IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 841-842 /2009
(arising out of SLP(C) Nos. 30204-30205/2008)
State of Kerala ... Appellant(s)
versus
M/s Zoom Developers Pvt. Ltd. & Ors. ... Respondent(s)
with
Civil Appeal No.843 /2009 (arising out of S.L.P.(C) No. 30305/2008) and
Civil Appeal No.844/2009 (arising out of S.L.P.(C) No. 30355/2008)
JUDGMENT
S.H. KAPADIA, J.
Leave granted.
2. A short question which arises for determination in these civil
appeals is – whether the decision of the Bid Evaluation Committee
(“EC” for short) dated 6.5.2008 rejecting the Bid Proposal made by
the Consortium led by M/s Zoom Developers Pvt. Ltd. as non-
admissible in terms of RFP and thus excluding the said Consortium
from the zone of consideration was unjustified, arbitrary and bad in
law, as held by the impugned judgment of the Kerala High Court
dated 4.12.2008 in Writ Appeal No. 1460/2008.
Facts:
3. Government of Kerala (GoK) vide G.O. No. 9/07/F&PD dated
9.3.2007 decided to invite bids for the Development of International
Deepwater Seaport and Container Transshipment Terminal at
Vizhinjam under Public-Private Partnership. Vide G.O. dated
15.6.2007 GoK decided on the key provisions in the Request For
Proposal (“RFP” for short) documents for the bidding of the above
Project. A competitive bid process was thus initiated by M/s
Vizhinjam International Seaport Ltd. (“VSL” for short). VSL was the
Sponsor. IL & FS Infrastructure Development Corporation (“IDC” for
short) was the Project Advisor. Accordingly, on 8.8.2007, Press
Notification was issued by M/s VSL inviting RFP for the
development of the Project. On 23.1.2008 a Bid Opening Committee
was constituted vide G.O. of the same date. Thirty-three firms
obtained the RFP documents. Vide G.O. dated 19.2.2008, Bid
Evaluation Committee headed by the Chief Secretary was also
constituted to Evaluate the Bid Proposals. Ultimately, bids were
received from the following five Consortia by 31.1.2008 (which was
the last date stipulated for receiving the Bids), they were:
(i) Apollo Enterprises led consortium (ii) Nagarjuna Construction Co. led consortium (iii) Videocon Industries Ltd. led consortium (iv) Lanco Kondapalli Power Pvt. Ltd., Hyderabad, led consortium (v) Zoom Developers Pvt. Ltd., Mumbai led consortium.
4. The bidders were required to submit their proposals in four
covers, namely, the Outer Cover (containing details of the bidder,
power of attorney in favour of the lead member, consortium
agreement entered amongst the members of the consortium, legal
opinion, security of Rs. 50 million in the form of bank guarantee etc.),
Cover-1 (Statement of Qualification), Cover-2 (Technical Proposal)
and Cover-3 (Financial Proposal). In this case, evaluation was done in
three stages. In the first stage, there was evaluation of Outer Cover
and Cover-1 to check the admissibility of bids and evaluation of
qualifications as stipulated in the RFP. It may be noted that
evaluation of the Technical Proposal had to be done only of those
bidders who met the “Qualification Criteria” (vide second stage). The
third stage contemplated evaluation of the Technical Proposal. As
stated above, only five bids were received. These bids (Outer Cover
and Cover-1) were opened on 31.1.2008 by the Bid Opening
Committee. The said firms were found to have satisfied prima facie
the requisite requirements. The bids were accepted by the Bid
Opening Committee for further scrutiny. The bids submitted were
considered at the meeting of the EC on 25.2.2008. In the said meeting
it was observed that, with regard to the bid submitted by the
consortium led by M/s Zoom Developers Pvt. Ltd. (“ZDL” for short),
the Power of Attorney and the Consortium Agreement were
unstamped and they needed to be stamped. It was further pointed out
by the EC that the lead member in terms of the RFP, namely, M/s
ZDL was required to hold a minimum equity of 26% in the Special
Purpose Company (“SPC” for short), which has not been expressly
mentioned in the Consortium Agreement. The EC further pointed out
to M/s ZDL that one of the consortium member, namely, M/s Portia
Management Services Ltd. (“PMS” for short) had signed the
consortium agreement on behalf of Peel Ports Ltd. (“PPL” for short)
but M/s PPL is not a member of the consortium. Additional
information regarding the financials of M/s PMS (on its own) and of
M/s ZDL were also called for. On 25.2.2008, accordingly the EC
granted ten days time to remove the above defects. M/s ZDL sought
extension of time. Ultimately, time was extended up to 4.4.2008. In
short, meetings of the EC took place on 25.2.2008, 13.3.2008,
8.4.2008 and 6.5.2008. By 2.4.2008, M/s ZDL submitted all the
relevant documents duly updated. It may be noted that M/s Universal
Legal, Bangalore, were appointed as Legal Advisor of the Project by
the EC.
