Karnataka High Court
Peps Industries Private Limited vs The State Of Karnataka on 2 July, 2026
Author: Suraj Govindaraj
Bench: Suraj Govindaraj
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 2ND DAY OF JULY, 2026
BEFORE
THE HON'BLE MR. JUSTICE SURAJ GOVINDARAJ
WRIT PETITION NO. 10374 OF 2026 (GM-TEN)
BETWEEN:
PEPS INDUSTRIES PRIVATE LIMITED
HAVING ITS MANUFACTURING UNIT
AT NO. N-16 AND 17, SIDCO INDUSTRIAL ESTATE,
PHASE-III, HOSUR 635126,
REPRESENTED BY ITS AUTHORISED SIGNATORY,
(MANAGING DIRECTOR)
MR. KISHORE MVRK
...PETITIONER
(BY SRI. PRABHULING K. NAVADGI., SR COUNSEL A/W
SRI. ABHISHEK K., ADVOCATE &
SRI. KEETHI KRISHNA REDDY., ADVOCATE)
AND:
1. THE STATE OF KARNATAKA
DEPARTMENT OF SOCIAL WELFARE,
Digitally signed REPRESENTED BY ITS PRINCIPAL SECRETARY,
by SHWETHA M.S. BUILDING,
RAGHAVENDRA
BENGALURU 560001.
Location: HIGH
COURT OF
KARNATAKA 2. THE SECRETARY,
SOCIAL WELFARE DEPARTMENT,
VIKASA SOUDHA,
BENGALURU 560001
3. THE COMMISSIONER,
SOCIAL WELFARE DEPARTMENT,
5TH FLOOR, M.S. BUILDING,
DR. AMBEDKAR VEEDHI,
BENGALURU - 560001.
4. POPPY MATTRESS PRIVATE LIMITED,
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HAVING ITS REGISTERED OFFICE AT
S.F. NO. 283/1B
SUKKAMPATTI MANAL MEDU
THALAPPATTI POST
KARUR-639003 TAMIL NADU
REPRESENTED BY ITS AUTHORISED SIGNATORY,
5. CENTURY FIBRE PLATES PRIVATE LIMITED
1ST FLOOR, IDEAL TOWERS
SURVEY NO 115, AKBAR ROAD, TARBUND
SECUNDERABAD - 500009
TELANGANA
OPP BHEL ENCLAVE,
REPRESENTED BY ITS AUTHORISED SIGNATORY
(MANAGING DIRECTOR)
(R5 DELETED AS PER COURT ORDER DATED 05.06.2026)
...RESPONDENTS
(BY SRI. REUBEN JACOB., AAG A/W
SMT. SARITHA KULKARNI., AGA FOR R1 TO R3;
SRI. K. PRASAD HEGDE., FOR C/R4)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227
OF THE CONSTITUTION OF INDIA PRAYING TO ISSUE A WRIT OF
CERTIORARI OR ANY OTHER APPROPRIATE WRIT OR ORDER
QUASHING THE REJECTION OF APPEAL NO.
SAKAE/142/PAKAVI/2026 BY THE RESPONDENT NO.2 VIDE ORDER
DATED 24.03.2026 VIDE ANNEXURE-A AND ETC.
THIS WRIT PETITION, COMING ON FOR PRELIMINARY
HEARING IN 'B' GROUP HEARING, THIS DAY, ORDER WAS MADE
THEREIN AS UNDER:
CORAM: HON'BLE MR. JUSTICE SURAJ GOVINDARAJ
ORAL ORDER
1. The Petitioner is before this Court seeking for the
following reliefs:
a. Issue a writ of certiorari or any other appropriate
writ or order quashing the rejection of Appeal No.
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SAKAE/142/PAKAVI/2026 by the Respondent No.2
vide order dated 24.03.2026 vide ANNEXURE-A.b. Issue a writ of certiorari or any other appropriate
writ or order quashing Corrigendum-1 dated
31.12.2025 issued by Respondent No.2, insofar as
it introduces a new eligibility condition at the final
stage of the tender without reasonable
accommodation vide ANNEXURE-D & D 1.
c. Issue a writ of certiorari or any other appropriate
writ or order quashing the Tender Nos. SWD/2025-
26/IND0352/CALL-2 and SWD/2025-
26/IND0353/CALL-2 dated 19.12.2025 and to
declare that any other proceedings subsequent in
pursuance to the above Tender stands cancelled
vide ANNEXURE-B & ANNEXURE-C.
d. Grant such other reliefs as this Hon’ble Court
may deem fit in the facts and circumstances of the
case, in the interest of justice and equity.
