Tbea Shenyang Transformer Group ... vs Power Grid Corporation Of India & ...
2014 Latest Caselaw 7187 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

%                           Order delivered on: 27th December, 2014

+              CS(OS) 4096/2014 & I.A. No.26584/2014

       TBEA SHENYANG TRANSFORMER GROUP CO. LTD. & ANR.
                                                ..... Plaintiffs
                   Through Mr.Sandeep Sethi, Sr. Advocate
                           with Mr. Rajiv Bhatnagar & Mr.
                           Anchit Oswal, Advs.

                         versus

       POWER GRID CORPORATION OF INDIA & ORS. .. Defendants
                   Through None

       CORAM:
       HON'BLE MR.JUSTICE MANMOHAN SINGH

MANMOHAN SINGH, J. (Oral)

1. The plaintiffs have filed the suit for declaration and permanent injunction.

2. The plaintiff No.1 is a company incorporated under the laws of China and having its office at No.32 Kafia Avenue Economic and Technological Development Zone Shenyang Liaoning province China-110144.

3. That plaintiff No.2 is the wholly owned subsidiary of plaintiff No.1 and is a company duly incorporated under the provisions of the Companies Act, 1956 having its registered office at "TBEA GREEN

ENERGY PARK" National Highway No.8, Village Miyagam, Karjan, Vadodara - 391240, Gujarat, India.

4. It is alleged in the plaint that the plaintiff No.2 was incorporated in India with an intention to further foster plaintiff No.1's presence in India by settling up a manufacturing facility in India to indigenously manufacture power equipments. Till date plaintiff No.2 has invested around 1200 crores and provides employment, directly and indirectly, to around 2500 people. Further, with commencement of manufacturing utility in India, plaintiff No.2 by using the patented know-how of plaintiff No.1 aims to supply power equipments at even more competitive price. Plaintiff No.2 is also keen to provide transmission and distribution solutions and services with operational efficiency as per guideline of defendant No.1 and to other to other the Indian power sector companies.

5. That the defendant No.1 is a company duly incorporated under the provisions of the Companies Act, 1956 having its registered office at B-9, Qutab Institutional Area, Katwaria Sarai, New Delhi- 110 016 and is central public sector undertaking, inter alia in the business of electric power transmission.

6. That the defendant No.2 is a banking company registered under the laws of China for carrying on business of banking.

7. That the defendant No.3 is a banking company under the laws of China for carrying on business of banking.

8. In nut-shell as per plaint, relevant facts are that the defendant No.1 invited bids for its following three projects:

i) Reactor Package-R1 for supply, erection, testing and commissioning of: (i) 4x80 MVAR, 765kV, 1-Ph Shunt Reactors at 765/400kV Koteshwar GIS Pooling Station; and

(ii) 6X80 MVAR, 765kV, 1-Ph Shunt Reactors at 765/400kV Meerut Sub-station under Transmission System associated with Tehri-II PSP against Specification No CC-CS/123- NR1/RT-2122/3/G3.

ii) Reactor Package-RT1 for (i) 7x80MVAR, 765kV, 1-phase Line Reactor at Vemagiri GIS S/S New, (ii) 6x80MVAr, 765kV, 1-phase Bus Reactor at Vemagiri GIS S/S New, (iii) 6x80MVAR, 765kV, 1-phase Line Reactor at Srikakulam S/S and (iv) 1x80MVAR, 420kV Bus Reactor at Vemagiri GIS S/S New under System Strengthening in SR for import of power from ER against Specification No CC-CS/446-SR1/RT- 2341/3/G5.

iii) Reactor Package-REACT01 for 765/400kV Agra (UP) Sub-

station associated with Transmission System for evacuation of Power from Lalitpur TPP, Qty 11 Nos. against Specification No CC-CS/494-NR1/RT-2550/3/G10. (hereinafter referred to as "the Subject Projects").

9. Plaintiff No.1 submitted its bids for the above three projects and submitted following three Bank Guarantees under Clause 13 [At page 39 of the Documents Volume] of the Instructions to Bidders: a. Bank Guarantee bearing No. LG 212991400024 for a sum of USD 177900 issued by Industrial & Commercial Bank of China bank, valid up to 31.01.2015

b. Bank Guarantee bearing No. LG 212991400021 for a sum of USD 330900 issued by Industrial & Commercial Bank of China bank, valid up to 31.12.2014.

c. Bank Guarantee bearing No. 21025020001754 for a sum of USD 156400 issued by China Construction Bank , valid up to 31.12.2014. (hereinafter collectively referred to as "Subject Bank Guarantees")

