REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

SPECIAL LEAVE PETITION (CIVIL) NO.27217 OF 2010

LARSEN AND TOUBRO LTD. & ANR. … PETITIONERS

Vs.

UNION OF INDIA & ORS.  … RESPONDENTS

J U D G M E N T

ALTAMAS KABIR, J.

1. This Special Leave Petition has been filed by  

M/s. Larsen and Toubro Ltd. and one Lt. Col. Ajay  

Bhatia  (Retired),  challenging  the  judgment  and  

order passed by the Division Bench of the Delhi  

High Court on 8th September, 2010, dismissing Writ

Petition  (Civil)  No.3231  of  2010,  filed  by  the  

Petitioners herein.  In the Writ Petition, a prayer  

had, inter alia, been made for an appropriate writ,  

order or direction upon the Respondent Nos.1 to 3  

to  consider  the  bid  of  the  Petitioner  No.1  in  

response  to  Request  For  Proposal  (RFP)  No.  TM  

(M)/0025/CG/FPV dated 17th June, 2009 and to invite  

the said Petitioner for negotiation, since the said  

bid was the lowest bid, and, thereafter, to accept  

the same in terms of the said RFP.   

2. On 17th June, 2009, the Respondent No.1 sent a  

RFP to the Petitioner No.1 for supply of 20 Fast  

Patrol Vessels (FPV) for the Indian Coast Guard.  

Similar requests were also sent to other persons as  

well.  According to the normal procedure, the RFP  

was to be submitted by the intending bidders in two  

parts.   The  first  part  was  to  consist  of  the  

technical proposal and the second part was to be  

the  commercial  proposal  or  financial  bid.   In  

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response  to  the  said  RFP,  the  Petitioner  No.1  

submitted its bid on 19th October, 2009, containing  

a technical proposal and a commercial proposal in  

two parts.  In its commercial offer, the Petitioner  

had  indicated  that  it  intended  to  avail  of  the  

Exchange Rate Variation benefit. The Petitioner and  

four others, including the Respondent No.4, proved  

to  be  successful  in  the  technical  bid  and,  

thereafter, the commercial bids were opened on 11th  

January,  2010,  in  the  presence  of  the  Bidders  

and/or their representatives.  Although, the offer  

of the Petitioner No.1 was found to be the lowest  

(L-1),  its  bid  was  held  to  be  non-responsive,  

because,  despite  the  tender  condition  that  the  

price  was  to  be  firm  and  fixed  for  the  entire  

duration of the contract and would not be subject  

to escalation, the Petitioner No.1 had claimed the  

benefit of Foreign Exchange Rate Variation.  On the  

other hand, Respondent No.4, M/s. Cochin Shipyard  

Ltd., a Public Sector Undertaking, was found to be  

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the second lowest bidder (L-2).   

3. Apart  from  the  fact  that  the  Technical  

Evaluation Committee, which had been constituted on  

21st October, 2009, found that the price quoted by  

the Petitioner had a variable foreign content, it  

was  also  found  that  in  order  to  determine  the  

foreign  exchange  content,  the  Petitioner  had  

attached a copy of the rate card of the State Bank  

of  India  along  with  the  commercial  bid,  which  

contained  various  exchange  rates  of  different  

foreign currencies.  The Petitioner, however, did  

not specify as to which foreign currency was the  

basis  of  the  foreign  exchange  component  in  its  

commercial bid.  Since the Commercial offers had to  

be  firm  and  fixed  and  since  the  Petitioner  had  

claimed  the  benefit  of  the  foreign  exchange  

variation  component,  the  Contract  Negotiation  

Committee, which was constituted in accordance with  

the  Defence  Procurement  Procedure-08  (DPP),  

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concluded  that  the  commercial  offer  of  the  

Petitioner  was  non-responsive.  The  Petitioner  

thereupon withdrew its offer and offered the quoted  

price without the Foreign Exchange Rate Variation  

content.  The  Contract  Negotiation  Committee,  

however, declared the bid of the Petitioner as non-

responsive and awarded the contract to Respondent  

No.4, which was declared as L-1.  Challenging the  

said decision of the Respondents, the Petitioners  

filed  Writ  Petition  No.3231  of  2010  before  the  

Delhi High Court.   

