Delhi High Court
M/S. Starnet Communications Pvt. ... vs Bharat Sanchar Nigam Limited ... on 12 January, 2012
Author: Sanjay Kishan Kaul
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision : 12.01.2012
+ WP (C) No.4947/2011
M/s. STARNET COMMUNICATIONS PVT. LTD..... Petitioner
Through: Mr.Darpan Wadhwa, Mr.Rajat
Vohra and Mr.Shankh Sengupta,
Advocates.
versus
BHARAT SANCHAR NIGAM LIMITED (BSNL).... Respondent
Through: Mr. H.S. Phoolka, Sr. Adv. with
Mr. Sharat Kapoor, Mr. Noor Alam,
Mr.C.B.Tiwari & Mr. Kunwar
Faisal, Advs.
CORAM:
HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
HON'BLE MR. JUSTICE RAJIV SHAKDHER
SANJAY KISHAN KAUL, J. (ORAL)
1. The petitioner lays a challenge to the action of the respondent in
issuing the impugned termination letter dated 08.03.2011 and
cancelling the Letter of Intent („LOI‟ for short) dated 16.04.2010 in
favour of the petitioner who was the L-1 qua the Haryana Licence
Service Area („LSA‟ for short) for deployment of WiMAX „e‟
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Wireless Broadband Solution. The respondent/BSNL issued an
Expression of Interest („EOI‟ for short) for inviting bids for
deployment of the said WiMAX „e‟ Wireless Broadband Solution in
16 Licence Service Areas on a non exclusive, revenue sharing basis.
The EOI involved a two-stage bid process in terms whereof the
bidder was required to submit both - the techno-commercial bids
and financial bids, at the initial stage itself. At the time of submitting
the bid, a bid security was to be furnished in favour of the
respondent for an amount of Rs.20 lakhs for each LSA from a
Scheduled Bank and based on the evaluation of the techno-
commercial bids, the financial bids were to be opened for the
successful bidders. The successful bidder was to be then issued the
LOI resulting in signing of the franchisee agreement. At the stage of
signing of the franchisee agreement, the successful bidder was
required to furnish an irrevocable performance bank guarantee
(„PBG‟ for short) for the requisite amount for each of the LSA. The
petitioner submitted bids for 3 LSAs - Chennai, Haryana and
Himachal Pradesh along with the bid security from an Indian
Scheduled Bank. The petitioner was identified as the successful
bidder for Chennai (Type-A), Haryana (Type-B) and Himachal
Pradesh (Type-C) LSAs resulting in LOIs being issued to the
petitioner for the said LSAs.
2. Under the terms of the LOI qua the Haryana LSA, which is in
dispute, the petitioner was required to furnish an irrevocable PBG of
Rs.7.5 crores at the time of signing of the franchisee agreement. The
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franchisee agreements for Chennai and Himachal Pradesh LSAs
were finalized and signed on 29.10.2010. It is significant to note that
the PBG submitted by the petitioner for these two LSAs were issued
by the Standard Chartered Bank, Malaysia. The petitioner vide its
letter dated 29.11.2010 submitted an irrevocable PBG dated
16.11.2010 for the sum of Rs.7.5 crores issued by the Standard
Chartered Bank, Malayasia for the Haryana LSA. The controversy
appears to have started at that stage when the respondent insisted
that even the PBGs already submitted should be replaced by one
from an Indian Scheduled Bank. It is the say of the petitioner that as
per the terms of the EOI and LOI, there was no such term, but the
petitioner in good faith undertook to replace the currently submitted
PBGs for the two circles subject to a written request by the
respondent in this regard and communicated the same vide letter
dated 29.11.2010. The same issue also arose qua the PBG for the
Haryana LSA resulting in exchange of certain communications.
