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National Company Law Tribunal | In an application filed under S. 60(5) of the Insolvency and Bankruptcy Code, 2016, a bench comprising of P. N. Deshmuk, J. and Shyam Babu Gautam (Technical Member), approved the acquisition of Sterling Biotech Limited by Perfect Day, a US food technology company under IBC.

The applicant filed an application seeking permission to execute and conclude the purchase/acquisition of the Corporate Debtor based on the acquisition plan submitted by him. The Applicant also seeks certain reliefs, concessions, directions, dispensations and exemptions which are necessary to acquire Sterling Biotech Limited (Corporate Debtor).

Factual Matrix

In the instant matter, the Adjudicating Authority vide order dated 11-06-2018 ordered the liquidation of Sterling Biotech Limited. Vide order dated 11-05-2019, this Tribunal ordered liquidation of Sterling Biotech Limited as no resolution plan was approved by the Committee of Creditors of the Corporate Debtor during Corporate Insolvency Resolution Process (CIRP) and appointed Ms. Mamta Binani as the Liquidator.

On 21-10-2021, the Respondent (Ms. Mamta Binani) issued public notice calling the stakeholders to submit their claims with proof for acquisition of the Corporate Debtor in accordance with IBC and submitted a binding bid of ₹ 638,00,00,005/- (Six hundred and thirty-eight crores and five only) for acquiring Corporate Debtor. After the completion of paper works the applicant was considered as a “qualified bidder”. On 04-04-2022, after the completion of e-auction process, the applicant was declared as a successful bidder.

Applicant’s Contentions

The applicant submitted a detailed Acquisition Plan for acquiring the Corporate Debtor to the respondent.

The applicant contended that Perrya, an LLC which was incorporated by some of the founders of the appellant who are non-resident Indians/ overseas citizens of India, will acquire the shares of the Corporate Debtor on non-repatriation. The applicant contended that they will directly acquire 73.9% of the share capital of the Corporate Debtor and the balance will be acquired by Perrya as per regulatory requirements for foreign investment by a non-resident in an entity engaged in pharmaceutical sector.

The applicant also contended that as per Process Document, the applicant can acquire the Corporate Debtor either in its name or through ‘special purpose vehicle’ (SPV) and the applicant is only required to acquire majority of the voting rights and management in the SPV, therefore a third-party can indirectly acquire a voting and management rights of upto 49% in the Corporate Debtor.

The applicant further contended that the applicant had submitted a declaration to the Respondent under S. 29-A IBC stating that Perrya is not barred from acquiring the Corporate Debtor.

The applicant submitted that a combine reading of the Resolution Plan, Ss. 31 and 5(26) IBC and Reg. 32(e) of Liquidation Regulations indicates that the scheme of the Code and the Liquidation Regulations intend to confer benefits and reliefs to an applicant acquiring the Corporate Debtor as a going concern during liquidation proceedings of the same nature as contemplated for a resolution plan approved under Section 31 of the Code.

The applicant cited Nitin Jain v. Lucky Holdings (P) Ltd., IA 391(AHM)/2021 in CP(IB) 37 of 2017; Nitin Jain v. Enforcement Directorate, (2022) 287 DLT 625 and Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531 where similar reliefs were granted.

The applicant also contended that in the absence of such reliefs and concessions, the Acquisition Plan may become unviable and unfeasible leading to further depletion of value of the assets of the Corporate Debtor and may create hardship to numerous employees and labours.

Respondent’s Contention

The respondent contended that the liquidator understands the applicant’s position as a US-based company but there was a slight difference between the relevant stipulations provided in terms of technical/procedural terms as provided under Acquisition Plan and Process Document.

The respondent also contended that at the time of issuance of the Process Document, the liquidator could not have envisaged the terms of the Acquisition Plan, especially related to the issue of the place of incorporation of the Successful Bidder.

The Respondent also prayed that considering the best interest of the Corporate Debtor and all stakeholders and for maximization of the value of the Corporate Debtor, the tribunal may consider the submissions by the respondent.

Tribunal’s Decision

The Tribunal observed that the prayer sought by the applicant to transfer the Corporate Debtor is essential to run the Corporate Debtor on a clean slate basis.

The Tribunal directed the applicant to deposit the balance sale consideration in terms of Reg. 41 of the Liquidation Process Regulations into the Liquidation Account and the liquidator should distribute the sale consideration in accordance with S. 53 IBC.

The Tribunal opined that the “Acquirers” will be granted all the rights, title and interest in the whole and every part of the Corporate Debtor, including but not limited to the assets, properties, contracts and Approvals, free and clear of all security interest after the payment of the Final Consideration and the Acquirers will not have any financial obligation or liability to any Person or Stakeholder after that. The Tribunal allowed the issuance and allotment of shares to the Acquirers after the cancellation and extinguishment of existing share capital of the Corporate Debtor.

