Madras High Court
M/S.Kumbhat Holographics vs The Government Of Tamil Nadu on 10 February, 2021
W.A.Nos.848 and 854 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON : 23.04.2021
DELIVERED ON : 29.04.2021
CORAM :
THE HON'BLE MR.SANJIB BANERJEE, CHIEF JUSTICE
AND
THE HON'BLE MR.JUSTICE SENTHILKUMAR RAMAMOORTHY
W.A.Nos.848 and 854 of 2021
M/s.Kumbhat Holographics
Kumbhat Complex
No.29, Rattan Bazaar
Chennai 600 003
rep. by its Partner, Sanjay Kumbhat. .. Appellant in
W.A.No.848/2021
M/s.Alpha Lasertek India LLP
rep. by its Authorised Signatory
Mr.P.Jegadeesan
Flat No.609, Building No.89
Hemkunt Chamber, Nehru Place
New Delhi – 110 019. .. Appellant in
W.A.No.854/2021
Vs
1. The Government of Tamil Nadu
rep. by its Secretary
Prohibition and Excise Department
Secretariat, Fort. St. George
Chennai – 600 009.
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2. The Commissioner of Prohibition and Excise
Government of Tamil Nadu
Ezhilagam, Chepauk
Chennai – 600 005.
3. The Tender Scrutiny Committee
C/o. The Commissioner of Prohibition and Excise
Ezhilagam, Chepauk
Chennai – 600 005.
4. Uflex Limited
No.305, 3rd Floor, Bhanot Corner
Pamposh Enclave, Greater Kailash – I
New Delhi - 110 048.
5. Montage Enterprises Pvt. Ltd.
C-53, Shashi Garden
Mayur Vihar Phase – I
New Pocket – VI
New Delhi - 110 091. .. Respondents in
both appeals
Prayer: W.A.No.848 of 2021 filed under Clause 15 of the Letters
Patent against the order made in W.P.No.15156 of 2020 dated
10.02.2021.
W.A.No.854 of 2021 filed under Clause 15 of the Letters Patent against
the order made in W.P.No.15632 of 2020 dated 10.02.2021.
For Appellant : Mr.R.Sandeep Bagmar
in W.A.No.848/2021
For Appellant : Mr.P.S.Raman
in W.A.No.854/2021 Senior Counsel
for Mr.Dwarakesh Prabhakaran
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For Respondents : Mr.P.H.Arvind Pandian
in both appeals Additional Advocate-General
assisted by
Mr.V.Jayaprakash Narayanan
State Government Pleader
for respondents 1 to 3
: Mr.P.Wilson
Senior Counsel
for M/s.M.Vasanthakumar
for 4th respondent
: Mr.V.Prakash
Senior Counsel
for M/s.Abitha Banu
for 5th respondent
COMMON JUDGMENT
SENTHILKUMAR RAMAMOORTHY, J
Two of the six writ petitioners, who had approached this Court
under Article 226 of the Constitution to complain of the unfair
tender terms presented by the State, assail the common order
dated February 10, 2021 dismissing the writ petitions.
2. At the outset, it must be observed that matters of the
present kind must be treated with great circumspection, since the
real fight is between the private parties to obtain a lucrative
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contract and the status of the employer is used as an excuse to
approach the extraordinary jurisdiction under Article 226 of the
Constitution. Further, the Court may not have the expertise to go
into complex matters such as technical specifications. Equally,
notwithstanding the employer being a State or other authority
answering to the description under Article 12 of the Constitution,
there is an element of latitude which has to be allowed for an
employer to choose the product that would be best suited to it. The
benefit of the doubt has always to be given to the employer in most
cases and there is a presumption that the process adopted is fair
and reasonable. However, such presumption is rebuttable.
3. It needs also to be acknowledged that, more often than
not, the commercial entities approaching the Court seek to write
down the very rules of the game that they aspire to participate in.
But what is of paramount importance is the nature of the work that
is required to be undertaken by the employer and how the employer
may be best served. All the dramatis personae herein are armed
with authoritative judicial pronouncements on the principles that
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they perceive are applicable, quite often endeavouring to twist a
principle out of context and make it fit a situation not suited to it.
Concepts that would apply to contracts and dicta that would hold
good for tender matters are sought to be used interchangeably in a
free-for-all where only the ends justify the means.
4. The challenge in the writ petitions was to certain terms
contained in the tender documents for production and supply of
polyester based hologram excise labels on turnkey basis. The
appellant in W.A.No.848 of 2021 is a partnership firm which claims
to have been in business from the year 2000. The appellant in
W.A.No.854 of 2021 is a limited liability partnership registered
under the Limited Liability Partnership Act, 2008. This appellant
carried on business as a company between 1991 and 2018 and the
company was converted into a limited liability partnership in
August, 2018. The appellant in the second of the appeals is also
registered under the Micro, Small and Medium Enterprises
Development Act, 2006 (the MSMED Act) in the State of Uttar
Pradesh.
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5. The substance of the challenge in the writ petitions was to
the tender terms announced by the State for stickers to be pasted
across the caps of the bottles of liquor sold by the State
Government through one of its instrumentalities, the Tamil Nadu
State Marketing Corporation Ltd, popularly known as Tasmac.
