Judgment:
IN THE HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on:
09. 08.2017 + W.P.(C) 11560/2016 & CM455692016, 24352-24353/2017 ESSEL HIGHWAY LTD. Versus ........ Petitioner
..... Respondent NATIONAL HIGHWAYS AUTHORITY OF INDIA Advocates who appeared in this case: For the... Petitioner
For the Respondent CORAM HON’BLE MR JUSTICE VIBHU BAKHRU : : Mr Joy Basu, Senior Advocate with Ms Ritwika Nanda, Ms Kritika Gupta and Mr Abhinav. Mr Shambhu Sharan, Mr Yaman Kumar and Mr Shashank Bhansali. VIBHU BAKHRU, J JUDGMENT1 The petitioner (hereafter 'EHL') has filed the present petition, inter alia, impugning a communication dated 07.09.2016 to the extent that EHL's RFAQ Score (Annual Pre-Qualification for the National Highways Project) has been withheld. The communication dated 07.09.2016 is a list of all entities who had applied for pre-qualification for bidding for tenders pursuant to respondent's notice for Annual Qualification for Public Private Partnership in National Highways Projects for the year 2016. EHL also impugns the respondent‟s communication dated 11.05.2017 - which was issued during the pendency of the present proceedings - denying EHL's application for pre-qualification (RFAQ). W.P.(C) 11560/2016 Page 1 of 10 2. The respondent (hereafter 'NHAI') is a statutory body constituted under Section 3 of the National Highways Authority of India Act, 1988. NHAI proposed to award projects for two/four/six/eight laning of national highways in the year 2016 and with a view to streamline the process, on 25.01.2016, NHAI had issued a "Request for Annual Qualification for Public Private Partnership in National Highways Projects For the Year 2016" (hereafter 'RFAQ-2016').
3. NHAI had also published the list of indicative projects on its website. RFAQ-2016 was issued to streamline the process at a pre- qualification stage. The applicants who wished to participate in the NHAI projects were invited to submit applications for seeking pre-qualification (RFAQ) prior to the issuance of invitation for the bidding process. The object of RFAQ-2016 was to evaluate the technical and financial capacity of the applicants to pre-decide the question of their eligibility for specific estimated project costs (RFAQ Score). All applicants that pre-qualified the RFAQ stage were not required to submit a detailed application regarding their qualification at the time of submitting their bids pursuant to invitation to tender for specific projects. The RFAQ Score declared by NHAI would streamline the qualification stage as and when tenders were invited for specific projects.
4. EHL submitted its application pursuant to the RFAQ-2016 issued by NHAI. EHL claimed that it fulfilled the qualification criteria inter alia on the basis of the projects executed by M/s Essel Infraprojects Ltd. (hereafter 'EIPL'), which held 77.51% of the total subscribed and paid-up equity capital of EHL. W.P.(C) 11560/2016 Page 2 of 10 5. During the course of the present proceedings, NHAI issued a letter dated 11.05.2017 (hereafter „the impugned order‟) rejecting EHL's application for RFAQ Score on the ground that one of the projects of EHL's associate - six laning of NH-4 from Walahjahpet to Poonamallee in the State of Tamil Nadu - had been terminated by NHAI by a letter dated 22.07.2016 due to "concessionaire event of default" and therefore, in terms of clause 2.2.7 of the RFAQ-2016, EHL was not eligible for being considered for pre-qualification (RFAQ).
6. Apparently, EIPL which is the holding company of EHL had participated in a bid for design, operation, engineering, maintenance, construction of the six/eight laning of NH-4 from Walajahpet to Poonamallee in the State of Tamil Nadu. EIPL's bid was accepted and EIPL incorporated a 100% subsidiary as a special purpose vehicle (SPV) for the said project. The said SPV (Essel Walajahpet Poonamallee Toll Roads Pvt. Ltd.) entered into a Concession Agreement with NHAI on 04.06.2012. Admittedly, certain disputes have arisen between NHAI and EIPL/SPV in relation to the said Concession Agreement. NHAI alleges that the SPV failed to perform its obligations under the Concession Agreement, which led NHAI to issue a notice of termination dated 22.07.2016 terminating the Concession Agreement. It is not necessary to examine the disputes between the said parties; it is sufficient to note that NHAI has terminated the said Concession Agreement alleging failure on the part of the SPV to fulfil its obligations and the said disputes are pending adjudication before an arbitral tribunal. W.P.(C) 11560/2016 Page 3 of 10 7. The only question to be examined in these proceedings is whether the impugned order rejecting EHL's application for RFAQ is unreasonable and falls foul of Article 14 of the Constitution of India.
