Thursday, 24 March 2016

How doctrine of severability is applicable for interpretation of contract?

Explaining the doctrine of severability contained in Section
57 of Indian Contract Act, 1872, in B.O.I. Finance Ltd., v.
Custodian and others (1997) 10 SCC 488, a three Judge
 Bench of this Court has
held that question of severance arises only in the case of a
composite agreement consisting of reciprocal promises. In Shin
Satellite Public Co. Ltd. V. Jain Studios Ltd.(2006) 2 SCC 628, this Court has observed that the proper test for deciding 
validity or otherwise of
an order or agreement is “substantial severability” and not
“textual divisibility”. It was further held by this Court that it is
the duty of the Court to sever and separate trivial and technical
parts by retaining the main or substantial part and by giving
effect to the latter if it is legal, lawful and otherwise enforceable.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 9151-9152 OF 2015
(Arising out of S.L.P. (Civil) Nos. 34129-34130 of 2014)
Elektron Lighting Systems …..Appellants
Pvt. Ltd. and Anr.
Versus
Shah Investments Financial Developments
and Consultants Pvt. Ltd and Ors. Etc. .….Respondents
Dated;November 20, 2015.
 Citation: 2016(1)ABR190, 2015XII AD (S.C.) 289, 2016 1 AWC671SC, 2015(4)J.L.J.R.500, (2015)8MLJ629(SC), 2016(1)PLJR17, 2016(1)RCR(Civil)397, 2015(12)SCALE538

These appeals are directed against judgment and order
dated 14.10.2014 passed by High Court of Judicature at
Bombay, whereby Writ Petition Nos. 7843 of 2014 and 8211 of
2014, are allowed, and the work order dated 03.09.2014, and
consequential agreement between the appellants and respondent
No. 3, are quashed.
2. Succinctly stated the facts of the case are that on 01.08.2014
respondent no. 3 - Aurangabad Municipal Corporation (for short
“municipal corporation”) invited tenders for replacement of
existing street lights by Light Emitting Diodes (LED) fittings with
refurbishment of street light infrastructure on Build, Operate and
Transfer (BOT) basis. The contractor was required to complete
the project within one year and recover the payment from the
municipal corporation through Ninety six Equated Monthly
Installments (EMIs) over a period of eight years. Response to
E-tender notice was required to be made in two separate parts,
namely, technical bid and price bid. As per the tender notice, the
tender forms were made available from 01.08.2014 to
20.08.2014. The period of submission of bids was extended up to
28.08.2014.
3. The Tender Notice contained inter alia following conditions :
-
“(i) Manufactures of LED Lights OR registered Clause
A Electrical Contractors and are eligible to
participate in the Tender.
(ii) The Class A Electrical Contractors (Lead Partner)
may only participate by having a Joint Venture
agreement with the Manufacturer of LED Light
Fittings.
(iii) The Manufacturer of LED Light fittings (Lead
Partner) may form a Joint Venture with Class A
Electrical Contractor.
(iv) The Manufacturer of LED Lights (Lead Partner)
may form a Joint Venture with another
Manufacturer of Electrical items, provided that
the Lead Partner has entered into a MOU with a
Class A Electrical Contractor towards executionPage 3
3
of the tendered BOT project.
(v) The Bidder should have achieved a minimum
turnover of Rs. 25 crores in each of the three
preceding financial years, total 75 crores in three
years.
(vi) Attested true copies of Sale Tax/VAT registration,
Manufacturing certificate & DD for EMD to be
submitted along with tender papers.
 xxx xxx xxx
(xiv) Bidder may be Joint Venture of maximum two
companies/firms to jointly meet the commercial
and technical conditions.”
 xxx xxx xxx
4. The present appellants and respondent No.1/writ
petitioners submitted their bids but technical bids of the latter
were rejected as they did not fulfill the terms as per the tender
notice. The price bid of appellants was negotiated by the
respondent - municipal corporation, and proposal was sent to the
standing committee of the corporation. Whereafter, as per the
resolution, the work order was issued in favour of the appellants.
5. The two disqualified bidders filed the Writ Petitions (W.P.
Nos. 7843 of 2014 and 8211 of 2014) before the High Court of
Judicature of Bombay, Aurangabad Bench, challenging their
disqualification, and acceptance of the appellants’ bid. The High
Court vide impugned order held that though disqualification of
writ petitioners was correct but extraordinary favour was shown
to appellants who were awarded work order, as such, the samePage 4
4
was quashed. Hence these appeals.