According to these appellants, the technical specifications and
tender conditions were such that they were tailor-made to the
patented technology, of which the fourth respondent and fifth
respondents are licensees, and the tender process was a mere
charade for a single vendor contract to be awarded to the fourth
respondent. It is also the common case of the appellants that
respondents 4 and 5, the only two bidders who qualified on all
counts as per the tender specifications and conditions, are related
parties, in the sense that there is substantial connection between
the two entities for their source of the technology to be used for the
purpose of the production and supply covered by the tender notice
to be regarded as the same.
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6. The appellants question the rationale for the State to
require only companies to participate in the tender process and
exclude other business entities. The appellants maintain that there
is no nexus with the object of the tender to limit the bidders to only
registered companies. The more robust challenge is on the ground
that the technical specifications and conditions laid down in the
initial tender terms left no manner of doubt that it was the fourth
respondent's patented technology that was being sought.
7. The other grounds urged before the Writ Court and in
course of the present appeals pertained to the conditions that a
bidder ought to have undertaken such supply to excise departments
of other States during any one of the preceding three financial years
and that the eligible bidder must have had a specified turnover in
such business in the last three financial years. In addition, the
appellants assert that the spirit of the Tamil Nadu Transparency in
Tenders Act, 1998 (the Tenders Act) and the Tamil Nadu
Transparency in Tenders Rules, 2000 (the Tenders Rules) has been
breached, if not the letter of the law violated. The appellants
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contend that the essential condition set by the government
notification, which set the process in motion, was that more than
three bidders ought to participate in the process upon meeting all
the eligibility criteria, but, in the impugned tender process, only the
fourth respondent and its associate, the fifth respondent, were the
last bidders standing upon all others being eliminated on the
lopsided and the biased eligibility criteria set by the State.
8. There is also an insinuation that there was an element of
deceit and impropriety involved in obtaining the order by misleading
the Writ Court with a unilateral representation that is apparently
contrary to the records. The appellants also refer to the perceived
surreptitious manner in which the State has gone about awarding
the contract to the fourth respondent and procuring supplies even
before the matter had been disposed of by the Writ Court.
9. Tender No.1/2020 was published on October 1, 2020.
However, the process commenced several months earlier with
G.O.Ms.No.23 dated August 24, 2020 being issued by the State to
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float the tender for supply of polyester based hologram excise labels
to be used across the caps of all bottles of liquor sold through
Tasmac. The relevant government notification referred to Rule 24
of the Tenders Rules and provided for a Technical Specification
Committee to be set up. The scope of work of the Technical
Specification Committee, as specified in the said notification of
August 24, 2020, required the preparation of “technical
specifications which are generic in nature and ensure wider
participation by incorporating those features that are available with
more than three bidders.” A Tender Scrutiny and Finalization
Committee was also set up by the same notification to, inter alia,
ensure that “the technical specifications for the hologram ... to be
finalized by the technical committee must be generic and there
must be multiple vendors in the market who are capable of
supplying the same.”
10. The Technical Specification Committee met on September
9, 2020 to deliberate on the specifications. The Committee resolved
that technical specifications would be prepared “which are generic in
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nature and ensure wider participation by incorporating those
features that are available with at least not less than three bidders.”
The committee included academicians from the Indian Institute of
Technology, Madras and from Anna University specialising in the
field of holograph or printing technology. In course of the
deliberations of the Technical Specification Committee, the minutes
ascribe the idea pertaining to hidden test on colour change
background capable of being read by a hand-held device to the two
experts from Indian Institute of Technology and Anna University.
Such experts suggested that these were the most secure features
available and small-time manufacturers and duplicators would find it
difficult to mimic such security design.
11. The tender terms came to be finalised thereafter and pre-
bid meetings were held with prospective bidders to clear the air and
to address various issues raised in respect of the possible terms of
the tender as indicated beforehand. One of the grievances raised at
such pre-bid meeting was that the specifications covered the
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patented technology of the fourth respondent and other bidders
would not be able to match the same.
12. Upon the essential tender conditions, particularly the
essential eligibility criteria, being retained in the tender conditions
published on October 1, 2020, the writ petitions came to be filed on
the broad grounds indicated above. It appears that on the oral
submission on behalf of the State that no immediate steps would be
taken to complete the process of selection, no interim order was
passed on the writ petitions. However, notices were issued
continually extending the life-time of the tender till, in December
2020, it was conducive, after the relaxation of the lockdown in the
wake of the pandemic, for the matter to be finally heard. The
hearing was concluded on December 17, 2020. Paragraph 15 of the
impugned judgment and order of February 10, 2021 records that
“with the consent of the learned counsel for the petitioners, this
Court permitted the respondents to accept the bids from the
prospective bidders, process the same and to submit a report on
the details of the bidders who qualify the technical specifications of
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the tender.” The judgment proceeds to record that bids were
accepted till the afternoon of December 24, 2020 and “there were
only three bidders ... and the technical specifications and the
product specifications of the sample of each of the bidders was
evaluated ...” A passage from paragraph 16 of the judgment is of
relevance in the context, since it appears that what weighed with
the Writ Court was that three bidders had qualified for their
commercial bids to be assessed and, as such, the other grounds
asserted by the writ petitioners were not required to be gone into:
“16 ... the Committee had concluded that the three
bidders participated in the tender satisfies all the
technical and product specifications mentioned in
part 3 of the tender document. The learned
Additional Advocate General submitted a report of
the second respondent dated 24.12.2020 in Lr
No.P&E 10(3)/3088/2020 in this regard.”