3. On 18.02.2011, the petitioner informed the respondent that it was in
the process of replacing the PBG from the Standard Chartered Bank,
Malaysia with PBGs issued by a local Indian Scheduled Bank. This
was followed up by the petitioner sending a letter dated 23.02.2011
submitting undertaking from Standard Chartered Bank, Malaysia
that all demands under the PBGs should be delivered to the Standard
Chartered Bank, India, New Delhi Branch which is an Indian
Scheduled Bank. However, this appears not to have still resolved
the issue and a letter dated 08.03.2011 was issued by the petitioner
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to return the original PBGs so that they can be replaced by the PBGs
by the Stand Chartered Bank‟s local counterpart. The respondent,
however, vide its letter dated 08.03.2011 rejected the PBGs
submitted for the Haryana LSA and terminated the LOI informing
that the PBGs submitted by the petitioner with amendment dated
22.02.2011 was not acceptable to the respondent and consequently
the LOI was cancelled.
4. The petitioner vide their letter dated 14.03.2011 protested and vide a
communication dated 24.03.2011 sought clarification as regarding
the status of the PBGs submitted for Chennai and Himachal Pradesh
LSAs. However, the respondent vide letter dated 13.04.2011
returned the PBGs submitted by the petitioner for Haryana LSAs.
5. It is in these circumstances that the petitioner vide letter 19.05.2011
requested the respondent to furnish a letter on its letter head
releasing the PBGs. A further development which arose inter se the
parties was the invocation of the PBG for the Chennai and Himachal
Pradesh LSAs by the respondent on the alleged ground of breach of
franchisee agreement. The petitioner filed an application under
Section 9 of the Arbitration and Conciliation Act, 1996 („the said
Act‟ for short) and vide order dated 26.05.2011, the learned single
Judge on the Original Side has been pleased to stay the invocation of
the PBGs subject to them being kept alive. We are informed that
these applications have been disposed with a direction that the
petitioner may move the arbitral tribunal for necessary relief within
eight weeks by filing an interim application under Section 17 of the
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said Act and till such time, the interim stay granted by the learned
single Judge would continue to enure for the benefit of the
petitioner.
6. We have set out the history of the dispute though the
controversy in the present case is within a narrow compass. It is not
in dispute that the EOI/LOI did not stipulate any condition requiring
the petitioner to submit a PBG from a Scheduled Bank much less an
"Indian Scheduled Bank". The PBGs furnished by the petitioner for
the Haryana and Himachal Pradesh LSAs were from Standard
Chartered Bank, Malaysia. It is after the issuance of the LOI for the
Haryana Circle that the respondent sought to vary the original
requirements of furnishing of the PBG to a condition of furnishing
of a PBG from an Indian Scheduled Bank. The common term both
in the EOI and LOI dealing with the issue is being reproduced
hereunder for convenience:
"BID SECURITY & PERFORMANCE BANK
GUARANTEE (PBG)
18. BID SECURITY The bidder shall furnish
Bid Security valid for 365 days (from the date of
bid opening) amounting to Rs.20,00,000/-
(Rupees Twenty Lakhs only) against each bid for
each LSA applied for in the form of an
irrevocable Bank Guarantee issued by a scheduled
bank in favour of BSNL as per annexure II B.
18.1 A bid not secured in accordance shall be
rejected by the BSNL being non-responsive at the
bid opening stage and returned to the bidder
unopened.
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18.2 A bid security of the unsuccessful bidder
will be discharged/returned as promptly as
possible but not later than 30 days after the expiry
of the period of the bid validity prescribed by the
BSNL.
18.3 The successful bidder‟s bid security will be
discharged upon the bidder‟s acceptance of the
respective LSA and furnishing the performance
security of respective LSA.
The bid security may be forfeited:
a) If the bidder withdraws his bid during the
period of bid validity specified in the bid/EOI
document or
b) In the case of successful bidder, if the bidder
fails:
i) to sign the agreement in accordance with clause
32.6 or
ii) to furnish performance security in accordance
with clause 32.7.
18.4 PERFORMANCE BANK GUARANTEE
(PBG) Franchisee shall furnish an irrevocable
Performance Bank Guarantee for Rupees Ten
Crore for Type A/ Metro LSA, Rs.7.5 Crore for
Type B LSA & Rs.5 Crore for Type C LSA (main
PBG) for each LSA at the time of signing of the
agreement and shall keep valid all times upto one
year beyond currency of the Agreement.
