Partner Cannot Claim Experience Of Erstwhile Firm In Independent Capacity: Punjab and Haryana High Court

Facts

The petitioner, M/s A.G. Construction Co., was a sole proprietorship concern of one Ajay Kumar Garg, who was earlier one of the three partners in M/s B.G. Constructions Co. (erstwhile partnership firm), and held 50% share, whereas, the other two partners held 25% share each. On the dissolution of the firm, it was agreed among the three partners that they were free to set up their new ventures and could also use the technical and financial credentials of the firm corresponding to their respective shares. The respondent authorities, in August, 2020, invited E-tenders for some construction work. The eligibility criteria entailed that the tenderer must have satisfactorily completed, during the last five years, at least,

• Three Multi Storey RCC Framed Structure Government Office Building/Institute Building works costing not less than the amount equal to 40% of the estimated cost (Rs.3,95,47,577/-) of the tender; or
• Two Multi Storey RCC Framed Structure Government Office Building/Institute Building works costing not less than the amount equal to 60% of the estimated cost of the tender; or
• One Multi Storey RCC Framed Structure Government Office Building/Institute Building work of aggregate cost not less than the amount equal to 80% of the estimated cost put to tender.

The petitioner's bid was rejected during technical evaluation and the petitioner claimed that such rejection was not appended with any reasons. Instead, Ajay Kumar Garg, the sole proprietor of the petitioner concern, was orally informed, that his prior work experience acquired in the capacity of a partner of M/s B.G. Constructions Co., Bathinda, could not be reckoned as his experience or that of his sole proprietorship concern. Therefore, petitioner approached the High Court in 2020.

Arguments

Counsel for the petitioner argued that firstly, his experience was in compliance with the conditions of the tender as the experience was not necessarily supposed to be in the name of the petitioner; what was material was that the petitioner concern's sole proprietor had the experience in reality. The petitioner sought to buttress this argument citing M/s New Horizons Limited v. Union of India, 1995 (1) SCC 478, Samruddha Buildcon Pvt. Ltd. v. Indore Development Authority, (CWP No. 4448 of 2015, MP HC) and P.K. Delicacies Pvt. Ltd. v. Union of India, 2005 (13) RCR (Civil) 491. Secondly, the counsel argued that during its working, M/s B.G. Constructions Co. had executed a work valuing Rs. 852 lakhs and that due to Ajay Kumar Garg's 50% stake in the firm, he had acquired 50% experience, i.e., valued at Rs. 426 lakhs (852/2) or Rs. 4.26 crores which was much more than what was required in the tender (3.95 crores). So, if not the whole of the experience acquired while being a partner of the erstwhile firm M/s B.G. Constructions Co., the petitioner should be held to be entitled at least to 50% of such experience in proportion to his share in the firm.

Per contra, the learned counsel for respondent argued that the petition should be dismissed as there was no foul-play on part of the authority and that the petitioner's bid was rejected due to the non-compliance with the 'requisite experience' condition. The experience acquired by Ajay Kumar Garg while being a partner of M/s B.G. Constructions Co. could not be termed as his experience in his independent capacity.

Issues

The Court answered two issues in the case: (1) whether the experience gained/acquired by M/s B.G. Constructions Co. (erstwhile partnership firm), could be construed as experience of Ajay Kumar Garg, who happened to be one of the three partners in the firm, in his individual/independent capacity; (2) could he claim the work experience of the erstwhile firm at least in proportion to the share he held in such firm?

Issue (1): Nature of Partnership Firm's Experience

Answering the issue in a negative, the Court held:

"Quite naturally, the experience certificate…certifies the performance, capacity and capabilities of the firm (M/s B.G. Constructions Co.), that had executed the project and not of any partner individually. It is true that from the same subject of experience, more than one can gain experience, however, that must not by itself evince the conclusion that each person gaining 'experience' (limited to their contribution) in the output jointly created by them, is entitled to the benefit of the output in its entirety. Though, the so called experience of a firm, in reality, is nothing but the experience of the partners who compose it, such experience of a firm is not in its entirety attributable to each individual partner, but attributable only to the collective effort of all partners concerned. The benefit of the experience of a firm understood as an inextricably synthesised synergism of the individual efforts of all partners cannot therefore, be extended to a single partner in his individual capacity merely because he might have been actively involved in producing the jointly created final output. Therefore, given the nature of experience, it could have been identifiable, and could be quantified (quantitatively and/or qualitatively) only if it was claimed by the firm itself or its partners jointly."

The Court further held:

"Ordinarily, in the case of a partnership, the arrangements of the partners inter se, related to running the business/affairs of the firm, division of work, assignment of specific operations to a particular partner, skill, knowledge and experience possessed by the other and extent of its usage and benefit to the firm are opaque to an outsider looking inwards. Similarly, it is not unusual that every partner does not necessarily attend to the day to day business of the firm. Even a partner who possesses the requisite experience might not have ever participated in the management or affairs of the firm, for he may only be an investment partner…For the characteristic features herein are opacity and uncertainty as to the innards of the firm's workings, coercing a tender inviting authority to blindly treat experience in the name of an erstwhile partnership firm as the experience of the partner in his individual capacity, in our view, would militate against every judicious consideration that animates an NIT."