13. It is the common refrain of the appellants that the report
could not have been unilaterally furnished to the Court without
reference to the appellants at a time when the hearing had been
concluded. The appellants suggest that the more appropriate
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course of action would have been to furnish copies of such report to
the writ petitioners before submitting the same to Court at a
disclosed time so that the writ petitioners could have attempted to
obtain an opportunity to make their submission qua the report.
14. Submissions were made on behalf of each appellant to
substantiate the contentions that were outlined above. The
appellant in W.A.No.854 of 2021, M/s. Alpha Lasertek India LLP
(Alpha), was represented through Mr.P.S.Raman, learned Senior
Advocate, assisted by Mr.Dwarakesh Prabhakaran, learned
Advocate, and raised the following contentions. The first
contention was that the tender specifications are based on a
patented technology or process and that only the fourth and fifth
respondents are licensed to use such technology. Part 3 of the
tender document was referred to in this connection and the focal
point of challenge was the following specification:
“Hidden text on colour change background
– a stripe of design transferred (but not
laminated) on the top of the hologram
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with visual holo graphic designs on top
layer and hidden texts /images encrypted
on second layer on different colour
background. The hidden colour should
change at every 45 degree angle. This
hidden text "Tamil Nadu Excise" shall be
visible only through a special Polaroid
identifier. The texts will be decided by the
department from time to time. The size of
the feature should be at least six mm x 15
mm. This feature should be incorporated
in the hologram through the transfer
process and not laminated. Identifiers to
be part of supply and numbers will be
decided by the department. This feature
should come off with the top layer of the
hologram when tampered.”
In addition, the following specifications from Clause 4.6 of Part 4
of the tender document were referred to:
“(b) the bidder should have supplied at least 20
crores full polyester-based security hologram
labels to any State Excise Department during
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any one of the last three financial years (2017-
18, 2018-19 and 2019-20). The bidder must
have direct agreement with the department or
must have received direct purchase order from
the department. The bidder should also submit
satisfactory performance certificate from the
competent authority or end user.
(c) the tenderer must have experience in
manufacturing and supplying polyester-based
Excise Holograms with each and every
Holographic and Non-Holographic features as
detailed in Part 3, page number 16 to 21 of this
tender document to State Excise Departments in
India for fixation on liquor bottles. Relevant
documentary proof and an affidavit confirming
the above should be enclosed with the bid.”
15. According to Alpha, other than the fourth and fifth
respondents herein, no other bidder would satisfy the aforesaid
requirements cumulatively. By drawing reference to similar
specifications in the tenders floated by other States, it was
contended that whenever specifications substantially similar to
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those indicated above were included in the tender documents, the
successful bidder was always either Alpha or Montage Enterprises
Pvt. Ltd.(Montage). By contrast, when the technical specification
was couched in generic terms, a different bidder, Prizm
Holography and Security Films (P) Limited, succeeded.
16. Alpha says that the Government of Tamil Nadu issued
G.O. (Ms.)No.23 dated August 24, 2020 of the Home, Prohibition
and Excise (VII) Department (the Government Order) in relation
to the finalization of the tender for procurement of polyesterised
hologram excise labels. The Government Order sets out the
proposal of the Commissioner of Prohibition and Excise with
regard to the composition of the technical specification
committee and, significantly, the scope of such committee is,
inter alia, as under:
“c. To prepare technical specifications which are
generic in nature and ensure wider participation
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by incorporating those features that are available
with more than three bidders.”
The Government Order records the decision of the Government
after examining the proposal of the Commissioner. With regard to
the scope of the Technical Specification Committee and the
nature of technical specifications, it was ordered as under:
“(a) the technical specifications for the
hologram which is to be finalised by the
technical committee must be generic
and there must be multiple vendors in
the market who are capable of
supplying the same.”
Alpha says that the Technical Specification Committee
understood the Government's decision as implying that the
technical specifications should be generic in nature so as to
ensure wider participation by incorporating features that are
available with more than 3 bidders. In such regard, reference was
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made to the minutes of the first meeting of the Technical
Specification Committee, which was held on September 9, 2020.
However, Alpha contends that the Technical Specification
Committee deviated from the mandate of framing generic
specifications at the second meeting. At the said meeting,
additional features were suggested which includes the hidden text
on colour change background feature. Indeed, Alpha says that at
the third meeting, it was decided as under:
“5. In order to ensure the quality and
security of the hologram excise label, the
committee has consciously decided to
include a clause "that the bidder should
possess experience in each and every
holographic and non-holographic feature
which are to be part of technical
specification and product specification".
Once these features were introduced in the technical
specifications, Alpha says it became an ostensible two horse race
between Uflex and Montage. Alpha also says that it approached
the learned single bench of this Court at the earliest and
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requested that the tender process should not be permitted to be
completed on these terms.
