Ivrcl Infrastructures & Projects … vs National Highways Authority Of … on 10 March, 2011

*           IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                               Reserved on: 09.02.2011
%                                                          Date of decision: 10.03.2011

+                               WP (C) No.235 of 2011


IVRCL INFRASTRUCTURES & PROJECTS LTD. ...PETITIONER
                  Through:   Mr. M.Y. Deshmukh, Advocate.


                                          Versus


NATIONAL HIGHWAYS AUTHORITY
OF INDIA                               ...RESPONDENT
                  Through: Mr. Sudhir Nandrajog, Sr. Advocate
                           with Ms. Padma Priya, Ms. Saahila
                           Lamba & Ms. Meenakshi Sood, Advs.
                           for Respondent.


CORAM:
HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
HON‟BLE MR. JUSTICE RAJIV SHAKDHER

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

2.        To be referred to Reporter or not?                    Yes

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


SANJAY KISHAN KAUL, J.

1. The National Highways Authority of India (for short

„NHAI‟)/respondent herein, invited bids/tenders for the work of

operation and maintenance of Madurai-Tirunelveli- Panagudi Section

(Km 0.00 to Km 211.140) of NH-7 in the State of Tamil Nadu on

Operate, Maintenance and Transfer (OMT) Basis at an estimated cost

of `112.00 crore. The bidding process was divided into two stages.

The first stage was the qualification stage and the second was the bid
_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 1 of 21
stage. In the qualification stage interested parties were required to

obtain the Request for Qualification (for short „RFQ‟) and submit

their applications along with information sought for in the RFQ.

Such of the applicants who fulfilled the criteria specified in the RFQ

were to be shortlisted as eligible for Request for Proposal (for short

„RFP‟). Petitioner, thus, submitted its RFQ for the said project on

14.2.2010 and was declared as pre-qualified on 23.6.2010. The due

date for submission of RFP was 30.8.2010 when a total of 8 bidders

including the petitioner submitted the bid.

2. The pre-bid meetings were scheduled for 26.7.2010. The petitioner

submitted its bid under the cover of the letter dated 28.8.2010 being

the RFP/bid after having obtained the bid documents for `1.00 lakh.

3. The RFP submitted by the petitioner was accompanied by a bank

guarantee of `15.00 crore as Bid Security Amount as per

requirement. The petitioner, however, claims to have come to know

that the respondent was treating the petitioner‟s bid as non-responsive

on account of an alleged defect in the Power of Attorney submitted

along with the RFP document, the purpose of which was to authorize

a person to submit the bid on behalf of the bidder. The petitioner,

thus, addressed a letter dated 31.8.2010 to the respondent explaining

its stand. Mr. K. Ashok Reddy, Executive Director of the petitioner

company signed the Power of Attorney in favour of Mr. R.K. Singh,

COO and the common seal of the company was put in the presence of

two witnesses, Mr. T.G.R. Krishna Reddy and Mr. A. Shree Niwas.

The Power of Attorney was duly accepted by Mr. R.K. Singh and

was notarized by a notary, Shri A. Sambi Reddy. This Power of
_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 2 of 21
Attorney was executed in pursuance to a meeting of the Executive

Committee of the Board of Directors of the petitioner company held

on 25.8.2010 resolving that the petitioner company would participate

in the tender in question and authorizing Mr. R.K. Singh, COO,

Transportation Division on behalf of the petitioner company to

participate in the tender and to do all or any of the acts as set out

therein on behalf of the petitioner company. It was resolved that the

common seal of the petitioner company be affixed on the Power of

Attorney being issued either in the presence of Mr. R. Balarami

Reddy, Executive Director, Finance & Group CFO or Mr. K. Ashok

Reddy, Executive Director, who shall sign the same in token thereof

and that Mr. B. Subrahmanayam, Company Secretary shall counter

sign the same. It was claimed in the letter dated 31.8.2010 that the

Power of Attorney was independent of the resolution since Mr. K.

Ashok Reddy was authorized by the Board earlier to sign on behalf

of the Company to exercise powers in relation to the business of the

Company and had also been duly authorized to take actions to sub-

delegate his authority.

