Calcutta High Court
Jaishree Steels Private Limited & Anr vs State Bank Of India & Ors on 24 August, 2017
Author: Debangsu Basak
Bench: Debangsu Basak
ORDER SHEET
WP No. 481 of 2017
IN THE HIGH COURT AT CALCUTTA
Constitutional Writ Jurisdiction
ORIGINAL SIDE
JAISHREE STEELS PRIVATE LIMITED & ANR.
VERSUS
STATE BANK OF INDIA & ORS.
BEFORE:
The Hon'ble JUSTICE DEBANGSU BASAK
Date : 24th August, 2017.
Appearance:
Mr. Anindya Mitra, Sr. Adv.
Mr. Abhrajit Mitra, Sr. Adv.
Mr. Anirban Ray, Adv.
Mr. Pritviraj Sinha, Adv.
Ms. Anamika Pandey, Adv.
Ms. Amrita Pandey, Adv.
For the petitioners.
Mr. Subrata Kumar Sinha, Adv.
For the respondent nos. 1 and 2
Mr. Pratap Chatterjee, Sr. Adv.
Mr. Debajyoti Dutta, Adv.
Mr. Rishad Medora, Adv.
Mr. Soumava Mukherjee, Adv.
Mr. Makhan Roy, Adv.
For the respondent no. 4.
The Court:- The challenge in this writ petition is directed towards an invitation of bids for taking over the management of Rohit Ferro-Tech Limited, the respondent no. 3 herein.
Learned Senior Advocate for the petitioners submits that, the bidding process contemplates invocation of Swiss Challenge Method (SCM), which is unusual. He submits that, the various clauses of the bid document are vague. 2 The clauses are such that it is not capable of any clarity. Therefore, the bidding process is faulty. Moreover, referring to format VII he submits that, a bidder has to give an undertaking in such declared format which, inter alia, requires such bidder to give declaration on 9 stipulations. The same stipulations have not been applied to the initial bidder. Therefore, the respondent nos. 1 and 2 have not made available a level playing field to the bidders participating in the bid process. He submits that, the initial bidder being the respondent no. 4 does not qualify the conditions stipulated in the format for undertakings under format VII of the bid documents. He submits that, the methodology of Swiss Challenge Method (SCM) is not suitable for the purpose of undertaking the bid process to transfer the management of a limited liability company particularly whose shares are listed with the stock exchanges. He refers to the initial offer made by the respondent no. 4. He submits that, the offer contains various contingencies. Those contingencies are subject to compliance of Securities and Exchange Board of India (SEBI) guidelines and Take Over Code. A change of management cannot happen without the permission from SEBI. Therefore, the contingencies are incapable of being worked out. Furthermore, the initial offer of the respondent no. 4 contemplates the respondent no. 4 entering into the mutual agreements between the respondent nos. 1 and 2 and the initial bidder. The terms and conditions of the mutual agreements are not specified. Therefore, the prospective bidders such as the writ petitioner would not be in a position to understand the scope and ambit of the initial offer for the first petitioner to make a better offer.
Learned Advocate appearing for the respondent nos. 1 and 2 submits that, the respondent no. 1 is the lead banker of a consortium which has lent and 3 advanced money to the respondent no. 3. The account of the respondent no. 3 going bad, an attempt was made to revive such account through the Corporate Debts Restructuring (CDR). The same was not successful. The respondent no. 4 has three units. Initially, the first petitioner had approached the respondent no. 1 for the purpose of buying of one of the units. Such offer of the first petitioner was found not to be suitable in the factual scenario obtaining with regard to the loan of the respondent no. 3. Therefore, such offer was not accepted. The respondent no. 3 has a liability in excess of Rs.2,600/- crores to the consortium of bankers. The consortium of bankers are anxious to recover such loan. The first petitioner has made an initial offer as contained in the offer letter dated July 7, 2017. The same was considered at the various levels of the respondent nos. 1 and 2. It was found acceptable for further exploration. The initial offer of the first petitioner was under the Swiss Challenge Method (SCM). In view of the requirement of Swiss Challenge Method (SCM), it was decided that a bidding process be invited for such purpose. The respondent nos. 1 and 2 had gone ahead and invited the bids with regard to the respondent no. 3 under the SCM. It has set out few conditions in the bidding process. It is for the prospective bidders to comply with the terms and conditions of the bid process. In the event there is a better offer by the respondent nos. 1 and 2 under the Swiss Challenge Method (SCM) then only the question of the first petitioner matching the qualification set out in the bid process will arise. The bank will consider such a situation, if it so arises, after the bid process has commenced. He submits that, the interest of the consortium of the bankers be kept in mind while considering the grant of any order in the present proceedings. The bidding process ought not to be stalled. According to 4 him, there is an urgent requirement of recovery of the public money involved. The amount is in excess of Rs. 2,600/- crores. He submits that, it is possible to revive the respondent no.3 through this methodology. If the respondent no. 3 is revived, the question not only of recovery of the money of consortium of bankers will be there, but also the question of stoppage of further funding will arise. He points out that, the consortium of bankers are still required to extend the credit facility to the respondent no. 3 although the respondent no. 3 is incapable to turn around from its sickness on its own.