18.4.1 The Performance Bank Guarantee Peforma
(PBG) is attached as Annexure II B to this
Agreement. Initially all PBG‟s shall have a
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minimum validity period of 36 months. There
after each PBG shall have to be extended at least
3 months before the expiry of existing PBG
validity for a period of 36 months at a time & so
on and kept valid at all times upto one year
beyond the currency of this Agreement or
settlement of all due between both the parties (i.e.
BSNL and franchisee) whichever is earlier."
(emphasis supplied)
7. A reading of the aforesaid clause would show that insofar as the bid
security amount of Rs.20 lakhs is concerned, an irrevocable bank
guarantee issued by a "Scheduled Bank" in favour of BSNL was to
be enclosed. However, the PBG to be furnished by the franchisee
was stipulated as "irrevocable Performance Bank Guarantee". The
aforesaid position is undisputed before us and there is a dual plea
urged by learned counsel for the respondent. The first plea is that
since the words used are "Scheduled Bank" for a bid security, as per
common parlance and as per the Purchase Manual the same should
be construed as by an Indian Scheduled Bank. It is, however, not in
dispute that there is no term contained in the EOI/LOI specifying
that the terms contained in the Purchase Manual would apply to the
bid. Linked with this is the plea that the absence of stipulation of
the PBG to be furnished by an Indian Scheduled Bank should not be
read in isolation, but should be read with the requirement of
providing such a bank guarantee of the bid security amount.
8. We are unable to appreciate this plea. As noticed above, the
requirement of furnishing even of the bid security from an Indian
Scheduled Bank is not contained in the terms. The requirement of
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furnishing of a bank guarantee qua bid security is by a Scheduled
Bank. There is no such stipulation qua the PBG. When different
terms are used in the same clause, obviously it has to be assumed
that the draftsman intended a different meaning to be assigned in the
two places. The fact that there is change in the future tenders as
invited by learned counsel for the respondent, would not assist the
respondent. If they have committed a mistake, then it cannot be that
the petitioner should be penalized for their mistake. We may also
note, as pointed out by learned counsel for the petitioner, that the
plea of Purchase Manual is an oral plea urged before us and has not
been taken in the counter affidavit.
9. The second limb arises from the plea that the terms of the tender
stood altered in view of the undertaking given by the petitioner. In
this behalf, on a specific request of the respondent, the petitioner
issued a letter dated 29.11.2010 in the form of an undertaking for all
the three LSAs in respect of which LOI had been issued to the
petitioner i.e. Chennai, Haryana and Himachal Pradesh. The relevant
portion of the undertaking is as under:
".....This is with reference to the performance
bank guarantees already submitted to BSNL for
the signing of the WiMAX franchisee
agreements for Chennai, Haryana and Himachal
Pradesh.
As per request of officers of BSNL WiMAX cell,
we hereby wish to give the following
undertaking:
Starnet Communications Pvt Ltd hereby
undertakes that subject to written request from
GM - WiMAX cell of BSNL, Starnet will replace
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the currently submitted Standard Chartered
Bank Malaysia Performance Bank Guarantees
for Chennai, Haryana and Himachal Pradesh
with Local Bank PBG's for the respective circles
and amounts within 30 days of receipt of the
written request. This has the approval of
Starnet's Board of Directors...."
(emphasis supplied)
10.The aforesaid is stated to have been repeated on 18.02.2011 on a
reminder being sent by the respondent on 15.02.2011.
11.It is the case of the respondent that a demand notice had been issued
by it to the petitioner in the interregnum i.e.10.01.2011. In response
to the respondent‟s letter dated 15.02.2011, the petitioner sent a
communication dated 23.02.2011 in the following terms:
"Dear Sir,
This is with reference to the PBG's already
submitted by Starnet for our franchise
territories of Chennai, Haryana and Himachal
Pradesh LSA's as per the WIMAX EOI/LOI
conditions. We wish to reiterate that these are
in line with the PBG requirements as per the
EOI clauses and the same has also been
confirmed by our external Legal Counsel.