2. Respondents no.2 and 3 had issued tender dated
30.10.2025 bearing No.SWD/2025-26/IND0352/CALL-2
for supply of coir mattresses with polyester pillows to
hostels situated in Bengaluru and Mysuru Revenue
Divisions and another tender dated 29.10.2025 bearing
No.SWD/2025-26/IND0353/CALL-2 had been issued for
supply of identical items to hostels situated in the
Belagavi and Kalaburagi Revenue Divisions. It is stated
that, though the supply was segregated, both tenders are
identical in their scope of work, eligibility criteria,
technical specification, financial thresholds and evaluation
methodology.
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3. The petitioner participated in both the tenders. The last
date for submission of the tender being 03.01.2026.
During the pre-bid meeting, there were various issues
raised by the proposed participants. Hence, a
Corrigendum came to be issued on 31.12.2025 amending
Clause 9 relating to eligibility criteria, which reads as
under:
Sl Terms Amended to read as
7 The bidder should have ISO 1) The bidder should have
9001-2015 NABCB ISO 9001-2015 NABCB
certificate or IS certificate and IS
BIS13489:2025
13489:2000 or
certifications for the
IS13489:2025 certifications product manufactured by
for the product them issued by Bureau of
manufactured by them Indian Standards.
issued by Bureau of Indian
Standards. 2) The bidder should have
Zed Gold Certificate – the
Documents to be submitted highest tier in India’s MSME
Copy of ISO 9001-2015 Sustainable (ZED)
NABCB certificate or IS Certification Scheme,
13489:2000 or IS launched by the Ministry of
13489:2025 certifications Micro, Small & Medium
shall be submitted. Enterprises (MSME)
Documents to be submitted
Copy of ISO 9001-2015
NABСВ certificate and
BIS13489:2025 and Zed
Gold certifications shall be
submitted.
4. Pursuant to the aforesaid amendment, the last date for
submission of bids was extended to 06.01.2026. The
petitioner, however, was unable to submit the ZED Gold
Certificate on or before the extended deadline, though
the certificate was obtained and submitted subsequently.
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Since the said certificate was not taken into consideration
by the respondents, the petitioner’s bid came to be
rejected at the stage of technical evaluation, while the bid
submitted by respondent No. 4 was accepted.
5. Aggrieved by the rejection of his bid and the acceptance
of the bid of respondent No. 4, the petitioner preferred an
appeal before the appellate authority. It was contended
before the appellate authority that the ZED Gold
Certificate, having become available prior to the
evaluation of the bids, ought to have been taken into
consideration by the respondents and that the petitioner’s
bid ought not to have been rejected merely because the
certificate had not been uploaded on or before the
prescribed date. It was further contended that
respondent No. 4 itself was ineligible to be awarded the
tender, inasmuch as its net worth did not satisfy the
requirement stipulated under sub-clause (3) of Clause 9
relating to the eligibility criteria contained in the tender
notification. The said provision is extracted hereinbelow
for ready reference:
The bidder should produce Certificate of verification
NET WORTH equivalent to half issued by the Chartered
of the total estimated value of Accountant in support of the
the tender amount as on 31st same in the prescribed
March 2024. format at Annexure-BNote: The bidder can submit Note: The bidder can submit
the net worth value for the the net worth Certificate for
year ending 31st March 2025 the year ending 31st March
if the Statutory Audit for the 2025 if the Statutory Audit
year 2024-25 is completed for the year 2024-25 is
completed
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6. The appellate authority rejected the petitioner’s appeal
holding that, as on the last date prescribed for
submission of the bid documents, namely, 06.01.2026,
the petitioner did not possess the ZED Gold Certificate.
Since the certificate had been issued only on 09.01.2026,
after the expiry of the stipulated deadline, it could not be
taken into consideration during the process of technical
scrutiny. On that basis, the appellate authority upheld the
rejection of the petitioner’s technical bid.