6. It is relevant to mention here that the writ petitioners have
not challenged the order of the High Court, whereby their
disqualification by the municipal corporation has been upheld.
The disqualification and rejection of technical bid of the writ
petitioners was mainly based on following three reasons:-
(i) Neither the writ petitioner nor its joint venture
partner was a registered Class-A contractor, nor
any one of them was stated to be manufacturer of
LED lights.
(ii) None of the writ petitioners had achieved a
minimum turnover of Rs. 25 crores in the three
preceding financial years.
(iii) The writ petitioners failed to submit minimum
thirty pieces of different types of samples for the
purposes of testing.
7. As such, so far as the disqualification of the writ petitioners
(present respondent no. 1) is concerned, it requires no further
examination. The only point to be considered by us is whether
the High Court, even after finding that the technical bids of the
writ petitioners were rightly rejected, was justified in quashing
the work order given to the appellants whose technical bid was
accepted by the municipal corporation.
8. On behalf of the appellants following submissions werePage 5
5
made assailing the impugned order passed by the High Court:-
(1). RE. ABSENCE OF MOU:
a) That the appellants duly entered into MOU on
14.08.2014 with M/s. Matoshree Electricals &
Winding Works, a Class A Electrical Contractor as
required in Clause 1.1(4) of tender.
b) That the Technical Evaluation Report by AMC states
that MOU had been duly filed by Petitioners.
c) That the Writ Petitioners never raised this point in
their Writ Petitions and even in the amended Writ
Petitions. That is also the reason why the MOU was
not filed before High Court.
d) That this being an online tender, all documents filed
by all the parties were accessable to all. Since the
MOU had been uploaded, the issue was not raised in
Writ Petition.
(2). RE. NON-SUBMISSION OF ATTESTED COPIES OF VAT
RETURNS:
a) That the appellants had duly filed attested copies of
VAT Returns in terms of Clause 1.2(1)(C) of tender.
The Technical Evaluation Report by AMC states VAT
Returns had been duly filed by them.Page 6
6
b) That the Writ Petitioners never raised this point in
their Writ Petitions and even in the amended Writ
Petitions. That is why copies of VAT Returns were not
filed before the High Court.
c) That this being an online Tender, all documents filed
by all parties were accessable to all. Since the VAT
Returns had been uploaded, the issue was not raised
in Writ Petition.
d) That the High Court erred in assuming that even joint
venture partner which had zero turnover in a
particular financial year had to file VAT Returns. It is
submitted that VAT return was required only to
establish the turnover requirement. Thus a joint
venture partner had to file VAT returns only if its
turnover exceeded zero.
(3). Re. TURNOVER REQUIRMENT:
a) That the Clause 1.1(5) requires that bidder should
have achieved minimum turnover of Rs. 25 crores in
each of the 3 preceding financial years, total 75 crores
in 3 years. Clause 1.1(14) specifies bidder may be a
joint venture of maximum two companies/firms to
‘jointly meet’ the commercial & technical conditions.Page 7
7
b) That the joint turnover of the two joint venture
partners is in excess of Rs. 25 crores p.a. and Rs. 75
crores in 3 years. The fact that turnover of P-1 was nil,
is inconsequential since requirement is joint
compliance.
c) That the High Court at para 28 noted that jointly the
turnover requirement is met but erroneously held
against the appellants on the ground that turnover of
appellant No.1 is nil.
(4). RE. TREATING LETTER DATED 19.08.2014 AS FINANCIAL
OFFER:
a) That the subject matter of letter dated 19.08.2014 was
offer of a separate product and different period, which
was not covered by the present tender. Hence question
of the letter being a financial offer did not arise.
b) That the letter dated 19.08.2014 had the subject
“Additional Suggestions towards tenderUNCONDITIONAL”
and specifically stated that
“…..These suggestions are unconditional and are being
made in favour of the improvement for the City of
Aurangabad. It shall be completely at your kind
discretion to accept or reject these suggestions…..”Page 8
8
c) That the letter was considered separately by AMC. This
is apparent from the Work Order. This is also
corroborated by AMC’s Additional affidavit before the
High Court.
