Chahal Engg. & Construction, Company Private Ltd. And Others v. State Of Gujarat And Another

B.K Mehta, J.:— A few relevant facts need be noticed in order to appreciate the challenge to the decision of the State Government as intimated by the letter of the 2nd respondent herein dated January 23, 1985 refusing to pre-qualify the joint venture consortia for the work of constructing concrete dam across Narmada river for the Sardar Sarovar (Narmada) Project in Giyarat State.

2. TORNO S.P.A the 2nd petitioner herein is a company incorporated on January 9, 1929 in Milano, Italy and is specialised in building concrete dams, earthfill and rockfill dams, hydroelectric power stations, tunnels, roads and bridges, railway and heavy civil engineering works in general. They claim to have built in Italy amongst other projects huge concrete dams as well as earthfill dams and also bridges and viaducts. They have been invited to participate in international tenders and accordingly they were associated with the structures of huge complexity such as concrete as well as earthfill dams and underground power stations in Sudan, Rhodesia, Switzerland, Zambia and Taiwan. They have, for the purposes of their business, large plant and equipment yard, highly specialised staff and well trained labour force and, therefore, enjoy confidence of their clients for whom they often act as consultants. At present, they are engaged in important projects such as earthfill dams in Southern Italy and nuclear power station in Italy as well as 115 meter high rock-fill dam and 600 MW power house of Shiroro, Nigeria. It is claimed by them that they are completing alone a hydroelectric system in Nigeria for a value of 7000 million US dollars. The first Petitioner Company which is an Indian Company are also leading contractors and are registered as AA contractors with the State of Gujarat.

3. The first and the second petitioners, with the help of six other companies, namely, (1) Marpiss-Ridgway Ltd. of U.K, (2) TORNO A.G of Switzerland, (3) Mahaling A. Shetty Ltd. of India, (4) R.S Avtar Singh Ltd. of India, (5) Vaish Brothers Ltd. of India and (6) Colonel Consultants of India entered into a joint venture consortia by an agreement dated July 20, 1983 for executing the project of the concrete dam across Narmada river for Sardar Sarovar (Narmada) Project (hereinafter referred to as the “dam construction”) with 17%, 23%, 24%, 2%, 17%, 8%, 8% and 1%, respectively, as shares in profits and losses of the works. TORNO S.P.A the 2nd petitioner herein were to be the sponsor firm in this joint venture consortia.

4. Similarly the first and the 2nd petitioners, with the help of two other companies, namely, Vaish Brothers Ltd. of India and TORNO A.G of Switzerland, entered into a joint venture consortia by an agreement dated December 16, 1983 for the project of excavating, tunneling and other civil works for the underground river bed power house and appurtenant works for Sardar Sarovar (Narmada) Project (hereinafter referred to as the “power house construction”) having shares of 36%, 40%, 15% and 9% respectively in the profits and losses of the works. The 2nd petitioner TORNO S.P.A is the leader of this joint venture group.

5. In response to the separate invitations issued by the State Government in April 1983 to pre-qualify the prospective bidders for the dam construction as well as power house construction works, the 2nd petitioner being the sponsor firm, made two separate applications for the said two works for pre-qualification. The precise dates of these applications are not clear from the record, nor specified in the petition, nor in the affidavit in reply of the State Government. Admittedly, the pre-qualification was sought in the name of the joint venture consortia, namely, TORNO FOR NARMADA. The 2nd petitioner furnished the required particulars in the profoyma and annexed necessary pre-qualification documents along with the respective transmittal letters for the two works. It was disclosed in Form “A” that the 2nd petitioner were multinational company having 54 years of experience in Italy, about 9 years experience in the countries like Sudan, Paraguay, Zambia, and also worked as a joint venture consortia in their own country, for about 7 years and about 27 years in Rhodesia, Switzerland, Turkey, Taiwan, Ivory Coast, Saudi Arabia and Nigeria. The 2nd petitioner company's capital was to the tune of about 10 million US dollars and had a turnover for the year 1982 of about 245 million US dollars, and the corresponding profit for the said year was about 3 million US dollars. They have stated that they had undertaken to execute the project of the annual value to the tune of 240 million US dollars. The necessary particulars about the joint venture consortia were furnished in Form “C”, and it was pointed out that the 2nd petitioner have built more than 25 concrete dams and had undertaken works of huge magnitude as joint ventures with the other companies.

6. The eligibility criteria for the pre-qualification of the prospective bidders for dam construction were, inter alia, that the applicant must be well established contractors with experience and capability in dam and similar constructions and must have placed 25000 cubic metres cement concrete per month and must have had in any one year during last five years turnover of the value of Rs. 400 million in construction. Similarly the eligibility criteria prescribed for the power house construction were that the applicant must be established contractors with experience in underground excavation and general civil engineering works and must have done underground excavation works of at least 1000 cubic metres per month in rock mass and annual turn over of the value of Rs. 50 million in any one year during the last five years. The information was to be furnished by the prospective bidders in different proformas as appended to the pre-qualification information. Form “A” required particulars of the organisational structure of the applicant. Form “B” pertained to the financial details of the applicant. Form “C” pertained to the particulars of joint venture. Form “D” related to the details of personnel resources. Form “E” related to the details of equipment of plant and machinery with the applicant. Form “F” related to experience while form “G” was for additional information. It appears that the 2nd petitioner thereafter addressed a letter dated February 28, 1984, briefly explaining as to what weighed with the said petitioners in forming the joint venture consortia in question. It was pointed out that TORNO S.P.A, which is an Italian firm with their Swiss associates, namely, Torno A.G, had acquired great experience in the field of construction of hydroelectric system and, therefore, can be called deservedly one of the most specialised undertakings in the power sector. The 2nd petitioner also thought it advisable to include Mar-piss-Ridgway Ltd. of U.K which had a considerable technical specialisation in concrete field and being originally a British company would be useful for the joint venture consortia to establish greater relations with the Indian culture. The criterion which the 2nd petitioner adopted in selecting the Indian associates was that the company should be of middle or small size which must have already executed works successfully having capable managerial talent so that a sort of permanent relationship with the Indian companies be established for Indian and other international projects. This would have two-fold benefit, namely the Indian companies would be enriched by technological innovations of foreign companies and the foiregn companies would be facilitated in execution of the projects in this country. Another letter was addressed by the 2nd petitioner on July 6, 1984 to the 2nd respondent in connection with the power house construction specifying the responsibilities of the various members of the joint venture group seeking pre-qualification for the said constructions. It was, inter alia, stated that the 2nd petitioner would be fully responsible for the joint venture, and that it would provide as sponsor together with their associates Torno A.G of Switzerland for the preparation of technical designs, organisation, preparation of works, choice of machinery etc. The first petitioner, under the supervision of the expert technical personnel provided by the 2nd petitioner, would put their resources at the disposal of the joint venture for the power house construction. Vaish Brothers Ltd. would be responsible for the concrete finishing work. By another letter of even date addressed to the 2nd respondent, the petitioners forwarded a postil dated January 30, 1984 to the Memorandum of agreement of the joint venture for power house construction so as to amend Article 4 of the said Memorandum for correcting the inadvertent error in the shares of the coventurers, which according to the Memorandum was 29%, 9%, 15% and 36% for TORNO S.P.A, TORNO A.G Vaish Brothers Ltd. and Chahal Engineering & Constructipn Co. Pvt. Ltd., respectively. The postil corrected the shares of TORNO S.P.A as 40% instead of 29%. By another letter of the said date, the 2nd petitioner specified the responsibilities amongst different partners of the joint venture for the power house construction.

7. The grievance of the petitioners is that inspite of the fact that the 2nd petitioner Were most competent experienced and eligible company to carry out both the works, the 2nd respondent by his letter of January 23, 1985 intimated the 2nd petitioner that the Government of Gujarat has not been able to pre-qnalify the joint venture consortia for the dam construction. The 2nd petitioner, therefore, by their cable dated April 12, 1985 requested the 2nd respondent to intimate the reasons for rejection of their pre-qualification application. Since there was no response, the 2nd petitioner sent another cable of April 30, 1985 again requesting the 2nd respondent to give reasons and also informed them that the joint venture consortia have appointed their associates the first Petitioner Company to take all necessary actions to secure justice to the joint venture group. By another letter of January 24, 1985, 2nd respondent informed the 2nd petitioner that the State Government was not able to prequalify the joint venture group for power house construction. Since there was no response from the respondents to the request made in the aforesaid two cables, Chahal Engineering & Construction Company Pvt. Ltd. as well, as TORNO S.P.A being petitioners Nos. 1 and 2 herein, and one Shri J.S Pujji, Director of the first petitioner company, being petitioner No. 3 have moved this Court by the present petition on July 9, 1985 for appropriate writs, orders and directions to quash and set aside the decisions of the State Government refusing to pre-qualify the petitioners' joint venture for the dam as well as power house construction and for enjoining them to treat them as pre-qualified and issue, tender documents so as to enable them to bid for the works.

