Calcutta High Court (Appellete Side)
Cms Computers India Private Limited & ... vs Union Of India And Ors on 22 August, 2024
Author: Shampa Sarkar
Bench: Shampa Sarkar
F.J(2)
S. Biswas
IN THE HIGH COURT AT CALCUTTA
CONSTITUTIONAL WRIT JURISDICTION
APPELLATE SIDE
PRESENT :
THE HON'BLE JUSTICE SHAMPA SARKAR
W.P.A. NO. 19107 of 2024
CMS Computers India Private Limited & another.
-vs.-
Union of India and Ors.
FOR THE PETITIONERS : Mr. Arindam Chattopadhyay,
Ms. Lipika Chatterjee,
Mr. Subhomoy Paul
Mr. Soumik Dey
Ms. Tapati Saha
FOR THE UNION OF INDIA: Mr. Atarup Banerjee
Mr. Srikumar Chakraborty
FOR THE RESPONDENT NO.4: Mr. Arnab Sardar
Ms. Lavanya B. Ananth
HEARD ON : 22.08.2024
JUDGMENT ON : 22.08.2024
SHAMPA SARKAR, J. :
1. The petitioner no.1 is the resulting company and the petitioner No.2 is the demerged company, incorporated by a scheme of demerger under the provisions of the Companies Act, 2013 pursuant to an order passed by the National Company Law Tribunal, Mumbai. The scheme of arrangement between the petitioner no.1 and the petitioner no.2 was 2 sanctioned by the order of the NCLT, Mumbai dated August 4, 2023. As per the order, the appointed date was April 1, 2022. The petitioner no.2 participated in the Limited Tender bearing No.2023_MCI_741539_1(REP No.EIII/64(6)/ Revamp/2021), in February 2023. The tendering authority, upon examination of the bids and the certified copy of the scheme approved by the NCLT, found that the E-governance business, software solution services, digital services, analytics and cloud, datacenter, information security and IT related services of the demerged company had been transferred to the resulting company. It was detected that the demerged company no longer provided the services desired under the limited tender and did not fulfill the terms and conditions of the tender. The tender was also non-transferable as per the Request for Proposal (RFP). The decision of the authority, i.e., Directorate General of Commercial Intelligence and Statistics (DGCI&S), to cancel the bid of CMS Computers Limited i.e. the petitioner no.2, is under challenge.
2. The learned advocate for the petitioners submits that till the effective date, all assets, bids, bonds, contracts, agreements, schemes, arrangements and other instruments of whatever nature which were in possession of the demerged undertaking, would be owned by the said demerged company.
3. Thus, once the demerged company put in its bid sometime in February 2023, the services of E-governance, software, and IT related works etc. were retained with the demerged company and the demerged 3 company would satisfy the eligibility criteria. Reference in this regard is made to Clause 5.7 of the scheme.
4. It is next contended that the authorities were themselves confused as to the requirements for fulfilment of the eligibility criteria. Reference is made to a communication received from the tendering authority. The authority informed the petitioner No.2 that the process of demerger was unclear to them. In the absence of apportionment of the balance-sheet of the two companies, the claim of the demerged company of having met the financial criteria, could not be clarified by its legal adviser.
5. Mr. Chattopadhyay further submits that when the authority was confused, the petitioners should have been allowed to further clarify the situation and explain the chronological sequence of the demerger.
6. Reliance has been placed on the decision of this court in the matter of Medium Packaging Pvt. Ltd. Vs. Indian Oil Corporation Limited & Ors., passed in W.P. No.1591 (W) of 2019.
7. Mr. Banerjee, learned advocate representing the tendering authority, submits that the eligibility criteria as per Clause 2.4 of the RFP were not satisfied by the demerged company. The short listed bidder had to continue to meet the eligibility criteria as prescribed in the expression of interest, till the award of contract. The bidders were required to declare their continued fulfillment of the eligibility criteria in Annexure-C and provide evidence of the same to the tendering authority, if asked for.
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8. Referring to the eligibility criteria, it is submitted that the bidders were required to have an annual turnover of INR 200 crores from IT, ITES and other IT related services in the preceding three financial years, i.e., 2020-21, 2019-20 and 2018-19 and should not have incurred loss during the said period. The technical qualifications required relevant experience in execution of integrated software projects involving complex business processes or experience in application development projects of similar nature, in the preceding five years.