4. The respondent, however, informed the petitioner vide letter dated

13.10.2010 that the bid submitted by the petitioner had been found to

be non-responsive for want of valid Power of Attorney in pursuance

to clause 3.2.1(e) of Volume I of the RFP document. The Power of

Attorney is stated to have turned invalid for not having been issued in

compliance to the decision taken during Board resolution dated

25.8.2010 whose certified true copy had been submitted along with

the bid. Not only that, in pursuance to clause 2.20.7(a) of Volume I
_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 3 of 21
of the RFP document, the petitioner was called upon to pay damages

amounting to 5 per cent of the value of the Bid Security Amount, i.e.

`70.00 lakh, within seven (7) days of the receipt of the letter or the

respondent would constrained to recover the same by encashment of

the Bid Security Amount in conformation with the aforesaid clause.

5. The petitioner thereafter addressed a letter dated 18.10.2010 to the

respondent stating that the intention of the Board of Directors in

appointing Mr. R.K. Singh as the authorized person to sign

documents was clearly reflected on all papers submitted by the

petitioner and the petitioner was not backing out of its decision in

having him so authorized. The Power of Attorney was in the

standard format given by the respondent and thus the same should be

treated as valid document. The only reason why the Power of

Attorney was stated to be not valid was that while the Board

Resolution dated 25.8.2010 required the Company Secretary to also

sign the Power of Attorney, the same was not so signed by the

Company Secretary. The petitioner requested for a personal hearing.

The petitioner also pointed out that the Power of Attorney had been

signed by Mr. K. Ashok Reddy who was the delegatee of the Board

of Director vide its Resolution dated 28.5.2008; a copy of which was

enclosed. The last aspect pointed out was that since all other bids

had been opened and the price quotations are known, even if the

petitioner‟s bid is considered responsive it would not result in the

petitioner being awarded the contract in view of the price quoted by

others.

_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 4 of 21

6. It may be noticed here that since the petitioner has not pressed and

the petitioner undertook not to have any claim qua the award of the

contract, the controversy, in any event, is presently restricted to only

encashment of bank guarantee representing 5 per cent of the Bid

Security Amount.

7. The respondent granted personal hearing to the petitioner before the

Review Committee on 9.11.2010 vide letter dated 2.11.2010. The

respondent communicated to the petitioner vide letter dated

23.12.2010 that pursuant to the personal hearing on 9.11.2010 and

the submissions made thereafter vide letter dated 15.11.2010 the

matter had been reconsidered and petitioner‟s bid had been found

non-responsive. The letter, once again, called upon the petitioner to

deposit `70.00 lakh as 5 per cent of the Bid Security Amount within

seven (7) days of the issuance of the letter. The petitioner was

thereafter informed by its bankers, Canara Bank, about the invocation

of the bank guarantee to the extent of `70.00 lakh and calling upon

the petitioner to make necessary arrangements for payment.

8. The petitioner filed the present writ petition under Article 226 of the

Constitution of India seeking quashing of the letter dated 13.10.2010,

whereby the petitioner‟s bid was declared as non-responsive and also

the invocation and encashment by the respondent of the bank

guarantee to the extent of `70.00 lakh which incidentally stood

encashed by the time the matter came up before the Court for the first

time on 14.1.2011.

9. The writ petition is opposed by the respondent / NHAI, which has

filed its counter affidavit. It is the case of the respondent that the
_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 5 of 21
extract of the Board Resolution dated 25.08.2010 required that Power

of Attorney should have the common seal of the Company Secretary

on it to be executed in the presence of the Executive Director and the

Group CFO or the Executive Director, who shall sign the same in

token thereof and that the Company Secretary shall counter sign the

same. The Power of Attorney submitted along with the bid

documents was not counter signed by the Company Secretary and,

thus, the Power of Attorney was invalid being not in conformity with

the Board Resolution dated 25.08.2010. Thus, the bid was declared

as non-responsive.

10. Insofar as the earlier Board Resolution dated 28.05.2010 is

concerned, the same was filed only with the representation and

produced during the hearing and, thus, that document could not be

taken into account.

11. In the aforesaid factual matrix, two questions arise for consideration:

i. Whether the Power of Attorney submitted by the

petitioners was defective and/or alleged defect was of such

a nature which could be termed as a technical irregularity

or was it fatal to the bid?; and

ii. Whether respondent No.1 were entitled to encash the bank

guarantee for the bid security amount treating the bid of

the petitioner as non-responsive and/or whether the clauses

contained in the RFP in this behalf can be said to be

unconscionable or penal?

