Gujarat High Court
Larsen And Toubro Limited vs Gujarat State Petroleum Corporation ... on 7 February, 2000
Equivalent citations: (2000)2GLR1814
JUDGMENT R.K. Abichandani, J.
1. The petitioner company challenges the decision of the respondent No. 2 in awarding Engineering, Procurement and Construction contract for natural gas fired combined cycle power plant at Hazira to the respondent No. 3 company. Initially when the petition was filed, the prayer was to quash the decision selecting the respondent No. 3 as EPC contractor, but later when it came to light that resolutions were already passed by the Management Committee and the Board of Directors and the contracts were entered into on 13th December, 1999, pursuant thereto between the respondents Nos. 1, 2 and 3, the resolutions and the contracts were also challenged by way of an additional prayer.
2. The petitioner No. 1 is a multi-dimensional Engineering and Construction company in India's private sector, as stated in the petition. Its power project group caters to two major areas namely - (i) the large power plants, predominantly connected with the grid as an independent power project and (ii) a captive co-generation business which focuses on the development of projects to serve the captive industrial consumer.
2.1 The respondent No. 1 is a company promoted by the Government of Gujarat and six other State sector Corporations, inter-alia engaged in the business of exploration and exploitation of oil and gas in Gujarat. The said company, with a view to use natural gas from the gas fields owned by it for generation of power, proposed to establish a Power plant at Hazira in Gujarat under the name of the respondent No. 2, which is a company promoted by the respondent No. 1.
2.2 The respondents Nos. 1 and 2 are wholly owned State Government Corporations incorporated for exploration of oil and gas and generation of power respectively. For the purpose of selection of EPC contractor for 160 MW Natural Fired Combined Cycle Power Plant, Request for Qualification (for short "RFQ") was issued in December, 1998. It was mentioned therein that the respondent No. 1 was proposing to initially set-up a 160 MW Gas based combined cycle power plant at Hazira and the plant capacity would be expanded as and when more gas can be committed. It was mentioned that approval for the proposed power project scheme from the Government was received in principle and that the Gujarat Electricity Board has also cleared the project in its Board meeting. The project was described in paragraph 3.4 of the RFQ and in context of `Physical Facilities of the Project', it was stated that the nominal, net output of the base load, Natural Gas fired, combined cycle power station should be 160 MW +_10% at mean site conditions. The respondent No. 1, in consultation with the Government, was to select co-sponsors to develop the project on a Build-Own-Operate (BOO) basis, which refers to an arrangement whereby the Project company undertakes to finance, insure, design, construct, own, operate and maintain an electric power generating facility. The power generated was to be sold pursuant to Power Purchase Agreement. The respondent No. 2 company was to finalise and sign all agreements necessary to implement the project, including Power Purchase Agreement, Fuel Supply Agreement and Water Supply Agreement etc. This project company created by the respondent No. 1 was to be overall responsible for selecting the equipment, technology, designing the plant, carrying out the plant's construction and commissioning, at its own risk. The financing of the project was solely a matter between the respondent No. 1 (including co-sponsor), the Project company and the funding institutions, as stated in the RFQ document in paragraph 3.6. The evaluation criteria was to include financial strength of the bidder, resource raising capability and ability to execute the contract in envisaged time schedule, equity offered for the Project etc. as mentioned in paragraph 4.4 of RFQ.
2.3 Twelve pre-qualification bids were actually received against such invitation and seven parties were pre-qualified for issuing of Request For Proposal (for short "RFP"). This included the petitioner No. 1 and the respondent No. 3. Pursuant to the issuance of RFP document, only three proposals were received by the respondents Nos. 1 and 2 and these were the petitioner No. 1, the respondent No. 3 and one Bombay Suburban Electricity Supply Company Limited led consortium. This RFP document was issued on 17th February, 1999, a copy whereof is at Annexure "A" to the petition (pages 25/A to 190). A clarification was issued on 3rd March, 1999 as per Annexure "B" to the petition, enclosing evaluation criteria, which was to form an integral part of the RFP document. This evaluation criteria referring to the RFP document for invitation of EPC contract more particularly to item 1.5.0, by which weightage was to be given totally upto 100% proceeded to give the method of computation of such weightage. The different heads against which the weightage was to be given were (1) Per MW (Gross Output) EPC cost determined based on parameters = 75 per cent; (2) Financial package offered = 15 per cent; (3) Equity offered = 5 per cent and (4) Quality of proposal and background/experience in respect of successful completion of recent EPC contracts in power sector = 5 per cent, thus, making it total of 100% marks.
2.4 On 15th March, 1999, a further clarification was issued with reference to the aforesaid clarification dated 3.3.1999. This clarification, which is at Annexure "C" to the petition (page 202) allowed the bidder to quote maximum possible net guaranteed output based on guaranteed Station Heat Rate, Auxiliary Power consumption and the availability of 0.9 MMSCMD gas with Net Calorific Value of 8300 Kcal/SCM as per the revised fuel supply agreement condition. It was provided that such net guaranteed output figure would be fully taken into consideration even if it is more than 160MW + 10 per cent. This the petitioners rely upon to contend that the ceiling of 160MW should be taken to have been lifted and the petitioner was therefore, able to quote 189MW output. In the said clarification, it was stated that the configuration however, of 2 Gas Turbines + 2 Waste Heat Recovery Boilers + 1 Steam Turbine generating unit stays as it is. It is further stated that per Mega Watt (Gross) cost would be evaluated based on such guaranteed Output, Station Heat Rate and Auxiliary Power consumption. It was further stipulated that in case the Gas Turbine manufacturer included as a consortium member, is a licensee, then an undertaking from the licensor confirming its back-up guarantee for successful performance of Gas Turbine Combined Cycle Power Plant alongwith associated auxiliary equipment and availability of spare parts should also be provided. It was further stated that in case the financial package being offered by the bidder involves floating and fixed interest rates, floating rates would be converted to fixed rate and cost of swap would be built in as a cash outflow, for the purpose of evaluation. It was also stated that in case financial package offered by the bidders involves lease financing, evaluation would be based on the actual cash out-flow for the owners, based on lease rentals and tax implications, if any. In paragraph 6 of this clarification letter, it was mentioned that the bid evaluation criteria had specified loading due to increase in Station Heat Rate (average at 70 per cent and 85 per cent PLF) over lowest quoted Station Heat Rate at the rate of Rs. 44,500 / K.Cal/MW. Similarly, loading due to increase in Auxiliary Power Consumption over lowest quoted Auxiliary Power Consumption had been specified at Rs. 2.25 lakh/Kw/Mw. These figures were revised to Rs. 36,000 / K.Cal/Mw and Rs. 1.80 lakh / Kw/Mw respectively for bid evaluation purpose only. These clarifications were to be treated as an integral part of the RFP document.
2.5 Again on 3rd April, 1999, further clarification was issued as per Annexure "D" to the petition (page 204), which also was to be considered as an integral part of the RFP document, as stated at the bottom of that letter, and, it was thereby clarified in context of the letter dated 15th March, 1999, that gross capacity offered by the bidder on the basis of 9 lakhs m3 / day of gas having Net Calorific value of 8300 kCal / m3 would be calculated based on guaranteed net SHR for field conditions. However, to account for possible deterioration in machine capacity over a period of time, a 2% reduction in Maximum Capacity offerable with 9 lakhs M3 / day of gas would be considered. The SHR to be considered at 70 per cent and 85 per cent of capacity was to be based on the Maximum offerable Capacity thus reduced by 2 per cent. The guarantee SHR in the bid was to be compared with the published data in the Gas Turbine Hand-book and in case the guaranteed SHR was found to be less than the published data, a detailed justification was to be sought for from the bidder.
2.6 On 1.5.1999, the petitioner wrote a letter to respondent No. 1, which is at Annexure-18 of the Affidavit-in-Rejoinder of the petitioners (page 855), proposing to optimise and to offer a plant based on marginal higher fuel utilisation than specified, say a minimum of 10 per cent and requesting the respondent No. 1 to accept and evaluate their offer based on offerable capacity with higher fuel utilisation. To this, the respondent No. 1 sent a reply on 3rd May, 1999 as per Annexure "E" to the petition (page 206), informing the petitioner No. 1 that the decision that the capacity that may be offered for the Power Project should be based only upon the availability of 0.9 MMSCMD (i.e. 9 lakhs/M3) of Gas having Net Calorific Value of 8300 Kcals/SCM was taken after examining various aspects of Fuel Supply Agreement and development plans of the respondent No. 1 for its Hazira field and this was already clarified by the respondent No. 1 vide its earlier letter dated 15th March, 1999. It was therefore, regretted that the suggestion of the petitioner for considering higher capacity than what was possible with availability of 0.9 MMSCMD of Gas with Net Calorific Valoue of 8300 Kcals/SCM, could not be considered.
2.7 The respondent No. 1 issued a further clarification vide its letter dated 7th May, 1999, as per Annexure "F" to the petition (page 207), which was also to be treated as a part of the RFP document. It was mentioned therein while extending the last date for submission of offers against RFP upto 5th June, 1999, that back-up guarantee would be required to be provided from the original licensor in case the machinery supplier is a licensee. This requirement was specifically applicable for Gas Turbine only.
2.8 It appears that there were some discussions held on 15th and 16th July, 1999 and after those discussions, a letter was written by the respondent No. 1 on 19th July, 1999, as per Annexure "G" to the petition (page 208), in which various deviations/clarifications and final decisions and additional technical clarifications given during the meeting on 15/16th July, 1999 were enclosed at Annexure I to VI to that letter. Based on these final decisions, the bidders were required to submit revised price bids in the same format as had been submitted in the original price bids. As regards `Back-up Guarantee', it was mentioned in paragraph 4 (page 209) that an indicative format for the Gas Turbine Performance Guarantee required from the Licensor/Principal was enclosed at Annexure VII and that this back-up guarantee will be over and above the performance guarantees offered by the bidder in respect of various parameters to be included in the contract. It was mentioned that consortium will have to separately produce performance guarantee from the licensor/principal either in the format as suggested or in a format which was substantially similar to the one given at Annexure VII. It was specified that in case of non-receipt of such back-up performance guarantee, owner reserved the right to reject the revised price-bid. In paragraph 7.0 of the letter, it was mentioned that the owner had a right to treat the bid as non-responsive in case the deviations were not acceptable, or deal with it in some other manner as deemed fit. Thereafter, the date for submitting the revised price bid was extended upto 12th August, 1999, as per letter dated 27th July, 1999 at Annexure "H" to the petition (page
211).
2.9 On 30th July, 1999, the petitioner No. 1 by its letter at Annexure "I" to the petition (page 213), made a suggestion to the respondent No. 1 for evaluation, mentioning therein, in paragraph 1.3, that the part load performance should not be related to the offerable capacity at 0.9 MSCMD gas utilisation as it would lead to impractical low levels of loading for their 6FA machine and unfair comparative position with other machines and that the part load performance was related to the PPA, which can accept the full rated capacity of the plant and was independent of the rating for gas utilisation of 0.9 MSCMD. To this, the respondent No. 1 sent its reply dated 4th August, 1999 at Annexure "J" to the petition (page 216), reiterating that the evaluation criteria and loading figures were already communicated to the bidders and emphasising that evaluation was linked to offerable capacity. The petitioner No. 1 was also informed that after the price bid opening, if the guaranteed figures were found to be without adequate basis and justification, then the owner reserved the right to take suitable decision in the interest of the project. It was also mentioned that all applicable taxes and duties, including excise duty, irrespective of the paying party, over and above the basic price to arrive at final landed cost of the item, shall have to be indicated by the bidder in Exhibit PR-F of RFP document. As per the intimation given at Annexure "K" by the respondent No. 1, the price bid was to be opened on 19th August, 1999 at 3.00 P.M. 2.10 It appears that thereafter a meeting of the Fourth Management Committee of Directors of the respondent No. 2 Company was held on 4th September, 1999 to evaluate the bids. The minutes of that meeting, are at Annexure "O" (page 940) to the affidavit-in sur-rejoinder on behalf of the respondents Nos. 1 and 2. From these minutes it appears that in the process of selection of EPC contractor for the said project, the Committee had before it the technical bid recommendations of their consultant Desein Pvt.Ltd., against Request for Proposal (RFQ) for selection of EPC contractors for which final technical and price bids were opened on August 19, 1999. It was recorded therein that the Committee was apprised of the broad technical and commercial terms quoted by various bidders including the deviations from RFP terms taken by bidders and evaluation procedure followed in the light of the criteria laid down for evaluation. A representative of Messrs Desein explained at the said meeting the report containing recommendations in detail. The discussion that took place on major items was recorded in these minutes and to the extent that it would be relevant for the purpose of this petition, it would be referred to at an appropriate stage. The Managment Committee after awarding marks under various heads referred to hereinabove, for the reasons mentioned therein, resolved that the bid of the respondent No. 3 ABB Power Generation Limited be the first lowest bid and be considered for negotiation and finalisation of the order for EPC contract work of CCPP at Hazira. Thereafter, the proceedings of the Management Committee meeting dated 4th September, 1999 were placed before the meeting of the Directors Committee held on 4th September, 1999 for ratification. The minutes of the Directors Committee held on 4th September, 1999 are at Annexure "M" to the affidavit-in-reply filed by the respondents Nos. 1 and 2 (page 429). It is recorded therein that the Managing Director briefed the Board about the process for selection of EPC Contractor and about the rationale for selection of EPC Contractor. The Board noted that the company had received twelve bids of which seven bidders were short-listed at RFQ state. At RFP stage, three bids were received. It was noted that the bidders were brought at par technically and that final technical and price bids were opened on 19th August, 1999. The representative of Messrs Desein Pvt.Ltd. apprised the Board about various technical aspects of their report and further informed the Board about deviations taken by the bidders and the manner in which these were dealt with by the company. The Board also discussed about the importance of back-up guarantee of Licensor/s and opined that such a guarantee was absolutely necessary in view of recent experiences in the State. A comparison of proposal of three bidders on various criteria of RFP was made by the representative of Messrs Desein before the Board. The Board decided to accept the report of Messrs Desein and the recommendations contained therein. The Board also considered the financing packages offered by different bidders and discussed at length various terms and conditions as mentioned in the minutes. It also took note of the recommendations given by Messrs Fieldstone for adopting Internal Rate of Return (IRR) on equity to be the main criteria for evaluation and based on this, the Board accepted the evaluation of financial package and marks given based thereon. It was recorded in the minutes that the Board approved the comprehensive evaluation done by the Directors Committee at its meeting on 4th September, 1999 and the selection of respondent No. 3 - Messrs ABB as lowest evaluated bidder. It was resolved by the Board to ratify the resolutions of the Management Committee for selection of the respondent No. 3 as EPC Contractor for the said Power Project. The Managing Director of the company was authorised to negotiate and finalise detailed terms and conditions of appointment of the respondent No. 3 as EPC Contractor, on the basis of their final technical and price bids for the proposed power project, keeping in view the parameters laid down during the bidding process.
