TaxTMI 
TaxTMI 
1994 (11) TMI 203
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....g and publishing the telephone directory is normally awarded by inviting tenders and selecting the best offer from among the tenders which are so received. This practice has been in vogue for some time. In Sterling Computers td. v. M and N Publications Ltd. (1993) 1 SCC 445 this court has dealt with the award of such a contract for printing and publishing of the telephone directories for Delhi and Bombay. The instant case relates to the telephone directory for Hyderabad. By an advertisement published in various newspapers on April 22, 1993, the Department of Telecommunications, Telecom District, Hyderabad, invited sealed tenders from competent agencies for printing, binding and supply of specified number of telephone directories in English for three annual issues commencing from 1993. The tenderer was required to supply, free of cost, the telephone directories to the General Manager, Hyderabad Telecommunications, at the specified distribution points. The tenderer was also required to specify the royalty amount for each issue offered by him. It was mentioned that the successful tenderer will be permitted to procure on his own, classified advertisements and cover page advertisemen....
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....91.60 Hyper Media Information Services Pvt. Ltd., Bangalore-10 6 45 72 Kaljothi Process Pvt. Ltd., Hyderabad-20 102 138 160 ------------------------------------------------------------------------------------------------------------------------------------------------ The offers were considered by the tender evaluation committee. The offer of respondent No. 4 was accepted. The Assistant General Manager (OP), Department of Telecommunications, Telecom District, Hyderabad, by his letter dated August 3, 1993, informed NHL that its offer could not be considered. The said letter did not indicate the reason for non-consideration of the offer of NHL. The appellants filed a writ petition in the Delhi High Court under articles 226 and 227 of the Constitution of India seeking a writ, order or direction in the nature of certiorari for quashing the award of contract by respondent No. 3 to respondent No. 4 for the printing, binding and supply of telephone directories for Hyderabad and also a writ, order or direction in the nature of mandamus directing respondent No. 3 to accept the tender offer of the appellants. In the counter-affidavit filed in reply to the said writ petition....
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....y (two languages and a total of 1.2 million copies per month), Computers Today, Business Today, Readers Digest, Span Magazine, Scienific Journals, books (both hard and soft bound) for export and telephone directories for UDI, Sterling Computers, Sesa Seat, etc. With regard to LMI it was stated that as India Today group it was first set up in 1962 and became LMI in 1988. LMI employs approximately 500 people in various disciplines, viz., editorial, pre-press, production, sales and marketing. Its current activities include publishing (India Today, Business Today, Computers Today, Target, Journal of Applied Medicine, etc.), distribution (both in house magazines, diaries and Time International), Music Today (producing and marketing a wide selection of India's best music) Newstrack (the leading video news magazine in Hindi and English) and printing (four regional language editions with a print order of one million copies per month). A list of machines and equipment installed at its units at Delhi and at Maraimalainagar in Tamil Nadu was also enclosed. As regards WML it was stated that it was established in 1944 in Lahore and moved its registered office to New Delhi in 1969. Its maj....
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....the integrated directory system developed over the past 25 years by IIPL. The IDS will ensure efficiency and accuracy of operations. Training of all personnel is being and will continue to be conducted by experienced managers from IIPL. " Along with the tender the appellants submitted the directories of Delhi and Bombay 1992 which were printed and bound by Living Media Press in Madras. In the counter-affidavit filed on behalf of respondents Nos. 1 to 3 in the High Court it was stated that as per the averments in the writ petition TPI and LMI had printed and bound the telephone directories for respective parties who had been awarded the contract for Delhi and Bombay and that the appellants did not produce any evidence to show that they have in their name undertaken compiling, printing, binding and supply of telephone directories of large telephone systems with a capacity of more than 50,000 lines and further that the telephone directory of Delhi 1992 issue was published by Sterling Computers Limited on behalf of United Data Base (India) Pvt. Ltd. and it was printed and bound at Navneet Publications (India) Ltd., Gandhinagar, and the telephone directory of Bombay 1992 issue doe....
