IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.  841-842 /2009 (arising out of SLP(C) Nos. 30204-30205/2008)

State of Kerala … Appellant(s)

   versus

M/s Zoom Developers Pvt. Ltd. & Ors. … Respondent(s)

with   Civil Appeal No.843 /2009 (arising out of S.L.P.(C) No. 30305/2008) and  

Civil Appeal No.844/2009 (arising out of S.L.P.(C) No. 30355/2008)

J U D G M E N T

S.H. KAPADIA, J.

Leave granted.

2. A short question which arises for determination in these civil

appeals is  - whether the decision of the Bid Evaluation Committee

(“EC” for short) dated 6.5.2008 rejecting the Bid Proposal made by

the  Consortium  led  by  M/s  Zoom  Developers   Pvt.  Ltd.  as  non-

admissible in terms of RFP and thus excluding the said Consortium

from the zone of consideration was unjustified, arbitrary and bad in

law,  as  held  by the impugned  judgment  of  the  Kerala  High Court

dated 4.12.2008 in Writ Appeal No. 1460/2008.

Facts:

3. Government of Kerala (GoK) vide G.O. No. 9/07/F&PD dated

9.3.2007 decided to invite bids for the Development of International

Deepwater  Seaport  and  Container  Transshipment  Terminal  at

Vizhinjam  under  Public-Private  Partnership.  Vide  G.O.  dated

15.6.2007 GoK decided  on  the  key provisions  in  the  Request  For

Proposal (“RFP” for short) documents for the bidding of the above

Project.  A  competitive  bid  process  was  thus  initiated  by  M/s

Vizhinjam International Seaport Ltd. (“VSL” for short). VSL was the

Sponsor. IL & FS Infrastructure Development Corporation (“IDC” for

short)  was  the  Project  Advisor.  Accordingly,  on  8.8.2007,  Press

Notification  was  issued  by  M/s  VSL  inviting  RFP  for  the

development of the Project. On 23.1.2008 a Bid Opening Committee

was  constituted  vide  G.O.  of  the  same  date.  Thirty-three  firms

obtained  the  RFP  documents.  Vide  G.O.  dated  19.2.2008,  Bid

Evaluation  Committee  headed  by  the  Chief  Secretary  was  also

constituted  to  Evaluate  the  Bid  Proposals.  Ultimately,  bids  were

received from the following five Consortia by 31.1.2008 (which was

the last date stipulated for receiving the Bids), they were:

(i) Apollo Enterprises led consortium (ii) Nagarjuna Construction Co. led consortium (iii) Videocon Industries Ltd. led consortium (iv) Lanco Kondapalli Power Pvt. Ltd., Hyderabad, led consortium (v) Zoom Developers Pvt. Ltd., Mumbai led consortium.

4. The  bidders  were  required  to  submit  their  proposals  in  four

covers,  namely,  the  Outer  Cover  (containing  details  of  the  bidder,

power  of  attorney  in  favour  of  the  lead  member,  consortium

agreement  entered  amongst  the  members  of  the  consortium,  legal

opinion, security of Rs. 50 million in the form of bank guarantee etc.),

Cover-1 (Statement of  Qualification), Cover-2 (Technical Proposal)

and Cover-3 (Financial Proposal). In this case, evaluation was done in

three stages. In the first stage, there was evaluation of Outer Cover

and  Cover-1  to  check  the  admissibility  of  bids  and  evaluation  of

qualifications  as  stipulated  in  the  RFP.  It  may  be  noted  that

evaluation of the Technical  Proposal  had to  be done only of those

bidders who met the “Qualification Criteria” (vide second stage). The

third  stage  contemplated  evaluation  of  the  Technical  Proposal.  As

stated above, only five bids were received. These bids (Outer Cover

and  Cover-1)  were  opened  on  31.1.2008  by  the  Bid  Opening

Committee. The said firms were found to have satisfied  prima facie

the  requisite  requirements.  The  bids  were  accepted  by  the  Bid

Opening  Committee  for  further  scrutiny.  The  bids  submitted  were

considered at the meeting of the EC on 25.2.2008. In the said meeting

it  was  observed  that,  with  regard  to  the  bid  submitted  by  the

consortium led by M/s Zoom Developers Pvt. Ltd. (“ZDL” for short),

the  Power  of  Attorney  and  the  Consortium  Agreement  were

unstamped and they needed to be stamped. It was further pointed out

by the EC that the lead member in terms of the RFP, namely, M/s

ZDL was required to hold a minimum equity of 26% in the Special

Purpose Company (“SPC” for short),  which has not been expressly

mentioned in the Consortium Agreement. The EC further pointed out

to M/s ZDL that one of the consortium member, namely, M/s Portia

Management  Services  Ltd.  (“PMS”  for  short)  had  signed  the

consortium agreement on behalf of Peel Ports Ltd. (“PPL” for short)

