Case Law Details
Silppi Constructions Contractors Vs Union of India (Kerala High Court)
The writ petitions were filed by a partnership firm in connection with a tender invited for construction of residential apartments to provide “Married Accommodation for Sailors” at Kochi. The tenders, issued under a two-bid system, involved estimated costs of Rs.53 crores and Rs.72 crores. The petitioner submitted its technical and financial bids in accordance with the tender conditions, including required documents and demand drafts towards tender cost and EMD.
Read SC Judgment in this case: SC Upholds Tender Rejection Due to Ineligibility Under ‘SS’ Class Criteria
After submission, the petitioner found that its Technical Bid had been rejected on 28.03.2019 on the ground “Does not meet the criteria.” The rejection was based on a Work Load Return of “SS Class” contractors for the quarter ending September 2018. The remarks referred to slow progress in work executed at CE Chennai Zone and cancellation of a contract at CE (NW) Kochi Zone. The remarks related to M/s. Silppi Realtors & Contractors Pvt. Ltd., a private limited company in which some partners of the petitioner firm had been directors.
The petitioner contended that it and M/s. Silppi Realtors & Contractors Pvt. Ltd. were separate legal entities. It argued that the adverse remarks in the Work Load Return were incorrectly attributed to it. The petitioner sought reconsideration under the relevant clause of the tender conditions and requested modification of the remarks. It also asserted that its partners were not directors of the private limited company at the relevant time. However, the appeal before the second respondent was rejected.
The petitioner further contended that the alleged delay in the Chennai work occurred due to extension granted by authorities and was not attributable to fault on its part. With respect to the cancellation of the Kochi Zone contract, it was submitted that an arbitrator appointed by the Court had declared the cancellation illegal and awarded Rs.3.83 crores as compensation. Though the award was under challenge, the petitioner argued that rejection of its bid on that basis was unsustainable.
The respondents justified the rejection by referring to the Military Engineer Services (MES) Manual on Contracts, 2007 (Reprint 2012). Reliance was placed on clauses relating to renewal criteria, suspension and action upon cancellation of contracts, and related firms. It was argued that once a contract is cancelled due to default, tenders shall not be issued to the contractor or allied firms without clearance from the Engineer-in-Chief’s Branch (E-in-C’s Branch). The respondents also relied on the definition of “business relationship,” stating that firms with common partners or directors are considered related firms. On this basis, it was contended that the petitioner’s sister concern’s adverse record justified rejection of the Technical Bid.
Upon consideration, the Court examined the communications produced by the petitioner and found that the period of contracts in Chennai had been extended due to adverse circumstances and not due to fault of the sister concern. The Court also noted that the cancellation of the Kochi contract had been declared illegal by the arbitrator and compensation awarded, though the matter was pending in challenge.
Importantly, the Court found that there was no reference made by the second respondent to the E-in-C’s Branch as required under the relevant clauses of the MES Manual to justify rejection. The Court concluded that the reasons assigned for rejection of the Technical Bid could not be sustained in law. It further observed that the appellate authority had passed a non-speaking order without addressing the issues raised by the petitioner, thereby violating principles of natural justice and rendering the decision arbitrary and illegal.
Accordingly, the rejection orders and appellate orders were quashed. The second respondent was directed to consider the petitioner’s commercial bid along with other tenderers and finalize the process within two weeks. The interim order was directed to continue until then. The writ petitions were allowed to this extent.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The captioned writ petitions are materially connected and filed by one and the same partnership firm, with regard to invitation of a tender by the respondents for construction of residential apartments to provide “Married Accommodation for Sailors” at Kochi. Therefore, I heard them together and propose to deliver this common judgment. Petitioner seeks direction to quash Ext.P7 order passed by the 2nd respondent dated 10th April, 2019, in the proceeding instituted by the petitioner against the rejection of technical bid submitted by the petitioner, as per Ext.P3 dated 28.03.2019, in a two bid system, on the ground “Does not meet the criteria”, based on the circumstances put forth in Ext.P4 “work load return” that petitioner’s sister concern was slow in a work executed at CE Chennai Zone and further that the contract awarded to the petitioner was cancelled in CE (NW) Kochi Zone. The facts and documents available from W.P.(C) No.12207 of 2019 are relied upon for the purpose of disposal of both the writ petitions, since they are materially connected. Brief material facts for the disposal of the writ petitions are as follows:
2. In response to an e-procurement Notice for the work of Tender for the “Provision of Deficient Married Accommodation for Sailors (96 MCPOs)at Kochi” and “Provision of Deficient Married Accommodation for Sailors (192 Leadings) at Kochi”, having estimated cost of Rs.53 crores and Rs.72 crores respectively for the contracts in question, petitioner uploaded the competitive bids based on the Schedule of Quantities, Specifications and Technical Details of the work downloaded from the Military Engineer Services website and also sent a hard-copy in a separate sealed cover containing the Technical Bid along with two Demand Drafts, one for Rs.3,000/- in favour of the Garrison Engineer, Fort Kochi towards cost of tender, and the other for Rs.15 lakhs towards EMD in favour of the said Garrison Engineer respectively, against the tenders invited. Other documents are also produced in accordance with the requirements.
