Singhania & Partners LLP in association with Droit & Commerce (A french association of Legal Professionals) is organizing the seminar on Legal aspects of Commercial Opportunities between India and France on 29 October, 2018 at Hotel Claridges, New Delhi. This half day seminar will provide Indo-French perspective on Enforcement of Foreign Awards in India and Expanding Economic Relations by promoting commercial opportunities between India and France.
The participants will include Indian and French Companies with business interest in these two countries besides members of Droit & Commerce which is an association of legal professionals from a variety of backgrounds including magistrates, consular judges, academics, lawyers, notaries, accountants, and auditors.
H.E. Ms. Claire THUAUDET, Deputy Head of Mission, French Embassy in New Delhi will be delivering the inaugural address. Other speakers who will share French perspective are Ms. Gachucha COURRÉGÉ, Président of the Law & Commerce Association, Lawyer- M&CLawyers; Mr. Pierre Antoine GAILLY, President of companies – Honorary President of the Paris Chamber of Commerce and Industry Ile-de-France (CCIP) ; Mr. Franck DENEL, Honorary President of the Law & Commerce Association – Lawyer – DENEL, GUILLEMAIN, RIEU, de CROZALE, TREZEGUET LAWYERS.
Ravi Singhania, Managing Partner and Arjun Anand, Partner, Singhania & Partners LLP along with Ms. Nandita Khurana, Zone Head Legal – Africa, India and Middle East at Michelin Tyres will provide an Indian perspective on the topics.
Download the detailed agenda and invitation by clicking on thislink.
To participate, please drop an e-mail to firstname.lastname@example.org or get in touch at +91-11-4747 1437. Please note that prior registration is mandatory.
Mergers and acquisitions (M&A) in the finance sector are controlled and regulated by the Reserve Bank of India (RBI). The RBI has over a period of time laid down the law by the virtue of which the establishment, functions and investments in non-banking finance companies (NBFCs) are managed in the country.
No NBFC can do business without obtaining a certificate of registration from the RBI. It should be a company registered under the Companies Act, 1956/2013, and must have a net owned fund (NOF) of not less than ₹20 million (US$300,000 – prior to April 1999, ₹2.5 million). However, there are categories of NBFCs that have been exempted from the requirement of registration with the RBI, as they are regulated by other regulators.
Systematically important non-deposit taking NBFCs do not accept or hold public deposits and their asset size is of ₹5 billion or more as per last audited balance sheet. Any activity of such NBFCs is likely to have an impact on the economy of the country, hence the classification.
The regulatory regime relating to foreign direct investment (FDI) in NBFCs has been liberalized significantly. Now, 100% FDI under the automatic route is permitted and is only subject to compliance with the NOF requirement prescribed by the RBI. An investor can acquire an existing NBFC, however the investor will need to factor in time for: (1) due diligence; (2) documentation; (3) 30 days of public notice; (4) three to four months for RBI approval. In this context, it is pertinent to note that the RBI does an extensive background check on the credentials of the investor.
Subject to certain exceptions, prior written permission of the RBI is required for:
Change in control (whether or not resulting in any change of management) i.e. the right to appoint a majority of the directors, or the right to control the management, or take policy decisions. Such right may be exercisable by a person or persons acting individually or in concert, directly or indirectly. The right may be acquired by the virtue of shareholding or management rights, or shareholders agreements, or voting agreement; and
Change in shareholding including progressive increases that result in the acquisition or transfer of 26% or more of the paid-up equity capital of the NBFC, even if such transfer is an intragroup transfer; and
Any change in management of the NBFC that results in change in more than 30% of the directors, excluding independent directors.
The RBI has issued directions on prudential norms and applicable regulations, which vary based on the deposit acceptance or systemic importance of the NBFC. Deposit-accepting NBFCs are required to comply with the statutory liquidity requirements, in addition to requirements on income recognition, asset classification and provisioning requirements applicable to NBFCs, exposure norms, disclosures in balance sheets, capital adequacy requirements, restrictions on investments in land and building, unquoted shares, and loan-to-value (LTV) ratios for NBFCs predominantly engaged in the business of lending against gold, jewellery, etc.