12. In order to appreciate the controversy. it would be appropriate to

examine some of the relevant clauses of the RFP. The RFP contains
_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 6 of 21
in the Second Chapter „Instructions to Bidders‟ where Part A

contains general instructions. Clause 2.1 deals with „General Terms

of Bidding‟. The relevant clauses dealing with the bid security

amount are clauses 2.1.7 to 2.1.10, which read as under:

“2.1.7 The Bidder shall deposit a Bid Security of `14 Crores
(Rupees Fourteen Crores Only) in accordance with the
provisions of this RFP. The Bidder has the option to provide
the Bid Security either as a Demand Draft or in the form of a
Bank Guarantee acceptable to the Authority, as per format at
Appendix-II.

2.1.8 The validity period of the Bank Guarantee or Demand
Draft, as the case may be, shall not be less than 180 (one
hundred and eighty) days from the Bid Due Date, inclusive of
a claim period of 60 (sixty) days, and may be extended as
may be mutually agreed between the Authority and the
Bidder. The Bid shall be summarily rejected if it is not
accompanied by the Bid Security. The Bid Security shall be
refundable no later than 60 (sixty) days from the Bid Due
Date except in the case of the Selected Bidder whose Bid
Security shall be retained till it has provided a Performance
Security under the Concession Agreement.

2.1.9 The Bidder should submit a Power of Attorney as per
the format at Appendix-III, authorizing the signatory of the
Bid to commit the Bidder.

2.1.10 In case the Bidder is a Consortium, the Members
thereof should furnish a Power of Attorney in favour of the
Lead Member in the format at Appendix-IV.”

13. Clause 2.6 deals with „Verifications and Disqualification‟ and the

respondent has the right to reject a bid inter alia if the bidder does not

provide any supplemental information. The relevant clause is as

under:

“2.6 Verification and Disqualification

2.6.1. The Authority reserves the right to verify all
statements, information and documents submitted by the
Bidder in response to the FRQ, the RFP or the Bidding
Documents and the Bidder shall, when so required by the
Authority, make available all such information, evidence and
documents as may be necessary for such verification. Any
_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 7 of 21
such verification or lack of such verification, by the Authority
shall not relieve the Bidder of its obligations or liabilities
hereunder nor will it affect any rights of the Authority
thereunder.

2.6.2 The Authority reserves the right to reject any Bid and
appropriate the Bid Security if:

(a) at any time, a material misrepresentation is made or
uncovered, or

(b) the Bidder does not provide, within the time specified
by the Authority, the supplemental information sought by the
Authority for evaluation of the Bid.

… … … … … … … … ..”

14. Part B of Chapter 2 deals with „Documents‟. Clause 2.7.1 includes as

appendices inter alia the format of the Power of Attorney for signing

of bid. The forfeiture of Bid Security Amount is dealt with in Part D

of Chapter 2. The relevant clauses of which are as under:

“D. BID SECURITY

2.20 Bid Security

2.20.1 The Bidder shall furnish as part of its Bid, a Bid
Security referred to in Clauses 2.1.7 and 2.1.8 hereinabove in
the form of a bank guarantee issued by a nationalized bank or
a Scheduled Bank in India having a net worth of at least
`1,000 crore (` One thousand crore), in favour of the
Authority in the format at Appendix-II (the “Bank
Guarantee”) and having a validity period of not less than 180
(one hundred eighty) days from the Bid Due Date, inclusive
of a claim period of 60 (sixty) days, and may be extended as
may be mutually agreed between the Authority and the
Bidder from time to time. In case the Bank Guarantee is
issued by a foreign bank outside India, confirmation of the
same by any nationalized bank in India is required. For the
avoidance of doubt, Scheduled Bank shall mean a bank as
defined under Section 2(e) of the Reserve Bank of India Act,
1934.

…. …. …. …. …. …. …. …. ….

2.20.6 The Authority shall be entitled to forfeit and
appropriate the Bid Security as Damages inter alia in any of
the events specified in Clause 2.20.7 herein below. The
Bidder, by submitting its Bidding pursuant to this RFP, shall
be deemed to have acknowledged and confirmed that the
_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 8 of 21
Authority will suffer loss and damage on account of
withdrawal of its Bid or for any other default by the Bidder
during the period of Bid validity as specified in this RFP. No
relaxation of any kind on Bid Security shall be given to any
Bidder.