[Perfect Day Inc. v. Mamta Binani, 2022 SCC OnLine NCLT 283, decided on 11-11-2022]


Advocates who appeared in this case :

Mr. Ravi Kadam, Dr. Mustafa and Zal T. Adhyarujina (Senior Advocate), Mr Shreeyash Uday Lalit, Mr. Vishesh Srivastav, Mr. Nikhil Waje, Mr. Prem Gada, Mr. Hardeep Sachdeva, Mr. Kamal Shankar, Mr. Ravi Bhasin, Mr. Parag Maini, Mr. Raghav Chadha, Ms. Gursimran Kohli and Ms. Kanika Singhal, Counsel for the Applicant;

Mr. Atmaram N S Nadkarni (Senior Advocate), Sandeep Bajaj, Aakanksha Nehra and Ajay Sharma, Counsel for the Liquidator.


*Ritu Singh, Editorial Assistant has put this report together.

Case BriefsSupreme Court

Supreme Court: The Division Bench of Dinesh Maheshwari and Vikram Nath, JJ., while addressing a matter with regard to the tender document, made an observation that,

“Every decision of the administrative authority which may not appear plausible to the Court cannot, for that reason alone, be called arbitrary or whimsical.”

Two appeals against the same decision of the Delhi High Court were filed and taken up for disposal.

In the said decision, Delhi High Court had disapproved the technical disqualification and consequential rejection of the technical bid of the petitioner in respect of a tender floated by the appellant.

Another appellant was said to be the bidder (Agmatel) whose offer was accepted by NVS after technically disqualifying the writ petitioner.

Crux

Whether the Delhi High Court was justified in interfering with the view taken by the tender inviting authority in rejection of the technical bid of writ petitioner for want of fulfilment of ‘Past performance’ criterion about supply of ‘same or similar Category Products’ of 60% of bid quantity in at least one of the last 3 financial years?

Background

The dispute revolved around a Notice Inviting Tenders (NIT), as issued by the appellant-NVS on the Government online portal i.e., Government e-market Place for the supply of 68,940 Tablets for school children.

The terms and conditions that the Court is concerned with from the NIT were pertaining to ‘Experience’ and ‘Past Performance’ of the bidders.

During the pendency of the writ petition, it was informed by the tender inviting authority that the contract in question had been awarded to the other bidder who was found qualified and successful; and the application for impleadment made by the said successful bidder-Agmatel was allowed by the High Court.

Analysis, Law and Decision

Interpretation of Tender Document: Relevant Principles 

The scope of judicial review in contractual matters, and particularly in relation to the process of interpretation of the tender document, has been the subject matter of discussion in various decisions of this Court.

Supreme Court remarked that,

“Author of the tender document is taken to be the best person to understand and appreciate its requirements; and if its interpretation is manifestly in consonance with the language of the tender document or subserving the purchase of the tender, the Court would prefer to keep restraint.”

Adding to the above, Court stated that the Court cannot technically evaluate or compare and even if the interpretation given to the tender document by the person inviting offers is not as such acceptable to the Constitutional Court, that by itself would not be a reason for interfering with the interpretation given.

Supreme Court opined that the impugned Judgment could not be sustained.

“….which particular product was to be treated as similar category product, could not have been a matter of interpretative exercise by the Court, particularly when the view taken by the tender inviting authority and its evaluation committee has not been shown to be absurd or irrational or suffering from mala fide.”

Further, the Bench observed that the elaborative and in-depth analysis of the features and categorization of the two products i.e., Smart Phones and Tablets was not called for.

Adding to the above, Court stated that the writ court should not substitute its preferred interpretation of the tender condition with the one adopted by the author of the tender document and the person procuring the product, who has to be regarded as the best person to understand its requirements.

Supreme Court observed from the facts and submission that, even if some of the organisations, in relation to their requirements, procured tablets and smart phones both under the same tender process or even used these expressions “interchangeably” or “interconnected”, that by itself cannot lead to a definite conclusion by the Court that “Smart Phones” and “Tablets” are to be taken as similar category products for the tender process in question.

When can Courts interfere in matters of Contracts?

The process of interpretation of terms and conditions is essentially left to the author of the tender document and the occasion for interference by the Court would arise only if the questioned decision fails on the salutary tests laid down and settled by this Court in consistent decisions, namely, irrationality or unreasonableness or bias or procedural impropriety.

“Mere elaboration by the tender inviting authority as regards its reasons and basis of the decision cannot be said to be that of inconsistency.”

Court held that, the terms of tender in the present case had been clear, and they were ascertainable with specificity available on the very portal on which NIT was issued.

