Verdict On L & T Bakreswar Bid Raises Key Issues
The Calcutta High Court's recent judgement awarding a compensation of Rs 1 crore to Larsen & Toubro (L&T) for being denied the water package contract for the Bakreswar thermal power project has thrown up a number of crucial issues.
The compensation has been ordered to be deducted from the bills of the executor of the package - Subhash Projects & Marketing Ltd (SPML)- by the owner of the project, West Bengal Power Development Corporation (WBPDCL).
The High Court's division bench has calculated the quantum of compensation assuming that it "is less than one tenth of the reasonable profit" to be made by SPML.
The court did not cancel the contract awarded in favour of SPML since "substantial work has been done" and awarding L & T the execution of the remaining portion of the work "would not only create problems in executing the work but would also result in delay in completion."
The division bench awarded the judgement having concluded that SPML "procured the contract in a dubious manner."
SPML has decided to appeal to the Supreme Court, and has also requested WBPDCL not to deduct Rs 1 crore from its bills as ordered by the Calcutta High Court.
The issues that are being raised before the apex court include the following:
nWhether the Calcutta High Court has any jurisdiction in exercising powers under Article 226 to award a compensation to L&T, and computing it at Rs 1 crore assuming that it was one tenth of the profit to be made by SPML. Did L&T seek any monetary compensation?
nWhether the Rs 64 crore rebate offered by L & T was in conformity to the price bid evaluation guidelines issued by Overseas Economic Co-operation Fund (OECF). Was any other bidder given an opportunity to revise prices?
n Whether the writ petition by L & T was maintainable as OECF, the main financier, was not made a party to the case. Since OECF itself consented to awarding the contract to SPML, can that be challenged?
Under the mode of funding, WBPDCL only certifies the bills raised by contractors, and they are paid directly by OECF through its accounts in the Tokyo branch of the Bank of India.
The loan agreement is between the government of India and OECF. The WBPDCL is puzzled how it can possibly deduct Rs 1 crore from the SPML bills and then arrange to pay the deducted sum to L & T.
OCEF is assisting WBPDCL in the setting up of three 210 mw thermal power generating units and common facilities for a total of five 210 mw units. The entire project work was divided into just four packages instead of the norm of 65-odd packages as is done in NTPC's projects for ensuring faster completion of work.
The water intake and plant water system package was the lowest valued among the four packages.
After five bidders were qualified for the bid, they were all asked by WBPDCL to submit `price implication for seven items'. These items covered some changes in the scope of work after discussions with the OECF.
It was understood that the increase in scope could lead to some increases in each price bid. However, what happened after opening the price bid on July 15, 1996, was rather unexpected.
Two of the bidders - L & T, and, Otto India - not only indicated the `positive price implication' in response to the seven changes in scope but also offered substantial discounts in their original prices.
While Otto India offered a discount of Rs 31.01 crore, L&T offered a discount of Rs 64.4 crore from its original price of Rs 204 crore. This helped L & T to become the lowest bidder with a price of Rs 140 crore.
Subhash Projects, which was the lowest bidder with a price offer of Rs 144 crore, thus fell behind L&T. SPML lodged a strong protest on that very day alleging that there was no scope under the rules to offer any general discount as was done by Otto India and L&T.
Protracted negotiations and intervention from various government quarters followed. Finally, SPML was awarded the contract, and it agreed to cut its price to Rs 138 crore. It was at this stage that the issue was taken to the court by L & T. It lost the first case at the Calcutta High Court but then appealed to the division bench where its views were upheld with an award of a compensation of Rs 1 crore.
However, the issue now awaits to be settled by the supreme court.