Madras High Court
Concrete Products And Construction Co. ... vs Union Of India (Uoi) And Ors. on 19 October, 2001
Equivalent citations: AIR2002MAD95, (2002)1MLJ158, AIR 2002 MADRAS 95, 2001 (45) ARBI LR 385, (2002) 1 MAD LJ 158, (2002) WRITLR 220, (2001) 45 ARBILR 385
Author: P.D. Dinakaran
Bench: P.D. Dinakaran
ORDER P.D. Dinakaran, J.
1. Heard.
2.1 The second petitioner in W.P. No. 10814 of 1999 is Managing Partner of the first petitioner -- partnership firm in the said writ, petition. The petitioner in W.P. No. 11805 of 1999 is a Private Limited Company.
2.2 The petitioners in both these writ petitions are engaged in manufacture and supply of Mono Block Concrete Sleepers to the Southern Railways functioning under the control of the Ministry of Railways, Union of India, for the various track renewal, construction and gauge conversion projects, pursuant to the agreements dated 30-3-1984 and 30-1-1983 respectively, which were extended from time to time under various agreements.
2.3 The respondent Railway administration have entered into similar agreements with several contractors under various agreements for supply of Mono Block Concrete Sleepers for the above-mentioned purpose.
3.1 Clause 6 of the agreements deals with the payment to the Contrators for the supply of Mono Block Concrete Sleepers of which Clauses 6.1.2(d), (e) and (f) are relevant to be referred to, which read as follows :
"6.1.2 (d) : The Contract or shall be entirely responsible for the safe custody and protection of the said articles and stores against all risks excluding all war risks till they are duly utilised in fabrication of wagons and in case of surplus stores and articles these are delivered back to the President of India as he may direct. He shall be responsible for any loss, damage or determination in respect of the said stores and articles while in his possession and custody of his sub-contractors. The said articles and materials shall at all time be open to inspection of any officer authorised, by the President of India. And if the Contractor fails to produce/show the articles and materials before the Inspecting Officer or otherwise fails to give a true and proper account to the satisfaction of President of India, the President of India shall, on receipt of a certificate/report from the said Inspecting officer indicating the quantity of articles and materials not produced/shown or for which no true or proper account, could be given, be entitled to recover from him the compensation for such materials/articles either by deduction from any sums due or any sum which at any time hereafter may become due to the Contractor, under this or any other contract. The Certificate/report issued by the Inspecting Officer as aforesaid shall be final and conclusive and shall not be questioned in any manner whatsoever, and no dispute shall be raised by the Contractor in this regard. The rights conferred on the President of India under this clause shall not prejudice his other rights and remedies available to him under the contract.
6.1.2. (e) : Should any loss or damage occur or a refund becomes due, the President of India shall be entitled to recover from the Contractor, compensation for such loss or damage of the amount to be refunded without prejudice to any other remedies available to him by deduction from any sum due or any sum which any time hereafter may become due to the Contractor under this or any other contract.
6.1.2. (f) : in the event of the Contractor's failure to fulfil all their obligations under the contract, the President of India will be entitled to lift such stores and articles as would be retained in his custody which were supplied to him free of cost, and against which payments have been made by the President of India, The rights and remedies available to the President of India under this clause, is however, without prejudice to his other rights and remedies available to him under this contract."
3.2. Clause 11.2 of the said agreements reads as follows :
"11.2. The Contractor shall exercise utmost economy in the purchase of the three principal raw materials, escalation will be admitted on the basis of the actual paid for the respective raw material, subject to a ceiling on the prices as under :
(a) in the case of the materials under statutory price control, the price as applicable on the date of purchase of the said material, in terms of the Price Control Order.
(b) Where the material does not come under any statutory price control, the prices fixed by any recognised agency exercising control on the prices of the products of their repesentative units, such as Joint Plant Committee. Cement Corporation, etc.
(c) in the case of raw material not covered by either of the above, the lowest price (FOR destination) arrived at on the basis of quotations obtained by the Contractor for each supply from the various established sources of supply of the respective raw materials."
3.3 Clause 16 of the agreements, enables the Government to reserve the right for book examination, which reads as follows :
"Clause : 16. Book Examination Clause:
The Government reserves the right for "Book Examination" as follows :--
16.1. The Contractor shall, where ever required, produce or cause to be produced for examination by any Government Officer authorised to in that behalf any cost or other account, book of account, voucher, receipt of letter, memorandum, paper and writing or any copy of extract from any documents and also furnish information and returns verified in such manner as may be required, in any way relating to execution of this contract or relevant for verifying or ascertaining the cost of execution of this contract (the decision of such Government Officer on the question of relevancy of any documents, information or return, being final and binding on the parties). The obligation imposed by this clause is without prejudice to the obligations of the Contractor under any statute, rules or orders binding on the contract.
16.2. The Contractor, shall if the authorised Government Officer so requires, (whether before or after the prices have been finally fixed) afford facilities to the Government Officer concerned to visit the Contractors works for the purpose of examining the processes of manufacture and estimating or ascertaining the cost of production of the articles. If any portion of the work be carried out by a sub-contractor or any subsidiary or allied firm or company, the authorised Government Officer shall have power to secure that the books of such subcontractor, or any subsidiary or allied firm or company shall be open to his inspection."
