Larsen & Toubro Limited & Anr vs Union Of India & Others
2011 Latest Caselaw 3796 Del

           THE HIGH COURT OF DELHI AT NEW DELHI

%                                   Judgment delivered on: 08.08.2011

+            W.P. (C) 6063/2010


LARSEN & TOUBRO LIMITED & ANR                              ... Petitioners

                                   Versus


UNION OF INDIA & OTHERS                                    ... Respondents

Advocates who appeared in this case:

For the Petitioners : Mr Mukul Rohatgi, Sr Advocate with Mr S. Ganesh, Sr Advocate, Mr Pratap Venugopal, Ms Surekha Raman, Mr Dileep P. and Mr P.K. Jha For the Respondent No.1 : Mr B.V. Niren with Mr Aarumugam M. For the Respondent No.2: Mr Parag P. Tripathi, ASG with Ms Bindu Saxena, Ms Aparajit Swarup, Ms Neha Khattar and Mr Kunal Bahri For the Respondent No.3: Mr Gourav Banerjee, ASG with Mr Saurav Ajrawal and Mr Dinesh Kumar For the Respondent No.4: Dr Abhishek Manu Singhvi, Sr Advocate with Mr Prashant Mehta, Ms Radhika Arora and Mr Jaiveer.

For the Respondent No.5: Mr Rajiv Nayyar, Sr Advocate with Mr Sagar Pathak and Mr Shiv Shankar.

CORAM:-

HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE MANMOHAN SINGH

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

2. To be referred to the Reporter or not? Yes

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

BADAR DURREZ AHMED, J

1. In this writ petition, there is a challenge to the rejection letter

dated 18.08.2010, whereby the petitioner No.1's bid has been rejected by

the respondent No.2 (NTPC) on the ground of it being non-responsive in

terms of clause 21 of the Instructions to Bidders (ITB) read alongwith

Item No.4 of the Bid Data Sheet (BDS), Section-III. Consequently, the

respondent No.2 also returned the bank guarantee submitted by the

petitioner No.1 towards bid security.

2. It may be pointed out straightaway that the rejection was on

the ground that the Deed of Joint Undertaking (DJU), which was to be

submitted by the bidders, including the petitioner No.1, was found to be

not in accordance with the prescribed format and was, therefore, regarded

as being non-compliant. It is for this reason that the respondent No.2

(NTPC) rejected the bid submitted by the petitioner No.1. However,

according to the learned counsel for the petitioners, the rejection is bad

inasmuch as the requirement of furnishing a Deed of Joint Undertaking

in the prescribed format was not a critical requirement. It was sufficient

that a Deed of Joint Undertaking was furnished. If there was any

deficiency in the Deed of Joint Undertaking furnished by a bidder, the

same could be rectified as it had been done by the petitioner No.1 at a

subsequent stage on 28.06.2010 when it submitted a revised Deed of

Joint Undertaking dated 17.06.2010. Thus, according to the learned

counsel for the petitioners, there was substantial compliance of the

condition of furnishing a Deed of Joint Undertaking, in the first instance,

and whatever deficiencies there were in the said Deed of Joint

Undertaking were, in any case, rectified by furnishing a revised Deed of

Joint Undertaking dated 17.06.2010 by the petitioner on 28.06.2010.

