Bombay High Court
Pipavav Shipyard Limited vs Oil And Natural Gas Corporation ... on 22 December, 2010
Bench: Dr. D.Y. Chandrachud, Anoop V.Mohta
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dgm
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION (LODGING) NO. 2843 OF 2010
1 Pipavav Shipyard Limited
2 Iranian Offshore Engineering Construction Company
3 Dolphin Offshore Enterprises (India) Ltd. .... Petitioners
vs
1 Oil and Natural Gas Corporation Limited
2 National Petroleum Construction Company .... Respondents
Mr. I. M. Chagla, Senior Advocate with Mr. Janak Dwarkadas, Senior
Advocate with Mr. Venkatesh Dhond and Mr. R.A. Rajyadhyaksha i/by
M/s.Crawford Bayley & Co. for the petitioners.
Mr. D. J. Khambatta, Additional Solicitor General with Mr. Vikramaditya
Deshmukh, Mr. Nishit Dhruve, Mr. Prakash Shinde, Mr. Avinash Singh
Gautama i/by M. Dhruva & Partners for respondent no.1.
Mr. Hiroo Advani, Mr. R.S.Bidkar, Ms. Aradhana Prabhakar i/by M/s.
Advani & Co. for respondent no.2.
CORAM: DR. D.Y. CHANDRACHUD &
ANOOP V. MOHTA, JJ.
DATE : December 22, 2010
ORAL JUDGMENT: (Per Dr. D. Y. Chandrachud,J.)
Oil and Natural Gas Corporation Limited (ONGC) invited bids for six
Well Head Platforms for Mumbai High and associated work including
services like Design, Engineering, Procurement, Fabrication, Transportation,
Installation and Commissioning. The Petitioners comprise of a consortium
of three Companies: the First and Third Petitioners are Indian Companies,
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while the Second Petitioner is an Iranian corporate entity. The consortium
representing the Petitioners and the Second Respondent who bid for the
contract were found technically qualified. Commercial bids were opened.
The Executive Purchase Committee (EPC) by its decision dated 18
December 2010 recommended the award of the contract to the Second
Respondent. The contract was awarded on 19 December 2010.
2 The controversy in these proceedings revolves around the
interpretation of a price preference clause for, the contention of the
Petitioners is that they were entitled to a price preference of ten percent.
On that basis, the Petitioners claim that the contract should have been
awarded to them.
3 Section "C" of the Bid Document contains `Criteria For Price
Evaluation of Bids'. Clause C-5 which contains a provision for price
preference is as follows:
"C-5) Price Preference/Purchase Preference
a. Price Preference
Domestic Bidders would be entitled to a price preference of ten
percent (10%) over the lowest acceptable (quoted) foreign bid
subject to domestic bidders providing all evidence necessary to prove
that they meet the following criteria:
(i) is registered within India
(ii ) have majority ownership by nationals of India and
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(iii ) not subcontract more than 50% of the Works measured in
terms of value to foreign contractors.
For (iii) above, an original certificate from practicing Statutory
Auditor engaged by the company (bidder) for auditing their annual
accounts indicating therein various details, which could establish that
not more than 50% of the works measured in terms of value has
been sub-contracted to foreign contractors, must be along with price
bid. It must be noted that above information so furnished, if at any
stage, found wrong, incorrect or misleading, will attract action as per
rules/law.
Consortium between domestic (Indian) and foreign firms but led by
Indian party shall also be eligible for the price preference provided
they fulfill the conditions of price preference given for domestic
bidder at i, ii, iii above.
