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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 29

TH

DAY OF JANUARY, 2024

BEFORE

THE HON'BLE MR JUSTICE M.NAGAPRASANNA

WRIT PETITION NO. 28714 OF 2023 (GM-TEN)

BETWEEN:

M/S. PT. BARA DAYA ENERGI INDIA

PRIVATE LIMITED

COMPANY REGISTERED UNDER

THE COMPANIES ACT, 2013

HAVING ITS OFFICE AT NO. 106-A/9

COAL GRAND COMPLEX

ETTAYAPURAM ROAD, TUTICORIN

TAMIL NADU – 628 002

REP. BY ITS AUTHORISED SIGNATORY

MR. SHIVALINGAIAH

…PETITIONER

(BY SRI. S.BASAVARAJA, SENIOR ADVOCATE FOR

SRI. KANISHK RAVINDRAN, ADVOCATE)

AND:

1. THE STATE OF KARNATAKA

DEPARTMENT OF ENERGY

VIDHANA SOUDHA

BENGALURU – 560 001.

REPRESENTED BY ITS

ADDITIONAL CHIEF SECRETARY.

2. KARNATAKA POWER CORPORATION LIMITED

REPRESENTED BY ITS

EXECUTIVE ENGINEER RO(EM)

NO. 82, SHAKTI BHAVAN, III FLOOR

R

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RACE COURSE ROAD

BENGALURU – 560 001.

…RESPONDENTS

(BY SRI. SPOORTHY HEGDE, HCGP FOR R1

SRI. AJAY J.NANDALIKE, ADVOCATE FOR C/R-2)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226

AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO

QUASH THE REASONS SUPPLIED BY THE R2 KPTCL AS

PRODUCED IN ANNEXURE-F DATED 08/12/2023 IN NO.

AIR5A(RIN)486 FOR HOLDING THE PETITIONERS BID TO BE

NON-RESPONSIVE IS ILLEGAL, ARBITRARY AND IN CLEAR

VIOLATION OF THE LAW AND ARTICLE 14 OF THE

CONSTITUTION OF INDIA.

THIS WRIT PETITION, COMING ON FOR PRELIMINARY

HEARING, THIS DAY, THE COURT MADE THE FOLLOWING:

ORDER

The petitioner-M/s PT Bara Daya Energi India Priva te

Limited is before this Court calling in question a communication

dated 08-12-2023 issued by the 2

nd

respondent / Karnataka

Power Corporation Limited (‘the Corporation’ for sh ort)

conveying the reasons for holding the bid of the petitioner to be

non-responsive.

2. Heard Sri S.Basavaraja, learned senior counsel

appearing for the petitioner, Sri Spoorthy Hegde, learned High

Court Government Pleader appearing for respondent N o.1 and

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Sri Ajay J.Nandalike, learned counsel appearing for respondent

No.2.

3. Facts adumbrated, are as follows:-

The petitioner is a company engaged in the busines s of

import, trade and supply of coal and is a subsidiary company of

M/s PT Bara Daya Energi, Indonesia (hereinafter referred to as

‘the parent company’). The 2

nd

respondent/Corporation issues a

notice inviting tender for import and supply of 2.50 lakh MT of

coal for Yemarus Thermal Power Station of Raichur T hermal

Power Corporation Limited and Bellary Thermal Power Station &

Raichur Power Station of the Corporation in

No.A1M1B3/Imported Coal/Sep 2023 dated 19-09-2023. The

petitioner participates in the tender by submitting its bid. It is

the claim of the petitioner that it met all the sti pulated

conditions and pre-qualification requirement as nec essary in

terms of the tender notification and also remitted necessary

Earnest Money Deposit (‘EMD’) and fulfilled every o ther

condition to partake consideration in the tender. The averment

in the petition is that, the petitioner on verification of the status

of the bid on the online Karnataka Public Procurement portal, it

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came to know that its bid has been rejected. No re ason was

furnished in the portal for rejection of the bid of the petitioner.

The petitioner then submits an application on 25.11.2023 to the

Finance Director of the Corporation under the Right to

Information Act, seeking the grounds of rejection of the bid of

the petitioner. The said application did not merit any

consideration. Therefore, another representation was made on

04.12.2023 seeking the reasons for rejection. On 08-12-2023,

in response to the query raised under the Right to Information

Act, the reason for rejection of the bid of the petitioner was

divulged. The reason so rendered for rejection of the bid of the

petitioner is what has driven the petitioner to this Court in the

subject petition calling in question the aforesaid communication

dated 08.12.2023 through which reasons are communic ated.

4. The learned senior counsel Sri S. Basavaraja wo uld

vehemently contend that the petitioner had fulfille d all the

conditions that were necessary for a merited consideration at

the hands of the 2

nd

respondent/Corporation qua the bid. The

bid is rejected for the reason that the petitioner did not meet

necessary criteria in the tender document. The reas on for

rejection is for non-furnishing of bidders name at the pre-

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qualification stage and the petitioner was found to be in

contradiction of one particular clause – Clause 1.2 of the tender

document. The learned senior counsel would submit t hat the

reasons so rendered are contrary to law as every su bsidiary

company is entitled to take the experience of the p arent

company and merely because the parent company has s uffered

an order of termination, it cannot mean that the su bsidiary

company also should be ousted on such termination. He would

seek quashment of the said communication and awardi ng of

contract to the petitioner.

5. The learned counsel Sri Ajay J. Nandalike appea ring for

the 2

nd

respondent/Corporation would make an effort to refute

the submissions of the learned senior counsel for the petitioner

in defending the action of the Corporation and contend that it is

open to the Corporation to choose its path in the tender. It can

deny the experience that the company to which the petitioner is

subsidiary to be taken off and also attach the company when it

comes to the order of termination. This process can not be

termed to be arbitrary at all. He would seek dismissal of the

petition.