5. As stated above, on 2.4.2008 M/s ZDL submitted their
modified documents. On 4.4.2008 the said M/s Universal Legal
furnished their opinion that the Consortium Agreement submitted by
the Consortium led by M/s ZDL had complied with the requirements
of the RFP and that they had removed all defects pointed out to them
by the EC and accordingly the EC may consider their Bid Proposals.
However, in the third meeting held on 8.4.2008, the EC after having
considered the documents submitted by the Consortium led by M/s
ZDL came to the conclusion that in the modified consortium
agreement dated 11.3.2008, M/s PMS has signed the consortium
agreement on its own whereas in its original consortium agreement
dated 4.10.2007, M/s PMS has signed the consortium agreement on
behalf of M/s PPL. Accordingly, the opinion of the Law Secretary
(Invitee to the Meeting) was sought. The Law Secretary opined that
the modified consortium agreement dated 11.3.2008 cannot be treated
as a part of the Original Proposal as the modified consortium
agreement stood entered into by a new member, namely, M/s PMS,
without the authorization of M/s PPL. According to the Law
Secretary, there was one more defect. There was no provision in the
modified consortium agreement to the effect that the consortium
members shall be jointly and severally liable for the execution of the
Project and that the only expression used was joint and several
“responsibility”, which, according to the Law Secretary, was a
concept different from joint and several “liability”. This opinion of
the Law Secretary was placed before the EC in its meeting held on
6.5.2008 in which meeting the EC concluded that the Bid submitted
by the consortium led by M/s ZDL was “non-responsive”/”non-
admissible” in terms of the RFP. Accordingly on 24.5.2008, GoK
issued Government Order approving the proposal given by Lanco
Kondapalli Power Pvt. Ltd., Hyderabad (hereinafter referred to as
“Lanco led Consortium”). Thus, the Bid Proposal of the consortium
led by M/s ZDL came to be rejected.
6. Aggrieved by the said decision, M/s ZDL preferred Writ
Petition (C) No. 15570/2008 in the Kerala High Court which came to
be dismissed by the learned single Judge on 3.7.2008. It was held by
the learned Single Judge that the concept of “liability” was different
from “responsibility”. It was further held that since the consortium
members led by M/s ZDL had not undertaken “joint and several
liability”, the EC was right in treating the bid proposal as non-
responsive. It was further held by the learned single Judge that the
original consortium agreement dated 4.10.2007 was signed by M/s
PMS on behalf of M/s PPL though no such authorization was found
in that regard. According to the learned single Judge, in the modified
consortium agreement dated 11.3.2008, M/s PPL, which was the party
to the original consortium agreement, stood deleted and M/s PMS had
emerged as a member of consortium for the first time only under the
modified consortium agreement dated 11.3.2008 without explaining
under whose authority such change was made and consequently, the
EC was right in treating the Bid Proposal made by M/s ZDL as non-
responsive. Accordingly, the writ petition stood dismissed. Aggrieved
by the said decision, M/s ZDL preferred Writ Appeal No. 1460/2008,
which stood allowed by the Division Bench of the Kerala High Court,
hence, these civil appeals are filed by the State of Kerala (licensor),
M/s Lanco Kondapalli Power Pvt. Ltd. and M/s Vizhinjam
International Sea Port Ltd. (Sponsors).