7. Insofar as the contention relating to the eligibility of
respondent No. 4 is concerned, the appellate authority
accepted the Chartered Accountant’s certificate produced
by respondent No. 4 as sufficient proof of its net worth
and concluded that respondent No. 4 satisfied the
financial eligibility criterion prescribed under the tender
conditions. Consequently, the challenge to the eligibility
of respondent No. 4 was also rejected. Aggrieved by the
said order passed by the appellate authority, the
petitioner has approached this Court by way of the
present writ petition.
8. Sri Prabhuling Navadgi, learned Senior Counsel appearing
for the petitioner would firstly submit that:
8.1. Learned Senior Counsel submitted that the
requirement of furnishing a ZED Gold Certificate
was introduced only on 31.12.2025 by way of an
amendment to the tender conditions, leaving the
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bidders with a very limited period to obtain the
certification before the last date for submission of
bids. He submitted that, on 06.01.2026, the
petitioner had specifically informed the respondents
that an application for the ZED Gold Certification
had already been made, that the certificate was
expected shortly, and that an affidavit to that effect
had been uploaded along with the bid documents.
According to him, although the certificate was
issued after the last date for submission of bids, it
had been obtained prior to the scrutiny and
evaluation of the technical bids. Therefore, the
respondents ought to have taken the subsequently
issued certificate into consideration instead of
rejecting the petitioner’s bid solely on the ground
that the certificate had not been available on the
last date prescribed for submission of bids.
8.2. Insofar as the issue of net worth is concerned,
learned Senior Counsel submitted that Clause 9(3)
of the tender conditions mandated that a bidder
should possess a net worth equivalent to at least
one-half of the estimated tender value as on
31.03.2024. Since the estimated value of the
tender was ₹10 crores, the minimum prescribed net
worth was ₹5 crores. The only relaxation provided
under the tender conditions, according to him, was
that where the accounts had been audited, the
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audited net worth as on 31.03.2025 could be taken
into consideration.
8.3. Learned Senior Counsel relied upon the Annual
Return filed by respondent No. 4 before the
Registrar of Companies and, by drawing attention
to Item No. V thereof, submitted that the net worth
of respondent No. 4 had been disclosed as
₹4,32,84,294.65, which was below the minimum
prescribed requirement of ₹5 crores. On that basis,
he contended that respondent No. 4 was ineligible
to participate in the tender.
8.4. Learned Senior Counsel further submitted that the
appellate authority had erroneously accepted the
Chartered Accountant’s certificate produced by
respondent No. 4, wherein the Chartered
Accountant had computed the net worth by
aggregating the share capital, reserves and surplus,
and loans advanced by the directors. According to
him, loans received from directors could not form
part of the computation of “net worth” under the
Companies Act, 2013. In support of this
submission, he relied upon the opinion of a
Company Secretary produced as Annexure-N,
wherein it is opined that, having regard to Section
2(57) of the Companies Act, 2013, loans cannot be
included while determining the net worth of a
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company. Consequently, it was submitted that
respondent No. 4 did not satisfy the prescribed
eligibility criterion relating to net worth and its bid
ought to have been rejected.
8.5. He relied on subsection (57) of Section 2 of the
Companies Act, 2013 which is reproduced
hereunder for easy reference:
2(57) “net worth” means the aggregate value of
the paid-up share capital and all reserves
created out of the profits [, securities premium
account and debit or credit balance of profit and
loss account, Subs. by Act 1 of 2018, s.2, for
“and securities premium account” (w.e.f. 9-2-
2018)] after deducting the aggregate value of
the accumulated losses, deferred expenditure
and miscellaneous expenditure not written off,
as per the audited balance sheet, but does not
include reserves created out of revaluation of
assets, write-back of depreciation and
amalgamation;
8.6. By relying on subsection (57) of Section 2 he
submitted that the Chartered Accountant’s
certificate produced by respondent No. 4 was
contrary to the provisions of Section 2(57) of the
Companies Act, 2013. According to him, the
Chartered Accountant had erroneously included
loans and advances made by the directors to the
company while computing its net worth, even
though such amounts do not form part of the
statutory definition of “net worth”. He submitted
that this discrepancy had been specifically brought
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to the notice of the appellate authority.
