Larsen And Toubro Ltd & Anr vs Union Of India & Ors

1. This Special Leave Petition has been filed by

M/s. Larsen and Toubro Ltd. and one Lt. Col. Ajay

Bhatia (Retired), challenging the judgment and

order passed by the Division Bench of the Delhi

High Court on 8th September, 2010, dismissing Writ

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Petition (Civil) No.3231 of 2010, filed by the

Petitioners herein. In the Writ Petition, a prayer

had, inter alia, been made for an appropriate writ,

order or direction upon the Respondent Nos.1 to 3

to consider the bid of the Petitioner No.1 in

response to Request For Proposal (RFP) No. TM

(M)/0025/CG/FPV dated 17th June, 2009 and to invite

the said Petitioner for negotiation, since the said

bid was the lowest bid, and, thereafter, to accept

the same in terms of the said RFP.

2. On 17th June, 2009, the Respondent No.1 sent a

RFP to the Petitioner No.1 for supply of 20 Fast

Patrol Vessels (FPV) for the Indian Coast Guard.

Similar requests were also sent to other persons as

well. According to the normal procedure, the RFP

was to be submitted by the intending bidders in two

parts. The first part was to consist of the

technical proposal and the second part was to be

the commercial proposal or financial bid. In

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response to the said RFP, the Petitioner No.1

submitted its bid on 19th October, 2009, containing

a technical proposal and a commercial proposal in

two parts. In its commercial offer, the Petitioner

had indicated that it intended to avail of the

Exchange Rate Variation benefit. The Petitioner and

four others, including the Respondent No.4, proved

to be successful in the technical bid and,

thereafter, the commercial bids were opened on 11th

January, 2010, in the presence of the Bidders

and/or their representatives. Although, the offer

of the Petitioner No.1 was found to be the lowest

(L-1), its bid was held to be non-responsive,

because, despite the tender condition that the

price was to be firm and fixed for the entire

duration of the contract and would not be subject

to escalation, the Petitioner No.1 had claimed the

benefit of Foreign Exchange Rate Variation. On the

other hand, Respondent No.4, M/s. Cochin Shipyard

Ltd., a Public Sector Undertaking, was found to be

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the second lowest bidder (L-2).

3. Apart from the fact that the Technical

Evaluation Committee, which had been constituted on

21st October, 2009, found that the price quoted by

the Petitioner had a variable foreign content, it

was also found that in order to determine the

foreign exchange content, the Petitioner had

attached a copy of the rate card of the State Bank

of India along with the commercial bid, which

contained various exchange rates of different

foreign currencies. The Petitioner, however, did

not specify as to which foreign currency was the

basis of the foreign exchange component in its

commercial bid. Since the Commercial offers had to

be firm and fixed and since the Petitioner had

claimed the benefit of the foreign exchange

variation component, the Contract Negotiation

Committee, which was constituted in accordance with

the Defence Procurement Procedure-08 (DPP),

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concluded that the commercial offer of the

Petitioner was non-responsive. The Petitioner

thereupon withdrew its offer and offered the quoted

price without the Foreign Exchange Rate Variation

content. The Contract Negotiation Committee,

however, declared the bid of the Petitioner as non-

responsive and awarded the contract to Respondent

No.4, which was declared as L-1. Challenging the

said decision of the Respondents, the Petitioners

filed Writ Petition No.3231 of 2010 before the

Delhi High Court.

