National Highways Authority of India Through Director Vs M/s Gwalior Jhansi Expressway Limited Through Director

13 July 2018
Supreme Court
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NATIONAL HIGHWAYS AUTHORITY OF INDIA THROUGH DIRECTOR Vs M/S GWALIOR JHANSI EXPRESSWAY LIMITED THROUGH DIRECTOR

Bench: HON'BLE THE CHIEF JUSTICE, HON'BLE MR. JUSTICE A.M. KHANWILKAR, HON'BLE DR. JUSTICE D.Y. CHANDRACHUD
Judgment by: HON'BLE MR. JUSTICE A.M. KHANWILKAR
Case number: C.A. No.-003288-003288 / 2018
Diary number: 39281 / 2017
Advocates: ASTHA TYAGI Vs

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3288 OF 2018

NATIONAL HIGHWAYS AUTHORITY OF INDIA …..Appellant(s)

:Versus:

GWALIOR JHANSI EXPRESSWAY LIMITED ....Respondent(s)

J U D G M E N T

A.M. Khanwilkar, J.

1. This appeal emanates from the decision of the High Court

of Delhi at New Delhi dated 21st August, 2017 in Appeal ARB.A

(Comm.) No.20 of 2017 whereby the appeal filed by the

appellant under Section 37(2)(b) of the Arbitration and

Conciliation Act, 1996 (for short, “the Act”) seeking to quash

the order dated 24th May, 2017 passed by the Arbitral Tribunal

under Section 17 of the Act came to be dismissed. The Arbitral

Tribunal vide order dated 24th May, 2017 allowed the

application preferred by the respondent (claimant) under

Section 17 of the Act seeking a direction to the appellant to

allow the respondent to exercise an option to match the lowest

bid in terms of the order dated 23rd July, 2016 passed by the

Arbitral Tribunal and including to exercise Right of First

Refusal (“ROFR”) and for other consequential reliefs.

2. Shorn of unnecessary details, some of the relevant facts

are that the appellant (a body corporate, constituted under

the National Highways Authority of India Act, 1988) entered

into a Concession Agreement dated 17th December, 2006 with

the respondent (a consortium comprising of Apollo Enterprises

Limited and D.S. Construction Limited) for works of widening

the existing two-lane portion of Km 16.000 to Km 96.127 on

National Highway No.75 to four lanes in the States of Uttar

Pradesh and Madhya Pradesh on the terms and conditions

specified therein. The appellant asserts that the respondent

failed to undertake the project work at the requisite pace, inter

alia, due to inadequate deployment of machinery, plant,

material and manpower. The respondent had merely achieved

62% progress and eventually abandoned the project site in

March, 2012. The appellant, therefore, had to issue a Cure

Period Notice dated 19th October, 2013 requiring the

respondent to cure the breaches within 30 days from receipt of

the notice, failing which the appellant may be forced to initiate

further action to terminate the contract in terms of the

Concession Agreement. The respondent denied the correctness

of the stated notice by a written reply. The appellant then

issued letters dated 27th February, 2014 and 7th March, 2014

expressing its intention to issue termination notice of the

Concession Agreement. The respondent immediately rushed to

the court by filing a petition under Section 9 of the Act seeking

stay of the Cure Period Notice dated 19th October, 2013 as well

as the notice expressing the intention to issue termination

notice. The High Court of Delhi passed an interim stay on 12th

March, 2014 restraining the appellant from taking any

coercive action. The petition under Section 9 of the Act was

finally disposed of on 22nd April, 2015 with a direction to the

Arbitral Tribunal, which was already constituted in the

meantime, that the interim order dated 12th March, 2014

would continue during the pendency of the arbitral

proceedings with liberty to the parties to seek its modification

or revocation before the Arbitral Tribunal.

3. The appellant accordingly moved an application dated 8th

April, 2016 under Section 17 of the Act before the Arbitral

Tribunal seeking permission to complete the balance works of

the project as it was causing huge distress due to traffic

congestion, unsafe highway, increase in expenditures, higher

wear and tear of the vehicles and, in particular, national loss

to the public at large. The respondent also filed an application

under Section 17 of the Act on 17th May, 2016 seeking interim

directions against the appellant to pay Rs.400 crores to the

respondent at the risk and costs of the respondent for

completing the balance works of the project. The reliefs

claimed in the application filed by the respondent read thus:

“a) Allow the present application and as an interim

measure direct the Respondent to pay a sum of Rs.400 Crores to the Claimant at the risk and cost of the Claimant so as to complete balance/remnant works of the project;

b) In the alternative and strictly without prejudice to

the prayer (a), as an interim measure permit the Respondent to invite tender/bid for executing the

balance work under the Concession Agreement on Engineering Procurement and Construction basis subject

to Claimant being granted the right of First Refusal for matching the lowest bid and in the event the Claimant

matches the said lowest bid permit the Claimant to complete the said balance/remnant works on the terms and conditions of the tender/bid invited on Engineering

Procurement and Construction basis except for the provision, if any, for furnishing Bank Guarantees;

c) In alternative and strictly without prejudice to the prayer (a) & (b), direct the Respondent to act in terms of their

letter dated 19.01.2016 and the Circular dated 09.06.2015 in the event prior to the award of contract of the balance work on Engineering Procurement and Construction basis

the Project Lenders of the Claimant agree to provide first charge to the Respondent;

d) Pass such further order and other relief(s) as this Hon‟ble Tribunal may be deem fit, just, necessary and

appropriate in the facts and circumstances of the case.”