Contention:
7. On behalf of State of Kerala, Shri K. Parasaran, learned senior
counsel submitted that after 31.1.2008 (the cut-off date) there was a
change in M/s ZDL led Consortium which was impermissible in
terms of the RFP and, therefore, the Bid Evaluation Committee was
right in treating the Bid submitted by M/s ZDL led Consortium as
non-responsive/non-admissible in terms of the RFP. In support of his
contention, learned senior counsel submitted that as per clause 3.4 of
RFP, only the Lead Member could be changed and that too with the
written consent of M/s VSL (Sponsor). According to the learned
counsel, RFP did not permit change of consortium member after the
cut-off date. It may be noted that the Proposals of the Bidders were to
be submitted on or before 31.1.2008. Learned counsel pointed out
that along with the Proposal, M/s ZDL submitted the Consortium
Agreement dated 4.10.2007 in which M/s PMS signed the consortium
agreement on behalf of M/s PPL, UK. Therefore, according to the
learned counsel, M/s PMS singed the Consortium Agreement dated
4.10.2007 as an agent of M/s PPL, UK. According to the learned
counsel, in the Consortium Agreement dated 4.10.2007, M/s ZDL did
not stipulate that as a Lead Member it would hold a minimum equity
of 26% in the SPC. The Consortium Agreement dated 4.10.2007 was
not notarized and stamped. That apart, the said consortium did not
submit documents from M/s PPL, UK authorizing M/s PMS to sign
the Consortium Agreement on behalf of M/s PPL, UK. According to
the learned counsel, all the above circumstances came to be
considered by the EC in its meeting held on 25.2.2008. The EC,
according to the learned counsel, recorded in its Minutes that since
M/s PPL was the member of the Consortium in terms of Consortium
Agreement dated 4.10.2007, but, since M/s PPL was not shown in the
Outer Cover, therefore, a query was raised by the EC in its letter
dated 3.3.2008 to the effect that although M/s PMS has signed the
Consortium Agreement on behalf of M/s PPL, the latter was not a
member of the Consortium. According to the learned counsel, in the
said letter dated 3.3.2008, there was no direction from the EC to M/s
ZDL to delete the words “on behalf of M/s PPL” and consequently,
after the cut-off date, it was not open to M/s ZDL led Consortium to
submit a fresh Consortium Agreement dated 11.3.2008 deleting the
words “on behalf of M/s PPL”. According to the learned counsel,
therefore, there was a change in the membership of the Consortium
led by M/s ZDL and that too after 31.1.2008. Therefore, according to
the learned counsel, it was not a case of curing of defect. According
to the learned counsel, change of consortium membership after the
cut-off date made the Proposal of M/s ZDL led Consortium non-
admissible in terms of the RFP.
8. Shri K. Parasaran, learned senior counsel, next contended that
vide clause 3.5 of the RFP, all members of the Consortium were
“jointly and severally liable” for execution of the Project in terms of
the Licence Agreement and a statement to that effect was required to
be stated in the consortium agreement, which statement was not
incorporated in consortium agreement dated 4.10.2007 nor in the
consortium agreement dated 11.3.2008. According to the learned
senior counsel, the two words, namely, “liabilities” and
“responsibilities” are not interchangeable. They are distinct and
different concepts. According to the learned counsel, RFP required a
statement regarding “joint and several liability” to be incorporated in
the consortium agreement because the word “liability” represented an
objective criteria, which criteria has not been satisfied despite
opportunity being given to M/s ZDL led Consortium to incorporate
such a statement in the consortium agreement. Learned counsel
submitted that despite opportunity being given to M/s ZDL led
Consortium, even in the fresh Agreement dated 11.3.2008, M/s ZDL
led Consortium had insisted on using the words “joint and several
liabilities” in support of the words “joint and several responsibilities”.
Therefore, for non-compliance of the said criteria, the EC was right in
treating the Bid Proposal of M/s ZDL led Consortium as non-
admissible/non-responsive in terms of RFP.
