Ntpc Limited Vs Ansaldo Caldaie Boilers India P.Ld.

REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.2134 OF 2012

(Arising out of SLP(C)No.7807 of 2011)

NTPC LIMITED … APPELLANT

Vs.

ANSALDO CALDAIE BOILERS INDIA P. LTD. & ANR. … RESPONDENTS

J U D G M E N T

ALTAMAS KABIR, J.

1. Leave granted.

2. Following international competitive bidding procedures,

the Appellant had invited bids for the supply and

installation of Steam Generator package for captive coal-

based Thermal Power Projects in different areas. The bid of

the Respondent No.1 was rejected by the Appellant by its

letter dated 5th January, 2011, as the same did not meet the

minimum qualifying requirements set out in the Bid

documents. Furthermore, the Qualified Steam Generator

Manufacturer, Ansaldo Caldaie, Italy, proposed by the said

Respondent, did not have the necessary minimum

qualification, as was required in terms of the Bid

documents.

3. The main issue which arises for consideration in this

Appeal is whether Ansaldo Caldaie, Italy, can be said to be

a Qualified Steam Generator Manufacturer within the

definition set out in the detailed Invitation for Bids. The

said invitation for bid contained the qualifying requirement

for Bidders in Clause 7 of the Tender Document. Clause 7.1.0

provided that the Bidder should meet the qualifying

requirements of any one of the qualifying routes stipulated

under Clause 1.1.0 or 1.2.0 or 1.3.0 or 1.4.0 or 1.5.0. In

addition, the Bidder was also required to meet the

requirements stipulated under Clause 7.6.0 and 7.7.0,

together with the requirements stipulated under Section ITB.

4. Route 1 permits a Qualified Steam Generator Manufacturer

to join the bidding process provided that it should meet the

qualifying requirements of any of the qualifying routes

indicated in Clause 7 of the tender documents. In Clause 7

of the tender documents, five different routes have been

enumerated which could be taken by the tenderers, namely :-

(i) as a Qualified Steam Generator Manufacturer; or

(ii) as an Indian Steam Generator Manufacturer; or

(iii) as an Indian subsidiary company of a Qualified Steam Generator Manufacturer; or

(iv) as an Indian Joint Venture Company for manufacturing Super Critical Steam Generators in India between an Indian Company and a Qualified Steam Generator Manufacturer; or

(v) as an Indian Joint Venture Promoter holding at least 51% stake in a Joint Venture Company for manufacturing Super Critical Steam Generators in

India between an Indian Company and a Qualified Steam Generator Manufacturer.

5. Indisputably, none of the parties which responded to the

invitation adopted Routes 1 or 3. Bharat Heavy Electricals

Ltd. adopted Route 2, while Route 4 found favour with Larsen

& Toubro, MHI and the Appellant, while BGR took recourse to

Route 5. Route 4 contained in Clause 7.4.0 relates to

Indian Joint Venture Companies for manufacturing of Super

Critical Steam Generators in India between an Indian Company

and a Qualified Steam Generator Manufacturer. For the sake

of reference, Clauses 7.4.1 and 7.4.2 which formed part of

Route 4 are extracted hereinbelow :-

“7.4.0 Route 4 : Indian Joint Venture (JV) Company for manufacturing of Super Critical Steam Generator in India between an Indian Company and a Qualified Steam Generator Manufac-turer

7.4.1 The Bidder shall be a Joint Venture (JV) Company incorporated in India under the Companies Act 1956 of India, as on the date of techno-commercial bid opening, promoted by (i) an Indian Company registered in India under the Companies Act 1956 of India and (ii) a Qualified Steam Generator Manufacturer meeting requirements of clause 7.1.1, created for the purpose of manufacturing in India supercritical steam generator sets covering

the type, size and rating specified. If the JV Company is incorporated as a public limited Company then it should have obtained certificate for Commencement of Business in India as on the date of techno-commercial bid opening.

The Qualified Steam Generator Manu-facturer shall maintain a minimum equity participation of 26% in the JV Company for a lock-in period of 7 years from the date of incorporation of JV Company or up to the end of defect liability period of the contract whichever is later.

