Larsen & Toubro Ltd. v. Cochin Shipyard Limited and Goa Shipyard Limited

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.BALAKRISHNAN NAIR & THE HONOURABLE MR. JUSTICE P.N.RAVINDRAN FRIDAY, THE 14TH MARCH 2008 / 24TH PHALGUNA 1929 WA.No. 152 of 2008() -------------------AGAINST THE JUDGEMENT IN WPC.12354/2007 Dated 12/12/2007 .................... APPELLANT: PETITIONER --------------------- LARSEN & TOUBRO LIMITED, A COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT, 1956, HAVING ITS REGISTERED OFFICE AT L & T HOUSE, BALLARD ESTATE, P.O.BOX NO.8278, MUMBAI - 400 001. BY ADVS. SRI.RAVI KADAM (SR) SRI.K.P.DANDAPANI (SR.) SRI.PANKAJ SAVANT SRI.PAUL MATHEW SRI.P.V.SREENIJI SMT.K.B.SONY. RESPONDENTS: RESPONDENTS ------------------------ 1. COCHIN SHIPYARD LIMITED, (A GOVT. INDIA ENTERPRISE), A COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT, 1956, HAVING ITS REGISTERED OFFICE AT P.O.BOX NO.1653, PERUMANOOR, COCHIN - 682 015. 2. GOA SHIPYARD LIMITED, (A GOVT OF INDIA ENTERPRISE), A COMPANY INCORPORATED UNDER THE PROVISIONS A COMPANIES ACT, 1956, HAVING ITS REGISTERED OFFICE AT VASCO DA GAMA, GOA - 403 802. BY ADVS. SRI.A.M.SHAFFIQUE (SR) - R1 SRI.TOM K.THOMAS - R2 SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR SRI.ANIL D. NAIR WA 152/2008 THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 04/03/2008, THE COURT ON 14/03/2008 DELIVERED THE FOLLOWING: ## K.BALAKRISHNAN NAIR & ## P.N.RAVINDRAN, JJ. ----------------------------------------- W.A. NO. 152 OF 2008 ----------------------------------------- Dated 14[th] March, 2008. JUDGMENT ## Balakrishnan Nair, J. The appellant was the writ petitioner and the respondents were the respondents in the Writ Petition. The validity of the decision of the 1[st] respondent to reject the lowest tender of the appellant and go for a fresh tender for the procurement of certain parts for an Aircraft Carrier, is the point that arises for decision in this Writ Appeal. 2. The essential and brief facts of the case, which are necessary for the decision of this case, are the following: The appellant is a reputed company engaged, inter alia, in the business of design, manufacture and installation of heavy engineering equipments. The 1[st] respondent Cochin Shipyard Limited (hereinafter referred to as CSL) is a Central Public Sector Undertaking engaged, inter alia, in the production and repairing of ships. The 2[nd] respondent Goa Shipyard Limited (hereinafter referred to as GSL) is also a Central Public Sector Undertaking engaged, inter alia, in ship WA 152/2008 2 building. The Indian Navy authorised the 1[st] respondent CSL to manufacture an Aircraft Carrier for it. For manufacturing the same, the CSL wanted to purchase certain parts, like shafting, bearings, CPP with fittings, accessories, spares etc. The Indian Navy shortlisted the appellant and the 2[nd] respondent companies for inviting tenders for the purchase of those items. 3. The 1[st] respondent invited tenders from the appellant and the 2[nd] respondent, by Ext.P1 tender notification dated 23.2.2006. The tenders were to be submitted in two parts, namely (1) Techno-commercial bid and (2) Price bid. The Techno-commercial bids were opened first. Both the companies were treated as qualified, after the CSL decided to accommodate the variations in their bids with the tender conditions. The price bid was called for from the appellant by Ext.P3 dated 28.8.2006. It submitted its price bid as per Ext.P9 on 27.11.2006. The price bids were opened on 4.12.2006. The appellant's offer being L1, it was called for negotiations by the Price Negotiation Committee (PNC) on 19.12.2006 and 20.2.2007. The appellant was asked to reduce its price, as the same was exorbitant, when compared to the estimate rate. It was also asked to explain the reason for the high price quoted. Since the appellant failed to reduce the price or convince the PNC regarding the reasonableness of the price quoted, its WA 152/2008 3 offer was rejected and the CSL decided to go for a fresh tender. The recommendation in this regard was made by the PNC at its meeting held on 20.2.2007. 4. The CSL invited revised bids from the appellant and the 2[nd] respondent by Ext.P4 dated 23.2.2007. The aggrieved appellant represented to the Ministry of Defence and Ministry of Shipping by filing Exts.P5 and P5(a) representations respectively. The appellant submitted its revised price bid as per Ext.P5(b) on 8.3.2007. The revised price bid from the 2[nd] respondent was also received by the CSL. The said price bids were opened on 16.3.2007. On finding that the 2[nd] respondent was going to be treated as the L1 bidder pursuant to its revised bid, the appellant filed the writ petition, challenging Ext.P4 and seeking consequential reliefs, on 9.4.2007. When the writ petition came up for admission on 10.4.2007, this Court passed the following interim order: “The award of contract will be subject to the order in this W.P.