2025 (9) TMI 72 - HC - IBC

IBC, 2016 must inform tender conditions; Manual's Clause 1.8 should have included revival-focused provisions; petitioner allowed representation

HC held that the IBC, 2016 is a crucial law that must be taken into account when formulating tender conditions and ought to have been included in Clause ... Requirement to take into account the provisions of the Insolvency and Bankruptcy Code, 2016, under which a company is resurrected as an ongoing concern by a Successful Resolution Applicant (SRA), while formulating the tender conditions - HELD THAT:- It is found from perusal of Clause 1.8 of the said Manual that the government has indeed not only considered various laws but has also examined the impact that such laws may have on the commercial aspects of the contracts that the government may enter into. It is found that the government has been aware of and sensitive to various laws like the Indian Contract Act, the Arbitration & Conciliation Act, 1996, the Competition Act, 2002, the Information Technology Act, 2002, the Delhi Police Establishment Act, 1946, the Code of Criminal Procedure, 1973, various labour laws applicable at the works’ site, various building and safety Acts, Codes and other relevant laws including the provisions of the Constitution of India, 1950. The IBC, 2016 is conspicuous by its absence in Clause 1.8 of the Manual. In the period of constantly evolving laws, Acts and Codes, it appears that the impact of IBC on such Procurement of Goods and Services for the purpose of formulation of tender conditions would be profound and indispensable. Plainly, the IBC, 2016 was engrafted with the purpose to amalgamate many laws surrounding revival, resurrection and liquidation of various companies, “to be read in that order”, and underscored the importance of reviving an entity so as to infuse fresh life into it and rehabilitate it back into the mainstream industry as an “on going concern”. The entire emphasis appears to be, to ensure that an entity, whose resolution plan is accepted by the National Company Law Tribunal (NCLT) and declared to be “Successful Resolution Applicant” is successful in reviving and resurrecting such Corporate Debtor. The underlying object clearly appears to be to rid the “Corporate Debtor” of the previous unsuccessful management by introducing and involving an entity declared to be “SRA” who would be given the task of reviving the Corporate Debtor as an “on going concern”. If that is the aim and purport of the IBC, 2016, it is necessary to underscore the fact that this law must and ought to be considered as a crucial component to Clause 1.8 of the said Manual alongwith all other relevant laws. In view of the fact that the petitioner in the present case has not laid challenge to the offending Clause, it is not inclined to interfere in the present matter at this stage, however, are of the considered opinion that the respondent/Union of India as also the tender issuing authority must examine the view expressed - liberty granted to the petitioner to submit its representation on or before 04.09.2025 in respect of the challenge laid and direct the respondents to consider such representation in the light of, and giving due regard to the aforesaid view expressed and dispose of the same on or before 20.09.2025 giving adequate reasons in writing. Petition disposed off. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether a tendering authority, while formulating tender conditions or procurement manuals, must take into account the objectives, scheme and remedial purpose of the Insolvency and Bankruptcy Code, 2016 (IBC) - particularly the concept of revival of corporate debtors as an 'ongoing concern' through a Successful Resolution Applicant (SRA) - before prescribing disqualification criteria that bar entities which have undergone Corporate Insolvency Resolution Process (CIRP) within a specified period. 2. Whether a blanket ineligibility clause in tender conditions that disqualifies bidders merely because they or their bidding entity underwent CIRP within the last seven years is arbitrary or discriminatory, having regard to the IBC's intent to rehabilitate corporate debtors and to the need for a level playing field and widest possible competition in public procurement. 3. The extent of judicial review in respect of tender conditions: whether courts may add, delete or reframe tender conditions in the exercise of writ jurisdiction under Article 226 when the challenge concerns compatibility of tender conditions with other statutory regimes (here, the IBC). 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Incorporation of the IBC's objectives into procurement policy and tender conditions Legal framework: The IBC is a comprehensive statutory scheme for time-bound reorganisation and insolvency resolution of corporate persons, emphasizing maximisation of asset value, promotion of entrepreneurship, availability of credit, balancing stakeholder interests and reviving corporate debtors as ongoing concerns. Procurement manuals and tender conditions are governed by administrative policy objectives including transparency, competition and commercial due diligence. Precedent Treatment: The Court relied on established pronouncements interpreting the IBC (drawing on Innoventive and Swiss Ribbons) to extract the Code's primary focus on revival and protection of corporate debtors and the beneficial nature of the regime. Those precedents were followed for the proposition that IBC aims to resuscitate corporate debtors and protect assets and stakeholders during resolution. Interpretation and reasoning: The Court reasoned that since procurement manuals (such as the Manual for Procurement of Works, 2022) expressly consider laws affecting commercial aspects of public contracts, the IBC is a relevant enactment that ought not to be omitted when framing tender conditions. The IBC's specific purpose - to enable SRAs to revive corporate debtors as ongoing concerns - has material implications for procurement policy because an SRA-revived entity is transformed into a rehabilitated economic actor whose participation may further public interest, continuity of employment and