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6. I have given my anxious consideration to the

submissions made by the respective learned counsel and have

perused the material on record.

7. The afore-narrated facts are not in dispute. Th e only

issue that falls for consideration is, whether the reasons so

rendered in the communication dated 08-12-2023 is t enable in

law?

8. The floating of tender by the Corporation and

participation of the petitioner thereto is not in d ispute.

Rejection of the bid of the petitioner being notified in the portal

is a matter of record. No reasons are communicated at the time

of rejection of the bid, which led the petitioner to submit two

applications under the Right to Information Act see king

divulgence of reasons for rejection. This results i n the

impugned communication. Therefore, it becomes germa ne to

notice the impugned communication. It reads as follows:

“Reply to RTI application dated 4-12-2023 by Sri

Shivalingaiah.

After evaluation/scrutiny of documents uploaded/phy sical

documents furnished and relevant documentation, the tender

furnished by M/s PT Bara Daya Energi India Private Limited

was found to be non responsive to the terms and conditions

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set out in the tender document due to the following reasons

and hence found not qualified for opening the price bid .

1. Pre-qualification requirement credentials

furnished are not in the name of the bidder, hence

rejected for not meeting the criteria as per

Cl.No.1(d) of PQR criteria at Section-VII.

The bidder M/s PT Bara Daya Energi India Private

Limited, has furnished the Pre-qualification requirement

portion of documents in the name of M/s PT Bara Day a

Energi Indonesia.

Whereas, the bidder M/s PT Bara Daya Energi India

Private Limited, has furnished the remaining portion of

the technical bid documents in the name of M/s PT Bara

Daya Energi India Private Limited., viz., Applicant

details, Notarized affidavit signed by the bidder, Tender

form which also included commitment of validity of

tender, Notarized affidavit on border sharing company,

etc.

The bidder M/s PT Bara Daya Energi India Private

Limited has furnished credentials of both M/s PT Ba ra

Daya Energi Indonesia, and M/s PT Bara Daya Energi

India Private Limited. Cl.No.1(d) of PQR criteria at

Section-VII of the tender document states that the

tenderer shall have pre-qualification requirement i n

his/its name. Here, the bidder M/s PT Bara Daya Energi

India Private Limited has not furnished PQR in its name

and hence his bid was not considered.

The Cl.No.1(d) of PQR criteria at Section VII states that

the tenderer shall have pre-qualification requirement in

his/its name. Here, the bidder M/s PT Bara Daya Energi

India Private Limited has not furnished PQR in its name

and hence his bid was not considered.

The TSC also expressed that there is ambiguity abou t

who the correct and responsible bidder is, and whic h

also would lead to contractual, implementation/

commercial issues later, which cannot be accepted.

2. For not meeting the criteria as per ITT Clause

No.1.2 and Section XIX of the tender document.

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The mail dated 21-09-2023 ( Annexure-1) received

from MD, KPCL was discussed with the TSC members

who advised the TIA to obtain clarification from GSECL

(Gujarat) to confirm that if M/s PT Bara Daya Energ i

India Private Limited or PT Bara Daya Energi, Jakarta,

Indonesia has been subjected to any of the conditions in

GSECL as per the conditions of KPCL at any of the

Sl.Nos.1a, 1b, 1c and 2 of KPCL’s format at Section XIX.

Accoridngly, the TIA had contacted Chief Engineer

(Fuels), GSECL and enquired whether GSECL has

blacklisted or terminated the agency PT Bara Daya

Energi Indonesia in their imported coal contract. I n

response, it was informed that GSECL has terminated

their imported coal contract with PT Bara Daya Energi,

Indonesia, but not blacklisted it.

The TIA communicated to the TSC members that CE

(Fuels), GSECL has informed that GSECL has terminated

the contract. The TSC advised that since the PQR

credentials furnished by the bidder is of PT Bara Daya

Energi, Indonesia who has been terminated by GSECL

would have to be rejected now in KPCL’s tender as p er

the ITT Cl.No.1.2 and Section XIX of the tender

document.

Note:The Screenshot of the Evaluator(s) Remarks on reas ons

for rejections given in KPP Portal is enclosed herewith as

Annexure-2 for reference i.e., while rejecting the

technical bid of M/s PT Bara Daya Energi India Private

Limited.”

The reason so rendered would indicate that the tend er of the

petitioner was non-responsive. The reason is the petitioner is a

subsidiary of M/s PT Bara Daya Energi, Indonesia an d has

submitted the experience credentials attached to M/s PT Bara

Daya Energi Private Limited, Indonesia to be taken note of as

the experience of the petitioner as well. It is indicated that at

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the pre-qualification stage, it is necessary that the tenderer

must have the requirement in its name. Since it wa s not

found, it is rejected in terms of Clause 1(d) of the tender.

9. The other reason is, not meeting Clause 1.2 and

Section XIX of the tender document. The reason is that, M/s PT

Bara Daya Energi, Jakarta, Indonesia had not been b lacklisted

but terminated by Gujarat State Electricity Corporation Limited

(‘GSECL’ for short) and on such termination, the petitioner also

would suffer disqualification. Therefore, the clauses that the

communication invokes become germane to be noticed. The

first reason for rejection is invoking Clause 1(d) at Section VII

of the Tender document. It reads as follows:

“SECTION VII: QUALIFICATION CRITERIA (PRE-

QUALIFYING REQUIREMENT – PQR)

1. PRE-QUALIFYING REQUIREMENTS (PQR)

The tenderer shall:

a.(i) possess experience in its name of importing coal/ coke

from outside India OR have exported coal/coke to India

and shall have imported into India/exported from

outside India into India at least 2 lakh MT (Two lakh MT)

of coal/coke (single or multiple orders) during any one

financial year in the last three years, i.e., 2020-21,

2021-22 and 2022-23 and shall furnish relevant

authenticated documents to establish proof of fulfillment

as per format at Section XII – Schedule of

Experience, duly filled, signed with seal of the

Company.