(C).” In the writ petition, the following reliefs were sought: “(i) Issue a writ of certiorari or any other appropriate writ or order or direction, calling for the records leading to Ext.P4 and quash and set aside the same which sought to call for revised price bids. (ii) Issue a writ of mandamus or any other appropriate writ, order or direction, directing the CSL to consider the bids received in response to the original tender enquiry as per WA 152/2008 4 Ext.P1 from the petitioner and the GSL and award the contract to the petitioner being the lowest bidder. (iii) Issue a writ of mandamus or any other appropriate writ, order or direction, commanding the CSL not to consider the bid offered by GSL, as it was against the basic terms and conditions of the tender. (iv) Declare that the tender bid offered by GSL is invalid and further declare that the petitioner is entitled to be awarded the contract in question.” In the copy of the writ petition, which is part of the paper book in this Writ Appeal, the 1[st] prayer includes the challenge against Ext.P6 also. We called for the original judges papers of the writ petition. It is seen that prayer No.1 deals only with Ext.P4. Ext.P6 is a communication issued by the CSL dated 30.11.2006. According to the appellant, the offending part in that communication is para 4 thereof, which deletes the condition limiting the permissible adjustment of price variation owing to foreign exchange rate variation. The contention of the appellant is that the said condition has been varied to suit the 2[nd] respondent. 5. According to the appellant, the decision to receive the price bid from the 2[nd] respondent was illegal, as at the time of the first bid, it did not satisfy the conditions of the Techno-commercial bid. But several conditions were diluted, to enable the 2[nd] respondent to offer its bid. Not only that the price bid of the 2[nd] respondent was on the higher side, but also the price bid WA 152/2008 5 was made not in compliance with the conditions of the tender. So, the price bid submitted by the 2[nd] respondent was liable to be rejected at the threshold and the contract should have been awarded to the appellant. Even though the appellant was the L1 bidder, its bid was rejected, so as to enable the 2[nd] respondent to offer a fresh bid in accordance with the tender conditions, so that it can be awarded the tender. The CSL had a predilection to award the contract to the 2[nd] respondent. All the actions from the part of the 1[st] respondent were designed to achieve the said object. So, the action of the CSL in rejecting the price bid of the appellant and deciding to invite revised competitive price bids as per Ext.P4 is vitiated. It is arbitrary, discriminatory and unjust. It offends the fundamental rights of the appellant under Articles 14 and 19(1)(g) of the Constitution of India, it is submitted. So, the appellant prayed for granting all the reliefs sought in the writ petition. 6. The 1[st] respondent CSL filed a detailed counter affidavit on 15.6.2007, dealing with the averments in the writ petition in the following manner: It is submitted that the Indian Navy shortlisted only the appellant and the 2[nd] respondent GSL for the supply of shaft and propeller. The Techno-commercial bids received from both the tenderers were evaluated by the Technical Negotiation Committee (TNC). Both the bidders made WA 152/2008 6 several deviations from the tender terms in the Techno-commercial bids placed by them. The TNC held negotiations with both the bidders and directed them to modify their tender conditions, so as to make them in compliance with the tender notification. Since both of them failed to do that, finally the TNC decided to accommodate the deviations and their Technocommercial bids were accepted and revised price bids were called for from the bidders, in the light of the Techno-commercial deviations accepted by the TNC. The revised bids were opened on 4.12.2006. Thereafter, the Price Negotiation Committee (PNC) called the appellant, the L1 bidder to reduce the price quoted by it or to justify the reasons for the high price. Since the appellant failed to comply with the said direction, the PNC recommended for re-tendering. The price bids pursuant to the re-tender were opened on 16.3.2007. It was found that the 2[nd] respondent was the L1 bidder and the 1[st] respondent was able to save Rs.34.74 crores, as a result of the re-tender. The allegations made against the 1[st] respondent were denied by it. It is submitted that everything was done in good faith, including relaxation of the condition regarding foreign exchange rate variation. Both the parties were given a fair opportunity to participate and contest in the tender, it was submitted. 