NBFCs having asset size of less than ₹5 billion are subject to the business conduct regulation and/or prudential norms, depending on whether the NBFC has access to public funds or has a customer interface, or both. Public funds includes funds raised either directly or indirectly through public deposits, inter-corporate deposits, bank finance, and all funds received from outside sources such as funds raised by issue of commercial papers, debentures, etc. Excluded are funds raised by issue of instruments compulsorily convertible into equity shares within a period not exceeding five years from the date of issue. Customer interface has been defined to mean interaction between the NBFC and its customers while carrying out its business.
In light of this information, the acquirer, depending on the type of NBFC, needs to ensure that the potential target is in compliance with the regulations. Non-compliance may result in stringent penalties including cancellation of the NBFC registration.
NBFCs have significantly contributed to the growth of the economy, and consequently the regulatory framework has evolved and made the acquisition of NBFCs less burdensome and more attractive for investors. However, the background of the investor is a key factor for the purposes of acquisition, as the RBI has been extremely cautious in granting approvals in the wake of NBFCs being used as vehicles for money laundering.
This summit is a platform that brings together the experts of the construction industry and will deliberate on the good practices, strategies and approaches adopted by the industry professionals for proactive claims , management and resolution of disputes in the construction industry.
Both these star practitioners of the firm bring with them almost two decades of arbitration and litigation experience.e. They are known for their in-depth knowledge on the subject of arbitration and are trusted for saving multimillion dollars of clients by their winning arguments in courts.
They are a reputed name in corporate litigation, concession agreements, disputes resolution mechanism, infrastructural arbitrations, contractual/ commercial disputes, recovery of debts and claims, bankruptcy, insolvency procedures, pre award writ petitions as well as post tender litigation and arbitration in High Courts and the Supreme Court.
Singhania & Partners infrastructure clients are spread across Roads & Highways, Railways, Ports, Airports, Shipyards and Power Sector. The firm represent both domestic and foreign construction companies, domestic and international project developers, financial institutions, equipment suppliers and consulting organisations in institutional as well as ad-hoc arbitrations with 9 dedicated partners in this practice area.
The litigation team of Singhania & Partners LLP (Bangalore) comprising of Ms. Shilpa Shah(Senior Partner) & Ms. Madhu Murthy G.K (Senior Associate) have successfully obtained two favourable awards in favour of their client Punj Lloyd- Sembawang – Sembawang India-Joint venture before the Arbitral Tribunal comprising of three members with presiding arbitrator being the retried High court Judge. The contracts were awarded by Bangalore Metro Rail Corporation Limited to consortium of Punj Lloyd Limited, Sembawang Engineers and Constructions Pte Ltd -Singapore & Sembawang Infrastructure (India) Pvt. Ltd. for construction of (i) three Elevated Metro Stations i.e., Mysore Road Terminal, Deepanjalinagar and Magadi Road in Reach – 2 for Bangalore Metro rail Project, Phase -1 wherein, the executed Contract value was INR 150 Crores (USD 21.17 Million) and (ii) three Elevated Metro Stations i.e., Rajajinagar, Kuvempu Road and Malleshwaram in Reach – 3 for Bangalore Metro rail Project, Phase -1 wherein, the executed Contract value was INR 120 Crores (USD 16.94 Million) (hereinafter referred to as the two Projects)
The Arbitral Tribunal by allowing majority of the claims has held that Punj Lloyd -Sembawang Singapore- Sembawang India – Joint Venture (hereinafter referred to as the Contractor) is not liable to pay any liquidated damages/ Penalties levied by Bangalore Metro Rail Corporation Limited (hereinafter referred to as Bangalore Metro) by declaring the communications issued by Bangalore Metro for deposit of Liquidated Damages towards delay in completion of the two Projects as illegal and invalid. The exhaustive and meticulous Arbitral Awards in respect of the aforesaid disputes is in itself in the form of a mini thesis on a typical Indian Civil Engineering (Construction) Dispute resolved through Alternative Dispute Resolution by way of invoking the Arbitration clause in the Contract. In this update, we have attempted to focus only on ‘Contractor’s Liability towards Liquidated Damages’ in the event of delay in completion of Projects which is of such a high magnitude in complex Construction Contracts.