but  M/s  PPL  is  not  a  member  of  the  consortium.  Additional

information regarding the financials of M/s PMS (on its own) and of

M/s  ZDL were also  called  for.  On 25.2.2008,  accordingly  the  EC

granted ten days time to remove the above defects. M/s ZDL sought

extension of time. Ultimately, time was extended up to 4.4.2008. In

short,  meetings  of  the  EC  took  place  on  25.2.2008,  13.3.2008,

8.4.2008  and  6.5.2008.  By  2.4.2008,  M/s  ZDL  submitted  all  the

relevant documents duly updated.  It may be noted that M/s Universal

Legal, Bangalore, were appointed as Legal Advisor of the Project by

the EC.

5. As  stated  above,  on  2.4.2008  M/s  ZDL  submitted  their

modified  documents.  On  4.4.2008  the  said  M/s  Universal  Legal

furnished their opinion that the Consortium Agreement submitted by

the Consortium led by M/s ZDL had complied with the requirements

of the RFP and that they had removed all defects pointed out to them

by the EC and accordingly the EC may consider their Bid Proposals.

However, in the third meeting held on 8.4.2008, the EC after having

considered the documents  submitted by the Consortium led by M/s

ZDL  came  to  the  conclusion  that  in  the  modified  consortium

agreement  dated  11.3.2008,  M/s  PMS  has  signed  the  consortium

agreement  on its own  whereas in its original consortium agreement

dated 4.10.2007, M/s PMS has signed the consortium agreement on

behalf  of M/s PPL. Accordingly, the opinion of the Law Secretary

(Invitee to the Meeting) was sought. The Law Secretary opined that

the modified consortium agreement dated 11.3.2008 cannot be treated

as  a  part  of  the  Original  Proposal  as  the  modified  consortium

agreement stood entered into by a new member, namely, M/s PMS,

without  the  authorization  of  M/s  PPL.  According  to  the  Law

Secretary, there was one more defect. There was no provision in the

modified  consortium  agreement  to  the  effect  that  the  consortium

members shall be jointly and severally liable for the execution of the

Project  and  that  the  only  expression  used  was  joint  and  several

“responsibility”,  which,  according  to  the  Law  Secretary,  was  a

concept different  from joint and several “liability”. This opinion of

the Law Secretary was placed before the EC in its meeting held on

6.5.2008 in which meeting the EC concluded that the Bid submitted

by  the  consortium  led  by  M/s  ZDL  was  “non-responsive”/”non-

admissible”  in  terms of  the  RFP.  Accordingly  on  24.5.2008,  GoK

issued  Government  Order  approving  the  proposal  given  by Lanco

Kondapalli  Power  Pvt.  Ltd.,  Hyderabad  (hereinafter  referred  to  as

“Lanco led Consortium”). Thus, the Bid Proposal of the consortium

led by M/s ZDL came to be rejected.

6. Aggrieved  by  the  said  decision,  M/s  ZDL  preferred  Writ

Petition (C) No. 15570/2008 in the Kerala High Court which came to

be dismissed by the learned single Judge on 3.7.2008. It was held by

the learned Single Judge that the concept of “liability” was different

from “responsibility”. It  was further  held that  since the consortium

members  led  by  M/s  ZDL  had  not  undertaken  “joint  and  several

liability”,  the  EC  was  right  in  treating  the  bid  proposal  as  non-

responsive. It was further held by the learned single Judge that the

original  consortium agreement dated  4.10.2007 was  signed by M/s

PMS on behalf of M/s PPL though no such authorization was found

in that regard. According to the learned single Judge, in the modified

consortium agreement dated 11.3.2008, M/s PPL, which was the party

to the original consortium agreement, stood deleted and M/s PMS had

emerged as a member of consortium for the first time only under the

modified consortium agreement dated 11.3.2008 without explaining

under whose authority such change was made and consequently, the

EC was right in treating the Bid Proposal made by M/s ZDL as non-

responsive. Accordingly, the writ petition stood dismissed. Aggrieved

by the said decision, M/s ZDL preferred Writ Appeal No. 1460/2008,

which stood allowed by the Division Bench of the Kerala High Court,

hence, these civil appeals are filed by the State of Kerala (licensor),

M/s  Lanco  Kondapalli  Power  Pvt.  Ltd.  and  M/s  Vizhinjam

International Sea Port Ltd. (Sponsors).

