Final Evaluation Report indicates proper application of mind by the Financial Consultant. It cannot be said that the opinion of the Financial Consultant is so arbitrary that it would warrant interference by this Court under Article 226 of the Constitution of India. The contention of the learned Counsel for the Appellant, that restricting the reserves only ..... X X X X Extracts X X X X X X X X Extracts X X X X
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