3.4 Indian Railway Standard Conditions of Contract and other connected Proforma Applications are made as a part and parcel of the respective agreements entered into between the petitioners and the Railway administration, as per Clause 24 of the agreements, which reads as follows :
"Clause 24. Indian Railway Standard Conditions of Contract (Annexure 'A') as correct as per slip attached thereto, Indemnity Bond Proforma (Annexure 'B') . Special Indemnity Bond Proforma (Annexure 'C'), Indian Railway Standard Specification for BG prestressed concrete sleepers. Revised August 1981 (Annexure 'D'). Draft Indian Railway Standard specification for unquoted stress relieved 3 ply 3 mm strand for presetressed concrete sleepers (Annexure 'E'), RDSO's drawing No. RDSO/T2495 Alt. I (Annexure 'F') , RDSO's Drawing No. RDSO/T-2496 (Annexure 'G') RDSO's drawing No. RDSO/T-2466 (Annexure 'H') and RDSO's Drawing No. RDSO/T 2468 (Annexure 'I') attached to his letter will form part of the contract to the extent they are not superseded by the above clauses."
4.1 Clause 1600 of the Indian Railway Standard Conditions of Contract deals with the use of raw materials secured with Government assistance, which reads as follows:
" 1600. Use of Raw Materials secured with Government assistance.
1601.
(a) Where any raw material is procured for the execution of a contract with the assistance of the Government rendered in the form a permit, or licence or quota certificate/essentiality certificate or release order Issued by or on behalf of or under the authority of the Government or by an officer empowered in that behalf, or
(b) Where the raw material is issued to the contractor from Government stock, or
(c) Where advance payments are made to the contractor to enable him to purchase the raw material, or
(d) Where raw material is arranged by the Government, the contractor --
i. shall hold such material as trustee for the Government, ii. shall use such materials economically and solely for the purpose of contract.
iii. shall not dispose of the same without previous permission in writing of the purchaser, and iv. shall render due account of such material and return to the Government at such place as the Purchaser may direct all surplus or unserviceable material that may be left after the completion of the contract or its termination for any reason whatsoever.
On returning such material, the contractor shall be entitled to such price therefor, as the Purchaser, may fix having regard to the condition of such material.
1602. Where the contract is terminated due to any default on the part of the contractor, the contractor shall pay all transport charges incurred for returning any material up to such destination as may be determined by the Purchaser and the decision of the Purchaser in that behalf shall be final and binding on the contractor.
1603. If the contractor commits breach of any of the conditions in this clause-specified, he shall, without prejudice to any other liability, penal or otherwise, be liable to account to the Government for all moneys, advantages or profits accruing from or which, in the usual course, would have accrued to him by reason of such breach.
1604. Where the stores manufactured or fabricated by the contractor out of the material arranged or procured by or on behalf of the Government are rejected, the contractor shall, without prejudice to any other right or remedy of the Government, pay to the Government, on demand, the cost, price or market value of all such materials whichever is greater."
4.2 Clause 2500 of Indian Railway Standard Conditions of Contract deals with corrupt practices, which reads as follows :
"2500. Corrupt Practices.
2501. The contractor shall not offer or give or agree to given to any person in the employment of the purchaser or working under the orders of the purchaser any gift or consideration of any kind as an inducement or reward for doing or forbearing to do or for having done or forborne to do any act in relation to the obtaining or execution of the contract or any other contract with the purchaser or Government or for showing any favour or forbearing to show disfavour to any person in relation to the contract of any other contract with the Purchaser or Government. Any breach of the aforesaid condition by the contractor, or any one employed by him or acting on his behalf (whether with or without the knowledge of the contractor) or the commisison of any offence by the contractor or by anyone employed by him or acting on his behalf under Chapter IX of the Indian Penal Code, 1860 or the Prevention of Corruption Act, 1947 or any other Act enacted for the prevention of corruption by public servants shall entitle the purchaser to cancel the contract and all or any other contracts with the contractor and to recover from the contractor the amount of any loss arising from such cancellation in accordance with the provisions of Clauses 0600 and 0700.
2502. Any dispute or difference in respect of either the interpretation, effect or application of the above condition or of the amount recoverable thereunder by the Purchaser from the contractor, shall be decided by the purchaser, whose decision thereon shall be final and binding on the contractor.
4.3 Condition 2900 of Indian Railway Standard Conditions of Contract provides an arbitration clause in the event of any question, or dispute, arising under the special conditions of the contract between the contractors and the Railway administration, which reads as follows :
"2900. Arbitration
(a) in the event of any question, dispute or difference arising under these conditions or any special conditions of contract, or in connection with this contract (except as to any matters the decision of which is specially provided for by these or the special conditions) the same shall be referred to the sole arbitration of a person appointed to be the arbitrator, by the General Manager in the case of contracts entered into by the Zonal Railways and Production Units, by any Member/any Additional Member of the Railway Board, in the case of contracts entered into by the Railway board; and by the Head of the Organisation in respect of contracts entered into by the other organisations under the Ministry of Railways. If, however, the arbitrator is a railway servant, he will not be one of those who had an opportunity to deal with the matters to which the contract relates or who in the course of their duties as railway servants have expressed view on all or any of the matters under dispute or difference. The award of the arbitrator shall be final and binding on the parties to this contract.
(b) in the event of the arbitrator dying, neglecting or refusing to act or resigning or being unable to act for any reason, or his award being set aside by the Court for any reason, it shall be lawful for the authority appointing the arbitrator to appoint another arbitrator in place of the outgoing arbitrator in the manner aforesaid.
(c) It is further a term of this contract that no person other than the person appointed by the authority as aforesaid should act as arbitrator and that if for any reason that is not possible, the matter is not to be referred to arbitration at all.
(d) The arbitrator may from time to time with the consent of all the parties to the contract enlarge the time for making the award,
(e) Upon every and any such reference, the assessment of the cost incidental to the reference and award respectively shall be in the discretion of the arbitrator.