Contention:

7. On behalf of State of Kerala, Shri K. Parasaran, learned senior

counsel submitted that after 31.1.2008 (the cut-off date) there was a

change  in  M/s  ZDL  led  Consortium  which  was  impermissible  in

terms of the RFP and, therefore, the Bid Evaluation Committee was

right in treating the Bid submitted by M/s ZDL led Consortium as

non-responsive/non-admissible in terms of the RFP. In support of his

contention, learned senior counsel submitted that as per clause 3.4 of

RFP, only the Lead Member could be changed and that too with the

written  consent  of  M/s  VSL  (Sponsor).  According  to  the  learned

counsel, RFP did not permit change of consortium member after the

cut-off date. It may be noted that the Proposals of the Bidders were to

be  submitted  on or  before  31.1.2008.  Learned counsel  pointed  out

that  along  with  the  Proposal,  M/s  ZDL submitted  the  Consortium

Agreement dated 4.10.2007 in which M/s PMS signed the consortium

agreement  on behalf of   M/s PPL, UK. Therefore, according to the

learned counsel,  M/s PMS singed the Consortium Agreement dated

4.10.2007 as  an  agent  of  M/s  PPL,  UK. According  to  the  learned

counsel, in the Consortium Agreement dated 4.10.2007, M/s ZDL did

not stipulate that as a Lead Member it would hold a minimum equity

of 26% in the SPC. The Consortium Agreement dated 4.10.2007 was

not notarized and stamped. That apart,  the said consortium did not

submit documents from M/s PPL, UK authorizing M/s PMS to sign

the Consortium Agreement on behalf of M/s PPL, UK. According to

the  learned  counsel,  all  the  above  circumstances  came  to  be

considered  by  the  EC in  its  meeting  held  on  25.2.2008.  The  EC,

according to the learned counsel, recorded in its Minutes that since

M/s PPL was the member of the Consortium in terms of  Consortium

Agreement dated 4.10.2007, but, since M/s PPL was not shown in the

Outer  Cover,  therefore,  a  query was  raised  by the  EC in  its  letter

dated 3.3.2008 to the effect that although M/s PMS has signed the

Consortium Agreement on behalf  of M/s PPL, the latter  was not  a

member of the Consortium. According to the learned counsel, in the

said letter dated 3.3.2008, there was no direction from the EC to M/s

ZDL to delete the words “on behalf of M/s PPL” and consequently,

after the cut-off date, it was not open to M/s ZDL led Consortium to

submit a fresh Consortium Agreement dated 11.3.2008 deleting the

words  “on behalf  of  M/s  PPL”.  According  to  the  learned  counsel,

therefore, there was a change in the membership of the Consortium

led by M/s ZDL and that too after 31.1.2008. Therefore, according to

the learned counsel, it was not a case of curing of defect. According

to  the learned counsel,  change of consortium membership after the

cut-off  date  made  the  Proposal  of  M/s  ZDL led  Consortium non-

admissible in terms of the RFP.

8. Shri K. Parasaran, learned senior counsel, next contended that

vide clause  3.5  of  the  RFP,  all  members  of  the  Consortium were

“jointly and severally liable” for execution of the Project in terms of

the Licence Agreement and a statement to that effect was required to

be  stated  in  the  consortium  agreement,  which  statement  was  not

incorporated  in   consortium agreement  dated  4.10.2007  nor  in  the

consortium  agreement  dated  11.3.2008.  According  to  the  learned

senior  counsel,  the  two  words,  namely,  “liabilities”  and

“responsibilities”  are  not  interchangeable.  They  are  distinct  and

different concepts. According to the learned counsel, RFP required a

statement regarding “joint and several liability” to be incorporated in

the consortium agreement because the word “liability” represented an

objective  criteria,  which  criteria  has  not  been  satisfied  despite

opportunity being given to M/s ZDL led Consortium to incorporate

such  a  statement  in  the  consortium  agreement.  Learned  counsel

submitted  that  despite  opportunity  being  given  to  M/s  ZDL  led

Consortium, even in the fresh Agreement dated 11.3.2008, M/s ZDL

led Consortium had insisted on using the words “joint  and several

liabilities” in support of the words “joint and several responsibilities”.

Therefore, for non-compliance of the said criteria, the EC was right in

treating  the  Bid  Proposal  of  M/s  ZDL  led  Consortium  as  non-

admissible/non-responsive in terms of RFP.