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(ii) in its name should have during the last three preceding

years, i.e., 2020-21, 2021-22 and 2022-23 achieved an

average annual financial turnover of not less than

Rs.314 Crores (Rupees Three hundred and Fourteen

Crores) and shall furnish a copy of Audited Balance

Sheets and Profit & Loss Account Statements duly

certified by the chartered accountant along with a

Certificate as per format in Section – XV.

… … …

d. have pre-qualification requirement in his / its name.”

Clause (1) supra deals with pre-qualifying requirements. It

demands that the tenderer shall possess experience in its name

of importing coal from outside India for the preced ing three

years and should have achieved certain financial turnover for

which purpose a document shall be furnished. The se cond

reason for rejection is invoking Clause 1.2. It reads as follows:

“1. Eligible Tenderers

… … …

1.2 The tender shall be rejected, if the tender:

i) a. is not in the prescribed form

b. is not accompanied by the requisite EMD

c. is not properly signed by the tenderer

d. is not from any blacklisted tenderer.

e. is received after the expiry of the due date and time.

f. is from a bidder, who is directly or indirectly connected

with Government Service or in KPCL/RPCL or of a loc al

authority.

g. is not in conformity with KPCL’s requirement as per the

terms and conditions of the tender.

h. whose validity period is less than that specified in the

tender document.

i. is incomplete and/or incorrectly submitted

j. is conditional

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k. is from any firm or agency debarred in terms of Rules

26A, 26B & 26C of KTPP as Amended vide Finance

Department Notification No.FD 884 Exp-12/2019,

Bangalore dated 7

th

May 2020 will be followed as per

debarment of tender as defined under GCC Cl.No.1.61.

The tender shall be rejected on any other ground/s or reason/s

not covered above but detrimental to the interest of KPCL and

comes to the knowledge/notice of KPCL at any stage during

tender process without assigning any reasons for the same to

the tenderer.

… … …”

Clause 1.2 (d) mandates whether the tenderer was no t black-

listed or the bidder had earlier been blacklisted. The format

prescribed is as follows:

“SECTION XIX – NOTARIZED AFFIDAVIT FORMAT

(

`100 Stamp Paper)

The Superintending Engineer (Mines)

Karnataka Power Corporation Limited,

82, Shakthi Bhavan, III Floor,

Race Course Road, Bangalore-560 001.

Dear Sir,

Sub: Tender notification No.A1M1B3/Imported clal/Sep

2023 dated 19-09-2023 for import and supply of 2.50

lakh MT of coal.

1. I/We hereby declare that, as required under ITT Cl.No.

1.12 (ii) of the above cited tender in respect of

Tender/Contract with KPCL/RPCL/Government or other

utility in INDIA during the past five years, i.e., 2018-19,

2019-20, 2020-21, 2021-22 and 2022-23 and up to the

date of submission of bid,

a. Our EMD has not been forfeited.

b. None of our contracts have been terminated/

foreclosed on account of our default in KPCL/

RPCL or elsewhere.

c. We have not been anytime blacklisted/subject to

procedure initiated for blacklisting for

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participating in the tenders issued by KPCL or

Government or Central/State PSUs or any other

utility in India.

2. As on the date of submission of bid, we have not been

debarred/subject to procedure initiated for debarme nt

for participating in the tenders issued by KPCL or

State/Central Governments or State/Central PSUs or any

other utility in India (refer ITT Cl.No.1.12 (iii).

Signature & Seal of the bidder.”

The format requires the tenderer to indicate that none of its

contracts have been terminated/foreclosed on accoun t of

default in the Corporation or elsewhere. If the te nder

conditions that are invoked to render the bid of the petitioner

as non-responsive are considered on the reasons so rendered,

they would on their face become illegal. There is a dichotomy in

the reasons so rendered by the Corporation.

10. The Corporation would indicate that in the pre -

qualification stage, it is necessary for the tenderer to have the

experience of its own and cannot carry or piggyback itself to

the experience of any other company to which it is subsidiary.

If this is the reason to deny the tender of the petitioner, the

other reason runs contrary to this. The petitioner has not been

blacklisted in any company. The company to which th e

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petitioner is subsidiary is blacklisted by the GSECL and the

contract of theirs is terminated. In one breath, the Corporation

says that the experience of the parent company to w hich the

present petitioner is subsidiary cannot be taken an d in the

other breath it says if the parent company to which the

petitioner is subsidiary has suffered a termination or

blacklisting, the tender would be held non-responsive. It is this

reason that cannot be accepted as it projects a hig hhanded

approach which would churn the legal stomach.

11. It is too well settled principle of law that e xperience

gained by the company to which any company is subsi diary can

be taken into consideration for the purpose of expe rience or

eligibility of a tenderer, be it the company or its subsidiary.

Insofar as the penal provisions are concerned, the subsidiary

has nothing to do with the termination or blacklisting of any

company as the penal provisions are invoked qua the said

company and not every of its subsidiary. Therefore, if M/s PT

Bara Daya Energi, Indonesia to which the Indian com ponent is

a subsidiary has suffered termination or blacklisting as the case

would be, that cannot be projected as the reason fo r

disqualification of the present tenderer who is a subsidiary of

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the said company. Therefore, the very reason so ren dered in

the communication runs contrary to law. The view of mine in

this regard as to whether the experience gained by the parent

company can be taken advantage of by the subsidiary company

is fortified by several judgments rendered by the Apex Court

and other High Courts from time to time.