In view of the above discussion, it was concluded that the petition be dismissed, and the impugned order be set aside. [Agmatel India (P) Ltd. v. Resoursys Telecom, 2022 SCC OnLine SC 113, decided on 31-1-2022]

Case BriefsSupreme Court

Supreme Court: In the Bullet Train Project case where Japan International Cooperation Agency (JICA) had rejected Montecarlo Limited’s technical bid, the bench of MR Shah* and AS Bopanna, JJ has reversed the Delhi High Court verdict that had set aside JICA’s conscious decision and has held that when the author of the tender document, JICC/JICA, had taken a conscious decision that the Bid submitted by the respondent can be said to be non-responsive and suffering from material deviation, it was not for the High Court to consider/opine whether the Bid submitted by the original writ petitioner is substantially responsive Technical Bid or not unless the decision is found to be perverse and/or suffered from mala fides and/or favoritism.

The Bullet Train Project is a fully foreign funded project, which was envisaged when the Japanese and Indian Governments entered into a Memorandum of Understanding, pursuant to which it was agreed that the said project would be fully funded by a Concessional Official Development Assistance (ODA) loan of Rs.1 lakh crores by the Japan International Cooperation Agency.

The Court observed that,

“in foreign sovereign funded contracts like the present one, the huge sum is funded on the basis of non-negotiated terms and conditions and therefore, the foreign developed nation, who has agreed to invest/fund such a huge amount is always justified in insisting for their own terms and conditions.”

The Court said that under the contractual obligation, it was not open for National High Speed Rail Corporation Limited (NHSRCL) and/or even the Republic of India to deviate from any of the terms and conditions of the loan agreement and/or the decision of JICC/JICA.

On the comparison with other bidders, the Court said that the High Court ought to have appreciated that other Bidders, who were granted opportunity to cure the defects had cleared the first stage and they were granted opportunity to cure the defects. As per the JICC and JICA, with respect to those Bidders, who were given an opportunity to cure the defects after they cleared Stage I, their defects were found to be substantially responsive and, therefore, the opportunity was given to them to cure the defects, which as such was found to be substantially responsive and nonmaterial compliance. However, the respondent’s Bid was rejected at the first stage itself having specifically found that the same constitute a material deviation/non-conformity. Therefore, all the other Bidders who were granted the opportunity to cure the defects were different than that of the original writ petitioner and, therefore, the High Court has erred in holding that not granting the opportunity to the original writ petitioner to cure the defect is discriminatory.

On the scope of judicial review in foreign funded contract, the Court observed that the same should be far much less than the ordinary Government funded contracts funded from Consolidated Fund of India. The scope of judicial review in such foreign funded contracts/projects would be restricted and minimal. In such foreign funded contracts, the only ground for judicial review ought to be on a limited aspect, i.e., the action of the executing authority does not suffer from favouritism or nepotism and based on the grounds which have been concealed from the foreign financing authority, if disclosed, would have persuaded the financing authority to cancel the contract.

On terms and conditions of the contract, the Court observed thatthe foreign developed nation, who has agreed to invest/fund a huge amount, approximately Rs.1 lakh crores in the present case, is always justified in insisting for their own terms and conditions on which such a huge amount is funded.

Foreign sovereign funded contracts, like the present one, are completely different and distinct from the Government Contracts/ Public Works Department Contracts / Public Private Partnership Contracts, which are either wholly or partially funded from public money, i.e., Consolidated Fund of India or of the State and implemented by a statutory/local authority of the State. It cannot be disputed that in the present case, Japan being friendly sovereign country – a developed nation has agreed to fund a huge amount for a National Project in favour of another friendly State – developing nation – in the present case, the Republic of India. Such a huge sum/amount is funded by the developed nation to implement the Project meant for development of the developing nation – the Republic of India. The contracts are entered into and the huge sum is funded on the basis of non-negotiated terms and conditions and therefore, the foreign developed nation, who has agreed to invest/fund such a huge amount is always justified in insisting for their own terms and conditions on which such a huge amount is funded.”

On the legality of the confidentiality clause, the Court held that the purpose of the aforesaid clauses appears to be to prevent a possible challenge to the multiple stage tender process midway.

The clauses in question were:

Clause 28.1

“information relating to the evaluation of the Bids and recommendation of the Contract award shall not be disclosed to bidders or any other persons, not officially concerned, with such process until information on Contract award is communicated to all bidders in accordance with ITB 42.”

Clause 42.5

“only after notification of award, unsuccessful Bidders may request, in writing, to the Employer a debriefing seeking explanations on the grounds on which their Bids were not selected and the Employer shall promptly respond, in writing, to any unsuccessful Bidders who, after the notification of the award in accordance with ITB 42.1, request a debriefing.”

