Holding

The modified consortium agreement did not change the consortium’s membership and the term “joint and several responsibility” does not constitute an objective criterion of non‑admissibility; therefore the bid is admissible.

Summary

The Supreme Court examined the rejection of Zoom Developers’ consortium bid for the Vizhinjam seaport PPP project. The issues were whether the modified consortium agreement dated 11‑March‑2008 altered the membership of the consortium after the 31‑Jan‑2008 cut‑off, and whether the use of the term “joint and several responsibility” instead of “joint and several liability” made the bid non‑responsive under the RFP. The Court held that the consortium’s membership remained unchanged; PMS was the constituent member from the outset and the modification merely cured a curable defect. It also held that the distinction between “responsibility” and “liability” was not an objective criterion in the RFP and could be interpreted subjectively, so the bid could not be rejected on that ground. Consequently, the High Court’s judgment was affirmed and the technical and financial proposals were ordered to be considered. The appeals were dismissed.

Issues considered

Whether the modified consortium agreement dated 11‑March‑2008 resulted in a change in the membership of the consortium after the cut‑off date.
Whether the use of the expression “joint and several responsibility” instead of “joint and several liability” justified treating the bid as non‑responsive.

Legislation cited

Companies Act, 1956s. 212

Subjects

consortium agreementjoint and several liabilityjoint and several responsibilitybid evaluation committeepublic‑private partnershipRFPmodification of consortiumadmissibility of bidchange in consortium membershipCompanies Act 212

Judgment

[2009) 1 S.C.R. 1150

A STATE OF KERALA
V.
M/S ZOOM DEVELOPERS PVT. LTD. & ORS.
(Civil Appeal Nos. 841-842 of 2009)
FEBRUARY 10, 2009
B
[DR. ARIJIT PASAYAT AND S.H. KAPADIA, JJ.]

COMPANIES ACT, 1956:

c S.212 - Consortium Agreement - Modification of -
Whether results in change in the constituents membership -
Bid Evaluation Committee rejecting the Bid proposal made
by the consortium and excluding the consortium from zone
of consideration - High Court holding the decision unjustified,
D arbitrary and bad in law - On appeal, Held: The modified
consortium agreement is in line with the proposal submitted
- There was no change in the membership of the consortium
- High Court rightly held that the licence agreement has still
to be executed and at that stage the change of joint and
E several liability shall be incorporated in the licence
agreement- No infirmity in the judgment of High Court - The
Technical and Financial proposals submitted by the
consortium (Respondent No. 1) to be considered within 15
days.

F WORDS & PHRASES:

'Liability', 'responsibility' - Meaning of.

The High Court held that the decision of the Bid
Evaluation Committee dated 6.5.2008 rejecting the Bid
G Proposal made by the Consortium led by the Mis Zoom
Developers Pvt. Ltd. (ZDL) as non-admissible in terms of
Request for Proposal (RFP) and thus excluding the said
consortium from the zone of consideration was
unjustified, arbitrary and bad in law. Hence the appeals.
H 1150
STATE OF KERALA v. ZOOM DEVELOPERS PVT. LTD. 1151
& ORS.

On the basis of the contentions advanced, the A
following points emerged for consideration by the Court:

1. Whether the modified Consortium Agreement
dated 11.3.2008 resulted in a change in the constituents
membership of the Consortium led by M/s ZDL.
B
2. Whether use of the expression "joint and several
responsibility" in place of "joint and several liability"
would justify rejection of the Bid proposal made by the
Consortium led by M/s ZDL as non-responsive/non-
admissible in terms of the RFP. c
Dismissing the appeals, the Court

HELD:1.1. On reading the Proposal, it becomes clear
that on the date, namely, 31.1.2008, being the cut-off date
(when the bids were opened), M/s PMS was the member- 0
constituent of the consortium led by M/s ZDL. At this
stage, one must keep in mind that Section 212 of the
Companies Act, 1956 which makes it obligatory on behalf
of the holding company to annex to its Balance Sheet the
Balance Sheet and P&L account and other financial E
particulars of its subsidiary. Section 212 requires the legal
relationship of holding company and subsidiary
company to be disclosed to all its members. In the world
of globalization, we have consortium agreements/ joint
venture agreements. It appears from the particulars given F
by the consortium led by Mis ZDL that M/s PMS is a part
of an international group of companies headed by M/s
PPL, UK. The prescribed Form warranted Disclosure
giving particulars of the consortium members. The
particulars furnished indicate that the Lead Member was G
M/s ZDL. It is an Indian company. One of the consortium
member was M/s PMS, which is incorporated in UK. It is
the 100% subsidiary of M/s PPL, UK. This information
also became necessary because the format required the
Bidder to disclose "Ownership" of the member-company. H
1152 SUPREME COURT REPORTS [2009] 1 S.C.R.

A Therefore, if one reads the Proposal of the Lead Member, >-
M/s ZDL, in the form prescribed, which Proposal was of
31.1.2008, one finds that Mis PMS alone on its own was
indicated as a member of the consortium and M/s PPL
was not shown as the member of the consortium.
8 However, the original consortium/joint venture agreement
dated 4.10.2007 signed by the member-constituent of the
consortium led by Mis ZDL stood signed by Mis PMS on
behalf of M/s PPL, UK. Therefore, on 3.3.2008, IDC (Project
Advisor) wrote to M/s ZDL pointing out the defect in the
C consortium agreement dated 4.10.2007. Thus, the Project
Advisor treated the above irregularity in the execution of
the consortium agreement dated 4.10.2007 as a curable
defect for which time was given tQ M/s ZDL up to 4.4.2008.
Further, the Project Advisor clearly understood the
Proposal to have had been given by M/s ZDL as the Lead
D Member of the Consortium, whose constituent inter alia
included M/s PMS and not M/s PPL. By the said letter, the
Project Advisor also called for Annual Reports of three
financial year of Mis ZDL and Annual Reports of last 3
years of M/s PMS (its own). This query indicates that the
E Project Advisor not only treated the above irregularity in
the execution of the consortium agreement dated
4.10.2007 as the curable defect but it further shows that
even, according to the Project Advisor, M/s PMS alone
was the constituent member of the consortium led by M/
F s ZDL and it is for this reason that the Project Advisor
called for the annual reports of Mis PMS (its own). This
defect was cured by M/s PMS within the extended period.
[Para 14] [1066-F-H; 1067-A-H; 1068-A-B]
1.2. The question of "authorization" by M/s PPL,UK,
G was not raised by the Project Advisor in its letter dated
3.3.2008. That aspect was raised only by the Law
Secretary who came to be Invited as a special invitee by
the Chief Secretary in the meetings of the EC held on
8.4.2008 and 6.5.2008 (which is after the extended date.
H
STATE OF KERALA v. ZOOM DEVELOPERS PVT. LTD. 1153
& ORS.