Notwithstanding the same, the appellate authority
disregarded the statutory definition and accepted
the Chartered Accountant’s certificate to hold that
respondent No. 4 possessed the requisite net worth
of more than ₹5 crores. It was therefore contended
that the appellate authority had proceeded on an
erroneous basis by taking into consideration
amounts which could not legally be included in the
computation of net worth.
8.7. On the aforesaid grounds, learned Senior Counsel
submitted that both the rejection of the petitioner’s
bid and the acceptance of the bid submitted by
respondent No. 4 are arbitrary, contrary to the
tender conditions and the provisions of the
Companies Act, 2013, and consequently liable to be
quashed.
9. Sri. Reuben Jacob Learned Additional Advocate General
appearing for the State would submit that:
9.1. The timelines stipulated in the tender notification
are sacrosanct and are required to be adhered to
strictly by every bidder. He contended that the last
date prescribed for submission of bids was
06.01.2026 and, therefore, the petitioner was
required to possess and furnish the ZED Gold
Certificate on or before the said date. Admittedly,
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the petitioner obtained the certificate only on
09.01.2026, after the expiry of the prescribed
deadline. Merely because the certificate had been
produced before the scrutiny of the technical bids
would not entitle the petitioner to have the same
considered, since it constituted a document that
was not in existence or available with the petitioner
on the last date fixed for submission of bids.
Acceptance of such a document, according to him,
would amount to permitting a bidder to improve its
eligibility after the closure of the bidding process,
which is impermissible in law.
9.2. Insofar as the issue relating to the net worth of
respondent No. 4 is concerned, learned counsel
submitted that, apart from the Chartered
Accountant’s certificate already produced, a further
clarification dated 12.01.2026 had also been issued
by the Chartered Accountant. In the said
clarification, it has been specifically stated that the
amounts advanced by the directors were treated as
quasi-capital, having regard to the intention behind
such advances and their utilisation towards the
long-term capital requirements and operational
growth of the company. It was further clarified that
the authorised and paid-up share capital of the
company had subsequently been increased and the
corresponding allotment of shares had also been
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effected. Consequently, the amounts initially
advanced by the directors did not continue to retain
the character of loans but stood converted into the
share capital of the company. On that basis, it was
submitted that the computation of the net worth by
the Chartered Accountant was proper and that
respondent No. 4 fully satisfied the financial
eligibility criteria prescribed under the tender
conditions.
9.3. In this regard, he relies upon the decision of the
Hon’ble Delhi High Court in the case of TEQ Green
Power XIII Private Limited vs. REMC Limited1
more particularly paras 21, 23, 24, 25 and 26,
which are reproduced hereunder for easy reference:
21. It has been stated before us, on affidavit,
that the preference shares in question are
preference shares redeemable at the instance of
the issuer without any fixed term or tenure
attached to these shares. A perusal simpliciter
of the aforestated provisions makes it amply
clear that such shares would form part of paid-
up share capital which in turn is a component of
net worth. We are therefore of the opinion that
the shares in question can form a part of the
net worth within the scheme and mandate of
the Companies Act.
23. It is pertinent to mention here that Section
2 (40) of the Companies Act which defines the
“financial statement” in relation to a company
includes a balance sheet which is to be prepared
in accordance with Section 129 of the
Companies Act and Section 129 refers to
1
WP(C) No.17599/2022 & CM Appl.56263/2022 dated 21.3.2023
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Schedule III of the Companies Act. As stated in
JK Industries (supra), it does not deal with net
worth of a company. Calculation of net worth
and drawing up of a balance sheet are therefore
separate concepts. It is well settled that if the
preference shares are not redeemed, the holder
of the preference shares does not assume the
status of a creditor. Even if O2 Power SG PTE.
LTD is governed by the Indian Companies Act
(which is actually not as it is a company
incorporated in Singapore and is governed by
the laws of Singapore), the preference shares
issued by O2 Power SG PTE. LTD are not
redeemable at the option of shareholders, and
therefore, cannot be categorized as a debt.
