2016 (5) TMI 1561 - HC - Companies Law

Seeking quashing/waiving off the arbitrary and discriminatory conditions encapsulated in clauses B.2.6(v) and B.2.7(v) and B.2.6(v) of the tender Nos.1 2 3 respectively - holding 100% share of its subsidiary Company as per Russian Law - 100% subsidiary is permissible as per Indian Law or not - whether the impugned condition is an essential condition of eligibility or is merely ancillary or subsidiary to the main object to be achieved by the condition? - HELD THAT - In the case of a newly formed company there is no requirement that the promoter company should have a 100% shareholding in the bidder. All that is required is that the promoter company should give a corporate guarantee/undertaking that it would financially support the newly formed company for executing the project/job in case the same is awarded to them. The pleas in the counter affidavit seeking to justify the requirement of a 100% shareholding by a parent company on the ground that several anomalies or difficulties can be caused by even a single shareholder who can affect/hamper the tender process of the Respondent No.1 to a great extent are without any basis. No such fear or apprehension is expressed in respect of a newly formed company. One cannot comprehend as to how a subsidiary would be different from a newly formed company when in both cases a corporate guarantee/undertaking is submitted from the parent/ultimate parent/holding company or the promoter company/joint venture partner that it would financially support the subsidiary company or the newly formed company (as the case may be) for executing the project/job in case the same is awarded to them. One fails to understand as to how holding 100% share in the subsidiary company would make the corporate guarantee/undertaking any better than in a case where the parent/ultimate parent/holding company does not hold 100% shares of the subsidiary company. In case of default of the bidder the corporate guarantee/undertaking of the parent/ultimate parent/holding company would be enforced in which case it would be immaterial whether it holds 100% share in the subsidiary company or not. Respondent No. 1 has itself not considered the said condition as an essential condition of eligibility and has admittedly not applied the principal of holding 100% shareholding of the bidder subsidiary company in the case of the consortium Russian Company M/s Bumi Armada Offshore Contractor Limited (BAOCL) Marshall Island and M/s Afcons Infrastructure Limited Mumbai on the ground that as per legal advice received under Russian Law a 100% subsidiary company cannot hold 100% shares of its subsidiary company. When the Respondent No. 1 has itself not treated the impugned condition as an essential condition of eligibility in the case of the Russian Company then how can it be permitted to contend that in the case of the Petitioner it is an essential condition of eligibility and not ancillary or subsidiary to the main condition. In the present case clearly the decision of the Respondent No. 1 to selectively apply the impugned condition in the case of the Petitioner and not the Russian company smacks of arbitrariness. Further as discussed hereinabove the applicability of the impugned condition in the case of a subsidiary company bidder and not in the case of a newly formed company bidder or any other bidder company is clearly arbitrary and irrational. The impugned condition is not an essential condition of eligibility but merely ancillary and subsidiary with the main object to be achieved by the said condition and thus the Respondent No. 1 cannot insist upon the strict literal compliance of the said condition - Petition allowed.

Summary

Issues Involved:
1. Quashing/Waiving of arbitrary and discriminatory conditions in tender clauses.
2. Mandamus to consider the Petitioner’s bid against the subject tenders.
3. Examination of whether the impugned condition is an essential condition of eligibility or merely ancillary.

Detailed Analysis:

1. Quashing/Waiving of Arbitrary and Discriminatory Conditions in Tender Clauses:
The Petitioner, a public limited company engaged in oil and gas drilling, challenged the conditions encapsulated in clauses B.2.6(v) and B.2.7(v) of the tenders issued by ONGC Ltd. The Petitioner contended that the requirement for a subsidiary company to be a 100% subsidiary of the parent/ultimate parent/holding company was discriminatory. The Petitioner argued that since its holding company owned 99.90% of its shares, it effectively amounted to 100% shareholding and complete control. The Petitioner claimed this condition was aimed at excluding prospective bidders and preventing healthy competition, labeling it as unreasonable, discriminatory, opposed to public policy, arbitrary, and irrational.

2. Mandamus to Consider the Petitioner’s Bid Against the Subject Tenders:
The Petitioner sought a mandamus directing ONGC Ltd. to consider its bid for the five subject tenders. The Petitioner highlighted that ONGC had previously awarded a tender to a consortium where the holding company did not have 100% shareholding due to legal constraints under Russian law. This indicated that ONGC had applied the condition liberally in other cases. The Petitioner argued that the same relaxation should apply to it, as the holding company’s 99.90% shareholding effectively provided the same control and financial backing.

3. Examination of Whether the Impugned Condition is an Essential Condition of Eligibility or Merely Ancillary:
The Court examined whether the impugned condition was an essential condition of eligibility or merely ancillary. The Supreme Court’s judgment in Poddar Steel Corpn. v. Ganesh Engineering Works was referenced, which distinguished between essential conditions of eligibility and ancillary conditions. The financial criteria in the tender required a turnover of at least 30% of the annualized bid value. If a bidder did not meet this criterion, it could rely on the financial strength of its parent/ultimate parent/holding company, provided it was a 100% subsidiary. However, for newly formed companies, there was no 100% shareholding requirement, only a corporate guarantee from the promoter company.

The Court found that the impugned condition was not essential for eligibility but ancillary to the main objective of ensuring financial capability. The Court noted that ONGC’s selective application of the condition, especially its relaxation in the case of the Russian consortium, indicated arbitrariness. The Court emphasized that the purpose of the financial condition was to ensure the bidder’s capability to execute the project, which could be achieved through a corporate guarantee from the parent company, regardless of 100% shareholding.

Conclusion:
The Court held that the impugned condition was not an essential condition of eligibility but merely ancillary. It ruled that ONGC Ltd. could not insist on strict literal compliance with the condition and prohibited it from rejecting the Petitioner’s bid on this ground. The writ petitions were allowed, ensuring that the Petitioner’s bid would be considered without the impugned condition being a barrier. There was no order as to costs.