However, as per the request of BSNL WIMAX
cell, we hereby attach three undertaking from
Standard Chartered Bank (SCB) stating that
SCB India - New Delhi branch will honour any
request or claim against each of the submitted
PBG's. As you are aware SCB India is a
recognized scheduled Bank in India as per
Reserve Bank of India (RBI) Act, 1934. Hence
this undertaking by SCB effectively converts
the submitted PBG into a Local PBG. BSNL may
in the event of any default by Starnet in
execution of contract, raise a claim on the
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Standard Chartered Bank's New Delhi Branch
and the same will be honoured by the Bank.
We hope this satisfies in full the requirements
of BSNL for the PBG.
As you are also aware, we have already
made significant progress on overall technical
architecture and circle-level interaction with
the circle teams. We have now also appointed
our SI partners and will be initiating POC
activities shortly for all the three LSA's."
(emphasis supplied)
12.The aforesaid communication was accompanied by three separate,
but identical undertakings for each of the three LSAs issued by the
Standard Chartered Bank, Malaysia in the following terms:
"AT REQUEST OF STARNET COMMUNICATION PVT
LTD. LEVEL 6 JMD REGENT SQUARE, MG ROAD,
GURGAON, THE ABOVE MENTIONED LETTER OF
GUARANTEE IS AMENDED AS FOLLOWS:
PARA 9 SHOULD READ AS FOLLOWS:
ALL DEMANDS UNDER THIS GUARANTEE MUST BE
MADE IN WRITING AND MUST BE DELIVERED BY
HAND OR BY POST AND RECEIVED BY STANDARD
CHARTERED BANK INDIA AT TRADE SERVICES, 2ND
FLOOR H-2, CONNAUGHT CIRCUS NEW DELHI-
110001 ON OR BEFORE 2:00 P.M. (INDIA TIME) OF
THE LAST DAY OF THE EXPIRY DATE, WHO WILL
THEN NOTIFY TO STANDARD CHARTERED BANK
MALAYSIA BERHAD (SWIFT ADDRESS:
SCBLMYKxxxx) WITHIN 24 HOURS VIA
AUTHENTICATED SWIFT QUOTING GUARANTEE
NO.300020911487, AFTER WHICH THIS
GUARANTEE SHALL AUTOMATICALLY BE
CANCELLED AND SHALL BE CONSITERED NULL
AND VOID IRRESPECTIVE OF WHETHER OR NOT
THIS GUARANTEE IS RETURNED TO US FOR
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CANCELLATION AND NO DEMAND HEREUNDER
WILL BE ACCEPTED OR ENTERTAINED. IN THE
EVENT SUCH DEMANDS ARE NOT RECEIVED BY US
ON OR BEFORE THE ABOVESTATED TIME AND
DATE DUE TO ANY REASON WHATSOEVER, WE
SHALL BE TOTALLY DISCHARGED AND SHALL
HAVE NO LIABILITY WHATSOEVER UNDER THIS
GUARANTEE.
ALL OTHER TERMS AND CONDITIONS
REMAIN UNCHANGED."
13.In respect of the Chennai and Himachal Pradesh LSAs, curiously
enough the PBGs as furnished were accepted without demur. It is,
however, the say of the respondent that there was an oral
understanding in October, 2010, when the franchise agreement was
signed, that even these PBGs would be replaced. Needless to
emphasize that in a matter of this nature, such oral understanding
can hardly be appreciated when communications were being
exchanged between the parties on every issue.
14.Learned counsel for the petitioner has pointed out (and it is not in
dispute) that the petitioner filed proceedings before the learned
single Judge seeking injunction in respect of the two PBGs which
were sought to be encashed, when no plea was taken that these
PBGs were not encashable in Delhi as they were furnished by
Standard Chartered Bank, Malaysia.
15.In a nutshell, thus the plea of the petitioner is that a different stand
about the validity of the PBG is sought to be taken only in respect of
the undertaking given for Haryana Circle apart from the fact that
such stipulation is absent in the EOI/LOI.