7. The appellant filed a reply affidavit, dealing with the averments in WA 152/2008 7 the counter affidavit of the 1[st] respondent. Thereupon, the 1[st] respondent filed an affidavit dated 11.9.2007, producing the minutes of the PNC held on 19.12.2006 and 20.2.2007, which evaluated the first price bid of the appellant. Ext.R1(g) minutes of the PNC dated 20.4.2007 were also produced, as per which it was recommended to accept the bid of the 2[nd] respondent and award the contract to it. The 1[st] respondent also filed an additional counter affidavit dated 17.9.2007, producing Exts.R1(h) to R1(l), showing the calculation of the Net Present Value (NPV) of the revised bids submitted by the appellant and the 2[nd] respondent. The 2[nd] respondent GSL also filed a counter affidavit dated 4.9.2007 and also an additional affidavit dated 19.9.2007, supporting the decision of the 1[st] respondent in its favour. The appellant filed a reply affidavit, dealing with the averments in the above said affidavits of respondents 1 and 2 and produced Exts.P11 to P15, apparently to explain some of the averments in that affidavit. The 1[st] respondent filed an affidavit, styling it as a reply affidavit, on 8.10.2007. 8. The learned single Judge, after hearing both sides, dismissed the writ petition. It was found that the decision to go for a fresh tender was taken validly, based on the recommendation of the PNC. It was also found that the tenders of both the parties were not strictly in accordance with the tender conditions. Deviations were tolerated in both the cases. So, the WA 152/2008 8 learned Judge held that the appellant, who was the beneficiary of the accommodation of deviation, cannot turn round and challenge the very same benefit extended to the 2[nd] respondent. It was also found that it is not in public interest to interfere with the award of contract, which has already been made in favour of the 2[nd] respondent. 9. We heard Sri.Ravi Kadam, learned senior counsel for the appellant, Sri.A.M. Shaffique, learned senior counsel for the 1[st] respondent and also Sri.Tom K.Thomas, learned counsel for the 2[nd] respondent. The appellant challenges the decision of the learned single Judge on several grounds. It attacks not only the legality of the decision of the 1[st] respondent not to accept its tender and go for a fresh tender, but also the decision to accept the bid of the 2[nd] respondent as L1. But, we notice from the prayers in the writ petition, which was filed on 9.4.2007, that the appellant only challenged the decision to go for re-tender as per Ext.P4. It is true that this Court ordered that the award of contract will be subject to the final orders in the writ petition. If Ext.P4 decision to go for re-tender is quashed by this Court, needless to say, all subsequent proceedings including the award of contract in favour of the 2[nd] respondent, the execution of the contract with it etc., being dependent proceedings, will also collapse. But, if we uphold the validity of Ext.P4, then, in the absence of any challenge to the decision WA 152/2008 9 of the PNC dated 20.4.2007, the issuance of the letter of intent in favour of the 2[nd] respondent on 19.6.2007 and the execution of the contract with it on 7.8.2007 cannot be interfered with. Rule 155 of the Kerala High Court Rules reads as follows: “155. New ground or relief not to be raised:--No ground shall be relied upon and no relief sought at the hearing except the grounds taken and reliefs sought in the Original Petition and the accompanying affidavit: Provided that the Court may, at the hearing allow the said petition and affidavit to be amended upon such terms as to costs or otherwise as the Court thinks fit.” In view of the above Rule, this Court cannot grant any relief, which is not sought in an Original Petition [now re-named as Writ Petition (Civil)]. Before final hearing of the writ petition, the subsequent developments were pleaded by respondents 1 and 2 and the material documents were also produced. But, the appellant has chosen not to amend the writ petition, challenging the adverse decisions/orders passed against it after 9.4.2007, the date on which the writ petition was filed. Even at the appellate stage, no motion was made for amending the prayers in the writ petition. If such a motion was made, whether it could have been granted or not, is an entirely different question. So, in the absence of any challenge to the subsequent proceedings, the court cannot go into the validity of the said proceedings. WA 152/2008 10 Therefore, we are not referring to the vast mass of pleadings and contentions of both the parties concerning the subsequent developments. We will confine ourselves to the tenability of the challenge made against Ext.P4. 