9. According to Mr. Banerjee, in the letter of intimation of the demerger dated April 30, 2024, the petitioner No.2 requested that audited financials of the demerged company and the audited financials of the resulting company, should be considered together in support of fulfillment of the financial eligibility criteria.
10. The date of demerger, according to the petitioners was October 20, 2023. The authority had a pre-bid meeting on December 5, 2023 and the technical bid was opened on December 12, 2023. All this time the petitioner No.2 was aware of the consequences of demerger and the fact that the eligibility criteria was not fulfilled.
11. According to the tendering authority, the participant did not fulfill the eligibility criteria as the E-governance and IT related works had been transferred to the resulting company.
12. Learned advocate for the selected L1 bidder submits that as per the order of the NCLT, Mumbai, the appointed date was April 1, 2022. 5 The petitioner No.2 could not satisfy the tendering authority about the fulfillment of the technical eligibility as prescribed in the ROP. Not only was the bidder required to have an average turnover of INR 200 crores from IT related works in the last three financial years, the bidder also, should not have incurred loss in the last three years. The relevant experience in executing the integrated IT related project for the last five years was also an essential criterion.
13. Heard the learned advocates for the respective parties.
14. Clause 2.4 talks about the continued eligibility which is stated hereunder:-
"a)The shortlisted bidder must continue to meet the eligibility criteria prescribed in the EOI document (based inter-alia on which they were shortlisted) and should continue to meet these till the award of the contract. Bidders shall be required to declare continued fulfillment of Eligibility Criteria in Annexure C:
'Minimum Eligibility Criteria'. Bidders must provide evidence of their continued eligibility to DGCI&S if requested."
15. The petitioners were unable to satisfy the authorities that till the bid was opened, the participant/bidder continued to fulfill the eligibility criteria, which appears at page 121 of the writ petition and is quoted below:
"c) The bidder should have average annual turnover of INR 200 crores from IT/ITeS and other IT related services (excluding sale of hardware) in the last three financial years viz.2020-212, 2019-20 and 2018-19 and should not have incurred loss in last three (03) financial years."6
16. It appears from the letter written to the authority by the petitioner No.2 that in order to meet the eligibility criteria, the audited financials of both the resulting company and the demerged company should be taken into consideration. This was contrary to Clause 2.4 where the continued eligibility was to be demonstrated by the bidder (petitioner No.2) upto the stage of award of contract.
17. It appears that the ROP clearly mentioned that the bid was non- transferable, meaning thereby, the bidder who had submitted the expression of interest would have to continue to fulfill each and every eligibility criteria till the date the contract would be awarded. As per the assessment of the tendering authority, such criteria were not fulfilled. The authority informed the petitioners of such non-compliance by an email dated June 10, 2024 and thereafter by a letter dated July 10, 2024. In the email dated June 10, 2024, the authority informed the petitioner No.2 that upon thorough consideration and examination of the documents submitted, the authority was not convinced by the answers and clarifications of the legal adviser and representative. The chronology of the demerger of the original company and the subsequent processes followed were not clear. Moreover, the absence of apportioned balance sheet of the two companies caused further ambiguity and the legal adviser could not satisfy the authority as to whether the participating bidder had fulfilled the financial criteria and would continue to fulfill the financial criteria even after the demerger. The bidding process was not 7 concluded when all such clarifications and queries were being raised and the petitioners were afforded opportunities to explain.
18. Moreover, the ROP clearly mentioned that the bid was not transferable. Thus, the request of the petitioners to consider the balance-sheet of the two companies in support of their claim of having met the financial eligibility criteria, was not accepted by the authority. The resulting company, according to the authority, was to be considered as a separate entity as the demerger had taken place before the technical bid was opened. As the demerged company had come into existence as a separate company even before the pre-bid meeting, the authority decided to treat the demerged company as separate and distinct, with its own identity, different from the resulting company.