10. Under Clause 13.6 [At page 40 of the Documents Volume] of the Information to Bidders, conditions have been laid down, which if breached will give a right to Defendant No.1 to invoke and encash the Subject Bank Guarantees. The said Clause states as under:

"13.6 The bid security may be forfeited

(a) if the Bidder withdraws its bid during the period of bid validity specified by the Bidder in the Bid Form; or

(b) In case the Bidder does not withdraw the deviations proposed by him, if any, at the cost of withdrawal stated by him in the bid and/or accept the withdrawals/rectifications pursuant to the declaration/confirmation made by him in Attachment - Declaration of the Bid; or

(c) If a Bidder does not accept the corrections to arithmetical errors identified during preliminary evaluation of his bid pursuant to ITB Sub-Clause 27.2; or

(d) If, as per the requirement of Qualification Requirements the Bidder is required to submit a Deed of Joint Undertaking and he fails to submit the same, duly attested by Notary Public of the place(s) of the respective executant(s) or registered with the Indian Embassy/High

Commission in that Country, within ten days from the date of intimation of post - bid discussion; or

(e) in the case of a successful Bidder, if the Bidder fails within the specified time limit

(i) to sign the Contract Agreement, in accordance with ITB Clause 33, or

(ii) to furnish the required performance security(ies), in accordance with ITB Clause 34 and/or to keep the bid security valid as per the requirement of ITB Sub-Clause 13.5."

11. Similar conditions were also incorporated in the Subject Bank Guarantees, which conditions are reproduced herein below: "THE CONDITIONS of this obligation are:

(1) If the Bidder withdraws its bid during the period of bid validity specified by the Bidder in the Bid Form; or

(2) In case the Bidder does not withdraw the deviations proposed by him, if any, at the cost of withdrawal stated by him in the bid and/or accept the withdrawals/rectifications pursuant to the declaration/confirmation made by him in Attachment - Declaration of the Bid; or

(3) If a Bidder does not accept the corrections to arithmetical errors identified during preliminary evaluation of his bid pursuant to ITB Sub-Clause 27.2; or

(4) If, as per the requirement of Qualification Requirements the Bidder is required to submit a Deed of Joint Undertaking and he fails to submit the same, duly attested by Notary Public of the place(s) of the

respective executant(s) or registered with the Indian Embassy/High Commission in that Country, within ten days from the date of intimation of post - bid discussion; or

(5) in the case of a successful Bidder, if the Bidder fails within the specified time limit

(i) to sign the Contract Agreement, in accordance with ITB Clause 33, or

(ii) to furnish the required performance security(ies), in accordance with ITB Clause 34 or

(6) In any other case specifically provided for in ITB."

12. That under the bidding documents, which included Instruction To Bidders, the following clause stated as under:

"Supplementing Clause ITB 11.1

If a Bidder is proposing to qualify through route specified at 1.1 of Qualification Requirement at Annexure A (BDS), he shall necessarily manufacture and supply at least one (01) no. 765 kV single phase Reactor from the manufacturing facilities of its Subsidiary / Joint Venture Company in India within the Time for Completion, pursuant to GCC Sub-Clause 5.1. In such a case, the requisite Repair and Maintenance facilities for 765kV class Reactor in India are to be made available prior to the scheduled commissioning of first Reactor under the contract. If a Bidder is proposing to supply more than one (01) no. of 765kV single phase Reactor from its Subsidiary/Joint Venture Company in India, the Indian Subsidiary/Joint Venture Company should have established the Manufacturing facilities for 765kV class Reactor in India and manufactured and tested at least one no. of 765kV single phase Reactor from such works as on the

originally scheduled date of bid opening, pursuant to GCC Sub-Clause 5.1, failing which such bid shall be treated as non-responsive."

(emphasis supplied)

13. It is averred in the plaint that inadvertently, a junior member of plaintiff No.2's team mentioned defendant No.1's name as Customer and mentioned details of a Purchase Order in the said Reactor Test Report. It is pertinent to mention that the Purchase Order mentioned on the Reactor Test Report is an existing Purchase Order under which a 765 KV Reactor manufactured by plaintiff No.1 for defendant No.1.

The said Reactor Test Report was submitted along with all the three bids as a proof of the fact that plaintiff No.2 has manufactured and tested the Reactor in India. However, while submitting the said Report for the Subject Project, neither plaintiff No.1 nor plaintiff No.2 was aware that such an inadvertent error has occurred in the Reactor Test Report.