(f) Subject as aforesaid, the Arbitration Act, 1940 and the rules thereunder and any statutory modifications thereof for the time being in force shall be deemed to apply to the arbitration proceedings under the clause.
(g) The venue of arbitration shall be the place from which the acceptance note is issued or such other place as the arbitrator at his discretion may determine.
(h) in this clause the authority to appoint the arbitrator includes, if there be no such authority, the officer who is for the time being discharging the functions of that authority whether in addition to other functions or otherwise."
5.1 Even though, the respondent Railway administration themselves initially supplied High Tensile Steel Wire (hereinafter referred to as 'HTS wire') which is used in the said sleepers, due to some difficulties experienced by the contractors, liberty was given to the contractors to procure these HTS wires from known sources for the lowest prevailing market price, requiring the contractor to exercise utmost economy in the prices of HTS wires, based upon the lowest of the three quotations obtained from the approved sources (hereinafter referred to as the "three quotation system') and not to claim anything in excess of the lowest market price at the time of procuring the HTS wires.
5.2 if the cost of the raw materials as indicated above is increased or decreased, the contract price shall correspondingly vary with effect from the date of such increase or decrease, subject to the production of vouchers in support of the claim for escalation. The agreement further provides that the contractors must exercise utmost economy in the purchase of the principal raw materials and that escalation will be admitted on the basis of the actual price paid for the respective raw materials, subject to the conditions specified in the said agreement. The agreement also provides for wage escalation. The claims for materials and wage escalation or de-escalation are to be submitted by the contractors, after completion of every six months of supply.
5.3 It is stated that the petitioners had been purchasing HTS wires from reputed manufacturers, after obtaining three quotations and placing orders with reference to the lowest quotation and using the same in the manufacture of sleepers, as per the terms of the agreement; that the petitioners had been raising bills for purchase of HTS wires periodically and claiming escalations every six months, as per the agreement. enclosing all necessary supporting documents, and that the respondents, after checking the quotations and supported documents and examining the escalations claimed, admitted such claims and also made payments for supply of Mono Block Concrete Sleepers up to November, 1994 and September, 1995 to the petitioners in W.P. Nos. 10814 and 11805 of 1999. as covered by agreements dated 27-9-1990 and 9-12-. 1991 respectively.
5.4 However, by letters even dated 12-7-1997 of the second respondent herein, which are impugned in these writ petitions, the respondents proposed to recover a sum of Rs. 1,80,92,462/- from the petitioner in W.P. No. 10814 of 1999 and a sum of Rs. 1,78,09,789/- from the petitioner in W.P. No. 11805 of 1999, towards the excess payment made for the HTS wires purchased by the petitioners in respect of earlier completed contract for supply of 7,00,000/- Sleepers and 7,50,000 Sleepers respectively, alleging that the claim made by the petitioners was more than the then prevailing market price of the HTS wire.
5.5 The proceedings of the second respondent dated 12-7-1997 impugned in W.R No. 10814 of 1999 reads as follows :
"No. W 456/4/CS/HTS Dated 12-7-97 M/s. Concrete Products and Construction Company (Factory at Tiruvalam) No. 766 Poonamallee High Road Chennai-600010. Dear Sir.
Sub : Recovery towards excess cost of HTS wire reimbursed to concrete sleeper manufacturers for the period prior to 8-11-94.
Ref: Agreement No. CS/3/CE of 1990 dt. 27-9-90 entered into between you and the Railway administration.
As per the agreement you were required to purchase HTS wire from the open market and supply duly exercising utmost economy and for purchases made, this Railway Administration reimbursed the amount.
The Railway Administration after making thorough enquiries had ascertained the market price prevailing during the relevant period of supply of HTS wire by you and found that the reimbursement claimed by you was more than the reasonable rates prevailing.
You are aware that the recovery towards excess reimbursement for the HTS wire purchased by you after 8-11-94 has already been effected. In response of HTS wire purchased by you piror to 8-11-94, the reimnbursement claimed by you being more than the prevalent market price has resulted in undue loss to the public exchequer amounting to Rs. 1,80,92,462/-.
You are therefore hereby put on notice to the effect that recoveries will be made from the sums due to you which will be strictly in accordance with law.
Yours faithfully, Sd/-
For General Manager Chief Engineer."
5.6 The proceedings of the second respondent dated 12-7-1997 impugned in W.P. No. 11805 of 1999 reads as follows :
"No. W 456/4/CS/HTS dated 12-7-97 M/s. Kottukulam Engineers (Pvt.) Ltd., (Factory at Bommidi) No. 706 Poonamallee High Road Chennai-600010.
Dear Sirs, Sub : Recovery towards excess cost of HTS wire reimbursed to concrete sleeper manufacturers for the period prior to 8-11-94.
Ref : Agreement No. CS/3/CE of 1990 dt. 27-9-90 entered into between you and the Railway administration.
As per the agreement you were required to purchase HTS wire from the open market and supply duly exercising utmost economy and for purchases made, this Railway Administration reimbursed the amount.
The Railway Administration after making thorough enquiries had ascertained the market price prevailing during the relevant period of supply of HTS wire by you and found that the reimbursement claimed by you were more than the reasonable rates prevailing.
You are aware that the recovery towards excess reimbursement for the HTS wire purchased by you after 8-11-94 has already been effected. In respondent (sic) of HTS wire purchased by you prior to 8-11-94, the reimbursement claimed by you being more than the prevalent market price has resulted in undue loss to the public exchequer amounting to Rs. 1,78,09,789/-.