9. In short, on two of the aforestated grounds, namely, change of

consortium membership and non incorporation of joint  and several

liability Clause in the consortium agreement, learned counsel for the

State of Kerala submitted that the EC was right in treating the Bid

Proposal of M/s ZDL as non-responsive.

9A. Shri A. Sharan, learned Additional Solicitor General appearing

on behalf of M/s VSL substantially adopts the contentions advanced

by Shri K. Parasaran, learned senior counsel for the State of Kerala.

10. Shri  K.K.  Venugopal,  learned  senior  counsel  appearing  on

behalf  of  M/s  Lanco  led  Consortium submitted  in  addition  to  the

above contentions  that,  in  any event,  the figures  submitted by M/s

ZDL led  Consortium indicated  that,  on  its  own M/s  PMS did  not

fulfill the financial parameters of net worth, total turnover and cash

accruals and that M/s PMS was solely dependent upon the financials

of  M/s  PPL, UK, consequently,  the Bid  Proposal  of  M/s  ZDL led

Consortium  was  not  admissible  in  terms  of  RFP.  Learned  senior

counsel  further  submitted  that  in  the  Consortium Agreement  dated

4.10.2007,  there  was  a  clause  under  the  caption  “Relationship  of

Parties”.  Reading of that  clause,  according to the learned counsel,

indicated that  the consortium members were to act on principal-to-

principal basis and despite opportunity, even in the fresh Consortium

Agreement dated 11.3.2008, the said clause stood retained. Therefore,

according  to  the  learned  counsel,  the  criteria  of  joint  and  several

liability was not satisfied by M/s ZDL led Consortium.  

11. On the other hand, it was submitted on behalf of M/s ZDL led

Consortium that the interpretation given by the Sponsor/Advisor on

various terms and conditions of the RFP should be read as a standard

to evaluate the admissibility of the bids. According to Shri Harish N.

Salve, learned senior counsel appearing on behalf of M/s ZDL, the

Minutes  of  the  EC  held  on  25.2.2008  indicated  that  the  words

“responsibility” and “liability” were used interchangeably. That, it is

only after the Law Secretary gave his opinion that the question of the

connotation  of  the  two words  “liability”  and  “responsibility”  were

made an issue, which was clearly an afterthought. According to the

learned counsel, the said hair-splitting exercise was undertaken as an

afterthought  only after  the  Law Secretary gave  his  opinion,  which

opinion was “off the record” advice (which expression is used by the

Law Secretary in  his  affidavit).  According  to  the  learned  counsel,

there was no change in the membership of the Consortium led by M/s

ZDL because right from the inception, at the time of submitting the

Proposals, it was made clear that M/s PMS would be the member of

M/s ZDL led Consortium. It was submitted that M/s PMS was the

subsidiary of M/s PPL, UK, and the words “on behalf of” were used

in the  Consortium Agreement  dated  4.10.2007 only to  indicate  the

relationship  between  M/s  PMS  and  M/s  PPL,  UK.  This  position,

according to the learned counsel, is indicated by the Bid documents

submitted on 31.1.2008, Power of Attorney dated 18.10.2007, Notary

Certificate, Covering letter dated 31.1.2008 and annexures to the Bid

documents submitted by M/s ZDL.

12. On the question of financials, Shri Arun Jaitley, learned senior

counsel for M/s ZDL, submitted that the Chart submitted before this

Court  by  the  learned  counsel  for  M/s  Lanco  led  Consortium was

defective  because  the  Financials  for  FY  2006-2007  has  not  been

projected. In this connection, it  was pointed out that M/s ZDL had

submitted  the  details  for  FY  October,  2003  to  September,  2004,

October, 2004 to September, 2005 and October, 2005 to September,

2006  as  on  31.1.2008.  It  was  pointed  out  that,  M/s  ZDL  was

following the Accounting  Year from October to September.  It  was

submitted that the last date for submission of Bids was 31.10.2007

initially, which stood extended later on till 31.1.2008. According to

the learned counsel, the Balance Sheet for FY 2006-2007 was in the

process of being prepared when the Bid documents were submitted on

31.1.2008 and  consequently,  the  Balance  Sheet  for  FY 2006-2007

could  not  be  submitted.  According  to  the  learned  counsel,  if  the

Financials  for  the  year  including  FY  2006-2007  are  taken  into

account,  then  M/s  ZDL lead  Consortium satisfies  all  the  financial

parameters of net worth, turnover and cash accruals.