3. In the petition when it was filed, the contentions that were raised were that the decision of the respondents Nos. 1 and 2 to award the contract to respondent No. 3 was outrageously in defiance of logic, unreasonable, arbitrary and in violation of the principles of natural justice, unfair amounting to favouratism and violative of the fundamental rights of the petitioners guaranteed by Articles 14 and 19(1)(g) of the Constitution of India. It was contended that the impugned decision of the respondents Nos. 1 and 2 was such as no reasonable person would reach on the basis of the available bid data and evaluation criteria adopted. It was contended that while evaluating the techno-commercial bids of the petitioner and that of the respondent No. 3, while 2 per cent reduction in maximum capacity offerable with 9 lakh M3/day was made only in the case of the petitioner no such reduction was made from the maximum offerable capacity of the respondent No. 3, on the ground that in case of the respondent No. 3, the gas utilisation being less than 9 lakh M3/day, it would be possible to take care of deterioration of machines by enhancing the gas availability. It was contended that this was ex-facie untenable because in all the gas turbines there was non-recoverable degradation of power output with usage irrespective of the availability of gas and further that it was never clarified that 2 per cent degradation will be applied only if there was full utilisation of gas. It was contended that even if this criteria is assumed to have already laid down, it was arbitrary and laid down specifically to favour the respondent No. 3, who had offered a lower capacity turbine. It was contended that the maximum capacity offerable with 9 lakh M3/day of gas in the case of the petitioner's configuration was 189.87 MW, though the plant offered by the petitioner was capable of offering 207 MW and therefore, about 9 per cent additional capacity would have been available in future to the respondent Nos. 1 and 2 when fuel constraint of 9 lakh M3/day was overcome at no extra cost. It was contended that the plant offered by the petitioner would generate additional 127 Million units (approx.) per annum, which would provide approximately Rs. 32 crores per annum of additional revenue to the respondents Nos. 1 and 2, but this aspect was not considered. It was contended that the justification sought to be offered for "loading" for working out `per MW (gross output) EPC cost' was untenable on the face of the tender document and the decision was based on procedural irregularities. It was contended that awarding 75 marks to the respondent No. 3 on this count and lowering marks of the petitioner No. 1 in inverse proportion was violative of Article 14 of the Constitution of India. It was also contended that there was no justification to increase the price quoted by the petitioner No. 1 by Rs. 8.728 crores for GE supervision, in absence of the petitioner demanding such supervision from GE. As regards the loading on the basis of taxes, it was contended that the petitioner had quoted a fixed turn-key price including all the prevailing taxes, duties, levies, tariffs etc. associated with the work. It was stated that the fixed turn-key price included sales-tax of Rs. 4.662 crores. It was also contended that there was no reason for the respondents Nos. 1 and 2 to presume that the with-holding tax would be payable by them when the price offered was on turn-key basis. It was therefore, contended that the loading of Rs. 1.684 crores on account of with-holding tax, was arbitrary and violative of Article 14 of the Constitution of India. As regards loading of the price quoted by the petitioner on account of Works Contract Tax, it was contended that there was no reason for the respondent No. 1 to presume that they would be required to pay the sum in addition to the price payable to the petitioner as turn-key price. This loading was also therefore assailed as arbitrary. According to the petitioner, the techno-commercial evaluation made by the respondents Nos. 1 and 2 was irrational, unreasonable, unfair, arbitrary and violative of Article 14 of the Constitution of India. It was further contended that one mark deduction from the five marks awardable for the quality of proposal was not permissible in view of the fact that at the meeting held on 15th and 16th July, 1999, the respondents Nos. 1 and 2 had agreed to accept a Consortium Agreement of Sumitomo and Hitachi duly notarised and authenticated by the Indian Embassy in Japan and the petitioners were called upon to furnish a letter from GE (licensor), which would establish that the requirement of performance back-up guarantee of licensor/principal could be dispensed with. It was contended that such agreement and letter were accepted by the respondent No. 1 and since the respondent No. 1 did not reject the techno-commercial bid before opening the price bid, there remained no ground for deducting one mark. This deduction was therefore, assailed as arbitrary. It was further contended in the petition that the RFP read in conjunction with the amendment, clearly envisaged the net present value of outflow towards debt as the criteria for evaluating the financial package. According to the petitioner, the net present value of the out-flow towards debt of the package offered by the petitioner was in all respects better than that of the respondent No. 3 and therefore, the petitioner No. 1 company ought to have been awarded full fifteen marks for the financial package, while the respondent No. 3 ought to have been awarded proportionately lower marks - approximately 12.7468. It was further contended that the suggested tenor of the petitioner's financial package was nine years, and it had been clearly stated that two years moratorium will be provided. According to the petitioner, there was arbitrary misinterpretation of the financial package offered by it, by computing two years' period of moratorium within seven years mentioned against the tenor of repayment. According to the petitioner, the declaration that the petitioner's financial package was non-responsive and giving of zero mark on that count was arbitrary and the petitioner was in fact, on the basis of the criteria laid down in the RFP and its clarifications made thereafter, entitled to be awarded full hundred percent marks.
In paragraph 3.12 of the petition, it was contended that the capacity of the Combined Cycle Power Plant being offered by the petitioner was 207 MW, and in view of the limitation of availability of natural gas to the extent of 9 lakh M3/day, the plant offered by the petitioner would be functioning under maximum offerable capacity at 189.87 MW and therefore, if larger quantity of gas was available in future i.e. above the available 9 lakhs M3/day, the respondents Nos. 1 and 2 would be benefitted. By not permitting such additional 207 MW, they would be losing about 250 million Kwh per year, which would mean a revenue loss of approximately Rs. 62.5 crores per year in additional business.
4. The respondents Nos. 1 and 2 filed a detailed reply with several annexures, emphasising that the project was right from the beginning envisaged to be of 160 MW +- 10 per cent and the clearance from the Government of Gujarat and the Gujarat State Electricity Board was obtained as far back as in December, 1998. It was also emphasised that the bids were evaluated on the basis of the criteria already prescribed in the RFP and clarification documents. It was pointed out that after the selection of the respondent No. 3, until the orders were made on 30th December, 1999 by the High Court in this petition, the respondent No. 2 had already signed contracts with the respondent No. 3 - namely
(i) C.I.F Supplies Contract; (ii) Ex-Works Supplies Contracts; and (iii) Services Contract. It was submitted that the delay in the schedule would have an adverse cascading effect on the cost of project, if the NTP was not issued before 31st March, 2000. According to the respondents, each day's delay in implementation would mean a direct loss of lakhs of rupees for GSEG besides unquantified loss to the State, in terms of socio-economic development. According to these respondents, a sum of Rs. 1300 lakhs was already expended by them towards the project till that date.
The respondents Nos. 1 and 2 in their affidavit-in-reply referred to the criteria laid down for evaluation of the bids and the weightage of marks, which was to be given and which has been noted hereinabove. They maintained that the evaluation was properly done on all counts and the decision was taken on the basis of the relevant material and with the assistance of experts after proper application of mind to all the relevant aspects of the matter. The respondent No. 3 filed a separate affidavit-in-reply taking similar contentions. Thereafter, even during the course of the arguments, the record of the petition swelled to its present obesity by sur-rejoinders and sur-sur-rejoinders, which more or less centered around the controversy delineated above and therefore, it would be futile to repeat the contentions and averments made therein in detail in the judgement.
4.1 In response to the demand of the petitioner made in their Civil Application No. 231 of 2000 for producing documents having bearing on the controversy involved, the respondents Nos. 1 and 2 have, during the hearing, produced technical evaluation report of Desein Private Limited dated 30th August, 1999, the revised price-bids of the petitioner as well as the respondent No. 3 and a full copy of Request For Qualification, (which was missing in the main record, since only few pages thereof were produced). Copies of these documents which are relevant and which are integral part of the record were duly supplied to the petitioner's Counsel before they were relied upon by both the sides.
5. The learned Senior Counsel and other Counsel appearing for the petitioners contended that the petitioners could have been offered a more cost effective configuration, if the configuration of 1GS + 1 WHRB + 1 ST (i.e. One Gas Turbine, One Waste Heat Recovery Boiler and One Steam Turbine), which was mentioned in the RFQ document earlier in 1998 had been maintained and the respondents Nos. 1 and 2 had not confined the RFP to the configuration of 2 GSs + 2 WHRBs + 1 ST (i.e. Two Gas Turbines, Two Waste Heat Recovery Boilers and One Steam Turbine). It was submitted that even the configuration of 2+2+1, which was offered by the petitioner was most cost effective than that of the respondent No. 3 and if the decision was properly taken in public interest and resources were to be properly utilised, the respondent No. 3 would be a non-starter. It was argued that there was a secret agenda so that the entirety of the contract was so tailored as to favour the respondent No. 3. The decisions were taken from time to time which prescribed parameters that would lean in favour of the respondent No. 3 and deprive the petitioner of the benefit of its superior technology and equipment. It was contended that 1+1+1 configuration was deliberately dropped, because the respondent No. 3 did not have that configuration to offer. It was further contended that a 200 MW project was deliberately scaled down and downgraded to 160MW project though this would result in a loss of Rs. 62.5 crores. Moreover, showing of lower calorific heat value of 8300 Kcal of gas as against the actual value of about 8600 Kcal was also adopted to suit the respondent No. 3. Repeated demands were made by the respondent No. 1 to nitpick to find out reasons to put the petitioner to disadvantage and these respondents did not ask for explanations or clarifications and not asking for explanation on a facile excuse, that the Central Vigilance Commissioner will smell corruption if they obtain clarification, was a course adopted for deliberately not seeking the explanations that the petitioners would have offered as to incidence of taxation or letter in lieu of guarantee and the other aspects. It was further argued that as the petitioners' configuration was more cost effective than that of the respondent No. 3, the respondent No. 1 embarked upon a two per cent deduction on the basis of depreciation. Irredeemable loss due to depreciation was not a unique feature for the petitioners' machinery and it would have happened even in case of the equipment of the respondent No. 3. It was therefore contended that discrimination was practised on this count against the petitioner by not imposing a similar deduction of 2 per cent from the capacity offered by the respondent No. 3. It was also contended that an irrational stand was taken that the loss of efficiency in the equipment of respondent No. 3 due to "unrecoverable degradation" would be off-set by additional input of gas that the respondent No. 3 could make, since it was to use only 7.7 lakhs M3/day gas as against the available capacity of 9 lakh M3/day gas, which the petitioner was to fully utilise. Giving analogy of an old car, it was contended that a depreciated engine will not work more efficiently just by pouring more petrol in it. It was also contended that sales-tax loading was not justified because the tender was on a turn-key price basis and taxes which were shown separately for break-up purposes were obviously to be borne by the petitioners. No clarification was sought on this count by the respondent No. 1 and the Central Vigilance Commissioner's Circular, which did not apply, was being put up as an excuse. It was also contended that the insistence of the respondents Nos. 1 and 2 on the back-up guarantee of GE was unreasonable because no such lisensor would give a back-up guarantee for the licensee manufacturer's machines. Moreover, this requirement must be deemed to have been waived because the price bid was opened after the filing of the letter of GE dated 21.7.1999.
5.1 The learned Senior Counsel further argued that the petitioners had offered financial package of seven years and two years' moratorium period which would be nine years in all, but these respondents deliberately misread the package so as to mean that two years' moratorium was within the tenor of repayment profile of seven years. It was argued that the expression "tenor" meant the entire period i.e. duration of instalments plus the moratorium period. Referring to the letter of ICICI addressed to L & T Finance, it was argued that this is how the matter was understood even by a financer. It was contended that since no clarification on this count was sought, it should be inferred that the decision was reached only with a view to favour the respondent No. 3 by consciously and deliberately giving 15 marks to it. A contention was developed as the hearing progressed that the offer of financial package made by the respondent No. 3 was not a firm offer and no commitment to adhere to the financial package was given by it to the respondent No. 2. It was contended that the financial advisor of the respondents Nos.1 and 2 - Messrs Kishore and Shastri, took into account the fact that the financial package offered by the respondent No. 3 was not a firm commitment to arrange the finance. The respondent No. 3 did not bind itself and the offer was therefore, no offer in the eye of law. It was therefore argued that the offer of the respondent No. 3 of such financial package ought to have been treated as non-responsive and no mark could be allotted for it. It was contended that neither in the Management Committee's minutes, nor in the Board Meeting's minutes was a reference made to this aspect or to the evaluation of Messrs Kishore and Shastri on this point. It was submitted that an offer of financial package should have been clear and firm so as to be capable of acceptance and reliance was placed on the text-books on the law of Contract (Atliah's 4th Edition page 61 & Trietal 9th Edition page 8 and also from Anson 27th Edition Ch.II & Pollock & Mulla's 11th Edition page 132) to submit that an offer should be clear and capable of acceptance and not a non-committal one. It was contended that there was thus a conscious effort on the part of the respondent No. 2 to give fifteen marks to the respondent No. 3 and nil to the petitioner. It was further contended that the action of the respondent No. 1 was actuated by malafides, which can be inferred from the cumulative effect of the following: (1) it was deliberately overlooked that when nine lakhs M3/day gas flow was available, its full utilisation would have yielded more power/industry/employment; (2) choosing 160 +_ MW producer who could not have utilised the full nine lakh M3/day shows that there was pre-determination to peg down production to 160 MW at the cost of the State exchequer; (3) no reason was given for pegging the capacity at 160MW; (4) the higher revenue return of 62.5 crores was ignored which shows that there was determination to fit the `cap' on the head of respondent No. 3; (5) the fact that there was no firm offer of the respondent No. 3 was not referred to by the Management Committee or the Board, and there was a deliberate attempt made to ignore such relevant material with a view to support the respondent No. 3.
5.2 In support of his contentions, the learned Counsel for the petitioners relied upon the following decisions:-
(1) State of Punjab v. Ramji Lal, reported in AIR 1971 S.C 1228 was relied upon in support of the contention that where validity of action taken by the State Government was challenged on the ground that action was malafide, then to establish malafides, it was not necessary for the party, alleging malafide of State action, to prove that any named officer or officers was or were responsible for that official act. The law does not cast any such burden upon the party challenging the validity of the action taken by the State Government.
(2) M/s. Radhakrishna Agarwal and Ors. v. State of Bihar, reported in AIR 1977 S.C 1496 was relied upon in support of the contention that Article 14 of the Constitution of India imports a limitation or imposes an obligation upon the State's executive power under Art. 298 of the Constitution and that all constitutional powers carry corresponding obligations with them. It was held therein that at the very threshold or at the time of entry into the field of consideration of persons with whom the Government could contract, the State, no doubt, acts purely in its executive capacity and is bound by the obligations which dealings of the State with the individual citizens import into every transaction entered into in exercise of its constitutional powers.
It would be noted that, in that decision it was also held that the allegations made in the case before the Supreme Court were of such a nature that they could not be satisfactorily decided without adducing evidence, which was only possible in ordinary civil suits, to establish that the State acting in its executive capacity through its officers, had discriminated between parties identically situated. It was held that such a conclusion could not be reached on the allegations in the writ petitions and the affidavit evidence on record.