4. As has been recorded in the impugned judgment

of the High Court, when the writ petition was taken

up for admission on 14th May, 2010, the fact that

the Petitioners had withdrawn the condition with

regard to the provision of Foreign Exchange Rate

Variation was considered and it was also observed

that such subsequent withdrawal could not affect

the bid of the Petitioners. However, on the

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submission made on behalf of the Petitioners that

the aforesaid condition was also included in the

RFP submitted by Respondent No.4, notice was issued

in the matter. Consequently, while taking up the

writ petition for final disposal, the issues framed

for deciding the writ petition were centered round

the said question. In fact, the first issue which

was framed was whether a Bidder could amend its bid

by withdrawing a condition of the bid document,

whereby the bid was considered to be non-

responsive. The second issue, which is an off-

shoot of the first issue, is whether a Bidder would

be entitled to contend that a non-responsive bid be

treated as responsive since the offending condition

was withdrawn after the bid documents had been

opened. The third issue raised was with regard to

the bid submitted by Respondent No.4 and whether

the same could be treated as responsive, although,

the price offered by the said Respondent contained

a foreign exchange rate component which was to be

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considered at a particular rate as applicable on a

future date at the time of opening of the bid.

5. In deciding the said issues, the High Court

held that since the terms and conditions of the

price to be firm and fixed was one of the more

important ingredients of the tender, the submission

of a bid which violated the said condition rendered

the bid non-responsive. The High Court observed

that this was not a case of clerical mistake in the

bid documents, but a conscious change in the terms

and conditions of the bid as submitted by the

Petitioners, which could not cure the initial

disqualification when the bids were submitted. The

High Court took note of the fact that the bid of

Respondent No.4 contained the condition that its

price would be in Indian rupees with a foreign

component which would be converted in Indian rupees

as on the date of opening of the bid. The High

Court observed that the same did not violate the

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conditions of the RFP and that the said condition

ensured that the price would be firm and fixed

during the period of performance of the contract.

Accordingly, the High Court held that the said

condition satisfied the condition regarding price

being firm and fixed and could not, therefore, be

treated on the same footing as the conditions

offered by the Petitioner.

6. The High Court also rejected the Petitioner's

contention that as per the bid documents the

Discounted Cash Flow (DCF) method was required to

be used to arrive at the actual and final cost

which would be payable by the Respondent Nos.1 to

3, for the contract in question. Taking note of

the different conditions relating to the evaluation

and acceptance process and the terms of payment,

the High Court took the view that once the contract

had been awarded, the submission made on behalf of

the Petitioner that the DCF mechanism had to be

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applied had little force. Furthermore, it was also

observed that the adoption of the ECF method could

not be said to be mandatory, as the relevant clause

provides that the buyer reserved its right to apply

the DCF method if it wished to do so.

7. On its aforesaid findings and strongly

deprecating the practice of submitting a Foreign

Currency Rate Card with the rates of various

currencies, without specifying the currency in

respect of which the foreign exchange rate was to

be considered, the High Court was of the view that

the entire exercise was mala fide and while

dismissing the writ petition, imposed costs both in

favour of the Respondent Nos.1 to 3 and the

Respondent No.4.

8. Mr. S. Ganesh, learned Senior Advocate, who

appeared for the Petitioners, submitted that the

same ground on which the Petitioners' bid documents

had been rejected, was also applicable to the bid

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documents submitted by the Respondent No.4,

inasmuch as, the Foreign Exchange Rate Variation

factor had also been projected by the said

Respondent in the column relating to Foreign

Exchange Conversion Rates contained in the

commercial bid. Mr. Ganesh submitted that

different yardsticks had been used in the case of

the Petitioners and the Respondent No.4. While

accepting the commercial bid documents of the

Respondent No.4 as valid, the Respondent No.1,

Union of India, ought not to have rejected the

commercial bid documents submitted by the

Petitioners on the basis of the same objection.

9. Mr. Ganesh drew our attention to the response

of the Respondent No.4 in the column relating to

Foreign Exchange Conversion Rates included in the

commercial bid documents. It has been indicated

therein on behalf of the Respondent No.4 that the

costing of the vessel had been carried out by

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converting the foreign currencies into Indian

currency with conversion rate as on the date of

costing. The said rates and the contents of foreign

currency had been disclosed in the commercial offer

and the exchange rate of those currencies as on the

date of the opening of the bid would be applicable

for the respective foreign currencies to determine

the price of the vessel. There could, therefore,

be price variation till the commercial bids were

opened.