24. A perusal of the above would show that the
mode of calculation of net worth which has been
adopted by the Respondents to exclude the
Petitioner from further stages of the tendering
process is contrary to the Sections of the
Companies Act. Clause 4.3.1(c) of the NIT does
not exclude preference shares from the
definition of net-worth rather it states that net-
worth is to be considered for this clause shall be
the total net worth as calculated in accordance
with the Companies Act, 2013, then the net-
worth has to be calculated as per the
Companies Act, 2013 and no other method can
be permitted to be adopted. There is no reason
as to why the tender must exclude preference
shares while calculating the net-worth.
Respondents cannot be permitted to adopt a
method which runs contrary to the provisions.
Even though there are no allegation of mala
fides or that the method has been calculated to
favour any particular party, since the decision
has been arrived at in violation of the statute,
this Court cannot be a party to uphold any
decision which is contrary to the plain reading of
the statute.
25. As stated before, balance sheet is not an
indicator of the true net worth of a company.
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Balance sheet reflects the share capital of a
company and its treatment as an asset or
liability to the company on the date of
preparation of the balance sheet. It is not
disputed that balance sheets are to be prepared
in accordance with extant accounting standards.
Even if it were the case that the legality of the
Impugned Decision was to be tested within
directions laid down by Accounting Standard 32,
it has been correctly pointed out by Mr. Mehta
that in terms of AG 25 of the standards, the
preference shares in question would be treated
as a liability only in certain circumstances and
not always. AG 25 states as under: –
“AG 25 Preference shares may be issued with
various rights. In determining whether a
preference share is a financial liability or an
equity instrument, an issuer assesses the
particular rights attaching to the share to
determine whether it exhibits the fundamental
characteristic of a financial liability. For
example, a preference share that provides for
redemption on a specific date or at the option of
the holder contains a financial liability because
the issuer has an obligation to transfer financial
assets to the holder of the share. The potential
inability of an issuer to satisfy an obligation to
redeem a preference share when contractually
required to do so, whether because of a lack of
funds, a statutory restriction or insufficient
profits or reserves, does not negate the
obligation. An option of the issuer to redeem the
shares for cash does not satisfy the definition of
a financial liability because the issuer does not
have a present obligation to transfer financial
assets to the shareholders. In this case,
redemption of the shares is solely at the
discretion of the issuer. An obligation may arise,
however, when the issuer of the shares
exercises its option, usually by formally
notifying the shareholders of an intention to
redeem the shares.”
(emphasis supplied)
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26. The Apex Court in a catena of Judgments
has held that the scope of interference by the
Courts in exercising jurisdiction under Article
226 of the Constitution of India in contractual
matters is extremely limited. The Court
interferes in contractual matters only when the
decision making process is faulty or that the
decision arrived at by tenderer is calculated to
favour somebody or that the decision is so
irrational that no man of prudence would have
come to that conclusion. In the facts of the
present case, it cannot be said that the decision
that has been arrived at by the Respondent is to
favour somebody yet the method adopted by
the Respondent for calculating net worth is
contrary to the definition of net worth given
under the Companies Act. Reliance placed by
the Respondent on the Judgment of GKC
Projects (Supra) is not apt for the reason that in
that case the tenderer had decided not to
include only reserves arising out of the revenue
profits alone while calculating the net worth
which is not contrary to the statute. However, in
the facts of the present case, the tenderer has
decided to exclude preference shares from the
definition of net worth on a wrong notion that
preference shares is a liability which is contrary
to the Sections in Companies Act. Only when
the preference shares are redeemable at the
instance of the shareholders then only the
preference shares can be called as a liability and
not in all cases. Preference shares are
redeemed out of profits or out of a fresh issue
meant for the purpose and not from the existing
share capital. Since the entire basis of
calculating net worth by the Respondent is
contrary to the provisions of the statute, this
Court has no other option but to hold that the
decision of the tenderer to exclude preference
shares from the calculation of net worth is
arbitrary and irrational. In view of the above,
the challenge of the Petitioner to its exclusion
from the tendering process has to be accepted.
The Respondent is directed to re-work the net-
worth of the Petitioner herein by including the
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preference shares while calculating its net-
worth and take a decision as to whether the
Petitioner’s financial bid can be considered or
not.
9.4. By relying on TEQ Green Power, his submission is
that preferential shares would have to be treated as
capital. In the present matter, the loan which has
been advanced as regards which share have been
allotted can also be treated as the capital of the
company and it is in pursuance thereof that the
certification issued by the Chartered Accountant has
been considered.