(3) M.I. Builders Pvt. Ltd. v. Radhey Shyam Sahu and Ors. reported in (1999) 6 SCC 464 was cited in support of the contention that judicial review was called for where the Corporation's action was unreasonable, arbitrary, unfair and against the public policy, public interest and public trust doctrine. There, the agreement under which prime land was given for a song by Mahapalika was found to be arbitrary, unfair and a fraud on its power smacking favouratism and therefore, not in public interest.
(4) Tata Cellular V. Union of India, reported in (1994) 6 S.C.C 651, which was referred to by both the sides, was relied upon on behalf of the petitioners for its proposition that the judicial power of review is exercised to rein in any unbridled executive functioning. It was observed that the restraint has two contemporary manifestations viz. one is ambit of judicial intervention and the other covers the scope of the court's ability to quash an administrative decision on its merits. These restraints bear the hallmarks of judicial control over administrative action. It was held that the principle of judicial review is concerned with reviewing not the merits of the decision in support of which the application for judicial review is made, but the decision making process itself. It was held that the principle of judicial review would apply to the exercise of contractual powers by the Government bodies in order to prevent arbitrariness or favouritism. It was held that the duty of the Court is to confine itself to the question of legality and its concern should be whether a decision making authority exceeded its powers; whether it committed an error of law or committed a breach of the rules of natural justice or reached a decision which no reasonable tribunal would have reached or, abused its powers. The grounds upon which an administrative action can be subjected to judicial review are classified as illegality, irrationality and procedural impropriety. In that very decision, while deducing the principles from various cases referred, it was held that the modern trend points to judicial restraint in administrative action; that the Court does not sit as a court of appeal but merely reviews the manner in which the decision was made; that the court does not have the expertise to correct the administrative decision and if a review of the administrative decision is permitted, it will be substituting its own decision, without the necessary expertise which itself may be fallible; that the terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract; and, that the Government must have freedom of contract, i.e. a free-play in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness, but must be free from arbitrariness not affected by bias or actuated by mala fides. Moreover, quashing decisions may impose heavy administratrive burden on the administration and lead to increased and unbudgeted expenditure.
(5) Reference was also made to the decision of the Supreme Court in New Horizons Limited and Anr. v. Union of India and ors., reported in (1995) 1 SCC 478, in which the Hon'ble the Supreme Court held that in the matter of entering into a contract, the State does not stand on the same footing as a private person who is free to enter into a contract with any person he likes. The State, in exercise of its various functions, is governed by the mandate of Article 14 of the Constitution which excludes arbitrariness in State action and requires the State to act fairly and reasonably. The action of the State in the matter of award of a contract has to satisfy this criterion. Therefore, while entering into contracts the Government cannot act arbitrarily at its sweet will and like a private individual, deal with any person it pleases, but its action must be in conformity with the standards or norms which are not arbitrary, irrational or irrelevant. It was further held that it is recognised that certain measure of "free play in the joints" is necessary for an administrative body functioning in an administrative sphere. Holding that the High Court had erred in taking the view that the appellant in that case was not a joint venture and that there was only certain amount of equity participation by a foreign company, the Hon'ble Supreme Court held that once it was held that the appellant was a joint venture as claimed by it in the tender, the experience of its various constituents had to be taken into consideration, if the Tender Evaluation Committee had adopted the approach of a prudent businessman.
(6) Reliance was then placed on the decision of the Supreme Court in Sterling Computers Ltd. V. M & N Publications Ltd. and ors., reported in (1993) 1 SCC 445 for its proposition that even while taking decision in respect of commercial transactions, a public authority must be guided by relevant considerations and not by irrelevant ones and if such decision is influenced by extraneous considerations, which it ought not to have taken into account, the ultimate decision is bound to be vitiated, even if it is established that such decision had been taken without bias. It was held that the action or the procedure adopted by the authorities which can be held to be `State' within the meaning of Article 12, while awarding contracts in respect of properties belonging to the State, can be judged and tested in the light of Article 14. In the said decision, it was also held that public authorities must have the same liberty as they have in framing the policies, even while entering into contracts because many contracts amount to implementation or projection of policies of the Government. In contracts having commercial element, some more discretion has to be conceded to the authorities giving them liberty to assess the overall situation for the purpose of taking a decision as to whom the contract be awarded and on what terms, so that they may enter into contracts with persons, keeping an eye on the augmentation of the revenue. It was also held that it was not possible for the Courts to question and adjudicate every decision taken by an authority, because many of the Government Undertakings which in due course have acquired the monopolist position in matters of sale and purchase of products and with so many ventures in hand, can come out with a plea that it is not always possible to act like a quasi-judicial authority while awarding contracts. It was held that even in such matters, they have to follow the norms recognised by the courts while dealing with public property, though the decisions taken in bona fide manner although not strictly following the norms laid down by the courts, are upheld on the principle laid down by Justice Holmes, that courts while judging the constitutional validity of executive decisions must grant certain measure of freedom of "play in the joints" to the executive.
(7) The decision of the Hon'ble the Supreme Court in the case of Star Enterprises and Ors. v. City and Industrial Development Corporation of Maharashtra Ltd. and ors. reported in (1990) 3 SCC 280 was referred to for its proposition that the State or its instrumentality entering commercial field must act in consonance with rule of law.
(8) The decision of the Hon'ble the Supreme Court in the case of Harminder Singh Arora v. Union of India and Ors. reported in (1986) 3 SCC 247, was referred to for its proposition that the Government may enter into a contract with any person but in so doing the State or its instrumentalities cannot act arbitrarily. If the authority chooses to invite tenders, then it must abide by the conditions laid down in the tender notice and the result of the tender and cannot arbitrarily and capriciously accept a much higher tender to the detriment of the State. It was held by the Hon'ble Supreme Court that if the authorities choose to accept the tender of the respondent No. 4 (in that case for supplying pasteurized milk, instead of fresh buffalo or cow milk as specified in the tender notice), the appellant should also have been given an opportunity to change his tender. It was noticed that if the terms and conditions of the tender were incorporated in the tender notice itself and that did not indicate giving of 10% price preference to Government undertaking, the authority concerned acted arbitrarily in allowing such preference to the respondent No. 4.
6. The learned Senior Counsel - Additional Solicitor General, appearing for the respondents Nos. 1 and 2 strongly contended that this was not a matter where the High Court should exercise its powers under Article 226 of the Constitution of India, because it was amply established from the record that there was no element of arbitrariness in the decision making process. It was contended that the decision to accept the bid of the respondent No. 3 was taken on consideration of the relevant material before the concerned body and there was no reason to infer that it was taken with a view to favour the respondent No. 3. It was pointed out that on quite a few aspects where these respondents could have treated the petitioner's bid as non-responsive, the stringent requirements were not taken to their logical effect so that the bid of the petitioner was kept alive for consideration and this rules out any inference of mala fides. If these respondents had pre-determined the matter and wanted to oust the petitioner No. 1, that would have been very easy on certain aspects which were not decided upon immediately for throwing out the petitioner's bid and the petitioner's bid was considered on its merits. Illustrating this, he submitted that as per the terms incorporated in the RFP, the petitioner's bid could have been treated as non-responsive for the simple reason that the manufacture was not directly a part of the consortium as also for the reason that as per the later clarification which became part of the RFP document, the expected undertaking of the licensor was not furnished and what was furnished was a letter, which admittedly did not measure up to the requirement of the RFP document. It was submitted that the petitioner No. 1 being itself not qualified as per the terms of invitiation to bid, was not a fit person to carry the writ of this Court. It was contended that there was delay in the filing of the petition as the contracts were already executed on 13.12.1999. It was submitted that the loading done which brought the petitioner's marks to 71.4 as against full 75 marks given to the respondent No. 3 for evaluating the `Per MW gross out-put EPC cost' was done on a rational basis and taking into account the opinion of the technical expert Desein Pvt.Ltd., who had also recommended loading of 2 to 3 million dollars in the price quoted by the petitioner in lieu of the supervision, which otherwise would have been been guaranteed if the undertaking of the licensor were given as per the requirement of the RFP document as clarified. It was further argued by the learned Senior Counsel that there was no need to infer that M/s. Kishore and Shastri appointed as advisor for commercial and financial evaluation was dropped or that M/s. Fieldstone (finance arrangers) was brought in picture with a view to favour the respondent No. 3. Referring to the letter dated 4.12.1998 (at Annexure "D" to the sur-rejoinder of respondents Nos. 1 and 2 - page 899) of appointment of M/s. Kishore and Shastri, the learned Counsel pointed out that Messrs Kishore and Shastri were appointed for financial services, legal and tax consultancy and preparation/negotiation of various project contracts and it was specified therein that the advisor will assist the respondent No. 1 in commercial and financial evaluation of RFP bids for EPC contractor. In response to the contentions raised by the petitioners during arguments that the financial advisor M/s. Kishore and Shastri, who were engaged for a huge fee of Rs. 20 lakhs was omitted as at the time when the Management Committee considered the question of evaluating the financial package, it was pointed out that this fee included advice on tax and legal concerns for all matters related to the project. They also included payment of legal services required for vetting of documents/ agreements etc. In any event it was submitted that M/s. Kishore and Shastri did not evaluate the financial package and it only analysed RFP requirements and the nature of financial package offered with exceptions/deviations. It was submitted that in mere describing, in the analysis made by M/s. Kishore and Shastri of the offers of petitioner No. 1 and the respondent No. 3, there was no opinion expressed and that their financial packages were required to be evaluated on the basis of methodology, which was advised by the finance arrangers M/s. Fieldstone to the respondent No. 2. It was submitted that there was no question of M/s. Fieldstone's substituting any opinion of M/s. Kishore and Shastri because they did not evaluate the financial package but only forwarded the methodology, which was required to be adopted in such cases. It was argued that it was open for the respondent No. 2 to seek guidance from such experts with a view to evaluate such financial packages. It was also contended that there was no detailed method indicated for the evaluation of financial packages, declared in the RFP and the expression that the evaluation will be made on the basis of `prudent financial practices' left ample scope for evaluating the packages on the basis of a rational methodology suggested by M/s. Fieldstone, who being Finance Arrangers were well equipped to give advice in the matter. It was further contended that there were no allegations of malafide initially made in the petition and that the petitioners have, during the course of arguments, by their further pleadings, expanded the scope of their initial attack. It was submitted that there was no question of pegging the project at 160MW with a view to favour the respondent No. 3, because, much before the bid of the respondent No. 3 or the petitioner came, the capacity of the power project was already determined. The clarifications and the discussion during presentations which are reflected from the record, clearly show that nothing was being tailor-made for the purpose of respondent No. 3 and all basic postulates were determined openly and were known to one and all.
6.1 In support of his contentions, the learned Senior Counsel appearing for the respondents Nos. 1 and 2 relied upon the following decisions of the Supreme Court.
(1) The decision in Raunaq International Ltd. v. I.V.R Construction Ltd. and Ors., reported in (1999) 1 SCC 492 was heavily relied upon for its proposition that any judicial relief at the instance of a party which does not fulfil the requisite criteria seems to be misplaced. It was contended on the basis of this proposal that even if the entire thing goes back, it would be open for the respondent No. 1 to reject the petitioner's bid on the ground on which it could have earlier been rejected. The Supreme Court observed that award of a contract whether it is by a private party or by a public body or the State is essentially a commercial transaction and in arriving at a commercial decision, considerations which are of paramount importance are commercial considerations. It was held that even when the State or a public body enters into a commercial transaction, considerations which would prevail in its decision to award the contract to a given party would be the same. However, because the State or a public body or an agency of the State enters into such a contract, there could be, in a given case, an element of public law or public interest involved even in such a commercial transaction. It was held that when a writ petition is filed challenging the award of a contract by a public authority or the State, the court must be satisfied that there is some element of public interest involved in entertaining such a petition and if the dispute is purely between two tenderers, the court must be very careful to see whether there is any element of public interest involved in the litigation. A mere difference in the prices offered by the two tenderers may or may not be decisive in deciding whether any public interest is involved in intervening in such a commercial transaction. It was observed that it is important to bear in mind that by Court intervention, the proposed project may be considerably delayed thus escalating the cost far more than any saving which the court would ultimately effect in public money by deciding the dispute in favour of one or the other tenderer. Therefore, unless the court is satisfied that there is a substantial amount of public interest or the transaction is entered into malafide, the Court should not intervene under Article 226 of the Constitution in a dispute between two rival tenderers. It was also held that intervention of the Court may ultimately result in delay in execution of the project. The obvious consequence of such delay is price escalation. If any re-tender is prescribed, cost of the project can escalate substantially. What is more important is that ultimately the public would have to pay a mugh higher price in the form of delay in the commissioning of the project and the consequent delay in the contemplated public service becoming available to the public. It was observed that if it is a power project which is thus delayed, the public may lose substantially because of shortage in electricity supply and the consequent obstruction in industrial development. The Supreme Court held that where the decision has been taken bonafide and a choice has been exercised on legitimate considerations and not arbitrarily, there is no reason why the court should entertain a petition under Art. 226. The Supreme Court also held that price may not always be the sole criterion for awarding a contract and often when an evaluation committee of experts is appointed to evaluate offers, the expert committee's special knowledge plays a decisive role in deciding which is the best of it. The price offered is only one of the criteria. At times a higher price for a much better quality of work can be legitimately paid in order to secure proper performance of the contract and good quality of work, which is as much in public interest as a low price. It was held that the Court should not substitute its own decision for the decision of an expert evaluation committee. Moreover, if there is a good reason why the project should not be undertaken, then the time to object is at the time when the same is under consideration and before a final decision is taken to undertake the project. These observations were relied upon to meet with the argument of the petitioners that the project ought not to have been pegged at 160MW, as it would not be financially viable in view of the possibility of additional energy being available in future. The Supreme Court observed that it was unfortunate that despite repeated observations made by the Supreme Court in a number of cases, such petitions are being readily entertained by the High Court without weighing the consequences. It was pointed out that in the case of Fertilizer Corporation Kamgar Union (Regd.) v. Union of India, (1981) 1 S.C.C 568, an observation was made to the effect that if the Government acts fairly, though falters in wisdom, the court should not interfere. The observation of the Supreme Court in Tata Cellular Vs. Union of India (supra), to the effect that the right to choose cannot be considered as an arbitrary power, was referred to while reiterating the conclusions reached by the Supreme Court in that case, which included the holding that the terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract.
(2) Decision in All India State Bank Officers' Federation and Ors. v. Union of India and Ors., reported in (1997) 9 SCC 151, was referred to for its proposition that for an allegation of malafide to succeed, it must be conclusively shown that influence was wielded over all the members of the Board who were present at the meeting. Moreover, the person against whom malafides are alleged must be made a party to the proceedings.
(3) Decision in Ashok Kumar Mishra and Ors. v. Collector, Raipur and Ors., reported in (1980) 1 SCC 180 was cited for its proposition contained in paragraph 7 of the judgement that it was well settled that the power of the High Court under Article 226 of the Constitution to issue an appropriate writ is discretionary and if the High Court finds that there is no satisfactory explanation for the inordinate delay, it may reject the petition if it finds that the issue of writ will lead to public inconvenience and interference with rights of others.
