[Tender Award] Net worth of bidder's sister concern need not be factored to compute bidder's worth if takeover is not complete: Delhi High Court

In order to evaluate the financial eligibility of a bidder in a tender award process, should the net worth of a bidder's sister concern be factored to estimate the net worth of the bidder if the takeover of the sister concern is not complete? .The Delhi High Court recently answered this question in the negative while upholding the decision of the National Highways Authority of India (NHAI) with respect to two tenders floated by it (SRSC Infra Private Limited v. NHAI)..A Bench of Justices Vipin Sanghi and Jasmeet Singh was dealing with petitions challenging the rejection of bids made by SRSC Infra Private Limited (petitioner company), which was set up in 2018 with the intention and object of furthering the business of M/s Shobha Ram Sharma Contractor (SRSC)..Case background.A Business Transfer Agreement (BTA) dated August 3, 2019 was entered into between the petitioner company and M/s Shobha Ram for selling, transferring, assigning, conveying and delivering the business of SRSC to the petitioner company..However, the process was not completed within the stipulated date in the BTA on account of the COVID-19 pandemic. .While so, the petitioner company participated in certain tenders floated by NHAI and submitted its bid. The same was rejected citing the insufficient net worth on the part of the petitioner company. .The rejection was challenged before the High Court. The petitions concerned the rejection of bids made in response to two NHAI tenders citing similar reasons i.e. insufficient net worth of the bidder which meant that the bidder failed the financial eligibility criterion. .The Court was, therefore, called upon to decide the following issues.1. Whether in a tender, the net worth of the bidder’s sister concern could be taken into account for the computation of the bidder’s net worth as a part of its financial eligibility, in a situation where the takeover of the sister concern was underway but not concluded? 2. Whether in a tender, there can be any condonation of non-compliance with an essential condition of a tender? .Submissions.The petitioner company pointed out that NHAI had factored in both the bidder and its sister concern when it evaluated the experience of the bidder. As such, it cannot ignore the sister concern's net worth with computing the bidder's net worth as part of the financial eligibility as such a course would entail a "pick and choose policy" which would violate Articles 14 and 19 of the Constitution. Both the petitioner and SRSC constituted one single entity for all intents and purposes, it was argued. .The NHAI countered that the petitioner company and SRSC were still two separate entities, as gleaned from documents submitted by it. It was also pointed out that the petitioner company itself has admitted that the BTA had not concluded and that the transfer of business remained unfulfilled. As such the computation of the petitioner's net worth would not include SRSC's net worth. .Court's findings.The Court found merit in NHAI's stance. ."The company (SRSC) and the petitioner are two separate entities and takeover is yet not complete. Hence, no fault can be founded with the actions of the Respondent in considering SRSC and petitioner as two separate entities for net worth parameters," it ruled. .The Court added that even if the petitioner company and SRSC were viewed as one entity to compute the bidder's experience, it could only be treated as an "aberration, which cannot give a right to the petitioner to be considered as one entity along with the SRSC for the purposes of net worth parameter.".The Court reasoned that the conditions stipulated in the BTA for conclusion of the takeover had not been satisfied. ."The fact remains that the assets of SRSC did not get transferred, and are not entirely owned by the Petitioner Company till the end of the preceding financial year ending on March 31, 2020," stated the judgment. .The Court further pointed out that if the transfer of business had been completed, the same had to be communicated to all appropriate governmental authorities/organizations as per the BTA, which was not done. .In view of these, among other, observations, the Court opined that the NHAI's finding that the closing of the BTA has not taken place is plausible and reasonable..Having concluded that it does not need to interfere with NHAI's conclusion that the petitioner company does not have enough net worth to be financially eligible for the tender award, the Court proceeded to highlight that the financial capacity was an essential condition of the tenders Request for Proposal (RFP)..The Court added that the failure to meet this condition could not be condoned by NHAI.."In Vidarbha Irrigation Development Corporation v. M/s Anoj Kumar Garwala(Supra,) the Supreme Court has stated that there can be no condonation of non-compliance with an essential condition of a tender. In West Bengal State Electricity Board v. Patel Engineering Co. Ltd. and Ors.(Supra), the Court held that the precise reason for issuing rules/instruction is to ensure that rule of law is not a casualty" the judgment stated. .The Court, therefore, dismissed the challenge to NHAI's decision. ."Having held that the decision of the respondent – that the Petitioner does not meet the financial capacity/net worth condition, is reasonable, plausible and justified, we are not inclined to interfere with the same," the Court said..Senior advocate Saurabh Kirpal assisted by advocates Ruchi Kohli, Yash Mishra and Srishti Mishra appeared for the petitioner company. Standing counsel Kaadambari along with advocate Mansi Sinha appeared for the NHAI..[Read Judgment]