9. In short, on two of the aforestated grounds, namely, change of
consortium membership and non incorporation of joint and several
liability Clause in the consortium agreement, learned counsel for the
State of Kerala submitted that the EC was right in treating the Bid
Proposal of M/s ZDL as non-responsive.
9A. Shri A. Sharan, learned Additional Solicitor General appearing
on behalf of M/s VSL substantially adopts the contentions advanced
by Shri K. Parasaran, learned senior counsel for the State of Kerala.
10. Shri K.K. Venugopal, learned senior counsel appearing on
behalf of M/s Lanco led Consortium submitted in addition to the
above contentions that, in any event, the figures submitted by M/s
ZDL led Consortium indicated that, on its own M/s PMS did not
fulfill the financial parameters of net worth, total turnover and cash
accruals and that M/s PMS was solely dependent upon the financials
of M/s PPL, UK, consequently, the Bid Proposal of M/s ZDL led
Consortium was not admissible in terms of RFP. Learned senior
counsel further submitted that in the Consortium Agreement dated
4.10.2007, there was a clause under the caption “Relationship of
Parties”. Reading of that clause, according to the learned counsel,
indicated that the consortium members were to act on principal-to-
principal basis and despite opportunity, even in the fresh Consortium
Agreement dated 11.3.2008, the said clause stood retained. Therefore,
according to the learned counsel, the criteria of joint and several
liability was not satisfied by M/s ZDL led Consortium.
11. On the other hand, it was submitted on behalf of M/s ZDL led
Consortium that the interpretation given by the Sponsor/Advisor on
various terms and conditions of the RFP should be read as a standard
to evaluate the admissibility of the bids. According to Shri Harish N.
Salve, learned senior counsel appearing on behalf of M/s ZDL, the
Minutes of the EC held on 25.2.2008 indicated that the words
“responsibility” and “liability” were used interchangeably. That, it is
only after the Law Secretary gave his opinion that the question of the
connotation of the two words “liability” and “responsibility” were
made an issue, which was clearly an afterthought. According to the
learned counsel, the said hair-splitting exercise was undertaken as an
afterthought only after the Law Secretary gave his opinion, which
opinion was “off the record” advice (which expression is used by the
Law Secretary in his affidavit). According to the learned counsel,
there was no change in the membership of the Consortium led by M/s
ZDL because right from the inception, at the time of submitting the
Proposals, it was made clear that M/s PMS would be the member of
M/s ZDL led Consortium. It was submitted that M/s PMS was the
subsidiary of M/s PPL, UK, and the words “on behalf of” were used
in the Consortium Agreement dated 4.10.2007 only to indicate the
relationship between M/s PMS and M/s PPL, UK. This position,
according to the learned counsel, is indicated by the Bid documents
submitted on 31.1.2008, Power of Attorney dated 18.10.2007, Notary
Certificate, Covering letter dated 31.1.2008 and annexures to the Bid
documents submitted by M/s ZDL.
12. On the question of financials, Shri Arun Jaitley, learned senior
counsel for M/s ZDL, submitted that the Chart submitted before this
Court by the learned counsel for M/s Lanco led Consortium was
defective because the Financials for FY 2006-2007 has not been
projected. In this connection, it was pointed out that M/s ZDL had
submitted the details for FY October, 2003 to September, 2004,
October, 2004 to September, 2005 and October, 2005 to September,
2006 as on 31.1.2008. It was pointed out that, M/s ZDL was
following the Accounting Year from October to September. It was
submitted that the last date for submission of Bids was 31.10.2007
initially, which stood extended later on till 31.1.2008. According to
the learned counsel, the Balance Sheet for FY 2006-2007 was in the
process of being prepared when the Bid documents were submitted on
31.1.2008 and consequently, the Balance Sheet for FY 2006-2007
could not be submitted. According to the learned counsel, if the
Financials for the year including FY 2006-2007 are taken into
account, then M/s ZDL lead Consortium satisfies all the financial
parameters of net worth, turnover and cash accruals.
13. Points for Consideration:
(A) Whether the modified Consortium Agreement
dated 11.3.2008 resulted in a change in the
constituents membership of the Consortium led by
M/s ZDL.