3. According to the petitioner, in Ext.P1, petitioner had indicated in brief the works executed by it and taken to successful completion and also indicated therein that the average annual financial turnover during the last three years ending 31st March, 2018 was Rs.34.14 crores, which was more than the amount of Rs.20 crores specified in the pre- qualification criteria in Appendix ‘A’ to the said Notice Inviting Tenders. After submission of bid, petitioner checked online about the bid opening at the office of the 2nd respondent on 15.03.2019 in order to ascertain the date of opening of bids for the above work, and then the petitioner noted that it had been opened and the evaluation of bids was on. Further, on 28.03.2019, the Technical Bids were seen to have been finalized vide Tender Summary Reports and found that its bid had not been considered, apparently based on the latest Work Load Return of “SS Class” Contractors for the quarter ending September, 2018, which had been uploaded on the MES website on 20.03.2019, in accordance with the letter dated 07.02.2019 from the Engineer-in-Chief, Military Engineer Services, New Delhi, evident from Ext.P4. It also appears that petitioner’s tender for the above work could not be considered based on the comments issued in Appendix ‘A’ to the said letter dated 07.02.2019 in regard to two works that had been taken up by M/s. Silppi Realtors & Contractors Pvt. Ltd., a Private Limited Company in which some of the partners of the Silppi Constructions Contractors were Directors.
4. It is the case of the petitioner that, the petitioner herein and M/s. Silppi Realtors & Contractors Pvt. Ltd. are two separate entities. Therefore, the reasons given in column No.6 of Appendix ‘A’ to the letter dated 07.02.2019, produced as Ext.P4 are grossly incorrect and without any basis. Thereupon, being aggrieved, petitioner in terms of clause 11(d) of Appendix ‘A’ of Ext.P1, approached the 2nd respondent vide its letter dated 28.03.2019 against the rejection of its Technical Bid, to strike off/change the remarks about the performance of M/s. Silppi Realtors & Contractors Pvt. Ltd. and to intimate the Headquarters, Engineer-in-Chief’s Branch, New Delhi with proper justification in support of the change to be made to the comments indicated in Column No.6 to the said Appendix ‘A’ of Ext.P4.
5. By the said letter, petitioner also called upon the 2nd respondent to consider its Technical Bid along with those of other tenderers before opening of Financial Bids and finalization of tender, failing which, it was notified that irreparable prejudice and losses will be caused to the petitioner. It was further intimated that the partners constituting the Partnership Firm, i.e., the petitioner herein, are not the Directors of M/s. Silppi Realtors & Contractors Pvt. Ltd. as on date, and hence, in any view of the matter, non-consideration of petitioner’s bid would be in violation of the principles of natural justice, which is produced as Ext.P6. However, as per Ext.P7 email dated 28.03.2019, forwarded by e-mail dated 09.04.2019, it was intimated that the claims raised by the petitioner before the 2nd respondent was rejected.
6. The case projected by the petitioner is that, the infirmities pointed out in Ext.P4 Work Load Return in respect of “SS Class” contractors for quarter ending September, 2018 are applicable only to M/s. Silppi Realtors & Contractors Pvt. Ltd., and the same is a separate legal entity. Furthermore, it is submitted that, the documents submitted by the petitioner, evident from Exts.P3 and P5 series etc. show that the work in Chennai was being extended by the authority due to the fault on their part, and therefore, the delay in carrying out the work cannot be attributed against the petitioner. So also, it is contended that, in the Arbitration proceedings with respect to the cancellation of the contract in CE (NW) Kochi Zone, was interfered with the Arbitrator appointed by this Court and passed an award holding that the cancellation of the contract was bad, and ordered to pay an amount of Rs.3.83 crores to the petitioner as compensation. Therefore, according to learned counsel for the petitioner, the rejection of the tender as per Ext.P3 stating that the Technical Bid submitted by the petitioner does not meet the criteria cannot be sustained under law.
7. Respondents have filed a detailed counter affidavit, refuting the allegations and claims and demands raised by the petitioner. It is also submitted thereunder that the rejection of the Technical Bid submitted by the petitioner on the basis of Ext.P3, assigning the reason that it does not meet the requirement criteria is fully justified in view of the Work Load Return of “SS Class” contractors, evident from Ext.P4(2) and the reasons assigned thereunder.
8. Learned counsel appearing for the respondents has invited my attention to Ext.R1(a) i.e., the Military Engineer Services Manual on Contracts, 2007, (Reprint 2012), and specifically to clause 1.14(d) dealing with Criteria for Renewal, which stipulates that, all contractors who apply for renewal will be re-enlisted except those falling under the categories mentioned thereunder. Sub-clause (1) thereunder read thus: “Contractors whose contracts have been cancelled and unrealized recoveries exist thereto, cases where cancellation of contract has been declared invalid/illegal in arbitration/court of law, shall be decided after obtaining approval of E-in-C Branch”.
