Case Law Details
State of Bihar & Ors Vs Ziqitza Health Care Ltd. & Anr. (Supreme Court of India)
The recent Supreme Court ruling in the case of State of Bihar & Ors. vs Ziqitza Health Care Ltd. & Anr. sheds light on a crucial aspect of corporate financial reporting: the role of explanatory notes in balance sheets. This article delves into the details of the case, the arguments presented, and the implications of the court’s decision.
Detailed Analysis: The crux of the matter revolved around the interpretation of Section 134(7) of the Companies Act, which addresses the inclusion of notes of account in balance sheets. The court emphatically affirmed that these notes are integral to understanding balance sheets. Without them, the true financial position of a company remains obscure. The judgment underscores the necessity of considering explanatory notes alongside balance sheets for a comprehensive understanding of financial statements.
The case involved multiple appellants and respondents, each presenting their arguments regarding disqualification from tender processes. The court meticulously examined the contentions put forth, particularly focusing on the compliance with tender requirements regarding the submission of explanatory notes of accounts.
Regarding the disqualification of M/s. BVG India Ltd., the court scrutinized whether the rejection of their technical bid based on non-compliance with explanatory note submission was justifiable. It was concluded that such disqualification lacked legal standing, emphasizing that compliance with tender requirements should be interpreted with precision.
Similarly, the disqualification of M/s. Pashupatinath Distributors Private Limited was examined, with the court upholding the decision based on the clear terms outlined in the tender documentation. The judgment reaffirmed the principle of adhering to tender specifications without dilution or deviation.
Conclusion: In conclusion, the Supreme Court’s ruling in the case of State of Bihar & Ors. vs Ziqitza Health Care Ltd. & Anr. reinforces the importance of thorough financial disclosure and compliance with tender requirements. The decision highlights the significance of explanatory notes in balance sheets and clarifies the legal obligations of companies in financial reporting. This landmark judgment sets a precedent for future cases involving corporate governance and tender processes, emphasizing transparency and adherence to statutory provisions.
Through this analysis, it becomes evident that meticulous attention to detail in financial reporting is essential for upholding corporate integrity and ensuring fair competition in tender processes.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Leave granted.
2. Three appeals are before us. The Civil Appeal Nos.4975 of 2024 and 4978 of 2024 are filed by the State whereas the Civil Appeal Nos.4976-4977 of 2024 are filed by M/s. Pashupatinath Distributors Private Limited, questioning the same impugned order by which the High Court after holding that M/s. Pashupatinath Distributors Private Limited is disqualified, also set aside the disqualification of M/s. BVG India Ltd. which is a consortium and remitted back the matter to the State for fresh consideration after excluding M/s. Pashupatinath Distributors Private Limited.
3. We have heard learned senior counsel appearing for the respective parties at length.
4. There are two questions which arise for consideration before us. One is pertaining to the disqualification of M/s. BVG India Ltd. and the other is with respect to the one associated with M/s. Pashupatinath Distributors Private Limited.
5. We shall first deal with the qualification of M/s. BVG India Ltd.. Their disqualification was rendered by rejecting the technical bid of the said concern on the premise that it has not complied with the necessary pre-requisite qualification in filing the explanatory notes of account being an integral part of the Balance Sheet. The High Court was pleased to hold that in the absence of any specific clause in the tender document, there is no such mandatory requirement and therefore, disqualification against M/s. BVG India Ltd. is not correct.
6. As it is rightly submitted by learned senior counsel, Mr. Singhvi, appearing for M/s. Pashupatinath Distributors Private Limited, the said reasoning of the High Court cannot be sustained in the eyes of law. As held by this Court in State Bank of India Vs. Krishidhan Seeds Private Limited: (2023) 1 SCC 209:
“ 11. An acknowledgment in a balance sheet without a qualification can be relied upon for the purpose of the proceedings under the IBC. This principle also emerges from the decision in Asset Reconstruction Co. which noted the decisions in Sesh Nath Singh and Laxmi Pat Surana. This Court held:
“35. A perusal of the aforesaid sections would show that there is no doubt that the filing of a balance sheet in accordance with the provisions of the Companies Act is mandatory, any transgression of the same being punishable by law. However, what is of importance is that notes that are annexed to or forming part of such financial statements are expressly recognised by Section 134(7). Equally, the auditor’s report may also enter caveats with regard to acknowledgments made in the books of accounts including the balance sheet. A perusal of the aforesaid would show that the statement of law contained in Bengal Silk Mills, that there is a compulsion in law to prepare a balance sheet but no compulsion to make any particular admission, is correct in law as it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgment of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act.”
