Dhoot Developers Private Limited ... vs Union Of India & Ors.
2010 Latest Caselaw 4773 Del

*           IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                               Reserved on 05.10.2010
%                                                        Date of decision: 08.10.2010

+                               WP (C) No.5166 of 2010


DHOOT DEVELOPERS PRIVATE LIMITED
& ANR.                                    ...PETITIONERS
                  Through:  Mr. Sandeep Sethi, Sr. Adv. with
                            Mr. Vijay Nair, Mr. Rajat Joneja &
                            Mr. Sodhi Policap, Advocates.


                                          Versus

UNION OF INDIA & ORS.                                        ...RESPONDENTS
                    Through:                    Mr. Sachin Datta, Adv. for R-1 to 3.
                                                Mr. Alok Kumar & Mr. Mukti Bodh,
                                                Advocates for R-4.


CORAM:
HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
HON‟BLE MR. JUSTICE VALMIKI J. MEHTA

1.        Whether the Reporters of local papers
          may be allowed to see the judgment?                   Yes

2.        To be referred to Reporter or not?                    Yes

3.        Whether the judgment should be
          reported in the Digest?                               Yes


SANJAY KISHAN KAUL, J.

1. The Director General, Married Accommodation Project of the

Ministry of Defence along with the Director (Contracts) of the same

Ministry issued a pre-qualification notice No.1/2009-2010 in terms of

letter dated 18.5.2009 inviting applications for pre-qualification for

the bids, in response whereto the petitioners submitted their pre-

qualification bid on 8.7.2009 for construction of dwelling units at

Army/Air Force/Navy Station for MAP Phase-II. A list of 139

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contractors for MAP Phase-II, who were found fit for the pre-

qualification of MAP Phase-II was displayed on the website of

respondents 2 & 3 and the name of the Joint Venture of the two

petitioners figures in the same.

2. We may note that petitioner No.1 is a private limited company while

petitioner No.2 is a limited company incorporated and registered

under the Companies Act, 1956 stated to be engaged in real estate

development and construction work who are stated to have entered

into a joint venture agreement on 15.3.2008 to explore business

opportunities in India. Petitioner No.2 has been entrusted with the

task of necessary steps for procurement of contracts though for its

effective execution both the parties are to pool in their technical

experience and resources. The Joint Venture is known as "Dhoot

Developers Private Limited (JV) Bengal Silver Spring Projects

Limited".

3. Respondent No.3 addressed a letter dated 11.12.2009 to petitioner

No.1 informing that the name of the Joint Venture had been approved

for issuance of the tender documents in respect of construction of

residential accommodation at Amritsar and Tibri. The letter called

upon the petitioners to deposit a demand draft for `10,000.00 for

supply of tender documents. This was complied with by petitioner

No.1 and the tender documents were issued to the Joint Venture

under the cover of the letter dated 25.1.2010. The Joint Venture

submitted a bid under the cover of the letter dated 4.5.2010.

4. The letter dated 25.1.2010 forwarding the tender documents provided

in para 2 that these should be submitted with "earnest money deposit" _____________________________________________________________________________________________

as detailed in Appendix „A‟ to the Notice Inviting Tender (for short

„NIT‟). The manner in which the earnest money was to be submitted

is stipulated in instruction 1 of the instructions for completing/filling

tender documents and the same reads as under:

"1. Earnest Money

Tenderer‟s are required to submit Earnest Money Deposit as detailed in Notice Inviting Tender in the form of FDR/Demand Draft/Bank Guarantee Bond from any Nationalised/Scheduled Indian Bank drawn in favour of Director General, Married Accommodation Project, New Delhi as referred in Appendix „A‟ to Notice Inviting Tender.

Note:- (a) Earnest Money in the form of Cheque etc or any other form, except as mentioned above will not be accepted.

(b) Non-submission of Earnest Money will render the tender as non-bonafide and consequently ignored.

(c) The proforma for Bank Guarantee Bond for Earnest Money is attached as Appendix „G‟ to Particular Specifications. The Bank Guarantee Bond for Earnest Money shall be submitted on Non- Judicial Stamp Paper of appropriate value as per the proforma attached.

(d) The Bank Guarantee Bond/FDR/Demand Draft shall be valid for a period of not less than 6 months from the due date of receipt of tender failing which the tender will be treated as non- bonafide and will not be opened."