(B) Whether use of the expression “joint and several
responsibility” in place of “joint and several
liability” would justify rejection of the Bid
Proposal made by the Consortium led by M/s ZDL
as non-responsive/non-admissible in terms of the
RFP.
Findings on Point No. (A):
14. As per the scheme of RFP, at the stage of Submission of
Proposals, the bidders were required to furnish the names of the Lead
Member and other members of the consortium. In this case, one of the
members of the consortium was M/s PMS. While furnishing “Details
of Bidders”, the name of the consortium member was shown as PMS.
Similarly, against the column “Brief Description of the Company”,
the name of M/s PMS was mentioned as the international arm of M/s
PPL. Therefore, at the stage of Submission of Proposals, M/s ZDL
had stated that M/s PMS was the member of its Consortium. There
was one more column which was required to be filled-in by the
bidders, namely, “Ownership of the Organisation”. In this column,
M/s ZDL indicated that M/s PMS was a consortium member which
was the wholly subsidiary company of M/s PPL, UK. It may be noted
that, under the Scheme of RFP, the bidders had to offer a firm
commitment to form SPC to implement and operate the above Project
in Kerala, should the Sponsor (M/s VSL) select one of the five
bidders as Licensee. Therefore, the Proposal had to be made in a
prescribed format. On reading the said Proposal, therefore, it becomes
clear that on the date, namely, 31.1.2008, being the cut-off date (when
the bids were opened), M/s PMS was the member-constituent of the
consortium led by M/s ZDL. At this stage, one must keep in mind that
Section 212 of the Companies Act, 1956 which makes it obligatory
on behalf of the holding company to annex to its Balance Sheet the
Balance Sheet and P&L account and other financial particulars of its
subsidiary. Section 212 requires the legal relationship of holding
company and subsidiary company to be disclosed to all its members.
In the world of globalization, we have consortium agreements/ joint
venture agreements. It appears from the particulars given by the
consortium led by M/s ZDL that M/s PMS is a part of an international
group of companies headed by M/s PPL, UK. The prescribed Form
warranted Disclosure giving particulars of the consortium members.
The particulars furnished indicate that the Lead Member was M/s
ZDL. It is an Indian company. One of the consortium member was
M/s PMS, which is incorporated in UK. It is the 100% subsidiary of
M/s PPL, UK. This information also became necessary because the
format required the Bidder to disclose “Ownership” of the member-
company. Therefore, if one reads the Proposal of the Lead Member,
M/s ZDL, in the form prescribed, which Proposal was of 31.1.2008,
one finds that M/s PMS alone on its own was indicated as a member
of the consortium and M/s PPL was not shown as the member of the
consortium. However, the original consortium/joint venture
agreement dated 4.10.2007 signed by the member-constituent of the
consortium led by M/s ZDL stood signed by M/s PMS on behalf of
M/s PPL, UK. Therefore, on 3.3.2008, IDC (Project Advisor) wrote to
M/s ZDL inter alia pointing out the defect in the consortium
agreement dated 4.10.2007 in the following words:
“M/s PMS has signed consortium agreement
dated 4.10.2007 on behalf of M/s PPL but
M/s PPL is not a member of the
consortium.”