The Court held that the view taken by the High Court that Clause 28 under Clause (e) of Option A Section 1 and Clause 42.5 of ITB are patently illegal, inasmuch as they seek to curtail the right of the bidders to challenge the rejection of their bid in a multi-stage bidding process at the earliest, and before the award of the contract, was erroneous as first of all the clauses of the ITB were not under challenge before the High Court. Even otherwise, the Clauses 28.1 and 42.5 of ITB were well within the knowledge of the respondent at the time of participating in the tender process. Therefore, once having accepted the terms and conditions of the tender process with the full knowledge of Clauses 28.1 and 42.5, and participated with full knowledge, thereafter, it was not open for the respondent to make a grievance with respect to such clauses.

Further, the High Court had construed that the said clauses would restrict the right of the bidders to seek judicial scrutiny of the tender process. However, the High Court ought to have appreciated that first of all Clause 28 is a confidentiality clause which does not take away the right of the Bidders to seek judicial scrutiny at all. Only the stage and time to know the reasons and thereafter if the unsuccessful Bidder is aggrieved can seek the remedy, which is deferred till the final decision on award of contract is taken and communicated.

“By no stretch of imagination, it can be said that it takes away the right of the unsuccessful bidder to seek the judicial scrutiny of the tender process. After the final decision is taken to award the contract and the contract is awarded, thereafter it will always be open for the unsuccessful bidders to ask for the reasons to which the employer is required to furnish promptly and thereafter the unsuccessful bidder may avail the legal remedy, which may be available to it, may be claiming the damages.”

The High Court ought to have appreciated that it is always advisable that in such a foreign funded Mega project, delay may have a cascading effect and many a times have a financial burden due to delay in projects and therefore, there shall be minimal interference and/or no interference till the entire tender process or till the award of contract is completed. The foreign funded agency therefore is justified in providing such clauses to prevent challenge to the tender process midway.

“A foreign funded agency, who invests/funds such a huge amount for such a Mega project on bilateral talks between two countries is justified in insisting such clauses and to insist that the information relating to the evaluation of the Bids and recommendation of contract award shall not be disclosed to Bidders or any other person until information on contract award is communicated to all the Bidders and the grounds on which the unsuccessful Bidders’ Bids are not selected shall be provided thereafter.”

Hence, in a Mega project, which is funded by a foreign country, there shall not be any interference with the tender process midway till the final decision is taken to award the contract. The reason behind this is that any delay in such a project may increase the ultimate project cost and it may affect the future investment by the foreign country, which would never be in the larger nation’s interest.

[National High Speed Rail Corporation Limited v. Montecarlo Ltd., 2022 SCC OnLine SC 111, decided on 31.01.2022]


*Judgment by: Justice MR Shah


Counsels

For appellant: Solicitor General Tushar Mehta

For respondent: Senior Advocate Anshin H. Desai

Case Briefs

Supreme Court: The Division Bench of M.R. Shah* and A.S. Bopanna, JJ., quashed the judgment of Gujarat High Court wherein it had directed ONGC to accept modified bid of the writ applicant. The Bench held that the when High Court had permitted the writ applicant to modify its offer, the opportunity ought to have been given to the other applicants as well. The Bench remarked,

“The procedure adopted by the High Court while disposing of the writ petition by permitting/allowing the original writ applicant to modify its offer and that too in exercise of powers under Article 226 of the Constitution of India, as observed herein above, is unsustainable and unknown to law.”

Facts of the Case

By the impugned judgment, the High Court had directed the respondent-ONGC to finalize the contract with the writ applicant on the condition that the writ applicant shall lift the gas within 65 days from the date of allotment instead of 75 days as offered by it earlier. Noticeably, the respondent-ONGC had invited “Expressions of Interest” (EOI) on 22-07-2020 for demand assessment for natural gas produced from the two fields. As per the EOI, the demand assessment for the natural gas in the area was to be undertaken by ONGC and the ultimate approval for allocation was to come from Ministry of Petroleum and Natural Gas, Government of India. If allotted, the gas supply was to operate for a period of five years from the date of award.

Only three applicants were interested in sourcing the natural gas from two fields advertised by ONGC viz., (1) original writ applicant – Nobel Cera Coat, (2) Vaibhavi Enterprise (3) Tanish Cerachem Pvt. Ltd. Thereafter, ONGC sought approval of Ministry for gas allocation. When the matter was pending consideration before the Union Government, one of the applicant-Tanish Cerachem Pvt. Ltd. revised its response and offered to commence off take of gas within 65 days of allotment.

Evidently, the writ applicant had offered to lift gas from the field/block within a period of 75 days. However, considering the revised offer from Tanish Cerachem Pvt. Ltd., the ONGC had re-invited bids from all the three shortlisted applicants and accordingly it had asked them to place fresh bids.