The NIT contains Clause 4(a) in respect of the aforesaid which reads

as under:

"4(a) The „Earnest Money‟ as detailed in Appendix „A‟ to Notice Inviting tender, shall be submitted in the form of FDR/Demand draft from a Nationalized/Approved Scheduled Indian Bank drawn in favour of "Director General Married Accommodation Project, Kashmir House, Rajaji Marg, New Delhi A/c Name of Firm"

payable at New Delhi/Bank Guarantee Bond from a Nationalized/Approved Scheduled Indian Bank in favour of "Director General Married Accommodation Project, Kashmir House, Rajaji Marg, New Delhi" valid for a period not less than six months from the due date of receipt of tender failing which tender will be treated as non-bonafide and will not be opened. It may be noted that if any firm revokes, withdraws, impairs or modifies his offer during validity period, his Earnest Money shall be forfeited and he shall be debarred from re-tendering if retendering is

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resorted to. No claim whatsoever will be entertained at a later date on this account."

(emphasis supplied)

The format of the bank guarantee for earnest money was provided in

Appendix „G‟.

5. In view of the aforesaid contractual stipulations, the Joint Venture

while submitting its bid under the cover of letter dated 4.5.2010

submitted the bank guarantee dated 3.5.2010 issued by the Axis Bank

Limited for a sum of `1.16 crore from the bank account of petitioner

No.1. The letter dated 4.5.2010 of petitioner No.1 clearly stated in

bold letters at the top "Joint Venture with M/s. Bengal Silver Spring

Projects Limited". The bank guarantee referred to the relevant

tender.

6. It is the case of the petitioners that there were ten bidders and the

tenders were opened on 4.5.2010. However, the bid of the Joint

Venture was not opened as according to respondent No.3 the bank

guarantee should have been issued from the account of the Joint

Venture and not from an account of petitioner No.1. The bid of

another company was also not opened for the same reason. The

petitioners sought to explain their stand that the Joint Venture was

pre-qualified and the bank guarantee was submitted by petitioner

No.1 who is the lead member of the Joint Venture which was in

accordance with the purpose of obtaining the earnest money bank

guarantee. However, the petitioners were informed that the two bids

of the two entities in question would be sent to the higher authorities

of the Union of India/respondent No.1 for their opinion. Among the

bids opened the lowest bid was of respondent No.4. Petitioner No.1 _____________________________________________________________________________________________

addressed a letter dated 4.5.2010 to respondent No.2 reiterating the

absence of any irregularity. Not only that, it was emphasized in the

letter that such bank guarantees had been submitted even for other

tenders by the Joint Venture which were never objected to. The

explanation in the letter is in the following terms:

"Our offer is not being opened with an advice that the BG should be from the JV and not from DDPL. In this connection we wish to inform you, sir, Dhoot Developers Pvt. Ltd., being one of the member of the JV, the BG is being issued by debiting to their account. The pre-qualification has been permitted to us based on the qualification of both the companies i.e. M/s. Dhoot Developers Pvt. Ltd. and M/s. Bengal Silver Spring Projects Limited. As per company law, both companies are having separate identity AND NOT A SPV, and based on our Joint Venture Agreement, the qualification has been done. As per Govt. Tender practice, the bank guarantees can be given by any of the members of the consortium/JV partners, strictly on the format of the tendering authority. In this case, since DG Map is insisting for the BGs to be issued by a Delhi based Bank, we have obtained the BG from Gurgaon and confirmed the clause as prescribed by you."

7. The aforesaid letter was followed up with another letter dated

5.5.2010 which inter alia cited the participation of the Joint Venture

in tenders of DG MAP/Phase-II in a similar manner, i.e. bank

guarantee was prepared in the same format and from the account of

the same company which was the lead member of the Joint Venture

and from the same bank and all these bank guarantees were accepted

and the tenders were opened without any objections. These tenders

are relating to Kamptee Nagpur, Binnaguri & Cooch Behar and

Meerut (East).

8. A positive response was received by the Joint Venture from

respondent No.3 vide letter dated 16.6.2010 intimating that it had

been decided by the Accepting Officer to open the unopened tenders

at 1230 hours on 28.6.2010. These two tenders included the tender of

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the Joint Venture. The sealed envelopes were accordingly opened on

the designated date in the presence of all the bidders. On such

opening the bid of the Joint Venture was declared to be the lowest (L-

1) and the Joint Venture was informed that they could collect the

Letter of Intent within a week.

9. The Letter of Intent was, however, not issued to the Joint Venture but

their representative was informed that respondent No.4 who had

become L-2 as a consequence of the opening of the bid of the Joint

Venture claimed that the tender process was vitiated on account of

the same reason, i.e. the bank guarantee not being from the account

of the Joint Venture. It was intimated that on this account

respondents 2 & 3 shall cancel the tender and call for fresh tenders.