Thus, the Project Advisor treated the above irregularity in the
execution of the consortium agreement dated 4.10.2007 as a curable
defect for which time was given to M/s ZDL up to 4.4.2008. Further,
the Project Advisor clearly understood the Proposal to have had been
given by M/s ZDL as the Lead Member of the Consortium, whose
constituent inter alia included M/s PMS and not M/s PPL. By the
said letter, the Project Advisor also called for Annual Reports of three
financial year of M/s ZDL and Annual Reports of last 3 years of M/s
PMS (its own). This query indicates that the Project Advisor not only
treated the above irregularity in the execution of the consortium
agreement dated 4.10.2007 as the curable defect but it further shows
that even, according to the Project Advisor, M/s PMS alone was the
constituent member of the consortium led by M/s ZDL and it is for
this reason that the Project Advisor called for the annual reports of
M/s PMS (its own). This defect was cured by M/s PMS within the
extended period. It is interesting to note that the question of
“authorization” by M/s PPL,UK, was not raised by the Project
Advisor in its letter dated 3.3.2008. That aspect was raised only by
the Law Secretary who came to be Invited as a special invitee by the
Chief Secretary in the meetings of the EC held on 8.4.2008 and
6.5.2008 (which is after the extended date 4.4.2008). It is not in
dispute that M/s PPL, UK is the holding company of M/s PMS. M/s
PMS is a subsidiary company. It is the separate legal entity. We are
satisfied that at the stage of Submission of Proposal itself and right
from the inception, it was M/s PMS, who alone was the constituent
member of the consortium. The question of authorization raised by
the Law Secretary, in his opinion, is clearly an afterthought. In fact,
there is a contradiction in his opinion. If M/s PPL was the member of
the consortium, as construed by the Law Secretary, there was no need
for M/s PPL to authorize M/s PMS to execute the consortium
agreement. On the other hand, if M/s PMS being the separate legal
entity was a member of the consortium it had to sign the consortium
agreement in its own capacity. The modified consortium agreement
dated 11.3.2008 is supported by a Resolution. The said consortium
agreement is in line with the Proposal submitted on 31.1.2008.
15. One more aspect needs to be pointed out. The RFP prescribes
the form in which a bidder has to make his proposal. However, bidder
was free to submit the consortium agreement in its own format. M/s
Universal Legal (legal advisor to the Sponsor) cleared the proposal on
4.4.2008 stating that all requisite defects stood cured. It is only after
4.4.2008 that the Law Secretary came into picture and gave an
opinion to the contrary. Moreover, as found by the High Court in the
impugned judgment, when the Law Secretary was asked to file his
affidavit he came out with the statement that his advice was “off the
record” advice. It was not given through Official Channel. At this
stage, we may also point out that no material has been placed before
the High Court as to the reference made by the Chief Secretary to the
Law Secretary. Whenever opinion is sought, the persons seeking
opinion has to formulate the query for which opinion is sought. We
do not know the query raised by the Chief Secretary before the Law
Secretary. No material has been placed before us in this regard. In
fact, the very purpose of routing the query through Official Channel
is that the querist formulates the query on which opinion is given. In
this case, there is no formulation of such a query. In the
circumstances, we find that the High Court was right in not giving
weightage to the “off the record” advice of the Law Secretary. This is
one of the circumstances which vitiates the process of decision
making by the EC. The bid was declared as non-admissible in the IVth
meeting of the EC held on 6.5.2008. The Minutes indicate that, before
the EC, there were two Opinions. First opinion was that of M/s
Universal Legal and the second opinion was that of the Law
Secretary. There is nothing to indicate in the Minutes as to why the
opinion of the legal advisor, M/s Universal Legal, stood rejected.
There is no reason given as to why the opinion of the Law Secretary
came to be accepted. Be that as it may, we are of the view that the
modified consortium agreement was between members of the
consortium led by M/s ZDL in which the member was M/s PMS and
not M/s PPL, UK, right from the inception. Therefore, the entire
exercise was to cure the defect. Time was given to M/s ZDL to cure
the defect which in fact was cured before 4.4.2008. For the
aforestated reasons, we hold that there was no change in the
membership of the consortium led by M/s ZDL after 31.1.2008. In
fact, even prior to the IVth meeting the EC did not call upon M/s
ZDL/PMS to obtain Letter of Authority from M/s PPL, UK.
16. For the above reasons we hold that there was no change in the
membership of the Consortium led by M/s ZDL.
Findings on Point No. (B):
17. As stated above, the second ground for treating the Bid
Proposal of the consortium led by M/z ZDL as non-responsive was
that, in the consortium agreement, M/s ZDL has failed to incorporate
the expression “joint and several liability”. That, M/s ZDL has
incorporated the clause under the expression “joint and several
responsibility” in place of “joint and several liability” and
consequently, the Bid Proposal became non-admissible/non-
responsive in terms of the RFP. This was the basic argument
advanced on behalf of GoK.