d) That the letter was uploaded alongwith the Technical
Bid. The High Court erroneously held that the letter
had been disclosed even before opening of the
technical bid, which is contrary to its own recording
that letter was submitted simultaneously with tender
offer. In fact Shah Investments’ amended Writ Petition
itself records that letter dated 19.08.2014 was
submitted with technical bid.
e) That the relevant figure for evaluation of tender was
under the heading “TOTAL COST TO AMC for
Evaluating the Lowest Bidder = (VI)+(VII)+(VII)”. This
figure was nowhere disclosed either in technical bid or
in the letter dated 19.08.2014. Price bid comprised of
27 pages and none of the pages was attached as part
of Technical Bid.
f) That without prejudice to the aforesaid, the part of
work order relating to letter dated 19.08.2014 is
severable and even if that part is set aside, thePage 9
9
remaining contract stands.
(5). RE. TREATING GRANT OF ADVERTISING RIGHTS ON
POLES AS BEYOND THE TERMS OF THE TENDER:
That the work order is in two parts-one pertaining to
award of the main contract and the other to additional
suggestions of the appellants. It is submitted that the part
pertaining to additional suggestions can be severed from
main contract and directed to be removed from the work
order. Thus, work order may be confined to award of main
contract only.
(6). RE. THE DECISION MAKING BY AMC BEING HASTY:
a) That the Notice Inviting Tender was issued on
01.08.2014 and the whole process was completed on
03.09.2014. There was thus no undue haste.
b) That the time period for submission of bids was
extended twice which negates the factum of alleged
haste.
c) That the Commissioner of AMC being under orders of
transfer had no bearing on the matter as the ultimate
decision was taken by the Standing Committee of
AMC.
d) That the decision making process shows duePage 10
10
application of mind.
(7). OTHER SUBMISSIONS:
a) That the High Court did not correctly appreciate the
judgment of this Court in Sanjay Kumar Shukla Vs.
Bharat Petroleum Corporation Limited [(2014) 3
SCC 493] where this Court reiterated need for caution
in entertaining writ petitions in contractual matters,
unless justified by public interest, since serious
consequences could ensue.
b) That the High Court failed to appreciate that the
petitions before it were not public interest petitions but
were petitions of unsuccessful bidders.
c) That the motives of the writ petitioners, who made bids
despite knowing that they did not fulfill the essential
requirements, were not considered. In fact, Shah
Investments was a finance company. It is submitted
that the Writ Petitioners were front men for others.
d) That writ petitioner Shah Investment’s W.P. No.
7843/2014 did not even contain any prayer to quash
the petitioners’ bid despite amendment. appellant No.
2 in present appeals was not even made a party in
Polycab’s W.P. No. 8211/2014.Page 11
11
e) That impugned order imputes mala fides although
there were no allegations of mala fide against any
particular person in the writ petitions.
9. On the other hand, on behalf of the respondent No.1, it is
argued that the work order in question was rightly quashed by
the High Court for the following reasons:-
(i) That the bidding for the present tender was to be conducted
by a two-step e-tendering process. As per Clause 3 of the
bid document, at the first stage the bidders were required to
submit their technical bids, and the acceptable bids
amongst these would be sent for field trials. Only the
financial bids of those bidders whose samples qualify the
technical stage were thereafter to be opened.
(ii) That Clause 1.2(h) stipulated that in the event a bidder
submits the price offer along with the technical bid, the
tender bid shall be treated as withdrawn and EMD forfeited.
(iii) That it was an essential and mandatory condition of the
tender as can be construed from the use of the word “shall”
and the consequences attached to a breach of this clause,
i.e., the bid treated to be as withdrawn and the consequent
forfeiture of the EMD deposit.
(iv) That it is settled law that where there are essentialPage 12
12
conditions, the same must be adhered to. In the present
case, the Respondent No. 3 - Corporation has no power to
relax any of the terms of the bid document, and in any
event no such power can be inferred in this context, as no
relaxation can be granted from complying with a mandatory
condition of the bid document.
(v) That the contention of the appellants that the offer
contained in the letter dated 19th August, 2014 was an
unconditional offer made only for the consideration and
benefit of the Respondent no. 3 - Corporation cannot save
the appellants from the consequences of a breach of the
terms of the bid document.