12. The Apex Court in the case of CONSORTIUM OF

TITAGARH FIREMA ADLER S.P.A. v. NAGPUR METRO RAIL

CORPORATION LIMITED

1

has held as follows:

“30. Before we proceed to deal with the concept of

single entity and the discretion used by the 1st respondent, we

intend to deal with role of the court when the eligibility criteria

is required to be scanned and perceived by the cour t.

In Montecarlo Ltd. [Montecarlo Ltd. v. NTPC Ltd., (2016) 15

SCC 272], the Court referred to Tata Cellular [Tata

Cellular v. Union of India, (1994) 6 SCC 651] wherein certain

principles, namely, the modern trend pointing to ju dicial

restraint on administrative action; the role of the court is only

to review the manner in which the decision has been taken;

the lack of expertise on the part of the court to correct the

administrative decision; the conferment of freedom of contract

on the government which recognises a fair play in the joints as

a necessary concomitant for an administrative body

functioning in an administrative sphere or quasi-administrative

sphere, were laid down. It was also stated in the said case that

the administrative decision must not only be tested by the

application of Wednesbury [Associated Provincial Pi cture

Houses Ltd. v. Wednesbury Corpn., (1948) 1 KB 223 ( CA)]

principle of reasonableness but also must be free f rom

arbitrariness not affected by bias or actuated by mala fides.

The two-Judge Bench took note of the fact that in J agdish

1

(2017) 7 SCC 486

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Mandal [Jagdish Mandal v. State of Orissa, (2007) 1 4 SCC

517] it has been held that, (SCC p. 531, para 22) i f the

decision relating to award of contract is bona fide and is in

public interest, courts will not, in exercise of power of judicial

review, interfere even if a procedural aberration or error in

assessment or prejudice to a tenderer, is made out. The

decisions in Master Marine Services (P) Ltd. v. Met calfe &

Hodgkinson (P) Ltd. [Master Marine Services (P)

Ltd. v. Metcalfe & Hodgkinson (P) Ltd., (2005) 6 SC C 138]

, B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd. [B.S.N.

Joshi & Sons Ltd. v. Nair Coal Services Ltd., (2006) 11 SCC

548] and Michigan Rubber (India) Ltd. [Michigan Rub ber

(India) Ltd. v. State of Karnataka, (2012) 8 SCC 21 6] have

been referred to. The Court quoted a passage from A fcons

Infrastructure Ltd. [Afcons Infrastructure Ltd. v. Nagpur Metro

Rail Corpn. Ltd., (2016) 16 SCC 818] wherein the pr inciple

that interpretation placed to appreciate the tender

requirements and to interpret the documents by owne r or

employer unless mala fide or perverse in understand ing or

appreciation is reflected, the constitutional courts should not

interfere. It has also been observed in the said case that it is

possible that the owner or employer of a project may give an

interpretation to the tender documents that is not acceptable

to the constitutional courts but that by itself is not a reason for

interfering with the interpretation given. After referring to the

said authority, it has been ruled thus: (Montecarlo Ltd.

case [Montecarlo Ltd. v. NTPC Ltd., (2016) 15 SCC 272], SCC

p. 288, para 26)

“26. We respectfully concur with the aforesaid

statement of law. We have reasons to do so. In the

present scenario, tenders are floated and offers ar e

invited for highly complex technical subjects. It requires

understanding and appreciation of the nature of wor k

and the purpose it is going to serve. It is common

knowledge in the competitive commercial field that

technical bids pursuant to the notice inviting tenders are

scrutinised by the technical experts and sometimes

third-party assistance from those unconnected with the

owner's organisation is taken. This ensures objectivity.

Bidder's expertise and technical capability and capacity

must be assessed by the experts. In the matters of

financial assessment, consultants are appointed. It is

because to check and ascertain that technical ability and

the financial feasibility have sanguinity and are workable

and realistic. There is a multi-prong complex approach;

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highly technical in nature. The tenders where publi c

largesse is put to auction stand on a different

compartment. Tender with which we are concerned, is

not comparable to any scheme for allotment. This arena

which we have referred requires technical expertise .

Parameters applied are different. Its aim is to achieve

high degree of perfection in execution and adherence to

the time schedule. But, that does not mean, these

tenders will escape scrutiny of judicial review. Exercise

of power of judicial review would be called for if the

approach is arbitrary or mala fide or procedure adopted

is meant to favour one. The decision-making process

should clearly show that the said maladies are kept at

bay. But where a decision is taken that is manifestly in

consonance with the language of the tender document

or subserves the purpose for which the tender is floated,

the court should follow the principle of restraint.

Technical evaluation or comparison by the court wou ld

be impermissible. The principle that is applied to scan

and understand an ordinary instrument relatable to

contract in other spheres has to be treated differently

than interpreting and appreciating tender documents

relating to technical works and projects requiring special

skills. The owner should be allowed to carry out th e

purpose and there has to be allowance of free play in

the joints.”

… … …

35. Respondent 2, as is evident, is a company

owned by the People's Republic of China and, theref ore,

it comes within the ambit of Clause 4.1 of the bid

document as a government-owned entity. We have

already reproduced the said clause in earlier part of the

judgment. As perceived by the 1st respondent, a sin gle

entity can bid for itself and it can consist of its

constituents which are wholly-owned subsidiaries an d

they may have experience in relation to the project .

That apart, as is understood by the said respondent ,

where the singular or unified entity claims that as a

consequence of merger, all the subsidiaries form a

homogenous pool under its immediate control in resp ect

of rights, liabilities, assets and obligations, the integrity

of the singular entity as owning such rights, asset s and

liabilities cannot be ignored and must be given eff ect.

