If Holding Company bids on the experience of its subsidiaries - Whether consideration of the bid by the owner is correct?

CONSORTIUM OF TITAGARH FIREMA ADLER S.P.A. TITAGARH WAGONS LTD. (Appellant) vs. NAGPUR METRO RAIL CORPORATION LTD(Resp)

SUPREME COURT - Civil Appeal Nos. 1353-1354 OF 2017 arising out of S.L.P. (C) Nos. 35104-35105 OF 2016.

Sub: If Holding Company bids on the experience of its subsidiaries - Whether consideration of the bid by the owner is correct?

BRIEF FACTS

1. Nagpur Metro Rail Corporation Ltd., the 1st respondent herein, issued a Notice Inviting Tender(NIT) on 25.01.2016 for the work of design, manufacture, supply, testing, commissioning of 69 passenger rolling stock (Electrical Multiple Units) and training of personnel at Nagpur Metro Rail Project.

2. The said project is being funded by KfW Development Bank, Germany. As per clause ITS 35.8 at all stages of bid evaluation and contract, award would have to be subject to no objection from KfW Development Bank.

3. In response to the said NIT, three bidders submitted their bids.

4. One was found technically disqualified and thus, only the appellant and respondent No. 2 remained in contest.

5. Appellant quoted Rs.852 crores while Respondent No.2 quoted Rs.851 crores. The contract was awarded to Respondent No.2.

6. Appellant challenged this award of the contract before the High Court, which eventually dismissed the Writ Petition.

PROCEEDINGS BEFORE SUPREME COURT

7. What is urged before this Court is that respondent No. 2 could not have been regarded as a single entity and, in any case, it could not have claimed the experience of its subsidiaries because no consortium or joint venture with its subsidiaries was formed.

8. We have to see, how the 1st respondent has perceived the offer of the respondent No. 2 in the backdrop of the tender conditions. It is not in dispute that the project in question has been funded by KfW Development Bank, Germany and as per Clause ITB 35.8, it is necessary at all stages of bid evaluation and contract award has to be subject to no-objection from KfW Development Bank.

9. Emphasis has been laid on the approach of the High Court which has taken note of the fact that the respondent No. 2 had been awarded the tender by the Delhi Metro Rail Corporation. It has also been highlighted that the papers relating to the financial bid along with report were forwarded to KfW which gave its no objection. Be it noted, the appellants have been quite critical about the acceptance of the offer and the 1st respondent has given a number of reasons to justify the same. As indicated earlier, we are only concerned with the eligibility criteria and not with the fiscal aspect.

10. Respondent No. 2, as is evident, is a company owned by the People's Republic of China and, therefore, it comes within the ambit of Clause 4.1 of the bid document as a Government owned entity. We have already reproduced the said clause in earlier part of the judgment. As perceived by the 1st respondent, a single entity can bid for itself and it can consist of its constituents which are wholly owned subsidiaries and they may have experience in relation to the project.

11. That apart, as is understood by the said respondent, where the singular or unified entity claims that as a consequence of merger, all the subsidiaries form a homogenous pool under its immediate control in respect of rights, liabilities, assets and obligations, the integrity of the singular entity as owning such rights, assets and liabilities cannot be ignored and must be given effect.

12. While judging the eligibility criteria of the second respondent, the 1st respondent has scanned Article164 of the Articles of Association of the respondent No. 2 which are submitted along with the bid from which it is evincible that the Board of Directors of the respondent No. 2 has been entrusted with the authority and responsibility to discharge all necessary and essential decisions and functions for the subsidiaries as well. According to the 1st respondent, the term "Government owned entity" would include a government-owned entity and its subsidiaries and there can be no matter of doubt that the identity of the entities as belonging to the Government when established can be treated as a Government owned entity and the experience claimed by the parent of the subsidiaries can be taken into consideration.

13. With regard to the satisfaction of the 1st respondent, it has been highlighted before us that the said respondent had thoroughly examined the bid documents and satisfied itself about of the capability, experience and expertise of the respondent No. 2 and there has been a thorough analysis of the technical qualification of the respondent No. 2 by the independent General Consultant and the reports of the Appraisal and Tender Committee of the 1st respondent and also the no-objection has been received from KfW Development Bank, Germany which is funding the entire project.

14. As is noticeable, there is material on record that respondent No. 2, a Government company, is the owner of the subsidiaries companies and subsidiaries companies have experience. The 1st respondent, as it appears, has applied its commercial wisdom in the understanding and interpretation which has been given the concurrence by the concerned Committee and the financing bank.

15. We are disposed to think that the concept of "Government-owned entity" cannot be conferred a narrow construction. It would include its subsidiaries subject to the satisfaction of the owner. There need not be a formation of a joint venture or a consortium. In the obtaining fact situation, the interpretation placed by the 1st respondent in the absence of any kind of perversity, bias or mala fide should not be interfered with in exercise of power of judicial review.

16. Decision taken by the 1st respondent, as is perceptible, is keeping in view the commercial wisdom and the expertise and it is no way against the public interest. Therefore, we concur with the view expressed by the High Court.

CONCLUSION

It a well settled fact that experience of a holding company will be considered as experience of subsidiary or vice-versa. If a holding company has experience in a field in which its subsidiary does not has any experience and subsidiary applies along with his holding company in a project or tender then experience of holding company will be considered as experience of its subsidiary. There is no need to form a consortium or venture.

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