(vi) That the said letter dated 19th August, 2014 admittedly
contained the following offers and suggestions which have a
direct bearing on the price offer made by the appellants:
a. The letter divulged that the appellants would be
offering its services for the minimum guarantee period
under the tender at the rate of Rs.95/- per fixture per
month.
b. The letter also stated that by implementing the online
monitoring system, the number of control panels to be
utilized would be reduced to 600 from 1200 asPage 13
13
required by the bid document. Interestingly, no
corresponding reduction in the price was offered by
the appellants. However, if the number of control
panels required were to increase over 600, the
appellants would install the same at the additional
cost of the Respondent No.3 - Corporation. This is a
kind of offer which clearly exposes the mischievous
intention of the appellants in negotiating a bargain
which would be purely beneficial to itself at the cost of
the public exchequer.
c. The letter also made an offer to implement these new
technologies in consideration for being granted
exclusive advertising rights on the street lights for the
entire BOT period.
(vii) That the offers and suggestions made in the said letter, be it
conditional or unconditional, were unquestionably a price
offer, as is evident from the work order dated 3rd September,
2014 issued by the Respondent No. 3 - Corporation.
(viii) That the submission of such letter ipso facto renders the bid
of the appellants unresponsive, to be treated as withdrawn
and EMD forfeited. The terms of the bid document do not
give the Respondent No.3 - Corporation the authority toPage 14
14
relax its terms unilaterally for any individual bidder, in a
manner which would allow such bidder to circumvent a
mandatory and essential terms of the bid document.
(ix) That having submitted such a price offer along with the
technical bid, the appellants stood disqualified at the
technical stage and, therefore, no question arises as to
whether the Respondent No.3 - Corporation could choose to
accept or reject these additional offers and suggestions of
the appellants.
(x) That the practice of indulging in post tender negotiations
has been deprecated and labeled as a source of corruption
and in pursuance of the same, the Central Vigilance
Commission has issued Circular No.4/3/07 dated 3rd
March, 2007 and has mandated that no post tender
negotiations be held with L-1 except in certain exceptional
situations as are mentioned therein. Admittedly, no such
situation exists in the present case.
(xi) That the acceptance of these additional offers and
suggestions as contained in the Work Order dated 3rd
September, 2014 has resulted in enlarging the scope of the
tender. The period of the tender has been increased from
eight years with a two years extended guarantee period toPage 15
15
eight years with a four years extended guarantee period.
The answering respondent/writ petitioner seeks
compensation in return for providing the additional two
years of guarantee. The scope of the tendered work has also
been increased to include the grant of exclusive advertising
rights for the entire contract period which now stands
revised to twelve years, for no consideration whatsoever.
These are major deviations from the essential terms of the
tender which cannot be permitted.
(xii) The appellants during the course of arguments have
tendered certain additional documents across the bar, to
establish that the acceptance of the additional offers has
been done after due consideration. However, a mere perusal
of said documents such as the appellants’ letter dated 2nd
September, 2104, the minutes of the meeting of the
Aurangabad Municipal Commission chaired by the
Commissioner also dated 2nd September, 2014 and the
minutes of the meeting of the Standing Committee of the
Aurangabad Municipal Corporation dated 3rd September,
2014 would indicate the hurried manner in which the entire
process of the tender has been finalized.
10. Learned counsel for the municipal corporation has inPage 16
16
substance supported the grounds taken by the appellants
assailing the impugned orders passed by the High Court.
11. We have considered submissions of learned counsel for the
parties, and perused the papers on record.
12. In Tata Cellular Versus Union of India1
, this court has
held following limitations relating to scope of judicial review of
administrative decisions and exercise of powers awarding
contracts. In Para 94 this court has held as under:-
“94. The principles deducible from the above are:
(1) The modern trend points to judicial restraint in
administrative action.
(2) The Court does not sit as a court of appeal but
merely reviews the manner in which the decision was
made.
(3) The Court does not have the expertise to correct the
administrative decision. If a review of the
administrative decision is permitted it will be
substituting its own decision, without the necessary
expertise which itself may be fallible.
(4) The terms of the invitation to tender cannot be
open to judicial scrutiny because the invitation to
tender is in the realm of contract. Normally speaking,
the decision to accept the tender or award the contract
is reached by process of negotiations through several
tiers. More often than not, such decisions are made
qualitatively by experts.
