Jharkhand High Court
Central India Engineering Company vs The State Of Jharkhand Through ... on 30 June, 2020
Author: Rajesh Shankar
Bench: Rajesh Shankar
IN THE HIGH COURT OF JHARKHAND AT RANCHI
W.P.(C) No.2748 of 2018
Central India Engineering Company, Nagpur through its authorized
representative Shri Suresh Khadakkar, National Sales Manager
..... ... Petitioner
Versus
1. The State of Jharkhand through Principal Secretary, Department of
Urban Development, Project Building, Dhurwa, Ranchi.
2. Ranchi Municipal Corporation, Ranchi through the Municipal
Commissioner, Ranchi.
3. The Municipal Commissioner, Ranchi Municipal Corporation, Ranchi.
4. The Chief Engineer, Ranchi Municipal Corporation, Ranchi.
5. The Assistant Town Commissioner-cum-Chief Accounts Officer,
Ranchi Municipal Corporation, Ranchi.
6. The Assistant Public Health Officer, Ranchi Municipal Corporation,
Ranchi.
.... .... Respondents
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CORAM : HON'BLE MR. JUSTICE RAJESH SHANKAR
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For the Petitioner : Mr. Indrajit Sinha, Advocate Mr. Vipul Poddar, Advocate For the Respondents-State: Mr. Mohan Dubey, A.C. to A.G. For the Respondent-RMC : Mr. Prashant Kumar Singh, Advocate
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11/30.06.2020 The present writ petition is taken up today through Video conferencing.
2. The present writ petition has been filed for quashing the e-Tender Notice No.363/Health dated 29th May, 2018 (5th Call) which was uploaded for procurement of three numbers of Vehicle Mounted Cold Fogging Machine, fixing the last date of downloading and submission of tender form as 10th June, 2018, which was subsequently revised as 11th June, 2018. Further prayer has been made for quashing the decision of blacklisting the petitioner taken by the Procurement Committee of the respondent-Ranchi Municipal Corporation, Ranchi in its meeting held on 18th January, 2018, as neither show cause notice was issued to the petitioner before blacklisting nor the order of blacklisting has ever been communicated to it and the said blacklisting is the sole ground for rejection of e-Tender submitted by the petitioner in 4th Call. The petitioner had though qualified in 3rd Call of e-Tender but due to non- compliance of demonstration work, the said call was cancelled. The petitioner has also prayed for quashing the e-Letter No.329/Health dated 18th May, 2018 uploaded in the website of the Ranchi Municipal Corporation, Ranchi, whereby the minutes of Procurement Committee of Ranchi Municipal Corporation has been uploaded with respect to e-
-2-Tender Notice No.276/Health dated 23rd April, 2018 (4th Call) wherein the tender of the petitioner has been rejected on the sole ground of blacklisting though the order of blacklisting was never communicated to it.
3. Learned counsel for the petitioner while pressing the writ petition has confined the prayer to the extent of quashing and setting aside the decision dated 18th January, 2018 issued by the Procurement Committee of the respondent- Ranchi Municipal Corporation whereby the petitioner- company has been permanently blacklisted without following principles of natural justice.
4. The factual background of the case as stated in the writ petition is that respondent-RMC, Ranchi floated 3rd Call Tender being e-Tender Notice No.562/Health dated 3rd October, 2017 for procurement of three numbers of Vehicle Mounted Cold Fogging Machine in which the petitioner participated and was finally declared L-1 bidder by the Procurement Committee of RMC, Ranchi. Thereafter, the petitioner was directed to give Live Action Demonstration of the machine (which was to be supplied) within ten days, so that the final call could be taken for purchase. However as per the petitioner, due to accidental death of one of its founder members, a request was made for extension of demonstration time by 15th January, 2017 or till one month and in the meantime, it also requested for providing Quality Assurance Plan (QAP) for third party inspection i.e., by Ms. RITES. The petitioner also requested for extension of delivery period by 30 days. The petitioner thereafter repeatedly wrote letters to the respondent-RMC for extension of time and also for giving pre-approved QAP for third party inspection by Ms. RITES, however according to it, no action was taken by the respondent-RMC. Subsequently, when the representative of the petitioner visited the office of the respondent-RMC on 5th February, 2018 to inquire about the development in the matter, he was handed over a copy of the minutes of the proceeding of Procurement Committee of the respondent-RMC dated 30th December, 2017 wherein a decision was taken to extend the time of demonstration till 15th January, 2018. The petitioner-representative was also informed about the decision of blacklisting the petitioner as well as decision of cancellation of its bid due to non-performance of the demonstration work within the time -3- frame which was taken by the Procurement Committee of respondent- RMC in its meeting held on 18th January, 2018. It was also decided in the said meeting to invite fresh tender by cancelling the 3rd Call of e- Tender.