18. At the outset, it may be stated that in letter dated 3.3.2008 no
such point was ever raised by the Project Advisor. As stated above,
by the said letter dated 3.3.2008 curable defects were pointed out
regarding M/s PMS having signed the consortium agreement dated
4.10.2007 on behalf of M/s PPL, UK, but no query was ever raised on
the above point. On the contrary, as can be seen from the Minutes of
the meetings held prior to 8.4.2008, the Project Advisor/Sponsor has
used the word “responsibility” interchangeably with the word
“liability”. It is only in the opinion of the Law Secretary that, for the
first time, the above objection is taken.
19. Be that as it may, the question is whether in the modified
consortium agreement dated 11.3.2008 responsibilities and allocation
of works stood clearly demarcated between the members of the
consortium? We have examined the consortium agreement dated
11.3.2008. It clearly indicates that M/s ZDL is an Indian company. It
is a lead member of the consortium. The agreement further indicates
that there were two members in the consortium apart from M/s ZDL,
namely, M/s PMS and M/s Peter Fraenkel & Partners. The agreement
indicates that M/s ZDL shall be responsible for implementation of the
Project along with M/s PMS and M/s Peter Fraenkel & Partners. M/s
ZDL had to submit technical and financial bids. M/s ZDL had to act
as project developers and principal coordinators. M/s ZDL had to
arrange finances. On the other hand, M/s Peter Fraenkel & Partners
had to do the work of designing and budget preparations whereas M/s
PMS had to provide operational support during the implementation of
the Project. Therefore, under the said Agreement, duties and
responsibilities of each of the members stood carved out. Vide clause
7, members of the consortium were made “jointly and severally
responsible” for every stage of implementation of the Project. The
only objection raised by the GoK is that the word “liable” ought to
have been used instead of the word “responsible” in clause 7 and
since that word has not been used, the Bid Proposal of M/s ZDL
needs to be dismissed. As stated above, in the meetings held prior to
8.4.2008, no such objection was ever raised. In fact, no opportunity
was given to M/s ZDL to cure this defect though it was given to the
consortium led by M/s Apollo (see page 81 of the SLP paper book in
SLP (C) Nos. 30204-30205/2008 entitled State of Kerala v. M/s
Zoom Developers Pvt. Ltd. & Ors.). The important point is that the
EC treated the above objection as a curable defect. It is only after the
Law Secretary came on the scene that the above objection was raised
even after the clearance by M/s Universal Legal. Therefore, it is
clearly an afterthought. Further under the consortium agreement dated
11.3.2008, it was stated that M/s ZDL, PMS and Peter Fraenkel &
Partners shall be fully responsible for their individual portions of
work. Under the said Agreement, it was further stated that, in case the
Project stood awarded to the Consortium, the Consortium commits to
hold a minimum stake of 51% in the SPC. This shows that in the
matter of liability, the Consortium Agreement was only a step-in-aide
to the formation of SPC. Further, as rightly held by the High Court in
the impugned judgment, the apprehension of GoK that in the event of
disputes between members of the consortium or in the event of non-
implementation of the Project, GoK would not be in a position to
enforce its claim was ill-founded because the licence agreement
between the successful bidder and the licensor (GoK) was yet to be
entered into in which a provision as to “joint and several liability”
had to be made, as mentioned in the RFP. The consortium agreement
was only an assurance or a commitment to abide by the licence
agreement. Lastly, it may be stated that the word “responsibility” is
no doubt different from the word “liability”. What is submitted before
us is that the expression “joint and several liability” was required to
be incorporated in the consortium agreement in terms of RFP. What
was submitted before us was that the said expression constituted an
objective criteria. What was submitted before us was that since the
above expression in the RFP was treated as an objective criteria, the
manner in which the said expression stood understood by the EC was
irrelevant. We do not find merit in this argument. As stated above,
though the Form of Proposal was prescribed, the bidder was free to
submit the consortium agreement in its own Form. In our view, in the
absence of a prescribed format and in the absence of the definition of
the word “responsibility” vis-`-vis the word “liability” in the RFP, it
cannot be said that the said expression “joint and several liability”
was an objective criteria. It is true that in terms of RFP, the bidder
was required to stipulate the words “joint and several liability” in the
consortium agreement. But it is equally true that in certain cases
objective words can be interpreted subjectively. For example, the
word “regulate”. It has several times been decided that the power to
regulate does not extend to a power to prohibit. But this very word
has been held in some other cases to include the power to prohibit. In
U.K., the Railway Board was entitled to impose a ban on smoking in
trains under this very power to regulate. Therefore, one has to
construe each of these words in that context. (see Administrative Law
by H.W. Wade and Forsyth- 9th ed. at pp. 432-435). In this very case,
various bids were considered by the Project Advisor/Sponsor. They
have themselves used the words “liability” and “responsibility”
interchangeably. They have treated this defect as a curable defect.