(5) The Government must have freedom of contract. In
other words, a fair play in the joints is a necessary
concomitant for an administrative body functioning in
an administrative sphere or quasi-administrative
sphere. However, the decision must not only be tested
by the application of Wednesbury principle of
1
(1994) 6 SCC 651Page 17
17
reasonableness (including its other facts pointed out
above) but must be free arbitrariness not affected by
bias or actuated by mala fides.
(6) Quashing decisions may impose heavy
administrative burden on the administration and lead
to increased and unbudgeted expenditure…….”
13. In Air India Ltd. Versus Cochin International Airport
Ltd. And Others2
, this court has laid down the principle as to
how the discretionary power under Article 226 should be
cautiously exercised in the matters of awarding contracts keeping
in mind the public interest. In Para 7 this court has held as
under:-
“7……..It can enter into negotiations before finally
deciding to accept one of the offers made to it. Price
need not always be the sole criterion for awarding a
contract. It is free to grant any relaxation, for bona fide
reasons, if the tender conditions permit such a
relaxation. It may not accept the offer even though it
happens to be the highest or the lowest. But the State,
its corporations, instrumentalities and agencies are
bound to adhere to the norms, standards and
procedures laid down by them and cannot depart from
them arbitrarily. Though that decision is not amenable
to judicial review, the Court can examine the decision
making process and interfere if it is found vitiated by
mala fides, unreasonableness and arbitrariness. The
State, its corporations, instrumentalities and agencies
have the public duty to be fair to all concerned. Even
when some defect is found in the decision-making
process the Court must exercise its discretionary
power under Article 226 with great caution and should
exercise it only in furtherance of public interest and
not merely on the making out of a legal point. The
Court should always keep the larger public interest in
2
(2000) 2 SCC 617Page 18
18
mind in order to decide whether its intervention is
called for or not. Only when it comes to a conclusion
that overwhelming public interest requires
interference, the Court should intervene.”
14. In Jagdish Mandal Versus State of Orissa and
Others3
, this court has held as under:-
“22. Judicial review of administrative action is
intended to prevent arbitrariness, irrationality,
unreasonableness, bias and mala fides. Its purpose is
to check whether choice or decision is made “lawfully”
and not to check whether choice or decision is
“sound”. When the power of judicial review is invoked
in matters relating to tenders or award of contracts,
certain special features should be borne in mind. A
contract is a commercial transaction. Evaluating
tenders and awarding contracts are essentially
commercial functions. Principles of equity and natural
justice stay at a distance. If 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 power of judicial review will not be permitted to be
invoked to protect private interest at the cost of public
interest, or to decide contractual disputes. The
tenderer or contractor with a grievance can always
seek damages in a civil court. Attempts by
unsuccessful tenderers with imaginary grievances,
wounded pride and business rivalry, to make
mountains out of molehills of some
technical/procedural violation or some prejudice to
self, and persuade courts to interfere by exercising
power of judicial review, should be resisted. Such
interferences, either interim or final, may hold up
public works for years, or delay relief and succour to
thousands and millions and may increase the project
cost manifold.
15. In the light of the law laid down by this Court, as above, we
3
(2007) 14 SCC 517Page 19
19
examined the facts of the present case. Admittedly, respondent
No. 3 Municipal Corporation invited online tenders for
replacement of existing street lights by LED fittings. The
e-tender was required to be made of technical bid and price bid.
It is not disputed that the appellants and the respondent No. 1
uploaded their technical bid and submitted price/financial bid
separately on the online portal of the municipal corporation. It is
also admitted between the parties that the last date of
submission of tenders was initially 20.08.2014, which was
extended up to 28.08.2014. The technical evaluation of all the
three bidders was carried out in their presence. It is relevant to
mention here that the disqualification of other two bidders, who
filed writ petitions, was found correct by the High Court, and
said fact is not challenged before us. As such, the only issue
required to be examined is as to whether the technical bid of the
appellants was approved in accordance with the settled principle
of law without giving them undue favour, or not.