3. Thus, the entire controversy in this writ petition centres

around the Deed of Joint Undertaking. According to the petitioners, the

Deed of Joint Undertaking, which was initially submitted, was

substantially compliant with the requirements of the tender. It was also

contended that after the submission of the initial bid, there was

correspondence between the petitioner No.1 on the one hand and, the

respondent No.2 on the other, with regard to various aspects of the bid

documents, but no query was ever raised by the respondent No.2 with

regard to the Deed of Joint Undertaking alleging that the same was not

compliant. In fact, it was also contended on behalf of the petitioners that

the respondent No.2 (NTPC) sent a letter on 21.07.2010 indicating that

as the bids are still under processing and are likely to take some more

time and that the present validity of the petitioner No.1's proposal is upto

11.08.2010, the petitioner No.1 was requested to extend the validity of its

offer for a further period of at least 60 days upto and, including

11.10.2010 and that the bank guarantee against the bid security may also

be extended accordingly. Pursuant to this, the petitioner No.1 extended

the validity of the offer for a further period of 60 days and also extended

the validity. According to the learned counsel for the petitioners, there

was no mention in the respondent No.2's letter dated 21.07.2010 with

regard to the petitioner No.1's bid being non-compliant on account of the

Deed of Joint Undertaking not being in terms of the tender conditions. It

was contended that till the impugned rejection letter dated 18.08.2010,

the petitioners were never informed by the respondent No.2 that their bid

was non-compliant with respect to the Deed of Joint Undertaking. Thus,

according to the learned counsel for the petitioners, the respondent No.2

took a complete volt-face in issuing the rejection letter dated 18.08.2010.

Consequently, it was submitted that the said rejection was liable to be set

aside.

4. On behalf of the respondent No.2, Mr Parag Tripathi, the

learned Additional Solicitor General, submitted that no plea of

promissory estoppel or legitimate expectation has been taken in the writ

petition and, therefore, at this stage of arguments, without there being a

foundation in the pleadings, no such case can be permitted to be set up.

In any event, Mr Tripathi submitted that mere submission of a Deed of

Joint Undertaking did not amount to substantial compliance with the

tender conditions. The Deed of Joint Undertaking had to be in the

prescribed format. Material deviations from the said format entailed that

the Deed of Joint Undertaking was not compliant in terms of clause 21 of

the ITB and Item No.4 of the Bid Data Sheet (BDS), Section-III (clause

1.5.2).

5. Mr Gaurav Banerjee, the learned ASG, appearing on behalf of

the respondent No.3 (BHEL), also submitted that as the bid was not

substantially responsive on account of the Deed of Joint Undertaking not

being in terms of the tender conditions, there was no option with the

respondent No.2 (NTPC) but to reject the bid of the petitioner No.1.

6. Dr A.M. Singhvi, the learned senior counsel, appearing on

behalf of the respondent No.4 (ALSTOM Bharat Forge Power Limited)

and Mr Rajiv Nayyar, the learned senior counsel, appearing on behalf of

the respondent No.5 (Toshiba Corporation Power Systems Company),

submitted that the bid made by the petitioner No.1 had been validly

rejected by the respondent No.2. At this juncture, it may be pointed out

that the respondent Nos. 3 to 5 have been found to be L-1, L-2 and L-3

on the opening of their price bids and as per clause 31 of the Instructions

to Bidders (ITB), each one of them is to meet part of the project in the

ratio of 2:2:1.

7. The National Thermal Power Corporation (Respondent No.2)

had invited bids for the supply and installation of 11 Steam Turbine

Generator (STG packages) for its various super-thermal power projects.

The bids were to be in two stages. The first stage comprised of Techno-

Commercial Bid and the second, the Price Bid. It is only those parties

which cleared the Techno-Commercial stage, who would be entitled to

submit their Price Bids in Stage-II. As noted above, the petitioners are

aggrieved by the fact that the petitioner No.1 has not been allowed to

continue to the second stage by virtue of the rejection letter dated

18.08.2010, whereby the petitioner No.1's bid was rejected on the ground

of it being non-responsive in terms of clause 21 of the ITB read

alongwith Item No.4.0 of the BDS, Section III. We may also point out

that another bidder, namely, Power Machines OJSC, Russia was also

found to be non-responsive at the Techno-Commercial Stage and had not

been permitted to participate in the second stage, that is, of the Price Bid.

8. The petitioner No.1, of which the petitioner No.2 is a share

holder, entered into a joint venture agreement with Mitsubishi Heavy

Industries Limited. A joint venture company - L&T MHI Turbine

Generators Private Limited - was formed. The petitioner No.1 and its

affiliates were to maintain a share-holding in the joint venture company

of 51% and MHI was to maintain its share-holding at 49%.

9. The said tender was floated by the respondent No.2 (NTPC)

through an invitation to bid dated 16.10.2009. On 11.02.2010, the

petitioner No.1 submitted its bid using Route No.5 of the Bid Data Sheet

(BDS) of the tender documents which was titled as "Indian JV Promoters

holding at least 51% equity in a joint venture company for manufacturing

super critical Steam Turbine Generator Sets in India between the Indian

Company and the qualified Steam Turbine Manufacturer". As pointed

out above, there was correspondence exchanged between the petitioner

No.1 and the respondent No.2 with regard to the petitioner No.1's bid on

various issues. However, there was no mention of the Deed of Joint

Undertaking being non-compliant.

