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CASE NO.: Appeal (civil)  2988 of 2005

PETITIONER: Global Energy Ltd. & Anr.

RESPONDENT: M/s Adani Exports Ltd. & Ors.

DATE OF JUDGMENT: 03/05/2005

BENCH: CJI R.C. Lahoti & G. P. Mathur

JUDGMENT: J U D G M E N T

(Arising out of Special Leave Petition (C) No.7024 of 2005)

With

Civil Appeal No.           of 2005 (Arising out of SLP (C) No.7032 of

G. P. MATHUR, J.

       Leave granted.

2.      These appeals have been preferred against the judgment and  order dated 21.3.2005 of a Division Bench of Calcutta High Court by  which the appeals preferred against the interim order passed by a  learned Single Judge on 15.3.2005 were allowed and the interim  directions contained in the said order were set aside.   3.      The West Bengal State Electricity Board (for short ’Electricity  Board’) issued a notice on 8.3.2005 inviting tenders (for short NIT)  for sale of its surplus power to different State Electricity Boards or  Power Utilities on short term basis through Power Trading Agencies.    Paragraphs 1 and 5 of the notice, which are relevant for the decision  of controversy in hand, are being reproduced below : "1.     Sealed tenders are invited by the Chief Engineer,  Central Commercial Department, West Bengal State  Electricity Board, Vidyut Bhawan, 8th Floor, Block-A,  Bidhannagar, Kolkata - 700 091 from experienced and  interested Traders and Business Enterprises having  Power Trading License or Clearance from the Central  Electricity Regulatory Commission for export of  following approximate quantum of power.   

5.      Mode of deposit of Earnest Money :

5.1     Every quotation must accompany ’Earnest  Money’ in the form of Demand Draft or Pay  Order drawn on any Scheduled Bank of  India in favour of West Bengal State  Electricity Board payable at Kolkata  amounting to Rs.30,00,000.00 (Rupees  thirty lakh) only. The Central/State  Government Organization(s) and  CPSU(s)/PSU(s) are exempted from  submission of Earnest Money.

5.2     Earnest Money shall be refunded to the

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successful bidder only after opening of  irrevocable and revolving LC by the  successful bidder and commencement of  supply as per Payment Security Mechanism  Clause.   Earnest Money shall be refunded to  the unsuccessful bidder after finalization of  Tender.

5.3     No interest shall be paid by WBSEB on  Earnest Money."

4.      Global Energy Ltd. and H. Dhaul, the appellants herein, filed a  writ petition in the Calcutta High Court on 14.3.2005, where the  principal relief claimed was that the Electricity Board be restrained  from enforcing the condition requiring deposit of Rs.30 lakhs as  earnest money in respect of the aforesaid tender and an injunction  may be issued directing the Electricity Board to accept and evaluate  their bid without requiring deposit of Rs.30 lakhs as earnest money.    The plea taken in the writ petition was that the impugned condition for  deposit of earnest money of Rs.30 lakhs by licensed traders and not by  Central/State Government Organizations and Public Sector  Undertakings showed undue favour to them.  It was further pleaded  that the said condition was not only discriminatory but was also  contrary to express mandate of Electricity Act, 2003 and, therefore,  the same was liable to be struck down.  The writ petition was taken up  for admission hearing by a learned Single Judge on 15.3.2005 and the  following order was passed on the same day:         "The petitioners herein have challenged the action  of the respondent authorities regarding publication of the  notice inviting tender and also the condition regarding  deposit of earnest money by the intending tenderers on  various grounds mentioned in the writ petition.                  According to the petitioners, the respondent  authorities hereto have shown undue favour to the public  sector undertakings by granting exemption from  submitting the earnest money.

       Having heard the learned counsel appearing on  behalf of the parties and considering the facts and  circumstances of this case, I am of the view that this  petition should be decided only after filing of affidavits.