Erstwhile Firm – A Third Party to the Tender Process

Another reason for why experience certificate in the name of the erstwhile firm M/s B.G. Constructions Co. could not be considered as the experience of Ajay Kumar Garg or his sole proprietorship concern, was the law laid down by a three-judge bench of the Supreme Court in Municipal Corporation, Ujjain v. BVG India Ltd. (2018) 5 SCC 462. In that case, the tenderer (BVG India Limited) had submitted a tender independently, without any partners, consortium or joint venture. The tenderer then, sought to rely upon an experience certificate of BVG Kshitij Waste Management Services Private Limited. The SC held:

"In other words, BVG India Limited submitted the bid on its own unaccompanied by any of the consortium member. Despite the same, BVG India Limited (respondent no.1) furnished the experience certificate of BVG Kshitij Waste Management Services Private Limited. No information whatsoever was given of the relationship/linkage of BVG Kshitij and respondent no.1 - BVG India Limited. Therefore, reliance placed by the respondent no.1 on the purported experience certificate issued in the name of BVG Kshitij Waste Management Services Pvt. Limited would not come to the help of the respondent no.1 to show its work experience…Since respondent no.1 has categorically mentioned in its bid under the column "basic information about tenderer" that no other company (either joint venture or consortium) is involved with BVG India Limited, respondent no.1 - BVG India Limited could not have relied upon the purported experience certificate issued in the name of BVG Kshitij Waste Management Services Pvt. Ltd."

Comparing the reasoning of the SC in Municipal Corporation, Ujjain v. BVG India Ltd., to the facts of the instant case, Justice Palli wrote:

"Similarly, even in the instant case, the petitioner sole proprietorship concern having applied for the tender independently, sought to rely on an experience certificate (P-13) issued to a third party (i.e., M/s B.G. Constructions Co.). Further, the relationship/linkage of Ajay Kumar Garg (proprietor of the petitioner concern) with such third party (erstwhile firm) does not engender any benefit to the petitioner concern for reasons already recorded in the preceding paragraphs. Therefore, the petitioner herein having applied independently without any partners, consortium or joint venture, cannot rely upon the technical qualifications of a third party (erstwhile firm) to claim eligibility. In this respect, the position of law emerging from Municipal Corporation, Ujjain (supra) is that as long as a person or entity cannot in law, validly claim experience that exists in the name of a third-party, that third-party remains a stranger to the subject tender."

sue (2): Validity of the 50% Division of Experience Argument

The Court after quoting the general definition of 'experience' from Black's Law Dictionary, held:

"That general understanding of the term however changes semantic shades with reference to the specific disciplinary or factual context it is employed in. In the fields of trade & commerce, business & contracts, applied technology and the like, experience would mean a special skill or knowledge possessed by a person in a particular discipline of science, technology, profession or business by reason of distinctive study, practical acquaintance and involvement relevant to the disciplinary or factual context in question. For instance, in case of a notification inviting tenders aimed at screening experience for a construction project, a capital investor, though experienced for his professional fief may not be deemed to have the experience of previously constructing a building merely because he bankrolled the venture."

Answering even this issue negatively, the Court relied on the Bombay HC's decision in Atasha Ashirwad Builders (J.V.) Nagpur v. State of Mahrashtra & Ors., (2010) 15 RCR (Civil) 377, to hold:

"Evidently, the financial stakes or share held by a partner per se has no nexus with the experience he is required to possess in terms of the tender conditions."

The Court said that accepting the 50% division of experience argument would tantamount to likening 'experience' to a commodity that could be acquired for consideration. Highlighting the speciousness of the petitioner's argument further, the Court said:

"Even otherwise, the argument that is sought to be advanced not only defies logic, but is also self defeating. For, if that is accepted and cost of the project executed by the firm, is reduced in proportion to his share (50%), then, as a necessary consequence, not only the work/project but even the experience that stems from its execution loses its character and conclusivity, for that too would be reduced proportionately. Whereas, in terms of the eligibility criteria, the tenderer ought to have satisfactorily executed one specified work valuing not less than 80% of the estimated cost of the subject tender. Moreover, as indicated earlier, the experience gained by the erstwhile firm was acquired owing to combined, collective and integrated labour and resources of its partners, and hence, was so inseparably interwoven that it was neither divisible nor could it be apportioned amongst its partners. Unlike a joint holding where a co-sharer has a right to seek partition of his defined share."