2.20.7 The Bid Security shall be forfeited and appropriated by
the Authority as mutually agreed genuine pre-estimated
compensation and damages payable to the Authority for, inter
alia¸ time cost and effort of the Authority without prejudice to
any other right or remedy that may be available to the
Authority thereunder, or otherwise, under the following
conditions:

(a) If a Bidder submits a non-responsive Bid;

Subject however that in the event of encashment of
Bid Security occurring due to operation of para 2.20.7

(a), the damage so claimed by the Authority shall be
restricted to 5% of the value of the Bid Security.

                (b)     ....
                (c)     ....
                (d)     ....
                (e)     ...."

15. The evaluation of the bids is dealt with in Part 3. Clause 3.2 deals

with the Tests of responsiveness of the bid and the relevant clause

reads as under:

“3.2 Tests of responsiveness

1.2.1 Prior to evaluation of Bids, the Authority shall
determine whether each Bid is responsive to the requirements
of this RFP. A Bid shall be considered responsive if:

                ....      ....     ....    ....     ....     ....      ....     ....    ....
                (e)     it is accompanied by the Power(s) of Attorney as

specified in Clauses 2.1.9 and 2.1.10, as the case may be;

…. …. …. …. …. …. …. …. ….

1.2.2 The Authority reserves the right to reject any Bid
which is non-responsive and no request for alteration,
modification, substitution or withdrawal shall be entertained
by the Authority in respect of such Bid.”

16. Para 5 deals with „Pre-Bid Conference‟ and the same reads as under:

“5. PRE-BID CONFERENCE

5.1 Pre-Bid conferences of the Bidders shall be convened
at the designated date, time and place. Only those persons
who have purchased the RFP document shall be allowed to
_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 9 of 21
participate in the Pre-Bid Conferences. A maximum of five
representatives of each Bidder shall be allowed to participate
on production of authority letter from the Bidder.

5.2 During the course of Pre-Bid conference(s), the Bidders
will be free to seek clarifications and make suggestions for
consideration of the Authority. The Authority shall endeavour to
provide clarifications and such further information as it may, in its
sole discretion, consider appropriate for facilitating a fair,
transparent and competitive Bidding Process.”

17. We have already noticed above that Appendix III gives format of the

Power of Attorney for signing of bid. The format of the Power of

Attorney is reproduced hereunder:

“APPENDIX-III
Power of Attorney for signing of Bid
(Refer Clause 2.1.9)

Know all men by these presents,
We……………………..(name of the firm and address of the
registered office) do hereby irrevocably constitute, nominate,
appoint and authorise Mr/ Ms (Name), ………………
son/daughter/wife of ……………………………… and
presently residing at …………………., who is presently
employed with us/ the Lead Member of our Consortium and
holding the position of ……………………………. , as our
true and lawful attorney (hereinafter referred to as the
“Attorney”) to do in our name and on our behalf, all such
acts, deeds and things as are necessary or required in
connection with or incidental to submission of our bid for the
Operation and Maintenance of Madurai-Tirunelveli-Panagudi
Section (Km 0.000 to Km211.140) of NH-7 in the State of
Tamilnadu to be executed on OMT basis Project.(Lot 1,
Package 6) proposed or being developed by the National
Highways Authority of India (the “Authority”) including but
not limited to signing and submission of all applications, bids
and other documents and writings, participate in bidders‟ and
other conferences and providing information/responses to the
Authority, representing us in all matters before the Authority,
signing and execution of all contracts including the
Concession Agreement and undertakings consequent to
acceptance of our bid, and generally dealing with the
Authority in all matters in connection with or relating to or
arising out of our bid for the said Project and/ or upon award
thereof to us and/or till the entering into of the Concession
Agreement with the Authority.

_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 10 of 21
AND we hereby agree to ratify and confirm and do hereby
ratify and confirm all acts, deeds and things done or caused to
be done by our said Attorney pursuant to and in exercise of
the powers conferred by this Power of Attorney and that all
acts, deeds and things done by our said Attorney in exercise
of the powers hereby conferred shall and shall always be
deemed to have been done by us.

IN WITNESS WHEREOF WE, ………………………….,
THE ABOVE NAMED PRINCIPAL HAVE EXECUTED
THIS POWER OF ATTORNEY ON THIS ………DAY OF
…………. 20…..

For………………………….

(Signature, name, designation and
address)

Witnesses:

1.

(Notarised)
2.

Accepted

(Signature, name, designation and address of the Attorney)

Notes:

The mode of execution of the Power of Attorney should be in
accordance with the procedure, if any, laid down by the
applicable law and the charter documents of the executant(s)
and when it is so required, the same should be under common
seal affixed in accordance with the required procedure.