17. The contention that Alpha does not possess
manufacturing capacity is rebutted by contending that the
truncated income and expenditure statement of Alpha during the
transitional period that followed shortly after its conversion from
a limited company to a limited liability partnership does not
capture the manufacturing turnover of Alpha, whereas it was
captured in the financial statement for the full years that
preceded and succeeded it.
18. Although it was ostensibly a two horse race, Alpha says
that the only eligible bidders are closely connected. By turning to
the annual report of Uflex for the financial year 2019 – 2020,
Alpha points out that Uflex has invested a sum of about Rs.152
crore in the preference share capital of Montage. Alpha says that
Montage has a total paid-up share capital of a little over Rs.6
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crore and, especially when viewed in context, Uflex would
obviously have considerable influence in the affairs of Montage.
In order to further substantiate this contention, an order of the
Delhi High Court in a case filed by the Principal Commissioner of
Income Tax against Montage is referred to. In particular,
reference is made to the fact that Flex industries Ltd (the
previous name of Uflex) was referred to in the said order as a
sister company of Montage. Thus, according to Alpha, it
eventually became, in effect, a single bidder scenario.
19. As regards the third bidder, Hololive Corporation
Industries (Hololive), Alpha says that the third bidder was not
eligible on multiple parameters. The GST registration of Hololive
was referred to so as to contend that it is a partnership firm
which was registered on July 1, 2017. According to Alpha, if this
bid had been disregarded, there would only have been two
eligible bidders. Alpha contends that a misrepresentation was
made to the learned single bench of this Court that there were
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three eligible bidders and the learned single bench, consequently,
recorded the erroneous observation that "admittedly, there are
three bidders qualified in the technical bids."
20. Kumbhat Holographics (Kumbhat) was represented by
Mr.Sandeep Bagmar, learned Advocate. Kumbhat reiterated that
the technical specifications were tailored such that only Uflex and
Montage would qualify. As soon as the tender specifications were
finalised, Kumbhat says that by communication of October 7,
2020, it pointed out to the State that the technical feature of
hidden text on colour change background “can only be provided
wholly and solely by one hologram manufacturer which is U-Flex
Ltd, Noida in the entire country and this is also being used by
their associate company Montage Enterprises Pvt. Ltd.” In such
context, by relying upon paragraph 24 of Michigan Rubber (India)
Ltd v. State of Karnataka, (2012) 8 SCC 216, it was contended
that interference with a tender is justified if “the process adopted
or decision made by the authority is mala fide or intended to
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favour someone...” and if “the decision is such that no reasonable
authority acting reasonably and in accordance with relevant law
could have reached” such decision. Moreover, Kumbhat says that
it is completely arbitrary to exclude partnership firms. Indeed,
Kumbhat claims that it is a registered small industry in terms of
the classification under the MSMED Act. As a consequence, it
qualifies as a domestic enterprise as defined in the Tenders Act.
As a domestic enterprise, Kumbhat is entitled, as per the proviso
to sub-section (2) of Section 10 of the Tenders Act, to supply a
maximum of 25% of the total procurement if it is willing to match
the price quoted by the lowest bidder. On this issue, Rule 30-A of
the Tenders Rules is also relied upon to contend that purchase
preference is required to be extended to domestic enterprises.
21. By referring to Rule 15 of the Transparency in Tenders
(Public-Private Partnership Procurement) Rules 2012 (the PPP
Tenders Rules), it was contended that there is conflict of interest
as between Uflex and Montage and that although the PPP Tenders
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Rules do not per se apply, the conflict of interest provisions
contained therein are applicable in principle.
22. In response and to the contrary, the first contention on
behalf of Uflex, which was represented by Mr.Wilson, learned
Senior Advocate, assisted by Mr.M.Vasanthakumar, learned
Advocate, was that neither Alpha nor Kumbhat participated in the
tender and, therefore, do not have the locus standi to challenge
the tender. Uflex relied upon the income and expenditure
statement of Alpha for the financial year ended on March 31,
2020 and pointed out that Alpha had not manufactured and sold
any goods during the relevant financial year, as evidenced by the
fact that the income and expenditure statement shows a zero
turnover from the sale of manufactured goods. The fact that no
expenditure was incurred towards procurement of raw material
was also cited to substantiate the contention that the income of
Alpha was largely from trading. Uflex emphasised that the tender
conditions mandate that "the tenderer must have experience in
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manufacturing and supplying polyester-based excise holograms
with each and every holographic and non-holographic features as
detailed in Part 3". A bidder which did not undertake any
manufacturing activity during one of the relevant financial years
would certainly not satisfy the above requirement.
23. As a matter of fact, it was pointed out that the original
condition that only corporate entities could participate in the
tender was relaxed and limited liability partnerships were
permitted to participate so as to enable persons such as Alpha to
participate but Alpha did not participate because it did not fulfil
other mandatory criteria such as the manufacturing capability
requirement.