8. Mr Basu, learned Senior Counsel appearing for EHL submitted that rejection of EHL's request for RFAQ, in effect, amounts to blacklisting EHL and such rejection would preclude EHL from participating in the tenders to be floated by NHAI. He drew the attention of this Court to clause 2.2.7 of RFAQ-2016 and submitted that an applicant would be disqualified if the applicant, any consortium member or the applicant's associate had failed to perform any contract as evidenced by imposition of penalty by an arbitral or judicial authority or a judicial pronouncement or an arbitration award. He stated that in the present case, the disputes between Essel Walajahpet Poonamallee Toll Roads Pvt. Ltd. (the SPV incorporated by EIPL) and NHAI was pending adjudication before the arbitral tribunal and, thus, EHL's request could not have been denied in terms of clause 2.2.7 of the RFAQ-2016.
9. Mr Sharan, the learned counsel appearing for NHAI countered the aforesaid submission and stated that in the present case, NHAI had terminated the Concession Agreement with the SPV and, therefore, the disqualification under clause 2.2.7 of RFAQ-2016 was attracted.
10. Mr Sharan further submitted that the rejection of EHL‟s application for RFAQ would not preclude EHL from submitting its tenders if EHL qualified the eligibility conditions. He submitted that the process of RFAQ was only to pre-qualify the applicants, which would enable them to submit a simplified application at the qualification stage in respect of separate tenders invited for various projects. Those entities who had not applied for W.P.(C) 11560/2016 Page 4 of 10 RFAQ-2016 were not precluded from participating in the bidding process. They could also participate in the tenders for specific projects, however, they would have to file a detailed application to establish their qualification. Reasoning and Conclusion 11. It is apparent from the plain reading of RFAQ-2016 that withholding of RFAQ Score or rejection of a request for RFAQ does not amount to blacklisting as is contended on behalf of EHL.
12. The purpose of RFAQ is to pre-qualify certain entities at a pre- bidding stage. NHAI follows a two-stage bidding process for its projects. The first stage is the qualification stage which involves the process of determining the qualification/eligibility of interested parties. Those entities that clear the qualification stage for the specific projects are eligible for consideration of their financial bids for the projects. In order to ease the process at the qualification stage, NHAI had issued RFAQ-2016 which would involve evaluating the technical and financial capacity of the applicants for pre-qualification. Such applicants could apply, as and when bids were invited for projects by a simple application for completing the qualification stage of the bidding process. The only advantage available to such applicants would be that the process at the qualification stage would be simplified. It was also explained that those applicants that did not apply pursuant to RFAQ-2016 could also participate in the bidding process for projects. However, they would have to undergo evaluation of their technical and financial capacity at the qualification stage. In the circumstances, it is clear that EHL would not be precluded from participating in the bidding process of any of the projects for which tenders W.P.(C) 11560/2016 Page 5 of 10 are floated by NHAI. However, the question whether EHL would qualify for such projects would be determined at the qualification stage based on the qualification criteria as specified.
13. In view of the above, no interference with the impugned order is warranted at this stage. It is also relevant to state that while applying in RFAQ-2016, EHL had also acknowledged that its application for RFAQ could be rejected by NHAI without assigning any reason and had waived its right to challenge the same. Clause 16 of the letter comprising the application for pre-qualification reads as under:-
"“16. I/We hereby irrevocably waive any right or remedy which we may have at any stage at law or howsoever otherwise arising to challenge or question any decision taken by the Authority in connection with the pre- qualifications of Applicants, , or in connection with the RFAQ Process itself.” 14. In view of the above, although it is not necessary to examine the question as to whether the rejection of EHL's application is justified, this Court, nonetheless, considers it apposite to examine the same for the sake of completeness.
15. It was submitted on behalf of EHL that it expects that at the qualification stage, a similar clause would be insisted upon by NHAI and in all likelihood, EHL would be disqualified on the basis of a similar clause. This is also one of the reasons that persuades this Court to examine NHAI‟s stand regarding clause 2.2.7 of the RFAQ-2016.
16. Clause 2.2.7 of the RFAQ-2016 is set out below:-
"W.P.(C) 11560/2016 Page 6 of 10 "2.2.7 An Applicant including any Consortium Member or Associate should, in the last 3 (three) years, have neither failed to perform on any contract, as evidenced by imposition of a penalty by an arbitral or judicial authority or a judicial pronouncement or arbitration award against the Applicant, Consortium Member or Associate, as the case may be, nor has been expelled from any project or contract by any public entity nor have had any contract terminated any public entity for breach by such Applicant, Consortium Member or Associate."