4. As has been recorded in the impugned judgment  

of the High Court, when the writ petition was taken  

up for admission on 14th May, 2010, the fact that  

the Petitioners had withdrawn the condition with  

regard to the provision of Foreign Exchange Rate  

Variation was considered and it was also observed  

that such subsequent withdrawal could not affect  

the  bid  of  the  Petitioners.  However,  on  the  

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submission made on behalf of the Petitioners that  

the aforesaid condition was also included in the  

RFP submitted by Respondent No.4, notice was issued  

in the matter. Consequently, while taking up the  

writ petition for final disposal, the issues framed  

for deciding the writ petition were centered round  

the said question.  In fact, the first issue which  

was framed was whether a Bidder could amend its bid  

by  withdrawing  a  condition  of  the  bid  document,  

whereby  the  bid  was  considered  to  be  non-

responsive.  The second issue, which is an off-

shoot of the first issue, is whether a Bidder would  

be entitled to contend that a non-responsive bid be  

treated as responsive since the offending condition  

was  withdrawn  after  the  bid  documents  had  been  

opened.  The third issue raised was with regard to  

the bid submitted by Respondent No.4 and whether  

the same could be treated as responsive, although,  

the price offered by the said Respondent contained  

a foreign exchange rate component which was to be  

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considered at a particular rate as applicable on a  

future date at the time of opening of the bid.   

5. In deciding the said issues, the High Court  

held that since the terms and conditions of the  

price to be firm and fixed was one of the more  

important ingredients of the tender, the submission  

of a bid which violated the said condition rendered  

the bid non-responsive.  The High Court observed  

that this was not a case of clerical mistake in the  

bid documents, but a conscious change in the terms  

and  conditions  of  the  bid  as  submitted  by  the  

Petitioners,  which  could  not  cure  the  initial  

disqualification when the bids were submitted.  The  

High Court took note of the fact that the bid of  

Respondent No.4 contained the condition that its  

price  would  be  in  Indian  rupees  with  a  foreign  

component which would be converted in Indian rupees  

as on the date of opening of the bid.  The High  

Court observed that the same did not violate the  

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conditions of the RFP and that the said condition  

ensured  that  the  price  would  be  firm  and  fixed  

during the period of performance of the contract.  

Accordingly,  the  High  Court  held  that  the  said  

condition satisfied the condition regarding price  

being firm and fixed and could not, therefore, be  

treated  on  the  same  footing  as  the  conditions  

offered by the Petitioner.   

6. The High Court also rejected the Petitioner’s  

contention  that  as  per  the  bid  documents  the  

Discounted Cash Flow (DCF) method was required to  

be used to arrive at the actual and final cost  

which would be payable by the Respondent Nos.1 to  

3, for the contract in question.  Taking note of  

the different conditions relating to the evaluation  

and acceptance process and the terms of payment,  

the High Court took the view that once the contract  

had been awarded, the submission made on behalf of  

the Petitioner that the DCF mechanism had to be  

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applied had little force.  Furthermore, it was also  

observed that the adoption of the ECF method could  

not be said to be mandatory, as the relevant clause  

provides that the buyer reserved its right to apply  

the DCF method if it wished to do so.   

7. On  its  aforesaid  findings  and  strongly  

deprecating the practice of submitting a Foreign  

Currency  Rate  Card  with  the  rates  of  various  

currencies,  without  specifying  the  currency  in  

respect of which the foreign exchange rate was to  

be considered, the High Court was of the view that  

the  entire  exercise  was  mala  fide and  while  

dismissing the writ petition, imposed costs both in  

favour  of  the  Respondent  Nos.1  to  3  and  the  

Respondent No.4.        

8. Mr.  S.  Ganesh,  learned  Senior  Advocate,  who  

appeared for the Petitioners, submitted that the  

same ground on which the Petitioners’ bid documents  

had been rejected, was also applicable to the bid  

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documents  submitted  by  the  Respondent  No.4,  

inasmuch as, the Foreign Exchange Rate Variation  

factor  had  also  been  projected  by  the  said  

Respondent  in  the  column  relating  to  Foreign  

Exchange  Conversion  Rates  contained  in  the  

commercial  bid.   Mr.  Ganesh  submitted  that  

different yardsticks had been used in the case of  

the  Petitioners  and  the  Respondent  No.4.   While  

accepting  the  commercial  bid  documents  of  the  

Respondent  No.4  as  valid,  the  Respondent  No.1,  

Union  of  India,  ought  not  to  have  rejected  the  

commercial  bid  documents  submitted  by  the  

Petitioners on the basis of the same objection.   

9. Mr. Ganesh drew our attention to the response  

of the Respondent No.4 in the column relating to  

Foreign Exchange Conversion Rates included in the  

commercial bid documents.  It has been indicated  

therein on behalf of the Respondent No.4 that the  

costing  of  the  vessel  had  been  carried  out  by  

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converting  the  foreign  currencies  into  Indian  

currency with conversion rate as on the date of  

costing. The said rates and the contents of foreign  

currency had been disclosed in the commercial offer  

and the exchange rate of those currencies as on the  

date of the opening of the bid would be applicable  

for the respective foreign currencies to determine  

the price of the vessel.  There could, therefore,  

be price variation till the commercial bids were  

opened.   