19. By a letter dated July 10, 2024 the Assistant Director of the Head Office, DGCI & S, informed the Chief Executive Officer of CMS Computers India Private Limited, i.e., the resulting company that as the participant was the demerged company and under the demerger scheme, the E-governance business, software solution services, digital services, analytics and cloud, datacenter etc. had been transferred to the resulting company, the demerged company no longer had the eligibility to provide the services as required under the limited tender. Although Mr. Chattopadhyay refers to clause 5.7 of the scheme, Clause 5.1 provides otherwise. Upon coming into effect of the scheme and with effect from the appointed date and subject to the provisions of the scheme, the 8 demerged undertakings of the demerged company as defined in Clause 1.6 of the scheme, without any further act, instrument or bid, were deemed have been transferred to or vested in the resulting company. Thus, from the appointed date i.e. April 1, 2022, the assets of the demerged company vested with the resulting company, which includes all the E-governance and IT related services and infrastructure. The authority rejected the bid of the petitioners also on such ground
20. The relevant clauses of the said scheme are quoted below:-
"1.6 "Demerged Undertaking" means the E-governance business, integrated traffic management services, smart city business, energy management services, technology support for broadcasting and media business, security surveillance and other related services carried on the by the Demerged Company which includes providing government services such as utility bills, certificates, landholding records, taxation and education, development of print module for land records, financial inclusion as BA with banks, online citizen services, G2C and B2C services, use of video analysis in high-sensitive criminal cases and digitization of various government offices, traffic management, Software solutions services, smart city and smart metering, energy Management services, media and broadcast and security surveillance, Digital services, Analytics & Cloud, Datacenter, Information Security & IT Services, Social Media and Customer experience solutions, AR/VR, AI/ML solutions, Cloud migration and Cloud data center set up, operations, application maintenance and management, SaaS solutions and such other activities as identified by the Board, including all assets, contracts, licenses, permits, all rights, title or interest in property(ies) by virtue of any court order / decree, approvals, permissions, and all other rights, titles, interests, contracts, purchase orders, investments, goodwill, consents, brand/IP ownership for all products/solutions, web site, social media handles, human resources, approvals or powers of every kind, nature and descriptions whatsoever, and shall be deemed to include.
*** *** 9 5.1. Upon coming into effect of this Scheme and with effect from the Appointed Date and subject to the provisions of this Scheme, the Demerged Undertaking of Demerged Company as defined in Clause 1.6 hereof, shall, without any further act, instrument f deed, be transferred to and vested in or be deemed to be transferred to and vested in Resulting Company, as a going concern, so as to vest in Resulting Company all the rights, title and interest of the Demerged Undertaking therein, sanctioning the Scheme, subject to subsisting chares and pleads, if any."
21. Under such circumstances, judicial review in this case is not warranted. The tendering committee had framed the terms and conditions as per its wisdom. The eligibility criteria have been framed in exercise of the right to select the best and most eligible bidder. It was entirely within the domain of the tendering authority whether to accept the bid or not. The scope of judicial review is microscopic. Unless sheer arbitrariness or favouritsm can be demonstrated from the action of the authority, the court of law should not interfere with the process.
22. Some decisions of the Hon'ble Apex Court are discussed herein below: In Jagdish Mandal v. State of Orissa, reported in (2007) 14 SCC 517, it was held that evaluation of tenders and award of contracts were essentially commercial functions. Principles of equity and natural justice stay at a distance. If the decision relating to award of contract was bona fide, courts should not interfere even if a case of procedural aberration or error in assessment or prejudice to a tenderer was made out. The power of judicial review could not be permitted to be invoked to protect private interest at the cost of public interest, or to decide contractual disputes. The tenderer or contractor with a grievance could 10 always seek damages in a civil court. Therefore, the Hon'ble Apex Court observed that before interfering in tenders or contractual matters in exercise of power of judicial review, the courts should pose to itself the following questions:
(i) Whether the process adopted or decision made by the authority was mala fide or intended to favour someone;
or Whether the process adopted or decision made was so arbitrary and irrational that the court could that: "the decision was such that no responsible authority acting reasonably and in accordance with relevant law, could have reached;
(ii) Whether public interest was affected.
If the answers are in the negative, there should be no interference under Article 226.
23. In the case in hand, all the above questions are answered in the negative.
24. The Hon'ble Apex Court in Maa Binda Express Carrier v. North East Frontier Railway, reported (2014)3 SCC 760 held that the terms and conditions of tenders were not open to judicial scrutiny, unless they were found to be tailor-made to benefit any particular tenderer or class of tenderers.