24. As regards Kumbhat, it was contended that a
partnership firm is evidently prohibited from participating in the
tender. Such conditions were previously upheld on the basis that
it is justifiable for a government entity to procure goods from
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only corporate entities so as to be assured of the stability and
continued existence of such entities.
25. With regard to the tender conditions that were the focal
point of challenge, Uflex submitted that, originally, the tender
conditions mandated that the "hidden text with colour change
background" should be visible through a Polaroid identifier.
However, other prospective bidders objected on the ground that
only Uflex and Montage possessed such patented technology.
Consequently, a corrigendum was issued whereby film could be
used for identification of the hidden text in addition to a Polaroid
identifier. Thus, all legitimate grievances of prospective bidders
were addressed but the appellants herein seek to frustrate a
legitimate tender process because they were ineligible to
participate in such tender.
26. The next contention on behalf of Uflex was that the
technology of producing latent images, which are invisible to the
naked eye and can be viewed only through a polariser, is
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available with other entities, and is not a monopoly of Uflex and
Montage. The product specifications of an Israeli company called
Latent Imaging Technology (LIT) was referred to in this
connection. Likewise, the product specifications of an entity called
H.W.Sands Corp and that of Ophthentic Corporation were also
referred to in support of this contention.
27. Uflex also says that the technology is sufficiently
generic as evidenced by the fact that an entity called Prizm
Holography and Security Films (P) Ltd. succeeded in the tender
floated by the excise department of Chhattisgarh.
28. With regard to the allegation that Uflex and Montage
are connected entities, it was submitted that Uflex invested in
redeemable, non-voting, non-participating preference shares of
Montage. Such investment is permissible under applicable law. As
a consequence thereof, Uflex is neither a holding nor an associate
company of Montage. A judgment of a Division Bench of the
Madhya Pradesh High Court was cited to rely on the conclusion
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therein that Uflex and Montage are not related entities. The
relevant definitions of a subsidiary company and an associate
company under the Companies Act 2013 were adverted to in this
regard. The complete lack of influence of a preference
shareholder, in contrast to an equity shareholder, was also
emphasised.
29. Several judgments were cited in support of the
contention that the tender process is not liable to be interfered
with. These judgments are referred to below along with the
applicable principle of law:
(i) Central Coalfield Limited v. SLL-SML (Joint
Venture Consortium) (2016) 8 SCC 622,
wherein, at paragraph 48, it was held that
the court should not examine the
soundness of the decision to prescribe a
condition in the tender documents and that
the scope of scrutiny should be confined to
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the lawfulness thereof.
(ii)Tata Cellular v. Union of India (1994) 6
SCC 651, wherein the principles relating to
interference with a tender process were set
out at paragraph 111.
(iii) Master Marine Services Pvt. Ltd v.
Metcalfe and Hodgkinson Pvt. Ltd (2005) 6
SCC 138, wherein, at paragraph 12, it was
held that the discretionary power under
Article 226 should be exercised in matters
relating to tenders only in furtherance of
public interest and not merely because a
legal point was made.
(iv)Directorate of Education v. Educomp
Datamatics Ltd (2004) 4 SCC 19, wherein,
at paragraphs 11 and 12, it was held that
the tender inviting authority and not the
court is the best judge as regards
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prescription of tender conditions, and that
court interference is limited to cases where
the decision is arbitrary, discriminatory,
mala fide or biased.
(v) Holoflex Ltd v. State of MP
MANU/MP/0484/2016, wherein a Division
Bench of the Madhya Pradesh High Court
framed the question whether Uflex and
Montage were related entities and answered
it in the negative.
(vi)Jagdish Mandal v. State of Orissa (2007)
14 SCC 517, wherein after citing Raunaq
International Ltd. v. I.V.R.Construction Ltd
AIR 1999 SC 393, the Supreme Court set
out the elements of public interest in such
matters and concluded that the court
should not interfere unless there is a
substantial amount of public interest.
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(vii) Kumbhat Holographics v. State of Tamil
Nadu 2017 (1) CTC 83, where the Division
Bench of this Court rejected the challenge
to the 2015 tender of the State by
upholding the requirement that only a
corporate entity may participate in such
tender.
30. Montage was represented through Mr.V.Prakash,
learned Senior Advocate, assisted by Ms.Abitha Banu, learned
Advocate. The first contention on behalf of Montage was that the
technology deployed by Montage is based on a process and not a
product patent. By referring extensively to the specifications and
the claim made by the patent holder, ATB Latent Export Import
Limited, it was pointed out that the patent consists of a process
of producing polymer layers with a latent image which is visible
only through a polariser. Significantly, it was pointed out that the
production of multiple polymer layers with a latent image was not
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novel even at the time when the patent holder obtained the
patent. The inventive step revolved around creating a latent
image which did not leave a contour or trace when viewed with
the naked eye. By comparing and contrasting the specifications
and claim of the patent holder with the technical specifications in
the present tender, it was contended that the patented process
and technology has clearly not been incorporated in the relevant
technical specifications. In specific, the patented process does not
refer to colour change at a 45° angle or to the Polaroid identifier.
On this basis, Montage contended that the technical specification
can be satisfied by deploying technology that does not infringe
the patent.
