AI Drafter 
TaxTMI 
TaxTMI 
2022 (12) TMI 1486
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....t petition challenging the said communications. 2. The facts, in brief, leading to the instant petition are as under: a) The Petitioner is an unlisted public limited company incorporated under the Companies Act, 1956 and is engaged in the business of infrastructure development and execution of Engineering, Procurement Construction and Commissioning (EPCC) and Lumpsum Turnkey (LSK) facilities in various infrastructure projects in the country. b) The Respondent had invited a Request for Proposal (RFP) for the abovementioned project and the Petitioner was one of the bidders in the said project. In response to the Petitioner's bid, the Respondent vide letter dated 15.07.2022 informed the Petitioner that the evaluation committee had noticed certain discrepancies in its bid, stating that the same was not adhering to clauses of the RFP. The Petitioner responded to the query of the Respondent on 21.07.2022 inter alia submitting an explanation as to how its balance Capital Reserve Account has been considered to calculate its "Net Worth" as per methodology specified in Clause 2.2.2.9 (ii) of the RFP and it has a "Net Worth" of 49.04 Crores, thereby meeting the Net Worth ....
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....rite-back of depreciation and amalgamation." (emphasis supplied) e) According to the Respondent, the material as provided by the Petitioner in the bid does not meet the requirement of having a Net Worth of Rs.42.98 crores. f) At this Juncture, it is pertinent to mention the background of the Petitioner in brief. During the year 2019, the Petitioner experienced financial stress attributable to a host of internal and external factors and general economic slowdown, as a result of which one of the financial creditors of the Petitioner, i.e., State Bank of India, Muscat Branch filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the Petitioner for initiation of the Corporate Insolvency Resolution Process (CIRP). The said application was admitted by the NCLT vide its Order dated 21.11.2019 resulting in the initiation of CIRP against the Petitioner. Vide the same Order an Interim Resolution Professional was appointed and later, on the same person was appointed as the Resolution Professional by the Committee of Creditors (CoC) by way of a resolution passed at the CoC meeting of the Petitioner on 20.12.2019. The Resolution Plan submit....
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....heets for the years ending on March 31, 2021 and March 31, 2022 to demonstrate as to how the Net Worth of the Petitioner has turned positive due to the extinguishment of liabilities pursuant to the Resolution Plan approved by the NCLT. The figures as pointed by Mr. Kathpalia, the reserves and surplus were negative in the year 2020 i.e., - Rs. 6,879,330,927 which, after the resolution plan, turned positive in the year 2021 to Rs.49,04,09,768/-. The Balance Sheet for the year ending March 31, 2021 reads as under: 5. Mr. Kathpalia further submits that the decision of the Technical Evaluation Committee that the Net worth should be calculated on the basis of reserves created only out of revenue profit alone is against Clause 2.2.2.9 and also universally accepted accounting principles which are applied across the board. 6. Mr. Kathpalia draws the attention of this Court towards certain other projects issued by the Ministry of Road, Transport and Highways which have the same criteria for calculating the Net Worth of the bidders as is given in the Clause 2.2.2.3 of the Impugned RFP in the present case. He submits that there is no reason as to why the Respondent/NHAI should take a dif....
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..... 2(a) and 2(b) of the Technical Specifications. ***** 48. Therefore, to ensure that there is "level playing field" for all the bidders, it is imperative for the tendering authority to make sure that there is certainty in the tender conditions, especially where there have been amendments issued in the tender condition. Changing the rules of the game post the clarification round, should allow the bidders to seek any clarification that they may have, at least in relation to the amendment. Right after the issuance of the Amendment no. 3 on 20.04.2021, the Petitioner had written on 21.04.2021 to the tendering authority to clarify its doubts. The Respondent no. 1 should have been forthcoming with clarifications since the pre-bid meeting was over. We are at pains to understand the attitude of the tender floating authorities. The laudable objectives of "ease of doing business in India" was frustrated by this high-ended attitude of the respondent. If the aim and objective of an open bidding process is to encourage bidding, and maximize participation to get the optimum price, then the attitude of the Respondent cannot be countenanced. The act of not clarifying the Petition....
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....e larger public interest. ―Globalisation‖, in essence, is liberalisation of trade. Today India has dismantled licence raj. The economic reforms introduced after 1992 have brought in the concept of ―globalisation‖. Decisions or acts which result in unequal and discriminatory treatment, would violate the doctrine of ―level playing field‖ embodied in Article 19(1)(g). Time has come, therefore, to say that Article 14 which refers to the principle of ―equality‖ should not be read as a stand alone item but it should be read in conjunction with Article 21 which embodies several aspects of life. There is one more aspect which needs to be mentioned in the matter of implementation of the aforestated doctrine of ―level playing field‖. According to Lord Goldsmith, commitment to the ―rule of law‖ is the heart of parliamentary democracy. One of the important elements of the ―rule of law‖ is legal certainty. Article 14 applies to government policies and if the policy or act of the Government, even in contractual matters, fails to satisfy the test of ―reasonableness‖, then such an act or decision would ....