16. The High Court has observed in the impugned orders that
the MOU between the appellants and LED manufacturer M/s
Matoshree Electricals & Winding Works, was not placed on the
record. However, the High court failed to notice that none of writ
petitioners had challenged acceptance of appellants’ bid on thatPage 20
20
ground, and the appellants had no opportunity to place the same
on the record of the court. The MOU was part of tender bid, and
finds its mention in “Tender Committee Evaluation Report”. The
another reason to take adverse view against the appellants,
mentioned by the High Court in the impugned order, is that
attested copies of VAT returns were not presented by the
appellants. It is pointed out before us that the statement of the
VAT returns for relevant financial years were duly filed by the
appellants with the technical bid. From the record, it reveals
that filing of VAT returns with technical bids gets corroboration
also from “Tender Committee Evaluation Report”. In said report
as to the requirement “VAT Returns of the Bidder”, the
Committee has mentioned - “OK. “10A, 10B, 10C, 10D”, and
acquaint the head - “Tender Condition Compliance” word “Yes” is
mentioned. Regarding the condition of turnover of rupees twenty
five crores, the High Court itself did not find infirmity and
observed that the appellants did fulfill the condition of return of
rupees twenty five crores in each of the preceding financial years
as the turnover of the joint venture partner was to be taken into
account.
17. It is pertinent to mention here that the tender was invited
incorporating the National Lightening Code to ensure the safetyPage 21
21
of pedestrians and motorists. The tender also specified the Lux
levels to be achieved and to be maintained for eight years. The
power consumption required to be guaranteed and the contractor
was made liable to bear the difference between the excess of
actual energy bill over the quoted energy bill. The contractor was
made responsible for comprehensive maintenance for all installed
equipment over BOT period including any breakage, theft, loss on
any account whatsoever. It is worthwhile to mention here that in
the pre-bid meeting, representatives of eight bidders stated to
have participated and clarified various points regarding the
tender notice.
18. In our opinion, there appears to be no hurry on the part of
the municipal corporation, in awarding contract as the tender
had been issued on 01.08.2014 and the same was finalized only
on 03.09.2014, i.e. after a period of more than one month.
Pre-bid meetings were held and the last date for submission of
tender was extended twice from 20.08.2014 to 25.08.2014 and
thereafter to 28.08.2014, which by itself shows that the process
was not carried out in haste. Exhaustive pre-bid meeting was
held on 12.08.2014, which was stated to have been attended by
eight prospective bidders and the minutes of the pre-bid
meetings running into several pages changed many terms inPage 22
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favour of the respondent Corporation to ensure even stricter
contract execution responsibilities and thus became part of the
tender through issuance of two corrigenda. The pre-bid meeting
was held to understand the requirements of the contract viz. the
opinion of the prospective bidders, to give sufficient time for bid
preparation, evaluation of bids and award of contract. One
month was consumed in carrying out the said activities and in
no way can it be termed as a hurried process, as held by the
High Court.
19. Therefore, in our opinion, the High Court has erred in law in
holding that the work order was illegally given to the appellants
in respect of replacement of street lights by LED fittings and
refurbishment of street light infrastructure on BOT basis.
20. Now, we come to that part of work order and consequential
agreement by which advertising rights were also granted to the
appellants on the basis of letter dated 19.8.2014 sent by the
appellants to the Municipal Corporation. The High Court has
taken serious note of the letter dated 19.08.2014 (a day before
submission of technical bid) in which the appellants has made
“certain suggestions” to the municipal corporation. Copy of said
letter is reproduced below: -Page 23
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“The Commissioner,
Aurangabad Municipal Corporation
Aurangabad, Maharashtra
Sub: Additional Suggestions toward
Tender-UNCONDITIONAL
Respected Sir,
We are participating in the tender for the LED Street
Lighting due to be opened on 21st August, 2014, &
there are some additional suggestions towards the
same for your kind consideration. These suggestions
are unconditional & are being made in favour of the
improvement for the City of Aurangabad. It shall be
completely at your kind discretion to accept or reject
these suggestions.
We can offer to implement the Online Internet based
Control & Monitoring of the Street Lights from the
Switching point. The suitable systems shall use GSM
based modems to control the switching ON & OFF of
the street lights, to be installed in each control Panel.
Though the cost of such a system is quite high,
however we are hereby offering to implement the
solution at a reduced price of Rs. 36,000/- per Control
Panel along with the recurring costs of the GSM
communication & software to Online monitor it,
provided the Exclusive Advertising rights for all the
Street Lights Poles are extended to us.