31. The next contention was that Uflex made an investment
in Montage in course of business. Such investment was in non-
voting, redeemable preference shares, and such investment
clearly does not provide control or even influence to Uflex in the
affairs of Montage. With regard to the equity share capital
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investment by Montage in Uflex, the contention was that such
investment is insignificant and certainly does not give Montage
control or even influence over the assets and affairs of Uflex.
32. The State was represented by Mr.Arvindh Pandian,
learned Additional Advocate-General, assisted by Mr. Jayaprakash
Narayanan, learned State Government Pleader, who submitted
that the Government did not adopt the recommendation of the
Commissioner of Prohibition and Excise to prescribe generic
technical specifications that can be fulfilled by more than three
bidders; instead, it was ordered that the tender specifications
should be framed in such manner that multiple vendors would
have the capacity to satisfy the tender specifications, and that
this requirement would be satisfied if more than one vendor
possesses the necessary technical pre-requisites.
33. As regards the participation by the third bidder, it was
submitted that the technical bid is evaluated in two stages. At the
first stage, only the sample provided by the relevant bidder is
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examined to assess whether such sample meets all the technical
specifications. In the case at hand, the sample provided by
Hololive satisfied the technical specifications. The bid of Hololive
was rejected only at the second stage of the technical bid
evaluation when the bid was tested against the requirements of
Part 4 of the tender.
34. By drawing reference to the tender floated in 2015, it
was contended that the scope of the tender specification
committee was identical in as much as such committee was
required to frame the tender specifications generically so as to
enable multiple vendors to participate. The evaluation process
was also identical and involved two stages at the technical bid
stage. By referring to the minutes of proceedings relating to the
2015 tender, the tendering authority demonstrated that the
testing of samples provided by bidders was undertaken at the
first stage just as in the 2020 tender. Thus, a consistent process
was followed both in the 2015 and 2020 tender and such process
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is certainly not vitiated by mala fide considerations or
arbitrariness.
35. Even at the pre-bid stage, whenever legitimate
grievances were canvassed by prospective bidders, such
grievances were redressed by issuing corrigenda. For instance,
limited liability partnerships were permitted to participate
although the original tender specifications permitted only
corporate entities. Likewise, the specifications were modified so
as to enable a film to be used for identification of the latent
image instead of restricting it to a Polaroid identifier.
36. In the light of the rival contentions, the first issue
to be examined pertains to the technical specifications. Several
questions arise with regard thereto: whether they were tailored
to suit Uflex and Montage; irrespective of whether they were
tailored to suit Uflex and Montage, whether any other bidder
could have satisfied such specifications; and whether the
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Technical Specification Committee deviated from and, indeed,
violated the mandate to prescribe generic technical specifications
so that multiple vendors satisfy the pre-requisites. Both Alpha
and Kumbhat focussed on the fact that either Uflex or Montage
succeeded in every State excise tender containing substantially
similar technical specifications as that of the tender in question.
They also pointed out that the requirement in clause 4.6 (c),
which mandates that the bidder should satisfy each and every
holographic and non-holographic feature as specified in Part 3 of
the tender resulted in the disqualification of all other interested
bidders. From the Government Order of August 24, 2020, it is
evident that the Commissioner of Prohibition and Excise
recommended that the Technical Specification Committee should
prescribe technical specifications which are generic and would
enable more than three bidders to qualify. While this
recommendation was not adopted verbatim, the Government
directed that the technical specifications should be generic so as
to enable multiple vendors to be in a position to satisfy such
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technical specifications. When viewed in isolation, the expression
“multiple vendors” could mean any number greater than one but,
when viewed in context, it cannot be understood as carrying such
meaning. If the intention of the Government were to reject the
recommendation of the Commissioner of Prohibition and Excise in
this regard, the Government would have used language to
expressly indicate such rejection. Therefore, it appears that the
Government accepted the recommendation and merely used the
expression “multiple vendors” as a rough equivalent of the
expression “more than 3 bidders”. The minutes of the first
meeting of the Technical Specification Committee reflect that said
Committee understood the decision of the Government as
mandating the prescription of generic technical specifications,
which could be fulfilled by more than 3 bidders.
37. This leads to the question whether the Technical
Specification Committee deviated from and violated the aforesaid
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mandate of framing the technical specifications generically. For
such purpose, the minutes of meetings of the Technical
Specification Committee should be examined closely. As stated
above, the first meeting of the Committee reiterated that the
technical specifications should be such that there are more than 3
bidders. In the second meeting, it appears that the expert
members of the Committee suggested that enhanced security
features should be introduced in the form of a hidden text with a
colour change background. In the third meeting, it appears that
the requirement that each bidder should fulfil each and every
holographic and non-holographic feature in Part 3 of the tender
was agreed to. The minutes of the second and third meetings do
not contain any discussion as to whether the proposed changes
would make the technical specifications non-generic. Wittingly or
otherwise, it thus appears that the Technical Specification
Committee deviated from the mandate of prescribing generic
technical specifications.