4.4.2008). It is not in dispute that Mis PPL, UK is the A
holding company of Mis PMS. Mis PMS is a subsidiary
company. It is the separate legal entity. This Court is
satisfied that at the stage of Submission of Proposal itself
and right from the inception, it was Mis PMS, who alone
was the constituent member of the consortium. The B
question of authorization raised by the Law Secretary is
clearly an afterthought. In fact, there is a contradiction in
his opinion. If Mis PPL was the member of the consortium,
as construed by the Law Secretary, there was no need
for Mis PPL to authorize Mis PMS to execute the c
consortium agreement. On the other hand, if Mis PMS
being the separate legal entity was a member of the
consortium it had to sign the consortium agreement in its
own capacity. The modified consortium agreement dated
11.3.2008 is supported by a Resolution. The said 0
consortium agreement is in line with the Proposal
submitted on 31.1.2008. [Para 14) [1168-B-F]
2. Mis Universal Legal (legal advisor to the Sponsor)
cleared the proposal on 4.4.2008 stating that all requisite
defects stood cured. It is only after 4.4.2008 that the Law E
Secretary came into picture and gave an opinion to the
contrary. Moreover, as found by the High Court in the
impugned judgment, when the Law Secretary was asked
to file his affidavit he came out with the statement that his
advice was "off the record" advice. It was not given F
through Official Channel. No material has been placed
before the High Court as to the reference made by the
Chief Secretary to the Law Secretary. The very purpose
of routing the query through Official Channel is that the
querist formulates the query on which opinion is given. G
In this case, there is no formulation of such a query. In
the circumstances, the High Court was right in not giving
weightage to the "off the record" advice of the Law
Secretary. This is one of the circumstances which vitiates
the process of decision making by the EC. The bid was H
1154 SUPREME COURT REPORTS [2009) 1 S.C.R.

A declared as non-admissible in the IVth meeting of the EC .,..
held on 6.5.2008. The Minutes indicate that, before the EC,
there were two Opinions. First opinion was that of Mis
Universal Legal and the second opinion was that of the
Law Secretary. There is nothing to indicate in the Minutes
B as to why the opinion of the legal advisor, Mis Universal
Legal, stood rejected. There is no reason given as to why
the opinion of the Law Secretary came to be accepted.
The modified consortium agreement was between
members of the consortium led by Mis ZDL in which the
C member was Mis PMS and not Mis PPL, UK, right from 1-
the inception. Therefore, the entire exercise was to cure
the defect. Time was given to Mis ZDL to cure the defect
which in fact was cured before 4.4.2008. For the
aforestated reasons, it is held that there was no change
in the membership of the consortium led by Mis ZDL after
D 31.1.2008. In fact, even prior to the IVth meeting the EC
did not call upon Mis ZDL/PMS to obtain Letter of
Authority from Mis PPL, UK. [Para 15] [1168-G-H; 1169-
A-H]
E 3.1. Under the agreement, duties and responsibilities
of each of the members stood carved out. Vide clause 7,
members of the consortium were made "jointly and
severally responsible" for every stage of implementation
of the Project. The only objection raised by the GoK is
F that the word "liable" ought to have been used instead
of the word "responsible" in clause 7 and since that
word has not been used, the Bid Proposal of Mis ZDL
needs to be dismissed. As stated above, in the meetings
held prior to 8.4.2008, no such objection was ever raised.
In fact, no opportunity was given to Mis ZDL to cure this
G defect though it was given to the consortium led by Mis
Apollo. The important point is that the EC treated the
above objection as a curable defect. It is only after the
Law Secretary came on the scene that the above
objection was raised even after the clearance by M/s
H Universal Legal. Therefore, it is clearly an afterthought.
STATE OF KERALA v. ZOOM DEVELOPERS PVT. LTD. 1155
& ORS.

Further under the consortium agreement dated 11.3.2008, A
it was stated that M/s ZDL, PMS and Peter Fraenkel &
Partners shall be fully responsible for their individual
portions of work. Under the said Agreement, it was further
stated that, in case the Project stood awarded to the
Consortium, the Consortium commits to hold a minimum B
stake of 51% in the SPC. This shows that in the matter
of liability, the Consortium Agreement was only a step-
in-aide to the formation of SPC. Further, as rightly held
by the High Court in the impugned judgment, the
apprehension of GoK that in the event of disputes c
between members of the consortium or in the event of
non-implementation of the Project, GoK would not be in
a position to enforce its claim was ill-founded because
the licence agreement between the successful bidder and
the licensor (GoK) was yet to be entered into in which a
0
provision as to "joint and several liability" had to be
made, as mentioned in the RFP. The consortium
agreement was only an assurance or a commitment to
abide by the licence agreement. Lastly, it may be stated
that the word "responsibility" is no doubt different from
the word "liability". [Para 19] [1171-B-H; 1172-A-B] E
3.2. In the absence of a prescribed formEtt and in the
absence of the definition of the word "respohsibility" vis-
·-vis the word "liability" in the RFP, it cannot be said that
the said expression "joint and several liability" was an F
objective criteria. It is true that in terms of RFP, the bidder
was required to stipulate the words "joint and several
liability" in the consortium agreement. But it is equally
true that in certain cases objective words can be
interpreted subjectively. In the instant case, various bids G
were considered by the Project Advisor/Sponsor. They
have themselves used the words "liability" and
"responsibility" interchangeably. They have treated this
defect as a curable defect. They have not rejected the Bid
Proposal on 25.2.2008 in the first meeting on the above H
1156 SUPREME COURT REPORTS (2009] 1 S.C.R.