You are therefore hereby put on notice to the effect that recoveries will be made from the sums due to you, which will be strictly in accordance with law.
Yours faithfully. Sd/-
For General Manager Chief Engineer."
5.7 On receipt of the said impugned proceedings dated 12-7-1997, the petitioners, by their representation even dated 6-8-1997 requested the respondent Railway administration to furnish the following details :
(i) the periods for which excess payments were computed;
(ii) the market price at different relevant periods that was assessed with specific reference to basic price, tax, excise-duty, etc: and
(iii) a statement justifying the demand of Rs. 1,80,92,462/- in the case of the petitioner in W.P. No. 10814 of 1999 and Rs. 1,78,09,789/- in the case of the petitioner in W.P. No. 11805 of 1999.
5.8 Even though, on receipt of the letters from the petitioners, the respondent Railway administration by their proceedings dated 8-9-1997 furnished the statement for arrving at the amount, namely a sum of Rs. 1,80,92,482/- in the case of the petitioner in W.P. No. 10814 of 1999 and a sum of Rs. 1.78.09.789/- in the case of the petitioner in W.P. No. 11805 of 1999, the petitioners contend that they had not been given any opportunity before arriving at such quantum, except furnishing the statements along with letter dated 8-9-1997. Hence, the petitioners, again, by their letters even dated 13-10-1997, explained their inability to continue the supply of Mono Block Concrete Sleepers, if the proposed recovery of a sum of Rs. 1,80,92,462/- in the case of the petitioner in W.P. No. 10814 of 1999 and a sum of Rs, 1,78,09,789/- in the case of the petitioner in W.P. No. 11805 of 1999 is given effect to, as nothing would be left for the petitioners, after payment of sales tax and excise duty.
5.9 The petitioners also submit that in the case of other similar contractors, the respondent Railway administration have reckoned the period of recovery only from April, 1992. However, it is contended, that the respondent Railway administration proposed to recover from the petitioners from March, 1989, which, according to them is arbitrary, unreasonable and discriminatory. Hence, the petitioners, by their representation even dated 22-10-1997, requested the respondent Railway administration to drop the Issue of recovery for the period prior to April, 1992 without prejudice to the contention that the entire recoveries made by the respondent Railway administration are not maintainable.
5.10 But, in the meanwhile, the respondent Railway administration have deducted a sum of Rs. 1,69,78,883/- in the case of the petitioner in W.P. No. 10814 of 1999, and a sum of Rs. 1,78,09,789/- in the case Of the petitioner in W.P. No. 11805 of 1999 from the supply bills claimed by them for supply of Sleepers for the subsequent period, viz., after December, 1994 in the case of the petitioner in W.P. No. 10814of 1999, and after November. 1994 in the case of the petitioner in W.P. No. 11805 of 1999.
5.11 Hence, the petitioners in W.P. No. 10814 of 1999 seek a writ of Certiorarified Mandamus calling for the proceedings of the respondents No. 2 made in No. W.456/4/ CS/HTS dated 12-7-1997 and consequently direct the respondent to refund the amount of Rs. 1,69,78,883/- withheld by the respondents from the payment due to the petitioners in respect of the supplies of Sleepers effected based on the Contract dated 7-2-1996 together with interest at 18% per annum from the date of withholding till the date of payment and the petitioner in W.P. No. 11805 of 1999 seeks a writ of Certiorarified Mandamus calling for the proceedings of the respondents No. 2 made in No. W.456/4/CS/HTS dated 12-7-1997 and quash the said proceedings of the respondent dated 12-7-1997 and consequently direct the respondent to refund the amount of Rs. 1,78,09,789/- withheld by the respondents from the payment due to the petitioners in respect of the supplies of Sleepers effected based on the Contract dated 9-12-1991 together with interest at 18% per annum from the date of withholding till the date of payment.
6.1 Mr. R. Krishnamoorthy, learned senior counsel appearing for the petitioners in W.P. No. 10814 of 1999 and Mr. R. Muthukumarsamy, learned senior counsel appearing for the petitioner in W.P. No. 11805 of 1999 contend that :--
(a) the impugned recoveries by the respondent Railway administration are arbitrary, unreasonable, discriminatory and without jurisdiction, and therefore, violative of Article 14 of the Constitution of India;
(b) the respondent Railway administration, recovered the alleged excess cost paid towards the HTS wire from other Contractors only from the year April, 1992 whereas, the respondent Railway administration proposed to recover the same from March, 1989 from the petitioners by the impugned proceedings, and therefore, the same is discriminatory and violative of Article 14 of the Constitution of India;
(c) the impugned recoveries are also violative of principles of natural justice, as the respondent Railway administration had not given any reasonable opportunity to the petitioners before arriving at the quantum of amount sought to be recovered from the petitioners;
(d) when there is a denial of a breach of contract on the part of the contractor, unless the claim and the breach of contract is established through a Court of law, no amount can be recovered, as held in V.P. Kunhammed v. State of Kerala, reported in 1999 (2) KLJ 678;
(e) the power to recover the excess amount paid, provided under the terms of the agreement, could be exercised by the respondent Railway administration only in the case of admitted liability but not in the case of a disputed liability as held in State of Karnataka v. Rameshwara Rice Mills, Thirthahalli, reported in AIR 1987 SC 1359;
(f) even though Clause 29 of Indian Railway Standard Conditions of Contract provides for arbitration, in the event of any question, dispute or difference arising under these conditions or any special conditions of contract, or in connection with contract with the Railway administration, the same is not a bar to agitate against the violations of the principles of natural justice and arbitrary, unreasonable and irrational exercise of powers by the respondents, particularly when the arbitration clause is unworkable as no officers of the respondent Railway administration could be conferred with the powers of an arbitrator when a dispute arises between the contractor and the decision of the Railway Board itself, as the impugned recoveries had been ordered pursuant to the decision of the Railway Board, which is a superior authority to any Officer who would be appointed as an arbitrator;
(g) The discretion conferred on the respondent Railway administration to recover the excess amount paid, should not be exercised arbitrarily and unreasonably;
(h) once it is fairly stated in the counter-affidavit filed by the respondent Railway administration that the Zonal Level Sub committee is yet to determine the rates payable for the HTS wires, there cannot be any pre-decided recovery and therefore, the amount already recovered should be refunded to the petitioners, of course, without prejudice to the right of Railway administration to issue notice to the contractors for examining whether any amount was excessively paid to the petitioners and whether, any amount has to be recovered from the petitioners out of the current supply bills, striking out an equal treatment to the petitioners as in the case of similar contractors: and
(i) in any event, as found in the report of the Dy. Inspector General of Police (Anti corruption Cell-CBI) addressed to the Ex. Director Track (M), Railway Board, dated 15-
3-2001, the respondent Railway administration should consider the case of the petitioners accepting that the three quotation system contains incomplete safeguards and provides for substantial savings to the Railways, when compared to free supply system and consequently should satisfy that no amount is recoverable from the petitioners.