While judging the eligibility criteria of the secon d

respondent, the 1st respondent has scanned Article 164

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of the Articles of Association of Respondent 2 whic h are

submitted along with the bid from which it is evinc ible

that the Board of Directors of Respondent 2 has bee n

entrusted with the authority and responsibility to

discharge all necessary and essential decisions and

functions for the subsidiaries as well. According t o the

1st respondent, the term “government-owned entity”

would include a government-owned entity and its

subsidiaries and there can be no matter of doubt th at

the identity of the entities as belonging to the

Government when established can be treated as a

government-owned entity and the experience claimed

by the parent of the subsidiaries can be taken into

consideration.

… … …

38. As is noticeable, there is material on record

that Respondent 2, a government company, is the own er

of the subsidiary companies and subsidiary companie s

have experience. The 1st respondent, as it appears, has

applied its commercial wisdom in the understanding and

interpretation which has been given the concurrence by

the Committee concerned and the financing bank. We

are disposed to think that the concept of “governme nt-

owned entity” cannot be conferred a narrow

construction. It would include its subsidiaries sub ject to

the satisfaction of the owner. There need not be a

formation of a joint venture or a consortium. In th e

obtaining fact situation, the interpretation placed by the

1st respondent in the absence of any kind of perver sity,

bias or mala fide should not be interfered with in

exercise of power of judicial review. Decision take n by

the 1st respondent, as is perceptible, is keeping i n view

the commercial wisdom and the expertise and it is i n no

way against the public interest. Therefore, we conc ur

with the view expressed by the High Court.”

(Emphasis supplied)

Long before the Apex Court rendering the aforementi oned

judgment, the High Court of Hyderabad (now Telangan a), in

the case of PRASAD SUSHEE JOINT VENTURE VS. THE

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SINGARENI COLLIERIES COMPANY LIMITED

2

considering

an identical issue has held as follows:

“12. From the above rival contentions, the questions

that fall for consideration are : -

(1) Whether respondent Nos. 1 and 2 are justified in

treating the Holding Company as the bidder, while

considering the bid submitted by the 3

rd

respondent?

and

(2) Whether respondent Nos. 1 and 2 are justified in

taking into consideration the experience and

financial capacity of the Holding Company, while

assessing the bid of the 3

rd

respondent?

... … …

16. Experience and financial capacity of the Holding

Company of the 3

rd

respondent is not in dispute, so also that of

the Joint Venture of the petitioner Company. The as pect of

maintainability of the writ petition by the Joint Venture of M/s.

Prasad & Company (Project Works) Limited can be res olved in

favour of the petitioner, inasmuch as the Joint Ventures are

permitted to participate in the bids and the experience and

financial capacity of the Constituents of the Joint Ventures can

also be taken into consideration for assessing the eligibility.

The petitioner, which is a Joint Venture of the said Bidder, was,

therefore, justified in prosecuting the present writ petition, as

the bidder was one of its Constituents and duly authorised and

empowered by the Joint Venture.

… … …

20. In support of his contention, the learned Senior

Counsel placed strong reliance upon a decision of the Honble

Supreme Court in BALWANT RAI SALUJA v. AIR INDIA LT D.,

and paras-66 to 71 and 74 of the said judgment, whi ch are

relevant, are extracted hereunder, for the sake of convenience

and ready reference:

66. In the present set of appeals, it is an admitted

fact that the HCI is a wholly owned subsidiary of the Air

India. It has been urged by the learned Counsel for the

2

2015 SCC OnLine Hyd 623

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Appellants that this Court should pierce the veil and

declare that the HCI is a sham and a camouflage.

Therefore, the liability regarding the Appellants herein

would fall upon the Air India, not the HCI. In this

regard, it would be pertinent to elaborate upon the

concept of a subsidiary company and the principle o f

lifting the corporate veil.

67. The Companies Act in India and all over the

world have statutorily recognized subsidiary company as

a separate legal entity. Section 2(47) of the Companies

Act, 1956 (for short “the Act, 1956”) defines ‘subsidiary

company’ or ‘subsidiary’, to mean a subsidiary company

within the meaning of Section 4 of the Act, 1956. F or

the purpose of the Act, 1956, a company shall be,

subject to the provisions of Sub-section (3) of Section 4,

of the Act, 1956, deemed to be subsidiary of anothe r.

Clause (1) of Section 4 of the Act, 1956 further imposes

certain preconditions for a company to be a subsidiary of

another. The other such company must exercise contr ol

over the composition of the Board of Directors of the

subsidiary company, and have a controlling interest of

over 50% of the equity shares and voting rights of the

given subsidiary company.

68. In a concurring judgment by K.S.P.

Radhakrishnan, J., in the case of Vodafone International

Holdings BV v. Union of India : (2012) 6 SCC 613, the

following was observed:

Holding company and subsidiary company.

….

257. The legal relationship between a

holding company and WOS is that they are two

distinct legal persons and the holding company

does not own the assets of the subsidiary and, in

law, the management of the business of the

subsidiary also vests in its Board of Directors….

258. Holding company, of course, if the

subsidiary is a WOS, may appoint or remove

any Director if it so desires by a resolution in

the general body meeting of the subsidiary.

Holding companies and subsidiaries can be

considered as single economic entity and

consolidated balance sheet is the accounting

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relationship between the holding company

and subsidiary company, which shows the

status of the entire business enterprises.

Shares of stock in the subsidiary company are

held as assets on the books of the parent

company and can be issued as collateral for

additional debt financing. Holding company and

subsidiary company are, however, considered as

separate legal entities, and subsidiary is allowed

decentralized management. Each subsidiary can

reform its own management personnel and

holding company may also provide expert,

efficient and competent services for the benefit of

the subsidiaries.