A ground because the EC thought that the said defect was
a curable defect. [Para 19] [1172-D-H; 1173-A]

3.3. The consortium agreement dated 11.3.2008 spelt
out the work allocation and the responsibility of each
member of the consortium. It made the consortium
B
responsible jointly and severally for implementation of the
Project. The clause dealing with "relationship of the
parties" merely stated that till the formation of the SPC, •
each member shall be related to each other on principal-
to-principal basis. This is because the consortium is
c formed to make a bid for this Project only. But once that
consortium becomes a successful bidder and commits
to hold the minimum equity stake of 51% in the SPC,
then the question of joint and several liability would
certainly arise. Therefore, the High Court rightly held that
D the licence agreement between GoK and the successful
bidder (consortium) has still to be executed and it is at
that stage that, in any event, the clause of joint and
several liability shall stand incorporated in the licence
agreement. [Para 20] [1173-D-G]
E
H. W Wade and Forsyth: 'Administrative Law', 9th edn.
pp. 432-435, referred to.

4. The Chart submitted on behalf of Mis Lanco
Kondapalli Power Pvt. Ltd. refers to the Financial Years
F October, 2003 to September, 2004, October 2004 to
September, 2005, October, 2005 to September, 2006 as far
as M/s-ZDL is concerned. However, it may be noted that
initially the last date for-submitting the bid was 31.10.2007,
which was extended to 31.1.2008. The Balance Sheet and
G P&L account of M/s ZDL for the year ending 30.9.2007
stood adopted after audit only on 20.3.2008. If the figures
for that year are taken into account then the financial t

qualification criteria stands satisfied. [Para 21] [1173-H;
1174-A-B]
H
STATE OF KERALA v. ZOOM DEVELOPERS PVT. LTD. 1157
& ORS .
..
5. The Technical and Financial Proposals submitted A
by the Consortium (respondent no. 1) are liable to be
considered within 15 days from the date of this judgment.
[Para 22] [117 4-E]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 841- B
842 of 2009.

From the Judgment & Order dated 4.1.2008 in R.P. No.
1329/2008 & WA No. 1460/2008 of the High Court of Kerala
at Ernakulam.
c
A.Sharan, ASG, K. Prasaran, K.K. Venugopal, T.B. Hood,
Pradeep Ranjan Tiwary, R. Satish, P.V. Dinesh, Sindhu T.R.,
Kamkal Bhundhiraj, Nishant Menon, Manu Seshadri, Sidharth
Bawa, Gopal Shankarnarayanan (for M/s. Dua Associates) for
the Appellants. o
Arun Jaitely, U.U. Lalit, Maninder Singh, Pratibha, M. Singh,
Santosh Mathrew, Gaurav Sharma, Surbhi Mehta, Sumeet
Bhatia, Ankit Gupta, Meenakshi Grover, Ramesh Singh, K.S.
Rama Rao, Bela Maheshwari and Joydeep Nath for the
Respondents. E

The Judgment of the Court was delivered by

S.H. KAPADIA, J.1. Leave granted.

2. A short question which arises for determination in these F
civil appeals is - whether the decision of the Bid Evaluation
Committee ("EC" for short) dated 6.5.2008 rejecting the Bid
Proposal made by the Consortium led by M/s Zoom Developers
Pvt. Ltd. as non-admissible in terms of RFP and thus excluding
the said Consortium from the zone of consideration was G
unjustified, arbitrary and bad in law, as held by the impugned
judgment of the Kerala High Court dated 4.12.2008 in Writ
Appeal No. 1460/2008.

H
1158 SUPREME COURT REPORTS [2009] 1 S.C.R.

A Facts:

3. Government of Kerala (GoK) vide G.O. No. 9/07/F&PD
dated 9.3.2007 decided to invite bids for the Development of
International Deepwater Seaport and Container Transshipment
Terminal at Vizhinjam under Public-Private Partnership. Vide
8
G.O. dated 15.6.2007 GoK decided on the key provisions in
the Request For Proposal ("RFP" for short) documents for the
bidding of the above Project. A competitive bid process was
thus initiated by M/s Vizhinjam International Seaport Ltd. ("VSL"
for short). VSL was the Sponsor. IL & FS Infrastructure
C Development Corporation ("IDC" for short) was the Project
Advisor. Accordingly, on 8.8.2007, Press Notification was
issued by M/s VSL inviting RFP for the development of the
Project. On 23.1.2008 a Bid Opening Committee was
constituted vide G.O. of the same date. Thirty-three firms
D obtained the RFP documents. Vide G.O. dated 19.2.2008, Bid
Evaluation Committee headed by the Chief Secretary was also
constituted to Evaluate the Bid Proposals. Ultimately, bids were
received from the following five Consortia by 31.1.2008 (which
was the last date stipulated for receiving the Bids), they were:
E
(i) Apollo Enterprises led consortium

(ii) Nagarjuna Construction Co. led consortium

(iii) Videocon Industries Ltd. led consortium
F
(iv) Lanco Kondapalli Power Pvt. Ltd., Hyderabad, led
consortium

(v) Zoom Developers Pvt. Ltd., Mumbai led
consortium.
G
4. The bidders were required to submit their proposals in
four covers, namely, the Outer Cover (containing details of the
bidder, power of attorney in favour of the lead member,
consortium agreement entered amongst the members of the
H consortium, legal opinion, security of Rs. 50 million in the form
STATE OF KERALA v. ZOOM DEVELOPERS PVT. LTD. 1159
& ORS. [S.H. KAPADIA, J.)

