North China Petroleum Steel Pipe ... vs Gail (India) Limited And Anr.
2017 Latest Caselaw 3104 Del

* IN THE HIGH COURT OF DELHI AT NEW DELHI
                                              Decided On: 07.07.2017

+                         WP(C) No.5569/2017

NORTH CHINA PETROLEUM STEEL PIPE CO. LIMITED
                                    ..... Petitioner

                     Through: Mr. Joy Basu, Sr. Adv. With Mr. Alok
                     Agarwal, Mr. Sudhir Mishra, Ms. Ritwika Nanda,
                     Ms. Petal Chandhok & Mr. Abhinav Pandey,
                     Advocates.

                          Versus

GAIL (INDIA) LIMITED & ANR.                        ..... Respondents

Through: Mr. Tushar Mehta, ASG with Mr. Azmat H. Amanullah and Mr. Akhil Sachar, Advocates.

CORAM:

HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE S.P. GARG

MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT) %

Caveat No.603/2017

Learned counsel for the caveator has entered appearance.

Caveat stands discharged.

CM No.233892017

Allowed, subject to just exceptions.

WP(C) No5569/2017. Page 1

1. The Gas Authority of India Limited (hereinafter referred to as "GAIL") decided to procure "carbon steel bare/coating/coated line pipes for Jagdishpura-Haldia-Bokaro-Dhamra Pipeline Project (JHBDPL) PH-II" and accordingly issued - through the second respondent (hereinafter referred to as "Mecon", its consultant) a tender on 01.02.2017 inviting bids from interested parties (hereinafter referred to as "the NIT"). The bid documents which were also called request for quotation were published on 06.02.2017 in GAIL's website. The petitioner lodged its bid on 14.03.2017. The NIT gave certain offers in the form of groups, indicating the locales for the supply of the material. The petitioner preferred Auction 3 in its tender. On 05.04.2017, the petitioner's bid after being found eligible, was invited to participate in a training programme for joining the reverse auction process. Later on 13.04.2017, GAIL informed the petitioner about the price bid opening date. On 19.04.2017, Mecon intimated the petitioner that its bid was considered techno- commercially accepted in respect of 7 locations in Option 3 for their assessed capacity. Later on, it was further informed about the next step, i.e., the online reverse auction. The petitioner confirmed its participation. On the basis of the bids offered, the petitioner was given offers to confirm acceptance. On 24/25th April, 2017, the petitioner was declared as a lowest bidder in the bidding process in respect of 12 items.

2. Whilst the bidding process and finalization of contract were underway on 08.05.2017, the Ministry of Steel, Central Govt. issued a notification introducing a policy of preference to domestic

WP(C) No5569/2017. Page 2 manufacturers in iron and steel products. In terms of this policy, the material part of the policy to the extent it is relevant, reads as follows :

"2. Definition ii. "Domestically Manufactured Iron & Steel Products (DMI&SP)" are those iron and steel products which are manufactured by entities that are registered and established in India, including in Special Economic Zones (SEZs). In addition, such products shall meet the criteria of domestic minimum value addition as mentioned in Appendix-A.

xxxxxxxxx".

6. Tender Procedure for Procurement by Government and Government Agencies 6.1 The procuring/ Government agencies shall follow standard procurement procedures, in accordance with instructions of Ministry of Finance and CVC while providing preference to DMI&SP. The policy shall come into effect from the date of its notification in all tenders where price bid have not been opened. ............."

3. The petitioner contends that in view of the expressed stipulation with respect to the policy, the applicability of the policy in a prospective manner, the reverse auction process and the tender were not covered by it, and that the Central Government's notification was not an impediment to GAIL which had the freedom to contract with all concerned including valuation bidders and suppliers. It is urged on behalf of the petitioner that since its bids were considered lowest, and that it is successful, in respect of a large number of products/locales, its right to be considered in a fair and unbiased manner could not have

WP(C) No5569/2017. Page 3 been prejudiced by the notification. The petitioner is aggrieved by the respondents' collective decision whereby it was communicated by its letter dated 16.06.2017 to the effect that the entire tender process was cancelled/annulled. The said letter (hereinafter referred to as "impugned letter") reads as follows :

"M/s North China Petroleum Steel Pipe Co. Limited No.102, Donghuan Road Qing County Hebei Province P.R. China PO 062658 Ph no. 0086 317 2573236/2573267 Fax no. 0086 317 2573267 Email : [email protected]

Sub : BARE/COATING/COATED LINE PIPES FOR JAGDISHPUR - HALDIA-BOKARO-DHAMRA PIPELINE PROJECT (JHBDPL) PH-II (Tender no.05/51/23QY/GAIL/012D (E-Tender No. 8000010531)

Dear Sir,

It is to inform you that the subject tender has been annulled.

We are releasing the EMD submitted by you along with the bid. The tender fee will be returned in due course of time.

Inconvenience caused, if any, is regretted.

We convey thanks for participating against the subject tender and look forward for your participation in future tenders.