10. The entire controversy, as mentioned above, rests on the

question of the Deed of Joint Undertaking being compliant or not.

Clause 4 of the Instructions to Bidders (ITB) deals with the Content of

Bidding Documents. Clause 4.1 stipulates that the facilities required,

bidding procedures, contract terms and the technical requirements are

prescribed in the bidding documents and that the bidding documents

include Sections I to VII. The said Section VII pertains to Forms and

Procedures and Item No.13 thereof refers to the Form of Deed of Joint

Undertaking for Qualifying Requirement. Clause 4.2 of the said ITB

stipulates that the bidder is expected to examine all instructions, forms,

terms, conditions, specifications and other information in the bidding

documents. It is also provided that failure to furnish all information as

per the bidding documents or submission of a bid not substantially

responsive to the bidding documents in every respect would be at the

bidder's risk and could result in the rejection of its bid. Therefore, it is

clear that the form of Deed of Joint Undertaking for qualifying

requirement was an integral part of Section VII (Forms and Procedures)

and consequently of the bidding documents. It is also clear that the

bidder was warned that failure to furnish all information required as per

the bidding documents or submission of a bid not substantially

responsive to the bidding documents in every respect would be at the

bidder's risk and could also result in rejection of its bid.

11. An argument had been advanced on behalf of the petitioners

that just as other clarifications were being sought with regard to the bid

made by the petitioner No.1, a clarification could very well have been

sought with regard to the Deed of Joint Undertaking which was

submitted alongwith the Techno-Commercial Bid in case the respondent

No.2 felt that the said document was not compliant. Clause 20 of the

ITB deals with Clarification of Bids and clause 20.1 makes it clear that

during bid evaluation, the employer (respondent No.2) may, at its

discretion, ask the bidder for a clarification of its bid. The request for

clarification and the response shall be sought in writing and no change in

the price or substance of the bid shall be sought or permitted. Thus,

while the respondent No.2 could, at its discretion, ask for a clarification

of its bid, such request for clarification was to be in writing and more

importantly it could not relate to a change in the price or substance of the

bid. In other words, if the bid was not substantially compliant, then it

could not be corrected through the route of clause 20 by seeking

clarifications of the bid.

12. Clause 21 of ITB is crucial for our purposes and the same

reads as under:-

"21. Preliminary Examination of Stage-I (Techno-

Commercial) Bid:

The Employer will examine the bids to determine whether they are complete, whether required securities have been furnished, whether the documents have been properly signed and whether the bids are generally in order.

21.2 Prior to the detailed evaluation, the Employer will determine whether each bid is generally complete, acceptable and is substantially responsive to the bidding documents. For purposes of this determination, a substantially responsive bid is one that conforms to all the terms, conditions and specifications of the bidding documents without material deviations, objections, conditionalities or reservations. A material deviation, objection, conditionality or reservation is one (i) that affects in any substantial way the scope, quality or performance of the contract; (ii) that limits in any substantial way, inconsistent with the bidding documents, the Employer‟s rights or the successful Bidder‟s obligations under the contract; or (iii) whose rectification would unfairly affect the competitive position of other Bidders who are presenting substantially responsive bids.

21.3 Critical Provisions No deviation, whatsoever, is permitted by the Employer to the provisions relating to following clauses.

(a) Governing Laws (Clause 5 of GCC, Section IV).

(b) Settlement of Disputes (Clause 6 of GCC, Section IV).

(c) Terms of Payment (Clause 12 of GCC, Section IV).

(d) Performance Security (Clause 13.3 of GCC, Section IV).

(e) Security for Deed(s) of Joint Undertaking (Clause 13.4 of GCC, Section IV).

(f) Taxes and Duties (Clause 14 of GCC, Section IV).

(g) Completion Time Guarantee (Clause 26 of GCC, Section IV).

(h) Defect Liability (Clause 27 of GCC, Section IV).

(i) Functional Guarantee (Clause 28 of GCC,

Section IV).

(j) Patent Indemnity (Clause 29 of GCC, Section IV).