Wherever required, the Bidder should submit for verification
the extract of the charter documents and documents such as a
board or shareholders resolution/power of attorney in favour
of the person executing this Power of Attorney for the
delegation of power hereunder on behalf of the Bidder.

For a Power of Attorney executed and issued overseas, the
document will also have to be legalised by the Indian
Embassy and notarised in the jurisdiction where the Power of
Attorney is being issued. However, the Power of Attorney
provided by Bidders from countries that have signed the
Hague Legislation Convention, 1961 are not required to be
legalized by the Indian Embassy if it carries a conforming
Appostille certificate”

_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 11 of 21

18. The respondent, however, retained certain rights in the context of

Clause 2.15.3 in para 6 under the heading of „Miscellaneous‟ where

clause 6.2 provides as under:

“6. Miscellaneous

6.2 The Authority, in its sole discretion and without
incurring any obligation or liability, reserves the right, at any
time, to;

(a) Suspend and/or cancel the Bidding Process and/or
amend and/or supplement the Bidding Process or modify the
dates or other terms and conditions relating thereto;

(b) Consult with any Bidder in order to receive
clarification or further information;

(c) Retain any information and/or evidence submitted to
the Authority by, on behalf of, and/or in relation to any
Bidder; and/or

Independently verify, disqualify, reject and/or accept any and
all submissions or other information and/or evidence
submitted by or on behalf of any Bidder.”

19. The bid has to be accompanied by a declaration in the form provided

in Appendix-I of the „letter comprising the Bid‟ and contains the

following relevant clauses:

“7. I/We declare that:

(a) I/We have examined and have no reservations to the
Bidding Documents, including any Addendum issued by the
Authority; and

(b) ….

(c) ….

(d) ….

(e) ….

8. I/We understand that you may cancel the Bidding
Process at any time and that you are neither bound to accept
any Bid that you may receive not to invite the Bidders to Bid
for the Project, without incurring any liability to the Bidders,
in accordance with Clause 2.16 of the RFP document.”

_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 12 of 21

20. In view of the aforesaid clauses, we now proceed to examine the rival

contentions.

The validity of Power of Attorney:

21. The Power of Attorney submitted with the bid of the petitioner has

been placed on record. It is not in dispute that the Power of Attorney

is in the proper format and has been executed by duly authorized

person Shri K. Ashok Reddy and witnessed by two witnesses. Not

only that, the Power of Attorney has been accepted by Mr. R.K.

Singh, CEO – Transportation Division and the Power of Attorney is

duly notarized.

22. A reading of the aforesaid Power of Attorney shows that it is Mr.

R.K. Singh, CEO, who is duly authorized in pursuance of the Board

Resolution. Section 48 of the Companies Act, 1956 prescribes

execution of deeds and reads as under:

“48. EXECUTION OF DEEDS.

(1) A company may, by writing under its common seal,
empower any person, either generally or in respect of any
specified matters, as its attorney, to execute deeds on its
behalf in any place either in or outside India.

(2) A deed singed by such an attorney on behalf of the
company and under his seal where sealing is required, shall
bind the company and have the same effect as if it were under
its common seal.”

23. The reason for declaring the Power of Attorney as not valid is the

Resolution passed by the Executive Committee of the Board of

Directors held on 25.08.2010. The said Resolution reads as under:

“Sub: Participation in tender under NHAI (Employer) in
relation to Operation and Maintenance of Madurai-

Tirunelveli-Panagudi Section (Km 0.000 to Km 211.140) of
NH-7 in the State of Tamilnadu Project (the “Project”)
_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 13 of 21
through Public Private Partnership (the PPP) on Operate,
Maintained, Transfer (the OMT) basis and Issuance of
Special Power of Attorney to Mr. R.K. Singh, C.O.O.,
Transportati9on Division in relation to participate in tender –
Reg;

The committee perused the note submitted and after some
discussion it was:

RESOLVED THAT, the company do participate in the
tender under NHAI (Employer) in relation to Operation and
Maintenance of Madurai-Tirunelveli-Panagudi Section (Km
0.000 to Km 211.140) of NH-7 in the State of Tamil Nadu
Project (the “Project”) through Public Private Partnership (the
PPP) on Operate, Maintained, Transfer (the OMT) basis and
Mr. R.K. Singh, COO, Transportation Division, be and is
hereby authorized, on behalf of M/s. IVRCL Infrastructures
& Projects Ltd., to participate in the tender and to do all or
any of the following acts for and on behalf of the Company
and that the Common Seal of the Company be affixed on the
Power of Attorney being issued in the presence either of Mr.
R. Balarami Reddy, Executive Director-Finance & Group
CFO or Mr. K. Ashok Reddy, Executive Director who shall
sign the same in token thereof and that Mr. B.
Subrahmanayam, Company Secretary shall countersign the
same.

