Common Independent Director Not 'Common Management': Gujarat High Court Sets Aside GeM Bid Rejection

The Gujarat High Court has held that an Independent Director cannot be treated as part of the common management of a company for the purpose of disqualifying bids under Clause 29 of the Government e-Marketplace General Terms and Conditions, setting aside the rejection of NR Agarwal Industries Ltd's technical bid in a public tender.

A Division Bench of Justice Bhargav D. Karia and Justice L.S. Pirzada observed, “the Independent Director stands on a different foot than the Director whether he is a regular Executive Director, Non-executive Director, Managing Director or Whole-time Director of the Company as provided under the provisions of the Act", the bench said.

"Therefore, only because the word “director” is mentioned in Clause No.29 of the General Terms and Conditions of the GeM, it does not mean that it also includes “Independent Director” who has a different role to play in the Board of Directors of the Company", the bench added.

The case arose from five tenders floated by the Gujarat State Board of School Textbooks for supply of 25,000 metric tonnes of Maplitho printing paper through the GeM portal. NR Agarwal Industries Ltd was disqualified after the Board found that one of its Independent Directors, Kanhaiyalal Chunnilal Chandak, was also a director in another participating bidder, Silverton Industries Limited.

Invoking Clause 29, which bars multiple bids by sister, associated, or allied concerns having common directors, the authority treated both companies as related entities and rejected the petitioner's technical bid.

Senior Advocate M.R. Bhatt, appearing with advocate Munjaal M. Bhatt for the petitioner, argued that the disqualification was based on a misunderstanding of the statutory scheme under the Companies Act, 2013.

He submitted that an independent director is not involved in day-to-day management, does not exercise operational control and is required under Section 149(6) to remain independent of promoters and management.

Opposing the petition, counsel for the Board contended that Clause 29 uses the word “Director” without qualification and that the existence of a common director between two bidders was sufficient to attract disqualification.

After examining Sections 2(34), 2(47), 149(6) and 149(12) of the Companies Act and the framework governing Independent Directors, the Bench held that the legislature has consciously created a distinct regulatory and liability regime for them.

The Bench said Independent Directors are brought on the board to ensure oversight and good governance, not to manage the company's day to day affairs. They cannot be placed on the same footing as managing or executive directors who exercise operational control.

It also held that Clause 29 must be read along with Clause 24, which speaks of common management or majority interest. Such control, the court said, cannot be assumed merely because two companies share an Independent Director who neither holds shares nor runs the business.

Finding that the authority had misapplied Clause 29, the court set aside the disqualification and allowed the petition.