scorecardresearch
Thursday, Dec 01, 2022
Premium

Courting tenders the SC way

Skipper Construction was a firm of builders. It constructed a multi-storey building of residential flats. The building was the envy of many....

Skipper Construction was a firm of builders. It constructed a multi-storey building of residential flats. The building was the envy of many. But, it was hardly completed and problems erupted.

It turned out that a floor or so had been constructed illegally. And each flat, it turned out, had been sold to more persons than one!

The matter reached the Supreme Court and the Delhi High Court. Legions of lawyers appeared for the firm. An intrepid retired Army officer, Colonel Joginder Singh, who lived in our colony, pursued the case. For years. He died of a heart attack in Court while arguing the matter.

One of the questions that came up was about compensating owners whose money Skipper had taken but who could not now be given possession of the flats it had allotted them. The controller of Skipper owned another property — 3, Aurangzeb Road. The Supreme Court decided that this property will be sold, and the proceeds used for compensating those who could not be given flats in the original building.

Subscriber Only Stories
UPSC Key- December 1, 2022: Why you should read ‘Great Indian Bustard’ or...Premium
Crisis and anger: Reading China’s ‘Zero-Covid’ and anti...Premium
How to read Q2 GDP dataPremium
Arun Singhal: ‘India will keep importing fertilizers from Russia as long ...Premium

This order was passed — please note the date — on 30 March, 2001.

The property was put up for auction.

Only one party came forth with an offer.

This party had intimate knowledge of the property — it was literally sitting in the property as a tenant. And thereby, having special access to, and knowledge of the property, not just, as was alleged in the case of the Juhu Centaur Hotel — falsely as it turns out — till the eve of the auction, but even on the day of the auction.

It had offered to pay one price — Rs 22 crore.

This had not been accepted.

Advertisements were issued. The auction was widely publicised.

No other bidder came forward — you could, if you were bent on manufacturing a ‘‘scandal’’, say, ‘‘But that was only to be expected, as this fellow was already sitting in the property.’’

The reserve price was fixed at Rs 25 crore.

Advertisement

The single bidder raised his offer to Rs 25 crore 1 lakh.

Two years had gone by since the order had been passed to auction the property. This sole bidder had continued to occupy the property — paying the old rent — all this while. On 1 May, 2003, the authority recorded, ‘‘Pursuant to the issuance of the sale notice of the property in question (No. 3 Aurangzeb Road), only one bid for a sum of Rupees twenty-five crores and one lakh is received from… In spite of the sufficient publicity and passage of time, no other bid is received. Under the circumstances and having regard to the various factors, we think it just and appropriate to accept this bid. Accordingly, the bid given by… is accepted…’’

The sole bidder — who was occupying the property in any case — was asked to pay by 3 May, 2003.

But the bank employees were on strike.

Advertisement

So, he was asked to deposit a cheque — though it was clear that it could not be encashed immediately. And to produce a Demand Draft by 6 May, 2003. As against the total bid of Rs 25 crore and 1 lakh, on 6 May, 2003, the authority noted that a Banker’s Cheque of Rs 6 crore and 25 lakhs was deposited — that is, one-fourth the bid amount. This was what had been required of that single bidder. The rest of the amount followed in due course.

Hence, to use the current way of putting things:

A single bidder.

An amount offered. Not accepted.

Advertisements. No one else comes forward.

That single bidder raises his bid to an amount just, but just above the reserve price.

Bid accepted.

Though two years had gone by since the original order for selling the property was issued, no interest was charged — for the simple reason that the property had not been handed over: of course, the bidder was sitting in it as a tenant!

No interest charged for ‘‘late payment’’.

Which was the authority that ordered the auction?

The Supreme Court!

Under whose supervision was the entire process conducted — from selecting the auctioneers, to issuing advertisements, to receiving the — alas, single — bid?

The Registrar of the Supreme Court!

Who directed that ‘‘under the circumstances and having regard to the various factors’’ – words which, if we had used them, we would have been accused of ‘‘deliberate vagueness’’, of ‘‘lack of transparency’’ — that single bid should be accepted?