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16.A perusal of the impugned letter dated 08.03.2011 shows that not
only did the respondent find the PBG submitted by the petitioner
unacceptable and cancelled the LOI, but also encashed the bank
guarantee for the bid security amount. The contents of the letter are
reproduced hereunder:
"Please refer to this office tender mentioned
above (ref-1). Being H1 for Haryana LSA,
LOI was issued to you (Ref-2) and the same
was unconditionally accepted by you (Ref-3).
As per tender conditions and LOI you have to
submit the required Performance Bank
Guarantee and enter into agreement with
BSNL for roll out of WiMAX in Haryana
LSA.
But as per Co letter cite above, you have
submitted PBG form Standard Chartered
Bank, Malaysia with amendment dated 22-02-
2011 which is not acceptable to BSNL.
In view of the above, the LOI issued to you
(vide ref-2) is hereby cancelled as per clause
2(b) of Annexure IIA and action has been
taken for encashment of bid security submitted
by ou in the form of Bank Guaranteee
(BG23/2009) Dated 11/Nov/09 for
Rs.20,00,000/-).
This is for your kind information."
17.We may notice at this stage that in the counter affidavit, apart from
the merits of the controversy, a plea is sought to be raised that the
disputes are liable to be adjudicated in the arbitral proceedings in
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view of the arbitration clause and that the petitioner should have
filed OMPs on the Original Side of this Court as happened in the
other two cases.
18.We fail to appreciate the aforesaid plea since the present case is on a
different footing. Insofar as the Chennai and Himachal Pradesh
LSAs are concerned, the franchisee agreement was executed which
was sought to be cancelled and thus arbitration clause was invoked.
In the present case, the LOI issued was cancelled and the bank
guarantee sought to be encashed with bid security amount forfeited
without even the franchisee agreement having been executed. Apart
from this, learned counsel for the petitioner has rightly relied upon
the observations of the Supreme Court Harbanslal Sahnia and Anr.
v. Indian Oil Corporation Ltd & Ors.; (2003) 2 SCC 107 where
regarding a similar plea qua an arbitration clause, the following
observations were made:
"7. So far as the view taken by the High Court that
the remedy by way of recourse to arbitration
clause was available to the appellants and
therefore the writ petition filed by the appellants
was liable to be dismissed, suffice it to observe
that the rule of exclusion of writ jurisdiction by
availability of an alternative remedy is a rule of
discretion and not one of compulsion. In an
appropriate case in spite of availability of the
alternative remedy, the High Court may still
exercise its writ jurisdiction in at least three
contingencies: (i) where the writ petition seeks
enforcement of any of the Fundamental Rights; (ii)
where there is failure of principles of natural
justice or, (iii) where the orders or proceedings are
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wholly without jurisdiction or the vires of an Act
and is challenged [See Whirlpool Corporation
v. Registrar of Trade Marks, Mumbai and Ors.,
AIR 1999 SC 22. The present case attracts
applicability of first two contingencies. Moreover,
as noted, the petitioners' dealership, which is their
bread and butter came to be terminated for an
irrelevant and non-existent cause. In such
circumstances, we feel that the appellants should
have been allowed relief by the High Court itself
instead of driving them to the need of initiating
arbitration proceedings."
19.The present case really falls within the exercise of jurisdiction under
Article 226 of the Constitution of India qua the issue of award of a
tender for which the writ is maintainable and in view of the limited
compass of the dispute, requires no trial and in view of the
undisputed facts, we see no reason to relegate the parties to civil
proceedings/arbitration. The writ court is not emasculated of such
powers.
20.Now coming to the merits of the controversy, we are of the view that
once the terms of a tender are finalized ( it is after due and deliberate
exercise), the parities must strictly be bound by the same. We may
say that if the respondent was on the other side, it would have
insisted on a strict adherence to the terms and conditions of the
tender. There cannot be a legal uncertainty in this behalf and the
parties cannot be taken by surprise nor can the parties be compelled,
having been successful in the tender, to vary the terms and
conditions. If the interpretation of the respondent was to be
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accepted, it would be like an ambush clause where a party is first
made to apply and after succeeding in the tender, is compelled to
vary the terms and conditions of the tender. In respect of the
aforesaid principle, we are supported by the observations of the
Supreme Court in Reliance Energy Ltd. and Anr. v. Maharashtra
State Road Development Corporation Ltd. and Ors; (2007) 8 SCC
1. We reproduce the relevant para nos.38 & 39 as under:
"24. 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".