8. Pursuant to the notice issued by this Court, the State Government entered the appearance and filed their reply affidavit through Shri I.M Shah, Secretary to the Government of Gujarat in Narmada Development Department, opposing the admission, of the petition to which the petitioners filed affidavit in rejoinder of the third petitioner on August 1, 1985. Rule nisi was issued on August 8, 1985 and the State Government has, in pursuance thereof, filed further affidavit of said Shri I.M Shah on 19/20th December, 1985. The petitioners filed additional affidavit in rejoinder and further affidavit on August 20 and December 19, 1985. It should be noted that the petitioners have amended their petition as per the order of this Court dated August 1, 1985.

9. Before we set out the contentions urged in support of the challenge to the impugned decisions, we may briefly indicate as to what reasons weighed with the authorities in refusing to pre-qualify the petitioners' joint venture for dam construction as well as power house construction. The reasons which weighed for refusal to pre-qualify for dam construction are as under:

1. The responsibilities of partners are not defined either in the joint venture agreement or in Form “C”.

2. The lead firm is also not defined.

3. Documents submitted by some of the partners are incomplete.

4. Application is therefore, considered non-responsive. Except TORNO S.P.A none of the other six partners has any experience in concrete dam construction.

10. Similarly the pre-qualification application of the joint venture of the petitioners for power house construction was rejected on the following grounds:

1. Lead firm not identified.

2. Sponsor mentioned as TORNO (TORNO S.P.A or TORNO A.G) not clear.

3. Duties and responsibilities not defined.

4. Percentage participations do not total 100. There is a discrepancy in the mentioning of shares of participants.

5. The purpose of joint venture is stated to be for construction of concrete dam and not underground power house.

6. TORNO A.G have furnished only Form “B”. Chahal have furnished only Form “B” and Annexure “A”.

7. Others have not furnished any document.

11. On behalf of the petitioners, learned Counsel Mr. R.H Mehta, submitted that the impugned decisions were vitiated since they were reached on the grounds which were irrelevant, extraneous, ignoring the relevant information furnished or in any event without calling for further particulars in that behalf which the authorities were under their own procedure supposed to call for in case of doubts or misgivings and contrary to the guideline issued and suggestions made by the World Bank which has agreed to finance the entire project, and particularly the recognised legal concept of joint venture consortia in the context of construction contracts. The decisions were thus rendered unreasonable and arbitrary and therefore bad in law and void. In any case, no reasonable person would have reached the impugned decisions refusing to pre-qualify the joint venture of the petitioners for dam construction since admittedly TORNO S.P.A 2nd petitioner herein were highly qualified, experienced and, therefore, eligible for pre-qualification. The authorities reached the impugned decisions in light of the guideline subsequently evolved by the Advisory Committee which guideline has gone beyond the original eligibility criteria prescribed in the Information and Instructions to the applicants seeking pre-qualification. The authorities have thus failed to apply their mind to the correct criteria to be adopted in deciding the question of pre-qualification having regard to the guideline prescribed and the suggestions made by the World Bank as well as correct legal parameters to be applied in the matter of pre-qualification of joint venture groups and, therefore, the impugned decisions were vitiated by legal malafides, bad in law and void.

12. On behalf of the State Government, the learned Advocate General raised two preliminary objections. Firstly, the petition was bad as the petitioners were guilty of inordinate delay and laches and if the petitioners were granted the reliefs as prayed for by them, it may necessitate considerable rescheduling of the works which would be against public interest. Secondly, in any case clause 14 of the joint venture agreement pertaining to the dam construction as well as power house construction which are respectively dated July 20, 1983 and December 16, 1983 would remain in force after having been signed by the parties thereto for a period not exceeding 12 months, and the said period of 12 months having expired, there is no joint venture group in existence and, therefore, the petitioners are not entitled to seek for any or all of the reliefs. As regards the merits of the petition, the learned Advocate General urged that in both the cases the applications were non-responsive and, therefore, the authorities were fully justified in refusing to pre-qualify the joint venture of the petitioners. He urged that it is doubtful whether by the respective agreements, the parties have agreed and undertaken to seek pre-qualification in the first instance or to bid for the works as joint venture group since some of the clauses of the joint venture agreements render this understanding in a most nebulous stage. It has been also pointed out by the learned Advocate General that the applicants seeking pre-qualification were warned in the Information supplied to them that incomplete information may render the application non-responsive and no information would be entertained after submission of the pre-qualification documents,.unless called for. The learned Advocate General also submitted that the decision of this Court in Asia Foundation and Construction Com. v. State of Gujarat 1985 (2) 26 GLR 1208 would not apply on the facts and circumstances of this case for the obvious reason that neither in the joint venture agreement nor in Form “C” to the application for pre-qualification the responsibilities of the co-venturers were defined and the documents submitted by the different partners were incomplete and even the sponsor of the joint venture group, namely, TORNO S.P.A-2nd petitioner herein furnished only partial information in Form “B” in respect of the power house construction while the documents submitted by some of the partners in respect of the dam construction were also sketchy and incomplete. If, therefore, the authorities reached the decision as they did they cannot be accused of acting in an unreasonable manner or any legal malafides can be attributed to them.

13. It is in the backdrop of these contentions that we have to decide the three principal questions which arise in this petition:

1. What is the effect of Clause 14 of the joint venture agreement in respect of the dam construction which, inter alia, prescribed, the duration of the agreement to be of 12 months from the date of signing of the agreements since the postil to the said Memorandum executed on 19th July 1984 was not signed by one of the original co-venturers, namely, Mahaling A. Shetty Ltd.

2. Whether the impugned decisions were unreasonable, arbitrary and suffer from legal malafides and, therefore, liable to be quashed and set aside.

3. What is the relief to which the petitioners are entitled to.

Re: Contention No. 1:

14. In order to appreciate this contention in the right, perspective, we may read Clause 14 of the joint venture agreement pertaining to dam construction which is executed by six other firms, inter alia, Mahaling A. Shetty Ltd. besides the first and the 2nd petitioner Companies. Clause 14 reads as under:

“14. This Agreement will remain in force after having been signed by the PARTIES thereto for a period not exceeding 12 (Twelve) months and will otherwise cease to be valid, (i) when the Formal Agreement in accordance with Clause (2) hereof shall be executed or (ii) upon notification by the EMPLOYER that the PARTIES have not been qualified for the WORKS.”

15. The argument advanced in support of the preliminary objection raised on behalf of the State Government is that more than one year has elapsed since both the joint venture agreements pertaining to dam and power house construction and, therefore, the same would be no longer valid unless the period of duration is extended before the duration prescribed under Clause 14 above expired. It should be recalled that the joint venture agreement pertaining to dam construction which would have otherwise expired on 19th July, 1984 was kept effective by postil to the said agreement executed on 19th July, 1984 by which the original agreement was kept in force for a period of 36 months from the date of execution of the original agreement, that is, July 20, 1983. However, one of the co-venturers to the original joint venture agreement viz. Mahaling A. Shetty had not joined in the execution of the postil. Similarly the joint venture agreement pertaining to power house construction which was executed on December 16, 1983 also contains a similar provision in Clause 14 with the result that the said agreement would have also, expired on 15-12-1984. However, by postil executed on December 14,'84, the original agreement was kept effective for a period of 36 months from 16th December, 1983 and it was signed by the executants to the original joint venture agreement. The preliminary objection which has, therefore, been raised is as regards the effect of Clause 14 of the joint venture agreement in respect of the dam construction which has expired on 19th July, 1984 and was not kept effective by all the executants of the original agreement. It should be, further recalled that in the additionnal affidavit in sur-rejoinder of Shri J.S Piyji, Director of Petitioner No. 1-company, dated December 19, 1985, it has been, inter alia, stated that: “the postil to the Memorandum of Agreement of the Concrete Pam has not been signed by one of the participants, namely, Mahalinga Shetty & Co. Private Ltd. However, they have now stated that if the petitioners are pre-qualified, they will again become participants in the joint venture.” Both the postil agreements have been produced as annexures to this affidavit and collectively marked as Annexure “L”. It is in the context of this fact situation that we have to examine as to what is the effect of Clause 14 of the joint venture agreement for dam construction which provided duration of 12 months and its extension by the postil agreement executed on 19th December, 1984 executed by all the executants, except Mahalinga Shetty & Co. Pvt. Ltd. The contention of the learned Advocate General is that on these facts, the petitioners could not have invoked the jurisdiction of this Court nor this Court should exercise the jurisdiction under Art. 226 of the Constitution in view of the joint venture consortia which is no more in existence. This contention appears to be forceful but we have to examine it closely for appreciating whether it is well founded or not.