(emphasis supplied)

4. During the pendency of the aforementioned proceedings

before the Arbitral Tribunal, a meeting was held on 19th April,

2016 in the Chamber of Member (P) at NHAI – HQ to discuss

and conclude the issues of Gwalior-Jhansi project pursuant to

Ministers‟ meeting dated 15th March, 2016 in order to get the

work restarted without further delay. Another meeting was

convened on 27th April, 2016 before the said Authority, as a

result of which the hearing of the matter was deferred till 18th

May, 2016. On the adjourned date, the advocate appearing

for the appellant placed reliance on the minutes of the

meetings held on 19th April, 2016 and 27th April, 2016. The

hearing of the applications was then deferred till 29th May,

2016, as the respondent submitted a construction-linked

financial plan for completing the balance work within a

maximum period of 24 months from the date of receipt of

advance payment from the appellant. The appellant filed its

response on 28th May, 2016 to the proposal submitted by the

respondent. The appellant asserted that the financial plan

submitted by the respondent was not in accord with the NHAI

Circular dated 19th June, 2015. In the meantime, on 25th

May, 2016, the respondent filed its reply to the application

filed by the appellant under Section 17 of the Act. The

appellant had stated that it was agreeable to infuse funds for

completion of the project as per the policy with condition of

first charge of NHAI, considering the larger public interest.

The respondent accepted the offer given by the appellant

including the conditions specified by the appellant.

The conditions suggested by the appellant have been noted by

the Arbitral Tribunal as under:

“(i) As the Respondent is a public body, in the event of the lowest bidder being denied the work, it will require to be compensated. For this purpose Claimant/Concessionaire

shall pay to the authority a sum of Rs.2% of the bid amount, out of which 75% shall be paid to the lowest bidder. This is

on the lines agreed by the parties and provided in the Concession Agreement based on Model Concession Agreement (MCA).

(ii) The Respondent shall not pay any „Mobilization

Advance‟ without Bank Guarantee being furnished for the equivalent amount. The advance shall be at the interest at the rate of 2% more than the prevailing bank interest.

(iii) The work shall be completed by the Claimant in a period of 24 months from the date of LOA for the

Construction Contract.

(iv) The terms and conditions of the Construction Agreement shall be in addition to and not in substitution of any terms and condition of the Concession Agreement. In the

event of any disparity the terms of the Concession Contract shall prevail.

(v) The specifications and quality of construction shall not be lower than stipulated in the Concession Agreement.

(vi) The Respondent shall be free to bring forward consequential additional claims for the expenses incurred

and damages suffered.”

The respondent, through counsel, informed the Arbitral

Tribunal that the respondent would accept the

aforementioned conditions except condition No.(ii).

5. The arguments were heard by the Arbitral Tribunal

on 28th May, 2016. Before the application filed by the

parties under Section 17 of the Act could proceed further,

the appellant filed an application under Section 23 of the

Act for amendment of its reply dated 25th May, 2016 so

as to withdraw its acceptance of prayer (b) for

modification of procedure order No.9 dated 28th May,

2016, for the reasons mentioned therein. Finally, the

Arbitral Tribunal disposed of the applications by a

common order dated 23rd July, 2016. It accepted the

relief claimed by the respondent in terms of prayer clause

(b) of its application, reproduced in paragraph 3 above.

6. The Arbitral Tribunal rejected the plea of the

appellant to withdraw from its earlier offer noted in the

reply affidavit. The Arbitral Tribunal inter alia observed

thus:

“ . . . . .

NHAI had taken a specific stand before us that it would not agree to prayer (a) made by the Claimant. Tribunal therefore granted time to NHAI to examine and come out with concrete

proposals in respect of prayer (b) and on the unilateral conditions suggested by NHAI itself, an order to that effect

was passed by the Tribunal on May 18, 2016. Conditions stipulated by NHAI, it is seen, are more stringent than what

were suggested by CCEA in its meeting held on May 13, 2015, particularly in the CCEA decision made on October

14, 2015, where in CCEA stated that after the constructions, loans can be recovered bi-annually through execution of a tripartite agreement between NHAI, lender and

concessionaire. Policy endorsed by CCEA takes note of the comfort level of not only that of NHAI, citizens and travellers, but also of the concessionaire. We have to take it, that it was

after taking into consideration all those aspects including the policy decisions taken by CCEA and the Claimant‟s

eligibility for one time fund infusion in terms of the Circular dated June 9, 2015, the NHAI suggested various conditions and all those conditions were accepted by the Claimant

including the furnishing, of Bank Guarantee for the mobilization advance to be made by NHAI. We are of the view

that by furnishing the unconditional Bank Guarantee, the interest of NHAI is also protected. We find that NHAI has no case that the Claimant has been

blacklisted or that it is incapable of completing the balance work. In our view, it would not be in public interest if the remaining work is allotted to a third party and in the facts

and circumstances, one cannot rule out the possibility of passing the same order, even if NHAI is allowed to withdraw

the unilateral conditions suggested by it. The Tribunal in its order dated May 25, 2016, also made it clear that only if the Claimant would agree to all the

conditions stipulated by NHAI, the Claimant would be granted permission to complete the balance work. The Claimant has now filed an affidavit before the Tribunal that

all the conditions stipulated by NHAI are acceptable to it, that being the factual position, we find no reason to

entertain the application preferred by NHAI under Section 23 of the Act seeking amendment in its reply dated May 25, 2016, to the Claimant‟s Sec 17 application, so as to

withdraw the conditions unilaterally suggested by it. We are also of the view that the reasons stated for

modification of Procedural Order No.9 dated May 28, 2016, cannot be sustained in the facts and circumstances of the case and we find it difficult to accept the contention that the

specific conditions stipulated by NHAI to the alternative prayer (b) made by the Claimant in Sec 17 Application have been made without application of mind or that the so called