The Arbitral Tribunal in the aforesaid disputes had the opportunity to examine various provisions of the Indian Contract Act, Arbitration and Conciliation Act, 1996 as amended by the Amendment Act of 2015, Limitation Act and numerous judgments of different High Courts as well as conflicting decisions of the Apex Court in order to determine the claims of the Contractor and counter claims of Bangalore Metro. The Tribunal has accepted majority of the arguments raised by the Counsel for the Contractor by giving a specific finding with respect to the withholding of amounts in Interim Payment Certificates that a Public Authority like Bangalore Metro cannot resort to unjustified and baseless withholding of amounts due to the Contractor and awarded the same with interest.
FACTS OF THE CASE
The Contractor entered into Contracts with Bangalore Metro for the purpose of construction of elevated Metro Stations in respect of the two Projects. The duration of the Projects was twenty-two months commencing from 13th April 2009 to 13th February 2011 in case of the first Project which stretched upto 31st August 2015. In case of the second Project, twenty-two months commenced on 25th March 2009 and concluded on 24th January 2011, but the work stretched upto 30th June 2014 due to delays caused on account of various reasons. Consequently, the Contractor sought for extension of time as provided under the Contract on five occasions for completion of the works. Bangalore Metro had given four extensions without levy of any penalties or liquidated damages (LD) but while granting the 5th EOT, Bangalore Metro gave a post facto approval with levy of LD of INR 32 Crores (UDS 4.6 Million) for the Projects. Bangalore Metro also withheld all the Bank Guarantees (BGs) furnished by the Contractor, Final Bills, amounts towards various works executed towards non-tendered items, etc.
The dispute arose from contract on various counts in addition to wrongful levying of LD. Main contentions raised on behalf of the Contractor with respect to levying of LD were that while granting first four extensions, no penalty or LD were levied and having delayed the approval of the final extension, Bangalore Metro had given the Contractor the impression that even final extension would be granted without any LD based on which the Contractor completed the work. Hence, Bangalore Metro was not justified in levying LD with retrospective effect especially when the General Consultant (GC) of Bangalore Metro had recommended the final extension without imposition of LD; and that Bangalore Metro after the commencement of train operations for nearly 1 ½ years, could not have achieved any productivity by levying LD and the only reason for imposition of LD was to withhold the various amounts legally due under the Contracts to the Contractor.
The Contractor before invoking the arbitration clause for resolution of disputes had approached the High Court of Karnataka at Bengaluru wherein, it had successfully obtained an order of stay over the implementation of the communication levying LDs in both the Projects till the constitution of Arbitral Tribunal, as there was an imminent threat that Bangalore Metro would encash the BGs furnished by the Contractor in order to recover the LD. Once Arbitral Tribunal was constituted, the Contractor filed an application under Section 17 of the Arbitration & Conciliation Act, 1996 restraining Bangalore Metro from invoking the communication levying LDs in respect of both the Projects till the disposal of the arbitration proceedings which came to be allowed. Bangalore Metro was also restrained form invoking the BGs amounting to INR 26 Crores (USD 3.7 Million).