One of the promoters shall be a majority stakeholder who shall maintain a minimum equity partici-pation of 51% in the JV Company for a lock in period of 7 years from the date of incorporation of JV Company or up to the end of defect liability period of the contract whichever is later.

In the event that the majority stake holder in the JV Company is an entity other than the Qualified Steam Generator Manufacturer, it should be an Indian Company and should have executed, in the last 10 years, large industrial projects on EPC basis (with or without civil works) in the area of power, steel, oil & gas, petrochemical, fertilizer and/or any other process industry with the total value of such projects being Rs.10,000/- million or more. At least one of such projects should have a contract value of Rs.4,000/- million or more. These projects shall be in successful operation for a period of not less than one year as on the date of techno-commercial bid opening.

7.4.2 The Bidder shall furnish a DJU executed by him, the Qualified Steam Generator Manufacturer and other JV promoter having 25% or higher equity participation in the JV Company, in which all the executants of DJU shall be jointly and severally liable to the Employer for successful performance of contract as per the format enclosed in the bidding documents. The joint deed of undertaking shall be submitted along with techno-commercial bid, failing which the Bidder shall be disqualified and his bid shall be rejected.

In case of award, each promoter having 25% or higher equity participation in the JV Company will be required to furnish an on demand bank guarantee for an amount of 0.5% of the total contract price of the Steam Generator Package in addition to the contract performance security to be furnished by the Bidder.”

6. As mentioned hereinbefore, the bid filed by the

Respondent No.1 was rejected by the Appellant by its letter

dated 5th January, 2011, as the same did not fulfil the

qualifying requirements of Route 4, extracted hereinabove.

7. Appearing for the Appellant, the learned Attorney

General, Mr. Goolam E. Vahanvati, submitted that Clause

7.1.1 prescribes the basic qualifying requirements for a

Qualified Steam Generator Manufacturer and the same is

applicable to all the routes permitted under the bidding

documents, irrespective of the route which the Bidder would

opt for, for seeking qualification. For the sake of

convenience, Clause 7.1.1 is reproduced hereinbelow :-

“7.1.1 The Bidder should have designed, engineered , manufactured/got manufactured, erected/supervised erection, commissioned/ supervised commissioning of at least one (1) number of coal fired supercritical Steam Generator having rated capacity of 1500 tonnes of steam per hour or above. Further, such Steam generator should be of the type specified, i.e. single pass (tower type) or two pass type using either spiral wound (inclined) or vertical plain or vertical rifled type water wall tubing, and should be in successful operation for a period of not less than one (1) year as on the date of Techno-commercial bid opening. In addition, the above Steam Generator should have been provided with evaporator suitable for variable pressure operation (sub-critical and supercritical pressure ranges). The Bidder shall offer only the type of Steam Generator and type of water wall tubing for which he is qualified.”

8. The learned Attorney General submitted that Clause 7.1.1

is identical to Clause 1.1.2 of Item No.4 of Section III of

the Tender Documents and under Clause 1.4.1 it has been

clearly mentioned that the requirements of Clause 1.1.1 had

to be met. The learned Attorney General urged that in view

of Clause 7.1.1, the Bidder must have “designed” and

“engineered” the entire Steam Generator himself and the same

could not be outsourced. Accordingly, once it is submitted

that a Steam Generator is to be designed by the Qualified

Steam Generator Manufacturer itself, all the integral parts

of the Steam Generator like the furnace (evaporator),

Superheaters 1, 2 and 3, Reheaters 1 and 2, connecting

piping etc., have to be designed and engineered by the said

manufacturer himself. The learned Attorney General also

urged that Clause 7.1.1, however, permitted the manufacture,

erection or commissioning to be outsourced by the Qualified

Steam Generator Manufacturer, in view of the expressions

used, such as, “got manufactured”, “supervised erection” and

“supervised commissioning”.