„higher management‟ was unaware of the pendency of this arbitration proceedings as well as the pendency of the Sec 17

applications filed by the parties and the various meetings held in respect of this matter at HQ of NHAI and the

participation of Lead Bank, the Claimant and the officials of NHAI and the meaning and content of the policy laid down

by CCEA. Sec 17 Application preferred by NHAI would therefore stand dismissed and prayer (b) made by the Claimant in its Sec 17 Application stands allowed subject to

the conditions stipulated by NHAI. NHAI is directed to take up follow up action on the basis of this order, within two weeks from today and submit a report

to that effect within a month. Claimant is directed to scrupulously follow the conditions imposed by NHAI for

accepting prayer (b). Claimant is further directed to submit quarterly reports before the Tribunal of the progress of the balance work undertaken by it on the basis of the order of

this Tribunal. The Claimant is directed to furnish Bank Guarantee from a nationalised bank on the mobilization

advance to be made by NHAI within the time stipulated. Both sec 17 Applications and the Application made by NHAI under Sec 23 of the Act are disposed of as above, reserving all the

contentions raised by the parties in the main matter.

This order as well as the observations and findings recorded

will have no bearing on the ultimate disposal of the main matter.”

7. The appellant acquiesced to the aforementioned interim

order passed by the Arbitral Tribunal and allowed it to attain

finality. For, the subject project was on Build Operate and

Transfer (“BOT”) basis, any amount incurred by the Authority

with regard to the project or in relation to the completion of

the balance work was liable to be reimbursed by the

Concessionaire (respondent).

8. The appellant accordingly issued a tender for the balance

work vide Notice dated 28th November, 2016 which fact was

brought to the notice of the Arbitral Tribunal during the

hearing on 10th December, 2016. The tender notice was placed

in the public domain, as is done in the case of other tender

process. Some of the pertinent clauses of the tender

documents may be appositely reproduced for considering the

matter in issue before us. In the bidding document, Volume I,

regarding Invitation for Bids (“IFB”), it was noted that sealed

bids were invited (technical and financial) from eligible bidders

for the construction and completion of the balance work

detailed in the table given in the said document. Clause (1)

postulated that eligibility of bidders would be assessed on post

qualification basis, amongst others. The financial bid in the

second part would be opened of only those bidders whose

technical bids were responsive to eligibility and qualification

requirements as per the Request for Proposal (“RFP”). Further,

clause (7) of the IFB reads thus:

“7. The Bidders may take notice of the following:

Notwithstanding anything to the contrary contained in this RFP, as per the direction of Hon‟ble Arbitral Tribunal, if the

BOT-Annuity concessionaire (M/s Gwalior Jhansi Expressway Ltd.) of Four lane project (Gwalior-Jhansi

section of NH-75, is also a responsive bidder, the Concessionaire shall have the option of matching the

lowest bid in terms of the selection criteria, subject to payment of 2% (two per cent) of the bid amount to the Authority and thereupon becomes the selected Bidder.

……………...”

(emphasis supplied)

In Section I of the bid document providing for procedure

for tender document of the Instructions to Bidders, the

eligibility of bidders has been specified in clause (3)

thereof which reads thus:

“3. Eligible Bidders 3.1 Eligibility of bidders is based on bidder meeting the

pass/fail criteria regarding their general and particular experience, financial position, personnel and equipment capabilities and other relevant information as demonstrated

by the applicant‟s responses on the forms attached. 3.2. This invitation for bids is open to bidders meeting the

following requirements:-

a) xxx xxx xxx

b) xxx xxx xxx c) xxx xxx xxx d) xxx xxx xxx

“(e) Notwithstanding anything to the contrary contained in

this REP, as per the direction of Hon‟ble Arbitral Tribunal, if the BOT-Annuity concessionaire (M/s Gwalior Jhansi Expressway Ltd.) of Four lane project (Gwalior-Jhansi

section of NH-75, is also a responsive bidder, the Concessionaire shall have the option of matching the

lowest bid in terms of the selection criteria, subject to payment of 2% (two per cent) of the bid amount to the Authority and thereupon becomes the selected Bidder. Out

of the amount so received by the Authority (ILLEGIBLE) 5%

of the amount shall be paid by the Authority to the lowest bidder. For the avoidance of doubt, it is clarified that no

claim for compensation, damages, loss of profits etc. by the lowest bidder for unbecoming selected bidder, shall be

admissible from the Authority. (f) Notwithstanding anything to the contrary contained in

this RFP, for the purposes of eligibility and qualification of

the BOT-Annuity concessionaire (M/s Gwalior Jhansi Expressway Ltd.), if it has participated in the bidding process, it shall be deemed to fulfill all the requirements

of Clauses 3 to 6 of the RFP, being the existing concessionaire of the Four lane project (Gwalior-Jhansi

section of NH-75.”

(emphasis supplied)

Again in clause 26, it is stated thus:

“26. Examination of Technical Bids and Determination of Responsiveness of Technical Bids

x x x x x x x x x x x x

26.8 Notwithstanding anything to the contrary contained in this RFP, as per the direction of Hon‟ble Arbitral Tribunal, if

the BOT-Annuity concessionaire (M/s Gwalior Jhansi Expressway Ltd.) of Four Lane project (Gwalior-Jhansi section of NH-75, is also a responsive bidder, the

Concessionaire shall have the option of matching the lowest bid in terms of the selection criteria, subject to

payment of 2% (two per cent) of the bid amount to the Authority and thereupon becomes the selected bidder, Out of the amount so received by the Authority, 75% of the amount

shall be paid by the Authority to the lowest bidder. For the avoidance of doubt, it is clarified that no claim for compensation, damages, loss of profits etc. by the lowest

bidder for unbecoming selected bidder, shall be admissible from the Authority.