preservation of creditor and stakeholder value. The absence of IBC from the enumerated laws in the Manual is a notable lacuna given the Code's pervasive impact on the commercial viability and legal status of firms emerging from CIRP. Ratio vs. Obiter: The Court's statement that the IBC ought to be considered in procurement manuals constitutes an authoritative ratio on the obligation of tendering authorities to account for materially relevant statutes when framing eligibility conditions. Observations on the social and stakeholder implications of rehabilitation (workers, banks, continuity) are explanatory but tied to the main holding and thus part of the operative reasoning rather than mere obiter. Conclusions: Tendering authorities formulating procurement manuals and tender conditions must give due regard to the IBC's objectives and scheme; omission of the IBC from relevant considerations is a material oversight that should be rectified in policy-making and tender drafting. Issue 2 - Validity of blanket ineligibility for entities subject to CIRP within seven years Legal framework: Public procurement principles require promotion of widest possible competition and a level playing field, while tender conditions may legitimately require proof of financial capacity, turnover and technical competence. The IBC, however, contemplates rehabilitation and confers on a Successful Resolution Applicant a re-created ongoing concern status that changes the legal and commercial character of the entity. Precedent Treatment: The Court applied the reasoning of higher court authorities recognising the IBC as a beneficial code aimed at revival (Swiss Ribbons, Innoventive). No precedent was overruled; precedents were invoked to underline that resolution and resurrection are primary legislative aims. Interpretation and reasoning: A blanket rule disqualifying bidders solely because they underwent CIRP within a prescribed period (seven years) fails to recognise that a successfully approved resolution plan results in an SRA reviving the corporate debtor as an ongoing concern with new management and possibly new financial and operational credentials. Such a blanket disqualification risks nullifying the rehabilitative intent of the IBC and may exclude entities that, post-CIRP, are capable and solvent. Nonetheless, tendering authorities retain a legitimate interest in ensuring bidders meet financial capacity and technical benchmarks; such requirements may justify exclusion in particular cases based on objective financial criteria rather than inflexible presumptive disqualification linked solely to CIRP history. Ratio vs. Obiter: The Court's conclusion that arbitrary blanket exclusion for CIRP participation is conceptually inconsistent with the IBC's objectives is ratio where tender conditions indiscriminately bar SRAs or rehabilitated entities. The observation that financial capacity and technical criteria remain valid grounds for exclusion is part of the operative balancing and therefore also ratio. Suggestions on how to treat 'time spent in CIRP as zero period' are advisory and constitute obiter guidance on remedial approaches to reading down clauses. Conclusions: Tender clauses imposing automatic ineligibility for entities that underwent CIRP in a specified period are prima facie inappropriate unless justified by objective, proportionate financial or technical requirements. Tendering authorities should avoid mechanical disqualification and instead adopt nuanced standards that recognise successful resolution under the IBC and evaluate post-resolution capacity on its merits. Issue 3 - Scope of judicial review in challenges to tender conditions involving statutory regimes like the IBC Legal framework: Judicial review of tender conditions under constitutional writ jurisdiction is limited: courts cannot ordinarily introduce, delete or reframe tender conditions; intervention is permissible where conditions are arbitrary, discriminatory or violative of law, subject to deference to administrative expertise and commercial considerations. Precedent Treatment: The Court reiterated settled principles limiting judicial interference in procurement policy and tender drafting, while recognising the Court's role in ensuring legality and non-arbitrariness. No precedent was distinguished or overruled; the Court applied established restraint doctrine. Interpretation and reasoning: The Court acknowledged its circumscribed role: it would not itself alter the impugned clause in the absence of a direct legal challenge to the clause and given the administrative domain of tender drafting. However, the Court emphasized its power to direct reconsideration when a legal regime materially affecting tender eligibility (the IBC) appears to have been overlooked. The Court thus balanced non-intervention with supervisory responsibility to ensure policies conform to relevant laws and statutory objectives. Ratio vs. Obiter: The holding that courts will not rewrite tender conditions but may direct administrative reconsideration where relevant statutory mandates were ignored is ratio. The procedural directions to permit representation and reconsideration in the instant matter are case-specific relief and thus operative, not obiter. Conclusions: Courts will exercise restraint in interfering with tender clauses but may require administrative authorities to revisit tender conditions where omission of a material statutory regime (e.g., the IBC) raises legal questions about arbitrariness or inconsistency with legislative purpose. Remedies should prefer administrative reconsideration over judicial amendment unless statutory violation compels further intervention. Remedial Directions and Practical Guidance (Operative Conclusions) The Court granted liberty to the affected bidder to make representation and directed respondents to consider such representation in light of the Court's views, to decide with written reasons within stipulated timelines and provide a copy of the decision; petitioner may approach the Court against that decision. These directions reflect the Court's preference for administrative reassessment rather than judicial re-writing of tender conditions.