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....requirement. According to the High Court it is one thing to say that the shareholders of a company have vast experience in the publication of telephone directories with yellow pages and it is entirely another thing if the company itself has that experience. The approach of the High Court is that a company is an independent person distinct from its members and that NHL is carrying on its business independently from that of the shareholders. The High Court has held that the experience of a shareholder cannot be the experience of the company nor is NHL the agent of its shareholders. Referring to the principle of lifting ofthe corporate veil in modem company law the High Court has observed that so far as NHL is concerned, it cannot invoke the said principle either as a ground of attack or as a ground of defence. In the view of the High Court it could not be said that the authorities had failed in their duty to look behind the facade of corporateness of NHL and that it was none of their duty and they rightly examined the experience, etc., of NHL and came to the conclusion that it did not satisfy the eligibility conditions and that there was no error in the said approach of the author....
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....ed. Shri K. K. Venugopal, learned counsel appearing for respondent No. 4, has, however, supported the judgment of the High Court and has submitted that the authorities were justified in not considering the tender submitted by NHL on the basis that it did not fulfil the conditions regarding experience contained in the tender notice. Shri Venugopal has submitted that there is nothing to show that the constituents of NHL had the necessary experience of supplying telephone directories to large telephone systems of the capacity of more than 50,000 lines and that no document to prove that NHL had the necessary experience was submitted by NHL along with the tender. At the outset, we may indicate that in the matter of entering into a contract, the State does not stand on the same footing as a private person who is free to enter into a contract with any person he likes. The State, in exercise of its various functions, is governed by the mandate of article 14 of the Constitution which excludes arbitrariness in State action and requires the State to act fairly and reasonably. The action of the State in the matter of award of a contract has to satisfy this criterion. Moreover, a contract....
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....ons through several tiers. More often than not, such decisions are made qualitatively by experts. (5) The Government must have freedom of contract. In other words, a fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere. However, the decision must not only be tested by the application of the Wednesbury principle of reasonableness (including its other facets pointed out above) but must be free from arbitrariness not affected by bias or actuated by mala fides. (6) Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure. " The "Wednesbury principle of reasonableness" to which reference has been made in principle Union of India v. Hindustan Development Corporation (1993) 3 SCC 499, aforementioned is contained in Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn. (1948) 1 KB 223 ; (1947) 2 All ER 680. In that case, Lord Greene M. R. has held that a decision of a public authority will be liable to be quashed or otherwise dealt with by an appropriate order in judicial review proceedings where the court ....
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.... is used in paragraphs 7, 9(a), 10 and 12. Since paragraph 10 provides for execution of the agreement by the successful tenderer, the said expression is intended to mean the tenderer whose tender has been found suitable for acceptance. The use of the expression "successful tenderer" instead of the expression "tenderer" in paragraph 12, therefore, indicates that the documentary proof, by way of credentials of past experience, has to be submitted after the tender has been considered and is found suitable for acceptance by the concerned authorities. This would mean that the past experience is a matter which is to be considered after the tender has been examined and evaluated and the tenderer whose tender is found acceptable is required to submit documentary proof regarding his past experience. In other words, a tnder is not liable to be excluded from consideration on the ground of non-eligibility on account of lack of past experience. This inference is strengthened by paragraphs 8 and 11 of the notice dated April 26, 1993. In paragraph 8, it is provided that a tender is liable for summary rejection if it is submitted without the demand draft of Rs. 5,00,000. Similarly, in paragraph....
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....ugh having persons with experience in the field, has no experience in its name while the original company having experience in its name lacks persons with experience. The requirement regarding experience does not mean that the offer of the original company must be considered because it has experience in its name though it does not have experienced persons with it and ignore the offer of the new company because it does not have experience in its name though it has persons having experience in the field. While consideing the requirement regarding experience it has to be borne in mind that the said requirement is contained in a document inviting offers for a commercial transaction. The terms and conditions of such a document have to be construed from the standpoint of a prudent businessman. When a businessman enters into a contract whereunder some work is to be performed he seeks to assure himself about the credentials of the person who is to be entrusted with the performance of the work. Such credentials are to be examined from a commercial point of view which means that if the contract is to be entered into with a company he will look into the background of the company and the pe....