25. In Silppi Constructions Contractors v. Union of India, reported in 2019 SCC OnLine SC 1133, the Hon'ble Supreme Apex held as follows:
"20. The essence of the law laid down in the judgments referred to above is the exercise of restraint and caution; the need for overwhelming public interest to justify judicial intervention in matters of contract involving the state instrumentalities; the courts should give way to the opinion of the experts unless the decision is totally arbitrary or unreasonable; the court does not sit like a court of appeal over the appropriate authority; the court must realise 11 that the authority floating the tender is the best judge of its requirements and, therefore, the court's interference should be minimal. The authority which floats the contract or tender, and has authored the tender documents is the best judge as to how the documents have to be interpreted. If two interpretations are possible then the interpretation of the author must be accepted. The courts will only interfere to prevent arbitrariness, irrationality, bias, mala fides or perversity. With this approach in mind we shall deal with the present case."
26. In the matter of Airport Authority of India v. Centre for Aviation Policy, Safety & Research (CAPSR), reported in 2022 SCC OnLine SC 1334, the Hon'ble Apex Court held as follows:-
"27. Even otherwise, even on merits also, the High Court has erred in quashing and setting aside the eligibility criteria/tender conditions mentioned in the respective RFPs, while exercising the powers under Article 226 of the Constitution of India. As per the settled position of law, the terms and conditions of the Invitation to Tender are within the domain of the tenderer/tender making authority and are not open to judicial scrutiny, unless they are arbitrary, discriminatory or mala fide. As per the settled position of law, the terms of the Invitation to Tender are not open to judicial scrutiny, the same being in the realm of contract. The Government/tenderer/tender making authority must have a free hand in setting the terms of the tender."
27. In Michigan Rubber (India) Ltd. v. State of Karnataka, reported in (2012) 8 SCC 216, the Hon'ble Apex Court observed as follows:-
"(a) The basic requirement of Article 14 is fairness in action by the State, and non-arbitrariness in essence and substance is the heartbeat of fair play. These actions are amenable to the judicial review only to the extent that the State must act validly for a discernible reason and not whimsically for any ulterior purpose. If the State acts within the bounds of reasonableness, it would be legitimate to take into consideration the national priorities;
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(d) Certain preconditions or qualifications for tenders have to be laid down to ensure that the contractor has the capacity and the resources to successfully execute the work; and
(e) If the State or its instrumentalities act reasonably, fairly and in public interest in awarding contract, here again, interference by court is very restrictive since no person can claim a fundamental right to carry on business with the Government."
In the case in hand, the authority was not convinced that the demerged company had the capacity and resources to successfully execute the work. The proposal of the work was to leverage the state of the art technologies to revamp and modernize the entire IT system of DGCI & S. Thus, the transfer of IT related services to the resulting company was a reasonable ground to reject the bid of the demerged company.
28. In Afcons Infrastructure Ltd. v. Nagpur Metro Rail Corpn. Ltd. reported in (2016) 16 SCC 818, the Hon'ble Apex Court held as follows:-
"15. We may add that the owner or the employer of a project, having authored the tender documents, is the best person to understand and appreciate its requirements and interpret its documents. The constitutional courts must defer to this understanding and appreciation of the tender documents, unless there is mala fide or perversity in the understanding or appreciation or in the application of the terms of the tender conditions. It is possible that the owner or employer of a project may give an interpretation to the tender documents that is not acceptable to the constitutional courts but that by itself is not a reason for interfering with the interpretation given."13
Here, the interpretation of the authority is a plausible view and further probe to examine whether any other view was possible, is not the function of the writ court.
29. In the matter of National High Speed Rail Corpn. Ltd. v. Montecarlo Ltd., reported in (2022) 6 SCC 401, the Hon'ble Apex Court held as follows:-
"22. ..... whether a bidder satisfies the tender condition is primarily upon the authority inviting the bids. Such authority is aware of expectations from the tenderers while evaluating the consequences of non-performance. In the tender in question, there were 15 bidders. Bids of 13 tenderers were found to be unresponsive i.e. not satisfying the tender conditions. The writ petitioner was one of them. It is not the case of the writ petitioner that action of the Technical Evaluation Committee was actuated by extraneous considerations or was mala fide. Therefore, on the same set of facts, different conclusions can be arrived at in a bona fide manner by the Technical Evaluation Committee. Since the view of the Technical Evaluation Committee was not to the liking of the writ petitioner, such decision does not warrant for interference in a grant of contract to a successful bidder."