25. In the case of Reliance Airport Developers (P)
Ltd. v. Airports Authority of India and Ors. :
(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
in the decision itself. This means that the
decision-maker must understand correctly the law
that regulates his decision-making power and he
must give effect to it otherwise it may result in
illegality. The principle of "judicial review"
cannot be denied even in contractual matters or
matters in which the Government exercises its
contractual powers, "but judicial review is
intended to prevent arbitrariness and it must be
exercised in larger public interest. Expression of
different views and opinions in exercise of
contractual powers may be there, however, such
difference of opinion must be based on specified
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norms. Those norms may be legal norms or
accounting norms. As long as the norms are clear
and properly understood by the decision-maker
and the bidders and other stakeholders,
uncertainty and thereby breach of rule of law will
not arise. The grounds upon which administrative
action is subjected to control by judicial review
are classifiable broadly under three heads,
namely, illegality, irrationality and procedural
impropriety. In the said judgment it has been held
that all errors of law are jurisdictional errors. One
of the important principles laid down in the
aforesaid judgment is that whenever a
norm/benchmark is prescribed in the tender
process in order to provide certainty that
norm/standard should be clear. As stated above
"certainty" is an important aspect of rule of law.
In the case of Reliance Airport
Developers (supra), the scoring system formed
part of the evaluation process. The object of that
system was to provide identification of factors,
allocation of marks of each of the said factors and
giving of marks had different stages. Objectivity
was thus provided."
21.The tender terms and conditions are crystal clear; they brook no two
interpretations. Thus, the bank guarantee furnished at the stage of
the bid security was to be through a scheduled bank and not an
Indian Scheduled Bank (though the petitioner furnished one from an
Indian Scheduled Bank). The PBG did not even contain this clause.
Be that as it may, on the insistence of the respondent, after the
petitioner had furnished the PBG from the Standard Chartered Bank,
Malaysia, they even furnished a further undertaking in the form of
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an appropriate letter from the Standard Chartered Bank, Malaysia
clearly permitting encashment of the bank guarantee from the Delhi
Office of the Standard Chartered Bank. If one may say so, the
petitioner even succumbed to the whim and fancy of the respondent
in order to get the franchisee agreement executed. As noticed, what
is more surprising is that qua two of the LSAs, the same kind of
PBG was accepted. The story of oral understanding inter se the
parties of October, 2010 is clearly a hogwash and is not apparent
from any such subsequent communications. The respondent
invoked the bank guarantee qua those two circles and it was not as if
the Standard Chartered Bank, Delhi Office refused to honour the
bank guarantees; qua which an order interdicting encashment was
passed by the learned single Judge of this Court.
22.We are thus of the unequivocal view that the action of the
respondent terminating the LOI of the petitioner on the ground of
non furnishing of a PBG from an Indian Scheduled Bank is clearly
unsustainable and has to be quashed. The sequitur is that the
impugned letter dated 08.03.2011 is also quashed. Resultantly,
further steps taken in pursuance to the letter dated 08.03.2011 i.e.,
the encashment of bid security amount and return of the PBG are
invalid and quashed and status quo ante would prevail. The
respondent will intimate the petitioner about the furnishing of the
fresh PBG as per the terms of the EOI/LOI, the time for which will
be stipulated in the letter.
23.The respondent will also refund the amount of Rs.20 lakhs deposited
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by the petitioner as bid security amount as the said bank guarantee
was to remain in force till the franchisee agreement was entered into
duly supported by a PBG. The needful be done by the respondent
within 10 days.
24.The writ petition is accordingly allowed with costs quantified at
Rs.50,000/-.
SANJAY KISHAN KAUL,J
RAJIV SHAKDHER, J
JANUARY 12, 2012/dm
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