The Contractor raised several monetary claims before the Arbitral Tribunal including claims for idling and overstay on account of delay by Bangalore Metro & breach of Contractual terms, release of payment towards Final bill, Non-tendered items for which rate analysis was not approved either by GC or by Bangalore Metro, Quantity variation and Price variation after defreezing the price, which was frozen while granting extension, totalling to INR 92 Crores (USD 13.15 Million) and INR 57 Crores (USD 8.15 Million) exclusive of interest, in respect of the first and second Projects respectively. In addition to that, directions were sought for release of BGs, issuance of Performance Certificate and declaration that Contractor is not liable to pay any penalty/ LD. Bangalore Metro raised counter claims towards LD, penalty for not achieving Key dates, loss of productivity, extension of services of GC, recovery of land rental charges and risk & cost amounting INR 87 Crores (USD 12.5 Million) and INR 33.6 Crores (USD 4.10 Million) in respect of the first and second Projects respectively. Voluminous records were placed before the Tribunal by leading both oral and documentary evidence followed by rigorous arguments from both the parties, after which the matters were reserved for passing of Awards.
The issue raised before the Tribunal involved the rights and liabilities of the parties in respect of a Construction Contract related to Projects of vast public importance. The main issue in controversy between the parties was – who was attributable for delayed progress of the Projects. The Contractor had meticulously established before the Tribunal that delay in handing over of lands & Good for Construction Drawings, entrustment of additional works, delay in granting of approvals by Bangalore Metro, delay in supply of materials by Vendors on account of belated release of payments towards Interim Bills, Force Majeure, freezing of indices, etc., had contributed to the delay in progress of works on account of which Contractor could not achieve the Key Dates. We were successful in establishing various claims of the Contractor and demolishing Bangalore Metro’s counter claims in its entirety amounting to about 17 Millions USD.
In the light of the evidence and submissions placed before the Tribunal, it was held that the Contractor had successfully executed the Projects and there was no reasons forthcoming for imposition of LD after the completion of the entire Project and commencement of commercial operations. The Tribunal specifically relied upon the fact that having allowed the Contractor to complete the works without approval of the final extension and levying of LD with retrospective was not justified and consequently, Contractor was not liable to pay any LD. The Tribunal has held that completion of works as a whole i.e., last Key Date could not be achieved by the Contractor for the reasons attributable to Bangalore Metro. Since, most of the claims were linked to the aspect of delay, based upon the findings given on delay, the claims of the parties were decided. The Tribunal made it clear that claim towards idling & overstay could not be considered, due to existence of prohibitory clause in the Contract agreed upon by the parties, which specifically provided that Contractor shall not be entitled to claim any amount towards compensation, damages or cost on account of delay attributable to Bangalore Metro and in view of the precedents of the Supreme court to the effect that Arbitral Tribunal which is a creation of the Contact cannot go beyond the terms of the contract.
The Tribunal allowed several claims of the Contractor with specific directions to issue Performance Certificate, release the BGs, Final Bills, compensation for delay in release of payments towards Interim Bills, charges for extension of BGs from time to time, allowing the claims towards price variation of major construction materials, claim towards Quantity variation, amounts withheld towards execution of additional works, etc., and also holding that Contractor is not liable to pay any LD. Apart from claiming LD, Bangalore Metro had also claimed penalty for not achieving Key Dates, additional payment to GC & few other claims. Interestingly claim for loss of productivity was also made by Bangalore Metro on the ground that due to delay in completion of Project work, train operations were also delayed resulting in loss of revenue. The claims were rejected by holding that the contention of the Contractor that having not levied any penalty while granting the first four extensions, Bangalore Metro was not entitled to recover any penalty subsequently, which were for Key Dates 1 to 4. Contractor had also contended that Contract did not provide for making any claims towards loss of productivity, risk & cost, etc., that too without any prior notice to the Contractor. We were also successful in convincing the Tribunal that though the contract provides that Time was essence of the Contract, such clause has no relevance, once extension is granted and accordingly the Tribunal held that it was not the intention of the parties to treat time as essence of the Contract in view of the fact that Bangalore Metro had granted extensions on account of which it cannot hold Contractor alone responsible for delays.
