Demanding Additional Performance Security For Unbalanced Bid Is Arbitrary & Illegal: Rajasthan HC Sets Aside E-Auction Notices Of Water Department

Justice Dinesh Mehta, ruled,

"A look at the provision given in Rule 75 of the Rules of 2013 shows that it provides for performance security only and does not envisage any other security in the name of additional performance security or otherwise. According to this Court, all the terms and conditions of a bid document are supposed to conform to the statutory provisions...The letter of the respondents and corresponding condition in the e-bid document requiring the petitioners to furnish additional performance security are hereby quashed."

Facts

The petitioner is an AA Class contractor engaged in execution of construction work awarded by various Government Departments.. The respondent issued an NIT dated 19.03.2021 for "repair and retrofitting of dam" for an estimated cost of Rs. 1051.83 lacs. The NIT comprised various conditions, including the requirement furnishing of additional performance security in case the bid offered by a bidder was an unbalanced bid i.e., the amount offered was less than the permissible limits fixed by the circular.

The petitioner participated in the bidding process and was declared as a successful bidder. By way of the letter dated 20.07.2021 issued by the Executive Engineer, the petitioner was asked to furnish additional performance security of Rs.2,38,65,920/- in terms of the circular dated 11.01.2018, as its bid was found to be unbalanced. Petitioner urged that that the Finance Department itself has observed that the action of the respondent in demanding additional performance security for unbalanced bid is contrary to law and therefore, the same be done away with.

Findings

The court remarked that the insertion of Rule 75A under Rajasthan Transparency in Public Procurement Rules, 2013 justifies the requirement of additional performance security, however, from the date of promulgation of the Rule 75A. Further, the court found that the Rule 1(2) of the 4th Amendment Rules clearly provides that the amendment will come into force from the date of its publication in the official gazette. The 4th Amendment Rules have been published in the official gazette on 22.10.2021, added the court.

In this regard, the court observed that all the e-tender/e-auction notices issued after 22.10.2021, can legitly prescribe furnishing of additional performance security. The court, however, added that as a necessary corollary, the requirement of additional performance security or conditions to this effect in all the e-tender notices/e-bids prior to that date, becomes fundamentally incompetent and void.

The court opined that all the terms and conditions of a bid document are supposed to conform to the statutory provisions, which, after the promulgation of the Rajasthan Transparency in Public Procurement Act, 2012 are required to be governed by the provisions of the Act of 2012 and Rules of 2013 framed thereunder.

The Court ruled that in absence of any provision in the Act of 2012 and the Rules of 2013, the impugned letter and offending condition of furnishing additional performance security, being stranger to the Rules, have no sanctity in law and, therefore, they are non-est or a nullity.

The court further opined,

"So far as the first contention on behalf of the State that the petitioners have not raised objection regarding the offending condition is concerned, this Court is of the considered view that the same is untenable in law. The condition of requiring a bidder to furnish additional performance security existed in the bid document. Raising such grievance may adversely affect secrecy of the financial bids as the competitor would beforehand know that a particular bidder is going to furnish unbalanced bid. "

The court acknowledged state's substance that the petitioners having furnished their bids in the teeth of the condition requiring furnishing of additional performance security, cannot now challenge the same, that too when the respondents have called upon them to furnish such additional performance security.

Consequently, the court observed that the present adjudication will be confined to the e-bids issued prior to 22.10.2021 and that too for those contractors, who have challenged the respondents' action of soliciting additional performance security. Whosoever has paid/deposited the additional performance security, will not be entitled for refund as a consequence of the order instant, added the court.

On the objection that the petitioners should exhaust the remedy available under the Act of 2012, the court observed that the appellate authority would decide the appeal in light of the terms and conditions given in the e-bid document and would not go against the circular dated 11.01.2018 .The court added that the purpose for which the petitioners have approached this Court, remedy of appeal given under Section 38 of the Act of 2012 was not available to them as the terms and conditions of the bid document cannot be set aside by the appellate authority

Arguments

The counsel for the petitioners submitted that all the terms and conditions of tender and contract are governed by the Act of 2012 and Rules of 2013. He added that so far as security amount is concerned, the same is governed by Rule 75 of the Rules of 2013 and does not provide for additional performance security or any other type of security, hence, the respondents are legally not justified in requiring the petitioner and other contractors to furnish additional performance security in case of unbalanced bid.

The counsel for the state submitted that in order to ensure quality of work, it is necessary to call upon the bidders to furnish additional performance security, because in many a cases, it is seen that the bidders submit too low a bid in an anxiety of getting the contract awarded in their favour, though such rates are not feasible and commercially viable.

He further argued that at such rates, neither the contractor is able to complete the work, nor is the quality ensured even if the work is completed. It is in order to meet with such contingencies, the respondents have issued the order dated 11.01.2018, requiring a bidder to furnish additional performance security of the unbalanced amount, he submitted.