9. The learned Attorney General also contended that Clause

7.1.1 also categorically states that the Steam Generator

would have to be provided with an evaporator suitable for

variable pressure operation (emphasis added). It was submitted that an evaporator is an integral and one of the

most critical parts of any Supercritical Steam Generator. It

was further urged that if the evaporator was not designed

for variable pressure operation, conditions in Note 5 of the

Notes in Clause 1.0.0 of the Bid documents would have to be

complied with. For the sake of reference, Note 5 is

reproduced hereinbelow :-

“Steam Generator Manufacturer with Technology Tie-up for Variable Pressure Design In case a supercritical Steam Generator manufacturer meets all the requirements as specified in clause no. 1.1.1 above except that the evaporator in the reference steam generator is not designed for variable pressure operation and is designed for constant pressure (Universal Pressure) operation only, in such case, the Supercritical Steam Generator Manufacturer has an ongoing license agreement (which covers technology transfer), as on the date of Techno-commercial bid opening, with the original Technology Owner (Licensor) for design, manufacture, sell, use, service of once through variable pressure supercritical steam generator technology (with evaporator suitable for variable pressure operation in sub-critical pressure ranges).

i. The licensor should have experience of providing such variable pressure design steam generator technology for at lease one (1) no. of coal fired supercritical steam generator for a 1500 T/hr or higher capacity using either spiral wound (inclined) or vertical plain or vertical rifled type water wall tubing with the evaporator suitable for variable pressure operation in sub-critical and super-critical pressure ranges and which should be in

successful operation for a period of not less than one (1) year as on the date of bid opening.

ii. The Bidder shall offer only the type of steam generator i.e. single pass (tower type) or two pass type for which the Bidder is qualified and shall offer only the type of water wall tubing (either spiral wound (inclined) or vertical plain or vertical rifled type) for which his licensor is qualified.

iii.In such an event, the Bidder shall furnish a Deed of Joint Undertaking executed between the Bidder and the supercritical steam generator manufac-turer (as the case may be) and its Technology Owner (Licensor), as per the format enclosed in the Bidding Documents towards the Bidder and the licensor being jointly and severally liable to the Employer for successful performance of the Steam Generator along with an extended warranty of at least one (1) year over and above what is required as per tender documents.

iv. In case of award, Technology Owner (Licensor) will be required to furnish an on demand bank guarantee for an amount of 0.1% of the total contract price of the Steam Generator Package in addition to the contract perfor-mance security to be furnished by the Bidder.”

10. In addition to the above, the learned Attorney General

submitted that in the event the provisions of Note 5 were to

be followed, it would be necessary for the Bidder to provide

a Deed of Joint Undertaking to be executed between the

Bidder, the proposed Qualified Steam Generator Manufacturer,

who possessed the experience of designing and engineering a

Steam Generator with evaporator suitable for constant

pressure operation. The very reason for the furnishing of a

Deed of Joint Undertaking was to make the technology owner

responsible for the successful operation of the plant along

with the Bidder. It was submitted that only when such an

undertaking was given by the licensor and the Qualified

Steam Generator Manufacturer that the Bidder would be

eligible for being considered as being qualified to

participate in the bidding process. The learned Attorney

General submitted that despite the fact that the Respondent

No.1 had taken recourse to Note No.5 and the bid of the

Respondent was non-responsive, no Deed of Joint Undertaking

had been furnished by the Respondent. On the other hand, in

the bid submitted by the Respondent No.1, it had been

mentioned in Clause 1.2.0 that the evaporator in the

reference Steam Generator, which was supplied to Enel, was

for variable pressure operation. The Respondent claimed to

have designed and engineered the reference Steam Generator,

but when it came to the actual confirmation in reference to

the experience, it was indicated as follows :-

1.5.0 We, confirm that M/s ANSALDO CALDAIE S.p.A. (Qualified Steam Generator Manufacturer) meets all the requirement as per 1.1.1 of BDS except that the evaporator indicated in the reference steam generator is not designed for variable pressure operation and is designed for constant pressure (Universal Pressure) operation only and seeking qualification along with the original technology owner (Licensor) from which he has an ongoing license agreement (which covers technology transfer), as on the date of Techno-commercial bid opening, for design, manufacture, sell, use, service of once through variable pressure supercritical steam generator technology (with evaporator suitable for variable pressure operation in sub-critical and supercritical pressure ranges).