26.9 Notwithstanding anything to the contrary contained in this RFP, for the purposes of eligibility and qualification of

the BOT-Annuity concessionaire (M/s Gwalior Jhansi Expressway Ltd.), if it has participated in the bidding

process, it shall be deemed to fulfill all the requirements of Clauses 3 to 6 of the RFP, being the existing

concessionaire of the Four lane project (Gwalior -Jhansi section of NH-75).

27. Opening of Financial Bids.

xxx xxx xxx xxx 27.5 Notwithstanding anything to the contrary contained in

this RFP, as per the direction of Hon‟ble Arbitral Tribunal, if the BOT-Annuity concessionaire (M/s Gwalior Jhansi

Expressway Ltd.) of Four lane project (Gwalior-Jhansi section of NH-75, is also a responsive bidder, the Concessionaire shall have the option of matching the

lowest bid in terms of the selection criteria, subject to payment of 2% (two per cent) of the bid amount to the

Authority and thereupon becomes the selected Bidder. Out of the amount so received by the Authority, 75% of the amount shall be paid by the Authority to the lowest bidder.

For the avoidance of doubt, it is clarified that no claim for compensation, damages, loss of profits etc. by the lowest bidder for unbecoming selected bidder admissible from the

Authority.

27.6 Notwithstanding anything to the contrary contained in this RFP, for the purposes of eligibility and qualification of the BOT-Annuity concessionaire (M/s Gwalior Jhansi

Expressway Ltd.), if it has participated in the bidding process, it shall be deemed to fulfill all the requirements of Clauses 3 to 6 of the RFP, being the existing concessionaire

of the Four lane project (Gwalior-Jhansi section of NH-75).”

(emphasis supplied)

In clause 30, it is observed thus:

“30. Examination of Financial Bids and Determination of

Responsiveness of Financial Bids

xxx xxx xxx xxx

30.4 Notwithstanding anything to the contrary contained in this RFP, as per the direction of Hon‟ble Arbitral Tribunal, if

the BOT-Annuity concessionaire (M/s Gwalior Jhansi Expressway Ltd.) of Four lane project (Gwalior Jhansi

section of NH-75, is also a responsive bidder, the Concessionaire shall have the option of matching the lowest bid in terms of the selection criteria, subject to payment of

2% (two per cent) of the bid amount to the Authority and thereupon becomes the selected Bidder. Out of the amount so received by the Authority, 75% of the amount shall be

paid by the Authority to the lowest bidder. For the avoidance of doubt, it is clarified that no claim for compensation,

damages, loss of profits etc. by the lowest bidder for unbecoming selected bidder, shall be admissible from the Authority.

30.5 Notwithstanding anything to the contrary contained in

this RFP, for the purposes of eligibility and qualification of the BOT-Annuity concessionaire (M/s Gwalior Jhansi Expressway Ltd.), if it has participated in the bidding

process, it shall be deemed to fulfill all the requirements of Clauses 3 to 6 of the RFP, being the existing concessionaire of the Four lane project (Gwalior-Jhansi

section of NH-75).”

(emphasis supplied)

9. In consonance with the tender documents as uploaded

on E-Tender Portal 2016, technical bids were opened on 5th

January, 2017 and financial bids were opened on 29th March,

2017. It is only thereafter on 25th April, 2017, the respondent

moved an application before the Arbitral Tribunal under

Section 17 of the Act, seeking, inter alia, permission of the

Arbitral Tribunal to complete the balance work at its risk and

cost. In the said application, it was asserted that the

respondent verily believed that it would get an opportunity to

exercise the option of ROFR and match the lowest bid, in

terms of the order dated 23rd July, 2016. However, to its utter

shock, surprise and dismay, it was reliably learnt on the

previous day (to the filing of the application) that the

appellant was proceeding to conclude the tender process by

issuing LOI/LOA in favour of the L-1 bid behind the back of

the respondent and in a highly surreptitious and opaque

manner. On the basis of the said assertions, the respondent

in its application filed under Section 17 of the Act prayed thus:

“a) Allow the present application and direct the

respondent to grant first right of refusal to the claimant for matching the lowest bid, in terms of the order dated 23.07.2016 passed by this Hon‟ble Tribunal;

b) Pending hearing and disposal of the present Application, pass an ex-parte ad-interim Order, directing the

Respondent to not issue LoI/LoA or award the works or take any further steps, in any manner, directly or indirectly, in favour of any party, pursuant to the Notice Inviting Tender

published by the Respondent on 28.11.2016; c) Confirm prayer (b) upon issuance of notice; d) Pass such further order and other relief(s) as this

Hon‟ble Tribunal may be deemed fit, just, necessary and appropriate in the facts and circumstances of the case.”

10. This application was resisted by the appellant by filing a

reply affidavit. The appellant asserted that the respondent

chose to remain silent during the entire period and only at the

belated stage when the tender process was nearing

completion, it has chosen to file the application with the

intention of stalling the entire process. This approach cannot

be countenanced. The appellant also asserted that it was

unfathomable that the respondent would get the right to

match the lowest bid without participating in the bidding

process. Further, an application such as this would delay the

progress of the main arbitration proceedings which was

required to be completed within one year. It was thus asserted

by the appellant that the ROFR could be invoked by the

respondent only if it had participated in the bidding process.

The appellant adverted to the terms and conditions of the

tender documents which unambiguously mandated the

respondent to participate in the tender process, coupled with

the fact that there was no express direction given by the

Arbitral Tribunal so as to give any right or cause of action to

the respondent to contend to the contrary. The appellant

beseeched the Arbitral Tribunal to allow it to take the tender

process to its logical end.