(k) Limitation of Liability (Clause 30 of GCC, Section IV).

(l) Price Adjustment (Appendix-2 to Form of Contract Agreement, Section-VII)

(m) Phased Manufacturing Programme (Clause 20 of GCC, Section V)"

13. An argument had been raised on behalf of the petitioners that

the critical provisions or the no deviation provisions have been set out in

clause 21.3. While security for the Deed of Joint Undertaking has been

mentioned in clause 21.3 (e), there is no mention of the Deed of Joint

Undertaking itself and thus, if there were deviations in the Deed of Joint

Undertaking, they were not critical and, therefore, could be corrected

during the evaluation process of Stage-I (Techno-Commercial).

However, this argument does not appeal to us. This is because clause

21.2 makes it clear that for the purposes of determination of a bid being

substantially responsive to the bidding documents, it must conform to all

the terms, conditions and specifications of the bidding documents

without "material deviations, objections, conditionalities or

reservations". The said clause itself defines what is meant by a material

deviation, objection, conditionality or reservation as being (i) which

affects in any substantial way the scope, quality or performance of the

contract; (ii) which limits in any substantial way, inconsistent with the

bidding documents, the employers rights or the successful bidder's

obligations under the contract; or (iii) whose rectification would unfairly

affect the competitive position of the other bidders who are presenting

substantially responsive bids.

14. At this stage, it would be necessary to refer to the copy of the

DJU as originally submitted by the petitioner No.1, alongwith the

petitioner No.1's Techno-Commercial bid on 12.02.2010. A copy of the

same was handed over by the learned counsel for the respondent No.2 on

14.09.2010, at the time of hearing of the application for interim orders.

In that copy, which was taken on record on that date, the learned counsel

for the respondent No.2 had taken care to indicate in red as also to

underline as well as strike out those portions which were added by the

petitioner to the original format and those portions which were omitted,

respectively. The said document handed over by the learned counsel for

the respondent No.2 had been taken on record as there was no objection

by the learned counsel for the petitioners with regard to its authenticity.

The said document indicates that full scale changes have been made to

the DJU as prescribed under the bid document and, as observed in the

order dated 14.09.2010, the Deed of Joint Undertaking submitted by the

petitioner No.1 alognwith its Techno-Commercial Bid on 12.02.2010

was virtually a different document. By way of sample, as we did at the

interlocutory stage, we are reproducing paragraphs 4, 5, 6, 7 and 8 of the

Deed of Joint Undertaking submitted by the petitioner No.1 on

12.02.2010. The portions which have been added are shown in bold and

are underlined. The portions which had been deleted are shown as

having been struck out.

"4. That in consideration of the award of the Contract by the Employer to the Contractor, we, the Qualified Steam Turbine Generator Manufacturer, the *Qualified Generator Manufacturer, JV Company and the Contractor, do hereby declare and undertake that we shall be jointly and severally responsible to the Employer for the execution and successful performance of the Generator and its auxiliary equipments as per Annexure-I. We, the Qualified Steam Turbine Generator Manufacturer, JV Company and the Contractor, do hereby further declare and undertake that we shall be jointly and severally responsible for the successful performance of all the contractual obligations under the said Contracts Provided, however, Notwithstanding anything to the contrary in this undertaking or the contract, such joint and several liability shall be expressly conditioned and subject to the Qualified Steam Turbine Manufacturer and the Qualified Generator Manufacturer having no liability to the Employer except in the event that, the following conditions are all met: (i) the equipment other than the products supplied by the Qualified Steam Turbine Manufacturer or/and the Qualified Generator Manufacturer in the plant meets the performance guarantees as

specified in the heat balance diagrams for guaranteed gross output and guaranteed heat rate, (ii) the contractor carries out the erection, commissioning and testing in accordance with the procedures furnished by the Qualified Steam Turbine Manufacturer and the Qualified Generator Manufacturer and (iii) such liability directly results solely from a material defect in the engineering, designs, material and workmanship in the product supplied by the Qualified Steam Turbine Manufacturer or/and the Qualified Generator Manufacturer.