16. It cannot be gainsaid that the duration of a joint venture may be fixed by the terms of contract between the participants and if that is the case, the venture is terminated on the expiry of the specified term without any further action by the parties, except for winding up purposes. It may be continued beyond the stipulated duration by express or implied agreement. Ordinarily, if no date is fixed under the agreement for joint venture for its termination, the agreement remains in force till the purpose of the venture is accomplished or becomes impracticable (see American Jurisprudence, 2nd Edition, Vol. 46, paragraph 30 at p. 51). According to the Indian Partnership Act, under Section 8, a joint venture is a particular partnership limited to a particular adventure or undertaking. Subject to any agreement between the co-venturers, a joint venture constituted to carry out one or more adventures or undertakings is dissolved by Completion thereof. Duration of partnership and provision for determination can be inferred from the nature of the business (see Thiagarajan v. Muthappa, AIR 1961 SC 1225).

17. Two subsidiary questions, therefore, arise: Firstly whether the first part of the clause providing the agreement to remain in force for a period of 12 months is in the nature of a provision for duration of the joint venture and, secondly, on the facts of the case before us not signing of the postil by one of the original executants amounts to withdrawal and consequently, therefore, the postil created a new joint venture agreement between the remaining executants. As regards the first subsidiary question, the following observation from the commentary on Section 7 of the Law of Partnership by S.T Desai, Fifth Edition, page 5B, is instructive on the point.

“…No difficulty arises in ascertaining the duration of a partnership when there is an express agreement as regards the same or when a partnership is entered into for a particular adventure or undertaking….”

18. Similarly the observation about the duration of a particular partnership to be found in the comments on Section 8 from the same volume at page 62 is also instructive which reads as under:

“Duration of ‘Particular Partnership’ — Subject to any agreement between the partners, a partnership constituted to carry out one or more adventures or undertakings is dissolved by the completion thereof.”

19. In ‘Liniley on Partnership, Thirteenth Edition, at p. 155, under the caption “Joint Adventure” the principle digested is instructive on the point. It reads:

“If a partnership be entered into for a single adventure or undertaking an agreement that the partnership shall last until the termination of the adventure or undertaking will be inferred. In Reads v. Bentlay (4 K. & J. 656) it was considered that an agreement to the effect that a publisher should defray the expenses of a work written by an author and should receive a percentage on the gross amount of sale, and that the net profits of each edition should be divided equally between both parties, amounted to an agreement for a joint adventure between the author and the publisher for so long as might be necessary to dispose of every new edition prolonged the partnership until that edition should be disposed of; but that when any edition was exhausted either party was free to discontinue the joint adventure.”

20. The second part of Clause 14 provides to the effect that this agreement will otherwise cease to be valid when the formal agreement in accordance with Clause 2 would be executed or upon notification by the Employer that the parties have not been qualified for the works. It is claimed by the learned Advocate General that the word, “otherwise” has to be given some meaning and it would indicate that this part of the clause is in the nature of a provision for termination or dissolution of the joint venture. The learned Advocate for the petitioner said that we should not read the clause in the manner in which the learned Advocate General wants us to read but read it as a whole. He further contended as under: If the first part of the clause is in the nature of a duration and therefore in effect and substance providing for the termination of the venture, the 2nd part would be redundant. If the parties agreed that in both these contingencies the venture had to be terminated, they would have provided by some such provision as whichever is earlier or later. On the plain reading of this clause, both cannot operate without any such qualification of the termination on any of the events happening earlier or later. No difficulty arises in ascertaining a duration of a partnership for a particular adventure since an agreement that it shall last until the termination of adventure will always be inferred. In our opinion the first part of the clause is more in the nature of an obligation to see pre-qualification within a period of 12 months. But if it is not possible, the venture will last till a formal agreement is entered into on being pre-qualified or a final notification refusing to pre-qualify has been made by the Government. The learned Advocate General contended that outer limit is 12 months and looking to the second half of clause 14, we have to give a meaning to the words, “otherwise cease to be valid” and, therefore, the agreement would come to an end if the formal agreement in accordance with clause 2 comes to be executed at a time within the said 12 months or upon notification by the employer refusing to qualify the applicant within the period of 12 months. The learned Advocate General said that to construe otherwise would be impossible and it would amount to straining the language of clause 14 unduly and unjustifiably if the Court is inclined to interpret as indicated above. There is a force in the contention and even if the interpretation canvassed by the learned Advocate General is justified, even then we cannot decide the petition on the aforesaid aspect alone in view of the other facts and circumstances of the case and having regard to the nature of the problem on hand, particularly because of the postil executed by all coventurers-except Mahalinga Shatty Pvt. Ltd. In any case, the postil agreement of July 19, 1984 executed by all the executants of the original agreement, except Mahalinga Shetty Pvt. Ltd. clearly establishes that the joint venture agreement remained in force and one of the original co-venturers Mahalinga Shetty Pvt. Ltd. did not participate in execution of the new agreement and, therefore for all intents and purposes withdrew from the joint venture agreement. The case therefore is not of termination of the joint venture agreement or it ceasing to be in effect on the expiry of 12 months but is virtually a case of withdrawal by one of the co-venturers. The question which therefore arises is whether a co-venturer is entitled to withdraw before the purpose of the venture is accomplished or has failed and if he does no so, what is its effect. Whether a party has a right to withdraw and what is the effect of such withdrawal upon the joint venture depends upon the terms of the agreement and/or upon the circumstances. Generally no co-venturer has a right to withdraw from or abandon it without the consent of his co-venturers where the venture has not fulfilled its purpose. In absence of a decree of a Court or on an agreement fixing the time of termination or voluntary abandonment of the enterprise by one of the co-venturers, the joint venture agreement remains; in force until its purpose is accomplished or becomes impossible for fulfilment and while it is in force ordinarily one joint venturer has no right to withdraw himself from the arrangement. It is only where the joint venture agreement is silent about this duration or termination, that a co-venturer has right to withdraw since it is virtually a limited partnership at will. Even the abandonment of a joint venture by one of the participants, and his active opposition to its operation by his conventurers will not forfeit his interest in the enterprise or deprive him of his right to share in the profits (me American Jurisprudence, 2nd Edition Vol. 46, paragraph 50 at pp. 67, 68, 69). There is an additional reason, for the view which we are inclined to take that till the pre-qualification is obtained or refused no conventurer-party to the memorandum of agreement of the joint venture for pre-qualification was entitled to withdraw. Clause 3 provides for withdrawal if he disagrees with the modalities established for preparation and submission of tenders, or the tender-price, or conditions of tender quoted by the joint venture after pre-qualification. Clause 3 reads as under:

“3. The preparation and submission of the tender shall be done according to the modalities established by the PARTIES and the tender price and the conditions of the tender if any shall be agreed unanimously by the PARTIES. If a PARTY should disagree it shall reduce its participation in the J.V to the extent that such PARTY may consider appropriate or may withdraw from the J.V provided that such reduction or withdrawal shall not bear any prejudice to the J.V in the attainment of the aim as aforesaid.

21. In the event of the EMPLOYER accepting the tender of the J.V the PARTIES thereto shall by the submission of the said tender be bound to enter into a contract with the EMPLOYER for the execution of the WORKS…”

(emphasis supplied)

22. It is, therefore, clear by clause 14 read with clause 3 that the co-venturers to the memorandum of agreement for joint venture for pre-qualification agreed, inter alia, that the venture-would be terminated on the notification by the Employer of the parties having been pre-qualified for the works, and that a party could withdraw from the joint venture in the, contingencies specified in clause-3 namely, his dis-agreement with the modalities of the tender and/or the price and conditions thereof. If the first part of clause 14 is, therefore, construed in the manner in which it-was sought to be urged by the learned Advocate General, it would have an effect of permitting withdrawal though the duration of the memorandum of the agreement was continued for a period of three years from the date of its execution by the postil executed by all the co-venturers, except Mahalinga Shetty Pvt. Ltd., on 19th July, 1984. Such a construction militates against the agreement and understanding of limited withdrawal in certain contingencies after the joint venture group is pre-qualified which should continue to function till it is pre-qualified or refused pre-qualification. The said construction is objectionable on another ground. Such a construction would result into such absurdity that the joint venture of the petitioners would not be obtained pre-qualification since the agreement had expired in spite of the decision of the State Government to grant pre-qualification to the petitioners, if by chance the State Government could not decide this question within a period of 12 months from the date of the memorandum of the agreement in question, i.e 19th July, 1983. In that view of the matter, therefore, we do not think that the effect of clause 14 is to terminate the joint venture of the petitioners and consequently, therefore, they are not entitled to invoke the jurisdiction or the Court should refuse to exercise the jurisdiction, even if they are entitled on merits to any or all of the reliefs prayed for. The preliminary objection stands rejected.

23. The question of delay has not been pressed seriously and we do not think that it is capable of being pressed since the grant of the relief, if any, would not affect the finalisation of the tender and thereby cause delay in execution of the works.