11. Admittedly, no rejoinder was filed by the respondent to

the specific plea taken by the appellant in the reply affidavit

that despite having knowledge of the condition in the tender

documents requiring the respondent to participate in the

tender process, it failed to do so for reasons best known to the

respondent.

12. The Arbitral Tribunal vide order dated 24th May, 2017

allowed the application preferred by the respondent by inter

alia observing as follows:

“The Tribunal while examining both the 17 Applications

preferred by the parties specifically noticed that the Claimant had completed more than 65% of the work though,

NHAI took the stand that the physical progress was only 62.13%. Claimant took the stand that it had completed more than 73% work. Considering the fact that so much of money

and labour had been invested by the Claimant, and at the same time safeguarding the interest of NHAI, the Tribunal passed the order dated 23.7.2016 directing the Respondent

to grant the Claimant the right of first refusal for matching the lowest bid. The Tribunal also felt that involvement of

third parties would also create more problems. The Tribunal, therefore, ordered in the event Claimant matches the lowest bid, Claimant be permitted to complete the balance work

that too by periodically submitting reports before the Tribunal so that the Tribunal can examine whether the

Claimant is successfully completing the balance work to the satisfaction of NHAI. In our view, the stand taken by the

Respondent that the first right of refusal can be granted to the Claimant only if it had participated in the bidding

process cannot be sustained. Accordingly, reliefs sought for by the Claimant in the Application dated 25.4.2017 are granted”.

13. Against this decision, the appellant filed an appeal under

Section 37(2)(b) of the Act before the High Court of Delhi at

New Delhi. The same was dismissed on 21st August, 2017. The

High Court upheld the view taken by the Arbitral Tribunal by

inter alia observing thus:

“12. It is quite clear from a perusal of the earlier order dated 23.07.2016 that the respondent was granted right of first refusal by matching the lowest bid, and if it matched the

bid the respondent was to be permitted to complete the balance work as stated. There was no directions that the

respondent was obliged to participate in the bid. They had been given the right to match the lowest bidder, subject to terms and conditions and in that eventuality of their

matching the lowest bid, they were to be given the right to carry out the balance work. The insistence of the appellant that the respondent ought to have participated in the bid

floated pursuant to the order of the learned Arbitral Tribunal dated 23.07.2017 is misplaced.

13. Learned counsel for the appellant was, several times asked as to what prejudice is caused by the respondent by

not participating in the bid. The only reply made by the learned counsel for the appellant was that in the absence of

participation in the bid by the respondent, the appellant is unable to ascertain whether the respondent was eligible to be a bidder or not. In my opinion in the light of the orders of

the Learned Arbitral Tribunal dated 23.07.2016 the

appellant was not to participate in the bid. The apprehension of the appellant are entirely misplaced.

14. No prejudice is caused to the appellant. It is manifest

that other than insistence on compliance by the respondent of a procedural requirement, there is no prejudice caused to the appellant by non participation of the respondent in the

bidding process. Further the impugned directions are passed in accordance with the earlier orders of the Learned Arbitral Tribunal dated 23.07.2016 which has not been challenged

and attained finality. There is no merit in the present appeal and the same is dismissed.”

14. The appellant has assailed the decision of the Arbitral

Tribunal dated 24th May, 2017 and of the High Court dated

21st August, 2017 on the argument that the respondent

cannot be permitted to exercise ROFR sans participating in

the bidding process and in the teeth of the terms and

conditions of the tender documents. According to the

appellant, the Court cannot interfere with the tender process

and in particular with the modalities adopted for re-tendering

of the balance work of the project. The process of evaluation

of tender and awarding the contract are essentially commercial

functions for which reason the Courts should refrain from

exercising judicial review, especially when the decision taken

by the statutory authority is bona fide and taken in public

interest. Further, the order of the Arbitral Tribunal dated 23rd

July, 2016 in no way, much less expressly, exempts the

respondent from participating in the bidding process nor has

any stipulation been placed on the appellant to refrain from

incorporating a condition requiring the respondent to

participate in the tender process along with others. In that

case, all concerned including the respondent, were bound by

the terms and conditions specified in the tender documents.

The fact that the respondent was deemed to possess technical

qualifications would not and does not do away with the

essentiality of participating in the subject bidding process, the

purpose whereof is to ensure a fair competition amongst the

participants and, more particularly, to get a fair offer and the

best value for money in a scientific and transparent manner,

encouraging competition between the participants and also to

give them equal opportunity. It is contended that the order of

the Arbitral Tribunal, be it dated 23rd July, 2016 or dated 24th

May, 2017, is in excess of jurisdiction as it transcends beyond

the purport of Section 17 of the Act. For, it was not open to

the Arbitral Tribunal to pass an interim order concerning a

separate contract albeit facilitating completion of the

unfinished and incomplete works of the project. It is

contended that it is well settled position that the prerogative to

formulate the terms and conditions of the tender document is

that of the employer and the Court cannot sit in appeal over

such conditions. Nor can the same be re-written or modified

much less when it has not been challenged by the respondent.

It is contended that the fact that the respondent qualified the

technical bids in 2006, will not by itself qualify it for re-

tendering bid process in 2016. Having failed to participate in

the bid process in 2016, it was not possible to examine the

eligibility and qualification of the respondent in the context of

tender documents of 2016. Further, a person or entity who

stands out of the tender process or fails to comply with the

terms and conditions of the tender documents cannot acquire

any right or interest much less actionable claim in respect of

such tender process. According to the appellant, the

respondent must take the consequences of non-participation

in the subject tender process and cannot be allowed to

interdict the same in absence of an express exemption granted

by the competent forum/Authority to the respondent not to

participate in the tender process and yet exercise ROFR. To

buttress the aforesaid submission, reliance has been placed

on the decision of the Delhi High Court in VHCPL-ADCC

Pingalai Infrastructure Pvt. Ltd. & Anr. Vs. Union of India

& Ors.1 and on the decision of the Appellate Tribunal for

Electricity in M/s. Raj West Power Limited & Anr. Vs.