Applicability of New Horizons Ltd. v. UOI

The Court painstakingly evaluated the applicability of the Supreme Court's judgment in New Horizons Case and came to the conclusion that it was distinguishable and had no bearing on the matter at hand. In the New Horizons Case, the tenderer was a joint venture composed of five entities. The question was whether experience of these five entities could be counted as the experience of the joint venture. It was in response to that question that the SC held that experience in the name of such entities could be considered as the experience of the tenderer joint venture, since at the end of the day, the entities making up the joint venture were to perform the work. In this connection, Justice Palli held:

"Whereas, the issue in the matter at hand is distinctly different: for in the present case, concededly, neither the petitioner nor its sole proprietor had the necessary experience in its/his own name. Further, in the instant case, the petitioner's sole proprietor as an erstwhile partner of M/s B.G. Constructions Co. cannot validly claim the benefit of experience in the name of such erstwhile firm for reasons already recorded. Hence, the question herein is not whether Ajay Kumar Garg's experience acquired in his individual capacity can enure to the benefit of the petitioner sole proprietorship concern; instead, the point at issue is whether Ajay Kumar Garg (and by implication the petitioner sole proprietorship concern) can claim experience in the name of his erstwhile firm, i.e., M/s B.G. Constructions Co. in the first place. In other words, if Ajay Kumar Garg undoubtedly possessed requisite experience in his independent capacity in terms of the eligibility criteria, needless to say, the authorities would've been bound to reckon it as the experience of the petitioner sole proprietorship concern, but, as highlighted hitherto, that is not the matter in issue presently. Therefore, there is nothing materially analogical in New Horizons Limited (supra) that could effectively undergird the petitioner's claim."

Yet, there was one observation in the New Horizons Case, that was capable of creating some confusion to the case's applicability to the facts before the P&H HC:

"Conversely there may be a split in a company and persons looking after a particular field of the business of the company form a new company after leaving it. The new company, though having persons with experience in the field, has no experience in its name while the original company having experience in its name lacks persons with experience. The requirement regarding experience does not mean that the offer of the original company must be considered because it has experience in its name though it does not have experienced persons with it and ignore the offer of the new company because it does not have experience in its name though it has persons having experience in the field."

Conscious of this observation, Justice Palli wrote:

"In fact, upon an analysis of the decision in New Horizons Limited (supra), we are rather of the opinion that our view finds resonance and support in few of the observations emphasized by us, while extracting relevant paragraphs of the judgment. For instance, in each of the illustrations described by the Supreme Court, an individual or an entity possessed the requisite tangible experience in its individual capacity, which was quantifiable (qualitatively and/or quantitatively), and with which it could merge itself in another company or enter into a partnership with a firm which lacked the necessary experience. Since the fact that such individual or entity actually had the experience was incontrovertible in these illustrations, the Supreme Court remarked on how absurd it was to discount such experience just because the re-organized company or the firm which had submitted the bid did not have that experience in its name."

This was not the scenario in the instant case. Given the inextricable nature of the erstwhile firm's experience, and the opacity/uncertainty as to the innards of the firm's workings, it could not be incontrovertibly said that Ajay Kumar Garg could claim the experience in question. In this case therefore, Ajay Kumar Garg was not entitled to the experience in the name of his erstwhile firm, least in proportion to his share. In saying so, the P&H HC was not assuming that Ajay Kumar Garg had not put in any effort in creating experience of his erstwhile firm, but merely pointing out that the work done by him was not quantifiably divisible owing to its nature described in detail under Issue (1).

Scope of Judicial Review in Tender Matters

Relying on a concatenation of Supreme Court judgments – Ramana Dayaram Shetty v. International Airport Authority of India, (1979) 3 SCC 489; Central Coalfields Ltd. v. SLL-SML (Joint Venture Consortium) (2016) 8 SCC 622; Afcons Infrastructure Ltd. v. Nagpur Metro Rail Corporation Ltd., (2016) 16 SCC 818; Montecarlo Ltd. v. NTPC Ltd., 2016 (15) SCC 272; State of Madhya Pradesh v. U.P. State Bridge Corporation Ltd. And another, 2020 (13) SCALE 774 – the Court stated that the employer/person who has authored the tender was generally the best person to judge, interpret and appreciate the requirements of its documents. The scope of judicial review in such matters was therefore, limited to examining the decision for arbitrariness, mala fides, irrationality or perversity.

Possible Exception to the 'Inextricably Synthesized Synergism' Test?

The reasoning of the P&H HC has effectively laid down a useful rule to determine in every case, whether one partner could validly lay a claim to his firm's experience created jointly by the efforts of all. But, this does not mean that partners of a firm can never claim experience in the name of their firm merely because it does not exist in their name. The logic of the P&H HC is extremely nuanced in the sense that it does not allow a person to be a casualty of being a member of a partnership firm if the person has executed all the work without any help from his partners; in such a case, the problem of quantifiable divisibility would not arise since the benefit of the entire experience for the project handled by the partner could enure to his benefit. Accordingly, the Court seems to have left a clue for future cases in the following words:

"But, we must pause for a moment to point out that we are not unmindful of a situation, which, perhaps, could be viewed differently subject, of course, to its circumstantial landscape and the specific terms/conditions of the tender enquiry, where a partner is able to conclusively show by producing tangible material that he was the one tasked in his individual/independent capacity with looking after the project he claims experience for and that in doing so, he acquired/gained that experience which is germane to the tender's requirement."

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