10. At this stage, it is unnecessary to go into the allegations and counter allegations regarding the happenings before the submission of the first price bid by the appellant on 27.11.2006. As stated earlier, the price bids were opened on 4.12.2006 and admittedly, the appellant was the L1 bidder. The PNC met on 19.12.2006. In that committee the Senior Officers of the 1[st] respondent and also a representative of the Indian Navy, who was also representing the Ministry of Defence, were present. The four representatives of the appellant Larsen and Toubro Ltd., were also allowed to participate in the meeting and present their case. After evaluating the price bids, the committee decided as follows: “Since L&T did not explain how the quoted price is arrived to ascertain price reasonableness, the Chairman of PNC requested L&T to review and offer reasonable reduction in their quoted price and revert with proper justification within a period of seven days.” The PNC again met on 20.2.2007. In that committee, apart from senior officials of the CSL, the representatives of the Ministry of Defence and Indian Navy were present. Four officers including the General Manager of WA 152/2008 11 the appellant were also present in the meeting. The recommendation of the PNC dated 20.2.2007 reads as follows: “7. PNC observed that M/s L&T was unable to convince the reasonableness of the quoted price and the price of the B&D spares are also high compared to the price of base equipment. M/s L&T has also expressed inability to reduce the price nor justify the reasonableness of quote and convince PNC even after repeated requests. 8. Further, PNC is of the considered view that it would be more prudent to place the order for the OEM recommended OBS as well as the long lead and costly B&D spares, namely tail shaft and three propeller blades each of port and starboard propellers, along with the main equipment. This would bring in large savings to the exchequer. Hence PNC unanimously recommends to re-tender and request both bidders M/s L&T and M/s GSL for a revised reduced price bid including the spares as above, without any change in the techno-commercial requirements. Comparison for determining L1 is to be carried out including the above spares. In the revised bid the suppliers shall quote for main equipment. Installation and commissioning spares & tools, OEM recommended Onboard spares/tools for 2 years service and long lead spare items, namely blades (3 each for Port and Stbd propellers) and one spare tail shaft.” We notice that the above decision is the decision of a high level committee. It is not a decision of the 1[st] respondent alone. Going by the reasons given by the Committee, we are of the view that they cannot be described as irrational or irrelevant. Taking into account all relevant factors, the Committee felt that the price quoted by the appellant is on the higher side and recommended not to accept it. The 1[st] respondent accepted the said WA 152/2008 12 recommendation and issued Ext.P4 communication, which is impugned in the writ petition. We are called upon to decide the validity of Ext.P4, in the light of the above quoted PNC minutes [Ext.R1(f)]. 11. The learned senior counsel appearing for the appellant, in support of his submissions in the appeal, relied on the decisions of the Apex Court in **R.D.Shetty v. International Airport Authority** [(1979)3 SCC 489], **Ram Gajadhar Nishad v. State of U.P.** [(1990)2 SCC 486], **Monarch Infrastructure (P) Ltd. v. Commr., Ulhasnagar Municipal Corpn** . [(2000)5 SCC 287], **W.B.State Electricity Board v. Patel Engineering Co.