(4) Decision in Ramana Dayaram Shetty v. The International Airport Authority of India and Ors., reported in AIR 1979 S.C 1628 was referred to, in order to point out that where the writ petition was filed by the petitioner after five months of the acceptance of the tender during which period considerable expenditure was incurred by the contractor over setting up a restaurant and the snack bars, it was held that it would now be most inequitous to set aside the contract.
(5) Decision in State of M.P and Ors. v. Nandlal Jaiswal and Ors. reported in (1986) 4 SCC 566 was relied upon for its proposition that there must be specific pleadings regarding malafides on the basis of which Court can arrive at its conclusion. It was also relied upon for its proposition that the challenge which was late by ten months after the Government took the decision was rightly not entertained by the High Court under Article 226 of the Constitution. The Supreme Court held that the power of the High Court to issue appropriate writ under Article 226 of the Constitution is discretionary and in the exercise of its discretion, the High Court does not ordinarily assist the tardy and the indolent or the acquiescent and the lethargic.
7. The learned Senior Counsel appearing for the respondent No. 3 adopted the contentions which were canvassed by the learned Senior Counsel appearing for the respondents Nos. 1 and 2 and added that during the presentations it was made clear to everybody that the respondent No. 1 had decided to have a configuration of 2+2+1 i.e. Two Gas Turbines, Two Waste Heat Recovery Boilers and One Steam Turbine. He referred to the clarifications made after the presentation in January, 1999 in this regard. He pointed out that it was all through out maintained that the project was to be of 160MW and not of any higher capacity. It was also pointed out from the relevant record that the justification for adopting the configuration of 2+2+1 was recorded in the contemporaneous record and the configuration of 1+1+1 which was earlier referred to alongwith the configuration of 2+2+1 in the RFQ published in December, 1998 was given up for a valid reason. It was submitted that the course of events discloses that there was an effort to keep the petitioner No. 1 in the reckoning, otherwise bid of the petitioner No. 1 could have been thrown out as non-responsive on grounds more than one. It was also contended that since the petitioner No. 1 was not a manufacturer itself, it could have supplied an appropriate 2+2+1 configuration, because, there were many manufacturers of that configuration in the field and not the respondent No. 3 alone. It was argued that the contention raised by the petitioners that public interest demanded that the capacity of the power project ought to have been fixed of 200MW output instead of 160MW, in fact, if countenanced, would amount to entertaining a challenge against the terms of invitation to tender, which cannot be done in view of the settled legal position. It was submitted that ordinarily the respondent No. 1 would not have entertained offerable capacity in excess of 160MW in the configuration, which was notified, but they were willing to make concession in favour of the petitioner No. 1 that they would evaluate the price based on utilisation of 9 lakhs M3/day and reduced by 2 per cent of the maximum capacity offered. It was pointed out that the contention that there was involved a revenue loss of Rs. 62.5 crores was raised ignoring the provisions which have bearing on fixation of tariff, fixed costs and variable costs and pay load factor. It was submitted that the "owner" had correctly evaluated the bids and decided to accept the bid of the respondent No. 3.
7.1 The learned Senior Counsel for the respondent No. 3 relied upon the decisions, which are already cited on behalf of the respondents Nos. 1 and 2 and also referred to further following decisions of the Supreme Court.
(1) E.P. Royappa v. State of Tamil Nadu and Anr. reported in AIR 1974 SC 555 was referred to in support of the submission that the burden of establishing malafides is very heavy on the person who alleges it. The Supreme Court held that the allegations of malafide are often more easily made than proved, and the very seriousness of such allegations demands proof of a high order of credibility. It was held that suspicion cannot take the place of proof.
(2) Delhi Science Forum and Ors. v. Union of India and Anr. reported in AIR 1996 S.C. 1356 was relied upon to show that the capping, against which the objection was raised by the petitioners, could legitimately be done by while inviting tenders. The Supreme Court noted that the tender documents in question had clearly stated that the authority was free to restrict the number of the service areas for which one company can be licensed to provide the service and therefore, it could not be urged that the decision regarding capping restricting the award of licence in category "A" and "B" Circles to one bidder to three was taken with some ulterior motive or purpose, not being one of the terms specified and prescribed in the tender documents.
(3) G.B. Mahajan and Ors. v. The Jalgaon Municipal Council and Ors. reported in AIR 1991 S.C 1153 was referred to for pointing out that the very concept of administrative discretion involves a right to choose between more than one possible course of action upon which there is room for reasonable people to hold differing opinions as to which is to be preferred. In that case, the Hon'ble Supreme Court observed that in the context of expanding exigencies of urban planning, it would be difficult for the Court to say that a particular policy option was better than another. The contention that the project was ultra-vires the powers of the Municipal Council did not appeal to the Supreme Court.
(4) Decision in G.J. Fernandez v. State of Karnataka and Ors., reported in (1990) 2 SCC 488 (which considered the decision reported in (1990) 2 S.C.C 486 which also was cited) was referred to for its proposition that where the instrumentalities of the State consistently and bonafide interpreted the standards prescribed in a particular manner and acted accordingly, the Court should not interfere and substitute an interpretation which it considers to be correct.
8. It is difficult to accept the extreme contention of the respondents that the Court ought not to entertain a petition to go behind the wisdom underlying the decision to accept a particular bid. It is equally difficult to accept the other extreme suggested on behalf of the petitioners that would make the Court plunge into the forbidden field of merits underlying the contract by examination of the requirements that went into the formation of the terms inviting tenders. There is a jural postulate of good faith in business relations and undertakings which is given effect to by preventing arbitrary exercise of powers by the duty bearer authority in bringing about a contractual transaction with the State. Duties co-relative to rights in personam are imposed upon persons exercising certain offices or callings in recognition and for the securing of the social interest in the individual life, especially individual opportunity and individual conditions of life. Here lies the border between public law and private law where vocational obligations cognizable in the ordinary courts of law give rise to enforceable individual rights which are rights in personam. With the rise of the Social Service State, questions have arisen as to contracts by or with incorporated public authorities owning or managing industries or activities. When such authority is a State within the meaning of Article 12 of the Constitution, there is a constitutional obligation on it not to act arbitrarily and discriminate against a person similarly situated as the favoured one. This is the constitutional limit of their authority within which there can be transactions between public authorities and private persons governed by law as administered in the ordinary Courts - binding them alike in the contractual field. The public officer and the public authority are in no superior position as such, because, in general, it is presumed that the State operates as a private-law person when it carries on an industrial or commercial service or lets property (see Jurisprudence by Roscoe Pound, Vol. V - page 226). Therefore, in the matter of particulars of the contract, such as what is actually required to be done, in what mode it is to be done, with what quality of material, in what time frame, subject to what type of supervision, as to what should be the standards to be observed and innumerable other aspects, which may have a bearing on the purposes for which the State authority invites the tenders, the Court will not ordinarily interfere with them nor require the authority to ask for a particular thing in a particular manner while inviting tenders. The consensual element in contract is as much present in the State authorities as in private individuals in the matter of fixation of the stipulations on the basis of which a contract is to be formed. What stipulations the authority should have fixed or ought to fix for the purpose underlying the subject contract has a bearing on the consensual aspect of the contract where the public authority should be free to determine its requirements like any private person. In short, the Court's power of judicial review does not extend to fixing stipulations of the subject of the contract. It only extends to keeping the public authorities, that are "State" as defined by Article 12, within the limits of their authority to safeguard the fundamental rights guaranteed by Part-III of the Constitution. If the Courts were to postulate rules ostensibly related to limitations on administrative power, but in reality calculated to open the gate into the forbidden field of merits of its exercise, the functions of the Courts would be exceeded. But, when it comes to the matter of exceeding or abusing the authority to bring about a contractual transaction the judicial review is permissible to prevent arbitrariness in the manner in which the public authority functions while entering into a contract. That is, in reality, in the realm of judicial control over administrative power of the public authority to bring about a contractual relationship with a private individual and not an interference into the stipulations on the basis of which the contract is intended to be made by the authority. It is more a matter of a legitimate constitutional expectation, that a public authority i.e. State will adhere to its duty of not denying equality right of persons, enshrined in Article 14 of the Constitution by acting in an arbitrary manner that necessarily would result in an unjustifiable discrimination, than a mere legitimate expectation that an obligation will be fulfilled by a private individual.
9. Considerable time was invested in impressing upon the Court that there was a design from the very inception, not only by the initial declaration of the capacity of the power project, but also subsequent clarifications made from time to time to see to it that the respondent No. 3 alone remains in the fray and its bid could be conveniently accepted. The request for proposal was published in February, 1999 (Annexure "A" page 25A to 190). It laid down the proposal requirements in Part-I. It was clearly indicated in paragraphs 1.1.2 thereof that the respondent No. 1 had invited pre-qualification bids (RFQ) for EPC Contractors for setting up a 160 MW +- 10 per cent (net) at site conditions (mean) Natural Gas Fired Combined Cycle Power Plant at Hazira being built by respondent No. 1 on Build, Own and Operate (BOO) basis. It was stated that this RFP document was being issued to selected pre-qualified EPC bidders (machinery manufacturers or consortium having GT manufacturer as consortium partner) for submitting their EPC bids for the project. It was specifically stated that the respondent No. 1 was promoting the 160 MW+- 10 per cent (net) Power project pursuant to the Government of Gujarat sanction letter dated 1.12.1998 and Gujarat Electricity Board clearance dated 14.12.1998. By communication dated 2.1.1999 (annexure-17 of the petitioners' rejoinder at page 854) addressed to all the bidders by way of clarification on the RFQ document also, it was stipulated that the configuration for generating 160MW+_10% net output at site conditions shall have 2 GTSs with corresponding HRSGs and 1ST for the said 160MW power project. In Part-III of the RFP document dealing with Technical Specifications it was again stated in paragraph III. 3.1.00 that the scope of the contract shall be for Engineering Procurement and Construction (EPC) of a highly reliable most modern `State of the art' technology based GT Power Plant of proven design having configuration of 2+2+1 i.e. Two Gas Turbines, Two Waste Heat Recovery Boilders and One Steam Turbine, based on natural gas as fuel with necessary operating flexibility at the proposed site as a base load plant for delivering net of about 160MW +- 10 per cent continuously at the battery limit of 220KV Switchyard outgoing terminal at mean site conditions. The plant shall be capable of operating at PLF (i.e. plant load factor) over 90 per cent with efficient use of fuel. Under the head Gas Turbines, in Part III 2.01, it was mentioned that the rating of gas turbines should be selected such that the same, with steam injection facilities from heat recovery steam generates (HRSG) with suitable Steam turbine generator (STG) for combined cycle operation, can deliver net total output of about 160MW +10 per cent. Even in the clarification letter dated 3rd March, 1999, the plant was described as 160 MW Natural Gas based Combined Cycle Plant. In the clarification dated 15.3.1999 made by the respondent No. 1, it was informed to the bidders that the bidder may quote maximum possible net guaranteed output based on Guaranteed Station Heat Rate, Auxiliary power consumption and availability of 0.9 MMSCMD (i.e. 9 lakh M3/day) gas with Net Calorific Value of 8300 Kcal/SCM (revised Fuel Supply Agreement condition). Such net guaranteed output figure would be fully taken into consideration only if it is more than 160MW +- 10 per cent. However, it was made clear that the configuration of 2 GTSs + 2 HRSGs + 1 ST stays as it is. It was specifically mentioned that `Per MW (gas) cost' would be evaluated based on such guaranteed output, Station Heat Rate and Auxiliary Power Consumption. In a further clarification to this, made on 3rd April, 1999 (Annexure "D" page 204), it was stated that the Gross Capacity offered by the bidder on the basis of 9 lakhs M3/day of gas having Net Calorific Value of 8300 Kcal/M3 would be based on guaranteed net SHR for field conditions. However, to account for possible deterioration in machine capacity over a period of time, a 2 per cent reduction in maximum capacity offerable with 9 lakhs M3/day of gas would be considered. The SHR to be considered at 70 per cent and 85 per cent of capacity would be based on the maximum offerable capacity thus reduced by 2 per cent. On this the petitioner wrote a letter to the respondent No. 1 on 1.5.1999 (Annexure - 18 of the affidavit in rejoinder at page 855), proposing to optimise and offer a plant based on marginal higher fuel utilisation than specified, say a minimum of 10 per cent, in order to give `best value for money to the respondent No. 1. It was stated that the optimum sizing suggested by the petitioner will provide "additional comforts to GSEC/GSPC in terms of better output and heat rate in the tariff calculations, thus, leading to higher profitability to generating company." To this the respondent No. 1 gave a negative response by its letter dated 3.5.1999 (Annexure "E" to the petition, page 206), stating that: "after examining various aspects of Fuel Supply Agreement and development plans of GSPC for its Hazira field, it has been decided that the capacity that may be offered for the Power Project should be based only upon the availability of 0.9 MMSCMD of Gas having Net Calorific Value of 8300 Kcal/SCM". It was once again clarified by the respondent No. 1 in their letter dated 19.7.1999 (Annexure "G" at page
208) under the heading "Capacity", at Item 5, that any capacity more than offerable at site conditions (with 9 lakh SCM/day of maximum gas available and calculated keeping in view the letter of respondent No. 1 dated 3.4.1999 will not be considered for evaluation. This will be so even if plant offered may have a higher capacity with 9 lakh M3/day Gas or without any restriction on gas quantity at ISO / site conditions. The time to submit revised bids was extended upto 12th August, 1999 at the request of the bidders, as stated in the letter dated 27th July, 1999 of the respondent No. 1 at Annexure "H" to the petition (page 211). On 30th July, 1999, the petitioners wrote a letter to the respondent No. 1 (Annexure "I" to the petition at page 213), in which it was stated at item 1.3 under the heading "Recommendations" that; the part load performance should not be related to the offerable capacity at 0.9 MSCMD utilisation as it leads to impractical low levels of loading for the 6FA machine and unfair comparative position with other machines and that the part load performance be related to the PPA, which can accept the full rated capacity of the plant and is independent of the rating for gas utilisation of 0.9 MSCMD. The respondent No. 1 in its letter dated 4.8.1999 (Annexure "J" to the petition at page 216) reiterated in response to the petitioners' letter dated 30th July, 1999 that evaluation criteria and loading figures were already communicated to the bidders and that it may be noted that evaluation was linked to offerable capacity. The petitioner thereafter submitted the revised price bid.