       Accordingly, respondents are directed to file  affidavit-in-opposition within three weeks from date.   Reply thereto, if any, be filed within a week thereafter  and let this matter be listed for hearing four weeks hence.   

       Let there also be an interim order by granting  liberty to the petitioners to participate in the tender  process in response to the notice inviting tender being  Annexure ’P-1’ to the writ petition subject to the  condition that the said petitioners will deposit the earnest  money by furnishing a Bank Guarantee or Bankers’  Cheque in favour of the respondent No.2 within 18th  March, 2005.

       The petitioners will, however, comply with the  other tender conditions as mentioned in the notice  inviting tender."

5.      Feeling aggrieved by the aforesaid order, M/s Adani Exports  Ltd. and M/s PTC India Ltd. filed two separate Letters Patent Appeals

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which were allowed by the Division Bench on 21.3.2005 and the  direction contained in the order under challenge, permitting the writ  petitioners (appellants herein) to deposit the earnest money by  furnishing a bank guarantee or bankers’ cheque in favour of the  Electricity Board by 18.3.2005 was set aside.  6.      Learned counsel for the appellants has submitted that the  condition requiring deposit of Rs.30 lakhs as earnest money by Power  Utilities other than Central/State Government Organizations and  Public Sector Undertakings is discriminatory and illegal.   He has  further submitted that the notice inviting tenders (NIT) was published  on 8.3.2005 which required that every quotation must accompany  earnest money in the form of a demand draft or pay order in favour of  the Electricity Board amounting to Rs.30 lakhs and the last date fixed  for submission of the tender was 14.30 hrs. on 15.3.2005.   A very  short notice had been given by the Electricity Board in which it was  difficult for the appellants to make arrangement for the amount of  Rs.30 lakhs.  In these circumstances, the learned Single Judge was  perfectly justified in issuing an interim direction, whereby the  appellants were permitted to deposit the earnest money by furnishing  a bank guarantee or bankers’ cheque by 18.3.2005.   Learned counsel  for M/s Adani Exports Ltd. and M/s PTC India Ltd., who are  respondents in the appeals, have submitted that an important clause  regarding deposit of earnest money in a NIT cannot be altered or  changed by Court as the said clause has to be strictly complied with,  being in the realm of contract.  The learned single Judge, therefore,  committed manifest error of law in issuing the interim direction on  15.3.2005 right on the first day of admission hearing of the writ  petition, which was rightly set aside by the Division Bench. 7.      Before examining the contention raised it is important to  understand the real import of the order passed by the learned Single  Judge on 15.3.2005.  Though, apparently the order looks innocuous in  the sense that it has permitted the appellants (writ petitioners) to  deposit the money by furnishing a bank guarantee or a bankers’  cheque by 18.3.2005, but in reality it completely altered the NIT in  two ways.  It allowed the appellants to participate in the tender  process without depositing any earnest money as the tenders/offers  were to be opened at 15.00 hrs. on 15.3.2005 and thus the appellants’  tender was directed to be considered even though the same was not  accompanied with the earnest money.  Secondly, once the tenders are  opened, the relative position of each bidder is known and the  appellants would have avoided depositing any earnest money, had  they felt that their bid was not competitive and there was no chance of  getting the contract.   It is averred in the counter affidavit that the  appellants adopted a similar device while making bid for purchase of  power in Orissa where they obtained a somewhat similar order of not  making the deposit of earnest money by the date fixed.  When after  opening the tenders it was revealed that their bid was not competitive  and they had no chance of getting the contract they did not at all  deposit the earnest money, which was a mandatory condition of NIT.   

