Madhya Pradesh High Court
M/S Holoflex Ltd. (A Company Regisred ... vs The State Of Madhya Pradesh on 27 September, 2017
Bench: Sanjay Yadav, S.K. Awasthi
1 WP.7866.2016
HIGH COURT OF MADHYA PRADESH
BENCH AT GWALIOR
DIVISION BENCH:
HON'BLE SHRI JUSTICE SANJAY YADAV
&
HON'BLE SHRI JUSTICE S.K. AWASTHI
WRIT PETITION No.7866 OF 2016
M/s Holoflex Ltd. (A Company Registered under Indian
Companies Act, 1956) through its Director
Shri Pancham Kumar Surana
Vs.
State of Madhya Pradesh and others
Shri R.N. Singh, learned Senior Advocate with Shri
Ankur Maheshwari and Shri Akshay Pawar, learned
counsel for the petitioner.
Shri Purushendra Kaurav, learned Advocate General
with Shri Pushpendra Yadav, learned Dy Advocate
General for respondents No.1, 2 and 2A.
Shri V. Shekhar, learned Senior Advocate with Shri
Prabal Solanki, learned counsel for respondent No.3.
Shri Arun Sinha and Shri Amin Khan, learned counsel
for respondents No.4.
Whether approved for reporting : Yes/No
2 WP.7866.2016
ORDER
(27/09/2017) Per Justice Sanjay Yadav:
Irked by two pre-qualifications in NIT No.5(2)2016- 17-001 dated 08.06.2016 issued from the office of Commissioner, Excise (M.P.) inviting tender for production and supply of security holograms, namely, (1) The tenderer should have an annual turnover of not less than Rs.40 Crores for the preceding three years.
The audited annual Report for the year 2012-13, 2013- 14 and 2014-15 should be attached; and (2) The tenderer should have minimum Net worth of Rs.30 Crores as on 31.03.2015. The audited annual Report for the year 2014-15 should be attached. Explanation: For the purpose of this clause Net worth means as defined under Companies Act, 1956. The petitioner filed a writ petition bearing number WP.4448/2016 seeking quashment of the aforesaid conditions in the notice inviting tender on the allegations that impugned terms and conditions are tailor made to favour few tenderer, more particularly, respondents No.3 and 4. The challenge to these conditions was negatived however the petition was disposed of by order dated 06.09.2016. That while deciding the writ petition, the Division Bench formulated five issues, namely:
"(i) whether the impugned tender conditions are irrational, arbitrary, violative of Article 14 and are tailor-made to suit the respondents No.3 and 4;
(ii) whether impugned tender conditions are against the object of creating a level playing field and contrary to public policy and public interest;
3 WP.7866.2016
(iii) whether the conditions contained in impugned Notice Inviting Tender are contrary to the guidelines issued by Central Vigilance Commission;
(iv) whether insertion of impugned tender conditions leads to formation of cartel, which is against public policy;
(v) whether respondents No.3 and 4 are separate legal entities. We shall now proceed to deal with the issues ad seriatum."
(2) In respect of Issues No.4 and 5, the Division Bench observed:
"34. Now we may deal with the issue relating to formation of cartel. It is pertinent to mention here that at this stage, the financial bid is not opened, therefore, we are afraid that at this stage the contention of the petitioners that the respondents No.3 and 4 have formed a cartel cannot be examined and the same can be examined after opening of the financial bids. Therefore, at this stage, we refrain ourselves from expressing any opinion on this issue. Accordingly, issue no. (iv) is answered.
35. We may advert to issue no.(v), namely, whether the respondents No.3 and 4 are separate legal entities. Section 2(6) of the Act defines the expression 'associate company', whereas section 2(87) of the Act defines the expression 'subsidiary company'. For the facility of reference, section 2(6) and section 2(87) of the Act are reproduced below:-
"2(6) "associate company", in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company.
