India: Case Analysis

Case Title:

National Highways Authority of India versus Gwalior Jhansi Expressway Limited (Decision by Hon'ble Supreme Court of India in Civil Appeal No. 3288 of 2018 on 13.07.2018)

Facts:

On December 17, 2006, National Highways Authority of India ('NHAI') entered into a Concession Agreement with Gwalior Jhansi Expressway Limited ('GJEL') for  the work of widening of existing two-lane portion, from Km 16.000 to Km 96.127, to four lanes in the States of Uttar Pradesh and Madhya Pradesh. NHAI asserted that GJEL failed to undertake the project work at the requisite pace, inter alia, due to inadequate deployment of machinery, plant, material and manpower. GJEL had achieved only 62% progress and eventually abandoned the project site in March 2012. NHAI then issued a Cure Period Notice on October 19 2013, requiring GJEL to cure the breaches within 30 days from receipt of the notice. GJEL denied the notice by a written reply. NHAI thereafter, issued letters expressing its intention to issue termination notice of the Concession Agreement. GJEL then filed a petition under Section 9 of the Arbitration and Conciliation Act 1996 ('Act of 1996') seeking stay of Cure Period Notice dated October 19 2013, as well as the notice expressing the intention to issue termination notice. The High Court of Delhi passed an interim stay on March 12, 2014, restraining the appellant from taking any coercive action and the petition was finally disposed-off on April 22, 2015 with a direction to the Arbitral Tribunal, which was already constituted in the meantime, that the interim order dated March 12, 2014 would continue during the pendency of the arbitral proceedings with liberty to the parties to seek its modification or revocation before the Arbitral Tribunal ('AT').

GJEL filed an application under Section 17 of the Act, on May 17, 2016, before the AT seeking interim directions including an interim measure to permit GJEL to invite tender/bid for executing the balance work under the Concession Agreement on Engineering Procurement and Construction basis subject to Claimant being granted the Right of First Refusal (ROFR) for matching the lowest bid and in the event the Claimant matches the said lowest bid permit the Claimant to complete the said balance/remnant works on the terms and conditions of the tender/bid invited on Engineering Procurement and Construction basis except for the provision, if any, for furnishing Bank Guarantees. By an Order dated July 23, 2016, the relief of ROFR was allowed by the AT.

Subsequently, tender was floated by NHAI for the balance work and bids were invited in public domain. However, on April 25, 2017, GJEL moved an application before the AT under Section 17 of the Act, seeking, inter alia, permission of the AT to complete the balance work at its risk and cost. It was asserted that NHAI did not give option of ROFR and match the lowest bid, in line with the order dated July 23, 2016. Its contended that NHAI was proceeding to conclude the tender process by issuing LOI/LOA in favour of the L-1 bid working behind GJEL's back. NHAI asserted that GJEL chose to remain silent during the entire bidding process and since GJEL did not participate in the bidding process, it would not get the right to match the lowest bid.

The AT, vide order dated May 24,, 2017 allowed the application filed by GJEL. NHAI filed an appeal under Section 37(2)(b) of the Act of 1996 before the High Court of Delhi but the same was dismissed on August 21, 2017.

The said decision was challenged before the Hon'ble Supreme Court of India on the ground that GJEL cannot be permitted to exercise ROFR sans participation in the bidding process and notwithstanding the terms and conditions of the tender documents.

Issues involved:

  1. Whether the interim order dated May 24, 2017, passed by the AT under Section 17 of the Act of 1996 and order dated August 21, 2017, passed by the Hon'ble High Court are justified and legal?
  1. Whether the right of GJEL to match the bid of L-1 or to exercise ROFR would have come into play only if GJEL was to participate in the tender process pursuant to the notice inviting tenders from the interested parties?

Decision:

The Hon'ble Supreme Court took note of the tender conditions and observed that the plain wording of the eligibility clause in the tender documents and the incidental stipulations made it explicitly clear that GJEL was required to participate in the tender process by submitting its sealed bid (both technical and financial). GJEL neither participated in the tender process despite the express terms in the tender documents nor challenged the validity of the tender conditions which stipulated the requirement for GJEL to participate in the tender process.

The Hon'ble Court further observed that no specific and express exemption from participating in the tender process was sought by GJEL while seeking the interim order dated July 23, 2016. Since no specific exemption was granted to GJEL from participation, GJEL was obliged to comply with the terms and conditions of the tender documents publicly notified by NHAI.

The Hon'ble Court therefore, opined that since GJEL failed to participate in the bidding process in consonance with such notified terms and conditions of the tender, GJEL lost the opportunity granted to it under the order dated July 23, 2016, to match the lowest bid or to exercise ROFR. Another aspect that led to the conclusion was that the tender notice was disclosed before the Arbitral Tribunal on  December 10, 2016. GJEL did not follow up the tender documents which were placed in public domain. The application under Section 17 of the Act of 1996 was filed on April 25, 2017, after the opening of technical bids on January 05, 2017, and financial bids on March 29, 2017. Further, the third parties  who participated in the bidding process, were likely to be prejudiced by allowing GJEL to match the lowest bid or exercise ROFR, without participating in the bidding process despite the express stipulation in this regard in the tender documents.

The aforesaid findings gave the conclusion that the decision of the AT as confirmed by the High Court falls foul of the fundamental policy of Indian law.

This decision of the Hon'ble Supreme Court has its impeccable strength in as much as the Hon'ble Court has given prime consideration to the terms and conditions of the tender floated by NHAI which were neither acted upon nor challenged by GJEL during the relevant time. The interim relief was sought from AT after the financial bids were opened. The Hon'ble Court gave importance to the express and true intent of the earlier interim order dated July23, 2016, and observed that since there was no specific direction in favour of GJEL not to participate in the tender process, GJEL could not be later allowed to assert the said understanding and seek interim relief from AT. In the facts and circumstances, to allow the relief to GJEL to match the lowest bid or exercise ROFR was held to be against the public policy of Indian law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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