69. The Vodafone case (supra), further made

reference to a decision of the US Supreme Court

in United States v. Best foods [141 L Ed 2d 43 : 524 US

51 (1998)]. In that case, the US Supreme Court

explained that as a general principle of corporate law a

parent corporation is not liable for the acts of it s

subsidiary. The US Supreme Court went on to

explain that corporate veil can be pierced and the

parent company can be held liable for the conduct

of its subsidiary, only if it is shown that the

corporal form is misused to accomplish certain

wrongful purposes, and further that the parent

company is directly a participant in the wrong

complained of. Mere ownership, parental control,

management, etc. of a subsidiary was held not to

be sufficient to pierce the status of their

relationship and, to hold parent company liable.

70. The doctrine of ‘piercing the corporate

veil’ stands as an exception to the principle that a

company is a legal entity separate and distinct

from its shareholders with its own legal rights and

obligations. It seeks to disregard the separate

personality of the company and attribute the acts

of the company to those who are allegedly in

direct control of its operation. The starting point of

this doctrine was discussed in the celebrated case

of Salomon v. A. Salomon and Co. Ltd. (1897) AC 22.

Lord Halsbury LC (paragraphs 31-33), negating the

applicability of this doctrine to the facts of the case,

stated that:

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…a company must be treated like any other

independent person with its rights and liabilities

legally appropriate to itself…, whatever may have

been the ideas or schemes of those who brought

it into existence.

Most of the cases subsequent to

the Salomon case (supra), attributed the doctrine

of piercing the veil to the fact that the company

was a ‘sham’ or a ‘facade’. However, there was

yet to be any clarity on applicability of the said

doctrine.

71. In recent times, the law has been crystallized

around the six principles formulated by Munby J. in Ben

Hashem v. Ali Shayif (2008) EWHC 2380 (Fam). The si x

principles, as found at paragraphs 159-164 of the case

are as follows-(i) ownership and control of a company

were not enough to justify piercing the corporate veil;

(ii) the Court cannot pierce the corporate veil, even in

the absence of third party interests in the company ,

merely because it is thought to be necessary in the

interests of justice; (iii) the corporate veil can be pierced

only if there is some impropriety; (iv) the impropriety in

question must be linked to the use of the company

structure to avoid or conceal liability; (v) to justify

piercing the corporate veil, there must be both control of

the company by the wrongdoer(s) and impropriety, th at

is use or misuse of the company by them as a device or

facade to conceal their wrongdoing; and (vi) the

company may be a ‘facade’ even though it was not

originally incorporated with any deceptive intent,

provided that it is being used for the purpose of

deception at the time of the relevant transactions. The

Court would, however, pierce the corporate veil only so

far as it was necessary in order to provide a remedy for

the particular wrong which those controlling the

company had done.

… ….

74. Thus, on relying upon the aforesaid decisions,

the doctrine of piercing the veil allows the Court to

disregard the separate legal personality of a company

and impose liability upon the persons exercising re al

control over the said company. However, this principle

has been and should be applied in a restrictive manner,

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that is, only in scenarios wherein it is evident that the

company was a mere camouflage or sham deliberately

created by the persons exercising control over the said

company for the purpose of avoiding liability. The intent

of piercing the veil must be such that would seek t o

remedy a wrong done by the persons controlling the

company. The application would thus depend upon the

peculiar facts and circumstances of each case.

… … …

22. An unreported decision of Delhi High Court

in ROHDE AND SCHWARZ GMBH AND CO.KG v. AIRPORT

AUTHORITY OF INDIA is also relied upon, where the H olding

Company was claiming experience of its subsidiary as its own

and a Division Bench of the said Court negatived th e said

contention.

… … …

25. The said ratio is also reiterated in another

decision of the Hon’ble Supreme Court in JAGDISH

MANDAL v. STATE OF ORISSA Apart from that, strong

reliance is placed upon another decision of the Ape x

Court in NEW HORIZONS LTD. v. UNION OF INDIA,

paras-23 and 24, by the learned senior counsel for the

3

rd

respondent also, which are relevant, are extracted

hereunder, for the sake of convenience and ready

reference:

23. Even if it be assumed that the

requirement regarding experience as set out in the

advertisement dated 22-4-1993 inviting tenders is

a condition about eligibility for consideration of

the tender, though we find no basis for the same,

the said requirement regarding experience cannot

be construed to mean that the said experience

should be of the tenderer in his name only. It is

possible to visualise a situation where a person

having past experience has entered into a

partnership and the tender has been submitted in

the name of the partnership firm which may not

have any past experience in its own name. That

does not mean that the earlier experience of one of the

partners of the firm cannot be taken into consideration.

Similarly, a company incorporated under the Compani es

Act having past experience may undergo reorganisation

as a result of merger or amalgamation with another

company which may have no such past experience and

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the tender is submitted in the name of the reorganised

company. It could not be the purport of the requirement

about experience that the experience of the company

which has merged into the reorganised company canno t

be taken into consideration because the tender has not

been submitted in its name and has been submitted i n

the name of the reorganised company which does not

have experience in its name. Conversely there may be a

split in a company and persons looking after a particular

field of the business of the company form a new

company after leaving it. The new company, though

having persons with experience in the field, has no

experience in its name while the original company

having experience in its name lacks persons with

experience. The requirement regarding experience do es

not mean that the offer of the original company must be

considered because it has experience in its name though

it does not have experienced persons with it and ignore

the offer of the new company because it does not have

experience in its name though it has persons having

experience in the field. While considering the

requirement regarding experience it has to be

home in mind that the said requirement is

contained in a document inviting offers for a

commercial transaction. The terms and conditions

of such a document have to be construed from the

standpoint of a prudent businessman. When a

businessman enters into a contract whereunder

some work is to be performed he seeks to assure

himself about the credentials of the person who is

to be entrusted with the performance of the work.