1) signing and submission of all applications, bids and
other documents and writings, participate in bidders and other
conferences and providing information / responses to the
Authority, representing us in all matters before the Authority,
signing and execution of all contracts including the
Concession Agreement and undertakings consequent to
acceptance of our bid, and generally dealing with the
Authority in all matters in connection with or relating to or
arising out of our bid for the said Project and/or upon award
thereof to us and/or till the entering into of the Concession
Agreement with the Authority.

2) AND we hereby agree to ratify and confirm and do
hereby ratify and confirm all acts, deeds and things done or
caused to be done by our said Attorney pursuant to add in
exercise of the powers conferred by this Power of Attorney
and that all acts, deeds and things done by our said Attorney
in exercise of the powers hereby conferred shall and shall
always be deemed to have been done by us.

RESOLVED FURTHER THAT, Mr. B. Subrahmanyam,
Company Secretary be and is hereby authorized to
communicate the copy of the above said resolution duly
certified to the concerned.”

_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 14 of 21

24. The aforesaid minutes of the meeting of the Executive Committee,

thus, duly authorized Mr. R.K. Singh to do the needful and a deed

signed by an Attorney on behalf of the company and under his seal is

to bind the company.

25. In pursuance of the aforesaid Resolution requiring the Power of

Attorney to be executed by either of two persons, Mr. K. Ashok

Reddy has signed the same. The Power of Attorney bearing a common

seal of the company, thus, complies with the requirements of Section 48

of the Companies Act. However, the Board Resolution also requires the

Company Secretary to sign, which has not been done in the case of the

Power of Attorney in question.

26. We may also notice that there is an earlier Board Resolution, albeit not

submitted with the bid, passed on 28.05.2008 by the Board of Directors

in terms whereof Mr. K. Ashok Reddy as Executive Director has been

authorized to exercise various powers and functions including to

negotiate and to enter into contracts and agreements. He has also been

authorized to delegate by way of Power of Attorney or otherwise in

writing all or any of the powers, authorities and discretions for the

time being vested in him. It is pertinent to note that this resolution is

that of the Board of Directors (in short „BoD‟), in which, while

conferring a power on Mr. K. Ashok Reddy to execute a Power of

Attorney, consciously the BoD has perhaps not inserted any caveats

in the form of counter signatories. The caveat that the Company

Secretary should also counter sign the Power of Attorney has its

origin in a subsequent resolution dated 25.8.2010; albeit of the

Executive Committee of the BoD.

_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 15 of 21

27. It is in the aforesaid context, it has to be examined, whether the

absence of the signatures of the Company Secretary can be said to be

fatal to the Power of Attorney? In our considered view, the answer to

this is in the negative.

28. We cannot lose sight of the fact that the authority, which was vested

in Mr. K. Ashok Reddy originated from the Board Resolution of

28.05.2008. The minutes of the meeting of 25.08.2010 are of the

Executive Committee of the Board of Directors, which in respect of

the particular contract bid authorized the Power of Attorney to be

executed, but in no manner take away the general powers vested in

Mr. K. Ashok Reddy in pursuance of the Resolution of 28.05.2008.

As noticed above, a bare perusal of the resolution dated 25.8.2010

would show that the Executive Committee which was a delegatee of

the BoD exceeded its powers in putting in caveats which did not find

mention in the BoD‟s resolution dated 28.5.2008. Even if the

document / resolution of 26.08.2010 is considered in isolation, the

alleged defect, if any, is of a very minor and insignificant character in

the Power of Attorney and does not take away from the authorization

of Mr. R.K. Singh to present the bid.