13. Points for Consideration:

(A) Whether  the  modified  Consortium  Agreement

dated  11.3.2008  resulted  in  a  change  in  the

constituents membership of the Consortium led by

M/s ZDL.

(B) Whether use of the expression “joint and several

responsibility”  in  place  of  “joint  and  several

liability”  would  justify  rejection  of  the  Bid

Proposal made by the Consortium led by M/s ZDL

as non-responsive/non-admissible in terms of the

RFP.

Findings on Point No. (A):

14. As  per  the  scheme  of  RFP,  at  the  stage  of  Submission  of

Proposals, the bidders were required to furnish the names of the Lead

Member and other members of the consortium. In this case, one of the

members of the consortium was M/s PMS. While furnishing “Details

of Bidders”, the name of the consortium member was shown as PMS.

Similarly, against  the column “Brief  Description of  the Company”,

the name of M/s PMS was mentioned as the international arm of M/s

PPL. Therefore,  at  the stage of Submission of Proposals,  M/s ZDL

had stated that M/s PMS was the member of its Consortium. There

was  one  more  column  which  was  required  to  be  filled-in  by  the

bidders,  namely, “Ownership  of  the Organisation”.  In this  column,

M/s ZDL indicated that M/s PMS was a consortium member which

was the wholly subsidiary company of M/s PPL, UK. It may be noted

that,  under  the  Scheme  of  RFP,  the  bidders  had  to  offer  a  firm

commitment to form SPC to implement and operate the above Project

in  Kerala,  should  the  Sponsor  (M/s  VSL)  select  one  of  the  five

bidders  as  Licensee.  Therefore,  the  Proposal  had  to  be  made  in  a

prescribed format. On reading the said Proposal, therefore, it becomes

clear that on the date, namely, 31.1.2008, being the cut-off date (when

the bids were opened), M/s PMS was the member-constituent of the

consortium led by M/s ZDL. At this stage, one must keep in mind that

Section 212 of the Companies Act, 1956 which makes it obligatory

on behalf of the holding company to annex to its Balance Sheet the

Balance Sheet and P&L account and other financial particulars of its

subsidiary.  Section  212  requires  the  legal  relationship  of  holding

company and subsidiary company to be disclosed to all its members.

In the world of globalization, we have consortium agreements/ joint

venture  agreements.  It  appears  from  the  particulars  given  by  the

consortium led by M/s ZDL that M/s PMS is a part of an international

group of companies headed by M/s PPL, UK. The prescribed Form

warranted Disclosure giving particulars of the consortium members.

The  particulars  furnished  indicate  that  the  Lead  Member  was  M/s

ZDL. It is an Indian company. One of the consortium member was

M/s PMS, which is incorporated in UK. It is the 100% subsidiary of

M/s PPL, UK. This information also became necessary because the

format required the Bidder to disclose “Ownership” of the member-

company. Therefore, if one reads the Proposal of the Lead Member,

M/s ZDL, in the form prescribed, which Proposal was of 31.1.2008,

one finds that M/s PMS alone on its own was indicated as a member

of the consortium and M/s PPL was not shown as the member of the

consortium.  However,  the  original  consortium/joint  venture

agreement dated 4.10.2007 signed by the member-constituent of the

consortium led by M/s ZDL stood signed by M/s PMS on behalf of

M/s PPL, UK. Therefore, on 3.3.2008, IDC (Project Advisor) wrote to

M/s  ZDL  inter  alia  pointing  out  the  defect  in  the  consortium

agreement dated 4.10.2007 in the following words:

“M/s PMS has signed consortium agreement dated 4.10.2007 on behalf of M/s PPL but M/s  PPL  is  not  a  member  of  the consortium.”