However, consortium between domestic and foreign firms led by
foreign firm shall not be eligible for price preference even though
their domestic partner satisfies the conditions given for domestic
bidder at i, ii, iii above." (emphasis supplied)
4 The tender document inter alia stipulated in Clause 3.1 that it was
open to intending bidders to pool their resources and experiences by
forming consortia or joint ventures. Under clause 3.3, the lead member
of the consortium had to submit a bid on behalf of a consortium of bidders
and a Memorandum of Understanding between the members of the
consortium, clearly defining the scope of work of each member was to be
submitted. All members of the consortium were to be jointly and severally
responsible for discharging all obligations under the Contract. Where the
consortium was led by an Indian company, under clause 3.4, the bid bond
could be submitted in Indian rupees. Under clause 3.8, the leader on behalf
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of the consortium was to undertake full responsibility for timely completion
of work. Under clause 3.10, the MOU to be executed by members of the
consortium was to include a provision that all members would be jointly
and severally responsible for discharging their obligations under the
Contract and the role and scope of each member would be as
attached/annexed to the MOU. The consortium was requested to indicate
the percentage of scope of work to be carried out by each member in terms
of value of the contract. Clause 5.2 contained a prohibition on assignment,
save and except with the prior approval in writing of ONGC.
5 Together with the bid document, the Petitioners submitted an MOU
dated 3 September 2010 between the members of the consortium.
Annexed to it was a chart containing the role and scope of work of each
member of the consortium. At serial 4, under the head "Procurement of
Equipment", the document discloses that the Second Petitioner which is the
Iranian partner would be leading the process of finalisation of vendors,
preparation of RFQs, TBAs, through ONGC approved design engineering
contractors up to the order placement stage. The other two members
would provide financial support and shall order on the vendors
recommended by the Second Petitioner. Similarly, for procurement of bulk
items, it was stated that the procurement management for bulk materials
will be by the Iranian partner, while the Indian members of consortium
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would assist and place orders on recommended vendors. At item 7, the
MOU disclosed that as regards load out, sea-fastening and transportation,
the Iranian partner will take the prime responsibility with assistance from
its Indian partners and through ONGC's approved sub-contractors. For
Offshore Installations, the Iranian partner was to select ONGC approved
installation sub-contractors and take prime responsibility for installation.
For fabrication of jackets, decks, piles, etc., item 6 of the chart provides that
the Iranian partner will take prime responsibility for this activity and
fabrication would be taken up in ONGC approved facilities/agencies.
6 During the course of the tender enquiry, a letter was addressed by
ONGC to the Petitioners seeking confirmation that project management
and the fabrication of jackets/decks of the Well Head Platform Project shall
be carried out by the Iranian partner in the consortium, the Second
Petitioner. This was confirmed by the Petitioners in a letter dated 22
October 2010.
7 The Tender Committee evaluated the commercial bids of all the
technically qualified bidders and submitted its report on 4 December 2010.
The Tender Committee found that the Second Respondent was the L-1
bidder, the bid of the Petitioners being higher than that of the Second
Respondent. The Petitioners had claimed a price preference. While dealing
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with the claim of price preference, the Tender Committee noted that despite
the requirement of clause C-5, the Petitioners had not submitted details to
establish that not more than 50% of the work measured in terms of value
has been subcontracted to foreign contractors. The certificate submitted by
the Chartered Accountants for the Petitioners was considered and the
Tender Committee observed thus:
"3.3.3TC noted that the above certificate submitted by
the consortium does not contain any details as required under
the BEC clause C-5. As such in the absence of various details it
could not be established that not more than 50% of the works
measured in terms of value has been subcontracted to foreign
contractors."
8 The Tender Committee also came to the conclusion that the
Petitioners were not entitled to a price preference of 10%, for the following
reasons:
"Based on the Appendix B-6 `Division of Scope of Work', the
location of work centers and the acceptable agencies and
Appendix A-3 `Proforma for Price Schedule submitted, the
foreign exchange component for the activities of fabrication,
load out & transportation and installation, which are proposed
to be carried out by foreign contractors is as under:
i Fabrication : 13.5%
ii Load & Transportation : 2.1%
iii Installation : 20.7%
Total : 36.3%
Moreover, the quoted price for procurement activity is USD
68,874,696 plus INR 850,842,036, which is 38% of the total
lumpsum price quoted. The majority of the procurement is
quoted in foreign currency (imported component) which
aggregates to 78.8% in foreign currency and balance in Indian
Rupees. Since the major fabrication activities as indicated in
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Appendix B-6 is likely to be executed outside India, hence the
fabrication related procurement may also take place outside
India, which can be attributed from the foreign currency outgo
as indicated in procurement activity. Thus from the A 3
Schedule it can be concluded that more than 50% will be
carried outside India. Hence price preference cannot be
considered."