14. The case of the plaintiffs is that thereafter vide its letter dated 22 August, 2014 sought details from plaintiff No.1 of Reactor manufactured and tested in plaintiff No.2's facilities. Plaintiff No.1 vide its letter dated 26 August, 2014 provided the defendant No.1 with a list, inter alia, informing the defendant No.1 the details of Reactors manufactured, tested by plaintiff No.2 in its facility. At Serial No. 16 in the attached chart, the plaintiff No.1 clearly mentioned that the Reactor (subject matter of Reactor Test Report) was a prototype and for internal use. It shows that name of defendant No.1 and the

Purchase Order Number was inadvertently mentioned on the said Report and that there was no mala fide misrepresentation by either plaintiff No.1 or plaintiff No.2.

15. The plaintiffs subsequently have received a letter dated 24 October, 2014 from the defendant No.1, wherein defendant No.1, inter alia, stated that the reference to Purchase Order and name of defendant No .1 are false and stated as under:

"2.0 In regard to above the following are noted:

a) Contents of the 'Reactor Test Report', bearing Report No.20140003 of TBEA INDIA, submitted by you along with the bid for the subject package, in respect of 80MVAr, 765/3kV Reactor (Work Order No. T-14002, Sl. No. K- 0002), for Power Grid Corporation of India Limited against Purchase Order No. CC-CS/182-WR2/RT-1301/3/G1/CA- 1/4326, are found to be false.

The above is misrepresentation of facts on your part by submitting false information/ document in your bid, which is transgression of the Integrity Pact and, as such, under Sec-III of the Integrity Pact you are disqualified from the tender process."

16. It is stated in plaint that later on vide Letter dated 30th October, 2014 and other correspondences were exchanged between the plaintiff No.1 and defendant No.1 and even in meeting before Independent External Monitors (IEMs), it was clarified and explained about the manufacturing and testing of a prototype 765 KV Reactor as well as the inadvertent error in the Reactor Test Report. Further, it was clarified that the Purchase Order mentioned on the Reactor Test

Report related to supply made by plaintiff No. 1 to defendant No.1.The defendant No.1 and IEM appreciated the bona fide error on the Reactor Test Report, which otherwise has no relevance to the fact that the prototype reactor was actually manufactured and tested at the facility of plaintiff No.2.

17. The plaintiff No.1 has learnt for their banks on 24th December, 2014 that defendant No.1 has invoked the three Bank Guarantees which was submitted by the Plaintiff No.1 as Bid Security for the Subject Projects.

18. It is argued by Mr. Sandeep Sethi, learned senior counsel for the plaintiffs that the invocation of the three Bank Guarantees is illegal for the following reasons:

a. The Subject Bank Guarantees were conditional bank guarantees and could have been invoked and encashed only upon fulfilment of any of the conditions of the Subject Bank Guarantees. None of the conditions, above have been met and therefore, there was no occasion for Defendant No.1 to invoke and sought encashment of the Subject Bank Guarantees. [Hindustan Construction Co. Ltd. v. State of Bihar & Ors., (1999) 8 SCC 436]. The said invocation is fraudulent for the reason that the inadvertent error has not caused any loss or damage to the Defendant No.1 as the contract was not yet awarded to the Plaintiffs and the process was only at the bidding stage.

19. No cause made out under the Bidding Documents to invoke the Subject Bank Guarantees, since the error on the Reactor Test Report was inadvertent. Defendant No.1 has never alleged that the prototype Reactor was not manufactured and tested by plaintiff No.2. On the

contrary defendant No.1 has acknowledged the said fact. Also, the inadvertent has not in any manner influenced the bidding process. It is argued that the purpose of Bid Security was to ensure compliance with the contractual obligations if the said contract was awarded to the plaintiffs and the Bid Security could have only been invoked if the plaintiffs had refused to compliance after being a successful bidder. However, that stage was not yet reached and therefore the invocation is bad and illegal.

Even under Clause 13.6 of the Information to Bidders which lays down the conditions, which if breached will give a right to defendant No.1 to invoke and encash the Subject Bank Guarantees have not been met and therefore, the act of invoking the Subject Bank Guarantees is fraudulent and illegal and in breach of the Bidding Documents as also the Bank Guarantees themselves.

20. Mr. Sethi argued that the inadvertent error does not qualify as misrepresentation under the Integrity Pacts as alleged by defendant No.1 There was firstly no mens rea on part of plaintiff No.1 and plaintiff No.2 since the error was due to pure inadvertence. Secondly, the said error has not influenced the bidding process in any manner. At the best the plaintiff No.1 may be entitled to issue the contract as per bid documents.

21. In view of above said facts and circumstances, it appeared that the plaintiffs have prime facie have a case of grant of interim injunction which is already passed by this Court on 26th December, 2014, when the order was passed to give reasoned order. The

above-reasoned order is passed and the same be tagged with the order passed on 26th December, 2014 in the suit.

(MANMOHAN SINGH) JUDGE DECEMBER 27, 2014