This was protested to by the Joint Venture vide letter dated 26.7.2010

but to no avail. The petitioners, thus, filed the present writ petition

under Article 226 of the Constitution of India seeking a writ of

mandamus against respondents 2 & 3 to declare and issue Letter of

Intent to the lowest bidder L-1, being the Joint Venture of the

petitioners.

10. The writ petition was admitted on 3.8.2010 and interim orders were

granted directing that the tender process be not scrapped without

leave and liberty of the Court. Respondent No.4 entered appearance

subsequently on 15.9.2010 and was granted opportunity to file

counter affidavit, which opportunity has not been availed of by the

said respondent.

11. The submission of the petitioners was that there was no stipulation

specific or otherwise in the tender documents requiring the earnest _____________________________________________________________________________________________

money deposit by way of bank guarantee to be made from the

account of the Joint Venture. Another factor to be kept in mind was

that the bank guarantee was not a performance bank guarantee but

earnest money bank guarantee to be encashable in case the contractor

committed any breach of the tender terms basically in revoking the

tender before the fixed period pertaining to consideration of the

tender documents. The bank guarantee had been furnished by one of

the Joint Venture partners which was not contrary to the terms of the

tender documents and in any case not in violation of the spirit and

purpose of the same.

12. To substantiate the aforesaid contention our attention was invited to

Clause 1 of the instructions for completing/filling of tender

documents extracted aforesaid where "Tenderer‟s are required to

submit Earnest Money Deposit". The bank guarantee was

undisputedly offered by the tenderers, being the Joint Venture vide its

letter dated 4.5.2010. The Clause 1 did not provide for the bank

guarantee to be by debit to the account of the Joint Venture.

13. Clause 4 (a) of the NIT extracted aforesaid shows that in case of

revocation, withdrawal, impairment or modification of the offer

during the validity period, earnest money was liable to be forfeited

and such a tenderer was liable to be debarred from re-tendering, if

such re-tendering is resorted to. Thus, the object of the earnest

money bank guarantee is explained as to secure the expenses and

time spent in processing the tenders which may get affected by such

acts of the tenderer and that the bank guarantee serves such purpose

could not be effectively denied.

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14. Learned counsel for the petitioners further strongly emphasized that

the conclusion of respondents 1 to 3 was erroneous as "Contractor"

was defined in clause 1 of chapter 1 of the general conditions, which

is the Definition Clause to include persons other than the Joint

Venture company. The relevant Clause 1(e) reads as under:

"1. Definitions, etc. .... .... .... .... .... .... .... .... ....

(e) The "Contractor" means the individual or firm or company, whether incorporated or not, undertaking the Works and shall include the legal personal representatives of such individual or the persons composing such firm or company, or the successors of such individual or firm or company and the permitted assigns of such individual or form or company."

15. It was, thus, emphasized that the definition itself is inclusive and

includes persons composing such firm or company. Thus, the two

entities forming the Joint Venture would certainly fall within the

definition of a „Contractor‟ which is the word used in the proforma

bank guarantee.

16. Respondents 1 to 3 have set up their defence in the counter affidavit.

It has been pleaded that the bank guarantee at nine different places

uses the word "Contractor" and the contractor to whom the tender

was issued is the Joint Venture. It was, thus, submitted that it is the

name of the Joint Venture which should have been written in the

bank guarantee. It was further submitted that petitioner No.1 as lead

member of the Joint Venture does not become eligible for submitting

tender documents and other related documents in their name and the

inter se agreements between the constituents of the Joint Venture are

not relevant insofar as the compliance with mandatory terms and

conditions of tender documents are concerned. It is not disputed that

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the letter of the petitioners dated 26.7.2010 was received but prior to

that a decision to recall the tender is stated to have been taken. The

examples of similar tender has again not been denied though it is

pleaded that each case needs to be decided on the merits of the facts

and the Accepting Officer does not bind himself to accept the lowest

tender and thus the petitioners cannot force the answering

respondents to accept the tender.

17. On examination of the submissions, it is apparent that the only reason

for respondents 1 to 3 in treating the bid of the petitioners as non-

responsive is the submission of the bank guarantee by the lead

member of the Joint Venture, i.e. petitioner No.1 instead of by the

Joint Venture. This issue was raised at the inception but

subsequently a decision was taken to open the bids when the

petitioners were found to be L-1. At that stage objections were raised

by respondent No.4 who was earlier the L-1 in the bids opened but

became L-2 as a consequence of the bids of the petitioners and a

second party. Respondent No.4 protested and that protest seems to

have found favour with respondents 1 to 3.