9 The bid document contained inter alia a provision for grievance
redressal by an Independent External Monitor (IEM). The Petitioners
submitted representations on 6 December 2010 which were evaluated by
the IEM. On 15 December 2010, the IEM submitted its recommendation
validating the decision of the Tender Committee not to allow a price
preference to the Petitioners. Besides dealing with the merits of the claim
to a price preference, the IEM stated that despite the provisions of clause
C-5 under which every bidder was required to submit details in a certificate
of a Statutory Auditor to show that the extent of subcontract to foreign
contractors was not more than 50% in terms of value, the certificate which
was forwarded by the Petitioners did not contain the details that the above
mentioned clause envisages. The bid was therefore found to be deficient
on this ground. The conclusion was that since the certificate had a bearing
on eligibility for price preference, the consortium representing the
Petitioners had fallen short of the requirement. The recommendation of
the Tender Committee and of the IEM was thereafter placed before the
Executive Purchase Committee (EPC) on 18 December 2010. The EPC
accepted the recommendation following which the contract was awarded
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on 19 December 2010 to the Second Respondent.
10 On behalf of the Petitioners, it has been submitted that the
Petitioners fulfilled the requirements contained in clause C-5 for availing
of a price preference and there was no basis for the Tender Committee to
conclude that more than 50% of the work measured in terms of value
would be subcontracted to foreign contractors. Learned Senior Counsel
submitted that under the bid document, so long as the lead member of the
consortium was a domestic company it would be entitled to the benefit of
a price preference, notwithstanding the association of a foreign partner so
long as the three conditions that were set out in clause C-5 were fulfilled.
It was urged that every member of the consortium was jointly and severally
responsible to fulfill its obligation under the Contract and the allotment of
work to a particular member of the consortium could not be construed as a
subcontracting of work to a foreign contractor. Hence, it has been urged
that the reasons that weighed with the Tender Committee as well as with
the IEM, suffer from perversity. The Petitioners submit that the consortium
would be entitled to a price preference and if the price preference were
allowed to them, their bid would fall for acceptance, being lower than that
of the Second Respondent.
11 On the other hand, it has been urged on behalf of First Respondent
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by the Learned Additional Solicitor General that (i) While clause C-5
contemplates the grant of a price preference to a consortium which is led
by an Indian bidder, even though one of the partners may be a foreign
company; the lead member of the consortium must satisfy cumulatively all
the three conditions set out in the clause; (ii) The object of the condition
that not more than 50% of the work measured in terms of the value should
be subcontracted to foreign contractors is to ensure that a price preference
is availed of by a consortium genuinely represented by Indian bidders.
Unless, a purposive interpretation is given to clause C-5, its provisions are
liable to be abused inasmuch as a consortium led by an Indian bidder
would be held to be entitled to a price preference even though a substantial
part of the contract (well in excess of fifty per cent of the value) is to be
performed overseas by a foreign contractor; (iii) The Petitioners themselves
understood the clause as applying even to an allotment of work to a foreign
member of the consortium; (iv) Despite the provisions of clause C-5, the
certificate of the Statutory auditor, which was submitted by the Petitioners,
did not contain various details which would establish that no more than
50% of the work measured in terms of value had been subcontracted to
foreign contractors; (v) The chart annexed to the MOU would, as a matter
of fact, establish that a substantial component of the work was to be
rendered outside; (vi) Whether procurement of material outside the
country would or would not amount to a subcontract would depend upon
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the facts of each individual case and therefore the burden was cast on an
intending bidder who applies for a price preference to furnish adequate
details in support of the contention that not more than 50% of the work in
terms of value was being subcontracted to foreign subcontractors. The
Petitioners failed to furnish those details and the admission in the
certificate of the statutory auditors must be construed in that background.