of bank guarantee etc.}, Cover-1 (Statement of Qualification}, A
Cover-2 (Technical Proposal) and Cover-3 (Financial
Proposal). In this case, evaluation was done in three stages.
In the first stage, there was evaluation of Outer Cover and
Cover-1 to check the admissibility of bids and evaluation of
qualifications as stipulated in the RFP. It may be noted that B
evaluation of the Technical Proposal had to be done only of
those bidders who met the "Qualification Criteria" (vide second
stage). The third stage contemplated evaluation of the Technical
Proposal. As stated above, only five bids were received. These
bids (Outer Cover and Cover-1) were opened on 31.1.2008 by c
the Bid Opening Committee. The said firms were found to have
satisfied prima facie the requisite requirements. The bids were
accepted by the Bid Opening Committee for further scrutiny.
The bids submitted were considered at the meeting of the EC
on 25.2.2008. In the said meeting it was observed that, with
0
regard to the bid submitted by the consortium led by M/s Zoom
Developers Pvt. Ltd. ("ZDL" for short), the Power of Attorney
and the Consortium Agreement were unstamped and they
needed to be stamped. It was further pointed out by the EC that
the lead member in terms of the RFP, namely, M/s ZDL was
required to hold a minimum equity of 26% in the Special E
Purpose Company ("SPC" for short), which has not been
expressly mentioned in the Consortium Agreement. The EC
further pointed out to M/s ZDL that one of the consortium
member, namely, M/s Portia Management Services Ltd. ("PMS"
for short) had signed the consortium agreement on behalf of F
Peel Ports Ltd. ("PPL" for short) but M/s PPL is not a member
of the consortium. Additional information regarding the
financials of M/s PMS (on its own) and of M/s ZDL were also
called for. On 25.2.2008, accordingly the EC granted ten days
time to remove the above defects. M/s ZDL sought extension G
of time. Ultimately, time was extended up to 4.4.2008. In short,
meetings of the EC took place on 25.2.2008, 13.3.2008,
8.4.2008 and 6.5.2008. By 2.4.2008, M/s ZDL submitted all the
relevant documents duly updated. It may be noted that M/s
Universal Legal, Bangalore, were appointed as Legal Advisor H
1160 SUPREME COURT REPORTS [2009] 1 S.C.R.

A of the Project by the EC.

5. As stated above, on 2.4.2008 M/s ZDL submitted their
modified documents. On 4.4.2008 the said M/s Universal Legal
furnished their opinion that the Consortium Agreement
B submitted by the Consortium led by M/s ZDL had complied with
the requirements of the RFP and that they had removed all
defects pointed out to them by the EC and accordingly the EC
may consider their Bid Proposals. However, in the third meeting
held on 8.4.2008, the EC after having considered the
documents submitted by the Consortium led by M/s ZDL came
C to the conclusion that in the modified consortium agreement
dated 11.3.2008, Mis PMS has signed the consortium
agreement on its own whereas in its original consortium
agreement dated 4.10.2007, M/s PMS has signed the
consortium agreement on behalf of Mis PPL. Accordingly, the
D opinion of the Law Secretary (Invitee to the Meeting) was
sought. The Law Secretary opined that the modified consortium
agreement dated 11.3.2008 cannot be treated as a part of the
Original Proposal as the modified consortium agreement stood
entered into by a new member, namely, M/s PMS, without the
E authorization of M/s PPL. According to the Law SP.cretary, there
was one more defect. There was no provision in the modified
consortium agreement to the effect that the consortium
members shall be jointly and severally liable for the execution
of the Project and that the only expression used was joint and
F several "responsibility", which, according to the Law Secretary,
was a concept different from joint and several "liability". This
opinion of the Law Secretary was placed before the EC in its
meeting held on 6.5.2008 in which meeting the EC concluded
that the Bid submitted by the consortium led by Mis ZDL was
G "non-responsive"/"non-admissible" in terms of the RFP.
Accordingly on 24.5.2008, GoK issued Government Order
approving the proposal given by Lanco Kondapalli Power Pvt.
Ltd., Hyderabad (hereinafter referred to as "Lanco led •
Consortium"). Thus, the Bid Proposal of the consortium led by
H M/s ZDL came to be rejected.
STATE OF KERALA v. ZOOM DEVELOPERS PVT. LTD. 1161
& ORS. [S.H. KAPADIA, J.]

6. Aggrieved by the said decision, M/s ZDL preferred Writ A
"'· Petition (C) No. 15570/2008 in the Kerala High Court which
came to be dismissed by the learned single Judge on
3.7.2008. It was held by the learned Single Judge that the
concept of "liability" was different from "responsibility". It was
further held that since the consortium members led by M/s ZDL B
had not undertaken "joint and several liability", the EC was right
in treating the bid proposal as non-responsive. It was further
... held by the learned single Judge that the original consortium
agreement dated 4.10.2007 was signed by M/s PMS on behalf
of Mis PPL though no such authorization was found in that c
regard. According to the learned single Judge, in the modified
consortium agreement dated 11.3.2008, M/s PPL, which was
the party to the original consortium agreement, stood deleted
and M/s PMS had emerged as a member of consortium for the
first time only under the modified consortium agreement dated
D
11.3.2008 without explaining under whose authority such
change was made and consequently, the EC was right in
treating the Bid Proposal made by M/s ZDL as non-responsive.
Accordingly, the writ petition stood dismissed. Aggrieved by
the said decision, Mis ZDL preferred Writ Appeal No. 1460/
2008, which stood allowed by the Division Bench of the Kera la E
High Court, hence, these civil appeals are filed by the State of
Kerala (licensor), M/s Lanco Kondapalli Power Pvt Ltd. and
M/s Vizhinjam International Sea Port Ltd. (Sponsors).

Contention: F
7. On behalf of State of Kerala, Shri K. Parasaran, learned
senior counsel submitted that after 31.1.2008 (the cut-off date)
there was a change in M/s ZDL led Consortium which was
impermissible in terms of the RFP and, therefore, the Bid
G
Evaluation Committee was right in treating the Bid submitted
by M/s ZDL led Consortium as non-responsive/non-admissible
... in terms of the RFP. In support of his contention, learned senior
counsel submitted that as per clause 3.4 of RFP, only the Lead
Member could be changed and that too with the written consent
H
1162 SUPREME COURT REPORTS [2009] 1 S.C.R.