24. What is the extent of the power of judicial review of administrative action in the matter of pre-qualification of prospective bidders and consequent decision of the concerned authorities in the State Government refusing to pre-qualify the prospective bidders in execution of the projects has been elaborately considered by the Divison Bench of this Court consisting of one of us B.K Mehta, J. and G.T Nanavati, J., in Asia Foundation and Construction Company Ltd. — (AFCON's case for short) 1985, 26(2) Guj. L.R 1208. If the action or the decision is perverse or is such that no reasonable body of persons properly informed could come to or, has been arrived at by the authority misdirecting itself by adopting a wrong approach or has been influenced by irrelevant or extraneous considerations, the Court's interference is justified since there is an implied obligation on the authorities to apply their mind to pertinent and promixate matters only and excluding the irrelevant and the remote (see Smt. Shalini Soni v. Union of India (1980) 4 SCC 544 : AIR 1984 SC 131). The administrative authority must act in good faith, must have regard to all relevant considrations and must not be swayed by irrelevant considerations, and must not act arbitrarily or capriciously. Nor where a judgment must be made that certain facts exist can a direction be validly exercised on the basis of an erroeneous assumption about these facts (see: CIT. Bombay v. Mahindra and Mahindra Ltd. (1983) 4 SCC 392 : AIR 1984 SC 1482). The expression ‘arbitrary and capricious’ is sometimes used as a synonym for ‘unreasonable’ and in one case this has been transmuted into ‘frivolous or vexatious’ and ‘capricious and vexatious’. But the meaning of all such expressions is necessarily the same, since the true question must always be whether the statutory power has been exceeded. Unreasonableness is a generalised rubric covering not only sheer absurdity or caprice, but also illegitimate motives and purposes a wide category of errors commonly described as ‘irrelevant considerations’, and mistakes and misunderstandings which can be classed as self-misdiretion, or addressing oneself to the wrong question (see: Wade, Administrative Law, Fifth Edition at p. 365). The absence of a statutory power should not in itself be a conclusive reason for a refusal by the Court to entertain proceedings in which it was alleged that the companies were excluded from submitting tenders on the basis of mainfestly arbitrary considerations (see: De Smith's Judicial Review of Administrative Action, 4th Edition, p. 289). The principle of reasonableness and rationality must characterise every State action whether it be under authority of law or in exercise of the executive power without making of law (see: Ramana v. International Airport Authority (1979) 3 SCC 477 : AIR 1979 SC 1828).

25. Before we take up the 2nd Contention, it would be advisable to refer to the different authorities which have been set up under the award of Narmada Water Dispute Tribunal. It is not necessary for us to state in details as to what were the different authorities which have been set up under the award of Narmada Water Dispute Tribunal, or the procedure and rules of evaluation approved by the Advisory Commitee since they have been set out in details in paragraphs 9, 10, 11, 30 and 31 of the earlier judgment of this Court in AFCON'S case (supra). Suffice it to say that in case of joint venture applicants, the sponsoring firm has to submit complete information and identify the lead firm, and that practical workable and legally enforceable arrangement is made amongst the co-venturers to the satisfaction of the Committee by clear assignment of responsibilities regarding the execution and financial arrangement in such a way that the parties to whom such responsibilities are assigned are capable in their individual capacity to discharge them, and particularly the lead firm has necessary skill and capacity to lead during the entire period of execution. The Committee was given liberty under the procedure so prescribed to ask for clarification and further related information from the applicants, check their resources are make inspection of the prospective tender work. This procedure was prescribed in part I of the procedure and rules of evaluation. The relevant clauses of the procedure provide as under:

1. Any applicant capable of undertaking and completing the whole work within the stipulated time to the satisfaction of the Standing Committee is entitled to pre-qualify.

2. An applicant can either be an individual or a proprietory firm, a firm in partnership, a limited company, a limited Corportion, or a group of firms known as joint venture.

3.(a) In case of joint venture, the sponsoring firm has to submit complete information and identify the lead firm.

(b) It has to establish to the satisfaction of the Committee that practicable, workable and legally enforceable arrangement is made amongst the parties and there is a clear assignment of the responsibilities regarding the execution and financial arrangement, and that individual parties to whom such responsibilities are assigned are capable in their individual capacity to discharge them competently and satisfactorily and that the lead firm has necessary skill and capacity to lead during the entire period of execution for purposes of the responsibility and the involvement as well as control and direction on the resources of the entire joint venture.

4. A system awarding points for capability under various heads so as to judge the overall capability and fitness be evloved.

5. The Committee will have freedom to ask for clarification and further related information from the applicants, check resources and make inspection of the prospective tender work.

26. Rules were prescribed in part II in order to implement this procedure. Rule 1A provided that no evaluation will be done if the application is non-responsive or if the applicant did not fulfil the twin crieteria of its capacity of pouring 25000 cubic metre cement concrete per month, and having effected turnover of Rs. 40 crores in value of the construction work in any one of the last five years. Rule 4A which, indicates as to what is the role of the lead firm should be set out in extenso. It reads:

“4A. If the applicant is a joint venture, the details of the lead firm which will be—

(a) in charge of the actual execution of the work,

(b) in charge of the organisation, equipment and machinery etc. on site, and

(c) in charge of financial dealings as regards all payments including payments for work done, claims etc.

will be considered for determining the pre-qualification.”

27. What would be a non-responsive application is not made clear in the rules framed on September 10, 1983 for evaluation of the pre-qualification applications for dam constructons. We can have indication as to what would be non-responsive applications from the similar rules framed on January 4, 1984 for purposes of evaluating the applications for pre-qualification for the construction thereto. Rule 1A is material and, therefore, set out below:

“1A. No evaluation will be done—

(i) if the information given in form C or Annexure A, Sr. No. 9, or Annexure B, Sr. No. 8A or form B, Item 5, is incomplete and the application is therefore considered ‘non-responsive’, or

(ii) xxxxxxxxx

28. Similarly for the work of the power house, the rules and procedures were formulated and approved by the Chairman of the Advisory Committee on January 4, 1984. The procedure which has been formulated and approved was almost in the same terms as was prescribled for the work of dam construction. The rules framed for implementing this procedure, though similar are slightly differently worded. Rules 1A and IB read as under:

“1A. No evaluation will be done—

(i) if the information given in Form C or Annexure A, Sr. No. 9, or Annexure B, Sr. No. 8-A or Form 8, Item 5 is incomplete and the application is therefore considered ‘non-responsive’, or

(ii) if the applicant does not fulfil the crieteria for eligibility laid down in clause 8.04 and 8.05 which are reproduced below:

8.04 The applicant applying for pre-qualification must provide evidence of having adequate experience in control and modern blasting technique in Under Ground Excavation, Rock-bolling, Shotcreting and permanent underground support system.

8.05 To qualify the applicant must have done Under Ground Excavation with an output of not less than 10000 cubic metres per month in rock mass. He must have had at least in one of the last five years an yearly turnover of Indian rupees 50 million or equivalent in construction.

1B. If only the applicant is qualified as per ‘A’ above, further evaluation will be done as per the norms laid down in rule 4 below.”

29. Rule 4 comprises of two parts, rule 4A and rule 4B, they are in pari-materia with rule 4A and 4B adopted for the work of dam construction as set out above.

30. The Government of Gujarat invited applications in the prescribed form for pre-qualification by the Narmada Project Authority by International Competitive Bidding Pre-qualification Notice No. 1/83 from intending bidders for the dam construction. This notice was published in the various daily news papers, in the periodical known as World Bank Development Forum and International Trade Magazines. It was also furnished to the embassies of Foreign countries who are members of the World Bank and of Taivan and Switzerland. By the said notice, it was intimated to the persons concerned that pre-qualification documents along with the technical note-giving brief description of the work to be executed and model tender provisions would be made available from April 20, 1983 onwards from the office-specified therein, and the last date for submitting such applications was prescribed as August 22, 1983.