12 Counsel on behalf of the Second Respondent has supported the
submissions of the First Respondent and has urged that consistent with the
parameters of the jurisdiction under Article 226, particularly in the award
of public contracts, the interference of the Court is not warranted.
13 The dispute in this case essentially revolves around the interpretation
of Clause C-5 of Section "C" of the bid document. Clause C-5 enables
domestic bidders to avail of a price preference of 10%, over the lowest
acceptable foreign bid. In order to be entitled to this benefit, every
domestic bidder was to provide evidence necessary to prove that it met
three criteria. These criteria were that (i) the bidder is registered within
India; (ii) a majority of the ownership of the bidder vests in nationals of
India; and (iii) not more than 50% of the work measured in terms of value
would be subcontracted to foreign contractors. In order to establish the
third requirement, clause C-5 stipulated that an original certificate from a
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practicing Statutory Auditor engaged by the bidder for auditing the annual
accounts must be furnished and that the certificate must contain, "various
details, which could establish that not more than 50% of the work
measured in terms of value has been subcontracted to a foreign
contractor". The bidders were put on notice that if the information
furnished was found to be wrong, incorrect or misleading, it will attract
action as per rules/law. The second paragraph of clause C-5 extends the
benefit of a price preference to a consortium consisting of domestic and
foreign bidders, but led by an Indian party. Such a consortium would also
be eligible for a price preference provided they fulfill the conditions of price
preference given for domestic bidders at i, ii, and iii. Now what the clause
contemplates is that the fulfillment of conditions i, iii and iii must be
established by the lead Indian bidder. Obviously, the condition of the
company being registered in India or having a majority ownership of Indian
nationals cannot be fulfilled by the foreign partner forming part of the
consortium. The Learned Additional Solicitor General, therefore, is right
in his interpretation of Clause C-5 when he submits that the requirements
of conditions i, ii and iii have to be fulled by the Indian bidder, who is the
lead member of the consortium.
14 A price preference is an incentive provided to Indian bidders. The
entitlement is conditional on an Indian bidder, including a consortium led
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by an Indian bidder even though it consists of a foreign partner,
establishing on the basis of the certificate of the Statutory Auditor that not
more than 50% of the work measured in terms of value was being
subcontracted to a foreign contractor. The clause must receive a purposive
interpretation. The object is to ensure that the purpose of a preference
preference is not defeated by sub contracting more than 50% of the value
of the work under the Contract to foreign contractors. A bidder who seeks
a price preference must fulfill the conditions governing eligibility to receive
a price preference and must demonstrate that eligibility to the Tender
Committee. Like all exemptions and incentives the conditions on which a
preference is granted must be demonstrated to exist by a bidder who seeks
a price preference. The requirement of a certificate of a Statutory Auditor
is a meaningful requirement and not a formality. The details contained in
the certificate are intended to be the basis for establishing that not more
than fifty per cent of the value of the work will be subcontracted to foreign
contractors.
15 In the present case, the Petitioners submitted a certificate of their
Statutory Auditors which was to the following effect:
"With reference to the above tender for 06 Well Head
Platforms Project, we, M/s. Chatuvedi & Shah, Statutory
Auditors of Pipavav Shipyard Ltd. (having its Registered
Office at Pipavav Port, Post - Ucchaiya, via Rajula, Dist.-Amreli,
Gujarat - 365 560) which is the lead Partner in 'PIPAVAV-
IOEC-DOLPHIN CONSORTIUM' (the consortium), hereby
certify that as per the estimation provided by the management
to us, and being technical matter, relied upon by us, the total
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subcontract value of the works measured in terms of value in
the said tender estimated to be subcontracted by the
Consortium' to foreign contractors is not more than 50%. This
should not be construed as audit under the Indian GAAP
(Generally accepted auditing principles)."