A of Mis VSL (Sponsor). According to the learned counsel, RFP
did not permit change of consortium member after the cut-off
date. It may be noted that the Proposals of the Bidders were
to be submitted on or before 31.1.2008. Learned counsel
pointed out that along with the Proposal, Mis ZDL submitted
B the Consortium Agreement dated 4.10.2007 in which Mis PMS
signed the consortium agreement on behalf of Mis PPL, UK.
Therefore, according to the learned counsel, Mis PMS singed
the Consortium Agreement dated 4.10.2007 as an agent of Ml ...
s PPL, UK. According to the learned counsel, in the Consortium
c Agreement dated 4.10.2007, Mis ZDL did not stipulate that as
a Lead Member it would hold a minimum equity of 26% in the
SPC. The Consortium Agreement dated 4.10.2007 was not
notarized and stamped. That apart, the said consortium did not
submit documents from Mis PPL, UK authorizing Mis PMS to
sign the Consortium Agreement on behalf of Mis PPL, UK.
0
According to the learned counsel, all the above circumstances
came to be considered by the EC in its meeting held on
25.2.2008. The EC, according to the learned counsel, recorded
in its Minutes that since Mis PPL was the member of the
Consortium in terms of Consortium Agreement dated
E 4.10.2007, but, since Mis PPL was not shown in the Outer
Cover, therefore, a query was raised by the EC in its letter dated
3.3.2008 to the effect that although Mis PMS has signed the
Consortium Agreement on behalf of Mis PPL, the latter was not
a member of the Consortium. According to the learned counsel,
F in the said letter dated 3.3.2008, there was no direction from
the EC to Mis ZDL to delete the words "on behalf of Mis PPL"
and consequently, after the cut-off date, it was not open to Mis
ZDL led Consortium to submit a fresh Consortium Agreement
dated 11.3.2008 deleting the words "on behalf of Mis PPL".
G According to the learned counsel, therefore, there was a change
in the membership of the Consortium led by Mis ZDL and that
too after 31.1.2008. Therefore, according to the learned
counsel, it was not a case of curing of defect. According to the
learned counsel, change of consortium membership after the
H cut-off date made the Proposal of Mis ZDL led Consortium
STATE OF KERALA v. ZOOM DEVELOPERS PVT. LTD. 1163
& ORS. [S.H. KAPADIA, J.)

non-admissible in terms of the RFP. A

8. Shri K. Parasaran, learned senior counsel, next
contended that vide clause 3.5 of the RFP, all members of the
Consortium were "jointly and severally liable" for execution of
the Project in terms of the Licence Agreement and a statement
B
to that effect was required to be stated in the consortium
agreement, which statement was not incorporated in
T
consortium agreement dated 4.10.2007 nor in the consortium
agreement dated 11.3.2008. According to the learned senior
counsel, the two words, namely, "liabilities" and "responsibilities"
are not interchangeable. They are distinct and different
c
concepts. According to the learned counsel, RFP required a
statement regarding "joint and several liability" to be
incorporated in the consortium agreement because the word
"liability" represented an objective criteria, which criteria has not
been satisfied despite opportunity being given to M/s ZDL led D
Consortium to incorporate such a statementin the consortium
agreement. Learned counsel submitted that despite opportunity
being given to Mis ZDL led Consortium, even in the fresh
Agreement dated 11.3.2008, M/s ZDL led Consortium had
insisted on using the words "joint and several liabilities" in E
support of the words "joint and several responsibilities".
Therefore, for non-compliance of the said criteria, the EC was
right in treating the Bid Proposal of M/s ZDL led Consortium
, as non-admissible/non-responsive in terms of RFP.
F
---+
9. In short, on two of the aforestated grounds, namely,
change of consortium membership and non incorporation of
joint and several liability Clause in the consortium agreement,
learned counsel for the State of Kerala submitted that the EC
was right in treating the Bid Proposal of M/s ZDL as non-
G
responsive.

9A. Shri A. Sharan, learned Additional Solicitor General
appearing on behalf of Mis VSL substantially adopts the
contentions advanced by Shri K. Parasaran, learned senior
counsel for the State of Kerala. H
1164 SUPREME COURT REPORTS [2009] 1 S.C.R.

A 10. Shri K.K. Venugopal, learned senior counsel appearing
on behalf of Mis Lanco led Consortium submitted in addition
to the above contentions that, in any event, the figures submitted
by M/s ZDL led Consortium indicated that, on its own M/s PMS
did not fulfill the financial parameters of net worth, total turnover
B and cash accruals and that Mis PMS was solely dependent
upon the financials of M/s PPL, UK, consequently, the Bid
Proposal of M/s ZDL led Consortium was not admissible in
terms of RFP. Learned senior counsel further submitted that in
the Consortium Agreement dated 4.10.2007, there was a
c clause under the caption "Relationship of Parties". Reading of
that clause, according to the learned counsel, indicated that the
consortium members were to act on principal-to-principal basis
and despite opportunity, even in the fresh Consortium
Agreement dated 11.3.2008, the said clause stood retained.
Therefore, according to the learned counsel, the criteria of joint
0
and several liability was not satisfied by M/s ZDL led
Consortium.

11. On the other hand, it was submitted on behalf of M/s
ZDL led Consortium that the interpretation given by the
E Sponsor/Advisor on various terms and conditions of the RFP
should be read as a standard to evaluate the admissibility of
the bids. According to Shri Harish N. Salve, learned senior
counsel appearing on behalf of M/s ZDL, the Minutes of the EC
held on 25.2.2008 indicated that the words "responsibility" and
F "liability" were used interchangeably. That, it is only after the Law
Secretary gave his opinion that the question of the connotation -
of the two words "liability" and "responsibility" were made an
issue, which was clearly an afterthought. According to the
learned counsel, the said hair-splitting exercise was undertaken
G as an afterthought only after the Law Secretary gave his
opinion, which opinion was "off the record" advice (which
expression is used by the Law Secretary in his affidavit). "
According to the learned counsel, there was no change in the
membership of the Consortium led by Mis ZDL because right
H from the inception, at the time of submitting the Proposals, it
STATE OF KERALA v. ZOOM DEVELOPERS PVT. LTD. 1165
& ORS. [S.H. KAPADIA, J.]

was made clear that M/s PMS would be the member of M/s A
ZDL led Consortium. It was submitted that M/s PMS was the
subsidiary of Mis PPL, UK, and the words "on behalf of were
used in the Consortium Agreement dated 4.10.2007 only to
indicate the relationship between M/s PMS and M/s PPL, UK.
This position, according to the learned counsel, is indicated by B
the Bid documents submitted on 31.1.2008, Power of Attorney
dated 18.10.2007, Notary Certificate, Covering letter dated
31.1.2008 and annexures to the Bid documents submitted by
M/s ZDL.

