Delhi High Court urges review of govt tender conditions affecting insolvent companies

The Delhi High Court has asked the Centre to revisit its bid conditions that impose blanket ban on the companies having undergone corporate insolvency resolution process in the last seven years from participating in the government tenders.

It said that while the courts cannot introduce or delete any tender condition, the government as also the tender issuing authority must examine the issue.

“…while formulating the tender conditions, the tendering authority should not take into account the provisions of the Insolvency and Bankruptcy Code, 2016, under which a company is resurrected as an ongoing concern by a Successful Resolution Applicant (SRA), in order to achieve the objectives underlying the IBC to nurture such companies instead of disqualifying or holding them as ineligible to even participate in the tender process,” a Division Bench comprising Chief Justice Devendra Kumar Upadhyaya and Justice Tushar Rao Gedela said.

The judges said that “it is trite that the courts cannot introduce or delete any tender condition or can the same be supplanted with a view that the court may have while considering the tender conditions…. however, are of the considered opinion that the respondent/Union of India as also the tender issuing authority must examine the aforesaid view expressed by us,” the order stated.

The court was hearing a petition by Era Infra Engineering against a condition issued by the Airport Authority of India to bar companies who had undergone insolvency in the last seven years from participating in its tender.

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The company argued that though all relevant laws were considered, yet, IBC was simply overlooked by the government while formulating and drafting Manual for Procurement of Works, 2022. It said that the tender condition by the authority was an arbitrary and discriminatory stipulation which should be be either struck off or read down to treat the time spent by the company in the insolvency process as “zero period”.The manual provides for comprehensive instructions and templates for government departments and agencies to ensure public procurement of works is transparent, fair, and efficient.However, the court took note the issue, but refused to give any relief to Era Infra and asked it to give its representation to the government and the authority.

The court said that the underlying object of IBC clearly is to rid the debt-laden company of the previous unsuccessful management by introducing and involving an entity declared to be SRA who would be given the task of reviving the Corporate Debtor as an “on going concern”. “If that is the aim and purport of the IBC, it is necessary to underscore the fact that this law must and ought to be considered as a crucial component to Clause 1.8 of the said Manual alongwith all other relevant laws.”

Yet another crucial aspect to be considered is that the stakeholders involved in an ongoing concern taken over by the SRA would also include, perhaps, a large number of workers and employees apart from financial institutions, banks and other stakeholders whose existence may be fully dependent and contingent upon such ongoing concern being rehabilitated and revived, the order said.

“Though, these may not be imperative considerations if examined purely from a commercial point of view, yet, when the government is the sole authority formulating the public procurement policies and manuals and may many a times be the tender issuing authority, it may be a relevant consideration, to say the least,” it said.

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