Such credentials are to be examined from a

commercial point of view which means that if the

contract is to be entered with a company he will

look into the background of the company and the

persons who are in control of the same and their

capacity to execute tile work. He would go not by

the name of the company but by the persons

behind the company. While keeping in view the past

experience he would also take note of the present state

of affairs and the equipment and resources at the

disposal of the company. The same has to be the

approach of the authorities while considering a tender

received in response to the advertisement issued on 22-

4-1993. This would require that first the terms of the

offer must be examined and if they are found

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satisfactory the next step would be to consider the

credentials of the tenderer and his ability to perform the

work to be entrusted. For judging the credentials past

experience will have to be considered along with th e

present state of equipment and resources available with

the tenderer. Past experience may not be of much he lp

if the machinery arid equipment is outdated. Conversely

lack of experience may be made good by improved

technology arid better equipment. The advertisement

dated 22-4-1993 when read with the notice for inviting

tenders dated 26-4-1993 does not preclude adoption of

this course of action. If the Tender Evaluation

Committee had adopted this approach and had

examined the tender of NHL in this perspective it would

have found that NHL, being a joint venture, has access

to the benefit of the resources and strength of its

parent/owning companies as well as to the experience in

database management, sales and publishing of its

parent group companies because after reorganisation of

the Company in 1992 60% of the share capital of NHL is

owned by Indian group of companies namely, TPI, LMI ,

WML, etc. and Mr. Aroon Purie and 40% of the share

capital is owned by IIPL a wholly-owned subsidiary of

Singapore Telecom which was established in 1967 and is

having long experience in publishing the Singapore

telephone directory with yellow pages and other

directories. Moreover in the tender it was specifically

stated that IIPL will be providing its unique integrated

directory management system along with the expertis e

of its managers and that the managers will be actively

involved in the project both out of Singapore and

resident in India.

24. The expression “joint venture” is more

frequently used in the United States. It connotes a legal

entity in the nature of a partnership engaged in the joint

undertaking of a particular transaction for mutual profit

or an association of persons or companies jointly

undertaking some commercial enterprise wherein all

contribute assets and share risks. It requires a

community of interest in the performance of the

subject-matter, a right to direct and govern the policy in

connection therewith, and duty, which may be altere d

by agreement, to share both in profit and losses.

(Black's Law Dictionary, 6

th

Edn., p. 839) According to

Words and Phrases, Permanent Edn., a joint venture is

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an association of two or more persons to carry out a

single business enterprise for profit (p. 117, Vol. 23). A

joint venture can take the form of a corporation wherein

two or more persons or companies may join together. A

joint venture corporation has been defined as a

corporation which has joined with other individuals or

corporations within the corporate framework in some

specific undertaking commonly found in oil, chemica ls,

electronic, atomic fields. (Black's Law Dictionary,

6

th

Edn., p. 342) Joint venture companies are now being

increasingly formed in relation to projects requiring

inflow of foreign capital or technical expertise in the fast

developing countries in East Asia, viz., Japan, Sou th

Korea, Taiwan, China, etc. [See Jacques Buhart : Joint

Ventures in East Asia Legal Issues (1991).] There h as

been similar growth of joint ventures in our countr y

wherein foreign companies join with Indian counterparts

and contribute towards capital and technical know-how

for the success of the venture. The High Court has taken

note of this connotation of the expression “joint

venture”. But the High Court has held that NHL is not a

joint venture and that there is only a certain amount of

equity participation by a foreign company in it. We are

unable to agree with the said view of the High Court.

… … …

29. The learned Senior Counsel would also submit that

the Special Resolution passed by the Holding Compan y

specifically states that the 3

rd

respondent is their fully owned

subsidiary and authorised the said subsidiary to submit all the

documents for completeness of the tender and for ot her

requirements related thereto and also empowered the

3

rd

respondent with a Power of Attorney on behalf of t he

Holding Company, under which the Holding Company ha s

delegated all its powers to the 3

rd

respondent and declared

that the Holding Company will be liable for all acts or deeds

performed by the 3

rd

respondent with reference to the NIT and

the said power would remain irrevocable until discharge of the

above contract under the NIT dated 12.03.2015. He, therefore,

submits that there cannot be any doubt of the Holdi ng

Company taking every responsibility with regard to the tender

submitted by the 3

rd

respondent in terms of the power

bestowed on it by the Holding Company. On the groun d of

public interest also, the learned Senior Counsel would urge the

Court that no interference is called for, as respondent Nos. 1

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and 2 will have to pay additional Rs. 42.00 Crores, if they were

to consider the bid of the petitioner.

30. In reply thereto, Sri. D. Prakash Reddy, learned

Senior Counsel appearing for the petitioner, would contend

that the legal position with regard to Lifting of Corporate Veil is

now settled by the latest decision of the Honble Supreme Court

in BALWANT RAI SALUJA's case (1 supra), wherein the

Supreme Court itself held that the permissibility to lift the

Corporate Veil has a limited application. He also submits that

the Special Resolution and the Power of Attorney relied upon

by the 3

rd

respondent is not in accordance with the

requirements of the NIT and, to the said effect, the learned

Senior Counsel relied upon an un-reported decision of the

Delhi High Court in AIRPORT AUTHORITY OF INDIA's ca se (2

supra).

… … …

Discussion:

32. It would, thus, be apparent from the contentions

that the permissibility to examine Corporate Identity of the

bidder is itself in controversy. While the petitioner contends

that it is impermissible to pierce the Corporate Veil, as the

principle of piercing the Corporate Veil has a limited application

whereas, Sri. C.V. Mohan Reddy, learned Senior Coun sel for

the 3

rd

respondent, contends that in the present day scenario

of Joint Ventures, it is clearly permissible to look into the

Corporate structure so as to satisfy the capacity of the bidder.

