1994 (11) TMI 203 - SC - Companies Law

Joint venture Past Experience Held that - It is possible to visualise a situation where a person having past experience has entered into a partnership and the tender has been submitted in the name of the partnership firm which may not have any past experience in its own name. That does not mean that the earlier experience of one of the partners of the firm cannot be taken into consideration. - For judging the credentials past experience will have to be considered along with the present state of equipment and resources available with the tenderer. Past experience may not be of much help if the machinery and equipment is outdated. Conversely lack of experience may be made good by improved technology and better equipment. Status of Joint Venture Held that A joint venture can take the form of a corporation wherein two or more persons or companies may join together. A joint venture corporation has been defined as a corporation which has joined with other individuals or orporations within the corporate framework in some specific undertaking commonly found in oil chemicals electronic atomic fields. A joint venture is a separate legal entitity. Status of state in a tender - At the outset we may indicate that in the matter of entering into a contract the State does not stand on the same footing as a private person who is free to enter into a contract with any person he likes. The State in exercise of its various functions is governed by the mandate of article 14 of the Constitution which excludes arbitrariness in State action and requires the State to act fairly and reasonably.

Summary

Issues Involved:
1. Validity of the tender evaluation process.
2. Interpretation of the requirement regarding experience in the tender notice.
3. Consideration of the experience of the joint venture constituents.
4. Application of the principle of lifting the corporate veil.
5. Arbitrariness and irrationality in the decision of the tender evaluation committee.

Detailed Analysis:

1. Validity of the Tender Evaluation Process:
The tender evaluation committee's decision to exclude the tender submitted by New Horizons Ltd. (NHL) was found to be flawed. The committee did not consider the tender based on the ground that NHL did not fulfill the condition regarding experience as laid down in the tender notice. The Supreme Court observed that the terms and conditions for submission of tenders did not warrant the exclusion of NHL's tender at the threshold without consideration. The past experience was a matter to be considered after the tender had been examined and evaluated.

2. Interpretation of the Requirement Regarding Experience in the Tender Notice:
The tender notice required the tenderer to have experience in compiling, printing, and supplying telephone directories to large telephone systems with a capacity of more than 50,000 lines. The Supreme Court noted that the requirement of experience should not be construed to mean that the experience should be in the tenderer's name only. The court emphasized that the approach should be from the standpoint of a prudent businessman, considering the credentials of the person or entity entrusted with the work.

3. Consideration of the Experience of the Joint Venture Constituents:
NHL, being a joint venture, had access to the resources and experience of its parent companies, including TPI, LMI, WML, and IIPL. The Supreme Court held that the experience of the constituents of NHL should be taken into consideration. The court found that NHL's tender included detailed information about the expertise and resources of its parent companies, which should have been considered by the tender evaluation committee.

4. Application of the Principle of Lifting the Corporate Veil:
The Supreme Court discussed the principle of lifting the corporate veil, which allows the court to look beyond the separate legal entity of a company to consider the realities of the situation. The court held that in the case of NHL, the experience of its parent companies should be considered as the experience of NHL. The court emphasized that the principle of lifting the corporate veil is applicable when the corporate personality is used to defeat public convenience, justify wrong, protect fraud, or defend crime.

5. Arbitrariness and Irrationality in the Decision of the Tender Evaluation Committee:
The Supreme Court found that the tender evaluation committee's decision to exclude NHL's tender was arbitrary and irrational. The committee ignored the significant difference in the royalty amounts offered by NHL and the successful tenderer, respondent No. 4. NHL had offered a total royalty amount of Rs. 459.90 lakhs, nearly five times the amount offered by respondent No. 4. The court held that the decision to exclude NHL's tender and accept the tender of respondent No. 4 was not in conformity with the standards of fairness and reasonableness required under Article 14 of the Constitution.

Conclusion:
The Supreme Court allowed the appeal, setting aside the judgment of the Delhi High Court and the award of the contract to respondent No. 4 for the year 1995. The court directed that fresh tenders be invited for the award of the contract for the directory for the year 1995. The appeal against the order dismissing the application for interim relief was dismissed as infructuous.