10. Sri. Prasad Hegde, learned counsel for respondent no.4
would reiterate the submission of learned Additional
Advocate General and states that the Zed Gold certificate
which had been produced by the petitioner was
subsequent to the cut-off date. He also submits that the
amounts had been advanced by directors 3 years ago.
Due to various reasons, the allotment of shares could not
be completed, but was completed subsequently and now
forms part of the share capital and as such, the appellate
authority has rightly accepted the said certification issued
by the Chartered Accountant.
11. Heard Sri.Prabhuling Navadgi, learned Senior Counsel
appearing for the petitioner, Sri.Reuben Jacob, learned
Additional Advocate General for the State and Sri.Prasad
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Hegde, learned counsel for respondent no.4 and perused
papers.
12. The short question that arises for consideration is
whether the timelines stipulated in the tender
notification are sacrosanct and, if so, whether the
Tender Accepting Authority and the Appellate
Authority have uniformly applied those timelines
while considering the eligibility of the petitioner
and respondent No. 4.
13. The present case presents an unusual situation where
both the petitioner and respondent No. 4 invoke the
sanctity of the prescribed dates against each other. There
is, in fact, no dispute between the parties that the
timelines stipulated under the tender conditions are
mandatory and require strict adherence.
14. Respondent No. 4 contends that the petitioner’s ZED Gold
Certificate, having been issued only on 09.01.2026, was
admittedly not available on the last date prescribed for
submission of bids, namely, 06.01.2026. Consequently,
the Tender Accepting Authority was justified in rejecting
the petitioner’s bid at the stage of technical evaluation.
15. The petitioner, on the other hand, contends that
respondent No. 4 did not possess the prescribed
minimum net worth of ₹5 crores either as on 31.03.2024
or, alternatively, as on 31.03.2025. Though it was argued
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that the audited financial statements for the year ending
31.03.2025 were available, the petitioner submits that
the eligibility criterion was nevertheless not satisfied on
the relevant cut-off date.
16. Thus, both parties accept that the dates prescribed under
the tender conditions are sacrosanct. The dispute is not
with regard to the mandatory nature of the timelines, but
with regard to their application. Consequently, this Court
is not required to examine whether the stipulated dates
are mandatory; the only issue requiring determination is
whether either of the parties has failed to satisfy the
eligibility conditions as on the prescribed dates.
17. The question that therefore falls for consideration is
whether the petitioner or respondent No. 4 has violated
the mandatory cut-off dates prescribed under the tender
conditions and, if so, the legal consequences thereof.
18. Insofar as the petitioner is concerned, there is no dispute
that the petitioner did not possess or furnish the ZED
Gold Certificate on or before 06.01.2026, the last date
prescribed for submission of bids. The certificate was
admittedly issued only on 09.01.2026 and was furnished
to the Tender Evaluation Authority thereafter on
12.01.2026. Thus, the petitioner sought to rely upon a
document which was neither available nor uploaded on or
before the prescribed deadline.
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19. The submission that the certificate had been produced
prior to the scrutiny of the technical bids cannot be
accepted. Eligibility has to be determined with reference
to the last date stipulated in the tender notification and
not with reference to the date of scrutiny or evaluation.
Acceptance of documents obtained subsequent to the cut-
off date would amount to permitting a bidder to cure an
eligibility defect after the bidding process had closed,
thereby compromising the fairness and integrity of the
tender process.
20. Accordingly, this Court finds no infirmity in the rejection
of the petitioner’s bid at the stage of technical evaluation.
21. The position, however, stands on a different footing
insofar as respondent No. 4 is concerned. The bid of
respondent No. 4 was accepted on the ground that it
emerged as the lowest (L1) bidder. Nevertheless, such
acceptance could have been sustained only if respondent
No. 4 satisfied all the eligibility conditions prescribed
under the tender notification, including the requirement
relating to minimum net worth under sub-clause (3) of
Clause 9.
22. The tender conditions require the bidder to possess a
minimum net worth equivalent to 50% of the estimated
tender value. Since the estimated value of the present
tender is ₹10 crores, the bidder was required to establish
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a minimum net worth of ₹5 crores as on the relevant cut-
off date.
