Facts
Bank of Baroda (Bob) issued a tender (RFP) for printing and supplying Self-Service Passbooks (SSPBs). Clause 14 of the RFP required that The bidder, its promoters/directors, and related entities should not be defaulters or have NPAs. The bidder should submit an undertaking allowing the bank to verify its financial status. Manipal Technologies Ltd. (MTL) participated in the tender and submitted the required undertaking confirming
compliance.
Bob disqualified MTL because it found that Mr. T. Gautham Pai, who exercised control over the company, was associated with an NPA/defaulting entity.
MTL challenged both:
The validity of Clause 14 and its disqualification
Issues before the Court
Whether Clause 14 of the tender was arbitrary and violated Article 14 of the Constitution.
Whether Mr. T. Gautham Pai could still be treated as a "promoter" despite being redesignated as a Professional
Director.
Whether MTL could challenge the tender conditions after participating in the tender.
Court's Findings
1. Clause 14 is valid. The purpose of the clause was to ensure that only financially sound and trustworthy bidders
participate. A company's commercial credibility depends not only on the company but also on the persons
controlling it. Therefore, considering the financial background of promoters/directors is reasonable and not
arbitrary.
2. Courts interfere very little in tender matters. Tender conditions are commercial decisions. Courts will interfere
only where there is arbitrariness, mala fide intention, irrationality or bias. Since the clause served a legitimate
commercial purpose, judicial interference was not warranted.
3. Bidder cannot challenge tender conditions after participating .MTL participated in the tender without objection.
It also gave an undertaking confirming compliance with Clause 14. After being disqualified, it could not challenge
the same condition it had accepted.
4. Substance is more important than designation
Although MTL changed Mr. Gautham Pai's designation from "Promoter Director" to "Professional Director", he
continued as:
Whole-time Director,
Executive Chairman,
Person exercising strategic and policy control over the company.
Hence, he remained in de facto control of the company.
Therefore, Mr. Gautham Pai continued to be a promoter despite the change in designation.
Final Decision
Clause 14 was upheld as valid. Mr. Gautham Pai was held to be a promoter because he exercised actual control over the company. Bank of Baroda was justified in disqualifying MTL. The appeal was dismissed.
Key Learnings / Legal Principles
Promoter is determined by actual control, not merely by designation or records. A person exercising management or policy control is a promoter under Section 2(69), even if described as a Professional Director. De facto control is sufficient. Courts will look at who actually controls the company's affairs rather than formal titles. Tender conditions are commercial decisions. Courts generally do not interfere unless the conditions are arbitrary,
irrational, discriminatory, or mala fide. A bidder who accepts and participates in a tender cannot later challenge its conditions after being disqualified. Banks and government authorities may consider the financial credibility of promoters/directors while evaluating bids. The financial standing of persons controlling the company is relevant to assessing the company's credibility. Corporate personality does not prevent authorities from examining the
persons behind a company for commercial evaluation, especially in closely held companies.