8.      Clause 5.1 of NIT clearly provided that every quotation must  accompany earnest money amounting to Rupees thirty lakhs in the  form of demand draft or pay order  drawn on any Scheduled Bank of  India in favour of West Bengal State Electricity Board payable at  Kolkata.  However, the learned Single Judge in his order dated  15.3.2004 also gave an option to the appellants to furnish a bank  guarantee of the said amount.  Deposit of some amount of earnest  money is a normal condition of tender.  The object is that only such  parties who are financially sound and are serious in getting the work  or contract, should make a bid.  Otherwise any number of persons  who have no capacity, financial or otherwise, would like to take a  chance by making a bid.  Normally, State/Central Government  Organizations or Central or State Public Sector Undertakings would  not make a bid unless they are serious in getting the work.   The  shareholding of the Government (State or Central) in any Public

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Sector Undertakings is always more than 50 per cent.   They cannot be  equated with a company whose net worth may be very small or may  have a small shareholding.  Therefore, the exemption granted in  favour of State Government Organizations and Public Sector  Undertakings from making deposit of earnest money of Rs.30 lakhs  was based upon a rational criteria and could not be faulted on any  ground whatsoever.  Order XXVII Rule 8A CPC provides that no  such security as is mentioned in rules 5 and 6 of Order XLI shall be  required from the Government or, where the Government has  undertaken any defence of the suit, from any public officer sued in  respect of an act alleged to be done by him in his official capacity.   This provision shows that Government is always treated as a separate  class.  Even assuming for the sake of argument that the exemption  from depositing earnest money made in favour of Central/State  Government Organizations and Public Sector Undertakings was  illegal, it could only result in such exemption being struck down.  This  could not lead to a result where the condition in the NIT requiring  deposit of earnest money itself being set aside.  

9.      In Tata Cellular v. Union of India AIR 1996 SC 11, a Three  Judge Bench has explained what is a tender and what are the  requisites of a valid tender.   It has been held that the tender must be  unconditional and must conform to the terms of the obligation and  further the person by whom the tender is made must be able and  willing to perform his obligations.  It has been further held 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.  In Air  India Ltd. v. Cochin International Airport Ltd. 2000 (2) SCC 617 the  same view was reiterated that the State can fix its own terms of  invitation of tender and that it is not open to judicial scrutiny.    Whether and in what conditions the terms of a notice inviting tenders  can be a subject matter of judicial scrutiny, has been examined in  considerable detail in Directorate of Education v. Educomp  Datamatics Ltd. 2004(4) SCC 19.  The Directorate of Education,  Government of National Capital Territory of Delhi had taken a  decision to establish computer laboratories in all Government schools  in NCT area and tenders were invited to provide hardware for this  purpose.   For the final phase of 2002-03, tenders were called for 748  schools and the cost of project was approx. Rs.100 crores.  In view of  the difficulty faced in the earlier years where the lowest tenderers  were not able to implement the entire project, a decision was taken to  invite tenders from firms having a turnover of Rs.20 crores or more  for the last three financial years ending with 31.3.2002, as it was felt  that it would be easier for the department to deal with one company  which is well managed and not with several companies.  Some of the  firms filed writ petitions in Delhi High Court challenging the clause of  the NIT whereby a condition was put that only such firms which had a  turnover of Rs.20 crores or more for the last three financial years  would be eligible.   It was contended before the High Court that the  aforesaid condition had been incorporated solely with an intent to  deprive a large number of companies imparting computer education  from bidding and monopolize the same for big companies.  The writ  petition was allowed and the clause was struck down as being  arbitrary and irrational.   In appeal, this Court reversed the judgment  of the High Court basically on the ground that the terms of the  invitation to tender are not open to judicial scrutiny, the same being in  the realm of contract and the Government must have a free hand in  settling the terms of the tender.   The courts would not interfere with  the terms of the tender notice unless it was shown to be either  arbitrary or discriminatory or actuated by malice.  It was further held  that while exercising the power of judicial review of the terms of the  tender notice, the Court cannot order change in them.    10.     The principle is, therefore, well settled that the terms of the  invitation to tender are not open to judicial scrutiny and the Courts  cannot whittle down the terms of the tender as they are in the realm of

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contract unless they are wholly arbitrary, discriminatory or actuated  by malice.   This being the position of law, settled by a catena of  decisions of this Court, it is rather surprising that the learned Single  Judge passed an interim direction on the very first day of admission  hearing of the writ petition and allowed the appellants to deposit the  earnest money by furnishing a bank guarantee or a bankers’ cheque  till three days after the actual date of opening of the tender.   The  order of the learned Single Judge being wholly illegal, was, therefore,  rightly set aside by the Division Bench.    