7. There is no difficulty in holding that in tune with Section 134(7) of the Companies Act, notes of account do form part of the Balance Sheet. In other words, the Balance Sheets can only be understood by going into the factual narrations made in the explanatory notes of accounts. When one speaks about Balance Sheet, it takes along with it the explanatory note. To be noted, all the other bidders have complied with this part, even M/s. BVG India Ltd. was quite conscious of the said compliance as could be seen from one of the communication made by it. Thus, we are inclined to hold that the reasoning of the High Court, finding fault with disqualification of the technical bid of M/s. BVG India Ltd. cannot be sustained in the eye of law.
8. The only other issue to be considered is with respect to disqualification of M/s. Pashupatinath Distributors Private Limited. All the bidders had been called for a meeting and their queries have been answered by the tendering authority. As rightly pointed out by the learned senior counsel appearing for the respondent No.1 before us, the document concerned would clearly show that even the technical committee was of the view that the request made by M/s. Pashupatinath Distributors Private Limited to dilute Clause 2.2 and 2.3 is not feasible of consideration. While interpreting the terms of a tender, a simple interpretation is to be followed. Clause 2.2 deals with a tender of a sole bidder. Therefore, it consciously excludes a consortium, when a tender is made by a member on his own. The aforesaid principle of law has been taken note of and decided by this Court in Municipal Corporation, Ujjain And Another Versus BVG India Limited and Others: (2018) 5 SCC 462. We quote following passages from the aforesaid judgment:
51. It is necessary to note that in Annexure 1 to the NIT at serial no. 11, the bidder was required to set out details of any other company/firm involved as a consortium member to which respondent no.1 – BVG India Limited replied in the negative, which means no other company/firm was involved as a consortium member with BVG India Limited in the process in question. In other words, BVG India Limited submitted the bid on its own unaccompanied by any of the consortium member. Despite the same, BVG India Limited (respondent no.1) furnished the experience certificate of BVG Kshitij Waste Management Services Private Limited. No information whatsoever was given of the relationship/linkage of BVG Kshitij and Respondent 1 – BVG India Limited. Therefore, reliance placed by Respondent 1 on the purported experience certificate issued in the name of BVG Kshitij Waste Management Services Pvt. Limited would not come to the help of the Respondent 1 to show its work experience. The Pimpri Chinchwad Municipal Corporation (PCMC) Certificate dated 24.10.2013 is in Marathi and the same discloses that the work order was issued on 2.3.2012. The PCMC Certificate thus neither shows three years’ experience of BVG India Limited nor that BVG India Limited was carrying out garbage/waste collection of more than 300 MT per day. Since Respondent 1 has categorically mentioned in its bid under the column “basic information about tenderer” that no other company (either joint venture or consortium) is involved with BVG India Limited, Respondent 1 – BVG India Limited could not have relied upon the purported experience certificate issued in the name of BVG Kshitij Waste Management Services Pvt. Ltd. Other certificates submitted by the Respondent 1 also did not satisfy the eligibility requirement.”
64.2 A bidder who submits a bid expressly declaring that it is submitting the same independently and without any partners, consortium or joint venture, cannot rely upon the technical qualifications of any third party for its qualification.”
9. Thus, we have no difficulty in upholding the finding of the High Court on this aspect.
10. Having decided the aforesaid two issues, we are inclined to hold that both M/s. BVG India Ltd. and M/s. Pashupatinath Distributors Private Limited are disqualified from participating in the tender concluded. In view of the aforesaid conclusion, the ultimate decision of the High Court in remitting matter back for a fresh consideration by the State is upheld while clarifying that the aforesaid two entities cannot be permitted to participate with the existing disqualification as discussed above, unless they are otherwise qualified in the light of the interpretation of the notice inviting tender. Incidentally, we are inclined to permit M/s. Pashupatinath Distributors Private Limited to continue with their operation till the tender process as directed by the High Court in its impugned order and as modified by the order, is concluded. It is further clarified that the interim order dated 02.01.2024 passed by this Court shall continue till tendering process is concluded.
11. The State is directed to expedite the process of concluding tender process within a period of three months from today.
12. We make it clear that our observations are pertaining to the terms of the tender conditions which are existing as of now and it is well open to the State to formulate any new condition, if so required.
13. The present appeals are disposed of in the above terms.
14. Pending application(s), if any, shall stand disposed of.
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