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38. Both Uflex and Montage contended that the
technical specification does not incorporate a patented
technology. Indeed, it was submitted on behalf of Montage that
the specifications and claim of the patent holder reveal that the
patented process is a method of creating multiple polymer layers,
including a latent image, which would not be visible to the naked
eye, and does not leave contours or traces that are visible to the
naked eye. When the said specifications and claim of the patent
holder are compared and contrasted with the impugned tender
specification, it is evident that the impugned tender specification
prescribes a hidden text with a colour change background; that
the colour change would occur at 45° angle; and that such
hidden text would be visible either through a Polaroid identifier or
a film. However, such features are not noticeable from the
specifications and claim of the patented process. Thus, Alpha and
Kumbhat have failed to establish that the impugned specification
incorporates a patented process.
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39. Nonetheless, there is another aspect that warrants
attention: is there any other potential bidder capable of fulfilling
the impugned technical specification? The details of successful
bidders at tenders floated by other State excise departments
clearly indicate, albeit anecdotally, that whenever the technical
specification is substantially, if not wholly, similar to that of the
impugned specification, the successful bidder is either Uflex or
Montage. Even the State was unable to point out any other
bidder that succeeded in such situation.
40. This aspect assumes greater salience when viewed
against the backdrop of at least potential bidder, Kumbhat,
communicating in no uncertain terms to the State on October 7,
2020 that only Uflex and Montage would satisfy this technical
specification. Kumbhat stated, in relevant part, as follows:
“ The technical requirement as mentioned in the tender dt.
1st October 2020 specifying the requirement of the
hologram to have Hidden Text on Colour Change
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Background. It is pertinent to state here that the said
feature can only be provided wholly and solely by one
hologram manufacturer which is U-Flex Ltd, Noida in the
entire country and this is also is being used by their
associate company Montage Enterprises Pvt. Ltd.... We
would like to highlight that where the said feature of
Hidden text with color change background (Unigram)
has been asked by the state excise department, the
said tender has been awarded either to U-Flex
Limited or to Montage Enterprises Pvt Ltd”
41. As regards the soundness of the technical
specification, as contended by Uflex and Montage on the basis of
judgments of the Supreme Court, there is little doubt that the
court should not sit in judgment over the soundness of the
technical specification. Both common sense and estabished legal
principles instruct that such aspects should be left to the
judgment of the procuring entity. The impact of such technical
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specification from the perspective of eliminating reasonable
competition in the bidding process is, however, a matter that falls
within the domain of judicial review. In the case at hand, an
additional factor is the mandate of the Government to prescribe
technical specifications that are generic with a view to ensure
reasonable participation in the tendering process. Based on the
aforesaid discussion, the material on record supports an inference
that the technical specification of hidden text with colour change
background at a 45° angle, when coupled with the requirement of
having made such supplies of a specified minimum value to a
State excise department in any one of the preceding three years,
had the effect of eliminating all bidders other than Uflex and
Montage.
42. Whether such technical specifications were framed
so as to eliminate other bidders is a distinct matter. In order to
draw such conclusion, there should be positive evidence of a
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mala fide intention on the part of the State. The evidence on
record and, in particular, Kumbhat's communication of October 7,
2020, indicates that the State was informed of the effect that
such technical specification would have. However, in the absence
of compelling evidence of malice, we are not inclined to draw
such inference.
43. The other aspect to be examined is whether the
third bidder, Hololive, can be said to have fulfilled the technical
specifications. The main contention of the State, in this regard,
was that the technical bid evaluation consisted of two phases: the
first being the examination of the sample provided by the bidder
concerned; and the second being whether the bidder concerned
fulfilled all the requirements of Parts 3 and 4 of the tender
document. The process followed in the 2015 tender was adverted
to so as to emphasise that the same process was followed in the
present tender too. Upon examining the minutes of the meetings
of the Tender Scrutiny Committee held on December 24,2020, it
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is evident that the sample evaluation as well as the evaluation of
fulfillment of the requirements of Parts 3 and 4 of the tender
document were undertaken on December 24, 2020. Strangely, in
spite of carrying out both stages of the technical bid evaluation
on the same date, in the report submitted by the Technical
Scrutiny and Finalization Committee to its legal counsel on
December 26, 2020, it was not pointed out that the third bidder
did not fulfill the requirements of Parts 3 and 4 of the tender
document. Consequently, in turn, the State's legal counsel did
not inform the Court that Hololive did not fulfill all the technical
specifications. Indeed, there is little doubt that the Court would
not have recorded that there were three eligible bidders if the
Court were aware that Hololive's bid was rejected on the same
date. Instead, the result of the bid evaluation would have
vindicated the stand of Alpha and Kumbhat that there cannot be
more than two eligible bidders, i.e. Uflex and Montage. On this
issue, the State, undoubtedly, made selective disclosures, and
successfully facilitated the recording of erroneous conclusions by
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the Court on a vital aspect of the tendering process.
44. In the changed context of only two eligible bidders
having participated in the tender, the contention that the two
eligible bidders are related entities assumes significance. While
the contention of both Uflex and Montage that the two entities do
not share a holding-subsidiary company relationship and that the
two companies cannot be construed as associate companies is
unimpeachable in a formal and technical sense, the material
consideration is not whether they are in the kind of relationship
referred to above; instead, it is whether there is a nexus between
these two entities and whether such nexus impairs the integrity
of the tendering process.