9.1 It will thus be seen that from the very inception and much before the qualified bidders could be identified, the capacity of the Power Plant Project was already fixed at 160 MW +_10 per cent. The petitioners' attempt to persuade the respondent No. 1 to raise the offerable capacity of 160 MW did not succeed and though it was stated that the net guaranteed output figure would be fully taken into consideration even if more than 160MW +_ 10 per cent, it was consistently maintained by the respondent No. 1 that any capacity more than offerable capacity will not be considered for evaluation whether with or without any restriction on gas quantity of 9 lakh M3/day. The petitioners entered the fray with open eyes and could not have insisted on raising the offerable capacity from 160MW +_ 10 per cent to a higher figure of 189MW or thereabout that its plant was capable of reaching on full utilisation of 9 lakh M3/day gas. At that time never was it suggested by the petitioner that the offerable capacity was pegged at 160MW +_ 10 per cent with a view to favour the respondent No. 3. The fact that the petitioner knew that there was not going to be any change in the ceiling of 160MW +_ 10 per cent of the Plant Capacity already declared while inviting the bids is clearly borne out from the record including the correspondence in respect of the financial package offered by the petitioner (see letter dated 22nd April, 1999 at Annexure-13 to the affidavit-in-rejoinder at page 841 with enclosures and letter dated 28.4.1999 of ICICI at Annexure-14 page 846 to the petitioners' subsidiary L&T Finance Ltd.). It would be too far-fetched to think that the ceiling of the capacity of 160MW was fixed before even the bidders could be ascertained with a view to favour the respondent No.
3. No malafides can be inferred from such initial fixation of the Power Plant Capacity at 160MW +_ 10 per cent. The criteria of 2 per cent reduction in maximum capacity on full utilisation of 9 lakh M3/day gas and the calorific heat value of 8300 Kcal were also laid down much before the giving of the bids and the petitioner No. 1 entered the competition knowing them full well and having failed to persuade the respondent No. 1 to accept its suggestions to the contrary. Neither fixation of the plant capacity at 160MW, nor incorporation of the stipulation regarding reduction of 2 per cent of the maximum capacity offered or taking the heat value of the gas at 8300 Kcal could be said to have been tailor-made to suit any particular bidder in March and April, 1999 when the bids were not yet received and the dates for which were from time to time extended upto 12th August, 1999.
10. The petitioners contention that its plant of the capacity 189 MW +_ 10 per cent would have been more cost effective necessarily leads to an elaborate statistical and technical exercise which would exert even those who are experts in the field. The rival tenderers have given their own reasons for the opposite stands that they take on the issue. On the petitioners' part a deliberate loss of revenue to the tune of Rs. 62.5 crores which could have been earned on the basis of a higher output on the optimum use of the fuel and its upper marginal additional possible swing under the FSA (Fuel Supply Agreement) due to an additional 33MW of electricity is alleged (see paragraph 13 (vii) of the petitioners' rejoinder) as a ground reflecting malafides or in any case arbitrariness in the decision making process; on the respondents' part this is disputed by contending that the statistical demonstration of the petitioners is deceptive and ignores several factors such as the additional capital outlay of Rs. 82 crores, the guaranteed minimum gas supply and offtake of 80 per cent of 9 lakh SCM3/day on annualised basis and recurring additional costs, of fuel to the tune of 31.32 crores, operation, maintenance, additional financing etc. The output of the 160MW +_10 per cent plant of respondent No. 3 was 156MW per 7.7 lakhs M3 SCM/day as against the projected higher capacity offered by the petitioner No. 1 of 189 MW on the basis of the 9 lakh M3/day, which means there was to be additional 1.3 lakh CM3/day gas consumption cost of which could not have been ignored. The petitioners had contended in paragraph 3.3 of the petition (page 12 to 13) that "the plant offered by the petitioners would generate additional 127 million units per annum, which will generate approximately Rs. 32 crores per annum additional revenue to the respondent Nos. 1 and 2" and jacked up the figures in their affidavit-in-rejoinder (paragraph 13
(vii) at page 560) by alleging that the annual loss of revenue of the respondents Nos. 1 and 2 was of 62.5 crores (approx.) In paragraph 3.2 of the petition they had referred to loss of 62.5 crores per year in additional business in the context of the higher capacity of 207MW attainable on use of quantity of gas higher than the available 9 lakh M3/day because in future there was possibility of availability of more gas. Eminent Counsel appearing for both the sides groping with the statistics, not so vital, presumably prepared by behind the screen experts aiding them in their arguments had a tug of war over the question of the alleged revenue loss to the respondents Nos. 1 and 2. Both sides dexterously demonstrated expertise in engineering economics of gas turbane Power Plant Project with opposite results. Such detailed exercise by the Court of assessing the pros and cons of different combinations of capacity, payload factor, operational costs, yield cost ratio etc. having bearing on financial viability of a plant configuration cannot be undertaken and in absence of any definite ground pointing at irrationality smacking of malafides or total arbitrariness, no inference can be drawn merely from a comparison of two different outcomes of a deal differing in the returns on investments.
10.1 The contention raised in the rejoinder by the petitioner at page 560 that there would be revenue loss of 62.5 crores on the basis of loss of power output at 80 per cent of plant load factor appears to be an exercise in oversimplification. It seems to ignore the statutory shackles of terms, conditions and tariff for sale of electricity by generating company contained in Sec. 43A of the Electricity (Supply) Act, 1948, which admittedly would apply to this project. As provided by Section 43A, the tariff for the sale of electricity by a generating company to the Electricity Board shall be determined in accordance with the norms regarding operation and plant load factor as may be laid down by the Authority and in accordance with the rates of depreciation and reasonable return and such other factors as may be determined, from time to time, by the Central Government, by notification in the official Gazette. Under Section 22 of the Electricity Regulatory Commissions Act, 1998, the State Commissioner has power to determine the tariff for electricity, wholesale, bulk, grid, or retail in the manner provided in Section 29. It is also empowered under Clause (c) of Section 22(1) to regulate power purchase including the price at which the power shall be procured from generating companies. The State Advisory Committee constituted under Section 24, advises the Commissioner on major policy questions, energy supply and overall standards of performance by utilities. Section 29(1) of the Act provides that notwithstanding anything contained in any other law, the tariff for supply of electricity, grid, wholesale, bulk or retail, as the case may be, in a State shall be subject to the provisions of the said Electricity Regulatory Commission Act and the tariff shall be determined by the State Commission in accordance with the provisions of that Act. The generating companies are obliged to adopt such principles in order that they may earn an adequate return and at the same time they do not exploit their dominant position in the generation, sale of electricity or its inter-State transmission. There are financial principles and their applications contained in Schedule VI to the Electricity (Supply) Act, 1998, which are to be kept in mind for fixation of tariff. By Notification dated 30th March, 1992, issued under Section 43A of the Electricity (Supply) Act, the Central Government determined the factors in accordance with which the tariff for sale of electricity by Generating Companies to Electricity Board shall be determined. The two part tariff for sale of electricity from Thermal Power Generating Stations, including gas and naptha based Stations, is provided consisting of annual fixed charges and energy (variable) charges. The first part of annual fixed charges covers (a) interest on loan capital; (b) depreciation, operation and maintenance expenses (excluding fuel); (c) taxes on income reckoned as expenses; (d) return on equity and (e) interest on working capital at a normative level of generation. The second part of energy (variable) charges covers fuel cost recoverable for each unit (Kilowatts hours) of the energy supplied on the basis of the norms prescribed in para 1.1 of that notification. Norms of operation and plant load as laid down by the authority are subject to modifications if any under Section 43A. These refer to plant load factor during stabilisation at 4500 hrs. /KW/year and for subsequent period 6000 hrs./KW/year, Station Heat Rate for gas based stations, Auxiliary consumption, and Stabilisation period which is 90 days for Combined Cycle Gas/Naptha based Station. Clause (e) of para 1.5 relating to the method of computing annual fixed charges lays down that Return on equity shall be computed on the paid up and subscribed capital relatable to the generating unit, and shall be 16 per cent of such capital. Full fixed charges shall be recoverable at generation level of 6000 hours/KW/year (which is 68.5 per cent of the total hours in a year and therefore, known as 68.5 per cent plant load factor). It is specifically provided in para 1.6 that "there shall not be any payment for fixed charges for generation level above 6000 hours/KW/year i.e. above 68.5 per cent of plant load factor. Only additional incentive not exceeding 0.7 per cent of paid up and subscribed capital was to be given for each per centage point increase of Plant Load Factor above the normal level of 6000 hours/KW/year i.e. 68.5 per cent of PLF.
10.2 The above narration is made just to indicate that a host of factors go into the economic aspect of the returns from the power generation and that these are statutorily regulated. It will therefore be too naive to accept the oversimplified approach of the petitioners raised for the first time in the rejoinder wailing over huge revenue loss worked out (at page 560) on an assumption of 80 per cent plant load factor and other assumptions which may not be in reality warranted. In fact such dabbling of an outsider into estimating the possible revenue returns of a generating company that is shackled by several terms and conditions for fixation of tariff and has to keep in view 16 per cent return on equity is not permissible at the instance of the petitioners or of its own by the Court while examining whether there has been arbitrary denial of contract to the petitioner. No such exercise is at all warranted for a sort of `post-mortem' of the decision fixing the requirement for tenders. Fixing the plant capacity of a Generating Company which regulated by statutory provisions as to tariff is no one else business. The analysis of reasons that led to fixing the plant capacity required for the project is in no way Courts' concern. It is not for the Court to study whether the project was viable and then to infer arbitrariness or malafides. The decision making process with which the Court is concerned for ruling out arbitrariness or malafide exercise of power is the process of deciding whom to award the contract and not any anterior process of deciding as to what should be the requirements for inviting tenders. In short the Court cannot in a petition of this nature ask the State authority "why do you install a 160MW project, why not 200MW?" That has nothing to do with the decision making process in the matter of award of contract, which starts only after the tenders are invited. The cardinal principle that the terms of the invitation to tender are not open to judicial scrutiny in the realm of contract, is laid down by the apex Court in Tata Cellular and Ronaq International (supra). As noted above, the decision to have 160 MW Combined Cycle Plant was conceived in the middle of 1998 and the sanction of the State Government was given on 1.12.1998 as can be seen from the communication of the State Government at Annexure "A" to the affidavit-in-reply of the respondents Nos. 1 and 2 (page
298). The RFQ published in December, 1998 also mentioned the project as 160MW Project. It is stated that ninteen persons showed interest, eleven submitted documents and seven were pre-qualified. In the clarification of 2.1.1999 (Annexure - 17 of Sur-rejoinder of respondents Nos. 1 and 2 - page 854), it was made clear to everyone that the respondent No. 1 had decided to have configuration of 2+2+1 for their 160MW Power Project. In the management presentation held on 4.1.1999 (minutes at Annexure "C" to the Sur-rejoinder of respondents Nos. 1 and 2 at page 895), it was stated that the GSPC had obtained for 2GTs, 2HRSGs and 1ST configuration and that the capacity of 160MW, which was declared will not be changed. In the meeting of Board of Directors held on 18.1.1999 (minutes at Annexure "N" to the affidavit-in-rejoinder of respondents Nos. 1 and 2 at page 938), the rationale for going for 2GTs + 2 HRSGs + 1 ST configuration was explained. The RFP document published in February, 1999 clearly mentioned that the power project was to be of 160MW and the configuration to be 2+2+1. These then were clearly the terms of invitation to tender and therefore not subject to judicial review. Even in the letter of 1.5.1999 which is Annexure "18" to the petitioner's rejoinder at page 855, the petitioner had rightly shown 160MW natural gas based Power Project at Hazira in the communication. The petitioner clearly knew the capacity of the proposed project and responded to the invitation to tender on that footing.
10.3 The Courts are not concerned with the wisdom or desirability of the terms on which a party is willing to contract. The Courts will not reconstitute or renegotiate the terms of contract. At the stage of negotiation of the terms of the proposed contract, there is everything to be said for allowing the parties to formulate the terms and conditions as per their respective contractual intentions. The parties are free to determine for themselves what primary obligations they will accept. The preliminary negotiations leading upto the execution of a contract are to be distinguished from the contract itself. There is no meeting of minds of the parties while they are merely negotiating as to the terms of an agreement to be entered into. To be final, the agreement must extend to all the terms which the parties intend to introduce.
10.4 If in the decision making process of entering into a contract by the State there is element of arbitrariness that results in violation of fundamental rights guaranteed by Article 14 of the Constitution, then the power of judicial review would extend to correcting it. It would however not extend to requiring the "State" to enter into a particular type of contract or to vary the subject of the contract. When offer is invited by the offeree, it is the offeree who sets the parameters of the offer and the offeror cannot dictate as to what the offeree should seek. The offeror has no choice in fixing the requirements of the offeree. A fortiori, the Court cannot exercise its jurisdiction to confer such choice on him and tune the requirements of the contract to suit the offeror's capacity and will. Those would be the elements that go into the constitution of a contractual relationship and will have no bearing on the aspect of arbitrariness in a decision making process by which contract is entered into. The arbitrariness that can justify Court's interference in award of contract by "State" is not the arbitrariness in determining the requirements for which the offer is invited but the one that results in discrimination against the offeror who fulfils the requirements with a valid offer, by bypassing him for no valid reason whatsoever. It is such pre-contractual situation that would make the decision to award a contract prone to challenge. Such arbitrary award of contract is bad not because of its terms but because of the manner in which it has resulted in violation of the fundamental right of a person bidding for it or due to violation of the statutory, including procedural requirements laid down for the purpose. There again, if evidence is required to be led the matter ought not to be summarily adjudicated on affidavits in exercise of the writ jurisdiction of the High Court. Thus, the petitioner cannot insist that the requirement in the invitation to offer should have been for a gas turbine generator of capacity of 200MW and that the respondent No. 1 should not have pegged it down to 160MW capacity or that the basis of Calorific Value of gas ought to have been 8300 Kcal instead of 8600 Kcal or that no back up guarantee of the GE i.e. the licensor, in respect of the gas turbine which were to be supplied by the licensee Hitachi or a letter supporting the back-up guarantee of the licensee should have been insisted upon by the respondent No. 1. In the matter of what the State wants for in a contract, the Court should hardly have any say. Fixing these requirements for calling offers for a contract was a unilateral exercise of the entity calling the offers and the offerer was not in picture at all at that stage. The petitioners therefore, cannot complain of arbitrariness against fixing of these requirements for which the offers were invited. The guarantee against arbitrariness under Article 14 is not intended to obliterate the essential elements of a contract and convert all contracts by States into a purely statutory relationship.
10.5 Merely because one bidder who has ultimately satisfied all the tender conditions remains, because other bids are not found to be acceptable due to non-compliance with the terms of invitation to tender, it would not warrant an inference that a single bid situation is created to suit the bidder who alone has answered the terms. The question of bias in favour of the lone bidder who has qualified, can arise only if any other bidder was wrongly disqualified despite his having satisfied all the conditions. The question whether conditions were satisfied for qualifying as a bidder would depend upon objective facts relatable to the requirements laid down in the conditions prescribed for the purpose while inviting the tenders.
10.6 There have been broad based expert committees that had examined all the facets of the deal involving a scores of high ranking officials of the public authorities and expert bodies and it will be too much to assume that they all acted in concert to favour the respondent No. 3 and disfavour petitioner No. 1 forming sort of an unlawful assembly to do such acts that may verge on criminality. The contemporaneous record in form of expert reports, evaluation and the reasoned decisions of the Management Committee of respondent No. 2 and of the Board of Directors of the respondent No. 1 rules out any deliberate design either from inception or during the consideration of the bids to show any undue favour to the respondent No. 3 at the cost of the petitioner. The decision taken cannot be branded as one which no person in his normal sense would ever take. Mere variation in assessments without anything more would not justify a conclusion of arbitrariness or legal malafides.