The Supreme Court!

Advertisement

Who did not charge interest? And thus caused a ‘‘loss to the Exchequer’’?

The Supreme Court!

You will find the Supreme Court’s order in Delhi Development Authority versus Skipper Construction and another, (2002) 9 Supreme Court Cases 354; and in its orders in the case dated 2 May, 2003, and 6 May, 2003.

Advertisement

I await the CAG’s report on the transaction! And then an inquiry by the CBI!

And when I add that the tenant-cum-sole-bidder was the Embassy of Israel, will you detect, in addition to the ‘‘loss to the exchequer’’, a conspiracy to spoil the ‘‘age-old good relations’’ of India with our ‘‘traditional allies’’, the Arabs, and thereby demand an inquiry by RAW also?!

Another typical case

Advertisement

The New Okhla Industrial Development Authority, NOIDA as it is known, floated a scheme for constructing a commercial hub. A plot measuring 54,000 square metres, was earmarked for a shopping mall. Only one bid was received. It was accepted. A person filed a Public Interest Litigation writ alleging — please note the words! — that the plot had been sold ‘‘at 1/4th the prevailing market price’’; that ‘‘by fixing the reserve price abysmally low’’, the plot had been transferred ‘‘at a throw-away price’’; that ‘‘two concessions were given arbitrarily to benefit the builder at the expense of the State exchequer’’: that the ground rent/lease rent shall be charged — I am delighted to quote the figure for it corresponds exactly to what was fixed for the hotel privatisations! — at the rate of 2.5% of the total premium of the plot with further relaxations for the initial years; and that for all these reasons a loss had been caused to the public exchequer of Rs 340 crore.

The case came to the Supreme Court.

I do hope you will read the Supreme Court’s judgement in the matter — Anil Kumar Srivastava versus State of UP and another, (2004) 8 Supreme Court Cases 671 — for it dispels many of the canards that have been hurled at the hotel privatisations.

‘‘But there was only one bidder’’ — the Public Interest Litigant argued, much like the critics of the Juhu Centaur privatisation.

The Supreme Court noted, ‘‘We find that tender invitation was given wide publicity; that although nine bidders bought the tender documents, only Respondent 3 offered its bid; that the Financial Committee has recommended its acceptance keeping in mind the prior experience and the terms and conditions of the resolution dated 10-7-2003 in the matter of fixation of sector price and reserve price. Hence, there is no merit in the above contentions.’’

The case of the Centaur Hotels is on even clearer ground. The process of their privatisation had been going on, in a sense, for six years. Public advertisements were issued. Scores had entered the fray. Upon seeing the condition of the hotels; the petulance of the staff and unions they would have to deal with; the restrictions that would continue to bind them in regard to the permissible built up area; the liabilities of the hotels; the losses they were incurring every month — all but one in each case had backed out. The bids that were filed were rejected as these were below the reserve price.

The Cabinet Committee on Disinvestment presided over by the Prime Minister had directed that the terms of sale be re-examined. Accordingly, three alternatives were proposed by the Department of Disinvestment. These were considered by two committees of officials — a Committee of Joint Secretaries, and another one of Secretaries headed by the Cabinet Secretary. They recommended one set — reduction of the ground/ levy rent to 2.5%, etc. This recommendation was discussed in, and eventually approved by the Cabinet Committee on Disinvestment. The revised terms were communicated to the surviving bidders — among them were mighty hotel companies, ITC, TATAs, the Morepen Group. That is how the second round of bids was invited. The bid for the Juhu Centaur was 53% higher than the reserve price. The bids were evaluated by two Committees of officials. They were then put to, and approved by the Cabinet Committee.

On the so-called concessions that Srivastava had assailed, the Supreme Court held, ‘‘We do not find any merit in the argument of the petitioner that these concessions/ incentives are arbitrarily given as largesse to the tenderer. These concessions are part of terms and conditions of the Scheme, which was kept open for all eligible bidders. Further, when a Scheme is challenged, we have to look at it as an entire package. We have to see the tender price, the cost of putting up amenities like ECS, the cost-benefit ratio, the future projections in terms of increase in revenue, employment, etc. None of these facts have been brought out in the petition. Hence, there is no merit in the contention that the above concessions have been given arbitrarily to the developers.’’ A complete, almost a literal answer to ‘‘the-loss-of-revenue-calculated-over-the-next-29-years-by-reduction-in-the- levy-from-6.5%-to-2.5%’’ charge of the CAG!