6.2 The learned senior counsel for the petitioners submit that similar recoveries were also made from the contractors, who also supplied Mono Block Concrete Sleepers to die respondent Railway administration , and the same were challenged before the High Courts of Andhra Pradesh and Karnataka.
6.2-2 The learned senior counsel invited my attention to writ petition No. 13452/1997 filed by Rayalaseema Concrete & Sleepers Private Ltd.. Secunderabad to challenge an identical recovery proceedings by the respondent Railway administration, wherein the Andhra, Pradesh High Court by order dated 16-10-1997 held as follows :
"After having heard the learned counsel for the petitioners and the learned Standing Counsel for the Railways, this writ petition can be disposed of at admission stage.
The proceedings dated 16-6-1997 seeking to recover certain amount from the petitioner is assailed in this writ petition. The principal grievance of the petitioner is that before passing the order which has an adverse effect, the petitioner has not been put on notice and therefore, it is in violation of the principles of natural justice. To verify the factual state of affairs, learned Standing Counsel for Railways was directed to intimate this Court whether any notice was issued to the petitioner before passing the impugned order. The learned counsel fairly submits that no such notice was issued to the petitioner.
In view of the above, I need not go further into the matter. Suffice it to say that the impugned proceedings suffer from infraction of principles of natural justice as the petitioner was not issued with any notice before passing the impugned order. Therefore, without going into the merits of the case, the writ petition is allowed and the impugned order is quashed. However, it is open for the respondent to Issue show cause notice and then pass final orders taking into consideration the explanation. If any, submitted by the petitioner pursuant to such show cause notice."
6.2-3 The learned senior counsel also invited my attention to an order dated 8-12-1997. In W.P. No. 21032 of 1997 filed by M/S. Malu Sleepers Private Limited, Bangalore and W.P. No. 14697 of 1997 filed by M/s. Sri Maruthi Builders, Bangalore to challenge an identical recovery proceedings by the respondent Railway administration, wherein the Karnataka High Court has held as under :
"Petitioners entered into agreements with Southern Railways for manufacture and supply of ESC Sleepers. It is not in dispute that as per the agreements. Contractors under the works contract were required to purchase HTS wire from the open market and use them in the work. According to the Department, petitioners had to exercise utmost economy in the purchase and the Railway administration was to reimburse the amount. In pursuance of the said contract, petitioners were purchasing HTS wire at the price which had been intimated to the Railways. It is not in dispute that Railways was reimbursing the said cost. There is however a dispute as to whether Railways had agreed to the said price as contended by the petitioners or not. Be that as It may.
2. When the matter stood thus. Railways informed the petitioners that from 8-11-1994 HTS wire should not be purchased at the earlier stipulated price. Apart from the said direction. Railways also purported to recover from the petitioners alleged excess price which had been received by the petitioners in regard to HTS wire vide Annexure-C dated 12-7-1997 in W.P. No. 21032/97 and Annexure-C dated 11/12-12-1996 in W.P. No. 14697/97. Petitioners are aggrieved by the said recovery and has filed these petitions for quashing of Annexure-C in both the petitions.
3. When the matter came up today, parties agreed that there is a provision for arbitration in the contracts between the parties and therefore, the matter will have to be settled in accordance with the provision for arbitration contained in the contracts.
4. In view of the said submission, these petitions are disposed of recording the submission that parties have agreed to refer the disputes between the parties relating to Annexure-C in both the petitioners to arbitration under arbitration clause 2900.
5. Having regard to the fact that dispute is being referred to arbitration, the Railways cannot enforce recovery of the amount claimed under Annexure-C in both the petitions pending decision by the arbitration. Accordingly, Railways are directed not to recover any amount from this day pending decision of the arbitrator."
7.1-1 Per contra, the learned Additional Solicitor General placing reliance on the Bareilly Development Authority v. Ajay Pal Singh , contends that no writ will lie under Article 226 of the Constitution of India so as to compel the respondent Railway administration to remedy a breach of a contract which is pure simple and non-statutory.