11. It was contended that the financial package offered by the respondent No. 3 was non-committal and should have therefore been treated as non-responsive with zero mark. However, this aspect was deliberately ignored to favour the respondent No. 3. Financial package was a proposal requirement covered by item 1.1.1.2 of the RFP document. It was mentioned therein that the respondent No. 1 required contractor's plan (including strategy and approach) for securing suppliers' credit, support or any other form of Financial Assistance and commitment for the equipment and the terms and conditions of the same. The response was to be given by the bidders using the format of Ex. PR-C. As stated in the Evaluation Criteria Para 1.5.1 of the RFP document, for the Financial Package, the Financial Assistance can be offered by way of suppliers' credit or in any other form. The bidders were required to mention the quantum offered, Rates, Credit enhancement required and any other terms and conditions. It was stated that the FP would be evaluated considering the currency, rate of interest, credit enhancement costs and other costs arising due to the terms and conditions. The lowest evaluated cost contractor would be given highest marks and others proportionately lower marks. It was specifically made clear that the Financial Package offered may or may not be availed of by the respondent No. 1. In the event of respondent No. 1 not opting for the Financial Package offered by the bidders, the marks indicated for the Financial Package were to be reallocated. If the respondent No. 1 availed of the Financial Package offered, the rates and terms and conditions quoted in the RFP were to be binding on the bidders. In the Ex-PR-C proforma of "Financial Package offered", the contractor's organisation plan to secure suppliers credit/any form of financial assistance, source, repayment profile (its tenor, instalments and moratorium), rate, currency, details of credit enhancement required and other terms and conditions, major covenants were required to be stated. In the clarification dated 3.3.1999 (at Annexure "B" to the petition page 191 at page 195) of the RFP, a detailed evalution criteria was enclosed and it was to form an integral part of the RFP document as stated therein. Accordingly, fifteen marks were earmarked for evaluation of the Financial Package offered. The relevant para of Evaluation of Financial Package around which the arguments centered, reads as under:-
*"- Where the bidders offer a financial package for 50 per cent or less of the value of its bid, such a financial package will be considered non responsive and no marks will be awarded under this category.
*- In the event the bidders offer a Financial package for more than 50 per cent but however, does not fund value of the entire EPC Bid offered, the evaluation of the NPV for the portion not offered will be evaluated based on the following assumptions. - Currency : Rupee
- Tenor : 9 years
- Interest : 18% (All inclusive)
- Repayment - Quarterly instalment's after a moratorium of six months.
*- Terms and conditions and covenants stipulated for availing of the financial package must adhere to those offered under prudent financial practices. The security package available under the project will be offered on pari passu basis to all lenders - whether part of this bid or mobilised separately by GSPCL. Where in the opinion of GSPCL the financial package stipulates norms not in line with the prudent financial practices, such a financial package will be considered non responsive and no marks will be awarded under this category.
*- Present value of the outflow towards debt will be computed using 12% as a discount factor."
11.1 By its letter dated 18.8.1999, the petitioner submitted revised price bids and enclosed Financial Package offered (PRC-of RFP) "based on current market conditions". This was in form of a letter dated July 24, 1999 from L & T Finance Ltd. addressed to the respondent No. 1. It was, inter-alia, stated therein as under:-
"The lenders would appraise the project and perform due diligence on the final terms and documents on award of the EPC contract to Larsen & Toubro and on their satisfaction the loan will be disbursed."
This means the FP offered depended upon the appraisal of the project by the tenders and their diligence on the final terms and documents. It is only when the tenderers were satisfied that the loan would be disbursed. Therefore, the bidder did not give a firm commitment but left it to the satisfaction of the tenderer L & T Finance Ltd., who offered the Financial Package under the contractors plan for securing the financial assistance. There was no commitment that the funds would flow merely on the basis of this package offered in the Financier's letter. In fact in the very nature of things such a Financial package would be only indicative reflecting how the contractor intended to plan the Financial Assistance and would not be a firm offer that could be accepted straightway without any further negotiations. The Financial Package offered by the petitioner was in view of the above stipulation not a firm commitment on the petitioners part to procure funds on the lines indicated and the matter was clearly left to the lender's discretion. Equally so was with the Financial Package offered by respondent No. 3 which was described as indicative terms of financing subject to technical feasibility and financial viability of the project and all approvals and satisfactory completion of the lender's due diligence and internal credit approval as mentioned in the lender ICICI's letter dated 28.4.1999 addressed to respondent No. 3 in response to their letter of 22.4.1999. It is significant to note that even the petitioner had through L & T Finance Ltd. approached for the financial package to the same ICICI as stated in its affidavit-in-rejoinder (page 546), which secured letter of the ICICI as per Annexure 14 (page 846) also dated 28.4.1999, which also clearly stated that indicative terms would be subject to technical feasibility and financial viability of the project being established and GSEG obtaining all approvals and satisfactory completion of the lenders (ICICI's) due diligence and internal credit approvals. It was also mentioned that the quotes were indicative and were being provided on a non-exclusive basis. In the annexure to that letter (page 847) it was stated that the terms and conditions were valid for three months from the date of the letter and this was a stipulation identical to the stipulation contained in the letter of ICICI of even date addressed to the respondent No. 3 as reflected in M/s. Kishore and Shastri's letter dated 31st August, 1999 (page 911). Thus, in the financial packages offered by both the petitioner and the respondent No. 3, the terms were indicative and only the ability and readiness of the financer to arrange a financial package was displayed as a part of the contractors' organisation plan to arrange for a financial assistance and there was no question of making a firm offer of actual funds which could be accepted without anything more and bind the parties into a financial contract. In fact, there was no "offer" of actual finance at all from the prospective lenders in the strict sense of the word, in either case, which could straightway be accepted without any more.
11.2 In the evalution criteria mentioned in the RFP document (Annexure "A") under the sub-head "Assumptions of Evaluation" (page 52), it was provided that the bidders were required to mention the quantum offer, rates, credit enhancement required and any other terms and conditions. Rival contentions were canvassed on the assumptions for evaluation contained in sub-paragraph (2) of paragragh 1.5.1. having bearing on the evaluation criteria of the financial package for the project and therefore, the same is reproduced hereinbelow:-
"2. Bidders are invited to offer Financial Package for the Project. Financial Assistance can be offered by way of Suppliers Credit or in any other form. The bidders are required to mention the Quantum offered, Rates, Credit enhancement required and any other terms and conditions. The financial package would be evaluated, considering the currency, rate of interest credit enhancement costs and other costs arising due to the terms and conditions. The lowest evaluated cost Contractor would be given highest marks and other Contractors would be given proportionately lower marks. Bidders may also indicate the time frame for arranging the financing package. It may be noted that the Financial Package offered may or may not be availed by GSPCL. In the event GSPCL does not opt for the financial package offered by the bidders then the marks indicated for the financial package will be reallocated. In the event GSPCL avails the Financial Package offered the rates and terms and conditions quoted in the RFP would be binding on the bidders."
Thus, while it was open for the respondents Nos. 1 and 2 not to opt for the Financial Package, if it was availed then the rates and terms and conditions quoted in the RFP were to be binding on the bidders. This means that rates and terms which were offered in the Financial Package in PR-C regarding quantum/repayment profile/rate/currency would bind the bidder, meaning thereby, if there was any deviation the bidder would be liable to reimburse the respondent Nos. 1 and 2. The contractor's organisational plan to secure supplier's credit/financial assistance was to be documented (see PR-C page 56). It was therefore rightly contended that in the owner's view nothing turned upon the description of the Financial Package offered by the petitioner No. 1 as "firm Financial Package" by M/s. Kishore and Shastri Consultants (P.) Ltd. in the accompaniment to its letter dated 31st August, 1999 at Annexure "F" to the sur-rejoinder of the respondents Nos. 1 and 2, (page 905). It will be noted that the said letter only purported to forward bidders quotes/deviations vis-a-vis the RFP requirement, and was not an evaluation of the Financial Package. The contention that M/s. Kishore and Shastri was dropped to bring in M/s. Fieldstone to evaluate the Financial Package is erroneous, because, M/s. Fieldstone only furnished the methodology for assessment to the respondent No. 1 and did not itself evaluate. A bare reading of the evaluation criteria annexed to the clarification dated 3.3.1999 at Annexure "B" to the petition shows that it did not lay down any detailed method of evaluation of the terms of the Financial Package, but only provided that the terms and conditions and covenants for availing of the financial package must adhere to those offered under prudent financial practices. It was also provided that where in the opinion of GSPCL the financial package stipulates norms not in line with the prudent financial practices, such a financial package will be considered non-responsive and no marks will be awarded under this category (see Annexure "B" to the petition at page 195). Reliance on behalf of the petitioner on the net present value as the method indicated in the evaluation criteria is misconceived because in the context in which net present value is referred to, it was to be applied to the portion of financial package not offered which was not the case here. Reference to present value of the outflow towards debt which was to be computed using 12 per cent as a discount factor was also not the method laid down for evaluating all the aspects of the financial package since it referred only to the present value of outflow towards debt. The paramount consideration was that the terms and conditions and covenants stipulated for availing of the financial package must adhere to those offered under prudent financial practices which were not elaborated. There were also stipulations in the clarification of 15.3.1999 (Annexure "C" to the petition) to the following effect:-
"3. In case the financial package being offered by the bidder involves floating and fixed interest rates, floating rates would be converted to fixed rate and cost of swap would be built in as a cash outflow, for the purpose of evaluation.
4. In case financial package offered by the bidders involves lease financing, evaluation would be based on the actual cash out-flow for the owners, based on lease rentals and tax implications if any."
11.3 The respondent No. 1 was therefore, justified in inquiring about the methodology of evaluation of the Financial Packages from M/s. Fieldstone who were experts in the field being finance arrangers. Their communication at Annexure "H" to the sur-rejoinder of respondents Nos. 1 and 2 at page 913 to 916, shows that they only forwarded to these respondents, their recommended methodology for evaluating different financial packages submitted by EPC bidders in connection with GSEG's combined cycle power project. The methodology takes care of the relevant aspects including the Power Purchase Agreement, which provides a tariff on a cost plus 16 per cent return on equity at 68.5 per cent plant load factor with incentives at higher plant load factor. The two-part tariff formula typical to the power projects was to be kept in mind alongwith the Government of India guidelines which are referred. It was stated that in any two financing packages for different type and capacity of equipment where cash flows are positive on a year to year basis in a two power tariff project, the only way to compare them would be based on return on equity. It was opined that the only way one can evaluate different EPC offers with financing will be to evaluate the effect the financing package will have on the common denominator, which was return on equity. Thus, it is not as if M/s. Fieldstone had themselves evaluated the financial packages. They only indicated the method of evaluation to the `owner' who on that basis evaluated the financial packages of the rival bidders. Therefore, the contention that evaluation made by M/s. Kishore and Shastri was substituted by the evaluation by M/s. Fieldstone to favour the respondent No. 3 has no basis whatsoever. It was open for the respondent No. 2 to evaluate the financial packages on the Return on Equity/Equity IRR basis which they have done as is evident from the evaluation of these Financial Packages done by the Managing Committee of the respondent No. 2 (minutes at Annexure "O" to the sur-rejoinder of respondents Nos. 1 and 2 at page 940) and the decision of the Board of Directors dated 9.9.1999 at Annexure "M" to the affidavit-in-reply of respondents Nos. 1 and 2 (at page 429), by which the evaluation made by the Managing Committee was approved.
11.4 The real issue however was as to the terms and conditions of the financial package in Ex. PR-C offered by the respective bidders. The relevant terms and conditions of Financial Packages offered by the petitioner Company and the respondent No. 3, which were binding on these bidders, are as under:-
Petitioner No. 1's Financial Package:
Document Contractor's organization plan to secure supplier's credit/any form of Financial assistance. Source : Indian Banks Quantum of Finance Offered : Upto 55 Crores Repayment Profile * Tenor : 7 Years * Instalments : Quarterly * Moratorium : Till capitalisation Rate : 16.75 PTPM Currency : INR Financial Package Offered:
Document contractor's organisation plan to secure supplier's credit / any form of Financial assisstance.
Source : Indian Banks/FIs etc.
Quantum of Finance Offered : Upto 500 Crores
comprising of Rupee term
loan Secured Redeemable
Non convertible
Debentures and Government
Guaranteed Bonds.
Repayment Profile
* Tenor : 7 Years
* Instalments : Quarterly
* Moratorium : 2 years.
Rate : Weighted average coupon
rate of 14.5 per cent
(exclusive of interest
tax) payable semi-annually.
Currency : INR.
xxx xxx xxxx
xxx xxx xxxx
Major covenants will be as applicable to project finance deals of this nature and will be decided mutually at the time of financial closure."
Respondent No. 3's Financial Package:
Source Offshore:
(1) ECA Facility (Swiss ERG) ANZ Bank or others
(2) Commercial Facility ANZ Bank or others
Onshore :
(3) Commercial Facility ICICI or others
(4) Deferred Payment Guarantee
("DPG") for offshore
facilities) ICICI or others
Quantum of Finance Offered:
(1) MUS $ 51 (plus IDC and 85% ECA premium)
(2) MUS $ 9 (plus IDC and 15% ECA premium)
(3) MUS $ 40 in INR.
Repayment Profile:
* Tenor : (1) 14 years
(2) 8 years
(3) 10 years
* Instalments (1) 24 semi-annually
(2) 11 semi-annually
(3) 32 quarterly
* Moratorium (from financial close) (1) 2 years
(2) 2.5 years
(3) 2 years
Rate:
(1) 45 bp (margin)
(2) 175 bp (margin)
(3) 350 bp (margin)
Currency:
(1) US$ or CHF
(2) US$ or CHF
(3) INR
Details of credit Enhancement Required:
(1) Swiss ERG guarantee, and from IFIs/Indian banks acceptable to ERG and lender.
(2) DPG from IFIs/Indian banks acceptable to lender.
(3) Securities in the project company acceptable to lender and further securities to be determined.
Terms and Conditions, Major Covenants:
The above terms and conditions are indicative. They do not constitute any commitment for any ABB company or the above parties to arrange financing to the above terms and conditions."
11.5 According to the petitioners, the respondent No. 1 had deliberately construed the tenor of the Financial Package supplied by the petitioner so as to exclude two years' moratorium period which was required to be added to the tenor of 7 years during which the instalments were to be paid for repayment. It was argued that the tenor was infact of nine years because the moratorium period of two years was required to be added to the tenor of seven years.