Valuation

Recall that the Public Interest Litigant had alleged that the plot had been given away at a ‘‘throwaway price’’ — the equivalent of the kaudi ke daam, that we hear so often.

The Supreme Court examined the allegation and dismissed it as wholly without basis. The specifics regarding the NOIDA plot do not concern us — they do show, of course, how fabrications can be given a veneer of verisimilitude, and decisions derailed in our country today. It is the general principle to which the Court drew attention that concerns us here.

Citing what had been enunciated in a string of earlier judgements, the Supreme Court said in summary, ‘‘In the case of Tata Cellular vs Union of India it has been held, while discussing the scope of judicial review, that courts do not sit in appeal; that the courts merely review the manner in which the administrative decision was made; that the court cannot substitute its own decision as it has no expertise to correct the decision.’’

My young lawyer friends — Samir Parekh, Gopal Jain and Sandeep Kapur — remind me that this salutary self-denial has a long history, and very strong grounds. The Supreme Court has consistently held that:

Fixation of a price — for instance, in a tender — or valuation is entirely within the purview of the Executive;

Valuation is a complex task that requires expertise; that, as courts do not have the requisite expertise, they will not sit in judgement over it, that they will restrict themselves to ascertaining that the proper procedures were followed in arriving at the figure, and that there has been no patent illegality or discrimination;

Price is not to be the sole criterion for taking a decision either of purchase or sale — and that all that the courts shall ensure is that there has been no hostile discrimination against any particular bidder;

The Executive may revise the terms and conditions of the tender or sale — provided that this is done after due application of mind by competent authority, and by prescribed procedure.

It will pay us, and those urging inquiries, to read what the Supreme Court and, following it, High Courts like the one in Delhi have said in case after case in this regard.

In Jespar I. Slong v. St. of Meghalaya, ((2004) 11 SCC 485) the Supreme Court held:

‘‘…That apart, fixation of a value of the tender is entirely within the purview of the Executive and courts hardly have any role to play in this process except for striking down such action of the Executive as is proved to be arbitrary or unreasonable…’’

In Bawana Relocated Industrial Plot Owners vs. Government of NCT, 104 ((2003) DLT 177) the Delhi High Court held:

‘‘Thus the consistent view of the Supreme Court in various judgments, as followed by this Court repeatedly is that it is the Executive’s function to fix such costs. Further, the authorities can revise the cost after taking into consideration the relevant factors which have caused such revision. Normally, the Court would not interfere with such Executive function. In fact, the matter is in the realm of contract and writ petition would not even be maintainable.’’

In Raunaq International Ltd. v. I. V. R. Construction Ltd., (1999 (1) SCC 493) the Supreme Court held:

‘‘It is also necessary to remember that price may not always be the sole criterion for awarding a contract. Often when an evaluation committee of experts is appointed to evaluate offers, the expert committee’s special knowledge plays a decisive role in deciding which is the best offer. Price offered is only one of the criteria. The past record of the tenders, the quality of the goods or services which are offered, assessing such quality on the basis of the past performance of the tenderer, its market reputation and so on, all play an important role in deciding to whom the contract should be awarded. At times, a higher price for a much better quality of work can be legitimately paid in order to secure proper performance of the contract and good quality of work — which is as much in public interest as a low price. The Court should not substitute its own decision for the decision of an expert evaluation committee.’’