31. In pursuance of the above pre-qualification notice, 29 applications were received from the interested parties by the last date specified including the petitioners. The opening of the prequalification applications for dam construction was 12th September, 1983 before the Standing Committee. The said Committee held as many as eight meetings during the period October 1983 to February 1984 at Gandhinagar, New Delhi and Baroda. The applications were scrutinised to verify as to whether the applicants had satisfied the, prescribed criteria of placing at least 25 M/3 cement concrete per month on dam or similar works and whether the applicants had in one of the last five years annual turnover of Rs. 40 million in construction. Besides this twin test, the Standing Committee scrutinised the application by the joint venture consortia as to whether the lead firm had been identified; the consortia had practical and workable arrangments amongst the parties, whether clear arrangement had been made regarding the responsibility of execution and financial arrangement and whether the respective parties were competent to discharge the responsibilities so assigned and whether the lead firm had the necessary skill and capacity to lead. After detailed Scrutiny, it was ascertained that 14 applicants would pre-qualify whose names were specified in the report of the Committee. So far as the petitioners were concerned, the conclusion of the Standing Committee for not pre-qualifying them was to the effect that the application was not responsive and the first Petitioner Company had admittedly no experience on dam construction. This report of the Standing Committee was placed before the Advisory Committee on April 10, 1984. The report was scrutinised and the original documents examined and it was decided to accept the recommendation of the Standing Committee pre-qualifying 14 applicants out of 29. The Chairman of the Advisory Committee required the members to scrutinise the applications of the parties who were not recommended for pre-qualification by referring to their original documents and on review and detailed deliberation, the Advisory Committee unanimously approved the recommendation of the Standing Committee not to pre-qualify 15 of the applicants. These recommendations of the Advisory Committee were forwarded to the World Bank in July 1984. The officers of the World Bank visited India in September 1984 and scrutinised the original documents. On December 14, 1984 the World Bank communicated to the Government of India their no-objection to the recommendation made by the Advisory Committee on pre-qualification and the Government of India in turn communiated the said decision of the World Bank to respondent No. 1.

32. Similarly, by International Competitive Bidding Pre-qualification Notice No. 2/83, applications were invited for pre-qualification from the prospective bidders for Power House Construction. The last date for receipt of the applications was specified as 17th November, 1983 which was again extended upto 22nd December, 1983. In response to this notice, 39 applications were received by 22nd December, 1983. The applications were opened on January 11, 1984 before the Standing Committee which scrutinised the applications in two meetings held on April 11 and April 26, 1984. The Standing Committee found 19 firms as pre-qualified. So far as the petitioners were concerned, their applications were also rejected for Power House Construction broadly on the ground that their application was not responsive and the first petitioner had no experience of underground work. This report was placed before the Advisory Committee on June 14, 1984 and the Advisory Committee on scrutiny accepted recommendation of the Standing Committee in respect of the 19 applications, and also decided to add one more name to the said list of pre-qualified prospective bidders. These recommendations were forwarded to the World Bank in July, 1984. After the personal scrutiny by the officers of the World Bank in September 1984 as stated above, no objection was communicated by the Bank on December 14, 1984 to the Government of India which in its turn intimated it to the State Government.

33. It is in this back-drop that we have to consider the contentions for assailing the impugned decisions.

Re: Contention No. 2:

34. By the impugned decisions of January 23, 1985 and January 24, 1985, the petitioners were informed that the State Government was not able to prequalify the joint venture consortia, namely, TORNO FOR NARMADA either for dam construction and/or for power house construction. The reasons which weighed with the State Government for these impugned decisions have been set out above. We will, therefore, examine the contentions urged on behalf of the petitioners assailing the decision not to pre-qualify the said joint venture consortia for dam construction in the first instance, and then will address ourselves to the contentions urged assailing the impugned decision in respect of the power house construction.

35. We should bear in mind the pertinent fact that on the own showing of the State Government and as recorded in the reasons in support of the impugned decision pertaining to dam construction, the 2nd petitioner Torno S.P.A was experienced and qualified in the matter of construction of concrete dams. It is not possible to dispute these facts in view of the voluminous evidence adduced alongwith the application for pre-qualification for dam construction. The only reason on which the joint venture of the petitioners has been refused pre-qualification was that the application was considered to be non-responsive because, (a) the responsibilities of the partners are not defined either in the joint venture agreement or in Form “C”, (b) lead firm is not defined, and (c) the documents submitted by some of the partners of the joint venture were incomplete. It should be emphasised that except for the reason that the application of the joint venture consortia is non-responsive, no other reason has weighed with the authorities so far as the impugned decision pertaining to dam construction was concerned. In our opinion, this was too conditioned an approach adopted by the authorities which have lost sight of the guideline prescribed by the World Bank and the suggestion which was made by the World Bank as to how the authorities of the State Government should approach in the matter of pre-qualification of the prospective bidders, and particularly the joint venture consortia. One of the important principle incorporated in this guideline is that all eligible bidders from developing and developed countries must have an opportunity to compete for the execution of the works (see: AFCON's Case Supra, at page 1218). In the telex message of the World Bank of July 16, 1984, the following observations and suggestions are worth recapitulating:

“(i) The approach in evaluating the applicants was too rigid.

(ii) It is very unusual to find that no clarifications or supplementary information were requested from any of the 68 applicants.

(iii) There are questions that should be asked of some applicants.

(iv) There is good evidence to indicate that there are more applicants capable of doing the work than appear on your tentative list of recommendations.

36. In summary the applicants were treated as if they were tenders and not simply applicants to pre-qualify to be allowed to tender. Therefore, we strongly advise that clarification now to be requested of any applicant on any application on which there exist any doubts about ability to perform work. These clarifications can be obtained in a matter of days. We recommend that the above exercise be conducted expeditiously with a goal of qualifying all applicants who are capable of performing the task under question.”

37. The authorities in the World Bank felt that the approach of the Committee in evaluating the applicants was too rigid. The World Bank found it to be very unusual that no clarification or supplementary information was requested from any of the applicants either in connection with the dam construction and/or power house construction. In the opinion of the World Bank there was good evidence to indicate that there were more applicants capable of doing the work than what appeared on the tentative list of the recommendations of the Advisory Committee and the Standing Committee. The World Bank, therefore, summed up that the Standing Committee as well as the Advisory Committee approached the problem as if they were scrutinising the bid for the works and not the applications for pre-qualification of prospective bidders. The Bank, therefore, strongly advised the authorities of the State Government to seek clarification if the authorities entertained any doubt about the ability of any party to execute the works. In other words, the approach of the authorities, as a reasonable employer, should have been to find out while deciding the question of pre-qualification, whether the applicant is competent and able to execute the works. Again in the next telex message sent by the World Bank on August 6, 1984 the observations and suggestions are worth emphasising. The World Bank found that the level of acceptance for the individual firms was as high as 68% as compared to joint venture applicant which was only 16%. In the opinion of the World Bank, there were some large and capable firms who appeared likely to have qualified on their own but were rejected as they were merely partners in a joint venture. According to the World Bank it is not necessary and sometimes it is not even possible to have full details of joint venture proposals for pre-qualification purposes. The most important aspect to which the attention of the Standing Committee and the Advisory Committee was drawn was that the joint ventures which include one or more firms who are able to perform the works and indicated that they are jointly and severally responsible, should have been pre-qualified. It was, therefore, suggested that all those cases of joint ventures that have not been qualified should be reviewed to see whether they meet these criteria and should, therefore, be pre-qualified and if there existed any doubt in the mind of the authorities about the members of the joint venture's ability or commitment, clarification should be obtained. The authorities were also advised that it was permissible to pre-qualify the joint ventures on the condition that they would make needed organisational rearrangement or legal commitments by the time they bid in order to strengthen them. In summary, the Bank suggested that those applicants that were disqualified be re-evaluated to ensure that all applicants who have the ability to perform work are pre-qualified to bid, and the clarification should be requested, if there existed any doubt about the applicant's ability to perform the works. The Committees were advised to pay special attention to the joint ventures in which there were clearly capable firms. It is an admitted position that the Committees did not think fit to act according to this recommendation and advice. It was argued on behalf of the State Government that the authorities concerned, namely, the Standing Committee and the Advisory Committee or for that matter the State Government were not bound by these suggestions and advice of the World Bank. We do not intend to enter into this larger question though the very fact that the State Government had to obtain no-objection from the World Bank to the recommendations pre-qualifying the prospective bidders prima facie suggests that the suggestions and opinions of the World Bank had apparently a great, bearing on the recommendations of the authorities. Apart from this, they throw a great light 611 the methodology and the application of eligibility criteria adopted by the authorities in deciding the applications for pre-qualification of the prospective bidders and whether they acted in a manner in which a reasonable employer is supposed to. Any reasonable employer would try to find out experienced and competent contractors who can execute the works and pre-qualify as many as possible so that he can have the best offer from the competent persons. The authorities, in our opinion, have not considered these relevant aspects which the World Bank had pointed out to them and also failed to comprehend the correct legal perspective of a joint venture consortia in the context of construction contracts. When the World Bank suggested in its telex message of August 6, 1984 that the joint ventures which include one or more firms capable to perform the works and who indicate that they would be jointly and severally responsible for the execution should be pre-qualified, it was not a mere formal suggestion but it was made in light of the recognised legal concept of joint venture in construction contracts. We may, at this stage, point out that how these joint venture groups are internationally recognised in the form of co-operation in the joint fulfilment of the construction contract obligations. We may repeat what this Court has observed in AFCON's Case (Supra) in that behalf at pages 1235-36:

“…Joint venture groups are internationally recognised in form of co-operation in the joint fulfilment of the construction contract obligations. Joint venture groups in the construction industry come about through agreements for combination of legally independent contractors for the joint rendering, of construction services limited in both time and content. Typically, they are restricted to a single project in which case, the members of the group act jointly at both the tendering and award stages. Joint venture groups are generally unincorporated association. The legal systems in general have not kept pace with the growing economic means of joint venture groups and there is no special legal form for this type of co-operation which has come to stay in construction industry. However, in Australia and Germany, joint venture groups as also unincorporated civil law partnership are subjected to law of partnership. In United States also the law of partnership is applied to joint venture consortia. It is only in France that a special legal form has been created in this behalf. The joint venture groups have got, inter alia, the characteristics of joint organisation, joint action through co-operation of all members or all individual persons acting on the instructions of the members and joint liability for condition of services to third parties, and the relation between the partners inter se to be governed according to the joint venture group agreements. The economic importance of joint venture consortia on the one hand, and absence of specific legal provisions on the other has raised a host of problems of interpretation in individual cases since a wide variety of model contracts and pre-printed contract forms are adopted to suit the needs and convenience of a particular construction project. These problems have direct effect on the partners inter se and indirect effect on the third parties, such as customers. If several construction enterprises tender jointly and have been jointly awarded the construction contract, they are obliged to perform the contract jointly as joint venture group. One of the difficult problems which is likely to arise when a construction contract is about to be entered into since the customer when concluding the contract with a joint venture is dealing with all the members of the group, who are jointly committed to rendering the services. The contract has, therefore, to be concluded by an authorised representative of all the members of such a group en-bloc for the simple reason that joint venture groups are unincorporated associations. The services to be rendered by the group are to be allocated amongst the members of the same by internal agreement, and consequently the rights and duties of the members inter se are also regulated by the group agreement. These internal agreements are not effective vis-a-vis the third parties, and they operate amongst the members inter se. Thus all the members are jointly and severally liable for performance of the construction work jointly undertaken irrespective of internal division of the work. If one member of the joint venture group does not fulfil his commitments, the others are under joint and several obligation to carry out such obligations vis-a-vis the customer. Such a situation may arise when a member of a joint venture group drops out prematurely because of the liquidation or insolvency. When a contract is concluded with a joint venture group all members are made jointly and severally liable even if only one is capable of rendering the service in question. The joint and several liabilities of the members of a joint venture group may cover the marginal areas of the contract performance such as late performance, faults, deficiency of goods and services etc. It is, therefore, very necessary while entering into such contracts with joint venture group that the construction contracts are carefully drafted, and the members of such group must also enter into detailed agreements amongst themselves (see: Article on Joint Venture Groups — Effects of Construction Contract, Dr. Manfred Straubs, Professor of Commercial Law, Technical University, Vienna in International Business Lawyer, March 1985, a monthly published by a Section of Business Law of International Bar Association, London).”

38. We may also at the cost of repetition remind ourselves to the three important observations of the World Bank authorities in their telex message of August 6, 1984. Firstly, they noted that there were some large and capable firms who appeared likely to have qualified on their own but were rejected as partners in the joint venture. Secondly, it was not necessary and some times not even possible to have full details of joint venture proposals for pre-qualification purposes. Thirdly, the joint ventures which include one or more firms who are able to perform the works and who indicate that they are jointly and severally liable should be pre-qualified. In our opinion these three most relevant and material aspects which should have been borne in mind by the authorities concerned in the matter of pre-qualification of prospective bidders have been completely lost sight of. We do not feel any doubt that Torno S.P.A would have been pre-qualified for dam construction as well as for power house construction if they had applied on their own since admittedly it is one of the largest international construction companies having a very wide experience in dam construction as well as power house construction, not only in their own country but in different countries of world undertaking and executing the projects in their individual capacity as well as joint venture consortia. The credentials of Torno S.P.A have been set out by us in the opening part of this judgment. Apart from their large annual turnover in the last five years, they are executing on their own a hydroelectric system in Nigeria for a value of 7000 million US dollars which is more than one and a half times the value of Narmada Project. It is really unfortunate that Torno S.P.A which would have been otherwise pre-qualified if they had applied on their own were refused pre-qualification because they thought it fit to associate the British and Indian companies so as to establish appropriate relations with a view to enable them to function effectively, efficiently and economically in Indian conditions. The second aspect that at the pre-qualification stage it is not necessary and sometimes it is not even possible to spell out the deailed proposal of the joint venture so as to indicate the specific responsibilities of different co-venturers in a given joint venture consortia to insist that at the stage of pre-qualification unless the liabilities are properly specified by a joint venture group seeking pre-qualification would be to insist for details which are not necessary and some times even not possible and, therefore, relevant for purpose of deciding the question of pre-qualification. If in a given case inspite of the intention of the parties to seek pre-qualification and to bid for the works as joint venture is established and the concerned authorities feel some doubt about such a joint venture's capacity to perform the contract of construction, having regard to the capacity of some of the co-venturers, or in absence of necessary commitments, legal as well as otherwise, it is expected of such authorities to seek for clarification in the matter, particularly when the joint ventures seeking pre-qualification include one or more firms capable to perform the works and who indicate that the co-venturers would be jointly and severally liable for the execution of the works. It is in light of this most relevant aspect of the matter that the World Bank suggested to the authorities concerned to seek clarification, if they entertained any doubt about the ability or commitment of the joint venture applicant. It was also observed and suggested that it is always permissible to pre-qualify joint ventures on condition that they would make needed organisational re-arrangement or legal commitments by the time they bid in order to strengthen their credentials. The World Bank had, therefore, suggested to re-evaluate all the disqualified persons so as to ensure that all the applicants particularly joint venture applicants, who have the ability to perform the works are pre-qualified to bid. We are, therefore, of the opinion that in so far as the authorities inspite of these weighty recommendations and suggestions of the. World Bank failed to respond to them, they acted in a manner which cannot be said to be in consonance with the reasons. It may be, as urged by the learned Advocate for the petitioners that such decisions arrived as a result of such conditioned approach may not be in consonance with the public interest. The reasons which have been thus given for refusing to pre-qualify the joint venture of the petitioners are, in our opinion, taken in disregard of the most relevant considerations and only bearing in mind the irrelevant considerations.

39. There is also additional reason. The Standing Committee submitted its report to the Advisory Committee on April 10, 1984. The Advisory Committee in its turn forwarded its recommendations to the World Bank, in July, 1984. In the meanwhile, the petitioners had furnished the particulars specifying the responsibilities of joint venture for the dam construction by telex message of the 2nd petitioner dated March 20, 1984 through their Consultants Anand Technical Services which in turn forwarded the same to the authorities under the cover of their letter of even date, that is, 20th March 1984. No doubt, the 2nd petitioner have been described as a sponsor and not as a lead firm as required in Form “C”. It is really difficult for us to conceive that in all cases of joint venture consortia which seek pre-qualification for purposes of obtaining tender documents, there would invariably be a lead firm. No doubt, the Advisory Committee in its procedure and rules framed for evaluation of the applicants seeking pre-qualification, inter alia, provided that practical, workable and legally enforceable arrangement is made amongst the co-venturers and there is a clear assignment of responsibilities regarding the execution and financial arrangement and the lead firm has necessary skill, ability and capacity to lead during the entire period of the execution. These procedural rules do not envisage that in all cases of joint venture applicants, lead firm should be nominated. Of course in Form “C”, Column 3 required the particulars about the responsibilities of the firm leading the joint venture and the responsibilities of other joint venture partners. It should be recalled that in the opening part of Form “C” it has been clarified that the particulars are to be furnished against the relevant columns wherever they are applicable. The requirement of the procedural rules about the division of the responsibilities is, as noted above, not necessary and some times not even possible. The reason that the documents submitted by some of the partners of joint venture of the petitioners were incomplete is also not one which can be said to be so important enough to reach the conclusion as the authorities did. In the first instance, as urged by the learned Advocate for the petitioners that it is not necessary when the applicant seeking pre-qualification is a joint venture all the firms have to fill in this form. There is some force in this contention. But apart from this submission, assuming that the documents of some of the partners were incomplete, the authorities could have sought for the information as suggested by the World Bank if in absence of such, particulars they felt any doubt about the ability or the commitments of the applicants and/or their partners. The learned Advocate General pointed out to us from the Information and Instructions to the applicants seeking pre-qualification issued by the State Government in Irrigation Department to Clauses 1.02 and 1.07 of Part I providing for general instructions. The said two clauses are as under:

“1.02 All information requested for in the enclosed forms should be furnished. If any particular query is not relevant, it should be stated as not ‘applicable’. However, the applicants are cautioned that giving incomplete information in the application or making any change in the prescribed forms, may render the application non-responsive.

1.07 The applicant is advised to attach any additional information which he thinks is necessary in regard to his capabilities. No further information will be entertained after submission of pre-qualification document unless it is called for by the Government of Gujarat.”