18. The first aspect to be kept in mind is the objective with which the

earnest money bank guarantee is sought from the pre-qualified

tenderers who are given the tender documents. This objective is clear

from the tender documents themselves, more specifically Clause 4 (a)

of the NIT while noting as under:

"It may be noted that if any firm revokes, withdraws, impairs or modifies his offer during validity period, his Earnest Money shall be forfeited and he shall be debarred from re-tendering if retendering is resorted to."

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19. The objective is, thus, very apparent that considerable effort and

money goes towards processing the tender which must remain firm

during the validity period and thus any endeavour of such tenderer to

revoke, withdraw, impair or modify his offer during the validity

period must invite the penal consequences of the earnest money to be

forfeited coupled with debarment from re-tendering, if such re-

tendering is resorted to. The bank guarantee is admittedly not a

performance bank guarantee and a performance bank guarantee is

given only after the contract is awarded.

20. We, thus, fail to appreciate as to how the objective of furnishing such

an earnest money bank guarantee is in any manner effected by the

bank guarantee being to the account of one of the members of the

Joint Venture instead of the account of the Joint Venture itself. It is

not a performance bank guarantee in any case.

21. We are reinforced in our view by the observations made by the

Division Bench of the Orissa High Court in P.K. Constructions and

S.N. Kanungo Vs. State of Orissa & Ors. 2003 (II) OLR 518 =

MANU/OR/0443/2003 where a performance bank guarantee was

furnished by one of the partners of the Joint Venture firm. It has

been observed in para 7 of the judgement that the performance

security is required by the department to protect borrower in case of

breach of contract when the performance security can be

invoked/encashed so that no loss is suffered. The purpose is stated to

be met by submission of the bank guarantee by one of the partners of

the Joint Venture.

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22. The other important aspect is that learned counsel for respondents 1

to 3 has been unable to point out to us any specific clause which

requires the earnest money bank guarantee to be submitted in the

name of the Joint Venture or by debit to its account so long as the

bank guarantee is in the prescribed format. The earnest money

deposit has to be given by the tenderer vide Clause 1 extracted above.

There are various forms of earnest money deposit. One of the forms

is a bank guarantee bond. The submission of the bank guarantee is

under the cover of the letter of the tenderer. Thus, conditions of the

instructions for completing/filling tender documents contained in

Clause 1 dealing with earnest money stands complied with.

23. If we now turn to the bank guarantee format, the only aspect

emphasized by learned counsel for respondents 1 to 3 is that the word

„contractor‟ is used repeatedly in the same and the contractor cannot

be mean petitioner No.1 but the Joint Venture. We, however, find

that there is no satisfactory answer to the plea of the petitioners that

the word „contractor‟ is itself defined in definition clause 1(e) of the

general conditions attached to the tender documents. A contractor

"shall include" inter alia "the persons composing such firm or

company". Thus, the contractor as an entity can in turn consist of

other entities including a company. In the present case there are two

companies which are forming the Joint Venture and the contractor is

the Joint Venture. Thus, the word „contractor‟ would encompass the

act of petitioner No.1 in submitting the bank guarantee with its name

and the bank guarantee is, thus, in terms of the format of the bank

guarantee.

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24. The consequence of facts set out show that after due examination a

decision was taken to open the bids inter alia of the petitioners but

merely because of an objection raised by respondent No.4 the tender

process is sought to be nullified contrary to the terms of the tender.

This is not permissible.

25. We are clearly of the view that the bank guarantee submitted by the

petitioner was according to the terms & conditions of the tender and

thus the bid of the petitioners could not be treated as non-responsive

and the same is L-1. The bidding process, thus, must be continued

from that stage treating the bid of the petitioners as valid and L-1.

The action of respondents 1 to 3 in scrapping the tender is, thus,

wholly arbitrary and is accordingly liable to be quashed, for the

aforesaid reason.

26. A writ of mandamus is, thus, issued quashing the decision of

respondents 1 to 3 to treat the bid of the petitioners (Joint Venture) as

non-responsive at the behest of respondent No.4 declaring that the

bank guarantee submitted by petitioner No.1 on behalf of the Joint

Venture is as per the terms & conditions of the bid and thus the

process in pursuance to the bid be completed in accordance with law.

27. The writ petition is allowed in the aforesaid terms leaving the parties

to bear their own costs.

SANJAY KISHAN KAUL, J.

OCTOBER 08, 2010                                        VALMIKI J. MEHTA, J.
b'nesh

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