17. The term 'Associate' has been explained in clause 2.2.8 of the RFAQ-2016, which reads as under:-
""2.2.8 In computing the Technical Capacity and Net Worth of the Applicant/Consortium Members under Clauses 2.2.2, 2.2.3 and 3.2, the Technical Capacity and Net Worth of their respective Associate would also be eligible hereunder. For purposes of this RFAQ, Associate means, in relation to the Applicant/Consortium Member, a person who controls, is controlled by, or is under the common control with such Applicant/ Consortium Member (the "Associate"). As used in this definition, the expression "control" means, with respect to a person which is a company or corporation, the ownership, directly or indirectly, of more than 50% (fifty per cent) of the voting shares of such person, and with respect to a person which is not a company or corporation, the power to direct the management and policies of such person by operation of law. It is clarified that a certificate from a qualified external auditor who audits the book of accounts of the Applicant or the Consortium shall be provided to demonstrate that a person is an Associate of the Applicant or the Consortium as the case may be."
W.P.(C) 11560/2016 Page 7 of 10 18. EHL is a subsidiary of EIPL and Essel Walajahpet Poonamallee Toll Roads Pvt. Ltd. is a wholly owned subsidiary of EIPL. Thus, EIPL as well as Essel Walajahpet Poonamallee Toll Roads Pvt. Ltd. would qualify as an associate of EHL in terms of clause 2.2.8 of the RFAQ-2016.
19. A plain reading of clause 2.2.7 indicates that it is couched in negative terms and for an applicant to qualify for applying for RFAQ- 2016, it is necessary that neither the applicant nor any of its associates should have in the last three years failed to perform any contract. This condition of ineligibility is further qualified by expressly providing that such failure to perform the contract should be evidenced by imposition of penalty by an arbitral or judicial authority or a judicial pronouncement or an arbitration award. Thus, a mere allegation of failure to perform a contract, would not be sufficient; it is also necessary that such allegation be supported by an order / award of an arbitral tribunal / judicial authority. Plainly, in the facts of the present case, this condition of ineligibility is not met as there is no determination by any judicial authority or arbitral tribunal, which would establish Essel Walajahpet Poonamallee Toll Roads Pvt. Ltd.‟s and / or EIPL's failure to perform any contract.
20. The latter part of clause 2.2.7 imposes yet another condition of ineligibility, which is that the applicant, any consortium member or an associate should not have been expelled from any project or contract by any public entity. Further, no contract should have been terminated by "any public entity" on account of breach by the applicant, its consortium member or an associate. Thus, if a public entity has terminated the contract with EHL's associate on account of breach committed by such associate, W.P.(C) 11560/2016 Page 8 of 10 EHL would be ineligible to apply for RFAQ Score pursuant to RFAQ- 2016.
21. It was contended by EHL that the expression "any public entity" would not include NHAI as that would be covered under the first part of clause 2.2.7. This Court is not persuaded to accept the aforesaid contention. The scope of the expression "any public entity" cannot be curtailed to exclude NHAI.
22. The first part of clause 2.2.7 is only concerned with the failure to perform a contract resulting in imposition of penalty and does not take within its sweep, the contracts that have been terminated. In other words, in the event, a penalty has been imposed for breach of any contract on the applicant, consortium member/associate, the same by itself would not render the applicant ineligible to apply for RFAQ Score pursuant to RFAQ-2016. The said penalty would have to be evidenced by order/award of a judicial authority/arbitral tribunal. Thus, plainly, the penalty imposed by a public entity on a contractor during the course of execution of the contract would be outside the scope of clause 2.2.7 of RFAQ-2016. For example, this may include any liquidated damages imposed by the concerned authority on account of delay. Such penalty, if not contested, would not result in any judicial pronouncement / award and, therefore, would be insufficient to render the applicant ineligible in terms of clause 2.2.7 of the RFAQ-2016.
23. The ineligibility condition stipulated in the latter part of clause 2.2.7 contemplates a situation where a contract has been terminated by a public entity on account of non-fulfilment of obligations. This condition is not qualified by any requirement of pronouncement/order by a judicial W.P.(C) 11560/2016 Page 9 of 10 authority or by an arbitral tribunal. Thus, if any public entity has proceeded to terminate the contract alleging breach of obligations, the same is not required to be upheld or ratified by a judicial authority/arbitral tribunal. Viewed in the aforesaid context, it is clear that the expression “any public entity” would include NHAI. If clause 2.2.7 is read in the manner as canvassed by Mr Basu, it would lead to an anomalous situation where an applicant would be rendered ineligible if any public entity had terminated the contract with the applicant or its associate but the same would be of no consequence if such order of termination had been passed by NHAI. Thus, obviously, such interpretation would be erroneous.
24. In view of the above, the petition is dismissed. All pending applications are also disposed of. The parties are left to bear their own costs. AUGUST09 2017 RK VIBHU BAKHRU, J W.P.(C) 11560/2016 Page 10 of 10