Rajasthan Electricity Regulatory Commission & Ors.2

15. The respondent on the other hand, would contend that

no interference in this appeal is warranted in view of the

concurrent view taken by the Arbitral Tribunal as well as the

High Court that it was not necessary for the respondent to

participate in the tender process to exercise ROFR. For, the

order dated 23rd July, 2016 does not prescribe such a pre-

condition nor does it prohibit the respondent from exercising

the ROFR without participation in the bidding process. It is

contended that the order dated 23rd July, 2016 is based on

consent of the parties and has never been challenged by the

appellant and as such, the appellant was obliged to comply

1 2010 SCC Online Del 2687

2 2013 SCC Online APTEL 46

with the same in its letter and spirit. According to the

respondent, having completed 78% work of the Project (which

according to the appellant, is only around 62%) and having

invested Rs.715 crores on the Project, by no stretch of

imagination can the respondent be termed as a non-serious

contender. According to the respondent, the appellant cannot

be heard to challenge the order dated 23rd July, 2016, which

confers ROFR, as it was based on consent of the parties and

also attained finality. Further, the purpose of participating in

the bidding process was only to ascertain as to whether the

offer given by the bidder was a responsive offer. The

respondent having already completed substantial work of the

Project, by no stretch of imagination, can be said to be

incapable of completing the balance work. This aspect had

commended to the Arbitral Tribunal, as can be discerned from

the order dated 23rd July, 2016. The Arbitral Tribunal in that

order also unambiguously recorded that it was not the case of

the appellant herein that the respondent had been black listed

or was incapable of completing the balance work. Not only

that, the Arbitral Tribunal went on to observe that it would not

be in the public interest to allow a third party to take over the

balance work of the project. On that basis, direction was given

to the appellant to allow the respondent to exercise ROFR,

subject to certain conditions. The order passed by the Arbitral

Tribunal, in essence, was on the basis of consent of the

respondent with unilateral conditions imposed by the

appellant, which the appellant should not be allowed to resile.

According to the respondent, it was impermissible for the

appellant to incorporate conditions such as clauses 3, 26, 27

and 30 in the tender documents, as the same are in the teeth

of order dated 23rd July, 2016 passed by the Arbitral Tribunal

and, more so, without seeking liberty from the Arbitral

Tribunal in that behalf. It is contended that the purpose of the

tender process is only to evoke responsive offers. There would

be no logic or rationale for participation of the respondent in

the backdrop of clause 3.2(f) which is a deeming provision

virtually declaring the respondent as eligible and qualified for

the work. The capability of the respondent to complete the

balance work was never in doubt as has been recorded by the

Arbitral Tribunal. In any case, in the absence of liberty given

by the Arbitral Tribunal, it was not open to the appellant to

incorporate such a pre-condition in the tender document. It is

contended that such pre-condition would require the

respondent to furnish bid security amount in which case it

would be a fait accompli situation for the respondent if it were

to refuse or fail to match the lowest bid. For, it would result in

forfeiture of its bid security and also entail in black listing. The

order dated 23rd July, 2016, is one of ROFR and not for right

to participate in the bidding process as such. Further, the

submission of financial bid by the respondent was not to find

out whether it is L-1. In that, all the bidders participating in

the subject tender process pursuant to tender notice, were

made fully aware in the bid document itself that the

respondent had ROFR and L-1 would be compensated by the

respondent as provided in the order dated 23rd July, 2016.

Therefore, the respondent was not expected to bid with itself

by submitting a financial bid and then matching the same.

The respondent would contend that the appellant has wrongly

asserted that the respondent was aware of the conditions

prescribed in the tender documents and yet did not choose to

participate in the bidding process. For, the bid documents

were neither furnished to the respondent nor placed on record

before the Arbitral Tribunal. Thus, the conditions on which

reliance has now been placed by the appellant were never

pointed out to the respondent or to the Arbitral Tribunal at

any point of time. In any case, the appellant had completely

failed to show as to what prejudice would be caused by

allowing the respondent to exercise ROFR without

participating in the tender process. The learned Single Judge

of the High Court repeatedly made queries in that behalf

which was not explained by the appellant, as is noted in the

impugned judgment. Resultantly, the High Court rejected the

plea of the appellant and held that it was not necessary for the

respondent to participate in the bidding process in terms of

order dated 23rd July, 2016, to exercise ROFR. The respondent

has distinguished the two decisions relied upon by the

appellant and would contend that the same do not lay down

any legal principle that participation in the bidding process is

a condition precedent for exercise of ROFR. It is contended, in

the present case, the ROFR, without condition of participation

in the bid, was granted by the Arbitral Tribunal on the basis of

consent of the parties. It is contended that in view of the

concurrent view taken by the Arbitral Tribunal as also the

High Court, this Court should be slow in entertaining this

appeal.

16. We have heard Mr. K.K. Venugopal, learned Attorney

General for India and Mr. Mukul Rohatgi, learned senior

counsel appearing for the respondent.

17. The issue involved in the present appeal ostensibly

concerns the justness of the order passed by the Arbitral

Tribunal and affirmed by the High Court on an application

moved by the respondent (claimant) under Section 17 of the

Act in the pending arbitral proceedings. However, in essence,

the subject matter of the application under consideration

relates to the rights and liabilities of the parties in respect of a

tender process for awarding of a contract in relation to the

unfinished and balance work of the Highway Project.