12. On the question of financials, Shri Arun Jaitley, learned c
senior counsel for M/s ZDL, submitted that the Chart submitted
before this Court by the learned counsel for M/s Lance led
Consortium was defective because the Financials for FY 2006-
2007 has not been projected. In this connection, it was pointed
out that M/s ZDL had submitted the details for FY October, 2003 D
to September, 2004, October, 2004 to September, 2005 and
. October, 2005 to September, 2006 as on 31.1.2008. It was
pointed out that, M/s ZDL was following the Accounting Year
from October to September. It was submitted that the last date
for submission of Bids was 31.10.2007 initially, which stood E
,,... extended later on till 31.1.2008. Acccrding to the learned
~
counsel, the Balance Sheet for FY 2006-2007 was in the
process of being prepared when the Bid documents were

. submitted on 31.1.2008 and consequently, the Balance Sheet
_,,
for FY 2006-2007 could not be submitted. According to the F
learned counsel, if the Financials for the year including FY
2006-2007 are taken into account; then M/s ZDL lead
Consortium satisfies all the financial parameters of net worth,
turnover and cash accruals.
G
13. Points for Consideration:

(A) Whether the modified Consortium Agreement
dated 11.3.2008 resulted in a change in the
constituents membership of the Consortium led by
M/s ZDL. H
1166 SUPREME COURT REPORTS [2009] 1 S.C.R.

..--'----
A (B) Whether use of the expression "joint and several --...,......
responsibility" in place of "joint and several liability"
would justify rejection of the Bid Proposal made by
the Consortium led by M/s ZDL as non-responsive/

B
non-admissible in terms of the RFP.

Findings on Point No. (A):
-
14. As per the scheme of RFP, at the stage of Submission ...
of Proposals, the bidders were required to furnish the names
of the Lead Member and other members of the consortium. In
c this case, one of the members of the consortium was Mis PMS. '
?
While furnishing "Details of Bidders", the name of the
consortium member was shown as PMS. Similarly, against the
column "Brief Description of the Company", the name of M/s
PMS was mentioned as the international arm of M/s PPL.
D Therefore, at the stage of Submission of Proposals, M/s ZDL
had stated that M/s PMS was the member of its Consortium.
There was one more column which was required to be filled-in
by the bidders, namely, "Ownership of the Organisation". In this
column, M/s ZDL indicated that M/s PMS was a consortium
E member which was the wholly subsidiary company of M/s PPL,
UK. It may be noted that, under the Scheme of RFP, the bidders ,- ..,
had to offer a firm commitment to form SPC to implement and ~·

operate the above Project in i<erala, should the Sponsor (M/s
VSL) select one of the five bidders as Licensee. Therefore, the
~

F Proposal had to be made in a prescribed format. On reading
the said Proposal, therefore, it becomes clear that on the date,
namely, 31.1.2008, being the cut-off date (when the bids were '
opened), M/s PMS was the member-constituent of the
consortium led by Mis ZDL. At this stage, one must keep in
mind that Section 212 of the Companies Act, 1956 which
G
makes it obligatory on behalf of the holding company to annex
to its Balance Sheet the Balance Sheet and P&L account and ;
other financial particulars of its subsidiary. Section 212 requires
the legal relationship of holding company and subsidiary .;,::
company to be disclosed to all its members. In the world of
H
STATE OF KERALA v. ZOOM DEVELOPERS PVT. LTD. 1167
& ORS. [S.H. KAPADIA, J.]

globalization, we have consortium agreements/ joint venture A
agreements. It appears from the particulars given by the
consortium led by M/s ZDL that M/s PMS is a part of an
international group of companies headed by Mis PPL, UK.
The prescribed Form warranted Disclosure giving particulars
of the consortium members. The particulars furnished indicate B
that the Lead Member was Mis ZDL. It is an Indian company.
... One of the consortium member was M/s PMS, which is
incorporated in UK. It is the 100% subsidiary of M/s PPL, UK.
This information also became necessary because the format
required the Bidder to disclose "Ownership" of the member- c
company. Therefore, if one reads the Proposal of the Lead
Member, M/s ZDL, in the form prescribed, which Proposal was
of 31.1.2008, one finds that M/s PMS alone on its own was
indicated as a member of the consortium and M/s PPL was
not shown as the member of the consortium. However, the
D
original consortium/joint venture agreement dated 4.10.2007
signed by the member-constituent of the consortium led by Ml
s ZDL stood signed by Mis PMS on behalf of M/s PPL, UK.
Therefore, on 3.3.2008, IDC (Project Advisor) wrote to Mis
ZDL inter alia pointing out the defect in the consortium
agreement dated 4.10.2007 in the following words: E

"M/s PMS has signed consortium agreement dated
4.10.2007 on behalf of M/s PPL but Mis PPL is not a
}· member of the consortium."
F
Thus, the Project Advisor treated the above irregularity in
the execution of the consortium agreement dated 4.10.2007
as a curable defect for which time was given to M/s ZDL up
to 4.4.2008. Further, the Project Advisor clearly understood the
Proposal to have had been given by M/s ZDL as the Lead
G
Member of the Consortium, whose constituent inter a/ia
included Mis PMS and not Mis PPL. By the said letter, the
Project Advisor also called for Annual Reports of three
financial year of M/s ZDL and Annual Reports of last 3 years
of Mis PMS (its own). This query indicates that the Project
H
1168 SUPREME COURT REPORTS [2009] 1 S.C.R.

A Advisor not only treated the above irregularity in the execution
of the consortium agreement dated 4.10.2007 as the curable
defect but it further shows that even, according to the Project
Advisor, Mis PMS alone was the constituent member of the
consortium led by Mis ZDL and it is for this reason that the
B Project Advisor called for the annual reports of Mis PMS (its
own). This defect was cured by Mis PMS within the extended
period. It is interesting to note that the question of "authorization"
by Mis PPL,UK, was not raised by the Project Advisor in its
letter dated 3.3.2008. That aspect was raised only by the Law
c Secretary who came to be Invited as a special invitee by the
Chief Secretary in the meetings of the EC held on 8.4.2008
and\6.5.2008 (which is after the extended date 4.4.2008). ltis
not in dispute that Mis PPL, UK is the holding company of Ml
s PMS. Mis PMS is a subsidiary company. It is the separate
legal entity. We are satisfied that at the stage of Submission
0
of Proposal itself and right from the inception, it was Mis PMS,
who alone was the constituent member of the consortium. The
question of authorization raised by the Law Secretary, in his
opinion, is clearly an afterthought. In fact, there is a contradiction
in his opinion. If Mis PPL was the member of the consortium,
E as construed by the Law Secretary, there was no need for Ml
s PPL to authorize Mis PMS to execute the consortium
agreement. On the other hand, if Mis PMS being the separate
legal entity was a member of the consortium it had to sign the
consortium agreement in its own capacity. The modified.
F consortium agreement dated 11.3.2008 is supported by a
Resolution. The said consortium agreement is in line with the
Proposal submitted on 31.1.2008.