2(87) "subsidiary company" or "subsidiary",
4 WP.7866.2016 in relation to any other company (that is to say the holding company), means a company in which the holding company--
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one- half of the total share capital either at its own or together with one of more of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed. Explanation.-- For the purpose of this clause,--
(a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;
(b) the composition of a company's Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors;
(c) the expression "company" includes any body corporate;
(d) "layer" in relation to a holding company means its subsidiary or subsidiaries."
Admittedly, the respondent No.4 holds only 3.05% shares in the respondent No.3 company, therefore, the respondent No.3 can neither be termed as associate company nor subsidiary company, as provided under sections 2(6) and 2(87) of the Act. Section 186 of the Act enable the 5 WP.7866.2016 company to take loan and make investment. Therefore, if there are certain business transactions between the respondents No.3 and 4, no inference can be drawn that the respondents No.3 and 4 are not distinct legal entities.
36. Besides that, it is pertinent to mention that in the annual report of 2013-2014 of respondent No.3, names of subsidiary companies of respondent No.3 have been mentioned in which the name of respondent No.4 does not find place. The respondent No.3 has a factory at Noida as well which is evident from the annual report of 2013- 2014. The Board of Directors of respondent No.3 consists of the Directors, namely, (i) Mr. Ashok Chaturvedi, Chairman and Managing Director, (ii) Mr. Ravi Kathpalia, (iii) Mr. M.G.Gupta, (iv) Mr. Achintya Kartiati, (v) Mr. Vijay Kumar Gupta, and
(vi) Mr. H.K.Kaushik, whereas respondent No.4 company has two Directors, namely, Mr. M.G.Gupta, who is different from the Director in respondent No.3 company, and another Director, who is not the Director in the respondent No.3 company. Thus, it is evident that the Board of Directors of respondents No.3 and 4 are different and respondents No.3 and 4 are separate legal entities. Accordingly, issue no. (v) is answered.
40. So far as submission that financial assistance was given by respondent No.3 to respondent No.5 to enable it to participate in the process of tender, to make the tender look competitive is concerned, the same also does not deserve acceptance as certain amount was paid to respondent No.5 under a consultancy agreement, Annexure R-3-4. We refrain from expressing our opinion with regard to effect of annexing document of respondent No.4 by respondent No.3 as the effect of same has to be dealt with by tender scrutiny committee."
(3) Since during the course of hearing as the learned Advocate General gave an undertaking that grievance raised by the petitioners would be looked into by the Commissioner, Excise (M.P.) if a representation is filed, led the Division Bench pass the following order:
6 WP.7866.2016 "42. Learned Advocate General has taken a specific stand that in case the petitioners have any grievance, they can approach the Excise Commissioner with regard to their grievance. In view of the aforesaid statement by learned Advocate General, the liberty is granted to the petitioners to approach the Excise Commissioner with regard to their grievance, if any. Needless to state that if the petitioners approach the Excise Commissioner with regard to their grievance, the Excise Commissioner shall take appropriate action on the complaint if any, which may be submitted by the petitioners. We trust and hope that the Excise Commissioner as well as the tender committee shall act with utmost objectivity while dealing with the evaluation of the tenders and shall bear in mind that public interest as well as public exchequer is of paramount consideration while awarding the contract. In case the tender committee comes to the conclusion that the respondents No.3 and 4 have formed any cartel, an appropriate action shall be taken in accordance with the terms and conditions of the Notice Inviting Tender including Clause 37 of the Notice Inviting Tender, which empowers the Excise Commissioner to reject all or any of the tenders."
(4) It is pertinent to note that the order passed in WP.4448/2016 was challenged before the Supreme Court vide Special Leave to Appeal (C) No.26550/2016 which was dismissed on 09.09.2016. Thus, that the dismissal of SLP led to confirmation of findings qua Issues No.4 and 5.