** [(2001)2 SCC 451], **B.S.N.Joshi & Sons Ltd. v. Nair Coal Services Ltd** . [(2006)11 SCC 548] and **Reliance Energy Ltd. v. Maharashtra State Road Development Corpn. Ltd** . [(2007)8 SCC 1]. The learned senior counsel for the 1[st] respondent relied on the decisions of the Apex Court in **B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd** . [(2006)11 SCC 548] and **Air India Ltd. v. Cochin International Airport Ltd** . [(2000)2 SCC 617]. The above decisions lay down the general principles governing award of contract and caution against discrimination. Those decisions were cited in the context of the attack against the subsequent actions of the 1[st] respondent, taken during the pendency of the writ petition. WA 152/2008 13 While considering the validity of Ext.P4, of course, the general principles laid down by the Apex Court concerning award of contract in the above decisions, will illumine our path. But, we notice that it is a well settled position in law that the lowest bidder need not necessarily be awarded the contract. For valid reasons, his bid can be rejected. So, in this case, we are concerned with the question whether the decision of the 1[st] respondent to go for a fresh tender is valid and whether the decision making process suffers from any infirmity. 12. We notice that the appellant has raised a contention that the 1[st] respondent was always inclined to favour the 2[nd] respondent and every action from its part was vitiated by bias in favour of the 2[nd] respondent. The said allegation has been emphatically denied by the 1[st] respondent in its affidavits. We notice that there is no material on record to find that the decision of the 1[st] respondent to accept the recommendation of the PNC and to go for a fresh tender is vitiated by mala fides. Normally, the CSL is liable to accept the decision of a high level committee, like the PNC, in which the representatives of the Ministry of Defence and Indian Navy were also present. We notice that the appellant was given an opportunity to represent and also participate in the deliberations of the committee before the final adverse decision was taken against it. So, we are of the view that there is no WA 152/2008 14 flaw in the decision making process. But, the appellant would point out that it had submitted Ext.P13 letter dated 12.2.2007, substantially reducing the price bid made by it. But, the same was not taken into account while Ext.R1 (f) decision of the PNC dated 20.2.2007 was taken. Dealing with the said contention, the 1[st] respondent in its affidavit dated 8.10.2007 has stated that the offer made as per Ext.P13 was a conditional offer with the following stipulation: “The prices indicated at the mentioned appendices are valid, if the order placement of the spares is done along with the main equipment.” In view of the above condition, the 1[st] respondent would submit that the offer under Ext.P13 could not have been taken into account, unless the terms of the tender were modified. So, the above quoted condition being contrary to the terms of the tender, the same was not taken into account. We notice that there is no answer to the above averment of the 1[st] respondent in the affidavit filed by the appellant. So, the only probable flaw in the decision making process of not taking into account Ext.P13, has also been satisfactorily answered by the 1[st] respondent. Since the appellant has failed to explain the high price offered and also failed to reduce it, we find nothing illegal or irrational with the decision of the PNC dated 20.2.2007 and the consequential decision of the 1[st] respondent contained in Ext.P4. WA 152/2008 15 So, the decision to go for a fresh tender was made, relying on valid and relevant grounds. We find nothing wrong with the decision making process also. This Court not being constituted as an appellate authority over the decision of the 1[st] respondent, should keep its hands off, once it is found that the decision has been arrived at after following a fair procedure and also adverting to all relevant matters. Since we have already found that the appellant's price bid made on 27.11.2006 was validly rejected, it is not entitled to get any reliefs. Since we have upheld Ext.P4, as mentioned earlier, in the absence of any challenge against the subsequent decision of the PNC in favour of the 2[nd] respondent and the award of contract in its favour, we are not justified in going into the validity of those proceedings, based on the averments in the reply affidavits or the grounds raised in the appeal memorandum. We have not referred to in detail the decisions cited on behalf of the appellant and the arguments addressed based on them, to attack the decision of the 1[st] respondent, taken during the pendency of the writ petition, to treat the 2[nd] respondent as the L1 bidder, as there is no challenge to it in the writ petition. We agree with the reasons and conclusions of the learned single Judge, concerning the validity of Ext.P4. In the result, the Writ Appeal fails WA 152/2008 16 and it is accordingly dismissed. No costs. **K.BALAKRISHNAN NAIR, JUDGE** . **P.N.RAVINDRAN, JUDGE** . Nm/