Thanking you,

WP(C) No5569/2017. Page 4 Yours faithfully, For & on behalf of M/s GAIL (INDIA) Limited"

4. Mr. Joy Basu, learned senior counsel firstly argued that the respondents' decision communicated to the petitioner is arbitrary and unreasonable and has to be set aside on that ground alone. Urging that the petitioner's right was not a mere expectation, it was emphasized that at every stage, i.e., assessment of techno-commercial feasibility, the evaluation of price bid and the success gained by the petitioner in the reverse auction process led to the eventual crystallization of its right to be awarded the contract for supplies that found to be part of the NIT. Learned counsel relied upon the judgment of the Supreme Court in Food Corporation of India Vs. Kamdhenu Cattle Feed 1993 (1) SCC 71 to say that the decision of an executive authority or an agency has to take into consideration the legitimate expectation of a party likely to be adversely affected, and that the duty to act fairly includes a duty to adopt a procedure which, in effect, is fair play in action. It was submitted that having been permitted to participate in a bid process being declared successful in the reverse auction, all that remained was a formal award of the contract. At that stage, the respondents could not take shelter under the policy of the Central Govt. dated 08.05.2017, which expressly was prospective. It is argued that the conditions in the said domestic manufacturers preference notification clearly contemplated that the concerned agencies were at liberty to enter into contracts in on-going tender processes, and that fresh tender processes where bids were invited after 08.04.2017 were

WP(C) No5569/2017. Page 5 covered by the policy not deviating from the terms of the notification, especially clause 6.1, the respondents acted in an arbitrary and whimsical manner.

5. GAIL and Mecon, which appear on advance notice in these proceedings, have produced the concerned original file which contains the reasons that impelled cancellation and annulment of the tender process. It was argued on their behalf by the learned Additional Solicitor General that the decision whether to award or not to award contract pursuant to a public tender or a decision not to procure on the basis of any bid, but rather cancel the tender process, is dependent on several circumstances. Whilst a bidder has a right to be treated fairly, at the same time the executive agency or State instrumentality has the responsibility to ensure that larger economic considerations are given due weight in arriving at a final decision. It is pointed out that at the time when the reverse auction took place and the petitioner was declared successful, the full implications of the Goods and Services Act, on the basis of which purchases were to be made pursuant to the tender process, especially from foreign suppliers was not evident. With the enactment of the new law, and subsequent clarity as to the rates, it became evident that if the tender process was proceeded with and the contract was indeed awarded to the petitioner, there would be a substantial higher outflow whereas if the procurement were resorted to from domestic suppliers, there would be corresponding substantial savings. These were not pointed out by the Director (Finance) of the GAIL on 14.06.2017 which led to the Tender Committee re-evaluating the entire matter and recommending cancellation of the NIT.

WP(C) No5569/2017. Page 6

6. The petitioner's grievance is that the cancellation of its bid and the annulment of the tender process by the impugned letter is arbitrary. The pleadings in these proceedings as well as the record produced by the respondents reveal that the petitioner was the lowest bidder and, therefore, successful in respect of supplies to several locales of different products. This position emerged after the result of the reverse auction on 24/25.04.2017. The Central Government's notification for domestic manufacturers preference, was issued on 08.05.2017. No doubt, clause 6.1 of that notification declares it to be prospective. The question therefore whether the cancellation of a bid, in which the petitioner's offers were deemed to be lowest in respect of several items/locales, is arbitrary.

7. There is considerable authority in the form of judgments of the Supreme Court to say that every decision of the State or its agencies should be informed with reason. In the contractual and commercial sphere, it is recognized that the public or executive agency or the State has more latitude (referred to as "free play in the joints") than in matters concerning personal liberties of citizens. If these aspects are kept in mind, what is necessary for the Court to determine would be whether the decision to cancel the tender, is arbitrary as with regard to Article 14 of the Constitution. In the opinion of the Court, the answer has to be in the negative. Whilst there may be some merit in the arguments that the notification of 08.05.2017 is prospective, that itself does not mean that the Central Govt. or its agencies can be compelled to enter into a contract, which would otherwise be economically infeasible and result in monetary outflow, which can otherwise be

WP(C) No5569/2017. Page 7 avoided. That said, in the present case, the consideration that weighed with GAIL was not based merely on the 08.05.2017 (domestic manufacturers preference) notification, but on the fact that the new GST regime has a positive effect on domestic manufacturers which can result in price reduction if the quantity of steel, which is a subject matter of the contract, is sourced indigenously. The detailed consideration and recommendations of the Tender Evaluation Committee have not taken into account the rates of GST and the availability of the input credit into domestic manufacturers, but also the following price of domestic steel to arrive at a conclusion and its ultimate recommendation for cancellation of the tender. The Court in examining these aspects under Article 226 is ill-equipped in determining wisdom of such conclusions. As far as the petitioner's complaint of evaluation of its legitimate expectation is concerned, the reliance on Food Corporation of India Vs. Kamdhenu Cattle Feed (supra), is applicable in the entirety of its circumstances. The petitioner was, no doubt, the lowest bidder, in respect of the several items. That, ipso facto, did not close its indefeasible and crystallized right to seek an order compelling GAIL to award the contract to it, which is what it seeks through the present proceedings. In other words, as held in Union of India & Ors. Vs. Hindustan Development Corporation & Ors. 1993 (1) SCALE 56, legitimate expectation is "not the key which unlocks the treasury of natural justice and it ought not unlock the gate which shuts the Court out of review on the merits". These observations were subsequently endorsed by the Supreme Court in Sethi Auto Service Station & Anr. Vs. Delhi Development Authority

WP(C) No5569/2017. Page 8 & Ors. AIR 2009 SC 904. As a consequence, it is held that the relief claimed by the petitioner cannot be granted.

8. For the above reasons, the writ petition fails and is accordingly dismissed.

S. RAVINDRA BHAT (JUDGE)

S.P. GARG (JUDGE) JULY 07, 2017/skw

WP(C) No5569/2017. Page 9