Court rules in favor of oil company, deems subsidiary ownership requirement ancillary. Discriminatory tender clause prohibited.

The Court ruled in favor of the Petitioner, a public limited company engaged in oil and gas drilling, in a case challenging discriminatory conditions in tender clauses set by ONGC Ltd. The Court held that the requirement for a subsidiary company to be a 100% subsidiary of the parent company was not essential but ancillary. It found ONGC's selective application of the condition arbitrary and prohibited ONGC from rejecting the Petitioner's bid based on this condition. The Court directed ONGC to consider the Petitioner's bid without the discriminatory condition as a barrier.

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Issues Involved:
1. Quashing/Waiving of arbitrary and discriminatory conditions in tender clauses.
2. Mandamus to consider the Petitioner’s bid against the subject tenders.
3. Examination of whether the impugned condition is an essential condition of eligibility or merely ancillary.

Detailed Analysis:

1. Quashing/Waiving of Arbitrary and Discriminatory Conditions in Tender Clauses:
The Petitioner, a public limited company engaged in oil and gas drilling, challenged the conditions encapsulated in clauses B.2.6(v) and B.2.7(v) of the tenders issued by ONGC Ltd. The Petitioner contended that the requirement for a subsidiary company to be a 100% subsidiary of the parent/ultimate parent/holding company was discriminatory. The Petitioner argued that since its holding company owned 99.90% of its shares, it effectively amounted to 100% shareholding and complete control. The Petitioner claimed this condition was aimed at excluding prospective bidders and preventing healthy competition, labeling it as unreasonable, discriminatory, opposed to public policy, arbitrary, and irrational.

2. Mandamus to Consider the Petitioner’s Bid Against the Subject Tenders:
The Petitioner sought a mandamus directing ONGC Ltd. to consider its bid for the five subject tenders. The Petitioner highlighted that ONGC had previously awarded a tender to a consortium where the holding company did not have 100% shareholding due to legal constraints under Russian law. This indicated that ONGC had applied the condition liberally in other cases. The Petitioner argued that the same relaxation should apply to it, as the holding company’s 99.90% shareholding effectively provided the same control and financial backing.

3. Examination of Whether the Impugned Condition is an Essential Condition of Eligibility or Merely Ancillary:
The Court examined whether the impugned condition was an essential condition of eligibility or merely ancillary. The Supreme Court’s judgment in Poddar Steel Corpn. v. Ganesh Engineering Works was referenced, which distinguished between essential conditions of eligibility and ancillary conditions. The financial criteria in the tender required a turnover of at least 30% of the annualized bid value. If a bidder did not meet this criterion, it could rely on the financial strength of its parent/ultimate parent/holding company, provided it was a 100% subsidiary. However, for newly formed companies, there was no 100% shareholding requirement, only a corporate guarantee from the promoter company.

The Court found that the impugned condition was not essential for eligibility but ancillary to the main objective of ensuring financial capability. The Court noted that ONGC’s selective application of the condition, especially its relaxation in the case of the Russian consortium, indicated arbitrariness. The Court emphasized that the purpose of the financial condition was to ensure the bidder’s capability to execute the project, which could be achieved through a corporate guarantee from the parent company, regardless of 100% shareholding.

Conclusion:
The Court held that the impugned condition was not an essential condition of eligibility but merely ancillary. It ruled that ONGC Ltd. could not insist on strict literal compliance with the condition and prohibited it from rejecting the Petitioner’s bid on this ground. The writ petitions were allowed, ensuring that the Petitioner’s bid would be considered without the impugned condition being a barrier. There was no order as to costs.

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