7.1-2 The learned Additional Solicitor General also invited my attention to the decision in Radhakrishna Agarwal v. State of Bihar . Premji Bhal Parmar v. Delhi Development Authority , and D.F.O. v. Biswanath Tea Company Limited and contends that where the contract entered into between the State and the person aggrieved is non-statutory and purely contractual and the rights are governed only by the terms of the contract, no writ or order can be issued under Article 226 of the Constitution of India, and therefore, the rights and liabilities of the petitioners/contractors and much less the remedies sought for, in the event of any violation to such rights, could be determined only within the terms of agreement, which are pure, simple and non-statutory invoking arbitration clause under 2900 of Indian Railway Standard Conditions of Contract, and if that be so, it is contended that this Court is barred from going into the alleged arbitrariness and unreasonableness on the part of the respondent Railway Administration.
7.2 On merits, learned Additional Solicitor General referring to the averment in the paragraph 3 of the counter affidavit, contends that the respondent Railway Board undertook the review of the rates quoted for HTS wire by all the contractors who supplied the Mono Block Concrete Sleepers to respondent Railway administration, pursuant to serious complaints of mal practice found in purchase of HTS wire and thus came upon the supplies affected by the Contractors. Upon such review and when compared with rates quoted by other Zonal Railways, it was found that the petitioners had claimed exorbitant rates for the procurement of HTS wire far and more above the then prevailing market rate.
7.3 Learned Additional Solicitor General also submits that even though the railway, board appointed the High Power Committee, on the basis of opinion given by learned Solicitor General of India, consisting of senior railway officers to go into the irregularities in the quotations for supply of HTS wire, quoting above the normal market rate running to several crores of rupees, the High Power Committee faced certain difficulties to coordinate with Zonal Railways and therefore, appointed Zonal Level Sub-committees to enquire and to unearth the scam.
7.4 According to learned Additional Solicitor General, the Zonal Level Sub-committee would be constituted and action would be taken on urgency basis and till such decisions are taken based on the Committee's report, the amount recovered from the petitioners would not be refunded, as the recoveries made are fully justified as the petitioner had claimed excess amount than the then prevailing market price of HTS wire and therefore, contends that unless Zonal Level Sub-committee comes to a conclusion and submits its report as to the rates for the HTS wire, the petitioners are not entitled for the refund of the amount recovered from them.
7.5 However, learned Additional Solicitor General is not disputing the fact that the respondent Railway administration is party to the order dated 16-10-1997 in W.P. No. 13452 of 1997 in the Andhra Pradesh High Court and order dated 7-12-1997 in W.P. Nos. 21032 and 14697 of 1997 in the Karnataka High Court.
7.6 During the course of arguments, the learned Additional Solicitor General was required to find out whether the Chairman of the Railway Board or persons of the same rank as members of the Board could act as arbitrators, and the learned Additional Solicitor General on instructions from the respondent Railway administration informed that the Railway Board is prepared to appoint one N. K. Chidambaram to act as an arbitrator.
8. In the light of the above divergent contentions advanced on behalf of the petitioners and the respondents. I am obliged to decide on the following issues :
i. Whether judicial review is permissible on the disputes relating to non-statutory contracts, under Article 226 of the Constitution of India?
ii. Whether judicial review, conferred under Article 226 of the Constitution of India, is benighted by the narrow conceptualism on the matrix of non-statutory contracts, ignoring unreasonable, arbitrary, discriminatory exercise of powers in violation of Article 14 of the Constitution of India and the principles of natural justice, by the respondent Railway administration?
iii. Under the context of the case, what relief the petitioners are entitled for?
9.1 Issue 1 : Whether judicial review is permissible on the disputes relating to non-statutory contracts, under Article 226 of the Constitution of India?
9.2 Admittedly, the petitioners have entered into a non-statutory contract with the respondent Railway administration for supply of Mono Block Concrete Sleepers for the various track renewal, construction, and gauge conversion projects and accordingly supplied the Mono Block Concrete sleepers to the respondent Railway administration, pursuant to the agreements dated 30-3-1984 and 30-1-1983 respectively.
9.3 Such contract does nut change the legal character merely because the other party to the contract is a State owned body as held in Lekh Raj Sairamdas Lalvani v. N. M. Shan, Deputy Custodian-cum-Managing Officer .
9.4 It is also well settled in law that no writ will lie to get rid of contractual obligations as held in State of Punjab v. Balbir Singh .
9.5 Merely because Clauses 6.1.2(d), (e) and (f) of the agreements dated 30-3-1984 and 30-1-1983 entered into between the petitioners and the respondent Railway administration collectively provides the respondent Railway administration, for recovery of loss of dues from the contracting party and Clause 2501 of the Indian Railway Standard Conditions of Contract enables the respondent Railway administration to proceed against the contractors for any breach of conditions of contract under the provisions of the Prevention of Corruption Act, the same, by themselves, would not bring the enforcement of the terms of the agree merit or get rid of such contractual obligation within the fold of Article 226 of the Constitution of India, which can only be made by appropriate arbitration proceedings or civil proceedings, as held in Divisional Forest Officer v. Bishwanath Tea Co. . The right of the parties shall be determined only by the terms of the contract, after such contract has been validly entered into, even though one of the parties is a statutory authority and that irrespective of cause of action for seeking any relief on a breach of contract, which is pure and simple, such remedy could be sought only before the Civil Court, but not by invoking Article 226 of the Constitution of India, as per the decision of the Apex Court in Bareilly Development Authority v. Ajai Pal Singh . The same are the views of the Apex Court in Radhakrishna Agarwal case. Premji Delhi Development case.