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....ed. ***** 47. On the second question of future cash impact it may be reiterated that KPMG, the chartered accountants for rel/hdec has invoked the principle of ―cash flow reporting‖ which also finds place in AS 3. According to the said principle of ―cash flow reporting‖, when P&L accounts and balance sheets are prepared on accrual basis, revenues and expenses are recognised on accrual basis i.e. when the transaction or event occurs. However, timing of cash flow is not reckoned in such system of accounting. Similarly, in cases where accounts are based on accrual system of accounting, recognition of assets and liabilities is not dependent on the actual timing of cash spent on capital expenditure and cash inflow on account of capital receipt. Thus the financial statements prepared on accrual basis do not reflect the timing of the cash flow and amount of cash flow. The object of the cash flow statement is to assess the company's ability to generate the cash flow in future and to assess reasons for difference between ―net profit‖ and ―net cash flow‖ from operations. ***** 50. Taking into account the above princip....
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....d of it not meeting the minimum Net Worth criterion is accepted, it would set at naught the entire exercise and objective of the CIRP. It was stated that the Petitioner underwent a statutory rehabilitation under the Insolvency and Bankruptcy Code, 2016, and if the decision of the Respondent is not set aside, the entire CIRP of the Petitioner would be rendered redundant. Furthermore, several companies during a restructuring process, while carrying out the extinguishment of share capital propose transfer of such profits arising from the extinguishment of share capital in a Capital Reserve account. He states that the actions of the Respondent in rejecting the bid of the Petitioner not only goes against the terms of the RFP, but also the scheme of the Resolution Plan approved by the NCLT and objectives of the Insolvency and Bankruptcy Code, 2016. 14. Per Contra, Mr. Jayant K. Mehta, learned Senior Counsel appearing for the Respondent/NHAI, contends that the tenders in which the Ministry of Road, Transport and Highways has accepted the Net Worth of the company to include reserves arising out of capital, have not been tested in a Court of law and need not be accepted by the Respondent....
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....uote Clause 11.2 and Clause 11.3 which deal with 'Financial Capability' in the PIM and reads as follow: ―11.2 Financial Capability: For submitting the EOI and for being considered for subsequent qualification for Stage II of the Proposed Transaction, the IB (whether a sole bidder or a Consortium) shall satisfy the following criteria: Net Worth: A minimum Net worth of INR 35,000 Mn (INR 3,500 Crore) computed in terms of Clause 11.3 and 11.4. OR ACI - A minimum ACI of INR 35,000 Mn (INR 3,500 Crore) computed in terms of Clause 11.3 and 11.4. Note: Certain special dispensation in respect of Scheduled Airline Operator in India, for manner of satisfying the Financial Capability requirement, are set out in clause 11.3.(b)(ii) and 11.6.(c) below. 11.3 Financial Capability shall be calculated as follows: a) Net Worth means the aggregate value of the paid-up equity share capital and all reserves created out of the profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet.....
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....t of shares to be allotted to the shareholders of the transferor companies by the transferee company on the other, shall be credited in the books of the transferee company as a general reserve and may be utilized for the purpose of issuance of bonus shares and payment of dividend by the transferee company. c. Since the Scheme approved by the Hon'ble High Court states that these reserves are created out of the difference between net asset and amount of shares allotted (rather than explicitly through profits or securities premium account), these reserves may not be considered as a part of Net Worth. d. Further, it has not been mentioned by the Petitioner that the Hon'ble High Court has stated that the general reserve should be considered as a part of net worth. e. Hence, Petitioner ought to have been disqualified for not being able to meet the minimum Net Worth requirement. 14. Moreover, since Petitioner had raised the issues of treating the amalgamation reserve as ―general reserve‖ in light of an order by the Hon'ble High Court and a legal opinion, the Respondent No. 3 also advised the Respondent No. 1 and 2 to seek legal advice on the....
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....gamation is excluded, is because it does not reflect an actual available reserve - like a reserve created by profits and security premium account, and it is a book entry as it is notional. 30) Additionally, in Afcons Infrastructure Ltd. v. Nagpur Metro Rail Corporation Ltd , the Supreme Court has observed that, "the words used in the tender documents cannot be ignored or treated as redundant or superfluous - they must be given meaning and their necessary significance" Furthermore, another important observation in the same judgment is as under: "15. We may add that the owner or the employer of a project, having authored the tender documents, is the best person to understand and appreciate its requirements and interpret its documents. The constitutional courts must defer to this understanding and appreciation of the tender documents, unless there is mala fide or perversity in the understanding or appreciation or in the application of the terms of the tender conditions. It is possible that the owner or employer of a project may give an interpretation to the tender documents that is not acceptable to the constitutional courts but that by itself is not a reason for int....
