Wednesday, 13 July 2016

Whether contractor can compel authority to award contract in his favour by offering better price after opening of sealed tenders?

In the light of the above contentions and from a perusal of the material on record, it is evident that respondents No. 1 to 4 had opened the sealed tenders in the presence of all the bidders, including the petitioner. The offer of respondent No. 5 was found to be most competitive. It was accordingly recommended for acceptance by the Central Purchase Committee of respondents No. 1 to 4. A letter of Intent was issued to respondent No. 5 as on 25.6.2015. It is noticed that the said respondent has, on receipt of the LOI, volunteered to offer a further discount of Rs. 200/KL over and above the discount of Rs. 850/KL, which was finalized by acceptance, apart from offering 30 days' credit facility and other value additions as seen from column 8 of the LOI.
On the other hand, the petitioner is found to have made more than one revised offer, after the opening of sealed tenders. This would render the sanctity and competitiveness of the closed bidding system meaningless. The petitioner's offer of a discount @ Rs. 1100/KL and other benefits ought to have been made in the first instance. The insistence that the respondents should accommodate the petitioner notwithstanding the process of acceptance of a tender of respondent No. 5, as the petitioner is now ready to better the offer of respondent No. 5 - is not tenable and may indeed result in an unfair trade practice, exposing respondents No. 1 to 4 to legal action.
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
Writ Petition No. 27719 of 2015 (GM-RES)
Decided On: 05.01.2016
Appellants: Indian Oil Corporation Limited 
Vs.
Respondent: Karnataka State Road Transport Corporation and Ors.
Hon'ble Judges/Coram:Anand Byrareddy, J.
Citation: AIR 2016 (NOC)398