9.6 When a contract entered into by the State is non-statutory and purely contractual, the relations are no longer governed by the constitutional provision, but by legally valid contract, which determines the rights and obligations of the parties inter se. Admittedly, Clause 11 of the agreement contemplates that the contractor shall exercise utmost economy in the purchase of raw materials; clause 12 of the agreement enables the government to reserve the tight for book examination; Indian Railway Standard Conditions of Contract are applicable to the impugned contracts as per Clause 24 of the agreement: in turn. Clause 1600 of the Indian Railways Standard Conditions of Contract expressly deals with the purchase of raw materials and the payments the contractors are entitled to; Clause 2500 of the Indian Railways Standard Conditions of Contract prevent the corrupt practices; and Clause 2900 of the Indian Railways Standard Conditions of Contract provides an arbitration in the event of any question or dispute arising under the contract between the contractor and the Railway administration. In this sphere, the parties can claim right conferred upon them by the contract; in the absence of any statutory obligations on the part of authority in the said contract, only as provided under the contract itself, and therefore, normally, no writ can be issued under Article 226 of Constitution of India to compel the authorities to remedy a breach of such non-statutory contract.
9.7 Issue No. 1 is answered accordingly, however, subject to the decision in Issue No. 2.
10.1 Issue : 2 -- Whether judicial review, conferred under Article 226 of the Constitution of India, is benighted by the narrow conceptualism on the matrix of non-statutory contracts, ignoring unreasonable, arbitrary, discriminatory exercise of powers in violation of Article 14 of the Constitution of India and the principles of natural justice, by the respondent Railway administration?
10.2 In exceptional cases, as held in State of Karnataka v. Rameshwara Rice Mills, Thirthahalli, reported in AIR 1987 SC 1359, the powers of the State under an agreement entered into by it with a private person providing for assessment of damages for breach of conditions of the agreement and recovery of the damages, is confined only to those cases where the breach of conditions is admitted or it is not disputed, the right of the State Government to assess damages would arise only if the breach of conditions is admitted or if no issue is made of it. In the instant case, the breach is not admitted. Therefore, unless the claim is established through a Court of law, no amount can be recovered, as held in V. P. Kunhammed v. State of Kerala, reported in 1999 (2) KLJ 678 following the ratio in State of Karnataka v. Rameshwara Rice Mills, Thirthahalli, reported in AIR 1987 SC 1359.
10.3.1 Admittedly, the High Power Committee was constituted at the opinion of the learned Solicitor General of India, by the Apex body of the Railway administration namely, the Railway Board, to go into irregularities said to have committed by the contractors in the matter of supply of HTS wire for a higher rate over the market price prevailed at the relevant point of time. Even though learned Additional Solicitor General contends that due to certain difficulties High Power Committee could not hold an enquiry and consequently, Zonal Level Sub-committees were constituted, the respondent Railway administration has not disclosed what are the difficulties which necessitated the respondent Railway Board to delegate the enquiries required to be conducted by the High Power Committee to the Zonal Level Sub-committee. In the absence of any details of such difficulties, I do not find any justification on the part of the Railway Board to delegate the enquiry to the Zonal Level Subcommittee, 10 go into the Irregularities, because they are admittedly, far subordinate to the High Power Committee, constituted by the Apex body of the respondent Railway administration, namely the Railway Board. That apart, the Zonal Level Sub-committee, has to be constituted only among the officers in the Zonal Level, namely Southern Railways, who have acted on behalf of the respondents herein -- Southern Railways, as parties to the impugned agreements dated 30-3-1984 and 30-1-1983.
10.3.2 It is well settled in law, as held in State of Karnataka v. Rameshwara Rice Mills, Thirthahalli, reported in AIR 1987 SC 1359 case that a right to adjudicate upon an issue relating to a breach of condition of the contract cannot be said to flow from or is inhered in the right conferred to assess the damages arising from a breach of conditions. The power to assess damages is a subsidiary and consequential power and not the primary power and therefore, even the respondent Southern Railways is empowered to decide upon the question of breach as well as the quantum of damage, the adjudication of arbitration by the Zonal Level Sub-committee of the Southern Railways under the breach of contract, therefore cannot be sustained under law because, a party to the agreement cannot be an arbiter in Its own cause.
10.3.3 It is also well Settled in law the interests of justice and equity require that where a party to a contract disputes the committing of any breach of conditions, the adjudication should be by an independent person or body and not by the other party to the contract as held in State of Karnataka v. Rameshwara Rice Mills, Thirthahalli, reported in AIR 1987 SC 1359.
10.4.1 The Apex Court in LIC v. Escorts Ltd reported held that a judicial review is permissible even in the contractual transactions where it offends Article 14 of the Constitution of India on the ground of arbitrariness.
10.4.2 Similarly, in Tula Cellular v. Union of India , a judicial review would apply to the exercise of contractual powers by the Government bodies in order to prevent arbitrariness for reviewing not the merits of the decision in support of which the application for judicial review is made but the decision making process itself, on the ground that :--
i. whether a decision-making authority exceeded its powers?
ii. committed an error of law, iii. committed a breach of the rules of natural justice;
iv. reached a decision which no reasonable Tribunal would have reached: or v. abused its powers, and such judicial review can be classified under irregularity, irrationality and procedural impropriety.
10.4.3 Again, as held in Whirl Pool Corporation v. Registrar of Trade Marks , the power to issue prerogative writs under Article 226 of the Constitution of India is plenary in nature and is not limited by any other provision of the Constitution. The High Court, having regard to the facts of the case, has discretion to entertain or not to entertain a writ petition. The High Court, however, has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held, by the Supreme Court, not to operate as a bar in at least three contingencies namely :--
i. where the writ petition has been filed for the enforcement of any of the Fundamental Rights: or ii. where there has been a violation of the principle of natural justice: or iii. where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged.