11.6 The word "tenor" in the context in which it is used in the PR-C under the heading "Repayment Profile" would mean the settled course of the whole repayment profile and not just the period of instalments for repayment. The settled course of repayment profile would include both the period covered by the instalments as well as the initial moratorium period. Moratorium would be the legal authorisation to the debtor to postpone the repayment, or the total period of such postponement. The period of moratorium will necessarily fall within the period for which the financial assistance will stand good and usually be the initial part of the total period during which the debt is scheduled to be repaid. The tenor of repayment profile was indicated in the RFP document (Annexure "A" at page 195) to be nine years as a method of evaluation of NPV in the context of the portion not offered in the offer of Financial Package. The repayment profile in that context was indicated to be nine years, quarterly instalments after a moratorium of six months. Both instalments and moratorium are indicated under the sub-heading `Repayment Profile'. That method of dealing with the portion not offered could, however, not be taken as the basis for comparision of the offers made by these bidders, as was initially sought to be suggested during the arguments on behalf of the petitioners. In their case there was required to be made comparison on the basis of method of evaluation which was equity IRR. In the form of Financial Package offered under the head `Repayment Profile' three things were to be stated namely tenor, instalments and moratorium. This would mean tenor of repayment profile which would be the total period of time by which the repayment has to be made for satisfying the debt, instalments for such repayment, and the moratorium during the period in which debt is to be repaid. Moratorium by its very nature would fall within the tenor of the repayment profile. Non-payment of debt during the agreed period of moratorium is also a part of `Repayment Profile' which in the context would mean the course agreed for making repayment of debt. The two termini of duration of financial assistance i.e. incurring of debt and its discharge by repayment would constitute the period within which the number of instalments agreed and the period of deferring repayment would both fall. Thus, if the tenor of repayment profile is seven years with moratorium of two years, it means that the debt is to be discharged within seven years from the date when it was incurred within which period the agreed moratorium of two years would fall and after which the instalments will commence so as to repay the debt fully on the expiry of seven years from the date when it is incurred. This would mean that the instalments were to be for five years. The Financial Package of the petitioner at Annexure "I" to the affidavit-in-reply of respondents Nos. 1 and 2 (at page 323) is capable of this interpretation adopted by the respondents Nos. 1 and 2 and therefore, it cannot be said that it has been deliberately misunderstood or that the tenor of the petitioner's repayment profile should have been taken to be nine years and not seven years. The tenor of repayment profile of the Financial Package of the respondent No. 3 was 14 years 8 years and 10 years for the three types of finances offered with respective moratorium from financial close, of 2, 2.5 and 3 years and respective instalments - 24 semi-annual, 11 semi-annual and 32 quarterly. Therefore, the period of repayment profile in the plan of financial package offered by the respondent No. 3 which had average tenor of more than ten years was found to be prudent and acceptable as borne out from the following minutes of the meeting of the Managing Committee held on 4.9.1999 under the head of `Evaluation criteria for award of 15 marks for `Financial package offered'. The shorter tenor of 7 years of the petitioners' offer was considered not prudent as it would cause low cash flow resulting in very low debt service coverage ratio which itself would render financing not feasible.
The offer of financing made by the petitioner was found to result in an equity IRR of above 10.42 per cent as against the higher equity IRR of 17.47 per cent from the offer of financial package made by the respondent No. 3.
Excerpts from the Minutes.
"The evaluation criteria awards 15 marks for financial package offer.
(i) The financing package offered by the bidders were discussed at legnth.
M.D informed that BSES consortium did not provide any financing package with their revised bid but sent a separate letter after the bid opening date. It was decided that their offer, therefore, cannot be considered.
(ii) RFP provided for adjustments to be made in the financing offered such as correcting the figures for the exchange rate on the date of bid opening, adjusting for additional financing when the financing offered was less than 100 per cent of the EPC price. Letter dated 3.3.99 to bidders, which is a part of the RFP also indicated that the financing should flow prudent financial practices for financing power projects. The RFP and subsequent clarifications, however, did not clearly lay down the criteria that will be used in evaluating different financing offers. The committee accepted M/s. Fieldstone's recommendations that Return on Equity to be the criteria that should be used in evaluating the financing package. It was also the general consensus of the Committee that any equity investor should consider primarily Return to the investors as the relevant criteria.
The specifics of the financing package offered by L&T and ABB were discussed in the light of foregoing L&T's financing had a tenor of Seven years and ABB's average tenor was more than ten years. The PPA allows for recovery of capital or principal payment of loans through depreciation, which was about 7.98 per cent per year. Any financing that had short tenor such as L&T's would tend to reduce the Return on Equity. Also financing tenor of 7 years will cause low cash flow resulting in very low debt service coverage ratio which itself will render financing not feasible.
The indicative calculations, prepared in house on the basis of common assumptions, confirmed the foregoing and showed that L&T's offer of financing will result in an equity IRR of about 10.42 per cent and that of ABB in an equity IRR 17.47 per cent.
Moreover, it had been laid down that where in the opinion of GSPCL the financing package stipulates norms not in line with the prudent financial practices, such a financing package will be considered non-responsive and no marks will be awarded under this category.
The committee deliberated the issue at length and in view of:
(i) Cash flow problems,(ii) Poor Return on Equity, in case of financing package of L&T, decided to allocate Zero marks to L&T's offer. ABB's financing package was given 15 marks."
This evaluation was accepted by the Board of Directors on 9.9.1999 (Annexure "M" to the affidavit-in-reply at page 429) after considering financial packages offered by different bidders and a detailed discussion of various terms and conditions and the methodology recommended by Messrs Fieldstone for adopting IRR on equity to be the main criteria for evaluation.
11.7 Variation in the tenor of repayment profile in the components of instalments for repayment fixed and moratorium would have a direct financial implication on the cost of the project and consideration of this factor and the return to the investor on equity criteria while judging the bids would be perfectly germane to a decision on acceptance of a financial package. There is therefore, no element of arbitrariness on this count nor can it be inferred that any special favour was shown on this count to the respondent No. 3, whose tenor of Repayment Profile was found to be comparatively more beneficial on the relevant IRR on equity criteria as per the prudent financial practices, so as to earn 15 marks as per the stipulations contained in clarifications dated 3.3.1999 (page 195), by which it was provided that "where in the opinion of GSPCL the financial package stipulation norms are not in line with the prudent financial practices such a financial package will be considered non-responsive and no marks will be awarded under this category." It would be hazardous for the court to venture into any detailed inquiry as to why GSPCL found the financial package of the petitioner to be not in consonance with the prudent financial practices. There is no indication from the stand taken by GSPCL on the basis of the type of financial packages offered by the petitioner No. 1 and the respondent No. 3 that it came to a conclusion so very arbitrary as no person, with the normal prudence expected in such field, would have reached unless he acted with a pre-determined mind to oust the petitioner and favour the respondent No. 3. It is therefore, difficult to question the impugned decision awarding 15 marks to the respondent No. 3 and zero to the petitioner for the Financial Package offered.
12. The award of 75 marks to the respondent No. 3 for the lowest `Per MW (gross output) EPC cost' and the corresponding inverse proportion of 71.4 marks awarded to the petitioner was assailed on the grounds, that the 2 per cent reduction in the capacity offered by the petitioner which was 189 MW was not justified, because no such reduction was made in case of the 156 MW capacity offered by the respondent No. 3, on the basis of depreciation graphs of unrecoverable degradation of turbines which warranted similar reduction; that the offer of the petitioner being on "turn-key" basis there was no justification to load the price quoted by the petitioner; and finally, that there was no valid reason for the Management Committee to load the quoted price of the petitioner by 2 million U.S dollars on the spacious ground of non-production of a back-up guarantee from the licensor GE when no licensor in his senses would ever offer such guarantee for the turbines manufactured by the licensee here Hitachi.
12.1 Weightage of 75 marks was fixed in the evaluation criteria declared, in the clarification dated 3.3.1999 at Annexure "B" to the petition - (page 192 to
194), which formed integral part of the RFP document for "Per MW (gross output) EPC Cost" determined. The per MW (gross) evaluated cost was to be worked out by "loading" the quoted prices with the cost of missing items and further by a factor as indicated in the table, for increase in heat rate (average of heat rate at 85 per cent and 70 per cent) and auxiliary power consumption. Such evaluated per MW (gross) cost was to be worked out for all the bids. The lowest bid was to be awarded 75 marks and other bids were to be awarded marks in the inverse proportion of bid price to lowest bid price multiplied by 75.
12.2 On 7.1.1999, the respondent No. 1 appointed Desein Pvt. Ltd. as their consultants by letter at Annexure "E" of the sur-rejoinder of respondents Nos. 1 and 2 (page 901), for a detailed technical review and evaluation of the EPC bids for the compliance with the specified technical aspects and carrying out detailed technical analysis of the bids and evaluate them based on technical considerations. The bid evaluations were to be submitted by Desein with conclusions and recommendations to the Respondent No. 1 for final decision and the bid evaluation document was to remain as a permanent record of the basis for procurement decision. At the instance of the petitioners the respondents Nos. 1 and 2 placed on record certain documents which included the technical evaluation done by Desein and award of marks out of total possible 75 marks. The report was forwarded to the respondent No. 1 by Desein under its letter dated 30.8.1999. The report refers to seven pre-qualified EPC bidders and to the fact that the bids were received from three international/domestic EPC contractors namely ABB, L&T - Sumitomo-Hitachi and BSESBHEL Ansaldo. As regards the petitioner, it was observed in paragraph 4.9 of the report that "the L&T consortium does not have all the three partners as direct members of the consortium. This aspect needs to be further examined legally by GSPC". In para 4.10 of the report it was noted qua the petitioner that the back-up guarantee was not satisfactory. It was noted that RFP had required that in case gas turbine manufacturer is a licensee, the GT manufacturer must obtain a back-up guarantee from the licensor in respect of guarantees and availability of spare-parts. It was further noted qua the petitioner that: "In respect of L&T consortium, Hitachi claims to be co-developer with GE. However, the same is not borne out by GE letter as it states that "Frame 6FA Licence Agreement grants Hitachi, the right to manufacture the entire gas turbine". The GE letter does not specifically guarantee the machine performance. This is borne out from GE's letter dated 21.7.1999 which is at annexure "N" to the petition (at page 240). It was observed that `L&T consortium strictly does not fulfil RFP requirement'. It was further noted that probably GE has to place supervisory personnel at licensee's works at a considerable cost to enable them to issue the requisite guarantee. Such charges, according to Desein could be of the order of two to three million U.S. dollars; although no evaluation was done on this count. All the three bids were evaluated by Desein to arrive at evaluated cost and loading on account of technical item loading, auxiliary power consumption and station heat rate averaged at 85 per cent and 70 per cent and the results were annexed at annexure-I of the report. Desein concluded that on the basis of evaluation criteria the bid of respondent No. 3 was evaluated and awarded 75 marks and the petitioner was awarded 73.86 marks (The third bidder BSES was given 62.26 marks). From the comparative statement of bids at Annexure-I of the report it is clear that the total cost/MW (gross) of the petitioner's bid was higher and that of the respondent No. 3 was the lowest meriting it 75 marks. In the note below it was explained how loading was done in the prices quoted by these three bidders. Therefore, an independent expert had evaluated the bid of the respondent No. 3 as the lowest and awarded 75 marks. There is absolutely no valid reason for the court to question this evaluation.
12.3 This report was considered by the Fourth Management Committee of Directors of the company in detail in paragraphs (i) to (vi) as can be seen from its minutes of the meeting held on 4.9.1999 at Annexure "O" to the sur-rejoinder of the respondents Nos. 1 and 2 (at page 940). The report was found to be in order and the Committee therefore decided to accept it. A representative of Desein Pvt. Ltd. was present during the meeting as recorded in the minutes. The Management Committee so assisted by the presence of the expert, applied its mind to the factors relevant to loading the price quoted by the bidders including the petitioner. The following excerpt from the minutes at annexure "N" to the sur-rejoinder of the respondents Nos. 1 and 2 at pages 941 to 953 shows the decision taken by the Committee, for accepting the recommendations as submitted by the technical advisor Desein Pvt. Ltd. and of further loading the petitioner's bid by US dollars 2 million on the basis of the estimated cost due to non-availability of the GE's back-up guarantee which would entail cost that may have to be incurred over supervisory specialists at manufacturer's work and other related costs, resulting in the further reduction of marks of the petitioner from 73.86 to 71.41 on the basis of the formula which was pre-determined for evaluation (see Annexure "B" to the petition at page 192 to page 194).
Excerpt from the Minutes " (v) L & T quoted prices are stated to be envisaged on a split contract structure to optimise works contract tax implication. The exact split of "off shore" supplies and "on shore" erection and other service contract between rupee contracts for supplies and services is provisional and will be advised by L&T during negotiation. This may lead to higher incidence of Excise and Sales Tax if `on shore' supplies portion increases. Further, the price schedule indicated that in the event of foreign currency component actually incurred and invoiced is lower than the quoted amount, the balance amount shall be paid in equivalent rupees at exchange rates prevailing at the time of invoicing. Such a stipulation cannaot be acceptable to GSEC.
Works contract tax on civil works, withholding tax on foreign services and local sales tax on HRSG (being offered on lease) boiler do not appear to be included and are loaded as shown in M/s. Desein's evaluation.
(vi) The evaluated per MW cost, was arrived at by loading quoted cost by missing items, mentioned above, and considering offered output with 9 lac cubic meters/day gas and derated by 2 per cent to account for deterioration of SHR as per criteria already laid down. This was further loaded with differential "auxiliary power" and "heat rate" loading. The technical evaluation has awarded maximum 75 marks to the "lowest evaluated per MW cost"
bid. Other bids are marked in inverse proportion of their "evaluated per MW cost". Thus, ABB gets 75 marks, L&T - Sumitomo & BSES-BHEL-Ansaldo get 73.86 and 62.26 marks respectively as shown in Recommendation report of M/s. Desein. This report was found to be in order and hence, committee decided to accept it.
RFP had required that in case of manufacturer being a licensee, the licensee should submit a back up guarantee from original manufacturer licensor in respect of performance guarantees and supply of spares. A format was also furnished to bidders. Hitachi had stated that for frame 6FA they are co-developers of GE. Subseaquent GE clarification letter furnished by Hitachi states that gas turbine(s) will be built pursuant to existing license or manufacturing associate agreement. Under the agreement, Hitachi, is granted the right to manufacture entire gas turbine. The letter further states that GE provides Hitachi with technical information on numerous gas turbine models as well as technical support during manufacture, if required, including visits by GEPS engineering and technical specialists to Hitachi Ltd.'s factories. The aforesaid GE letter makes it clear that Hitachi is indeed a licensee of GE. And GE's back-up guarantees come with posting of supervisory specialists at manufacturer's works at cost and may involve some other costs. Desein has estimated cost of such effort at the level of USD 2 to 3 million although they have not considered the same in evaluation. The Committee deliberated on the issue and decided to load L&T offer further by USD 2 million. Similarly in case of BSES also the arrangement offered is not satisfactory as brought out in para 4.10 of Desein's Report. Hence, Committee decided to load BSES bid also by the same amount of USD 2 million."