18. While considering the relief claimed by the respondent

(claimant), the same should have been tested on the

touchstone of the principle governing the tender process,

especially when the validity of the tender document has not

been put in issue or challenged before any competent forum.

Going by the terms and conditions in the tender documents,

as already alluded to in paragraph 8 above, there is no tittle of

doubt that the right of the claimant (respondent) to match the

bid of L-1 or to exercise ROFR would come into play only if the

respondent was to participate in the tender process pursuant

to the notice inviting tenders from the interested parties. The

objective of tender process is not only to adhere to a

transparent mechanism but to encourage competition and give

equal opportunity to all tenderers with the end result of

getting a fair offer or value for money. The plain wording of the

eligibility clause in the tender documents and the incidental

stipulations make it explicit that the respondent was required

to participate in the tender process by submitting its sealed

bid (technical and financial). The fact that a deeming clause

has been provided in the tender document that if the

respondent was to participate in the bidding process, it shall

be deemed to fulfill all the requirements of the tender clauses

3 to 6 of the RFP, being the existing concessionaire of the

Project, does not exempt the respondent from participating in

the tender process; rather the tenor of the terms of the

documents made it obligatory for the respondent to participate

in the tender process to be considered as a responsive bidder,

along with others. Having failed to participate in the tender

process and, more so, despite the express terms in the tender

documents, validity whereof has not been challenged, the

respondent cannot be heard to contend that it had acquired

any right whatsoever. Only the entities who participate in the

tender process pursuant to a tender notice can be allowed to

make grievances about the non-fulfillment or breach of any of

the terms and conditions of the concerned tender documents.

The respondent who chose to stay away from the tender

process, cannot be heard to whittle down, in any manner, the

rights of the eligible bidders who had participated in the

tender process on the basis of the written and express terms

and conditions. At the culmination of the tender process, if

the respondent had not participated, in law, the offer

submitted by the eligible bidders is required to be considered

on the basis of the stated terms and conditions. Thus, if the

claim of the respondent was to be strictly adjudged on the

basis of the terms and conditions specified in the subject

tender document, the respondent has no case whatsoever.

19. The gravamen of the plea taken by the respondent is on

the assumption that the interim order passed by the Arbitral

Tribunal on 23rd July, 2016 bestows unconditional right on

the respondent to exercise ROFR, in the event tender process

in respect of the balance work is resorted to. For that, we may

straightway advert to the order dated 23rd July, 2016. That is

an order granting prayer clause (b) in the application preferred

by the respondent under Section 17 of the Act. The same has

been reproduced in paragraph 3 above. Notably, there is

nothing in the entire application (filed by the respondent

under Section 17 of the Act) to even remotely suggest that the

respondent had prayed in clause (b) that it be exempted from

participating in the proposed tender process as such, and

could yet exercise ROFR before the letter of intent was to be

issued to the lowest bidder. The exemption in this regard

cannot be inferred. It has to be an express exemption sought

and so granted and disclosed in the tender documents. The

respondent may be right in contending that the interim order

passed by the Arbitral Tribunal dated 23rd July, 2016 neither

prescribes that the respondent must participate in the bidding

process as a condition precedent for exercise of ROFR nor does

it prohibit the respondent from exercising ROFR without

participation in the bidding process. The order is, indeed,

silent in that behalf. But, that will be of no avail to the

respondent. For, such exemption ought to have been prayed

and expressly granted by the Court. In absence of such

express exemption, the respondent was obliged to comply with

the terms and conditions of the tender documents publicly

notified by the appellant as per its understanding of the order

of the High Court. Having failed to participate in the bidding

process in consonance with such notified terms and

conditions, the respondent lost the opportunity granted under

the order dated 23rd July, 2016 to match the lowest bid or to

exercise ROFR. Any other view would fall foul of the

fundamental policy of the Indian law and cannot be

countenanced.

20. It is not the case of the respondent that an express

exemption has been granted to the respondent, from

participating in the bidding process. In the matter of tender

process, there can be no tacit or implied exemption from

participating. In the first place, whether such direction can be

issued by the Arbitral Tribunal under Section 17 of the Act

itself is debatable. However, since the order dated 23rd July,

2016 has remained unchallenged, we do not wish to dilate on

that aspect. Indeed, the appellant accepted the order with a

sanguine hope that a proper tender process can be resorted to,

wherein the respondent would also participate, for awarding

the contract of unfinished and balance works of the subject

Project. For effectuating that order, tender documents were

issued by the appellant on 28th November, 2016 which, as

aforesaid, explicitly stipulated that the respondent was

expected to submit its bid within the specified time.

Admittedly, the fact that tender notice was issued, came to be

disclosed before the Arbitral Tribunal on 10th December, 2016.

Surprisingly, the respondent neither took any clue nor

bothered to follow up the tender documents which were placed

in public domain (as is done in respect of any other tender

process). Further, the respondent waited till the opening of

technical bids on 5th January, 2017 and financial bids on 29th

March, 2017 and rushed to the Arbitral Tribunal by way of an

application under Section 17 of the Act, only on 25th April,

2017 stating that on the previous day, it had come to its

notice that the appellant was likely to issue letter of intent to

the lowest bidder, without giving opportunity to the

respondent to match the lowest bid or exercise ROFR. To

oppose the said application, the appellant in the reply affidavit

had asserted that the respondent was fully aware about the

terms and conditions of the tender documents and yet chose

not to participate in the bidding process. The respondent did

not think it necessary to counter the said assertion by filing

any rejoinder thereto. Notwithstanding that, the Arbitral

Tribunal was impressed by the plea taken by the respondent

and allowed the application of the respondent vide order dated

24th May, 2017. The relevant extract of the said order has been

reproduced in paragraph 12 above. The Arbitral Tribunal was

more impressed by the fact that the respondent had completed

substantial works of the Project and it would be just and

proper to allow the respondent to complete the balance work.