In view of the awards passed, the Contractor has got the benefit of INR 52 Crores (USD 7.5 Million). On account of the directions given by the Tribunal to release the BGs the Contractor has got an additional benefit of INR 25.87 Crores (USD 3.7 Million). As already mentioned above, the Tribunal has also directed Bangalore Metro to issue the Performance Certificates and declared that Contractor is not liable to pay any penalty/ LD. This is a significant victory of the Contractor against a Public Authority like Bangalore Metro which had withheld the legitimate dues of the Contractor inspite of successful completion of infrastructure Projects on account of which the Contractor had suffered financially.
The foundation and legal framework for procurement in India is derived from the Constitution of India.The Constitution via Article 53 of Constitution of India vests the executive powers of the Union of India in the President of India. The President, by his order, and issuance of allocation rules of the Government of India, vested the financial powers of the Indian Government in the Ministry of Finance.
These powers in turn are delegated to the subordinate authorities under the General Financial Rules, 2005 (GFR)(amended 2017) which, inter alia, prescribe the broad rules and procedures for the procurement of goods and services and for contract management.
There is no central legislation governing procurement in India. Comprehensive rules and directives in this regard are contained in the GFR 2005 and Delegation of Financial Powers Rules (DFPR). A broader framework is also provided by the Contract Act, 1872, the Sale of Goods Act, 1930, the Law on Arbitration and Limitation and the recent Right to Information Act, 2005.
As India is a union of states, each state, including the Union Territories, have their own rules, guidelines or legislation on procurement. State governments and Central Public Sector Units (CPSUs) have their own general financial rules, which are based on the broad principles outlined in the GFR. Some states like Tamil Nadu, Andhra Pradesh and Karnataka have even introduced legislation for procurement.
The constitutionally appointed Comptroller and Auditor General (CAG) oversees the accounts of the Union and states. The reports of the CAG on Union accounts are presented to each house of the Indian Parliament, while those relating to the accounts of the states are presented to the legislature of each state assembly. These reports also cover procurement. The Parliamentary Accounts Committee (PAC), the Standing Committees and the Legislative Accounts Committees in the states oversee the functioning of the executive power. To ensure transparency in the process at each level of the Indian Government, a local fund audit for local bodies has been established. Reports on the audits are presented to each state legislative assembly.
In addition, guidelines are issued by the Directorate General of Supplies and Disposals and the Central Vigilance Commission (CVC) together with instructions by Ministry of Finance (MoF) that are responsible for bringing about integrity in public sector procurement. Further, public procurement are also subject to review (where deemed necessary) by the CVC, and the procuring entities in all public procurement are required to adhere to the guidelines issued by the said commission in relation to all such procurement.
General Financial Rules (GFR) 2017
The policy framework primarily covered by the General Financial Rules (GFRs) 1963 (amended in 2005 and 2017) framed by the Ministry of Finance by executive order and the Delegation of Financial Powers Rules 1978 (again framed by the Ministry of Finance). The Ministry of Finance issued GFRs on 11 February 2017 and came into force on 8 March 2017. Rule 153(iii) of the GFRs 2017 allows the Central Government to provide (by way of notification) mandatory procurement of any goods or services from any category of bidders, or provide for preference to bidders on the grounds of promotion of locally manufactured goods or locally provided services.
The main features of GFRs are as follows:
Defines works, goods, and services to be procured and the scope of public procurement
Outlines the fundamental principles of public procurement like enhancing transparency and efficiency, instilling fair practice, and promotion of competition
Prescribes monetary thresholds for using specific procurement methods across the categories of procurement, i.e., works, goods, and services
Describes different procurement methods and their applicability
Prescribes Code of Integrity
Specifies tender award criteria
Outlines general principles and rules of contract management
While GFR 2017 had kept intact the monetary threshold limits for a few categories as given in GFR 2005, it has augmented the threshold limits for others. For instance, GFR 2017 had kept intact the threshold limit for the procurement of original works through limited tender. However, it has enhanced the upper threshold limit for open tender enquiry from INR 10 lakhs to 30 lakhs.