He would submit that the ratio laid down in NEW HOR IZONS

LTD.'s case (5 supra) is not referred to in BALWANT RAI

SALUJA's case (1 supra) and, as such, it cannot be said that

the decision in NEW HORIZONS LTD.'s case (5 supra) is not

approved by the said later decision.

33. In DHN Food Distributors Ltd. v. London

Borough of Tower Hamlets12 the Court of Appeal was

dealing with three companies, out of which one was the

holding company and the other two were its

subsidiaries. After quoting the views of Prof. Gowe r that

“there is evidence of a general tendency to ignore the

separate legal entities of various companies within a

group, and to look instead at the economic entity o f the

whole group” Lord Denning, M.R. has observed:“This

group is virtually the same as a partnership in whi ch all

the three companies are partners. They should not b e

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treated separately so as to be defeated on a techni cal

point.” (p. 467) In the same case, Goff, L.J. has

said:“[T]his is a case in which one is entitled to look at

the realities of the situation and to pierce the co rporate

veil.” (p.468) The observations of Shaw, L.J. were t o the

following effect:

“Why then should this relationship be

ignored in a situation in which to do so does not

prevent abuse but would on the contrary result in

what appears to be a denial of justice?” (p.473)

34. In this case the holding company was held

entitled to compensation for disturbance from premi ses

in its occupation on account of compulsory purchase of

the property which belonged to one of the subsidiar ies

and in which the holding company had no interest. T his

was a case in which the court lifted the corporate veil so

as to confer a benefit on the company.

… … …

37. In State of U.P v. Renusagar Power Co.14 this Court

lifted the veil to hold that Hindalco, the holding company, and

Renusagar Power Co., its subsidiary, should be treated as one

concern and the power plant of Renusagar must be tr eated as

the own source of generation of Hindalco and Hindalco would

be liable to payment of electricity duty on that basis. It was

observed : (SCC p. 94, para 66)

“It is high time to reiterate that in the expanding

of horizon of modem jurisprudence, lifting of corporate

veil is permissible. Its frontiers are unlimited. It must,

however, depend primarily on the realities of the

situation. … The horizon of the doctrine of lifting of

corporate veil is expanding.”

38. Similarly, in STATE OF U.P. v. RENU SAGAR

POWER PROJECT CO., wherein the Honble Supreme

Court held as follows:

It is hightime to reiterate that in the

expanding of horizon of modern jurisprudence,

lifting of corporate veil is permissible. Its frontiers

are unlimited. It must, however, depend primarily

on the realities of the situation. The horizon of the

doctine of lifting of corporate veil is expanding.

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It was further stated The veil on corporate

personality even though not lifted sometimes, is

becoming more and more transparent in modern

company jurisprudence.

Therefore, it was held that -

..where concerns are closely connected with

each other and the affairs of one are controlled by

the other, the Corporate Veil must be lifted and

both the concerns should be treated as one.

39. The aforesaid view also endorsed the earlier

view of the Honble Supreme Court in LIFE INSURANCE

CORPORATION OF INDIA v. ESCORTS LTD., wherein it

was held as follows : Generally and broadly speakin g, it

may be said that the corporate veil may be lifted w here

a statute itself contemplates lifting the veil, or fraud or

improper conduct is intended to be prevented, or a

taxing statute or a beneficent statute is sought to be

evaded or where associated companies are inextricab ly

connected as to be, in reality, part of one concern .

… … …

42. In NEW HORIZONS LTD.'s case (5 supra), the

Honble Supreme Court interpreted the concept of

requirement of experience of the tenderer, in his n ame,

does not mean that the experience should be of the

tenderer in his name only and gave various instance s,

such as Partnerships and Joint Venture Firms, for th e

purpose of community of interest in the performance of

the subject matter and it recognised similar growin g

Joint Ventures in our country, where foreign compani es

joined the Indian partners towards capital and tech nical

know-how for the success of the venture.”

(Emphasis supplied)

In the light of the law laid down by the Apex Court and that of

the High Court of Hyderabad (supra), what would unmistakably

emerge is, the Corporation could not have held the tender of

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the petitioner as non-responsive, on the reason so rendered, in

the communication. Therefore, I deem it appropriate to notice

that any tenderer/subsidiary company which submits its bid on

the strength of eligibility/experience of the parent company to

which it is subsidiary cannot be rejected on the ground that it

does not have enough experience, as a subsidiary ca n

piggyback to the company to which it is subsidiary.

13. When it comes to penal provisions, unless the

tenderer has suffered termination or blacklisting its tender

cannot be held to be non-responsive on the score th at the

parent company to which the tenderer is subsidiary has

suffered blacklisting or termination. The learned counsel for the

respondent submits that since the tender has not be en taken

forward or a tender process is not carried forward, no right of

the petitioner is taken away. In this view of the matter, I deem

it appropriate to observe that if and when tender p rocess

commences and the petitioner becomes a tenderer, th e reasons

now projected cannot be projected as the reason for holding

the tender of the petitioner as non-responsive.

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14. For the aforesaid reasons, I pass the followin g:

O R D E R

(i)

Writ petition is allowed.

(ii)

The reasons communicated to the petitioner by

communication dated 8-12-2023 issued by the 2

nd

respondent stand quashed.

(iii)

It is declared that the petitioner is entitled to all

consequential benefits that flow from quashment of

reasons accompanying communication dated

8.12.2023 as observed in the course of the order.

Sd/-

JUDGE

nvj

List No.: 1 Sl No.: 33

CT:SS