29. It cannot be lost sight of that the seriousness of the bid cannot be

disputed as even the RFP papers are purchased after paying lakhs of

rupees and the bid is supported by the EMD of `14 Crores. If at all,

there was any doubt in the mind of the respondent regarding the

same, a clarification or information could have easily been sought

from the petitioner in terms of sub-clause (b) of Clause 2.6.2 of the

RFP which gives adequate discretion to the respondent to consult
_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 16 of 21
with any bidder in order to receive clarification or further

information. We may also refer to Clause 2.6.2(b) where the

authority has the right to reject a bid if the bidder did not provide the

supplemental information sought for. In the present case, the

petitioner itself volunteered the information even of the earlier Board

Resolution dated 28.05.2008 under the cover of its letter dated

18.10.2010 reiterating the authority of Mr. R.K. Singh and

undertaking to abide by the bid.

30. There is no doubt about the proposition that the terms & conditions

of a tender document must be strictly adhered to. However, the legal

position in this behalf is enunciated in Poddar Steel Corporation Vs.

Ganesh Engineering Works & Ors. (1991) 3 SCC 273. It was held

that deviations from non-essential or ancillary / subsidiary

requirement being a minor technical irregularity can be waived. The

issue, thus, arises whether the discrepancy in the present case can be

stated to be of such minor technical nature.

31. We must keep in mind the objective of execution of the Power of

Attorney, which is to give authority to the person to bind the bidder.

The petitioner had already suo moto given a clarification. The Power

of Attorney was in the proper format. It was only the supporting

Board Resolution which created some doubts in the mind of the

respondent, which could have easily been clarified. There was no

modification sought in the sense of some additional material sought

to be incorporated in the bid.

32. We are further fortified by two judgments of this Court both of the

Division Bench. In Ramunia Fabricators SDN BHD & Ors. Vs. Oil
_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 17 of 21
and Natural Gas Corpn. Ltd. & Ors., 150 (2008) DLT 1, the

distinction between essential and non-essential conditions in a

contract was emphasized. In the facts of the case, the bids were

submitted by a subsidiary on the basis of the documents purchased by

another subsidiary of a single parent company. The petitioner not

only submitted the requisite Memorandum of Understanding, but also

answered other queries and clarifications. The bid submitted by the

petitioner was held to be perfectly in tune with the terms of the bid.

T.S. Thakur, J. (as he then was) observed that whether or not a

condition is an essential would depend upon the fact situation of each

case and the nature of the conditions while relying upon the judgment

in Poddar Steel Corporation‟s case (supra).

33. In another judgment in Kapsch Metro JV Vs. Union of India & Anr.,

140 (2007) DLT 378, it was emphasized that public interest requires

a wider participation of bidders to ensure healthy competition

especially keeping in mind the dictum laid down in Poddar Steel

Corporation‟s case (supra). The deficiency of 17 days‟ period in the

EMD of 180 days‟ validity period which too was subsequently

altered in order to conform to the prescribed requirement was held to

be a technical irregularity of little significance and worthy of being

waived.

34. We are, thus, of the view that the bid of the petitioner could not have

been treated as non-responsive on account of the absence of the seal

of the Company Secretary on the Power of Attorney. Since the

petitioner has itself set out that it would not be the L-1, the only

_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 18 of 21
consequence would be that the amount of the bid security amount to

the extent of 5% amounting to `70 lakhs be refunded by the

respondent to the petitioner forthwith.

Forfeiture of Bank Guarantee:

35. We have already held that the bid is responsive and thus there is no

question of forfeiture of the Bid Security Amount. We may,

however, notice that submissions were advanced by parties as to why

even if the bid of the petitioners is treated as non-responsive on

account of the Power of Attorney the Bid Security Amount was not

liable to be forfeited. This was, in fact, a common question involved

in three writ petitions filed against respondent No.1 in which

arguments took place on the same date. We have separately

pronounced an order in WP (C) No.8418/2010 where we have dealt

with this issue. We do not want to record a discussion on this aspect

and consider it appropriate to extract our discussion and finding on

this aspect as contained in WP (C) No.8418/2010 as under:

“50. Learned counsel for respondent No.1 submitted that the bid
security amount was a specific term of the RFP clause 2.1.7.
Respondent No.1 was entitled to forfeit and appropriate damages
inter alia in the event specified in Clause 2.20.7 in view of what is
set out in clause 2.20.6. The said clause also provides that the
bidder is deemed to have acknowledged and confirmed that the
authority will suffer loss and damage on account of withdrawal of
its bid or for any other default by the bidder during the period of
bid validity as specified in the RFP. Clause 2.20.7 states that the
amount is mutually agreed genuine pre-estimated compensation
and damages payable to the authority for inter alia time cost and
effort of the Authority. The conditions under which it applies
includes where a bid is a non-responsive bid. However, as per the
latter part of sub-clause (a) of clause 2.20.7 if the bid is a non-
responsive bid, the damages are restricted to 5 per cent of the value
of the bid security. The question, thus, arises whether in case of a
non-responsive bid could it be said that 5 per cent of the value of
the bid security was the genuine pre-estimate of damages?