(5) Petitioner invoked the liberty granted in the writ petition and filed a representation before the Commissioner, Excise (M.P.) alleging cartelization by respondents No.3 and 4. To substantiate the contentions, petitioner raised three grounds, namely, that both respondent No.3 and 4 are situated in the same premises and that short term lease has been executed in favour of respondent No.3 and that 7 WP.7866.2016 respondent No.3 has a financial support of seven shareholders. The Commissioner, Excise (M.P.) after affording an opportunity of hearing negatived the allegations by order passed on 08.11.2016. This order is the cause for present writ petition. Besides seeking quashment of the impugned order dated 08.11.2016, the petitioner also seeks quashment of award of tender made in favour of respondent No.3 and a direction to respondents No.2 and 2A to examine the alleged nexus between respondents No.3 and 4 and cancel the tender as per Clause 37 of NIT.
(6) The entire submissions made on behalf of the petitioner centred around alleged cartelization by respondents No.3 and 4. This is also reflected from the written submissions. It is contended that the respondent No.4 was running its manufacturing unit in the premises leased out by the respondent No.3 on 11 months short term renewable lease. It is also contended that respondent No.4 has invested in 7 companies which are the promoter group of companies of respondent No.3. It is further contended that respondent No.4 provided unsecured loan of Rs.30 Crores by respondent No.3 for business purposes. It is urged that neither the Tender Scrutiny Committee nor the Excise Commissioner examined the alleged nexus between respondents No.3 and 4. It is alleged that the Commissioner Excise consciously omitted to give a finding on the issue of respondent No.4 running its factory in the leased premises of respondent No.3 and the respondent No.4 being a major investor in 7 promoter group of companies of respondent No.3. It is contended that the Commissioner, Excise has glossed 8 WP.7866.2016 over the fact that respondent No.4 who has been an unsecured creditor and lessee of respondent No.3 is at all in a position to offer any competition to respondent No.3. It is contended that the allegations with regard to procurement of entire raw material, plant and machinery by the respondent No.4 from respondent No.3 also has not been examined by the Excise commissioner. In nutshell, it is urged that since respondent No.4 was not in a position to offer competitive rates when its lender, supplier and premise owner was the only other qualified bidder leads to inevitable conclusion that there existed close nexus and common mutual interest of respondents No.3 and 4 which indicates that they cartelized for bidding against NIT dated 08.06.2016, which vitiated the entire bid process which was sham. It is further contended that the difference of price bid by respondent No.3 and 4 being nominal also indicated the intimate business ties between the two. Thus, it was alleged cartelization by respondents No.3 and 4 which led the petitioner question the tender. Be it noted that initially the petitioner had challenged two tender conditions, viz. (i) The tenderer should have an annual turnover of not less than Rs.40 Crores for the preceding three years. The audited annual Report for the year 2012-13, 2013-14 and 2014-15 should be attached; and (ii) The tenderer should have minimum Net worth of Rs.30 Crores as on 31.03.2015. The audited annual Report for the year 2014-15 should be attached. Explanation: For the purpose of this clause Net worth means as defined under Companies Act, 1956, on the ground that they are tailor made and though the Division Bench had declined 9 WP.7866.2016 to entertain the challenge by negativing the contentions. But taking into consideration the undertaking given by learned Advocate General, the petitioner was given the liberty to raise the objection before Excise Commissioner before whom the petitioner only confined to cartelization and not to the said two conditions. Be that as it may, the petitioner has carried his challenge to the tender process on the ground of cartelization and seeks quashment of entire tender process and the contract granted in favour of respondent No.3.