Significantly, this certificate did not contain any details whatsoever that
would establish that not more than 50% of the work under the Contract
was being subcontracted to a foreign contractor. The Tender Committee
noted this deficiency when it made its recommendation on the question as
to whether the Petitioners were entitled to a price preference under Clause
C-5. This was re-iterated in the report of grievance redressal by the IEM.
In the absence of a complete disclosure as was mandatory in the report of
the Statutory Auditor, the Tender Committee made is own evaluation when
it made its recommendation on 4 December 2010. The Tender Committee
noted that the foreign exchange component for the activities of fabrication,
load out and transportation and installation which was proposed to be
carried out by foreign contractors was to the extent of 36.3%. Moreover,
the quoted price for procurement activity was 38% of the total lumpsum
price under the contract. 78.8% of the procurement was quoted in foreign
currency representing the import component. The Tender Committee
observed that since a major part of the fabrication activities as noted in
Appendix "B-6" was likely to be executed outside India, hence, the
fabrication related procurement may also take outside India. On this basis
the Tender Committee concluded that more than 50% of the value of the
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work would not be carried out within India in terms of the provisions of
Clause C-5.
16 In assessing the validity of the challenge to the decision of the Tender
Committee, this Court above all must be cognizant of the restraints
imposed upon the jurisdiction under Article 226 of the Constitution when
dealing with the award of public contracts. The Supreme Court held in
Tata Cellular v. Union of India1, that the Court is concerned with the
decision making process. Judicial review can be exercised on grounds of
illegality, irrationality and procedural impropriety. The Court does not sit
as a court of appeal but merely reviews the manner in which the decision
was made. These principles were re-iterated by a Bench of three learned
Judges of the Supreme Court in Siemons Public Communication Pvt. Ltd.
v. Union of India & ors.2 The Supreme Court held as follows:
"When the power of judicial review is invoked in the
matters relating to tenders or award of contracts, certain
special features have to be considered. A contract is a
commercial transaction and evaluating tenders and awarding
contracts are essentially commercial functions. In such cases
principles of equity and natural justice stay at a distance. If the
decision relating to award of contracts is bona fide and is in
public interest, Courts will not exercise the power of judicial
review and interfere even if it is accepted for the sake of
argument that there is a procedural lacuna."
17 On the touchstone of the law laid down by the Supreme Court, it is
1 (1994) 6 SCC 651
2 AIR 2009 SC 1204
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not possible for this Court to come to a conclusion that the decision holding
that the Petitioners had failed to establish the conditions necessary to claim
a price preference was erroneous. The Petitioners must find fault with
themselves for failing to establish in the manner provided by the Contract
that they were entitled to the grant of a price preference. This Court
especially in the exercise of its jurisdiction under Article 226 of the
Constitution could not be justified in re-appreciating what is essentially
factual material to re-determine as to whether the findings which have
been recorded by the Tender Committee are correct or otherwise. What
percentage of the total value of work under the contract would be sub
contracted to foreign contractors is a determination which has to be made
on facts. Whether a procurement involves in a particular item of work a
sub contract to a foreign contractor is a matter which must turn on an
assessment of the facts. The Petitioners have called upon the Court to
enquire into these matters and to re-appreciate the determination of the
Tender Committee. That exercise cannot be undertaken by the Court
especially in a situation where there is no illegality or perversity. The
Petitioners failed to establish that they were entitled to a price preference.
For all these reasons, we do not find any reason to interfere with the
decision. The Petition is accordingly dismissed. There shall be no order as
to costs.
(ANOOP V. MOHTA, J.) ( DR.D.Y. CHANDRACHUD,J.)