11.     Learned counsel for the appellants has submitted that the  appellant M/s Global Energy Ltd. had submitted a tender for Rs.436  crores while M/s Adani Exports India Ltd. had submitted a tender for  Rs.396 crores and as the tender of the appellants was Rs.40 crores  more than that of respondent No.1 the Electricity Board would gain  the said amount if the contract is awarded to the appellant.   Learned  counsel for the contesting respondents have submitted that appellant  no.1 is not technically qualified to be awarded the contract for the sale  of electricity as it does not possess the requisite license for the said  purpose.  The appellant no.1 applied for grant of license for interstate  trading in electricity in all the five electricity regions in the country  for trading of 100 million units in a year to the Central Electricity  Regulatory Commission.   The Commission vide its order dated  6.9.2004 granted an interim license for category ’A’.   The appellant  no.1 challenged the said order before the Delhi High Court in which  initially an order was passed on 26.10.2004 and the interim license  granted to it was extended till the next date of hearing.  This order was  extended and finally on 3.2.2005, the High Court directed that the  interim license granted to appellant no.1 shall be extended till further  orders.  It is, therefore, clear that appellant no.1 is having an interim  license of category ’A’ in its favour on the basis of the order passed  by the High Court.   It is averred in the counter affidavit filed by the  Electricity Board that the total units of power intended to be traded are  1471 million units.  For trading over 1000 million units of power in  any year the license required is that of category ’F’.   The computer  website of Central Electricity Regulatory Commission, as on  14.3.2005, contains the names of 12 licensed electricity traders, but  the name of the appellant no.1, M/s Global Energy Ltd. does not find  mention therein.   It is also averred in the counter affidavit that the  Electricity Board had been selling surplus power to electricity traders  since 1st April, 2003. In the course of such negotiations, the Electricity  Board came to be associated with appellant no.1 for entering into  power purchase agreement for the period March to June 2004.   However, the appellant no.1, after accepting the terms and conditions  offered by the Electricity Board and after issuance of letters of  awards, failed at the last moment to open the letter of credit for  requisite amount and submitted unacceptable letter of credit making  the Electricity Board as a second beneficiary.  Due to this reason, the  power purchase agreement failed to materialize at the last moment,  due to which the Electricity Board could not sell surplus power  resulting in a loss of revenue to the extent of about Rs.10.86 crores.    In view of these facts, the contract was not awarded to appellant no.1.

12.     The fact that M/s Global Energy Ltd. has a license of category  ’A’ and that the said licence is subsisting in its favour on the basis of  an interim order passed by the High Court is not in dispute.  Under the  regulations of Central Electricity Regulatory Commission, a holder of  category ’F’ license is entitled to trade in over 1000 million units of  power in a year.   The total power intended to be traded by the  Electricity Board is 1471 million units for which appellant no.1 does  not possess the requisite license.   Having regard to these facts, we are  clearly of the opinion that no ground has been made out by the  appellants, which may warrant interference by this Court with the  decision taken by the West Bengal State Electricity Board in not  awarding the contract to the appellant No. 1 as price offered cannot be

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the sole criteria in the matter of trading of power where holding of  relevant licence is mandatory under the Regulations of Central  Electricity Regulatory Commission.   

13.     The appeals lack merit and are hereby dismissed with costs,  which we quantify as Rs.25,000/-.   The cost shall be paid by the  appellants to the West Bengal State Electricity Board (respondent  no.2).