40. It was, therefore, urged by the learned Advocate General that the authorities were well within bounds in rejecting the application as ‘non-responsive’ firstly because the application submitted by the 2nd petitioner being Sponsor of the joint venture did not provide for complete information and, in any case, the documents submitted by the co-venturers were also incomplete, and the authorities were not under any obligation to consider any further information after submission of the pre-qualification documents, unless they are called for. He also emphasised that according to Clause 5 of the procedure set out above, it was left to the discretion of the Committee to ask for clarification and further related information from the applicants or check their resources, if the committee so thought it fit. It is no doubt true that it was left to the discretion of the Advisory Committee to ask for clarification and seek further related information from the applicants. However, this discretion is to be exercised in a reasonable manner and, as pointed out above, the failure on the part of the authorities particularly after the suggestions and advice by the World Bank to review the cases of the applicants who are not pre-qualified, particularly of the joint venture applicants, and decide their cases again after bearing in mind the important observations, particularly the three which we have extracted above, clearly established that the discretion has been exercised in a manner which cannot be said to be reasonable. The result is that the impugned decision of January 23, 1984 pertaining to dam construction is vitiated and, therefore, must be quashed and set aside since, firstly, the Committees proceeded on the ground which can be hardly said to be germane and relevant to the inquiry; secondly, the Committees failed to realise that joint venture is distinct and separate category of the applicants and in so far as they treated the joint venture as a group of firms for all intents and purposes; thirdly, they insisted for information and particulars which can be insisted for and necessary for group of firms; fourthly, the Committees overlooked the clear suggestions and advice of the World Bank and took the impugned decision in disregard of the relevant material and bearing in mind the irrelevant particulars, and fifthly, the Committees took the impugned decision in disregard of the recognised legal concepts and parameters of joint venture consortia and particularly without calling for the clarifications and necessary related information inspite of the clear advice of the World Bank otherwise and, thus acted in a manner in which no reasonable employer would act and exercised their discretion which can be hardly said to be in consonance with the reasons. The impugned decision regarding dam construction should, therefore, be quashed and set aside by a writ of certiorari and the State Government is directed to pre-qualify the petitioners' joint venture for purposes of dam construction on the terms and conditions as specified in the order below.

Re: Power House Construction:

41. The grounds for rejection in respect of the pre-qualification for power house construction have been set out above. The nature of the grounds appears to be two-fold; one apparently going to the root of the matter and another is purely procedural. Grounds Nos. 3 and 4 are of first type which can be described as major grounds. Shortly stated, the purport of grounds Nos. 3 and 4 is that the purpose of the joint venture agreement of December 16, 1983 produced alongwith the documents for pre-qualification was stated to be for construction of concrete dam and not underground power house, and that the shares of the participants do not tally to 100%. Similarly the purport of the procedural objection was that the application was non-responsive since lead firm was not identified, the responsibilities not defined and the documents were incomplete. It is no doubt true that the purpose of the joint venture agreement of 16th December, 1983 produced along with other documents for pre-qualification for power house construction, inter alia, described in recital clause was as under:

“Whereas the parties are aware that the Irrigation Department of the Government of Gujarat (hereinafter called the employer) has the intention to invite in the near future tenders for the construction of the Concrete Dam across Narmada river for Sardar Sarovar (Narmada) (hereinafter called the works) and whereas the parties have agreed to join their forces in order to obtain the best results from the combination of their individual resources of experience labour and finances.

Now therefore this Agreement witnesseth as follows:”

Clause 4 provides for sharing of profits and losses of the joint venture entered into and it reads as under:

“The parties shall participate in the J.V and be entitled to the capital and property and share in the profits and losses of the J.V in the following proportions:

“Torno S.P.A

29% (Twentynine percent)

Torno A.G

9% (Nine percent)

Vaish Brothers Ltd.

15% (Fifteen Percent)

Chahal Ltd.

36% (Thirty-six Percent)”.

Clause 5 nominated Torno as the Sponsor of the firm. It provides as under:

“Sponsor of the J.V shall be Torno. The duties and responsibilities of the Sponsor will be defined in the Formal Agreement.”

42. The case of the petitioners is that the purpose was erroneously stated to be for entering into joint venture for dam construction. It was an inadvertent error as it is clear from the following documents:

43. The transmittal letter of the petitioners forwarding the related information and supporting documents has clearly stated in the subject of the said letter as well as the first paragraph thereof disclosed that the Petitioners were seeking pre-qualification in joint venture for the works of excavation, tunnelling and other civil works for the underground river bed power house and appurtenant works for Sardar Sarovar (Narmada) Project. Form “G” which is to be filled in for purposes of supplying additional information is in two parts, A and B. Part A relates to further information which the applicant considers relevant in regard to his capabilities. Part B is for giving brief note indicating as to why the applicant considers himself eligible for pre-qualification for the works. The note furnished under Column 8 makes an interesting reading in this connection:

“The applicant has built more than 15 power stations, seven of which underground. The most important was the Ruacana underground power station in South Africa, carried out by a company of the Group (100%) (Machine hall L. 141.5 m.W 16.0 m.H 36.5 m.).

We can here mention the power station of Shiroro, in Nigeria. As you may see from the attached letter of Ghas. T. Main (consultants for this work), our company has performed underground excavations for the two diversion tunnels with an output of more than 10.000 cubic meters per month in rock mass.”

44. It should be further noted that in Form “C”, which is to be filled in by the applicant who seeks pre-qualification as joint venture consortia, there are two relevant columns in this connection, namely Names and addresses of all the partners of joint venture (column 2) and details regarding financial participation of each firm in the joint venture (column 5). The attached sheet to Form “C” gives these particulars as under:

2. Name and address of all partners of the Joint Venture:

TORNO S.P.A

Via Albricci, 7-Milano

Chahal Engineering and Constn. Co. Pvt. Limited

86, Nehru Place,

New Delhi-11019 (India)

Vaish Brothers & Co. Pvt. Ltd.

5, Kunj Bihar Place

Kausha Ipuri-Kampuri Kampur-208012 (India)

TORNO A.G

Via S. Franscini

22-Lugana (Switzerland).”

The shares of the participants in the joint venture are the following:

TORNO S.P.A 40% CHAHAL LIMITED 36% VAISH BROTHERS LTD. 15% TORNO A.G 9%

45. As regards the responsibilities of the firm leading the joint venture and all other partners, it has been stated in this attached sheet that they will be defined in the formal agreement.

46. The above two apparent major grounds, namely, the incorrect statement as to the purpose of the joint venture in the joint venture agreement of December 16, 1983 and the discrepancy in the shares of coventurers not totalling 100% were clearly at variance with the statements made in the transmittal letter and the particulars furnished in Form “C” respectively. Form “C”, which was meant for additional information contained a brief note indicating the reasons for the applicant considering himself eligible for pre-qualification for the works. The note is eloquent since it refers to the past experience of the applicant which they have acquired by building more than 15 power stations, seven of which were underground and their capacity in excavation of two diversion tunnel with an output of more than 10.000 cubic meters per month in rock mass. In other words, the note indicated that the applicants were seeking pre-qualification for power house construction. In any case this would have certainly raised a doubt in the mind of any reasonable employer that since the transmittal letter as well as form “C” were for furnishing information and documents in connection with the power house construction with particulars inter alia about the names and addresses of only five co-venturers with their correct shares in profits and losses making a total of 100% and also the additional information indicating experience of building power house including underground power house, the authorities ought to have sought clarification from the petitioners about this apparent discrepancy. We are afraid the application could not have been rejected merely on these apparent major grounds when the transmittal letters and information furnished therewith indicated that the petitioners were seeking pre-qualification not in respect of dam construction but in respect of power house construction. We would advert in this connection to the suggestions made by the World Bank in their first telex message of 16th July 1984. The relevant part of this telex message material for our purposes reads as under:

“Approach should be flexible and applicants who may be suitable should be invited to submit additional information. It is inevitable that in a qualification process which involved many applications like yours, clarification would be required. It is a standard practice that all applicants who may be qualified if some questions are answered be requested to provide the clarification. This may include questions regarding firm's part in a joint venture or any other technicality.

47. Asking for clarification cannot be construed as having given one applicant an undue advantage over another. On the other hand, the asking of questions can significantly help ensure that suitable applicants are not disqualified on the basis of some technicality or misunderstanding. It is even proper and prudent to qualify an applicant J.V That may need some administrative revision with the condition that the applicant will make those revisions and provide the required type of J.V in his tender.