Further we confirm that original technology owner (Licensor) had experience of providing variable pressure design steam generator technology for at least one (1) no. of coal fired supercritical steam generator technology for at least one (1) no. of coal fired supercritical steam generator for a 1500 T/hr or higher capacity using either spiral wound (inclined) or vertical plain or vertical rifled typed water wall tubing with the evaporator suitable for variable pressure operation in sub-critical and super-critical pressure ranges and which should be in successful operation for a period of not less than one (1) year as on the date of techno commercial bid opening. The detail of Licensor and his experience detail are as follows:”

11. The learned Attorney General submitted that it was,

therefore, clear that the evaporator for the Steam

Generator, which the Respondent No.1 had agreed to provide,

had not been designed for variable pressure operation and,

accordingly, the experience of the licensor was relied upon.

Furthermore, the Deed of Joint Undertaking referred to in

Clause 1.01.00 was left blank, and Clause 1.6.0 which

included the reference to the Deed of Joint Undertaking was

expressly and consciously scored off. It was submitted that

the failure to furnish the said undertaking made the bid of

the Respondent No.1 completely non-responsive.

12. In support of his aforesaid submissions, the learned

Attorney General submitted that the crucial aspects of the

case are :-

(i) Did the tender contemplate that the Evaporator is something separate from the Steam Generator?

(ii) Is the Evaporator not an integral part of the Steam Generator?

(iii) Could the Evaporator, if the tender contemplated that the Evaporator could be manufactured by a third party, be manufactured by a third party?

(iv) Did Ansaldo Caldaie indicate that the Evaporator would be supplied by it after having it manufactured by a third party?

13. The learned Attorney General submitted that as far as

the first two questions are concerned, the Evaporator was

very much an integral part of the Steam Generator and as far

as the third and fourth questions are concerned, the

Attorney General submitted that the answer was in the

negative.

14. Learned Attorney General contended that the Respondent

No.1 was ineligible to compete in the bid, since it did not

satisfy one of the critical conditions of the tender

document. It was submitted that in order to be eligible, a

Bidder had to satisfy the conditions contained in Clause

7.1.1 of the Memorandum of Understanding, hereinafter

referred to as ‘MOU’. Although, manufacturing, erection or

commissioning of the Steam Generator could be outsourced,

the “designing” and “engineering” of the Steam Generator had

to be done by the Bidder himself. The learned Attorney

General submitted that if the party proposed as Qualified

Steam Generator Manufacturer by the Bidder had not designed

or engineered the Steam Generator himself, he could not be

said to have met the qualifying requirements stipulated for

a Qualified Steam Generator Manufacturer and consequently,

the Bidder could not also be said to have fulfilled the

requirements relating to meeting the minimum qualification

requirements for his bid to be accepted. The learned

Attorney General submitted that the evidence on record

clearly indicated that the Respondent No.1 had not designed

or engineered the entire Steam Generator and that it

transpired that in response to queries raised by the

Appellant to Enel, the reference station owner had indicated

that the work had been split up between the Respondent No.1

and BHK, but executed the contract for the reference station

as part of a consortium. The detailed break-up which was

provided, indicated that the Respondent No.1 had not done

the designing and engineering of the boiler walls furnace.

It was submitted that the failure to design and/or engineer

the critical parts of the Steam Generator was fatal for

qualification as a Qualified Steam Generator Manufacturer

and hence the bid submitted by the Respondent No.1 had to be

rejected.

15. The learned Attorney General submitted that there were

various contradictions and inconsistencies in the bid

submitted by the Respondent No.1 and while, on the one hand,

it was mentioned that the reference Steam Generator was

provided with evaporator suitable for variable pressure

operation within sub-critical and super critical pressure

ranges, it was also indicated in another part of the Tender

Documents that the evaporator indicated in the reference

Steam Generator was not designed for variable pressure

operation, but for constant pressure operation. It was

submitted that the said condition being one of the

fundamental conditions of the bid, it could not be held to

be substantially responsive.

16. The learned Attorney General submitted that the High

Court had not applied itself to these aspects of the matter,

which were essential in nature and had proceeded on the

assumption that the bid of the Respondent No.1 was in order

and that the rejection of the bid of the Respondent No.1 was

liable to be quashed.