12.4 The resolutions passed by the Management Committee at its meeting held on 4.9.1999 were ratified by the Board of Directors on 9.9.1999. The Board was assisted by the representative of Desein Pvt. Ltd., who apprised the Board about various technical aspects of their report and about deviations taken by the bidders and the manner in which these were dealt with by the company. The importance of back-up guarantee of licensor was discussed and the Board was of the opinion that such a guarantee was absolutely necessary in view of recent experiences in the State. The Board approved the comprehensive evaluation done by the Directors Committee at its meeting on 4th September, 1999 and the selection of the respondent No. 3 as lowest evaluated bidder and passed the impugned resolution.
12.5 It will thus be seen that the decision making process involved evaluation by the expert (Desein Pvt.Ltd.) who made its report entitled "Technical Bid recommendation against RFP for selection of EPC contractor". The basis for such evaluation was debated at the meetings of the Management Committee and the Board and loading of price quoted by bidders was done for reasons noted in the relevant record. The decision appears to be well informed, taken after proper consideration of the relevant material and for justifications given by interaction of several responsible persons. No extraneous factor that can vitiate such decision is discernible. It cannot be said, on a close scrutiny of the decision making process, that the impugned decision is such as no reasonable person would take.
12.6 The next contention raised on behalf of the petitioners was that the derating of the output offered by the petitioner company alone at 189MW by 2 per cent was not warranted because it was based on deterioration of the configuration unit which would be common to all machines and was not a unique flaw of the petitioners' offer. It was argued that increased fuel input would not add to the output in any significant way when the level of degradation reaches its lowest and makes the efficiency `unrecoverable' as per the graphs of depreciation of such machines. To this the Counsel for the respondents argued that this derating of 2 per cent was linked with the use of 9 lakh CM3/day of fuel for the capacity offered by the petitioner. It was contended that the respondent Nos.3's configuration with output of 156MW would not have consumed the entire available 9 lakh CM3/day and would have worked on 7.7 lakh CM3/day, leaving scope for maintaining the output when the depreciation sets in on the basis of the scope of using the remaining fuel upto 9 lakh CM3/day.
12.7 There was an animated debate over the issue whether when the machines wear out to an `unrecoverable' level would it be possible to improve their performance by injecting more fuel. The Counsel for the petitioner would say `No' and remind us of an old battered engine of a car not putting in any additional speed or mileage by pouring in more petrol while the respondents' Counsel would say `Yes' because it was so thought while stipulating the derating of 2 per cent and even relying upon a part of the report of Professor Kale (who was engaged by the petitioners on 15.1.2000 as per his report at Annexure 12 (page 836) of the petitioners' affidavit-in-rejoinder, to opine amidst the controversy already started by way of this petition), dealing with the ability of a gas turbine to pass additional fuel and make-up for fall over a period of time in which he could not with an intellectual honesty presumed of an academician, dispute that "The only method for making-up the power output of the turbine is to increase the gas (i.e. air and fuel) flow rate through it." However though in answer to his engagement he did finally conclude that "the loss or reduction capacity due to degradation over time cannot be made up by additional fuel", he left the trail of sound theory in the process of forming his opinion as under:-
"The power output of a turbine is the product of the mass flow rate of gases passing through it and the available enthalpy drop. With degradation, the temperature of exhaust gases leaving the turbine increases and the available enthalpy drop across the turbine decreases. The only method for making-up the power output of the turbine is to increase the gas (i.e. air and fuel) flow rate through it. For reasons cited above, the only possibility for realizing this objective is to increase the fuel flow rate. Usually, the fuel mass flow rate is a fraction of the air mass flow rate."
Prof. Kale, however, for reaching his conclusion resorted to the reasoning that "the required increase in mass flow rate through the gas turbine, is however, much greater and it will not be possible to make up for the short-fall in power output and that firing additional fuel has a serious limitation, namely increased heat release rate in the combustor which will increase the TIT (mass flow rate of air is unaltered).
12.8 We cannot get entangled in a technical debate of this sort by pretending to understand the engineering nuances nor should we remember that a car with an old engine would consume more fuel than before for covering the same distance. Mercifully, there is a stipulation initially incorporated, long before the dispute peeped out of the horizon, that would steer us through without having to test the opinions of experts on a point that they alone are presumed to understand. The stipulation having bearing on reduction of 2 per cent of the maximum capacity when offered on the basis of use of the entire 9 lakh CM3/day of gas with net Calorific Value of 8300 K.cal/SCM (which was as per the revised Fuel Supply Agreement condition (See Annexure "I" of respondents' sur-rejoinder dated 2.2.2000), clearly had figured in the clarification to the RFP document that was made on 3rd April, 1999 as per annexure "D" to the petition (page 204) in context of the earlier clarification dated 15.3.1999 at Annexure "C" to the petition (page 202). It was provided therein that the gross capacity offered by the bidder on the basis of 9 lakh M3/day of gas having net calorific value of 8300 K.cal/CM3 would be calculated based on guaranteed net SHR for field conditions. However, to account for possible deterioration in machine capacity over a period of time, a 2 per cent reduction in maximum capacity offerable with 9 lakh M3/day of gas would be considered. This would form the basis of the SHR to be considered at 70 per cent and 85 per cent of capacity. The earlier clarification dated 15.3.1999 (page 202) while permitting the bidder to quote maximum possible net guaranteed output based on guaranteed Station Heat Rate, Auxiliary Power Consumption and availability of 0.9 MMSCMD i.e. 9 lakh K.cal M3/day gas with net calorific value of 8300 cal/SCM made it clear that per MW (gross) cost would be evaluated based on the guaranteed output, SHR and auxiliary power consumption. The petitioner's proposal dated 1st May, 1999 (at Annexure 18 of its rejoinder at page 855) to optimise the plant capacity on fuel utilisation marginally higher than 9 lakh M3/day was turned down by the respondent No. 1 by its letter dated 3.5.1999 at Annexure "E" (page 206), in which the petitioner was informed that after examining various aspects of Fuel Supply Agreement and development plans of GSPC for its Hazira field, it had been decided that the capacity that may be offered for the power project should be based only upon the availability of 0.9 MMSCMD of gas being Net Calorific Value of 8300 K.Cal/SCM as clarified in the letter dated 15th March, 1999. The petitioner cannot challenge the above terms of invitation to tender by contending that the criteria of evaluation which envisaged reduction of 2 per cent of the maximum capacity offered on the basis of the use of 9 lakh CM3/day should not have been applied in the case of the petitioner who offered 189.870MW capacity with the use of 9 lakh CM3/day gas. The maximum capacity offered by the petitioner 189MW was therefore, reduced by 2 per cent to 186.070 as recorded in the table at Annexure "I" of Desein's report as "offered capacity after 2 per cent deterioration due to SHR", in accordance with the stipulated terms and the petitioners cannot make any valid grievance on this count.
12.9 The justification for loading the price quoted by the petitioner on the ground of non-inclusion of Works contract tax, Withholding tax and local Sales tax is reflected from Desein's report as under":-
"4.12 xxx xxx xxx . In respect of L&T the works contract tax on civil works, withholding tax on foreign services and local sales tax on HRSG do not appear to be included. The offer is therefore, loaded on that account as shown in Annexure I."
"NOTE:
* Prices quoted by L&T are envisaged on a split contract structure with a view to optimize works contract tax implication. The exact split of offshore supplies and onshore erection and other service contract between rupee contracts for supplies and services is provisional and will be advised during negotiation. The custom duty charges, though payable in Indian rupees, are shown in foreign currency. Further, the price schedule indicate that in the event of foreign currency components actually incurred and invoiced is lower than the quoted amount, the balance amount shall be paid in equivalent rupees at exchange rantes prevailing at the time of invoicing. Works contract tax is loaded at the rate of 2 per cent of civil works cost estimated at 50 per cent of on shore erection and other services quoted price of Rs. 538.92 million. Withholding tax applicable is 15 per cent in US and UK and 20 per cent in Japan. HRSG is offered on lease and local sales tax is loaded at the rate of 10 per cent on indicated price of Rs. 550 million.
* Loading due to increase in heat rate has been calculated at the rate of Rs. 36000/Kcal/MW over averaged differential heat rate at 85 per cent and 70 per cent of offerable capacity.
* Loading due to increase in Auxiliary Consumption has been calculated at the rate of Rs. 1.80 lakhs/KW/MW of installed capacity over averaged differential auxiliary power consumption at 85 per cent and 70 per cent."
12.10 As noted above, this evaluation made by Desein as reflected into its report was considered and approved by the Management Committee as recorded in its minutes of the meeting held on 4th September, 1999 at Annexure "O" to the Sur-rejoinder of the respondents (page 940). The petitioner company has therefore, miserably failed in its challenge against the award of 75 marks to the respondent No. 3, and in its claim to get marks higher than 71.46 awarded to it after further loading of estimated cost of US dollars 2 million due to lack of availability of the back-up guarantee of the licensor GE as required by the terms of invitation to tender.
13. The learned Senior Counsel appearing for the petitioners questioned the justification for reduction of one mark from 5 marks allotted for "Quality of Proposal and background", on the ground that the manufacturer was not part of consortium. It was argued that no licensor would be ready to become part of the licensee manufacturers transactions. It was too much to expect the licensor GE to become member of the consortium and the letter of GE dated 21.7.1999 (at page
240) was accepted good enough and satisfactory because the revised price bid of the petitioner was opened after the petitioner had submitted the letter alongwith its bid on 18.8.1999.
13.1 The RFP document (page 196) required that manufacturer should be part of the consortium and that the bid not conforming to this requirement will be treated as non-responsive and will be rejected. In the clarification dated 15.3.1999 (page 202), it was in para 2 laid down that in case the gas Turbine manufacturer included as a consortium member, is a licensee, then undertaking from the licensor confirming its back-up guarantee for successful performance of Gas Turbine Combined Cycle Power Plant alongwith associated auxiliary equipment and availability of spare parts should also be provided. The letter of the respondent No. 1 dated 19.7.1999 (at page 208 without annexures and also at page 327 to 424 with annexures), furnished the format of such guarantee at Annexure VII to that letter (at page 423). The letter of GE dated 21.7.1999 profferred by the petitioner at Annexure "N" (page 240) was nothing short of a mockery of this term of invitation to tender. There is not a word in that letter which can constitute an undertaking of the licensor in support of the licensee manufacturers back-up guarantee in respect of the project in question. The Desein in its Evaluation Report dated 30.8.1999 referred in para 2.6 to the fact that RFP required GT machinery manufacturer to be part of the consortium bidding for the project and recorded in para 2.8 that the bidders were asked for the back-up guarantee from the licensor in respect of guarantees and availability of spare parts observing in para 4.9 in respect of the petitioner's consortium that the original consortium comprised L&T Sumitomo and later Hitachi as GT manufacturer joined hands with Sumitomo to become consortium member through Somitomo. It was observed that the L & T (i.e. petitioner's) consortium did not have all the three partners as direct members of the consortium.
13.2 The Management Committee which met on 4.9.1999 deleberate on this issue assisted by the representatives of M/s. Desein who explained their report in detail as recorded in the minutes, and held that the arrangement did not exactly fulfil the RFP criteria in respect of consortium arrangement and it therefore, decided that one mark be deducted in case of the petitioner on this count from the total of 5 (awardable under head "Quality of Proposal & Back-up guarantee") as recorded in the minutes at Annexure "O" (page 940) in clause
(iv). This evaluation was confirmed by the Board as reflected in its minutes (Annexure "M" page 429) after discussing the importance of back-up guarantee of licensors and being of the opinion that such guarantee was absolutely necessary. Thus, the deduction of 1 mark under the head "Quality of proposal" on the basis of the terms of invitation to tender cannot be said to be unjustified, arbitrary or calculated to favour the respondent No. 3.
13.3 Back-up guarantee was required from the manufacturer of gas turbines. A licensee of manufacturer manufactures on the basis of the licence granted by the original manufacturer and if such license is cancelled he cannot lawfully continue the manufacture of the product. Therefore, the requirement that back-up guarantee of the original manufacturer be obtained by its licensee cannot be said to be an arbitrary requirement calculated to favour the respondent No. 3. This requirement was in fact diluted by allowing back-up guarantee of the licensee manufacturer to be supported by an undertaking of the licensor confirming its back-up guarantee for successful performance of Gas Turbine Combined Cycle Plant alongwith associated auxiliary equipment and availability of spare parts. The letter dated 21.7.1999 of GE (page 240) did not provide the needed assurance. The contention that because the bid was not rejected earlier on the ground of non-production of the letter of GE as stipulated in the communication of 19.7.1999 and the price bid of the petitioner was opened, it should be assumed that the condition was dispensed with, is mis-conceived. Can it be contended from the mere fact that price bid was opened that the earlier requirement of letter from the licensor was dispensed with? The price bids of bidders were to be opened in presence of bidders who chose to remain present on a given day. The position after the meeting on 15/16.7.1999 as summarised at item 2 of Annexure "I" to the letter dated 19.7.1999 (Annexure "J" collectively at pages 327 and 335 to 336) in context of the requirement of back-up guarantee was that the consortium of Sumitomo/Hitachi will furnish letter from GE specifying arrangement between GE and Hitachi with regard to manufacture of the gas turbine (Frame 6FA). It was stipulated that unless this letter clearly establishes that the requirement of performance back-up guarantee of licensor/principal can be dispensed with, the same will have to be produced, as mentioned in para 4 of the covering letter dated 19.7.1999. It was also stated that the consortium agreement between Sumitomo-Hitachi on one hand as against triparte agreement will be subject to the owner's approval. Then comes clause
(iv) on which reliance was placed to contend that opening of the price bid should be construed as acceptance of the GE's letter and in any event the requirement should be taken to have been waived. This clause reads that "Price bid will be opened only after receipt of above for the bidder". It is obvious that the contention is raised in desperation and cannot be countenanced. Physical opening of the price bid cannot be attributed with an efficacy of waiver of all preceding requirements. By opening of the revised price bid the question of evaluation of the Quality of proposal for which 5 marks were to be allocated and which required manufacturer to be a member of the consortium did not evaporate. No conscious decision of waiver of this requirement was at all taken at the intermittant stage of opening of the bid. The petitioner put forth GE's letter dated 21.7.1999 (page 240) before the price bid was opened. There is nothing to show that any decision over the validity of that letter was taken by the "owner" or that it was in any manner decided to waive the important basic requirement. The state of formal rejection of a bid comes at the end and continued consideration till the end will not imply intermittent irreversible approval of the matters under consideration or implied waiver of basic conditions specifically required to be fulfilled by the bidder.
14. In view of what has been stated hereinabove, there is absolutely no warrant for interfering with the impugned decision taken by the respondents Nos. 1 and 2 for awarding the contract to the respondent No. 3. The petition is therefore, rejected. Notice is discharged with no order as to costs. Interim relief stands vacated.
At this stage, a request has been made on behalf of the petitioners that the interim relief in form of status-quo which has been operating till today may be extended for two weeks. This request cannot be countenanced having regard to the facts and circumstances of the case and keeping in view the ratio of the decision of the Hon'ble Supreme Court in Ronaq International (supra).