15. One more aspect needs to be pointed out. The RFP
G prescribes the form in which a bidder has to make his proposal.
However, bidder was free to submit the consortium agreement
in its own format. M/s Universal Legal (legal advisor to the
Sponsor) cleared the proposal on 4.4.2008 stating that all
requisite defects stood cured. It is only after 4.4.2008 that the
H Law Secretary came into picture and gave an opinion to the
STATE OF KERALA v. ZOOM DEVELOPERS PVT. LTD. 1169
& ORS. [S.H. KAPADIA, J.]

contrary. Moreover, as found by the High Court in the impugned A
judgment, when the Law Secretary was asked to file his
affidavit he came out with the statement that his advice was "off .
the record" advice. It was not given through Official Channel.
At this stage, we may also point out that no material has been
placed before the High Court as to the reference made by the B
Chief Secretary to the Law Secretary. Whenever opinion is
sought, the persons seeking opinion has to formulate the query
• for which opinion is sought. We do not know the query raised
by the Chief Secretary before the Law Secretary. No material
has been placed before us in this regard. In fact, the very c
purpose of routing the query through Official Channel is that the
querist formulates the query on which opinion is given. In tl:lis
case, there is no formulation of such a query. In the
circumstances, we find that the High Court was right in not
giving weightage to the "off the record" advice of the Law
0
Secretary. This is one of the circumstances which vitiates the
process of decision making by the EC. The bid was declared
as non-admissible in the IVth meeting of the EC held on
6.5.2008. The Minutes indicate that, before the EC, there were
two Opinions. First opinion was that of Mis Universal Legal and
the second opinion was that of the Law Secretary. There is E
nothing to indicate in the Minutes as to why the opinion of the
legal advisor, Mis Universal Legal, stood rejected. There is no
reason given as to why the opinion of the Law Secretary came
to be accepted. Be that as it may, we are of the view that the
modified consortium agreement was between members of the F
consortium led by Mis ZDL in which the member was Mis PMS
and not Mis PPL, UK, right from the inception. Therefore, the
entire exercise was to cure the defect. Time was given to Mis
ZDL to cure the defect which in fact was cured before 4.4.2008.
For the aforestated reasons, we hold that there was no change G
in the membership of the consortium led by Mis ZDL after
31.1.2008. In fact, even prior to the IVth meeting the EC did
not call upon Mis ZDL/PMS to obtain Letter of Authority from
Mis PPL, UK.
H
1170 SUPREME COURT REPORTS [2009] 1 S.C.R.

A 16. For the above reasons we hold that there was no
change in the membership of the Consortium led by M/s ZDL.

Findings on Point No. (8):

17. As stated above, the second ground for treating the
B Bid Proposal of the consortium led by M/z ZDL as non-
responsive was that, in the consortium agreement, Mis ZDL has
failed to incorporate the expression "joint and several liability".
That, Mis ZDL has incorporated the clause under the
expression "joint and several responsibility" in place of "joint and
C several liability" and consequently, the Bid Proposal became
non-admissible/non-responsive in terms of the RFP. This was
the basic argument advanced on behalf of GoK.

18. At the outset, it may be stated that in letter dated
0 3.3.2008 no such point was ever raised by the Project Advisor.
As stated above, by the said letter dated 3.3.2008 curable
defeds were pointed out regarding M/s PMS having signed the
consortium agreement dated 4.10.2007 on behalf of M/s PPL,
UK, but no query was ever raised on the above point. On the
E contrary, as can be seen from the Minutes of the meetings held
prior to 8.4.2008, the Project Advisor/Sponsor has used the
word "responsibility" interchangeably with the word "liability". It
is only in the opinion of the Law Secretary that, for the first time,
the above objection is taken.

F 19. Be that as it may, the question is whether in the
modified consortium agreement dated 11.3.2008
responsibilities and allocation of works stood clearly
demarcated between the members of the consortium? We
have examined the consortium agreement dated 11.3.2008. It
G clearly indicates that Mis ZDL is an Indian company. It is a lead
member of the consortium. The agreement further indicates that
there were two members in the consortium apart from M/s ZDL,
namely, M/s PMS and M/s Peter Fraenkel & Partners. The
agreement indicates that M/s ZDL shall be responsible for
H implementation of the Project along with M/s PMS and Mis
STATE OF KERALA v. ZOOM DEVELOPERS PVT. LTD. 1171
& ORS. [S.H. KAPADIA, J.]

Peter Fraenkel & Partners. Mis ZDL had to submit technical A
and financial bids. M/s ZDL had to act as project developers
and principal coordinators. M/s ZDL had to arrange finances.
On the other hand, Mis Peter Fraenkel & Partners had to do
the work of designing and budget preparations whereas M/s
PMS had to provide operational support during the B
implementation of the Project. Therefore, under the said
Agreement, duties and responsibilities of each of the members
stood carved out. Vide clause 7, members of the consortium
were made "jointly and severally responsible" for every stage
of implementation of the Project. The only objection raised by c
the GoK is that the word "liable" ought to have been used
instead of the word "responsible" in clause 7 and since that
word has not been used, the Bid Proposal of M/s ZDL needs
to be dismissed. As stated above, in the meetings held prior
to 8.4.2008, no such objection was ever raised. In fact, no
0
opportunity was given to M/s ZD~ to cure this defect though it
was given to the consortium led by M/s Apollo (see page 81
of the SLP paper book in SLP (C) Nos. 30204-30205/2008
entitled State of Kerala v. M/s Zoom Developers Pvt. Ltd. &
Ors.). The important point is that the EC treated the above
objection as a curable defect. It is only after the Law Secretary E
came on the scene that the above objection was raised even
after the clearance by M/s Universal Legal. Therefore, it is
clearly an afterthought. Further under the consortium agreement
dated 11.3.2008, it was stated that M/s ZDL, PMS and Peter
Fraenkel & Partners shall be fully responsible for their individual F
portions of work. Under the said Agreement, it was further
stated that, in case the Project stood awarded to the
Consortium, the Consortium commits to hold a minimum stake
of 51% in the SPC. This shows that in the matter of liability, the
Consortium Agreement was only a step-in-aide to the formation G
of SPC. Further, as rightly held by the High Court in the
impugned judgment, the apprehension of GoK that in the event
of disputes between members of the consortium or in the event
of non-implementation of the Project, GoK would not be in a
position to enforce its claim was ill-founded because the licence H
1172 SUPREME COURT REPORTS [2009) 1 S.C.R.