30. In the matter of Uflex Ltd. vs Government of Tamil Nadu and Ors. decided in Civil Appeal No. 4862-4863 of 2021, the Hon'ble Apex Court held as follows:-
"1. The enlarged role of the Government in economic activity and its corresponding ability to give economic 'largesse' was the bedrock of creating what is commonly called the 'tender jurisdiction'. The objective was to have greater transparency and the consequent right of an aggrieved party to invoke the jurisdiction of the High Court under Article 226 of the Constitution of India (hereinafter referred to as the 'Constitution'), beyond the issue of strict enforcement of contractual rights under the civil jurisdiction. However, the ground reality today is that almost no tender remains unchallenged. Unsuccessful parties or parties not even participating in the tender seek to invoke the jurisdiction of the High Court under Article 226 of the Constitution. The Public 14 Interest Litigation ('PIL') jurisdiction is also invoked towards the same objective, an aspect normally deterred by the Court because this causes proxy litigation in purely contractual matters.
2. The judicial review of such contractual matters has its own limitations. It is in this context of judicial review of administrative actions that this Court has opined that it is intended to prevent arbitrariness, irrationality, unreasonableness, bias and mala fide. The purpose is to check whether the choice of decision is made lawfully and not to check whether the choice of decision is sound. In evaluating tenders and awarding contracts, the parties are to be governed by principles of commercial prudence. To that extent, principles of equity and natural justice have to stay at a distance.
3. We cannot lose sight of the fact that a tenderer or contractor with a grievance can always seek damages in a civil court and thus, "attempts by unsuccessful tenderers with imaginary grievances, wounded pride and business rivalry, to make mountains out of molehills of some technical/procedural violation or some prejudice to self, and persuade courts to interfere by exercising power of judicial review, should be resisted. ***
40. We must begin by noticing that we are examining the case, as already stated above, on the parameters discussed at the inception. In commercial tender matters there is obviously an aspect of commercial competitiveness. For every succeeding party who gets a tender there may be a couple or more parties who are not awarded the tender as there can be only one L-1. The question is should the judicial process be resorted to for downplaying the freedom which a tendering party has, merely because it is a State or a public authority, making the said process even more cumbersome. We have already noted that element of transparency is always required in such tenders because of the nature of economic activity carried on by the State, but the contours under which they are to be examined are restricted as set out in Tata Cellular26 and other cases. The objective is not to make the Court an appellate authority for scrutinizing as to whom the tender should be awarded. Economics must be permitted to play its role for which the tendering authority knows best as to what is suited in terms of technology and price for them."
31. The authority asked the petitioner No.2 to substantiate its continued eligibility. Upon appreciation of the scheme, the authority found that all the assets, experience, etc. of the demerged company had 15 vested with the resulting company even before the pre-bid meeting. It is available from the documents that a request was made to the authority by the petitioners that the balance sheet of both the companies should be taken into consideration to assess their financial eligibility. This, according to the authority, was contrary to clause 2.4 of the RFP. The writ court is not required to scan the records to decide whether the selection of the L1 bidder was illegal or unjustified. The authority has ample power and independence to interpret the clauses of the contract, evaluate the documents and assess the competence of the bidders. The authority was within its right to require the participant to continue to fulfill the eligibility criteria till the award of contract, in order to ensure that the work does not suffer. In the opinion of the authority, transfer of all the assets, knowhow with regard to the IT related works, experience, etc. to the resulting company from the appointed date, amounted to non- compliance of the eligibility criteria set out in the RFP. The authority was well within its right not to accept the petitioner's bid. The pleadings do not indicate that any allegation of favouritism or mala fide intention has been made. The bid was rejected on the interpretation of the clauses. Some play in the joints must be allowed to the authority. Moreover, the legal advisor/representative of the petitioners was permitted to clarify the position.
32. The decision in Medium Packaging Pvt. Ltd. Indian Oil Corporation Limited & Ors., decided in W.P. No.1591 (W) of 2019, 16 will not be applicable. In the said case, from a conjoint reading of the provisions of the scheme of demerger, it was evident that the existing contracts, staff, machineries, lands, incentives, tax benefits, workers of the transferor company i.e., Bharat Barrel, were transferred to and vested had in the transferee company (successful bidder) with effect from appointed date. Between April 1, 2013 and the date of the order of the Bombay High Court, i.e., November 29, 2016, all business activities would be deemed to be activities carried on by the transferee company i.e., successful bidder.
33. Thus, the writ petition is disposed of without any interference.
(SHAMPA SARKAR, J.)