_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 19 of 21

51. It must be borne in mind that the stage for submission of
the RFP is the second stage in the tendering process. There is an
earlier scrutiny in pursuance of the RFQ submitted by the parties in
terms whereof certain parties are enlisted for submitting the RFP.
At the stage of the RFP a sum of `3.00 lakh is paid to procure the
documents. This amount cannot be the cost of the form but is
really a pre-estimated cost of processing the RFP. A non-
responsive bid is one where at the threshold on the opening of the
bid it is found to be defective on one account or the other and is,
thus, shut out from the process of scrutiny. This can have no co-
relation with the value of the bid which would be the eventuality
even if 5 per cent of the bid amount is encashed.

52. Learned counsel for respondent No.1 sought to canvass that
the objective is to prevent non-serious persons from submitting the
bids. This, in our considered view, is taken care of by charging an
amount for purchase of RFP documents and in other eventualities
of say a party backing out, the bid security amount being forfeited.
The occasion for non-responsive bid would only be a defect in
submission of the RFP.

53. Learned counsel for respondent No.1 could not seriously
dispute that the amount really is in the nature of a penalty. If it is
so it cannot be said to be a reasonable pre-estimate of damages and
the parties suffering losses must prove that it is suffering damages
to that extent. We are of the view that there is hardly any quibble
over the settled legal position in this behalf. Suffice it to say that
in Maula Bux Vs. Union of India AIR 1970 SC 1955 the scope and
ambit of Section 74 of the Contract Act, 1872 (hereinafter referred
to as the „Contract Act‟) was discussed. It was observed that if the
forfeiture of earnest money is in the nature of penalty Section 74 of
the Contract Act would apply. In such a case proof of actual loss
or damage would be essential. However, if the forfeiture amount
is reasonable pre-estimate, it would not fall within Section 74 of
the Contract Act. The legal position in this behalf has not changed.
Section 74 of the Contract Act reads as under:

“74- Compensation for breach of contract where
penalty stipulated for- [When a contract has been broken,
if a sum is named in the contract as the amount to be paid
in case of such breach, or if the contract contains any other
stipulation by way of penalty, the party complaining of the
breach is entitled, whether or not actual damage or loss is
proved to have been caused thereby, to receive from the
party who has broken the contract reasonable compensation
not exceeding the amount so named or, as the case may be,
the penalty stipulated for.”

54. The 5 per cent of the bid security amount would be `73.95
lakh approx. This cannot be said to be the charges for processing
the bids. That charge, in fact, already stands recovered which had
been pre-estimated at `3.00 lakh for purchase of the RFP
document.

_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 20 of 21

55. We have no hesitation to hold that the aforementioned
clause permitting 5 per cent bid security amount to be forfeited in
case of a non-responsive bid is clearly penal in nature and thus
provisions of Section 74 of the Contract Act would apply. It
cannot be categorized as a reasonable pre-estimate of damages for
a non-responsive bid and thus the bank guarantee for 5 per cent of
the bid amount cannot be encashed in such an eventuality.

56. Thus, even on the second issue we are of the view that even
if the bid was non-responsive, the 5 per cent of the bid security
amount could not have been forfeited.”

36. The result would be the same even in the present case.

Conclusion:

37. We are, thus, of the view that the RFP submitted by the petitioner

being responsive, the forfeiture is illegal and invalid and the

petitioner is entitled to refund of the said amount from the

respondent. This is apart from the reason, set out hereinabove, that

the provision permitting forfeiture of 5 per cent of the Bid Security

Amount, even for a non-responsive bid, being penal in nature, was

illegal. Accordingly, we direct refund of the Bid Security Amount

within a period of 15 days from today, failing which, it will carry

simple interest at the rate of 15% p.a.

38. The writ petition is allowed in the aforesaid terms with costs

quantified at `50,000.00 since the petitioner has failed to file the bill

of fee and costs though directed.

SANJAY KISHAN KAUL, J.

MARCH 10, 2011                                          RAJIV SHAKDHER, J.
b'nesh/madan

_____________________________________________________________________________________________
WP (C) No.235 of 2011 Page 21 of 21