Thus,  the  Project  Advisor  treated  the  above  irregularity  in  the

execution of the consortium agreement dated 4.10.2007 as a curable

defect for which time was given to M/s ZDL up to 4.4.2008. Further,

the Project Advisor clearly understood the Proposal to have had been

given by M/s ZDL as the Lead Member of the Consortium, whose

constituent  inter alia included M/s PMS and not M/s PPL.  By the

said letter, the Project Advisor also called for Annual Reports of three

financial year of M/s ZDL and Annual Reports of last 3 years of M/s

PMS (its own). This query indicates that the Project Advisor not only

treated  the  above  irregularity  in  the  execution  of  the  consortium

agreement dated 4.10.2007 as the curable defect but it further shows

that even, according to the Project Advisor, M/s PMS alone was the

constituent member of the consortium led by M/s ZDL and it is for

this reason that the Project Advisor called for the annual reports of

M/s PMS (its own). This defect was cured by M/s PMS within the

extended  period.  It  is  interesting  to  note  that  the  question  of

“authorization”  by  M/s  PPL,UK,  was  not  raised  by  the  Project

Advisor in its letter dated 3.3.2008. That aspect was raised only by

the Law Secretary who came to be Invited as a special invitee by the

Chief  Secretary  in  the  meetings  of  the  EC  held  on  8.4.2008  and

6.5.2008  (which  is  after  the  extended   date  4.4.2008).  It  is  not  in

dispute that M/s PPL, UK is the holding company of M/s PMS. M/s

PMS is a subsidiary company. It is the separate legal entity. We are

satisfied that at the stage of Submission of Proposal itself and right

from the inception, it was M/s PMS, who alone was the constituent

member of the consortium. The question of authorization raised by

the Law Secretary, in his opinion, is clearly an afterthought. In fact,

there is  a contradiction in his opinion. If M/s PPL was the member of

the consortium, as construed by the Law Secretary, there was no need

for  M/s  PPL  to  authorize  M/s  PMS  to  execute  the  consortium

agreement. On the other hand, if M/s PMS being the separate legal

entity was a member of the consortium it had to sign the consortium

agreement in its  own capacity. The modified consortium agreement

dated 11.3.2008 is supported by a Resolution. The said consortium

agreement is in line with the Proposal submitted on 31.1.2008.

15. One more aspect needs to be pointed out. The RFP prescribes

the form in which a bidder has to make his proposal. However, bidder

was free to submit the consortium agreement in its own format. M/s

Universal Legal (legal advisor to the Sponsor) cleared the proposal on

4.4.2008 stating that all requisite defects stood cured. It is only after

4.4.2008  that  the  Law  Secretary  came  into  picture  and  gave  an

opinion to the contrary. Moreover, as found by the High Court in the

impugned judgment,  when the Law Secretary was asked to file  his

affidavit he came out with the statement that his advice was “off the

record” advice.  It  was not  given through Official  Channel.  At this

stage, we may also point out that no material has been placed before

the High Court as to the reference made by the Chief Secretary to the

Law  Secretary.  Whenever  opinion  is  sought,  the  persons  seeking

opinion has to formulate the query for which opinion is sought. We

do not know the query raised by the Chief Secretary before the Law

Secretary. No material  has been placed before us in this regard. In

fact, the very purpose of routing the query through Official Channel

is that the querist formulates the query on which opinion is given. In

this  case,  there  is  no  formulation  of  such  a  query.  In  the

circumstances, we find that the High Court was right in not giving

weightage to the “off the record” advice of the Law Secretary. This is

one  of  the  circumstances  which  vitiates  the  process  of  decision

making by the EC. The bid was declared as non-admissible in the IVth

meeting of the EC held on 6.5.2008. The Minutes indicate that, before

the  EC,  there  were  two  Opinions.  First  opinion  was  that  of  M/s

Universal  Legal  and  the  second  opinion  was  that  of  the  Law

Secretary. There is nothing to indicate in the Minutes as to why the

opinion  of  the  legal  advisor,  M/s  Universal  Legal,  stood  rejected.

There is no reason given as to why the opinion of the Law Secretary

came to be accepted. Be that as it may, we are of the view that the

modified  consortium  agreement  was  between  members  of  the

consortium led by M/s ZDL in which the member was M/s PMS and

not  M/s  PPL,  UK,  right  from the  inception.  Therefore,  the  entire

exercise was to cure the defect. Time was given to M/s ZDL to cure

the  defect  which  in  fact  was  cured  before  4.4.2008.  For  the

aforestated  reasons,  we  hold  that  there  was  no  change  in  the

membership of the consortium led by M/s ZDL after 31.1.2008. In

fact,  even  prior  to  the IVth  meeting  the  EC did  not  call  upon  M/s

ZDL/PMS to obtain Letter of Authority from M/s PPL, UK.

16. For the above reasons we hold that there was no change in the

membership of the Consortium led by M/s ZDL.   

Findings on Point No. (B):

17. As  stated  above,  the  second  ground  for  treating  the  Bid

Proposal of the consortium led by M/z ZDL as non-responsive was

that, in the consortium agreement, M/s ZDL has failed to incorporate

the  expression  “joint  and  several  liability”.  That,  M/s  ZDL  has

incorporated  the  clause  under  the  expression  “joint  and  several

responsibility”  in  place  of  “joint  and  several  liability”  and

consequently,  the  Bid  Proposal  became  non-admissible/non-

responsive  in  terms  of  the  RFP.  This  was  the  basic  argument

advanced on behalf of GoK.