5. Learned counsel for the petitioner submits that no order regarding extension of time for demonstration of machine was ever served to the petitioner. The orders of cancellation of the petitioner's selection and its blacklisting have also not been served to it through any means of communication/correspondence. No show cause notice was ever served to the petitioner before passing the order of blacklisting and, thus, the impugned decision of the respondent-RMC regarding blacklisting of the petitioner suffers from violation of the principles of natural justice. Learned counsel for the petitioner further submits that the order of blacklisting of the petitioner also does not mention any period and, thus, the same is to be construed as indefinite period, which is not permissible in law. It is also submitted that due to impugned decision of petitioner's blacklisting, its technical bid for 4th Call e-Tender issued vide Tender Notice No.276/Health dated 23rd April, 2018 has also been rejected and, thus, the petitioner has suffered serious adverse civil consequences by the order of blacklisting.
6. Learned counsel for the respondent-RMC while justifying the impugned order of blacklisting submits that the petitioner failed to give demonstration of the machine within the specified period and thus violated the terms and conditions of the tender notice. It is further submitted that due to inaction on the part of the petitioner, valuable time of the respondent-RMC was wasted and the fogging work, as was required to be done through the said machine, also got delayed.
7. Heard learned counsel for the parties and perused the materials available on record. I have also gone through the judgments relied upon by the learned counsel for the petitioner in support of his argument.
8. In the case of Kulja Industries Limited vs. Chief General Manager, Western Telecom Project Bharat Sanchar Nigam Limited and Others reported in (2014) 14 SCC 731, the Hon'ble Supreme Court has held as under :
"17. That apart, the power to blacklist a contractor whether the contract be for supply of material or equipment or for the execution of any other work whatsoever is in our opinion inherent in the party allotting the contract. There is no need for any such power being specifically conferred by statute -4- or reserved by contractor. That is because "blacklisting" simply signifies a business decision by which the party affected by the breach decides not to enter into any contractual relationship with the party committing the breach. Between two private parties the right to take any such decision is absolute and untrammelled by any constraints whatsoever. The freedom to contract or not to contract is unqualified in the case of private parties. But any such decision is subject to judicial review when the same is taken by the State or any of its instrumentalities. This implies that any such decision will be open to scrutiny not only on the touchstone of the principles of natural justice but also on the doctrine of proportionality. A fair hearing to the party being blacklisted thus becomes an essential precondition for a proper exercise of the power and a valid order of blacklisting made pursuant thereto. The order itself being reasonable, fair and proportionate to the gravity of the offence is similarly examinable by a writ court.
18. The legal position on the subject is settled by a long line of decisions rendered by this Court starting with Erusian Equipment & Chemicals Ltd. v. State of W.B. where this Court declared that blacklisting has the effect of preventing a person from entering into lawful relationship with the Government for purposes of gains and that the authority passing any such order was required to give a fair hearing before passing an order blacklisting a certain entity. This Court observed: (SCC p. 75, para 20) "20. Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist."
Subsequent decisions of this Court in Southern Painters v. Fertilizers & Chemicals Travancore Ltd.; Patel Engg. Ltd. v. Union of India; B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd.; Joseph Vilangandan v. Executive Engineer (PWD) among others have followed the ratio of that decision and applied the principle of audi alteram partem to the process that may eventually culminate in the blacklisting of a contractor.