45. The documents on record conclusively disclose
that Uflex invested about Rs.152 crore in the preference share
capital of Montage. Indeed, neither Uflex nor Montage deny this
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fact. While it was contended that the investment in preference
share capital does not give the investor control or significant
influence over the investee, the scale of investment - especially
when viewed in the context of the total equity share capital of
Montage being in the region of Rs. 6 crore – cannot be
disregarded and it can scarcely be inferred that Uflex would not
wield influence over Montage. An additional factor that could
contribute to the inference of a nexus between the two entities is
the equity share capital investment of Montage in Uflex. Although
Uflex is a listed public company, Montage is one of the top non-
promoter shareholders with a holding in excess of 4%.
46. One more significant aspect should be thrown into
the mix: the undisputed position is that both Uflex and Montage
derive their right to the technology for producing the latent
image from a common source, i.e. the patented technology of
ATB Latent Export Import Limited. When viewed cumulatively,
the three elements discussed above: the cross holdings and
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investments coupled with the reference to the two companies
concerned as sister companies in orders of court ; the sourcing of
technology from a common source; and the fact that the one or
the other was the successful bidder whenever substantially
similar technical specifications were prescribed by other S tate
excise departments, leads to the conclusion that there is a nexus
between the two entities. Such nexus may not be significant or
determinative in a multi-bidder scenario but in this factual
context can scarcely be disregarded.
47. As stated above, the evidence on record is
insufficient to draw the definitive conclusion that the tender
conditions were tailored to suit only the two eligible bidders,
although there is sufficient basis for justifiable doubts on that
count. Be that as it may, the evidence is sufficient to conclude
that the tender specifications were not generic and had not been
prepared in accordance with the mandate of the Tender
Specification Committee, which was to prepare specifications in
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such manner that there would be more than or at least three
bidders. Consequently, there were only two eligible bidders and
there is sufficient evidence that such bidders have a strong
nexus. In our view, when viewed in context, the nexus between
the only two eligible bidders, undoubtedly, undermines the
tendering process. Indeed, keeping in mind the fact that the price
bid was restricted to the two eligible bidders, it raises questions
as to the integrity and reliability of the price bid. When the State
is the procuring entity, such questions assume considerable
significance and cannot be disregarded in judicial review.
48. The learned single bench did not deal with the
principal contentions; instead, reliance was placed on a report
from the State, which was not shared with the other parties, in
order to draw the erroneous conclusion on such basis that
“admittedly there are three bidders qualified in the technical
bids”. For these and others reasons set out above, the order
impugned in these appeals calls for interference.
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49. Although the scope of judicial review in matters
relating to tenders is limited and both judicial restraint and fair
play in the joints are instructed in judgments that were cited at
the bar, such judgments also endorse interference where there is
arbitrariness, where the evidence is indicative of favouritism,
and, above all, where public interest demands interference. In
our view, the facts and circumstances of the present case, when
viewed holistically, warrant interference with the tendering
process in public interest. The technical specifications were not
framed in conformity with the Government's mandate and
eventually this resulted in the participation of only two eligible
bidders, whose nexus cannot be disregarded. This undermined
and, indeed, vitiated the tendering process.
50. At the same time, we are mindful of the fact that
the contract was awarded to Uflex pursuant to the tendering
process and the work is ongoing. The nature of the contract is
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such that both considerable revenue and even public health could
be at stake. Therefore, it is critical to ensure that the least
disruption is occasioned by the cancellation of the impugned
tender. To that end, Uflex shall continue to perform its
obligations for a further period of four months from date on the
same terms and conditions. During such period, the State shall
either float a fresh tender with technical specifications that are
generic so as to ensure that there is wider participation or, if the
State is of the view that these technical specifications are at the
heart of the tender, opt for a single source procurement, albeit by
adhering strictly to the requirements of the Tenders Act in such
regard. Whichever option is exercised, the process should be
completed within the four month period mentioned above.
51. In sum, the order impugned of the Writ Court
dated February 10, 2021 is set aside and W.A.Nos.848 and 854
of 2020 are allowed without any order as to costs. As a corollary,
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W.P. Nos.15156 of 2020 and 15632 of 2020, which were filed by
the two appellants herein, are allowed and Tender No.1/2020 is
quashed albeit subject to the terms set out above. Consequently,
C.M.P.Nos.4880, 4881, 4936 and 4939 of 2021 are closed.
(S.B., CJ.) (S.K.R., J.)
29.04.2021
Index : Yes/No
sasi/kal
To:
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1. The Secretary
Government of Tamil Nadu
Prohibition and Excise Department
Secretariat, Fort. St. George
Chennai – 600 009
2. The Commissioner of Prohibition and Excise
Government of Tamil Nadu
Ezhilagam, Chepauk
Chennai – 600 005
3. The Tender Scrutiny Committee
C/o. The Commissioner of Prohibition and Excise
Ezhilagam, Chepauk
Chennai – 600 005
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THE HON'BLE CHIEF JUSTICE
AND
SENTHILKUMAR RAMAMOORTHY, J.
(sasi/kal)
W.A.Nos.848 and 854 of 2021
29.04.2021
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