5. Subject to the forgoing article 4, In case of any breach of the Contracts resulting solely & exclusively from the Engineering and supply of STG and integral Auxiliaries, committed by the Contractor , we the Qualified Steam Turbine Generator Manufacturer, JV Company and the *Qualified Generator Manufacturer do hereby undertake, declare and confirm that we shall be fully responsible for the successful performance of the Steam Turbine and Generator and their integral auxiliaries equipments including thermal performance and guaranteed parameters and undertake to carry out all the obligations and responsibilities under this Deed of Joint Undertaking in order to discharge the Contractor's obligations and responsibilities with respect to performance of the STG and integral auxiliaries stipulated under the Contracts. Further, if the Employer sustains any loss or damage on account of any breach of the Contracts, resulting solely and exclusively from the Engineering and supply of STG and integral auxiliaries by the contractor we the Qualified Steam Turbine Manufacturer, JV company and the *Qualified Generator Manufacturer and the Contractor jointly and severally undertake to promptly indemnify and pay such losses / damages caused to the Employer on its

written demand without any demur, reservation, contest or protest in any manner whatsoever.

6. Notwithstanding anything to the contrary in this undertaking and the contract, the total and aggregate liability of the Qualified Steam Turbine Manufacturer, the JV Company and the Qualified Generator Manufacturer respectively under or in connection with the Contract and this undertaking shall not be more than the amount equivalent to the respective value of service & equipment/ components supplied by the Qualified Steam Turbine Manufacturer, the JV Company and the Qualified Steam Generator Manufacturer. This is without prejudice to any right of Employer against the Contractor under the Contract and all guarantees.

7. Notwithstanding anything to the contrary in this undertaking and the contract, the Qualified Steam Turbine Manufacturer, the JV Company and the Qualified Generator Manufacturer shall in no event be liable to Employer by way of Indemnify or by reason of any breach of the contract or in tort, negligence, strict liability or otherwise for loss of use of Plant or any part thereof, loss of production, loss of profit or interest cost or loss of revenue or loss of any contractor, or for any indirect, special, incidental or consequential loss or damage that may be suffered by Employer arising out of or in connection with this undertaking and the Contract.

This is without prejudice to any right of Employer against the Contractor under the Contract and all guarantee.

The liability of the Qualified Steam Turbine Generator Manufacturer and JV Company shall be limited to an amount equivalent to US$122 (One hundred Twenty Two) Millions for each Turbine Generator Set to be supplied by the

Bidder/Contractor (to be finalized before Notification of Award). *The liability of the Qualified Generator Manufacturer, hereunder shall, however be limited to an amount equivalent to US$ 18(Eighteen) Millions for each Genrator Set to be supplied by the Bidder/ Contractor to be finalized before Notification of Award). This is without prejudice to any right of Employer against the Contractor under the Contract and all guarantees.

8. Without prejudice to the joint and several obligations of the Contractor, the Qualified Steam Turbine Generator Manufacturer, JV Company and the Qualified Generator Manufacturer hereunder, the analysis/investigations of the non-performance of the equipment manufactured by the Contractor may initially be carried out by the Contractor, within a period of 15 days from the date of reference of the problem by the Employer before the Employer approaches Qualified Steam Turbine Generator Manufacturer and the *Qualified Generator Manufacturer for any such analysis/ investigation. It shall not be necessary or obligatory for the Employer to first proceed against the Contractor before proceeding against the Qualified Steam Turbine Generator Manufacturer, JV Company and the Qualified Generator Manufacturer, nor any extension of time or any relaxation given by the Employer to the Contractor shall prejudice any right of Employer under this Deed of Joint Undertaking to proceed against the Qualified Steam Turbine Generator Manufacturer, JV Company, the *Qualified Generator Manufacturer and Contractor."

15. Let us take the first deviation which is noticed in paragraph 4

of the Deed of Joint Undertaking. A proviso has been added indicating

that notwithstanding anything to the contrary in the undertaking or the

contract, the joint and several liability shall be expressly conditioned and

be subject to the qualified steam turbine manufacturer and the qualified

generator manufacturer having no liability to the employer (respondent

No.2) except in the event that the conditions mentioned therein are met.

This is a clear conditionality and reservation which limits, in a

substantial way, inconsistent with the bidding documents, the rights of

the employer (respondent No.2). Furthermore, in paragraph 5 of the

Deed of Joint Undertaking, inter alia, the words "without any demur,

reservation, contest or protest in any manner whatsoever" appearing at

the end of the said paragraph have been deleted. Entirely new

paragraphs 6 and 7 have been inserted and the existing paragraph has

been deleted.