Alternatively, it has increased the upper threshold limit for procurement of goods by the purchasing committee from INR 1 lakh to 2.5 lakhs.
While GFR 2005 had recognised procurement of all kinds of services to be similar, GFR 2017 had procurement of services into two broad categories viz., ‘consulting services’ and ‘non-consulting services’.
In addition to these changes, GFR 2017 also incorporated a few important in order to streamline the public procurement activities in the country.
GFR 2017 recommended two-stage bidding where a procuring entity holds discussions with the bidder community to finalize the technical specifications in the first stage. The financial bid was called from those whose ideas were accepted, and the bid is awarded to the bidder with the best quality-price ratio. It was expected to enhance the technical capacity of the procuring entity by drawing on the know-how from the market.
It directed towards assigning higher weightage to quality as compared to the price especially in the procurement of services through the quality and cost-based selection.
It provided emphasis on the use of information technology in public procurement to ensure greater transparency and competition by mandating the use of Central Public Procurement Portal (CPPP)for publication of all tender details, compulsory e-bidding for all procurements, and promotion of electronic reverse auction.
It introduced Code of Integrity to address probity in procurement activities.
It urged to include environmental issues in the bid documents.
It directed towards sharing the reasons of rejecting a tender or non-issuing a bid document to a prospective bidder upon request.
Public Procurement System In India
In general, Indian public procurement system involves five different stages namely planning of procurement, preparation and publication of bids, submission and evaluation of bids, award and execution of bids, and redressal mechanism
Planning of bids
The procurement process starts with the need assessment of the procuring entity followed by an internal research for technical and financial specifications. India does not consult the private parties (bidders) for need assessment and procurement specifications.
Recently, GFR 2017 had advised to adopt two-stage bidding process (for the procurements where an entity does not have expertise). Once the need is finalized, the stage of bid planning then involves a few other elements such as sanction of the procurement (administrative, technical, and financial), cost estimation, and assignment of officials for different stages (bid preparation, bid evaluation, etc.).
Given the inputs received from the internal assessment, a procuring entity describes the need, specifies the technical and financial requirements, and accordingly, prepares the bid documents.
Although GFRs have advised the procuring entities to include all relevant information such as the evaluation criteria including respective weightage in the bid documents, many bids do not incorporate the same.
Even in many cases, the weightages given to different cost and quality parameters seem to be inconsistent.
GFRs have permitted the procuring entity to draft the procurement activities at their discretion which lead to inconsistent and fragmented bid documents even for the similar procurement.
Preparation and Publication of bids
The bid documents should also comprise of critical information such as bid fee, earnest money deposit (EMD) or bid security, performance security, etc.
While the procuring entity charges a fee for most of the bids, a few bids are exempted. The EMD in India has an average validity of 45 days beyond the final bid validity period, and it is stipulated to be 2-5 percent of the estimated procurement.
The MSEs registered with the concerned ministry/department/procuring entities are exempted from depositing the EMD. The EMD of the unsuccessful bidders should be returned at the earliest after the expiry of the final bid validity and latest within one month after the contract award, but there has always been some delays.
Adoption of e-payment for depositing the different bid related fees is a recent initiative, and it is playing a crucial role in reducing bidders’ transaction costs. Bid documents also include the time-frame of the procurement process, i.e., dates of accessing bid documents, pre-bid meetings, submission, opening, and evaluation. A few bids also include clauses on environmental concerns especially in construction tenders which is an important step for ensuring GPP.
The bids so prepared are then published through multiple channels including e-portals with a reasonable time to access and submit the bids.
Submission of Bids and Evaluation
Once a bidder has decided to submit a bid in response to a notice inviting tender/bid, it needs to properly prepare and submit the bid (offline/online) complying to all the specifications and procurement timeline as mentioned in the bid documents.
Both the concerned government officials and bidders use valid digital signature certificate (DSC) to access the e-portals.