(7) State has opposed the relief sought by the petitioner. Learned Advocate General appearing for the State has to submit that the petitioner being not eligible and the writ petition WP.4448/2016 filed by him against the terms and conditions in the NIT having been negatived the petitioner cannot be permitted to rack up the issue through backdoor under the garb of cartelization. It is urged that if the petitioner had any grievance in respect of the cartelization by respondents No.3 and 4 he was at liberty to have taken recourse to the remedy under the Competition Act, 2002 which is an Act which provides for the establishment of a Commission to prevent practices having adverse effect on the competition. Taking us through the definition of 'Cartel' under Section 2(c) and Section 3 which envisages anti-competitive agreements of the Act of 2002, it is contended that the same having been dwelt upon elaborately by the Division Bench in Writ Petition 4448/2016, the petitioner cannot be allowed to reopen the issue. It is further contended that Division Bench in said writ petition while dwelling on issue (iv) relating to 10 WP.7866.2016 cartelization though refrained from expressing any opinion as the financial bid was not open. But while dwelling on issue no.(v) found that Board of Directors of respondent No.3 and 4 are different and respondents No.3 and 4 are separate legal entities. It is urged that the Division Bench in WP.4448/2016 in paragraph 40 of the decision negatived petitioner's submission that financial assistance was given by respondent No.3 to respondent No.4 (stated as respondent No.5) to participate in tender process. These findings having attained finality with the dismissal of the Special Leave Petition in the Supreme Court cannot again be raked up. On these contentions, State of Madhya Pradesh seeks dismissal of the petition.
(8) On behalf of respondent No.3, it is urged that the petitioner has no locus standi as he was not eligible to participate in the tender proceedings and the challenge to the tender condition which led the petitioners ousted from the contest having been negatived, the petitioner cannot be permitted now to challenge the award of contract on the ground of cartelization. It is urged that even the facts on the basis whereof the petitioner alleges cartelization were duly considered by the Division Bench in WP.4448/2016 while dwelling on issue no.(v). It is further contended that the Commissioner, Excise was well within its right in rejecting the representation. And the respondent No.3 having been awarded the contract for manufacture and supply of security holograms on 24.11.2016, during the span till 20.09.2017 has spent Rs.556.19 lacs against installation of factory at Bhopal with 55 employees with yearly expenditure of Rs.6.39 crore and has supplied 112.33 11 WP.7866.2016 crore security holograms till 31.07.2017. It is urged that in this fact situation, no indulgence is warranted at the instance of the petitioner who was not eligible nor could establish that the respondent No.3 and 4 have formed the cartel to rig the bid.
(9) Respondent No.4 on his turn has also denied of having formed the cartel with respondent No.3. It is urged that being an independent entity its business is not controlled nor governed by respondent No.3 concert and vice versa. It is contended that the petition deserves to be dismissed.
(10) Considered rival submission.
(11) It is a matter of record that earlier it was the petitioner who was having the contract of manufacture of holograms in the year 2008, 2011 and 2014. That in the year 2016, six new non master origination features were introduced, viz, (i) hidden text with colour changing background (ii) mirror with hidden text and colour changing background (iii) taggante effect (iv) chemical etching (v) UV numbering and (vi) SMS features. With an addition of these, with the introduction of these six new features, it was the terms and conditions of technical bid that the tenderer should have licensed manufacturing facility including the master organization facility in India, all under one roof. It was also the condition that the security hologram manufacturing was to be under the departmental supervision which warranted capital investment, because the manufacturing plaint was to be set up under departmental set up afresh, which postulated sound capital back up and to ensure the same two conditions were laid down in the NIT, viz: (i) The 12 WP.7866.2016 tenderer should have an annual turnover of not less than Rs.40 Crores for the preceding three years. The audited annual Report for the year 2012-13, 2013-14 and 2014-15 should be attached; and (ii) The tenderer should have minimum Net worth of Rs.30 Crores as on 31.03.2015. The audited annual Report for the year 2014-15 should be attached.
(12) Petitioner was unsuccessful in his challenge to these two conditions in W.P.4448/2016. However, as the petitioner had alleged the rigging of bid by respondent No.3 and 4 by forming a cartel because of the concession by learned Advocate General the petitioner was given the opportunity to file representation. The representation filed by the petitioner met with the rejection order impugned herein.