The appellant contended that, it had submitted to the fresh tendering process and submitted its bid. However, the writ applicant did not submit any fresh bid and filed a writ petition before the High Court challenging the ONGC’s decision to re-invite the bid so far as it called for “expected period of readiness to off take gas from ONGC’s offer letter”, wherein the High Court had permitted the writ applicant to reduce the days for lifting gas from 75 days to 65 days, and had directed the ONGC to finalize the contract with the writ applicant.

Analysis and Findings

“It is required to be noted that before the High Court it was brought on record that there are two other applicants who submitted their EOI and even one of the applicants was ready and willing to lift the gas within 65 days.

Observing that the writ applicant had revised its offer only during the pendency of the petition, and unfortunately High Court had permitted the same that too in exercise of powers under Article 226 of the Constitution, the Bench remarked,

“We have our own doubt whether in exercise of powers under Article 226 of the Constitution of India, the High Court could have permitted one of the bidder to revise / modify its offer. Even in the facts and circumstances of the case, the High Court felt that instead of inviting fresh bids, the same could be allowed, in that case also, similar opportunity ought to have been given to the other applicants also.”

In the light of the above, the impugned decision was set aside and the matter was remitted to the High Court for its fresh decision in accordance with law and after giving fullest opportunities to all the respondents including ONGC, Union of India and the appellants.

[Vaibhavi Enterprise v. Nobel Cera Coat, 2021 SCC OnLine SC 954, decided on 21-10-2021]


Kamini Sharma, Editorial Assistant has put this report together 


Appearance by:

For the appellant: Santosh Krishnan,

For the Writ Applicant: Saurav Agrawal,

For ONGC: Vikramjit Banerjee, ASG


*Judgment by: Justice M.R. Shah

Know Thy Judge | Justice M. R. Shah

 

Case BriefsHigh Courts

Delhi High Court: Deciding the issue of whether World Bank is a government agency or not, the Division Bench of Vipin Sanghi and Jasmeet Singh, JJ., answering in negative, disposed of the petition.
Background
NDMC had rejected the petitioner’s bid while disqualifying it from participating in any re-tendering process as the petitioner stood debarred by the World Bank and this fact had not been disclosed by the petitioner in the undertaking submitted in terms of clause 20(r) of the tender conditions. This clause obligated the petitioner to submit an undertaking that it was not blacklisted/debarred by any Government agency.
In the present matter, the question for consideration was:
Whether World Bank could be considered as a “Government Agency” in terms of clause 20 (r) of the tender conditions?
Counsel for NDMC submitted that the World Bank has representatives of India on its body, which included the Union Finance Minister and Government of India has voting rights in the World Bank, and therefore it could be included as government agency.
Per contra, Senior Counsel for the petitioners submitted that for the World Bank was to be categorized as the “Government Agency”, it will have to be established that it acts as an agent of the Government of India. The petitioners placed on record the decisions wherein it was held that the World Bank was not a Government Authority under Article 12 of the Constitution of India and no writ would lie against the World Bank.
Analysis, Law and Decision
High Court opined that,
World Bank or any of the other international bodies, which have proceeded to debar the petitioner, cannot be considered as a “Government Agency”. This is for the reason that none of the international bodies are bound by any directions issued by the Government of India.
GOI’s Role
The Government of India does not exercise control, actual or pervasive, over their affairs and that is why they have been held as not amenable to the writ jurisdiction of the High Court, as they are not considered State or other authority within the meaning of the said expressions under Articles 12 and 226 of the Constitution of India.
Court observed that the Clauses 20(r) read with 55 in the tender were penal in nature as they purported to debar the bidder who does not make a disclosure about its debarment by a Government Agency. Therefore, they had to be strictly construed.
Final Word
World Bank cannot be construed as a government agency when, generally understood, it is not a government agency.
“Government agency”– in the present context, certainly cannot be construed as encompassing within its scope, bodies like the World Bank.
Conclusion
Bench held that petitioner cannot be barred from participating in the re-tendering process, unless the respondent amends the terms and conditions of the tender so as to specifically bar all such bidders who have been barred by international bodies, like the World Bank. [A2Z Infraservices Ltd. v. North Delhi Municipal Corporation, WP (C) 11480 of 2021, decided on 12-10-2021]

Advocates before the Court:
For the Petitioners:

Mr Rajiv Nayar, Senior Advocate alongwith Mr Sudhir Sharma, Mr MohitBakshi, Mr Saurabh Seth, Mr Naman Singh Bagga and Mr Adit Vikarmadaditya Garg, Advocates.

For the Respondent:

Ms Mini Pushkarna, Standing Counsel alongwith Ms Khushboo Nahar, Ms LatikaMalhotra, Advocates with Mr Rakesh Kumar Jha, Project Manager (Electrical), Nr.DMC.

