Companies Act Case Law State of Kerala Vs M/s Zoom Developers Pvt. Ltd.

Companies Act Case Law

State of Kerala Vs M/s Zoom Developers Pvt. Ltd.

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)
JUDGMENT

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-`-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.

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