The stipulated number of Control Panels is about
1200, as per the Tender. In case it is decided to
implement the New Technology Online control System,
we may mutually plan to reduce the number of
existing Control Panels to about 600, as the Switching
Point system load shall get substantially reduced after
implementation of LED Lights. Thus we may offset the
cost of reduced Control Panels by using Online
Technology without burden of AMC. In case due to
logistic issues, the Street Lighting cannot be controlled
by the proposed 600 Panels, then whatever additional
nos. may be required, cost for the same shall be borne
by AMC.
As a reciprocal towards implementation of the OnlinePage 24
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Monitoring & Control, we seek the Exclusive
Advertising Rights for all the Street Light Poles.
2. Additional Extended Guarantee Period of Two
Years:-
We can extend the Additional Guarantee Period from
Two Years to Four Years, if required by AMC, on the
same terms of Cost as per Part D, i.e. on payment of
Rs.95/- per fixture per month. This offer has.
Joint Venture Bidder
(Electron Lighting System (P) Ltd.
& Paragon Cable India)
Sd/-
Authorized Signatory”
21. The above letter discloses that the suggestions were
unconditional, leaving it open for the municipal corporation to
accept or not to accept the same. Through the above quoted
letter the appellants suggested that if exclusive advertising rights
are given to the bidder on the street lights pole, the bidder would
reduce price by Rs. 36,000/- per control panel. The stipulated
number of control panel was 1,200/-, which could be reduced
through mutual plan to 600/-. We are of the view that the above
offer relating to advertising rights was uncalled for and severable,
and not a part of the work for which tender was floated. Learned
counsel for the appellants submitted that the appellants are
ready to execute the work without taking benefit of said letter as
per the work contract relating to replacement of street lights by
LED on BOT basis.Page 25
25
22. It is submitted on behalf of the respondent No.3 that though
revenue from advertising in city of Aurangabad from other
sources, for the financial years 2011-2012, 2012-2013 and
2013-2014 was Rs. 81,31,091=00, 81,15,438=00 and
89,03,976=00 respectively, but the same from advertising on
Street Light Poles was nil for each of the three years. As such, the
municipal Corporation did not commit any illegality in
negotiating the matter with the appellants while awarding the
work order to it.
23. In our opinion, the matter regarding advertising rights was
separate, and the municipal corporation which is a statutory
body and instrumentality of the State should have acted fairly by
making it open for all eligible to submit their offers. As such, we
think that the respondent No.3 was not justified in giving the
advertisement rights to the appellants without inviting tender for
it. To that extent, in our opinion, respondent No.3 has not acted
fairly. As such, the manner in which the advertising rights are
given to the appellants with the work order cannot be said to be
fair and contract to that extent was liable to be quashed without
interfering with rest of the work order.
24. Explaining the doctrine of severability contained in Section
57 of Indian Contract Act, 1872, in B.O.I. Finance Ltd., v.
Custodian and others4
, a three Judge Bench of this Court has
held that question of severance arises only in the case of a
composite agreement consisting of reciprocal promises. In Shin
Satellite Public Co. Ltd. V. Jain Studios Ltd.5
, this Court has
observed that the proper test for deciding validity or otherwise of
an order or agreement is “substqantial severability” and not
“textual divisibility”. It was further held by this Court that it is
the duty of the Court to sever and separate trivial and technical
parts by retaining the main or substantial part and by giving
effect to the latter if it is legal, lawful and otherwise enforceable.
25. Therefore, in the facts and circumstances and for the
reasons as discussed above, the appeals deserve to be partly
allowed. Accordingly, we set aside the impugned orders passed
by the High Court to the extent it has quashed the work contract
given to the appellants regarding replacement of existing street
lights by LED fittings and refurbishment of street light
infrastructure on BOT basis. The work order dated 03.09.2014,
to that extent given to the appellants shall stand valid. However,
the advertisement rights given to the appellants, in the work
contract, shall remain quashed. As to the advertisement rights,
4
(1997) 10 SCC 488
5
(2006) 2 SCC 628
respondent No.3 may invite tenders before awarding contract in
respect thereof. The appeals stand disposed of.
26. No order as to costs.
……………….....…………J.
[Dipak Misra]
 .……………….……………J.
New Delhi; [Prafulla C. Pant]
November 20, 2015.
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