Meanwhile, the procuring entities take some steps to ease the preparation of bids by addressing questions of the bidders through e-portals and holding pre-qualification/pre-bid meetings.
Once submitted through CPPP, the bidders are given the opportunity to modify/withdraw their bids within a stipulated time which ordinarily happens to be the last date of the bid submission. Most of the bids are submitted in a two-envelope system, i.e., the bidders submit technical bid and financial bid separately.
Although the bids need to be opened and evaluated immediately after the submission deadline, there are often delays in bid opening and evaluation. However, there have been some improvements in this regard, and a few entities have started electronic bid opening. The delays of opening and evaluation of bid have been drastically reduced after the introduction of e-procurement.
The bids are opened in the presence of the bidders or their representatives and evaluated for compliance with the tender specifications to select the qualified bids. The minutes of bid opening are often published online and sent to the participating bidders electronically. Only the bids that meet the necessary requirements are retained for technical evaluation, and others are returned unopened.
The concerned officials then undertake technical evaluation, and only technically qualified bids are retained for financial evaluation. Many entities hire consultants to evaluate technical bids due to lack of in-house procurement expert.
Award & Execution
After the selection of technically qualified bidders, the contract is awarded promptly and transparently to the most favoured bidder/s as per the award criteria (often the lowest price L1).
GFR 2017 had mandated on using quality-price criteria for awarding the contract especially in the procurement of services. In order to enhance transparency in the system, the procurement framework has mandated the publication of contract awards.
Another significant improvement in this direction is that the unsuccessful bidders can obtain the feedback on request, which will emerge as a learning opportunity for them in submitting future bids. It should be noted that no price negotiation is allowed in India other than in a few special circumstances.
The awardee is asked to accept and sign the contract for execution. The awardee has to deposit a performance security in the form of a certificate of deposit. The performance security is regulated to be 5-10 percent of the contract value and remains valid for sixty days beyond the date of completion of all contractual obligations including warranty obligations.
While in some cases, EMD is accepted as a part of the performance security, it is usually refunded to the successful bidder on receipt of performance security. The provision for online payment request through CPPP/GeM for the bidders is an improvement in the contract payment. However, in the absence of a legal time-frame for processing the contract payment, the later often is delayed; and thus, seeks attentions from the policy makers.
Establishment of an efficient redressal mechanism is a key element for ensuring transparency and accountability in public procurement by addressing the faults and non-compliances in a procurement process.
India exercises a two-tier review system although this is not formally specified in the procurement framework. In the first tier, an aggrieved bidder can report the irregularities to the concerned officials of the procuring entity.
As a first tier review authority, many tenders engage arbitrator (Dispute Review Expert) to resolve any possible disputes in the procurement activities as per the Indian Arbitration and Conciliation Act 1996. In the second tier, the aggrieved bidder can move to the courts for settlements. In many cases, CCI is also approached for addressing anti-competitive issues in public procurement. A bidder (including successful), if found guilty, is debarred either indefinitely or for a given period from participating in public procurement.
Public Private Partnership (PPP) and Procurement
If the public entity or function is transferred into private ownership, a procurement procedure is required. On 16 May 2007, the Ministry of Finance issued special procedures and guidelines for procurement of PPP projects. The bidding process for PPP projects has been divided into two stages.
The first stage is generally referred to as a request for qualification or expression of interest. The objective of the first stage is to shortlist eligible bidders for the second stage of the process.