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....hip engaged in the joint undertaking of a particular transaction for mutual profit or an association of persons or companies jointly undertaking some commercial enterprise wherein all contribute assets and share risks. It requires a community of interest in the performance of the subject-matter, a right to direct and govern the policy in connection therewith, and duty, which may be altered by agreement, to share both in profit and losses. (Black's Law Dictionary, 6th edition, page 839). According to Words and Phrases, permanent edition, a joint venture is an association of two or more persons to carry out a single business enterprise for profit (page 117, volume 23). A joint venture can take the form of a corporation wherein two or more persons or companies may join together. A joint venture corporation has been defined as a corporation which has joined with other individuals or orporations within the corporate framework in some specific undertaking commonly found in oil, chemicals, electronic, atomic fields. (Black's Law Dictionary, 6th edition, page 342. Joint venture companies are now being increasingly formed in relation to projects requiring inflow of foreign capital or tec....
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....ed company, and it would not be correct to say that IIPL which has a substantial stake in the success of the venture, having 40 per cent. of shareholding, is a mere shareholder in NHL. Once it is held that NHL is a joint venture, as claimed by it in the tender, the experience of its various constituents, namely, TPI, LMI and WML as well as IIPL, had to be taken into consideration if the tender evaluation committee had adopted the approach of a prudent businessman. The conclusion would not be different even if the matter is approached purely from the legal standpoint. It cannot be disputed that, in law, a company is a legal entity distinct from its members. It was so laid down by the House of Lords in 1897 in the leading case of Salomon v. Salomon and Co. Ltd. (1897) AC 22 (HL). Ever since this decision has been followed by the courts in England as well as in this country. But there have been inroads in the doctrine of corporate personality propounded in the said decision by statutory provisions as well as by judicial pronouncements. By the process, commonly described as "lifting the veil", the law either goes behind the corporate personality to the individual members or ig....
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....ore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group", Lord Denning M. R. has observed : "This group is virtually the same as a partnership in which all the three companies are partners. They should not be treated separately so as to be defeated on a technical point." In the same case, Goff L. J. has said : "This is a case in which one is entitled to look at the realities of the situation and to pierce the corporate veil." The observations of Shaw L. J. were to the following effect : " Why then should this relationship be ignored in a situation in which to do so does not prevent abuse but would on the contrary result in what appears to be a denial of justice ?". In this case, the holding company was held entitled to compensation for disturbance from premises in its occupation on account of compulsory purchase of the property which belonged to one of the subsidiaries and in which the holding company had no interest. This was a case in which the court lifted the corporate veil so as to confer a benefit on the company. It may, however, be stated that the existing state of the law in England in th....
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....oring the veil. The decisions relating to determination of residence or enemy status of a company have been placed by him in the category of "peeping behind the veil" where the court peeps behind the veil and concludes from the shareholders or from the people in control of the company, something about the nature of the company (See S. Ottolenghi From Peeping Behind the Corporate Veil to Ignoring it Completely (1990) 53 Mod L Rev 338, 340. This court has adopted a similar approach and in some cases it has seen through the corporate veil. In Central Inland Water Transport Corpn. Ltd v. Brojo Nath Ganguly (1986) 60 Com Cas 797, 841, the court was considering the question whether the appellant-company was an agency or instrumentality of the State for the purpose of article 12 of the Constitution. It was said : " For the purposes of article 12 one must necessarily see through the corporate veil to ascertain whether behind that veil is the face of an instrumentality or agency of the State. " So also in State of U. P. v. Renusagar Power Co. (1991) 70 Com Cas 127, 159 (1988) 4 SCC 59, 95 ; (1988) Suppl. (1) SCR 627, it has been observed : " The veil of corporate personality, ev....
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.... be taken into consideration. As per the tender of NHL, one of its Indian constituents (LMI) had printed and bound the telephone directories of Delhi and Bombay for the years 1992 and its Singapore---based constituent (IIPL) has 25 years' experience in printing the telephone directories with "yellow pages" in Singapore. The said experience has been ignored by the tender evaluation committee on an erroneous view that the said experience was not in the name of NHL and that NHL did not fulfil the conditions about eligibility for the award of the contract. In proceeding on that basis the tender evaluation committee has misguided itself about the true leal position as well as the terms and conditions prescribed for submission of tenders contained in the notice for inviting tenders dated April 26, 1993. The non-consideration of the tender submitted by NHL has resulted in acceptance of the tender of respondent No. 4. The total amount of royalty offered by respondent No. 4 for three years was Rs. 95 lakhs whereas NHL had offered Rs. 459.90 lakhs, i.e., nearly five times the amount offered by respondent No. 4. Having regard to this large margin in the amount of royalty offered by NHL and....