48. Based on the above preliminary remarks and having reviewed the pre-qualification procedure used and the recommendations made by GOG on the Dam and the R.B.P.H we have the following comments.…”

(Emphasis supplied)

49. The points of comments have been set out above while discussing the impugned decision in respect of the dam construction. The concluding part of this telex message should also be set out:

“In summary the applications were treated as if they were tenders and not simply applicants to pre-qualify to be allowed to tender. Therefore, we strongly advise that clarification now to be requested of any applicant on any application on which there exists any doubts about ability to perform work. These clarifications can be obtained in a matter of days. We recommend that the above exercise be conducted expeditiously with a goal of qualifying all applicants who are capable of performing the task under question…”

(Emphasis supplied)

50. It appears that pre-qualification evaluation report and recommendations of the Standing Committee, as accepted by the Advisory Committee, with some modifications, were forwarded under the cover of the letter of July 11, 1984 which reached the World Bank somewhere on or about 18th July, 1984. This position emerges from what has been stated in the telex message of the World Bank dated August 6, 1984 wherein it has been, inter alia, stated as under:

“…In response to your query, the pre-qualification evaluation reports attached to Thappan's letter of July 11, arrived here two days after our telex of July 16, was sent to you. However after examining those reports we have found no reason to change our recommendations. Therefore our position remains as outlined in our July 16 telex….”

51. The gist of this telex message has already been set out above in our discussions pertaining to the impugned decision regarding dam construction. We need not repeat the same. However, we would like to emphasise at the cost of repetition that the World Bank suggested to the Committees to review all those joint venture cases that have not been qualified to see whether they meet the criteria indicated in the said telex message, and to qualify them, if they satisfy the criteria, and if the authorities entertained any doubt about the ability or commitment of the members of the joint venture, clarification should be called for. The Committees were advised that they could pre-qualify joint venture on condition that they would make the needed organisational rearrangement or legal commitments by the time they quote their tenders. The World Bank pointed out that the disqualification of some of the joint ventures and individual applicants was a result of imprecise answers that should have been clarified if their capability was in doubt. The illustration given in this connection by the World Bank is instructive. It reads as under:

“…For example: one applicant was rejected because he did not answer a direct query about his experience in placing concrete, although the supplementary data he submitted indicated he had vast experience in concrete placement. In summary, we suggest that those applicants that were disqualified be re-evaluated to ensure that all applicants who have the ability to perform the work are pre-qualified to bid. Clarifications should be requested if there exist any doubts about an applicant's ability to perform the work. Pay special attention to the joint ventures in which there are clearly capable firms….”

(Emphasis supplied)

52. The contention of the learned Advocate General was that if a joint venture agreement enclosed with the application for pre-qualification of power house construction provided for a joint venture for dam construction instead of power house construction and specified percentage of co-venturers which did not make up a total of 100, assuming this to be inadvertent error, even then the Committees cannot be blamed or accused of acting in an arbitrary manner, if they have decided to reject the application for pre-qualification on the grounds as they did. We do appreciate this contention. What we feel, however, is that if the transmittal letter and the particulars furnished in different forms indicated that the applicants were seeking pre-qualification as joint venture for power house construction and there were clearly apparent infirmities in the basic document of joint venture agreement, we do not think that any employer placed in the situation as the Committees were in the present case would have rested satisfied by refusing to pre-qualify the applicants concerned even though the particulars furnished alongwith the transmittal letter in general and the additional information supplied in form “C” clearly indicated that one of the co-venturers, namely, Torno S.P.A were pre-eminently capable and qualified in the matter of power house construction, for the obvious reason that they had undertaken execution of a huge project of power house complex in Nigeria of the value of about 7000 million U.S dollars, and that they had constructed big power stations including underground power stations in different countries in the world. The discrepancies in the basic document were apparent, particularly in light of the related information supplied along with it, and we are of the opinion that the Committees could and should have called for the explanation on these apparent discrepancies. The World Bank has emphatically recommended this approach to the Committees and required them to review all cases in light of their observations and opinions in the aforesaid two telex messages, the gist of which we have set out. The necessity of the clarification and particularly in case like the present one is eloquent. The World Bank has pointed out in the telex message of August 6, 1984 that the supplementary data submitted by one of the applicants who did not answer a direct query about his experience in concrete placing disclosed that he had a vast experience in the said area. The imprecise answers or incomplete documents should not have overwhelmed the Committees so as to rule out the prudent course as recommended by the World Bank for calling for further information in case where one of the co-venturers is pre-eminently qualified and experienced in an outstanding manner. The purpose of pre-qualification is to find out as many qualified, experienced parties as possible so that the employer has a wide option at the time of acceptance of the tenders for the works. The approach as emphasised by the World Bank at the stage of pre-qualification must be flexible and cannot be rigid. In the present case if Torno S.P.A could have been, in all probabilities, pre-qualified for power house construction, if they had sought the pre-qualification on their own and in an individual capacity, we are at a loss to understand as to how the pre-qualification can be refused to joint venture where they are main partners and sponsor of the joint venture consortia. It should be recalled and re-emphasised that admittedly even according to the Government, Torno S.P.A were fully qualified and eligible for the works of dam construction as well as power house construction. To find faults in the application on such grounds, which were apparently inadvertent errors, in our opinion, with respect to such eminent members of the Committee, the underlying approach does not recommend to us as one which a reasonable employer would adopt. It is no doubt true that the additional information furnished by the petitioners joint venture under the cover of their letter of July 6, 1984 enclosing a postil dated January 30, 1984 correcting the errors as to the purpose and the shares of the parties in the basic document of the joint venture agreement of December 16, 1983 must have reached in all probabilities to the authorities by about the time when the Committees had finalised their recommendations and forwarded the same to the World Bank which was between 11th and 16th July, 1984. The learned Advocate General, therefore, urged that this additional information also could not have been evaluated since by that time the Committees had finalised the recommendations and forwarded to the World Bank. Though this submission appears to be impressive, it cannot be of much assistance to the cause of the Committees forcefully and fairly represented by the learned Advocate General. There are two reasons for our view to hold that the inability of the Committee to consider additional information furnished by about 6th July would not be of much assistance to the cases of the State Government. In the first place, the Committees in our opinion did not act in a manner as a reasonable and prudent employer would in the circumstances indicated by us above and, secondly, the Committees failed to respond to the valuable suggestions made by the World Bank based on wholesome and recognised principles in the matter of pre-qualification of the prospective bidders particularly joint venture applicants. It should be recalled that the World Bank, even after scrutiny of the recommendations and reasons in support thereof given by the Advisory Committee, reiterated their stand which they had taken in the telex message of 16th July 1984 and recommended to the Committee to review cases of joint venture consortia in particular and pre-qualify all those joint venture applicants who have one or more capable parties even on condition that they may make required organisatioal re-arrangement and legal commitments as may be necessary before they bid for the works. No satisfactory explanation has been furnished on behalf of the State Government in the reply affidavit as to why the Committees did not think fit to respond to the recommendations of the World Bank as above and, therefore, also the impugned decision is vitiated as contrary to reason. We are further of the opinion that the impugned decision could not have been reached on the second category of reasons which are purely procedural defects for the self-same reasons which have weighed with us in voiding the impugned decision in respect of the dam construction as detailed above. The learned Advocate General, therefore, urged that the World Bank has ultimately granted their no-objection to these recommendations after their office had come here in India and examined and scrutinised the relevant information and supporting documents furnished by those applicants which were refused pre-qualification and, therefore, the views of the World Bank expressed in the earlier telex messages should not weigh with the Court for determining the question as to whether the impugned decision was unreasonable and arbitrary. We are unable to agree with this contention because if the recommendations of the Committees refusing pre-qualification are vitiated as arbitrary or opposed to reason or for legal malafides the concurrence by the World Bank would not remove these infirmities. He further urged that the view of the World Bank that the State Government can pre-qualify a joint venture applicant on condition that he would make the needed organisational re-arrangement and legal commitments by the time he makes the bid failing which the State Government may reserve the right to withhold the grant of pre-qualification at the time of consideration of their bid for the works is open to doubt. We do not think that there can be any insurmountable difficulty in adopting this course as apprehended by the learned Advocate General. The State Government has power to grant pre-qualification on condition that their bid for the works would be considered only if they make the needed organisational re-arrangement and legal commitments. This is not tentamount to withdrawing the qualification. For the reasons aforesaid, therefore, we are of the opinion that the impugned decision of 24th January 1985 refusing to pre-qualify the joint venture of the petitioners in respect of the power house construction is liable to be quashed and set aside. The result is that this petition is allowed and a writ of certiorari be issued to quash and set aside the impugned decisions of the respondents refusing to pre-qualify the petitioners for the dam construction of and power house construction across the Narmada River in Sardar Sarovar Project in Gujarat and we direct the respondents to treat the joint venture of the petitioners as provisionally pre-qualified to bid for the works and accordingly to issue tender documents so as to enable them to submit their tender for the aforesaid works, subject to the condition that the petitioners will make the needed organisational rearrangement or legal commitments as required, by the State Government in order to strengthen their qualifications and also without prejudice to the right of the State Government to withhold the approval when they submit their bids. Rule is made absolute accordingly with no order as to costs. In view of the above, no orders on civil application.

53. Rule made absolute.