10. Mr.  Ganesh  contended  that  Part  IV  of  the  

Request  for  Proposal  dealt  with  evaluation  and  

acceptance  criteria  which  included  evaluation  of  

commercial proposals.  Under the instructions with  

regard to evaluation of commercial proposals, it  

has  been  categorically  stated  that  the  

shipyard/shipbuilder quoting the lowest price (L-1)  

as  determined  by  the  Contracts  Negotiation  

Committee  would  be  invited  for  negotiations  and  

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that the Discounted Cash Flow method would be used  

for evaluation of the bids.   

11. Mr. Ganesh submitted that while awarding the  

contracts, the Government has to be completely fair  

and above all arbitrariness, as was laid down by  

this  Court  in  Ramana  Dayaram  Shetty vs.  

International Airport Authority of India [(1979) 3  

SCC 489].  Mr. Ganesh also submitted that, in any  

event, the Petitioners had withdrawn the condition  

regarding Foreign Exchange Rate Variation and had  

substituted  the  same  with  a  Fixed  Rate  offer.  

Accordingly,  Petitioners’  tender  documents  ought  

not to have been rejected and the High Court erred  

in holding otherwise.  

12. The stand taken on behalf of the Petitioners  

was strongly opposed on behalf of the Respondent  

No.4, to whom the contract had been awarded.  Mr.  

Ashok H. Desai, learned Senior Advocate, pointed  

out  that  the  condition  relating  to  the  Foreign  

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Exchange  Rate  Variation  and  the  proposal  of  the  

Respondent  No.4  in  relation  thereto  indicated  a  

firm rate of exchange as on the date of the opening  

of  the  commercial  bids  and  there  would  be  no  

escalation of such offer during the subsistence of  

the contract, as envisaged in the tender documents.  

It was urged that the rate quoted by the Respondent  

No.4 was firm and fixed as on the date of opening  

of the commercial bids and was not subject to any  

variation during the period of the contract.  Mr.  

Desai submitted that the averments made on behalf  

of the Petitioners to the contrary, as far as the  

commercial  bid  of  the  Respondent  No.4  was  

concerned, were erroneous and misconceived and were  

in  no  way  similar  to  the  offer  made  by  the  

Petitioners.   

13. Learned  Additional  Solicitor  General,  Ms.  

Indira Jaising, took much the same stand as Mr.  

Desai  and  contended  that  since  the  commercial  

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offers had already been opened, the changed offer  

made  on  behalf  of  the  Petitioners  regarding  the  

Foreign  Exchange  Rate  Variation  condition  was  

concerned, could not be taken into consideration  

and  had  to  be  rejected  on  that  ground.  

Furthermore, as submitted by Mr. Desai, the offer  

made  by  the  Petitioners  and  that  made  by  the  

Respondent  No.4 on the question of firm and fixed  

pricing, were different and could not be said to be  

on the same footing.   

14. Having heard learned counsel for the respective  

parties, we are satisfied that the High Court did  

not  commit  any  error  in  dismissing  the  Writ  

Petition  filed  by  the  Petitioners,  since  in  the  

absence of compliance with the terms and conditions  

relating  to  firm  and  fixed  price  offer,  the  

Petitioners stood excluded from consideration.  The  

offer in this regard made by the Respondent No.4  

satisfies  the  requirements  of  a  firm  and  fixed  

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offer, since once the commercial bids were opened,  

there  was  no  further  scope  of  the  rates  being  

altered,  which  was  not  so  in  the  case  of  the  

Petitioners, which tried to make its bid responsive  

by withdrawing the initial offer and substituting  

the same with another.   

15. As  far  as  the  decision  in  Ramana  Dayaram  

Shetty’s case is concerned, the same does not in  

any  way  help  the  Petitioners’  case  and,  on  the  

other hand, has very clearly laid down that where  

tenders  are  invited  for  grant  of  Government  

Contract, the standard of eligibility laid down in  

the  notice  for  tenders  could  not  be  changed  

arbitrarily as that would be hit by the provisions  

of Article 14 of the Constitution.  It was also  

observed by this Court that an executive authority  

has to be rigorously held to the standards by which  

it professes its actions to be judged and it must  

scrupulously  observe  those  standards  on  pain  of  

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invalidation.   It  has  been  repeatedly  stated  by  

this  Court  that  every  action  of  the  Executive  

Government must be informed with reason and should  

be free from arbitrariness, the same being the very  

essence of the rule of law.  The said decision, in  

fact, supports the case of the Respondent No.4.   

16. We, therefore, find no reason to interfere with  

the judgment and order of the High Court impugned  

in this Special Leave Petition and the same is,  

accordingly, dismissed.  

17. There will be no order as to costs.

…………………………………………J. (ALTAMAS KABIR)

…………………………………………J. (CYRIAC JOSEPH)

NEW DELHI DATED: 05.05.2011

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