23. The balance sheet of respondent No. 4 discloses its net
worth as ₹4,32,84,294.65 as on 31.03.2025. The
Chartered Accountant’s certificate, however, certifies the
net worth as ₹7,14,12,350 by aggregating the paid-up
share capital, reserves and surplus, and loans advanced
by the directors.
24. Subsection 57 of Section 2 of the Companies Act, 2013,
extracted hereinabove, defines “net worth” with
specificity. The statutory definition includes paid-up share
capital, reserves created out of profits, securities
premium account, and the debit or credit balance of the
profit and loss account, after making the prescribed
deductions. The definition does not contemplate inclusion
of loans advanced by directors while computing the net
worth of a company. A loan is always a debt and would
have to be deducted from the net worth and not added to
it.
25. Even assuming that the clarification subsequently issued
by the Chartered Accountant on 12.01.2026 is taken into
consideration, the said clarification itself states that the
formal allotment of shares against the funds advanced by
the directors had not been completed as on 31.03.2025.
Thus, as on the relevant cut-off date, the amounts
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continued to retain the character of loans. Merely
describing such loans as “quasi-capital” cannot alter their
legal character in the absence of a completed allotment of
shares prior to the cut-off date.
26. The Chartered Accountant’s subsequent explanation that
the loans were intended to meet long-term capital
requirements or that they were eventually converted into
share capital cannot assist respondent No. 4. Eligibility
has to be established with reference to the prescribed
cut-off date. Events occurring subsequent thereto cannot
retrospectively confer eligibility.
27. Therefore, as on the relevant date, respondent No. 4 had
not established the prescribed minimum net worth of ₹5
crores. The acceptance of the Chartered Accountant’s
certificate by the Appellate Authority, despite the
statutory definition contained in Subsection 57 of Section
2 of the Companies Act, 2013 and the clarification issued
by the Chartered Accountant himself, is legally
unsustainable. Consequently, respondent No. 4 did not
satisfy the financial eligibility criterion prescribed under
the tender conditions and was not entitled to be
considered for award of the contract.
28. The remaining submission advanced by Sri Prasad Hegde
is that, even if respondent No. 4 is held to be ineligible,
the petitioner cannot derive any benefit therefrom, since
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the petitioner’s bid had itself been rejected at the
technical evaluation stage. According to learned counsel,
only the bidder placed immediately next to respondent
No. 4, namely the L2 bidder, could question the award of
the contract to the L1 bidder.
29. This submission cannot be accepted. The Finance
Department of the State Government has issued a
Circular dated 11.05.2022 which specifically provides that
where the successful L1 bidder is found to be ineligible or
stands disqualified, the tender process is not to proceed
by automatically awarding the contract to the next
eligible bidder. Instead, the entire tender process is
required to be cancelled and a fresh tender invited.
30. Thus, the consequence of the disqualification of
respondent No. 4 is not the award of the contract to the
petitioner or to the L2 bidder, but the cancellation of the
tender itself. The petitioner, being an unsuccessful
participant in the tender process, is nevertheless entitled
to challenge the illegal acceptance of the bid of an
ineligible bidder, since such challenge goes to the legality
and fairness of the tender process itself.
31. In that view of the matter, this Court passes the
following:
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ORDER
i) The Writ Petition is partly allowed, the reliefs are
moulded.
ii) The rejection of the petitioner’s bid on the ground that
the ZED Gold Certificate was not furnished on or
before the last date prescribed for submission of bids
is upheld.
iii) The acceptance of the bid of respondent No.4 and the
consequential order passed by the Appellate Authority,
insofar as it holds that respondent No.4 satisfied the
prescribed net worth criterion under Clause 9(3) of the
tender conditions, are hereby quashed.
iv) It is declared that respondent No.4 did not satisfy the
financial eligibility criterion relating to minimum net
worth as on the prescribed cut-off date and was,
therefore, ineligible for consideration under the tender
notification.
v) In view of the Circular dated 11.05.2022 issued by the
Finance Department of the State Government, the
respondents shall treat the tender process as having
failed and shall cancel the tender in accordance with
the said Circular.
vi) Liberty is reserved to the respondents to initiate a
fresh tender process.
Sd/-
(SURAJ GOVINDARAJ)
JUDGE
PRS
List No.: 2 Sl No.: 7