The second stage is generally referred to as the request for proposal or invitation of financial bids. Here, shortlisted bidders conduct a comprehensive examination of the project and submit their financial offers. On 18 May 2009, the Ministry of Finance issued revised guidelines for request for qualification (RFQ) for pre-qualification of bidders for PPP pro- jects. Some of the main changes in the RFQ include elimination of the provisions relating to shortlisting of bidders for more than one project. Provision has been made to:
enable the project authority to specify restrictions to prevent concentration of projects in the hands of a few entities.
make suitable amendments to meet social sector and other project requirement
increase the number of shortlisted bidders from five to six and further to seven in projects costing less than 5 billion rupees or for repetitive projects
create a reserve list of bidders in case of substitution in the event of their withdrawal or rejection
In 2011, the Department of Economic Affairs formulated an extensive policy for PPP projects including rules for regulating expenditure, appropriation of revenue, contingent liabilities, etc. However, this is still at the consultation stage within the government and has not yet been financed. In April 2016, the Department of Economic Affairs introduced the PPP Guide for Practitioners, which serves as a manual for practitioners to develop projects through appropriate PPP frameworks
Small and Medium-sized Enterprises (MSMEs)
The Ministry of Micro, Small and Medium Enterprises had formulated a public procurement policy for micro, small and medium-sized enterprises (MSMEs), which had been approved by the cabinet in November 2011.
An order in 2012 was issued, titled the Public Procurement Policy for Micro and Small Enterprises Order 2012. It stated that the Central Government, Departments and Public Sector Undertakings would procure a minimum 20 percent of their annual value of goods or services from micro and small enterprises.
This minimum procurement has become mandatory since April 2015.
The policy further included a reservation of 4 percent in favour of MSMEs owned by specific ‘backward classes’. The Ministry of Micro, Small and Medium Enterprises issued a Circular dated 10 March 2016 allowing central public sector undertakings to relax the norms of ‘prior experience and prior turnover’ for those MSMEs that could deliver goods as per prescribed technical and quality specifications.
The Ministry has also stated that there is a need for central public sector undertakings to achieve the minimum 20 percent annual procurement target including 4 percent by socially disadvantaged classes. It was stated by the Ministry that during the financial year 2017-18, 38 public sector undertakings managed to achieve the 20 percent procurement target.
Issues in the Public Procurement in India
In reality, procurement practices in the country often differ from what is prescribed because of the hurdles such as inefficient monitoring process, limited accountability and governance, limited awareness, and organizational culture. Given below are the major challenges involved in the Indian Public Procurement System:
The absence of a comprehensive procurement Act-In the absence of a comprehensive procurement Act, GFRs allow the government entities to frame procurement process with its own understanding of public interest.
Lack of standard bid documents- In spite of the initiatives for standardizing the bid documents and code of contract following the international agencies such as IMF and the World Bank, there continues to be a multiplicity of bid documents across the entities in terms of addition/rephrase/repetition of clauses/provisions. Such ambiguities and contradictions in the bid documents stand against the principles of standardization, transparency, and accountability.
Delays in activities in procurement cycle- The introduction of e-procurement has managed to reduce the procurement cycle especially in the stages of publication, submission, opening, and evaluation of bids. However, the procurement process is often delayed in the stage of need assessment, budget preparation, and approval.
Unfair practices and corruption– Despite the procedural safeguards corruption level in India is perceived to be high in recent years leading to low quality of public services which ultimately hampers the development process.
Anti-competitive elements -The existence of anti-competitive practices by the bidders’ community tends to hamper the procurement process by negating the best value of money. Competition issues in India mainly concern with collusive bidding, bid rigging, cartelization, and abuse of dominance.
Low participation of the domestic MSEs– Despite the MSMEs provisions, the participation of domestic MSMEs in the public procurement activities remains low in India. Apart from resource-related entry barriers including anti-competitive elements, many MSMEs do not also take part in public procurement due to a perception that government procuring entities often delay in releasing the contract payments.
Absence of an independent grievance redressal mechanism- India does not have an Independent Grievance Redressal Mechanism in the procurement system. The GFR 2017 only allows the aggrieved bidders to file complaints with procuring entities, arbitrators, and courts.
Competency and skill of the procurement officials– There are implementation challenges concerning the skills and competency of the government procurement officials as these activities require professional skills. The officials need to be more acquainted with the procurement management, rules and regulations, legal issues, contract management issues, and others.