Case BriefsSupreme Court

Supreme Court: While elaborating the scope of judicial review, Bench of L. Nageswara Rao, B.R. Gavai and B.V. Nagarathna, JJ., held that,

“It is not for the Court to determine whether a particular policy or a particular decision taken in the fulfilment of that policy is fair.”

Crux of the Matter

Question relating to interpretation of Section 11 of the Coal Mines (Special Provisions) Act, 2015 which was an outcome of the judgment of this Court’s decision in Manohar Lal Sharma v. Principal Secretary, (2014) 9 SCC 516, and ancillary question pertaining to the scope of judicial review of administrative action of the State authority arose for consideration in the instant appeals.

What are the present appeals challenging?

Present appeal challenged the decision of Punjab and Haryana High Court thereby allowing petitions filed by respondent – EMTA Coal Limited and holding that respondent herein will have the first right of refusal in the matter of lending of Mining Lease.

Factual Matrix

Punjab State Electricity Board (PSEB) now known as Punjab State Power Corporation Limited was proposed to be allotted Captive Coal Mines by the Union of India.

Bids were invited for the purpose of development of Captive Coal Mines and in the said bid, the respondent emerged successful. This resulted in an agreement, thereby creating a Joint Venture Company called Panem Coal Mines Limited.

Further, the said agreement provided the rights for mining of coal from the Coal Mines, transporting and delivery of it, wholly and exclusively to PSEB. Since EMTA being a partnership firm could not have been a shareholder of the Joint Venture Company, a follow up Joint Venture Agreement was entered between PSEB, EMTA and three partners of EMTA, incorporating the same terms and conditions as were found in the earlier agreement.

Later, Union of India allotted a Pachhwara Coal Block in the State of Jharkhand to PSEB.

In August, 2006 a coal purchase agreement was executed between Panem and PSEB, for the purpose of supply and delivery of the coal to power station of PSEB from Pachhwara Coal Block.

In 2007, Mining Lease was issued by the Jharkhand Government in favour of Panem, for mining coal even from the forest areas of the Coal Block.

When did the problem occur?

Manohar Lal Sharma v. Principal Secretary, (2014) 9 SCC 516, Supreme Court held that the entire allocation of Coal Blocks made between 1993 and 2011, except those which were made through competitive bidding, were invalid, unfair arbitrary and violative of Article 14 of the Constitution of India.

Further orders passed in the case of Manohar Lal Sharma v. Principal Secretary, (2014) 9 SCC 614, this Court quashed all Coal Block allocations made by the Central Government between 1993 and 2011.

Court also accepted the submission of the Attorney General that the allottees of the Coal Blocks other than those covered by the judgment and the four Coal Blocks covered by the subsequent order, must pay an amount of Rs 295/­ per metric ton of coal extracted as an additional levy.

Further, Centre vide allotment order again allocated Pachhwara Captive Coal Block in favour of PSPCL.

On facing acute shortage of coal for paddy season, PSPCL entered into a transitory agreement and with EMTA later published Notice inviting Global Tender, inviting bids for the appointment of Mine Developer-cum-Operator, for supply of coal.

EMTA in view of the above facts, filed a petition before the Punjab and Haryana High Court challenging the said NIT.

Analysis, Law and Decision

Firstly, the Court referred to Section 11 of the Coal Mines (Special Provisions) Act, 2015.

“11. Discharge or adoption of third party contracts with prior allottees.—

  • Notwithstanding anything contained in any other law for the time being in force, a successful bidder or allottee, as the case may be, in respect of Schedule I coal mines, may elect, to adopt and continue such contracts which may be existing with any of the prior allottees in relation to coal mining operations and the same shall constitute a novation for the residual term or residual performance of such contract: 

Provided that in such an event, the successful bidder or allottee or the prior allottee shall notify the nominated authority to include the vesting of any contracts adopted by the successful bidder. 

  • In the event that a successful bidder or allottee elects not to adopt or continue with existing contracts which had been entered into by the prior allottees with third parties, in that case all such contracts which have not been adopted or continued shall cease to be enforceable against the successful bidder or allottee in relation to the Schedule I coal mine and the remedy of such contracting parties shall be against the prior allottees.”

Bench stated that, it is a settled principle of law that when, upon a plain and literal interpretation of the words used in a Statute, the legislative intent could be gathered, it is not permissible to add words to the Statute.

Equally, such an interpretation which would make some terms used in a Statute otiose or meaningless has to be avoided.

In view of the above stated, Bench added that considering Section 62 of the Contract Act, 1872 read with Section 11 of the said Act, it has observed that the parties to a contract may willingly agree to substitute a new contract or to rescind it or alter it.

Observing the above, Court added that the High Court erred in observing that EMTA had a legitimate expectation.

Hence, the High Court’s reasoning was totally wrong.