(13) Evidently, the only grievance raised by the petitioner before the Commissioner, Excise was that the respondents No.3 and 4 have formed a cartel and rigged the bid. The Commissioner duly considered the same and found that even tender committee had considered the same while examining the respective bids by respondents No.3 and 4. The Commissioner observed:
"4. That, it is also pertinent to mention here that as per the report of the Tender Committee financial bid was opened on 5/11/2016 and after opening of financial bid, it reveals that M/s Montage has quoted 32.5 paisa per hologram, whereas M/s Uflex has quoted 30.89 paisa per hologram. If the entire matter is further analyzed vis-a-vis financial bid which was opened in 2008, 2011 & 2014, it is clear that earlier financial bids were finally concluded in your favour with i.e. 24 paisa per hologram in year 2014 and 17 paisa per hologram in the year 2011 & 07 paisa per hologram in the year 13 WP.7866.2016 2008 Hence there is increase of only 6.8 paisa per hologram to the present tender from last tender of 2014. The Tender Committee has found the aforesaid increase rational in view of the fact that as per NIT condition, successful bidder is required to open factory under the supervision of State Government. Hence successful bidder is required to invest handsome money to fulfill contractual obligations. Six new non master origination features i.e.:- 1. Hidden Text With colour changing background. 2. Mirror with hidden text and colour changing background. 3. Taggant effect. 4. Chemical etching 5. UV numbering 6. SMS features are added in the present NIT. Hence from the analysis of above it is clear that in public interest various safety measures/factors have also been added. In these circumstances, enhancement in the price bid as compared to last NIT has been found to be just, proper and reasonable. In these circumstances, the Committee has found the allegation of cartelization to be incorrect.
(14) Though it is contended on behalf of the petitioner that the Commissioner has not considered the aspect of financial interest shared between respondents No.3 and 4; however careful reading of the order by Commissioner dispels the said contention. The Commissioner found:
3. That, the aforesaid representations were examined by the undersigned in detail and at the very outset, it is relevant to mention that prayer made for decision of representation prior to opening of financial bid is contrary to observation made by Hon'ble High Court while deciding Writ Petition No.4448/2016, wherein Hon'ble Court in Para 23 has formulated two questions which are as under:-
(iv) Whether insertion of impugned tender condition leads to formation of cartel which is against public policy?
14 WP.7866.2016
(v) Whether respondent No.3 & 4 are separate entities?
That while answering to the issue framed, the Hon'ble Court, more specifically answer to (iv) in para 34 of the judgment in which Honorable high court has observed as under:-
"34. Now we may deal with the issue relating to formation of cartel. It is pertinent to mention here that at this stage, the financial bid is not opened, therefore, we are afraid that at this stage the contention of the petitioners that the respondents No.3 and 4 have formed a cartel cannot be examined and the same can be examined after opening of the financial bids. Therefore, at this stage, we refrain ourselves from expressing any opinion on this issue.
Accordingly, issue no. (iv) is answered.
On the aforesaid backdrop, it is clear that contention raised in the representation which is mainly based upon cartelization of M/s Montage and M/s Uflex that opening of financial bid may be done after disposal of instant applications is meaningless and in fact if the issue of representations is decided prior to opening of financial bids then same will be against the spirit/observation of order passed by the Hon'ble High Court in Para 34 of the judgment."
(15) These are findings of fact arrived at by the Commissioner on the basis of record available with him and the findings by the Division Bench in WP.4448/2016 which in absence of any cogent material documentary evidence of establishing that the financial interests are co-shared by respondents No.3 and 4 deserves to be 15 WP.7866.2016 dispelled. Further as the petitioner was not eligible to participate in the tender proceedings has no locus standi to question the contract awarded in favour of respondent No.3.
(16) Consequently, the petition fails and is dismissed.
(Sanjay Yadav) (S.K. Awasthi)
Judge Judge
(27/09/2017) (27/09/2017)
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