16. There were other similar alterations in the Deed of Joint

Undertaking submitted by the petitioner No.1 on 12.02.2010. The rights

of the employer (respondent No.2) have been seriously diluted and the

obligations which were originally cast upon the bidder and its joint

venture partners have been reduced. This would certainly amount to a

material deviation as contemplated in clause 21.2 of ITB which are

inconsistent with the bidding documents and materially affect the

respondent No.2's right as well as the bidder's obligation under the

contract. It is, therefore, clear that the Deed of Joint Undertaking

furnished by the petitioner No.1 alongwith its Techno-Commercial Bid

on 12.02.2010 was not substantially responsive / compliant. Thus, even

if it be assumed that the Deed of Joint Undertaking did not fall in the

category of zero deviation documents, it was not even substantially

compliant.

17. We may notice the contents of clause 21.4 of the ITB which

specifically stipulates that the employer's determination of a bid's

responsiveness is to be based on the contents of the bid itself without

recourse to extrinsic evidence. If a bid is not substantially responsive, it

will be rejected by the employer and might not substantially be made

responsive by the bidder by correction of the non-conformity. It was

contended by Mr Parag Tripathi on behalf of the respondent No.2 that the

revised Deed of Joint Undertaking dated 17.06.2010 furnished by the

petitioner No.1 on 28.06.2010, would amount to extrinsic evidence and

the same cannot be taken into consideration. In substance, the

submission of Mr Tripathi was that a bid, which was not substantially

responsive, in the first instance, cannot be permitted to be made

responsive substantially by correction of the non-conformity. We agree

with this submission of Mr Tripathi. Clause 21.4 of the ITB requires that

the employer in determining the responsiveness of a bid should only look

at the contents of the bid itself and not take recourse to extrinsic

evidence. The bid by itself included the non-compliant Deed of Joint

Undertaking. The correction of this non-conformity is not permissible in

view of clause 21.4 of ITB and, therefore, the Deed of Joint Undertaking,

which was non-compliant, cannot be made compliant subsequently by

submission of a revised Deed of Joint Undertaking in the prescribed

format.

18. In view of the foregoing, it is clear that the action taken by the

respondent No.2 in rejecting the petitioner No.1's bid on the ground that

it was not responsive in terms of clause 21 of the ITB read alongwith

Item No.4.0 of the Bid Data Sheet (BDS), Section-III, cannot be faulted.

The argument advanced by the learned counsel for the petitioners that if

the Deed of Joint Undertaking was non-compliant, then the respondent

No.2 ought to have rejected the bid straightaway and not led the

petitioners up the garden path, as it were, is not tenable, because, first of

all, the foundation for a plea of promissory estoppel or legitimate

expectation has not been laid out in the pleadings. Secondly, the

question of such a plea does not, at all, arise inasmuch as the tender

conditions are clear on this aspect of the matter and there has been no

waiver of the same on the part of the respondent No.2. The issue of

alleged change of stance on the part of the respondent No.2 has been

adequately explained by Mr Tripathi appearing on its behalf by

submitting that the non-compliance of the Deed of Joint Undertaking was

a live issue and this led to the respondent No.2 even taking the opinion of

the Attorney General with regard to the same. In the counter-affidavit

filed on behalf of the respondent No.2, it has been categorically stated

that the Attorney General of India had opined that the revised Deed of

Joint Undertaking cannot be accepted after the tender had been opened as

it would prejudice the other bidders and that such a decision could be

exposed to serious legal challenge in court. Of course, the opinion of the

learned Attorney General is not binding on this court, but, it does

demonstrate the fact that the respondent No.2 was considering the issue

with regard to the Deed of Joint Undertaking. As such, it cannot be

contended that the respondent No.2 took a complete somersault in its

approach to the Deed of Joint Undertaking and consequently to the bid

submitted by the petitioner No.1.

19. The result of this discussion is that the writ petition has no

merit and the same is dismissed. The parties are left to bear their own

costs.

BADAR DURREZ AHMED, J

MANMOHAN SINGH, J

August 08, 2011 dutt