18. At the outset, it may be stated that in letter dated 3.3.2008 no

such point was ever raised by the Project Advisor. As stated above,

by the  said  letter  dated  3.3.2008  curable  defects  were  pointed  out

regarding M/s PMS having signed the consortium agreement dated

4.10.2007 on behalf of M/s PPL, UK, but no query was ever raised on

the above point. On the contrary, as can be seen from the Minutes of

the meetings held prior to 8.4.2008, the Project Advisor/Sponsor has

used  the  word  “responsibility”  interchangeably  with  the  word

“liability”. It is only in the opinion of the Law Secretary that, for the

first time, the above objection is taken.

19. Be  that  as  it  may,  the  question  is  whether  in  the  modified

consortium agreement dated 11.3.2008 responsibilities and allocation

of  works  stood  clearly  demarcated  between  the  members  of  the

consortium?  We  have  examined  the  consortium  agreement  dated

11.3.2008. It clearly indicates that M/s ZDL is an Indian company. It

is a lead member of the consortium. The agreement further indicates

that there were two members in the consortium apart from M/s ZDL,

namely, M/s PMS and M/s Peter Fraenkel & Partners. The agreement

indicates that M/s ZDL shall be responsible for implementation of the

Project along with M/s PMS and M/s Peter Fraenkel & Partners. M/s

ZDL had to submit technical and financial bids. M/s ZDL had to act

as project developers  and principal  coordinators.   M/s ZDL had to

arrange finances. On the other hand, M/s Peter Fraenkel & Partners

had to do the work of designing and budget preparations whereas M/s

PMS had to provide operational support during the implementation of

the  Project.  Therefore,  under  the  said  Agreement,  duties  and

responsibilities of each of the members stood carved out. Vide clause

7,  members  of  the  consortium  were  made  “jointly  and  severally

responsible”  for  every stage of  implementation  of  the Project.  The

only objection raised by the GoK is that the word “liable” ought to

have  been used  instead  of  the  word “responsible”  in  clause  7 and

since  that  word  has  not  been  used,  the  Bid  Proposal  of  M/s  ZDL

needs to be dismissed. As stated above, in the meetings held prior to

8.4.2008, no such objection was ever raised. In fact, no opportunity

was given to M/s ZDL to cure this defect though it was given to the

consortium led by M/s Apollo (see page 81 of the SLP paper book in

SLP (C) Nos.  30204-30205/2008  entitled  State  of  Kerala   v.   M/s

Zoom Developers Pvt. Ltd. & Ors.). The important point is that the

EC treated the above objection as a curable defect. It is only after the

Law Secretary came on the scene that the above objection was raised

even  after  the  clearance  by  M/s  Universal  Legal.  Therefore,  it  is

clearly an afterthought. Further under the consortium agreement dated

11.3.2008, it  was stated that M/s ZDL, PMS and Peter Fraenkel &

Partners  shall  be  fully  responsible  for  their  individual  portions  of

work. Under the said Agreement, it was further stated that, in case the

Project stood awarded to the Consortium, the Consortium commits to

hold a minimum stake of  51% in the  SPC. This  shows that  in the

matter of liability, the Consortium Agreement was only a step-in-aide

to the formation of SPC.  Further, as rightly held by the High Court in

the impugned judgment, the apprehension of GoK that in the event of

disputes between members of the consortium or in the event of non-

implementation  of  the Project,  GoK would  not  be in  a position  to

enforce  its  claim  was  ill-founded  because  the  licence  agreement

between the successful bidder and the licensor (GoK) was yet to be

entered into in which a provision as to “joint and several liability”

had to be made, as mentioned in the RFP. The consortium agreement

was  only  an  assurance  or  a  commitment  to  abide  by  the  licence

agreement. Lastly, it may be stated that the word “responsibility” is

no doubt different from the word “liability”. What is submitted before

us is that the expression “joint and several liability” was required to

be incorporated in the consortium agreement in terms of RFP. What

was submitted before us was that the said expression constituted an

objective criteria. What was submitted before us was that since the

above expression in the RFP was treated as an objective criteria, the

manner in which the said expression stood understood by the EC was

irrelevant.  We do not find merit in this argument.  As stated above,

though the Form of Proposal was prescribed, the bidder was free to

submit the consortium agreement in its own Form. In our view, in the

absence of a prescribed format and in the absence of the definition of

the word “responsibility” vis-à-vis the word “liability” in the RFP, it

cannot  be said that  the said  expression “joint  and several liability”