10. Mr. Ganesh contended that Part IV of the

Request for Proposal dealt with evaluation and

acceptance criteria which included evaluation of

commercial proposals. Under the instructions with

regard to evaluation of commercial proposals, it

has been categorically stated that the

shipyard/shipbuilder quoting the lowest price (L-1)

as determined by the Contracts Negotiation

Committee would be invited for negotiations and

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that the Discounted Cash Flow method would be used

for evaluation of the bids.

11. Mr. Ganesh submitted that while awarding the

contracts, the Government has to be completely fair

and above all arbitrariness, as was laid down by

this Court in Ramana Dayaram Shetty vs.

International Airport Authority of India [(1979) 3

SCC 489]. Mr. Ganesh also submitted that, in any

event, the Petitioners had withdrawn the condition

regarding Foreign Exchange Rate Variation and had

substituted the same with a Fixed Rate offer.

Accordingly, Petitioners' tender documents ought

not to have been rejected and the High Court erred

in holding otherwise.

12. The stand taken on behalf of the Petitioners

was strongly opposed on behalf of the Respondent

No.4, to whom the contract had been awarded. Mr.

Ashok H. Desai, learned Senior Advocate, pointed

out that the condition relating to the Foreign

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Exchange Rate Variation and the proposal of the

Respondent No.4 in relation thereto indicated a

firm rate of exchange as on the date of the opening

of the commercial bids and there would be no

escalation of such offer during the subsistence of

the contract, as envisaged in the tender documents.

It was urged that the rate quoted by the Respondent

No.4 was firm and fixed as on the date of opening

of the commercial bids and was not subject to any

variation during the period of the contract. Mr.

Desai submitted that the averments made on behalf

of the Petitioners to the contrary, as far as the

commercial bid of the Respondent No.4 was

concerned, were erroneous and misconceived and were

in no way similar to the offer made by the

Petitioners.

13. Learned Additional Solicitor General, Ms.

Indira Jaising, took much the same stand as Mr.

Desai and contended that since the commercial

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offers had already been opened, the changed offer

made on behalf of the Petitioners regarding the

Foreign Exchange Rate Variation condition was

concerned, could not be taken into consideration

and had to be rejected on that ground.

Furthermore, as submitted by Mr. Desai, the offer

made by the Petitioners and that made by the

Respondent No.4 on the question of firm and fixed

pricing, were different and could not be said to be

on the same footing.

14. Having heard learned counsel for the respective

parties, we are satisfied that the High Court did

not commit any error in dismissing the Writ

Petition filed by the Petitioners, since in the

absence of compliance with the terms and conditions

relating to firm and fixed price offer, the

Petitioners stood excluded from consideration. The

offer in this regard made by the Respondent No.4

satisfies the requirements of a firm and fixed

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offer, since once the commercial bids were opened,

there was no further scope of the rates being

altered, which was not so in the case of the

Petitioners, which tried to make its bid responsive

by withdrawing the initial offer and substituting

the same with another.

15. As far as the decision in Ramana Dayaram

Shetty's case is concerned, the same does not in

any way help the Petitioners' case and, on the

other hand, has very clearly laid down that where

tenders are invited for grant of Government

Contract, the standard of eligibility laid down in

the notice for tenders could not be changed

arbitrarily as that would be hit by the provisions

of Article 14 of the Constitution. It was also

observed by this Court that an executive authority

has to be rigorously held to the standards by which

it professes its actions to be judged and it must

scrupulously observe those standards on pain of

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invalidation. It has been repeatedly stated by

this Court that every action of the Executive

Government must be informed with reason and should

be free from arbitrariness, the same being the very

essence of the rule of law. The said decision, in

fact, supports the case of the Respondent No.4.

16. We, therefore, find no reason to interfere with

the judgment and order of the High Court impugned

in this Special Leave Petition and the same is,

accordingly, dismissed.

17. There will be no order as to costs.

................................................J.

(ALTAMAS KABIR)

................................................J.

(CYRIAC JOSEPH)

NEW DELHI

DATED: 05.05.2011