They have not rejected the Bid Proposal on 25.2.2008 in the first
meeting on the above ground because the EC thought that the said
defect was a curable defect.
20. It was vehemently urged on behalf of M/s Lanco led Consortium
that in the consortium agreement dated 4.10.2007 as well as in the
consortium agreement dated 11.3.2008, there was a clause under the
heading “Relationship of Parties” which indicated that each member of
the consortium shall deal with the other on principal-to-principal basis
till the formation of SPC. In the said clause, it was further stated that,
nothing contained in the agreement shall be deemed to constitute any
of the parties as agent of the other. Therefore, the members of the
consortium led by M/s ZDL cannot be said to be jointly and severally
liable at every stage of implementation of the Project. We do not find
merit in this argument. As stated above, the consortium agreement
dated 11.3.2008 spelt out the work allocation and the responsibility of
each member of the consortium. It made the consortium responsible
jointly and severally for implementation of the Project. The clause
dealing with “relationship of the parties” merely stated that till the
formation of the SPC, each member shall be related to each other on
principal-to-principal basis. This is because the consortium is formed to
make a bid for this Project only. Till the formation of SPC and till the
consortium becomes a successful bidder, the parties relate to each other
on principal-to-principal basis. But once that consortium becomes a
successful bidder and commits to hold the minimum equity stake of
51% in the SPC, then the question of joint and several liability would
certainly arise. Therefore, the High Court rightly held that the licence
agreement between GoK and the successful bidder (consortium) has
still to be executed and it is at that stage that, in any event, the clause of
joint and several liability shall stand incorporated in the licence
agreement.
21. Before concluding, an attempt was made on behalf of
M/s Lanco Kondapalli Power Pvt. Ltd. (appellant in the civil appeal
arising out of SLP (C) No. 30305/2008) to demonstrate before us that
but for the financials of M/s PPL, the consortium led by M/s ZDL
would not have met the financial qualification criteria as on the date
of the submission of the Bid Proposal (31.1.2008). Learned counsel
appearing on behalf of M/s Lanco Kondapalli Power Pvt. Ltd.
submitted a Chart in support of his above contention. We find no
merit in this argument. The said Chart refers to the Financial Years
October, 2003 to September, 2004, October 2004 to September, 2005,
October, 2005 to September, 2006 as far as M/s ZDL is concerned.
However, it may be noted that initially the last date for submitting the
bid was 31.10.2007, which was extended to 31.1.2008. The Balance
Sheet and P&L account of M/s ZDL for the year ending 30.9.2007
stood adopted after audit only on 20.3.2008. If the figures for that
year are taken into account then the financial qualification criteria
stands satisfied.
22. For the aforestated reasons, we find no infirmity in the
impugned judgment of the Division Bench of the Kerala High Court
which has given a declaration to the effect that the Outer Cover and
Cover-1 submitted by the consortium led by M/s ZDL is
admissible/responsive in terms of RFP. Consequently, we declare that
the Technical and Financial Proposals submitted by the said
Consortium (respondent no. 1) are liable to be considered within 15
days from the date of this judgment.
23. Accordingly, the civil appeals stand dismissed with no order as
to costs.
…………………….J.
(Dr. Arijit Pasayat)
…………………….J.
(S. H. Kapadia)
New Delhi; the
February 10, 2009.