17. On behalf of the Respondent No.1 it was submitted by Mr.

Mukul Rohatgi, learned Senior Advocate, that the Respondent

No.1 Company is an Indian Company jointly promoted by Gammon

India Limited and Ansaldo Caldaie S.p.A., Italy, who has

been in the business of manufacturing, designing, erecting

and commissioning of boilers since 1853 and is a world

leader in the manufacture of Supercritical Steam Generators

and had engineered, designed and manufactured 24

Supercritical boilers with capacity of 1500 Tonnes of Steam

per hour and above. Mr. Rohatgi submitted that the

Respondent No.1 Company had installed boilers of various

types all over the world and it also has a significant

presence in India since 1960. Included amongst its major

projects within India, are :-

(i) 3 x 200 MW for NTPC at Ramagundam, Andhra Pradesh,

which was installed in 1980 and has been operating

successfully since its installation;

(ii) 2 x 500 MW for NTPC, Farakkha in West Bengal, which

has been in operation since 1992;

(iii) 230 MW at Smalkot for BSES, which was commissioned

in 1999; and

(iv) 2 x 210 MW at Neyvelli Lignite Corporation at Tamil

Nadu, which was the first of its kind in the State.

It was submitted that the consortium, of which the

Respondent No.1 was a part, has the distinction of being the

second largest company involved in the installation of

boilers in India after Bharat Heavy Electricals Ltd. (BHEL).

18. Mr. Rohatgi submitted that the Respondent No.1 has vast

experience in working with Steam Generators and was fully

eligible to compete in the bids relating to Clause 7.4 of

the detailed information for bids, which stipulated that the

qualification of the Qualified Steam Generator Manufacturer

would be considered if it owned at least 26% of the equity

of the Bidder as per Clause 7.1.1. Accordingly, Respondent

No.1 submitted its performance certificate. Mr. Rohatgi

submitted that the Respondent No.1 submitted the Performance

Certificate issued to Ansaldo Caldaie by Anel Tower for

Torranvaldaliga Nord Power Plant, to the Appellant to

support its eligibility for participating in the Bid.

19. Mr. Rohatgi submitted that there were four Bidders,

including the Respondent No.1, but ultimately on 5th January,

2011, the Respondent No.1 was informed that his technical

bid had been rejected on the ground that it did not meet the

qualification criteria. The Bank Guarantee furnished by the

Respondent No.1 was returned to him. In the meantime, the

Writ Petition filed by the Respondent, (WP (C) No.296 of

2011), came up for hearing on 17th January, 2011, when it was

withdrawn with liberty to file a fresh petition based on the

fact that the Respondent No.1 had in the interregnum period

received the rejection letter dated 5th January, 2011, issued

by the Appellant.

20. Mr. Rohatgi submitted that Clause 7.1.1 and Clause 7.4

clearly reflected the mind of the Bidder. Learned counsel

urged that the use of the expression “provided” in dealing

with the capability of the Bidder to deal with variable

pressures merely indicated that the Steam Generator

Manufacturer would have to provide technical tie-up for

variable pressure design and in the absence of the same, the

bid submitted would still qualify for being considered. It

was urged that the use of the expression “provided” would

have to be read along with the phrase “designed, engineered,

manufactured/got manufactured” etc. The further usage of the

words “in addition” indicated that the stipulation regarding

the provision of an evaporator suitable for variable

pressure operation was an additional, ancillary and

peripheral requirement and not integral to the type of Steam

Generator contemplated. Mr. Rohatgi urged that the

submission made on behalf of the Appellant to the contrary

was incorrect since it had been in no uncertain terms

submitted that in the bid document and in the pleadings

before the High Court and this Court noted that the

evaporator provided with the Steam Generator at the

reference plant at TNP was suitable for variable pressure

operation.

21. It was submitted that the entire basis of the case made

out by the Appellant was, therefore, non-est and the High

Court did not commit any error in allowing the Writ Petition

filed by the Respondents.

22. There is no dispute that the Respondent No.1 chose Route

4 while submitting its Tender Bid, in its capacity as an

Indian Joint Venture Company for manufacturing Super-

Critical Steam Generator in India between an Indian Company

and a Qualified Steam Generator Manufacturer. The crucial

condition for a Bidder of the said category to be considered

is contained in Clause 7.1.1 of the Tender Documents, which

has been extracted hereinbefore and provides that the Bidder

should have designed, engineered, manufactured/got

manufactured, erected/ supervised direction,

commissioned/supervised commissioning of at least one Steam

Generator having rated capacity of 1500 Tonnes of Steam per

hour or above and that it should be provided with an

Evaporator suitable for variable pressure operations for

special category and supercritical pressure ranges.