Bench further opined that High Court’s reasoning that PSCPCL was within its right to reject the arrangement if the performance of EMTA was unsatisfactory or if there was any other factor which the Corporation found relevant enough to discard the arrangement altogether was totally erroneous/ 

Supreme Court’s observation:

Merely because the Coal Mine Block was allotted to PSPCL, the same could not give any vested right in favour of EMTA, particularly in view of Section 11 of the Act.

 High Court erred in forcing PSPCL to continue with the contract with EMTA, though it was not willing to do so. 

Whether Section 11 of the said Act mandates the successful allottee to continue with the existing contract?

To the above question, Bench answered saying no.

Judicial Review

The contention that order passed by PSPCL in 2018 was in a totally arbitrary and irrational manner was answered by the Court stating that the said order was passed by an authority of the State in exercise of its executive function.

Elaborating the above, Court stated that the scope of judicial review of administrative action has been well crystallised by this Court in Tata Cellular v. Union of India, (1994) 6 SCC 651.

Supreme Court expressed that while exercising powers of judicial review, the Court is not concerned with the ultimate decision but the decision-making process.

What all the Court can enquire in?

Whether a decision­ making authority has exceeded its powers, committed an error of law or committed breach of principle of natural justice.

Court can also examine whether an authority has reached decision that no reasonable Tribunal would have reached or has abused its powers.

Wednesbury principle

Court will examine whether the decision of an authority is vitiated by illegality, irrationality or procedural impropriety. While examining the question of irrationality, the court will be guided by the principle of Wednesbury.

While applying the Wednesbury principle, the court will examine as to whether the decision of an authority is such that no authority properly directing itself on the relevant law and acting reasonably could have reached it.

 Conclusion

Hence, in view of the above discussion, PSPCL’s decision cannot be questioned on the ground of illegality or procedural impropriety.

It was noted that, PSPCL had decided to go in for competitive bidding process for the purpose of eliciting the best operator.

Therefore,

A policy decision to get the best operator at the best price, cannot be said to be a decision which no reasonable person would take in his affairs.

 While concluding the Court held the Punjab and Haryana High Court’s decision unsustainable in law and the appeals were allowed. [Punjab and State Power Corporation Ltd. v. EMTA Coal Ltd., 2021 SCC OnLine SC 766, decided on 21-09-2021]


Advocates before the Court:

For the appellant-PSPCL: K.V. Viswanathan, Senior Counsel

A.M. Singhvi, Senior Counsel appearing on behalf of appellant­-DBL­VPR Consortium

Mukul Rohatgi, Senior Counsel appearing on behalf of respondent-EMTC

Case BriefsSupreme Court

Supreme Court: The bench of SA Nazeer* and BR Gavai, JJ has held that a show cause notice constituting the basis of a blacklisting order must spell out clearly the intention on the part of the issuer of the notice to blacklist the noticee. Such a clear notice is essential for ensuring that the person against whom the penalty of blacklisting is intended to be imposed, has an adequate, informed and meaningful opportunity to show cause against his possible blacklisting.


Background of the Case


In the present case, the Food Corporation of India blacklisted UMC Technologies Private Limited, the appellant, from participating in any future tenders of the Corporation for a period of 5 years. The appellant was declared as the successful bidder in the bids invited by the Corporation for appointment of a recruitment agency to conduct the process of recruitment for hiring watchmen for the Corporation’s office. However, on the day when the appellant conducted a written exam for eligible aspirants for the post of watchman with the Corporation at various centres in Madhya Pradesh, a Special Task Force of Bhopal Police arrested 50 persons in Gwalior, who were in possession of certain handwritten documents which prima facie appeared to be the question papers related to the examination conducted by the appellant.

Upon receipt of the above information, the Corporation issued a show cause notice dated 10.04.2018 alleging that the appellant had breached various clauses of the Bid Document on the ground that it was the sole responsibility of the appellant to prepare and distribute the question papers as well as conduct the examination in a highly confidential manner. The said notice directed the appellant to furnish an explanation within 15 days, failing which an appropriate ex-parte decision would be taken by the Corporation.

The appellant replied to the aforesaid notice and submitted an Observation Report-cum-Reply/Explanation which compared the seized documents with the original question papers and contended that there were many dissimilarities between the two and thus there had been no leakage or dissemination of the original question papers.


Analysis


Principles of Natural Justice

It is the first principle of civilised jurisprudence that a person against whom any action is sought to be taken or whose right or interests are being affected should be given a reasonable opportunity to defend himself. Hence, before adjudication starts, the authority concerned should give to the affected party a notice of the case against him so that he can defend himself. Such notice should be adequate and the grounds necessitating action and the penalty/action proposed should be mentioned specifically and unambiguously.

“An order travelling beyond the bounds of notice is impermissible and without jurisdiction to that extent.”