Learned Senior Advocate appearing for the respondent no. 4 submits that, the writ petition is not maintainable. The petitioners do not have wherewithal to participate in the bid process. The amount involved in the bidding process in excess of Rs.2,600/- crores. The first petitioner has a paid up capital of about Rs.3.71 crores. The ostensible ownership of the first petitioner has not been declared in the writ petition. The writ petitioners have been set up at the behest of the respondent no. 3, in order to scuttle the bidding process, if possible. The respondent no. 4 has initiated the bid process. Therefore, the requirement of the respondent no. 4 to fulfill any of the terms and conditions laid down in the format of undertaking at format VII does not arise. In the outside chance of there being a better offer under the Swiss Challenge Method (SCM) received by the banks, then the banks are at liberty to apply such of the terms and conditions of the bidding process as they deem necessary. It is possible that, in a given situation, that, the banks may decide to relax some of the terms and conditions of the bidding process. At this stage, therefore, it would not be appropriate for the Court to call upon the initial bidder, the respondent no. 4, to 5 establish that, it qualifies all the terms and conditions set out in the format of undertaking being format VII of the tender documents.
Learned Senior Advocate for the respondent no. 4 highlights the conduct of the petitioners in Court. He submits that, a copy of the writ petition claimed to be an advance copy was initially served upon the respondent no. 4 on August 11, 2017. According to him, two of the most relevant pages were not served along with the service copy. This was pointed out by the Advocate-on- Record for the respondent no. 4 to the Advocate-on-Record of the petitioners. The petitioners chose to file the writ petition at a given point of time and had moved the Court in order to impress on the urgency of the situation and try and obtain an interim order on such basis. He submits that, the respondent no. 4 should be afforded an opportunity of filing affidavits in order to counter the various allegations made in the writ petition.
I have considered the rival contentions of the parties and the materials made available on record.
A bidding process through Swiss Challenge Method (SCM) is under challenge in the present writ petition. Swiss Challenge Method (SCM) involves a person who initiates the process by making an offer to the authorities. If the authorities find such offer acceptable, it initiates a bidding process whereby the authorities invite the public at large to participate in such bidding process by bettering the offer already received. A variation of Swiss Challenge Method (SCM) involves a situation where after invitation of such bidding process, the initial offerer is granted an opportunity to better the best offer received. Apparently, the respondent no. 1 has invoked such a variation of the Swiss Challenge Method 6 (SCM) in the present case. It has received an offer from the respondent no. 4 for change of management of the respondent no. 3 through Swiss Challenge Method (SCM). It had found such initial offer to be such that, the process of SCM can be initiated. In such context it had issued an invitation of bids impugned herein. The invitation of bids in respect of the respondent no. 3 contains various terms and conditions. One of them is the requirement of a prospective bidder to give an undertaking in the format VII of the bid documents. Such format of undertaking requires the prospective bidder to satisfy 9 conditions amongst others.
Few issues are raised by the parties in the present writ petition. One of them is whether the Swiss Challenge Method (SCM) as sought to be initiated by the respondent nos. 1 and 2 in respect of the respondent no. 3 is appropriate or not. One of the other issues is that, whether the terms and conditions of the Swiss Challenge Method (SCM) make out a level playing field between the prospective bidder with that of the initial bidder. Another issue would be whether initial bidder is required to comply with the terms and conditions that may be laid down in the bidding process as when the initial offer was made there was no bid process containing any terms and conditions. The corollary to such an issue would be whether the authority can lay down any terms and conditions so as to restrict the bidders from participating when the initial bidder did not have any restriction to participate in the bid process.
These are issues, which require to be adjudication. The issues raised are such that, an opportunity should be afforded to the respondents to file affidavits.
7
As prayed for, let affidavit-in-opposition be filed within three weeks from date. Affidavit-in-Reply thereto, if any, be filed within a week thereafter.
List the writ petition in the monthly list of October, 2017. As narrated above, the petitioners have made out a strong prima facie case. The balance of convenience is also in favour of granting an order so that the writ petition is not rendered infructuous without the issues raised being decided finally. At the same time it is imperative to protect the interests of the consortium of bankers.
In such circumstances, the bid process may continue, wholly without prejudice to the rights and contentions of the parties. The petitioners are at liberty to participate in the bid process without prejudice to its rights and contentions. The authorities are at liberty to consider the bids received by it and take a final decision thereon. They will, however, not implement the final decision on the bid process without obtaining the prior leave of the Court.
(DEBANGSU BASAK, J.) snn/AG.