The Arbitral Tribunal made no effort to ascertain as to whether

the order dated 23rd July, 2016 was a blanket and

unconditional order entitling the respondent to straightaway

exercise ROFR without participating in the bidding process.

The Arbitral Tribunal merely adverted to the objection of the

appellant and rejected the same on the finding that

involvement of a third party in the Project would create serious

problems. It took the view that giving option to the respondent

to match the lowest bid and to complete the balance work,

with a condition to periodically submit the progress report to

the Arbitral Tribunal for monitoring whether the balance work

was successfully completed to the satisfaction of the NHAI,

would be a proper and equitable arrangement. This approach

is not in conformity with the fundamental policy of Indian

law.

21. The approach of the High Court in the appeal preferred

by the appellant was no different. The relevant extract of the

High Court decision has been reproduced in paragraph 13

above. The High Court did not find any error, much less

manifest error, in the view taken by the Arbitral Tribunal.

Further, it can be gleaned from the observations of the High

Court in the impugned judgment that the High Court was

more eager to know as to what prejudice would be caused to

the appellant if the respondent had not participated in the

bidding process. This query of the High Court is begging the

question. For, that cannot be the primary basis to answer the

relief claimed by the respondent in the application under

Section 17 of the Act. An entity who stays away from the

bidding process and fails to comply with the express terms

and conditions of the tender documents cannot claim any

right to match the lowest bid or exercise ROFR. Only a

responsive bidder could do so. The High Court has overlooked

the fact that the appellant is a body corporate under the 1988

Act. It has to act in a just and fair manner in the matter of

allocation of contract albeit the balance and unfinished work

of the Project. No express exemption has been granted to the

respondent vide order of the Arbitral Tribunal dated 23rd July,

2016 – to exercise ROFR or match the lowest bid without

participating in the bidding process. The respondent had the

option to participate in the bidding process which was not

availed of for reasons best known to the respondent. The High

Court also overlooked the fact that the tender process was not

an empty formality and with the initiation of the same, third

parties, who participated in the bidding process, were likely to

be prejudiced by allowing the respondent to match the lowest

bid or exercise ROFR, without participating in the bidding

process despite the express stipulation in that behalf in the

tender documents. Suffice it to observe that the High Court

committed the same error as committed by the Arbitral

Tribunal in not examining the core issues for grant or

non-grant of the relief to the respondent, in conformity with

the fundamental policy of Indian law.

22. The argument of the respondent that the order dated 23rd

July, 2016 passed by the Arbitral Tribunal was based on

consent of the parties and was never challenged by the

appellant, does not take the matter any further. The

respondent on the one hand, contends that the said order was

based on consent of the parties and also in the same breath

contends that the respondent consented to the unilateral

conditions stipulated by the appellant, which the appellant

should not be allowed to resile as prayed by it. Be that as it

may, on a fair reading of the order dated 23rd July, 2016, it is

noticed that the same is the outcome of a contest and not

founded on any concession. In any case, the order makes no

express mention about granting of exemption to the

respondent from participating in the proposed bidding

process. The fact that the respondent has already invested a

substantial amount in the subject Project and has also

completed substantial work can be no basis to overlook the

fundamental policy of Indian law regarding the subject of

tender process and the rights and obligations of the parties

involved. We are also not impressed by the argument of the

respondent that the respondent was not expected to refuse to

match its own bid or that if it had participated in the bidding

process and exercised ROFR, then it would have resulted in

consequence of black listing and forfeiture of bid security

amount. The fact that the respondent would exercise ROFR

would mean that the bid given by the respondent was not L-1.

If it was not L-1, exercising ROFR would obviously neither

entail in forfeiture of the bid security nor would visit the

consequence of black listing. This plea is obviously an

argument of desperation and belated one to justify the failure

to participate in the bidding process.

23. The appellant invited our attention to the dictum in

VHCPL-ADCC Pingalai Infrastructure Pvt. Ltd., (supra). In

that case, the Court considered the question whether the

petitioner had preferential right to match the lowest bid

without pre-qualifying or participating in the bidding process.

In that case, Article 14.1(c) of the concession agreement

stipulated that the respondent No.1 could invite proposals

from eligible persons for capacity augmentation of the project

which required the petitioner to give an option to submit its

proposal. The Court after noticing the precedents on the

relevant aspects, went on to observe that if the concessionaire

chose not to submit its proposal, it did not have the right to

match the preferred offer as would be the case of the

respondent herein, in view of the express stipulation in the

tender documents requiring the respondent to participate in

the bidding process. The appellant has also placed reliance on

the decision in M/s. Raj West Power Limited, (supra). We

agree with the respondent that this decision does not lay down

any principle which may have any bearing on the case in

hand.

24. In view of the above, we have no hesitation in concluding

that the decision of the Arbitral Tribunal as confirmed by the

High Court, falls foul of the fundamental policy of Indian law

and cannot be countenanced.

25. Accordingly, the order passed by the Arbitral Tribunal

dated 24th May, 2017 as also the order dated 21st August,

2017 passed by the learned Single Judge of the High Court,

deserve to be quashed and set aside and resultantly, the

application preferred by the respondent under Section 17 of

the Act dated 24th April, 2017 ought to be dismissed. We

order accordingly.

26. The appeal is allowed in the above terms with no order

as to costs.

.………………………….CJI. (Dipak Misra)

…………………………..….J. (A.M. Khanwilkar)

…………………………..….J. (Dr. D.Y. Chandrachud)

New Delhi;

July 13, 2018.