A agreement between the successful bidder and the licensor
(GoK) was yet to be entered into in which a provision as to "joint
and several liability" had to be made, as mentioned in the RFP.
The consortium agreement was only an assurance or a
commitment to abide by the licence agreement. Lastly, it may
B be stated that the word "responsibility" is no doubt different from
the word "liability". What is submitted before us is that the
expression "joint and several liability" was required to be
incorporated in the consortium agreement in terms of RFP.
What was submitted before us was that the said expression
c constituted an objective criteria. What was submitted before us
was that since the above expression in the RFP was treated
as an objective criteria, the manner in which the said
expression stood understood by the EC was irrelevant. We do
not find merit in this argument. As stated above, though the
Form of Proposal was prescribed, the bidder was free to
0
submit the consortium agreement in its own Form. In our view,
in the absence of a prescribed format and in the absence of
the definition of the word "responsibility" vis-a-vis the word
"liability" in the RFP, it cannot be said that the said expression
"joint and several liability" was an objective criteria. It is true that
E in terms of RFP, the bidder was required to stipulate the words
"joint and several liability" in the consortium agreement. But it
is equally true that in certain cases objective words can be
interpreted subjectively. For example, the word "regulate". It has
several times been decided that the power to regulate does
F not extend to a power to prohibit. But this very word has been
held in some other cases to include the power to prohibit. In
U.K., the Railway Board was entitled to impose a ban on
smoking in trains under this very power to regulate. Therefore,
one has to construe each of these words in that context. (see
G Administrative Law by H.W. Wade and Forsyth- 9th ed. at pp.
432-435). In this very case, various bids were considered by
the Project Advisor/Sponsor. They have themselves used the
words "liability" and "responsibility" interchangeably. They have
treated this defect as a curable defect. They have not rejected
H the Bid Proposal on 25.2.2008 in the first meeting on the above
STATE OF KERALA v. ZOOM DEVELOPERS PVT. LTD. 1173
& ORS. [S.H. KAPADIA, J.]

ground because the EC thought that the said defect was a A
curable defect. -

20. It was vehemently urged on behalf of Mis Lanco led
Consortium that in the consortium agreement dated 4.10.2007
· as well as in the consortium agreement dated 11.3.2008, there B
was a clause under the heading "Relationship of Parties" which
indicated that each member of the consortium shall deal with
the other on principal-to-prin~ipal basis till the formation of SPC.
In the said clause, it was further stated that, nothing contained
in the agreement shall be deemed to constitute any of the
parties as agent of the other. Therefore, the members of the C
consortium led by Mis ZDL cannot be said to be jointly and
severally liable at every stage of implementation of the Project.
We do not find merit in this argument. As stated above, the
consortium agreement dated 11.3.2008 spelt out the work
allocation and the responsibility of each member of the D
consortium. It made the consortium responsible jointly and
severally for implementation of the Project. The clause dealing
with "relationship of the parties" merely stated that till the
formation of the SPC, each member shall be related to each
other on principal-to-principal basis. This is because the E
· consortium is formed to make a bid for this Project only. Till the
formation of SPC and till the consortium becomes a successful
, bidder, the parties relate to each other on principal-to-principal
basis. But once that consortium becomes a successful bidder
and commits to hold the minimum equity stake of 51% in the F
SPC, then the question of joint and several liability would
certainly arise. Therefore, the High Court rightly held that the
licence agreement between GoK and the successful bidder
(consortium) has still to be executed and it is at that stage that,
in any event, the clause of joint and several liability shall stand G
incorporated in the licence agreement.

21. Before concluding, an attempt was made on behalf of
Mis Lanco Kondapalli Power Pvt. Ltd. (appellant in the civil
appeal arising out of SLP (C) No. 30305/2008) to demonstrate
H
1174 SUPREME COURT REPORTS [2009] 1 S.C.R.

A before us that but for the financials of Mis PPL, the consortium
led by M/s ZDL would not have rnet the financial qualification
criteria as on the date of the submission of the Bid Proposal
(31 .1.2008). Learned counsel appearing on behalf of Mis Lanco
Kondapalli Power Pvt. Ltd. submitted a Chart in support of his
B above contention. We find no merit in this argument. The said
Chart refers to the Financial Years October, 2003 to
September, 2004, October 2004 to September, 2005, October,
2005 to September, 2006 as far as M/s ZDL is concerned.
However, it may be noted that initially the last date for submitting
c the bid was 31 .10.2007, which was extended to 31.1 .2008. The
Balance Sheet and P&L account of Mis ZDL for the year ending
30.9.2007 stood adopted after audit only on 20.3.2008. If the
figures for that year are taken into account then the financial
qualification criteria stands satisfied.
D 22. For the aforestated reasons, we find no infirmity in the
impugned judgment of the Division Bench of the Kerala High
Court which has given a declaration to the effect that the Outer
Cover and Cover-1 submitted by the consortium led by Mis
ZDL is admissible/responsive in terms of RFP. Consequently,
E we declare that the Technical and Financial Proposals
submitted by the said Consortium (respondent no. 1) are liable
to be considered within 15 days from the date of this judgment.

23. Accordingly, the civil appeals stand dismissed with no
F order as to costs.

G.N. Appeals dismissed.