23. The controversy which led to the rejection of the

Technical Bid of the Respondent No.1 was with regard to the

question as to whether in the case of a Joint Venture

Undertaking it was essential that the Qualified Steam

Generator Manufacturer also had to be the manufacturer of

the evaporator or whether it could function as a

facilitator. Furthermore, what appears to have weighed with

the Appellant in rejecting the Technical Bid of the

Respondent No.1 was that the Steam Generator had been

designed for constant pressure and not variable pressure, as

required by the Appellant.

24. Admittedly, the evaporator is an integral part of the

Steam Generator. The question is whether the same could not

be manufactured by a third party and supplied to the

Qualified Steam Generator Manufacturer for use in the

boiler. Although, the said proposition has been hotly

contested on behalf of the Respondent, an attempt was also

made to show that the evaporator was in fact designed for

variable pressure, but such a submission was contrary to the

confirmation given by the Respondent No.1 which indicated

that the evaporator had been designed for Constant Pressure

(Universal Pressure) operation only. The MOU, while

permitting manufacturing, erection or commissioning of the

Steam Generator, provided that the same could be outsourced,

but the “designing” and “engineering” of the Steam Generator

had to be done by the Bidder himself and if the party

proposed as Qualified Steam Generator Manufacturer and the

Bidder had not designed and engineered the Steam Generator

itself, it could not be said that the qualifying

requirements for such manufacturer had been satisfied.

25. From the terms and conditions contained in the MOU, it

appears to us that it was the intention of the Appellant

that the Qualified Steam Generator Manufacturer would have

to be the manufacturer of the evaporator itself and could

not have outsourced the manufacture thereof to a third

party, since the evaporator controlling the pressure of the

Steam generated is a vital and crucial component of the

Steam Generator itself. The Appellant, which will be the

ultimate user of the Generator, must be presumed to be

conscious of the competence of the tenderer to “provide” the

evaporator in keeping with the required specifications.

26. In the aforesaid context, we are unable to uphold the

decision of the Division Bench of the Delhi High Court

quashing the letter dated 5th January, 2011, issued by the

Appellant herein, informing the Respondent No.1 that its

Techno-commercial Bid had been rejected on the ground that

it did not meet the minimum requirement set forth in item

No.4 of Section III of the Tender Documents. The High Court

while interpreting the provisions of Clause 7.1.1 of the

Tender Documents was influenced by the use of the phrase

“manufactured/got manufactured” while considering the fact

that although, Ansaldo Caldaie, Italy, was being projected

as the Qualified Steam Generator Manufacturer, Siemens A.G.

was shown as the technology owner/licensor of the evaporator

which was offered by the Respondent No.1. In other words,

the evaporator being offered by the Respondent No.1 was one

which had been manufactured not by the Qualified Steam

Generator Manufacturer, but by a third party, which was not

contemplated in the aforesaid condition of the Tender

Documents.

27. The importance of the above condition is manifested in

the functioning of the Steam Generator which handles High

Pressure Steam for the purpose of turning the turbines for

generating electricity. The design and engineering of the

evaporator and the boiler itself has to be such as to

withstand the very high temperatures and pressures

generated. The importance of the variable pressure

operations is of great importance as far as generation and

wastage of energy is concerned. The importance of the

evaporator in controlling pressure during operations is to

automatically regulate the flow of water, generation of

pressure and temperature of the steam to the desired level.

28. In that view of the matter, we allow the Appeal and set

aside the impugned judgment of the Division Bench of the

High Court allowing the Writ Petition filed by the

Respondent No.1. The Writ Petition filed by the Respondent

No.1, therefore, stands dismissed.

29. There shall, however, be no order as to costs.

………………………………………………J. (ALTAMAS KABIR)

New Delhi ………………………………………………J. Dated: 16.02.2012 (J. CHELAMESWAR)

NTPC LIMITED Vs ANSALDO CALDAIE BOILERS INDIA P.LD.

NTPC LIMITED Vs ANSALDO CALDAIE BOILERS INDIA P.LD.