1. The petitioner is a public sector company, incorporated under the Companies Act, 1956. The petitioner is, inter-alia, engaged in the business of supply of petroleum products.
2. Respondents No. 1 to 4 are undertakings of the Government of Karnataka and are engaged in public transportation. They have a large fleet of buses and other vehicles and have fuel dispensation depots through out the State of Karnataka, for the exclusive use of their vehicles.
Respondent No. 5 is a public sector undertaking and is engaged in the same business as the petitioner.
It is stated that the petitioner had entered into an agreement with respondents No. 1, 3 and 4, in the year 2010 to supply diesel to their depots in the State of Karnataka. The agreement was said to be for a period of 5 years. On the expiry of the term of the agreement as on 31.12.2014, it was said to have been extended for a further period up to 30.6.2015.
In terms of the above said agreement, the petitioner is said to have installed and upgraded the fuelling facilities - with the installation of fuel tanks, dispensing pumps, pump islands with canopies and drive ways to facilitate filling diesel to the vehicles belonging to the said respondents. The petitioner claims to have incurred enormous expense in providing the said facilities.
It transpires that before the expiry of the term of contract as on 30.6.2015, respondents No. 1 to 4 chose to invite commercial offers for supply of diesel - with automation facilities for all their depots in the State of Karnataka. It is claimed that the petitioner was put on short notice to submit a commercial offer and on a request made for extension of time to make an offer, it was extended by a few days. On 22.6.2015, the bids were said to have been opened and it was found that respondent No. 5 had made a discount offer of Rs. 850/KL, as against the petitioner's offer of Rs. 560/KL. Though the petitioner is said to have made a revised offer of Rs. 850/KL, as on 23.6.2015 itself, the Central Purchase Committee of the respondents had recommended placement of 100% supply contract on respondent No. 5.
The petitioner is said to have made a further desperate revised offer at Rs. 10OO/KL, with 30 days credit facility. But respondents No. 1 to 4 had chosen to finalize the contract with respondent No. 5 at a revised offer of 1050/KL, as against yet another revised offer made by the petitioner at Rs. 1100/KL, before such issuance of a Letter of Intent, in favour of respondent No. 5.
Respondent No. 1 is then said to have called upon the petitioner to hand over all the fuelling facilities installed in its depots, at the written down value of the same or in the alternative, to remove the same at the petitioner's cost.
Aggrieved by the award of contract in favour of respondent No. 5, in the above circumstances, the petitioner is before this court.
3. The learned Senior Advocate, Shri Ashok Harnahalli, appearing for the counsel for the petitioner, would contend that the petitioner has been supplying diesel to the respondents (1 to 4) for the past 20 years and has invested large sums of money in providing the fuelling facilities at over 214 depots all over the State of Karnataka, for the exclusive benefit of the said respondents. This required the said respondents to consider the request letter of the petitioner seeking award of contract for a further period of five years, at a more competitive rate than was quoted by respondent No. 5 and hence it is contended that there is an obvious nexus between respondents No. 1 to 4 on the one hand and respondent No. 5 on the other, to the detriment of the petitioner.
It is further contended that the unfair practice adopted by the respondents is also evident from the fact that the respondent, who had quoted a discount offer of Rs. 850/KL was persuaded to match the revised offer of Rs. 10OO/KL made by the petitioner, which was later increased to Rs. 1100/KL. It was on the said respondent No. 5 being informed of the revised offer made by the petitioner, that such a revised offer is seen to have been made. There was thus an unholy nexus forged to defeat the offer of the petitioner. Ironically, the accepted offer remained lesser than the offer made by the petitioner. The finalized offer of respondent No. 5 stood at Rs. 1050/KL, as against Rs. 1100/KL made by the petitioner. It was hence clear that the respondents were intent on shutting out the petitioner, even at a huge loss to the State exchequer.
It is contended that though respondents No. 1 to 4 had obtained an exemption under Section 4(g) of the Karnataka Transparency in Public Procurements Act, 1999 (Hereinafter referred to as the 'KTPP Act', for brevity), in favour of four public sector - oil marketing companies, favouritism being shown to respondent No. 5, in the circumstances aforesaid, lacks transparency and smacks of mala fides and arbitrariness.
And hence it is sought that the petition be allowed as prayed for.
4. On the other hand, the learned counsel Shri P.D. Surana, appearing for respondents No. 1 to 4 would contend that the petitioner had been engaged by the said respondents for over 30 years under agreements entered into from time to time. The last of such extended agreements has expired on 30.6.2015. There is no obligation on the part of the respondents to continue to engage the services of the petitioner.
It is stated that the respondents No. 1 to 4 being bulk purchasers of diesel, had provided rent free land to the petitioner for installation of fuelling facilities. The tanks and dispensing pumps had been established by the petitioner 30 years ago. In almost all cases of installation, the book value of the installation has become nil. The utility of many of the bunks was also lost. As the storage tanks are grouted in the soil, their removal may result in the tanks disintegrating, as the same would have aged and become corroded. The said facilities installed by the petitioner have been commercially exploited to the fullest and the petitioner has earned crores of rupees by the supply of diesel.
It is stated that the respondents had taken a conscious decision to invite sealed tenders from four public sector undertakings, including the petitioner, for supply of diesel, as per letter dated 10.6.2015. The petitioner is said to have protested against such invitation and is said to have claimed an exclusive right to continue supplies as before. But later chose to submit its tender belatedly after seeking extension of time to do so. The sealed tenders having been opened on 22.6.2015 and the offer of respondent No. 5 was found to be most competitive and accordingly, a letter of intent was said to have been issued to respondent No. 5, to commence supplies of diesel to respondents No. 1 to 4, with effect from 1.7.2015.
It is only on 23.6.2015 that the petitioner is said to have made a revised offer of Rs. 505/KL to 850/KL, which was not a better offer than that of respondent No. 5. It is only after the offer of respondent No. 5 had been recommended for acceptance, that the petitioner having learnt of the same, had chosen to make another revised offer of Rs. 1000/KL. This having been brought to the attention of respondent No. 5 - the said respondent is said to have promptly offered a discount of Rs. 1050/KL. It is the said prices that were compared by the Board of Directors of the respondent corporation, in accepting and finalizing the offer of respondent No. 5, as on 26.6.2015.
One of the terms of offer is to install fully automated facilities at all the supply points. This is intended to provide instantaneous information of the quantity of diesel consumed and available at any given point of time and also to monitor the entire network of depots, effectively controlling pilferage. The petitioner was not in a position to immediately meet the requirement. Similarly, the offer of respondent No. 5 contemplated better credit facilities and it also was ready to transfer the entire infrastructure put in place, in favour of respondents No. 1 to 4, at the end of the contract period.
It is contended that respondents No. 1 to 4 had a series of meetings with all the four public sector oil supply companies on all aspects of the contract and it is only thereafter that letters were issued calling for sealed tenders. Therefore, the petitioner claiming an unholy nexus between respondents No. 1 to 4 and 5, is an unfair and misleading accusation. In the circumstances aforesaid, it is clear that the petitioner was seeking to better the offer of respondent No. 5 only on learning of the better offer made by the said respondent. And it was only after the revised offer of respondent No. 5 at Rs. 1050/KL had been accepted and finalized on 26.6.2015 by the Board of Directors of the respondent Corporation, that the petitioner had sought to make a offer of Rs. 1100/KL on 27.6.2015. Further, the discount offered by respondent No. 5 at Rs. 1050/KL was on the base price. Whereas the petitioner had no where indicated whether the discount offered was on the base price or after tax. Hence, it cannot be said that respondents No. 1 to 4 had acted in an arbitrary fashion or sought to favour respondent No. 5 for extraneous considerations.
5. The learned Senior Advocate, Shri Udaya Holla, appearing for the counsel for respondent No. 5, would reiterate the sequence of events to demonstrate that there cannot be any irregularity to be found in the award of contract in favour of respondent No. 5. He has also placed reliance on several authorities to demonstrate the lack of merit in the petitioner's case.
6. In the light of the above contentions and from a perusal of the material on record, it is evident that respondents No. 1 to 4 had opened the sealed tenders in the presence of all the bidders, including the petitioner. The offer of respondent No. 5 was found to be most competitive. It was accordingly recommended for acceptance by the Central Purchase Committee of respondents No. 1 to 4. A letter of Intent was issued to respondent No. 5 as on 25.6.2015. It is noticed that the said respondent has, on receipt of the LOI, volunteered to offer a further discount of Rs. 200/KL over and above the discount of Rs. 850/KL, which was finalized by acceptance, apart from offering 30 days' credit facility and other value additions as seen from column 8 of the LOI.
On the other hand, the petitioner is found to have made more than one revised offer, after the opening of sealed tenders. This would render the sanctity and competitiveness of the closed bidding system meaningless. The petitioner's offer of a discount @ Rs. 1100/KL and other benefits ought to have been made in the first instance. The insistence that the respondents should accommodate the petitioner notwithstanding the process of acceptance of a tender of respondent No. 5, as the petitioner is now ready to better the offer of respondent No. 5 - is not tenable and may indeed result in an unfair trade practice, exposing respondents No. 1 to 4 to legal action.
There is no apparent irregularity in the award of contract in favour of respondent No. 5. The petition lacks merit and is dismissed.

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