10.5 Admittedly, under the matrix of the case, as discussed above, even though the Apex Body of the railway administration, namely, the Railway Board, on the opinion of the learned Solicitor General of India, constituted a High Power Committee to go into, enquire and determine the irregularities said to have been committed by the petitioners, since such enquiry had been, for the reasons not explained, delegated to the Zonal Level Sub-committee, who themselves are admittedly parties to the agreements and the Zonal Level Sub-committee is subordinate to the Railway Board, who directed to hold an enquiry against the petitioners, the same, in my considered opinion, is liable to be held as arbitrary and discriminatory, attracting Article 14 of the Constitution of India.
10.6 That apart, admittedly, the alleged breach of contract, namely, that the petitioners had claimed more rate for the HTS wires than the then prevailing market price, is yet to be adjudicated and determined by the Zonal Level Sub-committee and even before that, the respondent Railway administration had covered a huge sum, namely Rs. 1,69,78,883/- from the petitioner in W.P. No. 10814 of 1999 and a sum of Rs. 1,78,09,789/- from the petitioner in W.P. No. 11805 of 1999 respectively, even without giving any reasonable opportunity to the petitioners before arriving at the quantum of excess amount said to have been paid to the petitioners. Hence, I find a gross violation of principles of natural justice not only in the impugned proceedings demanding the recovery but also in recovering a sum of Rs. 1,69,78,883/- from the petitioner in W.P. No. 10814 of 1999 and a sum of Rs. 1,78,09.7897- from the petitioner in W.P. No. 11805 of 1999 respectively.
10.7 Concedingly, in identical matters, both the Andhra Pradesh and Karnataka High Courts quashed the impugned recovery proceedings, wherein the respondents proposed to recover the amount from the contractors who had also supplied Mono Block Concrete Sleepers, for the same reasons as in the instant case. The learned Additional Solicitor General contends that in the matters before the Andhra Pradesh and Karnataka High Courts, the recovery proceedings were quashed before the same were given effect to, but in the instant case, the petitioners have approached the Court only after the recoveries are made and therefore, the same are not similar and identical. I am unable to agree with such contention, as the same is quite Illogical and irrational.
10.8 The respondents have, thus, exercised their powers arbitrarily, unreasonably, illogically, discriminatorily and in violation of principle of natural justice and therefore.
I am obliged to quash the impugned proceedings.
10.9 Therefore, in exceptional cases, the judicial review is permissible even under the matrix of non-statutory contracts. Issue No. 2 is answered accordingly.
11.1 Issue No. 3 -- Under the context of the case, what relief the petitioners are entitled for?
11.2 In Tata Cellular case (supra), it is held that the principles of judicial review would apply to the exercise of contractual power by the Government bodies to prevent arbitrariness subject to inherent limitations, in exercise of that power of judicial review and while exercising such power of judicial review under Article 226 of the Constitution of India, the financial interest of the State should be protected.
11.3 Applying the ratio laid down in Tata Cellular case (referred supra), that even in the matter of contractual liabilities where, arbitrariness, violation of Article 14 of the Constitution of India and the principles of natural justice are complained with reference to the process of decision making, irrationality, illegality, and procedural propriety, judicial review is permissible under Article 226 of the Constitution of India, of course, subject to the financial interest of the State, and taking into consideration the claim of the petitioners for refund of the amount recovered from the respective petitioners, with interest @ 18% from the date of withholding till the payment is made, as well as the financial interest of the State, I am obliged to strike a balance between the same and pass the following order :
i. the proceedings even dated 12-7-1997, impugned in the above writ petitions stand quashed;
ii. consequently, the respondents are directed to refund a sum of Rs. 1,69,78,883/- to the petitioner in W.P. No. 10814 of 1999 and a sum of Rs. 1,78,09,789/- to the petitioner in W.P. No. 11805 of 1999 respectively, with 6% Interest thereon, from the date of withholding till the same is refunded, within a period of four weeks from the date of receipt of copy of this order or a representation by or on behalf of the petitioners enclosing copy of this order, whichever is earlier, subject to the condition that the petitioners furnish a bank guarantee for the entire amount for a period of one year;
iii. the High Power Committee constituted or to be constituted by the Apex Body of the Railway administration, namely, the Railway Board, as per the opinion of the learned Solicitor General of India, shall, after giving a fair and reasonable opportunity the petitioners, enquire and determine as to the alleged illegality said to have been committed by the petitioners, treating all the contractors who had supplied the Mono Block Concrete Sleepers under 'three quotation system', equally, after examining the relevant books as empowered under Clause 16 of the agreements dated 30-3-1984 and 30-1-1983, within the said period of one year.
iv. the respondents shall take appropriate decision in the matter as to the quantum of payment said to have been made in excess than the then prevailing market price;
v. the bank guarantee directed to be furnished by the petitioners shall be invoked by the respondent Railway administration only after taking such appropriate final decision in the matter and till then the petitioners are also directed to extend the bank guarantee;
vi. the refund ordered above with interest shall be without prejudice to the rights of either party, as to the amount recoverable/refundable and the interest thereon, which shall be determined by the High Power Committee, referred to above, without any discrimination between the similarly placed contractors; and vii. the report of the Dy. Inspector General of Police (Anti-corruption cell-CBI), dated 15-3-2001, at any stretch of imagination, cannot be a binding guideline to the High Power Committee, but, at the best, be a matter for their consideration to arrive at a decision on the issue.
These writ petitions are ordered accordingly. No costs.