9. So also, learned counsel has invited my attention to Clause 1.16 dealing with Suspension, Downgrading, Removal etc. of contractors and specifically invited my attention to sub-clause (g)(ii) thereunder, which deals with action on cancellation of Contract, which read thus:
“Once a contract with a Contractor has been cancelled due to his continued default in completing the works, no tenders shall be issued by any MES formation either to the said Contractor or to any of his partners individually or to any of his allied firms, till clearance is obtained from E-in-C’s Branch. In exceptional cases where the Command Chief Engineer considers that action against the Contractor in terms of the Standardised Code (or with-holding issue of further tenders) is not advisable, he should forward the case to E-in-C’s Branch with his detailed recommendations for a decision. However, pending decision on such cases from E-in-C’s Branch, issue of tenders to the firm shall stand suspended”.
Therefore, according to learned counsel for the respondents, the rejection of the Technical Bid submitted by the petitioner due to proven adverse track records of the sister concern of the petitioner and the cancellation of the contract of the petitioner is in accordance with law.
10. In order to justify such a contention, learned counsel has invited my attention to clause 1.19 dealing with Related Firms. Sub-clauses (a) to (c) thereunder are relevant, which read thus:
“(a) In the trade of works contracts, “business relationship” is the most important factor. This is corroborated with the provision to be made in the notice of tender as such a Contractor or Corporation, wishing to be registered as an approved Contractor, should give particulars of all MES registered Contractors with whom he/it has business relationship, irrespective of the fact whether there is blood/close relationship or not. These would include all sister concerns of the Contractor or Corporation also.
b. In case of Contractors having blood/close relation with each other but not any business relation whatsoever, particulars of such related contractors need not be given under serial no.7 of the enlistment form. In such cases, it would not be correct to deny issue of tenders to these contractors if they otherwise fulfil all requirements in selection for issue of tenders. However, while deciding a tender in favor of one party, it shall be ensured that fair competition has taken place.
c. A Contractor/ Corporation is termed to have “business relationship” with other Contractor(s)/ Corporation(s) when one or more partner(s)/director(s) are common.”
11. The sum and substance of the contention advanced by learned counsel for the respondents is that, M/s. Silppi Realtors & Contractors Pvt. Ltd. is a sister concern of the petitioner, and therefore, the stipulations contained under Clause 1.19 of Ext.R1(a) squarely applies in the case of the petitioner, and therefore, no manner of interference is warranted to the rejection of the bid and the dismissal of the appeal submitted by the petitioner. It is also submitted that, even though an award is passed in favour of the petitioner by the arbitrator with respect to cancellation of the contract, which is a reason assigned in Ext.P4 work load return, an appeal is preferred, and therefore, the requirements contained under Ext.R1(a), which are to be read along with Ext.P1 Notice Inviting Tender have not been met by the petitioner, in order to qualify in the Technical Bid.
12. On the other hand, learned counsel for the petitioner submitted that the documents produced by the petitioner as Exts.P4 and P5 series would make it clear that the slow progress of work in Chennai Zone happened due to default on the part of the authorities, and it is quite clear from the letters and communications issued by the authorities itself. I have gone through Exts.P4 and P5 series of communications and find that it is clear that the period of contracts were extended due to certain adverse circumstances that were prevailing and it was never due to any fault on the part of the alleged sister concern of the petitioner firm specified above. It is also an admitted fact that the cancellation of the contract of the Kochi Zone was found to be illegal by the arbitrator appointed by this Court and has ordered a compensation of Rs.3.83 crores, which, of course, is pending in challenge before the District Court, Ernakulam. I also find that there was no reference made by the 2nd respondent in accordance with Ext.R1(a) to the E-in-C’s Branch, so as to justify the rejection of the Technical Bid as is provided under various clauses of Ext.R1(a). In sum and substance, in my considered view, the reasons assigned in Ext.P3 rejection that the Technical Bid submitted by the petitioner has not met the criteria cannot be sustained under law for the reasons assigned above. Moreover, the appeal authority has not taken into account any of the issues raised by the petitioner in the appeals and has also passed a non-speaking order, violative of the principles of natural justice, and thus arbitrary and illegal. Therefore, the rejection of the tenders submitted by the petitioner and the orders in appeals under challenge in the captioned writ petitions, cannot be sustained under law.
13. In that view of the matter, Ext.P3 rejection orders in the writ petitions, rejecting the Technical Bids submitted by the petitioner and orders in appeal thereunder are hereby quashed, and there will be a direction to the 2nd respondent to consider the commercial bid submitted by the petitioner in accordance with law, along with the bids submitted by other tenderers, and attain finality at the earliest possible time, and at any rate, within two weeks from the date of receipt of a copy of this judgment. Till such time, the interim order passed by this Court will continue to be in force.
The writ petitions are allowed to the above extent.
Author Bio