In State of Orissa v. Harinarayan Jaiswal, ((1972) 3 SCR 784) the Supreme Court held:

‘‘It is for the Government to decide whether the price offered in an auction sale is adequate. While accepting or rejecting a bid, it is merely performing an Executive function. The correctness of its conclusion is not open to judicial review…’’

In Premji Bhai Parmar and Ors. v. Delhi Development Authority and Ors., ((1980) 2 SCC 129) the Supreme Court held:

‘‘In price fixation, Executive has a wide discretion and is only answerable provided there is any statutory control over its policy of price fixation and it is not the function of the Court to sit in judgment over such matters of economic policy as must be necessarily left to the government of the day to decide. The experts alone can work out the mechanics of price determination; Court can certainly not be expected to decide without the assistance of the experts (see Prag Ice & Oils Mills v. Union of India ((1978) 3 SCR 293, 330: (1978) 3 SCC 459, 495)). In the leading judgment it has been observed that mechanics of price fixation have necessarily to be left to the executive and unless it is patent that there is hostile discrimination against a class the processual basis of price fixation has to be accepted in the generality of cases as valid.’’

The well-known case, Duncans Industries versus the State of UP, was yet another occasion when the Supreme Court reiterated the principle. A company sold its fertiliser operations on an ‘‘as is where is’’ basis to another company. The Sub-Registrar charged that the assets had been under-valued and thereby less had been paid by way of Stamp Duty, and that this undervaluation had been contrived, in part, by treating the plant and equipment as movables. After inquiry, the District Collector fixed the Stamp Duty at one level. The revisional authority reduced it. Litigation ensued. The matter came to the Supreme Court. Whether plant and equipment are moveable or immovable assets ‘‘depends upon the circumstances of each case’’, the Court held, and ruled on what was the correct position in regard to this particular transaction. What is of relevance to us is what it held in regard to the valuation that had been done by the Collector. The Supreme Court held:

‘‘The question of valuation is basically a question of fact and the Supreme Court is normally reluctant to interfere with the finding of such a question of fact if it is based on relevant material on record. Constitution of an Enquiry Committee by the Collector is for the purpose of finding out the true market value of the property conveyed under the deed. In this process, the Collector has every authority in law to take assistance from such source as is available, even if it amounts to constituting or reconstituting more than one committee… Where the method adopted by the authorities for the purpose of valuation is based on relevant materials then the Supreme Court would not interfere with such a finding of fact.’’

Notice that this is what the Supreme Court held when the valuation had been done by just the Collector of a district — in contrast to the valuations that were done in the case of privatisations: by international advisors, whetted by two committees of officials, and then deliberated over and approved by the Cabinet Committee on Disinvestment presided over by the Prime Minister himself.

But, to proceed. In Union of India v. Cynamide India Ltd., ((1987) 2 SCC 720) the Supreme Court held:

‘‘Price fixation is neither the function nor the forte of the Court. We concern ourselves neither with the policy nor with the rates. But we do not totally deny ourselves the jurisdiction to inquire into the question, in appropriate proceedings, whether relevant considerations have gone in and irrelevant considerations kept out of the determination of the price. For example, if the legislature has decreed the pricing policy and prescribed the factors which should guide the determination of the price, we will, if necessary, inquire into the question whether the policy and the factors are present to the mind of the authorities specifying the price. But our examination will stop there. We will go no further. We will not deluge ourselves with more facts and figures. The assembling of the raw materials and the mechanics of price fixation are the concern of the executive and we leave it to them. And, we will not revaluate the considerations even if the prices are demonstrably injurious to some manufacturers or producers. The court will, of course, examine if there is any hostile discrimination. That is a different ‘cup of tea’ altogether.’’

May I add that this was also the view that CAG had been taking thus far? In both the Modern Foods and BALCO disinvestments, the CAG had filed what are known as ‘‘nil reports’’. Equally baseless allegations about valuation had been made in those instances also. The CAG decided that valuation was a complex matter, that it was not amenable to simple audit-type scrutiny, and had therefore let the matter rest with experts.

What happened between the Modern Food and BALCO reports, and the one on hotels? Your guess is as good as mine!

To be continued

The writer is former union disinvestment Minister

PART II

PART III

First published on: 23-06-2005 at 12:00:00 am
Next Story

Tiger areas to be mapped through remote sensing

Latest Comment
Post Comment
Read Comments
Advertisement
Advertisement
Advertisement
Advertisement
close