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....nored or treated as redundant or superfluous - they must be given meaning and their necessary significance. In this context, the use of the word ―metro‖ in Clause 4.2(a) of Section III of the bid documents and its connotation in ordinary parlance cannot be overlooked. 15. We may add that the owner or the employer of a project, having authored the tender documents, is the best person to understand and appreciate its requirements and interpret its documents. The constitutional courts must defer to this understanding and appreciation of the tender documents, unless there is mala fide or perversity in the understanding or appreciation or in the application of the terms of the tender conditions. It is possible that the owner or employer of a project may give an interpretation to the tender documents that is not acceptable to the constitutional courts but that by itself is not a reason for interfering with the interpretation given." 20. In Silippi Constructions Contractors v. Union of India, 2019 SCC OnLine SC 1133, the Supreme Court, while discussing the aspect of judicial intervention in matters of contract involving state instrumentalities had held that the aut....
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.... "23. From the above decisions, the following principles emerge: (a) The basic requirement of Article 14 is fairness in action by the State, and non-arbitrariness in essence and substance is the heartbeat of fair play. These actions are amenable to the judicial review only to the extent that the State must act validly for a discernible reason and not whimsically for any ulterior purpose. If the State acts within the bounds of reasonableness, it would be legitimate to take into consideration the national priorities; (b) Fixation of a value of the tender is entirely within the purview of the executive and the courts hardly have any role to play in this process except for striking down such action of the executive as is proved to be arbitrary or unreasonable. If the Government acts in conformity with certain healthy standards and norms such as awarding of contracts by inviting tenders, in those circumstances, the interference by courts is very limited; (c) In the matter of formulating conditions of a tender document and awarding a contract, greater latitude is required to be conceded to the State authorities unless the action of the tendering authority is found to b....
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....s Laws of England, it is clear that the said rule was applied in the case of ambiguity in the insurance policy because the policies are made by the insurer and its ambiguity cannot be allowed to operate against the insured. This rule, in our view, cannot be applied to lay down that in case of any ambiguity in a tender document, it has to be construed in favour of a particular person who projects a particular viewpoint. The obvious inapplicability of this doctrine to the eligibility conditions in a notice inviting tender could be visualised from a simple fact that in case of ambiguity, if two different tenderers suggest two different interpretations, the question would always remain as to which of the two interpretation is to be accepted? Obviously, to avoid such unworkable scenarios, the principle is that the author of the tender document is the best person to interpret its documents and requirements. The only requirement of law, for such process of decision-making by the tender inviting authority, is that it should not be suffering from illegality, irrationality, mala fides, perversity, or procedural impropriety. No such case being made out, the decision of the tender inviting aut....
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....t in the petition. 26. The petition is dismissed, along with pending application(s), if any. ============= Document 1 Accounts written back to Capital Reserve Equity Share Capital Redeemable Cumulative Optionally Convertible Preference Shares (RCOCPS Securities Premium Liability towards Premium on Redemption of Optionally Convertible Debentures (OCD) ESOP Outstanding Balance TOTAL Amounts (in INR) 28,36,12,210 176,71,74,810 45,31,30,300 48,39,72,303 48,74,907 299,27,64,530 Document 2 GKC PROJECTS LIMITED CIN: U45200TG2004 PLC043015 W.P.(C)-11752/2022 Balance sheet as at March 31, 2021 All amounts in Indian Rupees, except for share data or as otherwise stated) Notes As at March 31, 2021 267 As at March 31, 2020 Equity and liabilities Shareholders' funds Share capital 2.05.07.87020 Reserves and surplus Non-current liabilities Long-term borrowings Deferred tax liability (net) Other long term liabilities Long-term providon 49.04.09,765 40409765 (657-93.30.927) (48285,43,907) 5 9 8.1 53,5663,830 6 1,25,92,347 54,82,56,17....
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.... claimed that the defuntion of Net Worth as per Clause 2.2.2.9 ) of the RFP, is silent E As per the Clause 2.2.29 (1) of RFP. net worth (the "Net Worth") shall mean the aggregate value of the paid up chase cap and all 404 Cant regarding the consideration created out of the profits and quashcation Cotens, and how Reserves created out of Revenue Profit securities premium account after the balance of Capital seserve or Capital Profits. And accordingly the the aggregate value of the Account to considered for net worth has been arrived at on the losses, deferred calculation of Net worth as per bases of reversal of veno expenditure and miscellaneous the methodology mentioned in expenditure not written off, as per the Clause no 2.2.29 (u) of the RFP is audited balance sheet, but does not enclosed as End.V. include reserves created out of revaluation of moets, waste-back of depreciation and amalgamation The Lead Member M/s GKC Projects Limited has claimed Net Worth of Rs. 49.04 Cr. as on 31.03.2021 in Annexure-III Le Fancial Capacity of the Bidder and the same is supported by the Statutory Auditor (SA) Certificat....