Absurdly low bids

LEGAL DIGEST

A committee examining tenders can reject any offer which is unduly low and unworkable, the Supreme Court has said in Jagdish Mandal versus State of Orissa. The state tender was for the construction of a canal. As against the estimated rate assessed by the government department at Rs 2,020 per cubic metre, the tenderer quoted an absurdly low Rs 20, which was less than 1 per cent of the official estimate.

The tender committee rejected the offer. The Supreme Court upheld the right of the committee to do so as it might have suspected an ulterior motive. The work might be stopped midway and the contractor might start making claims against the government.

The court observed that quoting low rates to get the contract and then raising disputes by making large claims was not uncommon among contractors. It was for the committee to find out the motive for the "freak low rates."

The court could not sit in appeal over technical assessments. The judgment also ruled that the tender committee was not required to send a showcause notice to the tenderer before rejecting the tender.

Classifying disinfectant

The Supreme Court has asked the central excise authorities to reconsider Nirmala Dyechem's pleas for classification of a disinfectant produced by the company. It set aside the finding of the excise tribunal and allowed the appeal of the central excise authorities.

The company was claiming a lower tariff by declaring its products, Domex Power Cleaner/Domex All Around Home Cleaner, as disinfectants. However, the revenue authorities wanted to classify them under "organic surface-active agents."

The excise tribunal held that the products were disinfectants. The revenue authorities appealed to the Supreme Court, which stated that the commissioner should reconsider whether the product had active agents, having surface active function or was that only subsidiary to its main function as a cleaning preparation.

The tribunal and the commissioner did consider the rules of interpretation of the schedule as also the explanatory notes, harmonised commodity description and coating system which might possibly provide aids for determining the dispute, the Supreme Court said.

Wrong claim

The Supreme Court stated that the arbitrator in Ramnath International Construction Pvt Ltd versus Union of India had "clearly misconducted himself" in awarding compensation to the company when the contract did not provide for it.

The government awarded two contracts to the construction company for a hangar and an allied road project. Certain disputes arose between the company and the government and an arbitrator was appointed. He gave an award in which the government was asked to pay compensation to the company. The government challenged it in the Madras High Court arguing that the company did not complete the project despite several extensions.

According to the arbitrator, the delay was caused by the government and therefore it was liable to compensate the company. The government argued that the extensions were given at the company's request and there was a term in the contract that no compensation would be claimed on the ground of extension of time.

The high court and the Supreme Court agreed with the government and ruled that the arbitrator exceeded his jurisdiction by awarding compensation to the company.

DRT jurisdiction

The Supreme Court has dismissed an appeal of Southern Petrochemicals Industries Corporation Ltd challenging the jurisdiction of the debt recovery tribunal to hear a petition moved by the administrator of Unit Trust of India. Under a common loan agreement between UTI, IDBI, IFCI, ICCI Ltd and Southern Petrochemicals, Rs 10 crore was advanced to the company.

UTI also advanced Rs 25 crore against privately placed debentures. The company accumulated liabilities exceeding Rs 1,000 crore and defaulted in repayments. UTI filed a claim before the debt recovery tribunal. By then, the UTI Act of 1963 was repealed by the 2002 Act and the board of trustees was dissolved.

The institution was represented by the Administrator of Specified Undertaking of UTI. He moved a petition before the tribunal. The company argued that he was not a financial institution and under the Companies Act and the Debt Recovery Tribunal Act, the tribunal had no jurisdiction to decide his application.

The tribunal and the Bombay High Court, and now the Supreme Court have all rejected this argument, allowing the debt recovery tribunal to go ahead with the recovery application.

Surcharge case

The Supreme Court has asked the sales tax authorities in Assam to resolve the factual controversy with Indian Oil Corporation (IOC) regarding the amount of surcharge the company alleged to have collected from its consumers.

IOC has been buying petroleum products from Bongaigaon Refinery & Petrochemicals Ltd on payment of sales tax. It was supposed to sell its products at prices fixed by the government, including a surcharge which would be deposited in an oil pool account.

The state government raised a demand of Rs 30 crore against IOC and levied tax on the entire amount collected from its customers without giving any adjustment paid to the refinery. The allegation was that the company collected sales tax and misappropriated it. It amounted to unjust enrichment.

The Supreme Court asked the tax authorities to examine whether the allegations were factually true. If they found that the company had collected tax on the entire sales, it would deposit the entire tax with the state within a month, the court said.

Job work

The Supreme Court has set aside a ruling of the Rajasthan High Court and the state tax board granting benefits to M/s Vishnu Metals under an incentive scheme.

The Sales Tax Incentive Scheme of 1989 granted some tax benefits to units which expanded their production capacity. The firm, producing stainless steel, claimed the benefits after including the job work done by its factory, which showed a steep increase in production.

The commercial taxes officer did not allow the job work to be taken into account. The tax board and the high court, however, allowed the benefit. On appeal, the Supreme Court accepted the revenue department's argument and observed that it could not be presumed that the job work done was for goods of similar nature.

ESI case

The Supreme Court has asked the Employees State Insurance Corporation to re-examine the case of M/s Srinivasa Rice Mill before imposing penalty for violation of the law.

The ESI Act was made applicable to rice mills in 2000. The inspection of the mill was carried out before that. The corporation issued showcause notice on penalty after the extension of the law to the rice mills, that too without giving it an opportunity to explain its stand.

The insurance court dismissed the petition of the mill. It appealed to the Supreme Court and it asked the authorities to give an opportunity of hearing to the mill.