was an objective criteria. It is true that in terms of RFP, the bidder

was required to stipulate the words “joint and several liability” in the

consortium agreement.  But  it  is  equally  true  that  in  certain  cases

objective  words  can  be  interpreted  subjectively.  For  example,  the

word “regulate”. It has several times been decided that the power to

regulate does not extend to a power to prohibit. But this very word

has been held in some other cases to include the power to prohibit. In

U.K., the Railway Board was entitled to impose a ban on smoking in

trains  under  this  very  power  to  regulate.  Therefore,  one  has  to

construe each of these words in that context. (see Administrative Law

by H.W. Wade and Forsyth- 9th ed. at pp. 432-435). In this very case,

various bids were considered by the Project Advisor/Sponsor. They

have  themselves  used  the  words  “liability”  and  “responsibility”

interchangeably.  They have  treated  this  defect  as  a  curable  defect.

They have  not  rejected  the Bid  Proposal  on  25.2.2008  in  the  first

meeting on the above ground because the EC thought that the said

defect was a curable defect.

20. It was vehemently urged on behalf of M/s Lanco led Consortium

that  in  the  consortium agreement  dated  4.10.2007  as  well  as  in  the

consortium agreement dated 11.3.2008, there was a clause under the

heading “Relationship of Parties”  which indicated that each member of

the consortium shall deal with the other on principal-to-principal basis

till the formation of SPC. In the said clause, it was further stated that,

nothing contained in the agreement shall be deemed to constitute any

of  the  parties  as  agent  of  the  other.  Therefore,  the  members  of  the

consortium led by M/s ZDL cannot be said to be jointly and severally

liable at every stage of implementation of the Project. We do not find

merit  in  this  argument.  As  stated  above,  the  consortium agreement

dated 11.3.2008 spelt out the work allocation and the responsibility of

each member of  the consortium. It  made the consortium responsible

jointly  and  severally  for  implementation  of  the  Project.  The  clause

dealing  with  “relationship  of  the  parties”  merely  stated  that  till  the

formation of the SPC, each member shall be related to each other on

principal-to-principal basis. This is because the consortium is formed to

make a bid for this Project only. Till the formation of SPC and till the

consortium becomes a successful bidder, the parties relate to each other

on  principal-to-principal  basis.  But  once  that  consortium becomes  a

successful  bidder and commits to hold the minimum equity stake of

51% in the SPC, then the question of joint and several liability would

certainly arise. Therefore, the High Court rightly held that the licence

agreement  between GoK and the successful  bidder  (consortium) has

still to be executed and it is at that stage that, in any event, the clause of

joint  and  several  liability  shall  stand  incorporated  in  the  licence

agreement.  

21. Before  concluding,  an  attempt  was  made  on  behalf  of

M/s Lanco Kondapalli Power Pvt. Ltd. (appellant in the civil appeal

arising out of SLP (C) No. 30305/2008) to demonstrate before us that

but  for the financials  of M/s PPL, the consortium led by M/s ZDL

would not have met the financial qualification criteria as on the date

of the submission of the Bid Proposal (31.1.2008). Learned counsel

appearing  on  behalf  of  M/s  Lanco  Kondapalli  Power  Pvt.  Ltd.

submitted  a Chart  in  support  of  his  above contention.  We find  no

merit in this argument. The said Chart refers to the Financial Years

October, 2003 to September, 2004, October 2004 to September, 2005,

October, 2005 to September, 2006 as far as M/s ZDL is concerned.

However, it may be noted that initially the last date for submitting the

bid was 31.10.2007, which was extended to 31.1.2008. The Balance

Sheet and P&L account of M/s ZDL for the year ending 30.9.2007

stood adopted after  audit  only on 20.3.2008. If  the figures for that

year are  taken into  account  then the financial  qualification  criteria

stands satisfied.

22. For  the  aforestated  reasons,  we  find  no  infirmity  in  the

impugned judgment of the Division Bench of the Kerala High Court

which has given a declaration to the effect that the Outer Cover and

Cover-1  submitted  by  the  consortium  led  by  M/s  ZDL  is

admissible/responsive in terms of RFP. Consequently, we declare that

the  Technical  and  Financial  Proposals  submitted  by  the  said

Consortium (respondent no. 1) are liable to be considered within 15

days from the date of this judgment.

23. Accordingly, the civil appeals stand dismissed with no order as

to costs.

…………………….J.                                                                         (Dr. Arijit Pasayat)    

…………………….J.                                                                   (S. H. Kapadia)    

New Delhi; the February 10, 2009.