Show Cause Notice in case of Blacklisting

In the context of blacklisting of a person or an entity by the state or a state corporation, the requirement of a valid, particularized and unambiguous show cause notice is particularly crucial due to the severe consequences of blacklisting and the stigmatization that accrues to the person/entity being blacklisted.

Blacklisting has the effect of denying a person or an entity the privileged opportunity of entering into government contracts. This privilege arises because it is the State who is the counterparty in government contracts and as such, every eligible person is to be afforded an equal opportunity to participate in such contracts, without arbitrariness and discrimination.

“Not only does blacklisting takes away this privilege, it also tarnishes the blacklisted person’s reputation and brings the person’s character into question. Blacklisting also has long-lasting civil consequences for the future business prospects of the blacklisted person.”

Validity of the Show Cause Notice in the case at hand

The action of blacklisting in the present case was neither expressly proposed nor could it have been inferred from the language employed by the Corporation in its show cause notice. The notice merely contained a vague statement that in light of the alleged leakage of question papers by the appellant, an appropriate decision will be taken by the Corporation.

“While the notice clarified that the 12 clauses specified in the notice were only indicative and not exhaustive, there was nothing in the notice which could have given the appellant the impression that the action of blacklisting was being proposed. This is especially true since the appellant was under the belief that the Corporation was not even empowered to take such an action against it and since the only clause which mentioned blacklisting was not referred to by the Corporation in its show cause notice.”

It was the case of the appellant that serious prejudice has been caused to it due to the Corporation’s order of blacklisting as several other government corporations have now terminated their contracts with the appellant and/or prevented the appellant from participating in future tenders even though the impugned blacklisting order was, in fact, limited to the Corporation’s Madhya Pradesh regional office.

On this the Court said,

“This domino effect, which can effectively lead to the civil death of a person, shows that the consequences of blacklisting travel far beyond the dealings of the blacklisted person with one particular government corporation and in view thereof, this Court has consistently prescribed strict adherence to principles of natural justice whenever an entity is sought to be blacklisted.”

The Court, hence, noticed that it was incumbent on the part of the Corporation to clarify in the show cause notice that it intended to blacklist the appellant, so as to provide adequate and meaningful opportunity to the appellant to show cause against the same.


Ruling


“The mere existence of a clause in the Bid Document, which mentions blacklisting as a bar against eligibility, cannot satisfy the mandatory requirement of a clear mention of the proposed action in the show cause notice.”

The Court observed that the Corporation’s notice is completely silent about blacklisting and as such, it could not have led the appellant to infer that such an action could be taken by the Corporation in pursuance of this notice. Had the Corporation expressed its mind in the show cause notice to black list, the appellant could have filed a suitable reply for the same.

Therefore, it was held that the show cause notice dated 10.04.2018 did not fulfil the requirements of a valid show cause notice for blacklisting and as the order of blacklisting the appellant clearly traversed beyond the bounds of the show cause notice which is impermissible in law, the consequent blacklisting order dated 09.01.2019 cannot be sustained.

[UMC Technologies Ltd. v. Food Corporation of India,  2020 SCC OnLine SC 934, decided on 16.11.2020]


*Justice SA Nazeer has penned this judgment

Case BriefsTribunals/Commissions/Regulatory Bodies

Competition Commission of India (CCI): This reference was filed before Ashok Kumar, Chairperson and  Augustine Peter and U.C. Nahta, Members by the Chief Materials Manager/Sales, Eastern Railway i.e. informant under Section 19(1)(b) of the Competition Act, 2002 against Laxven Systems and Medha Servo Drives (P) Ltd., alleging contravention of provisions of Section 3 of the Competition Act.

Facts of the case were that informant floated a tender for procurement of Microprocessor Control and Fault Diagnostics System for Electric Locos as per Research Designs and Standard Organisation. As per the information brought before Commission, there were initially 4 approved vendors but an amendment was brought in the criteria for selection due to which 2 vendors were delisted. Laxven did not participate in the impugned tender due to which by default, Medha won the tender who quoted a high rate. Negotiation by informant were not accepted and they were forced to accept the high rate quoted by Medha thus, Laxven was alleged for non-participation as a result of bid suppression and formation of a cartel.

Commission observed the fact that Laxven had not participated in other tenders conducted in the 3 Railway Zones and the reason being that they had not developed a Prototype for the required System. Thus, the allegation of bid suppression and cartelization was unsubstantiated. The high rate quoted by Medha was found to be justified due to the improved system which was to be supplied to the informant. Commission on finding no contravention of Section 3 of the Act directed the information to be closed in terms of Section 26(2) of the Act. [Chief Material Manager v. Laxven Systems, 2019 SCC OnLine CCI 1, dated 02-01-2019]