19. Even the second facet of the scrutiny which the blacklisting order must suffer is no longer res integra. The decisions of this Court in Radha Krishna Agarwal v. State of Bihar; E.P. Royappa v. State of T.N.; Maneka Gandhi v. Union of India; Ajay Hasia v. Khalid Mujib Sehravardi; Ramana Dayaram Shetty v. International Airport Authority of India and Dwarka Das Marfatia and Sons v. Port of Bombay have ruled against arbitrariness and discrimination in every matter that is subject to judicial review before a writ court exercising powers under Article 226 or Article 32 of the Constitution.
20. It is also well settled that even though the right of the writ petitioner is in the nature of a contractual right, the manner, the method and the motive behind the decision of the authority whether or not to enter into a contract is subject to judicial review on the touchstone of fairness, relevance, natural justice, non-discrimination, equality and proportionality. All these considerations that go to determine whether the action is sustainable in law have been sanctified by judicial pronouncements of this Court and are of seminal importance in a system that is committed to the rule of law. We do not consider it necessary to burden this judgment by a copious reference to the decisions on the subject. A reference to the following passage from the decision of this Court in Mahabir Auto Stores v. Indian Oil Corpn. should, in our view, suffice:
(SCC pp. 760-61, para 12) "12. It is well settled that every action of the State or an instrumentality of the State in exercise of its executive power, must be informed by reason. In appropriate cases, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32 of the Constitution.
Reliance in this connection may be placed on the observations of this Court in Radha Krishna Agarwal v. State of Bihar. ... In case any right conferred on the citizens which is sought to be interfered, such action is subject to Article 14 of the Constitution, and must be reasonable and can be taken only upon lawful and relevant grounds of public interest. Where there is arbitrariness in State action of this type of entering or -5- not entering into contracts, Article 14 springs up and judicial review strikes such an action down. Every action of the State executive authority must be subject to rule of law and must be informed by reason. So, whatever be the activity of the public authority, in such monopoly or semi-monopoly dealings, it should meet the test of Article 14 of the Constitution. If a governmental action even in the matters of entering or not entering into contracts, fails to satisfy the test of reasonableness, the same would be unreasonable. ... It appears to us that rule of reason and rule against arbitrariness and discrimination, rules of fair play and natural justice are part of the rule of law applicable in situation or action by State instrumentality in dealing with citizens in a situation like the present one. Even though the rights of the citizens are in the nature of contractual rights, the manner, the method and motive of a decision of entering or not entering into a contract, are subject to judicial review on the touchstone of relevance and reasonableness, fair play, natural justice, equality and non- discrimination in the type of the transactions and nature of the dealing as in the present case."
25. Suffice it to say that "debarment" is recognized and often used as an effective method for disciplining deviant suppliers/contractors who may have committed acts of omission and commission or frauds including misrepresentations, falsification of records and other breaches of the regulations under which such contracts were allotted. What is notable is that the "debarment" is never permanent and the period of debarment would invariably depend upon the nature of the offence committed by the erring contractor."
9. In the case of Gorkha Security Services vs. Government (NCT of Delhi) and Others reported in (2014) 9 SCC 105, the Hon'ble Supreme Court has held as under :
"16. It is a common case of the parties that the blacklisting has to be preceded by a show-cause notice. Law in this regard is firmly grounded and does not even demand much amplification. The necessity of compliance with the principles of natural justice by giving the opportunity to the person against whom action of blacklisting is sought to be taken has a valid and solid rationale behind it. With blacklisting, many civil and/or evil consequences follow. It is described as "civil death"
of a person who is foisted with the order of blacklisting. Such an order is stigmatic in nature and debars such a person from participating in government tenders which means precluding him from the award of government contracts."
10. Further the Hon'ble Supreme Court in a recent case of Daffodills Pharmaceuticals Ltd. and Another Vs. State of U.P. and Another reported in 2019 SCC OnLine SC 1607 has held as under :
"15. The decisions in Erusian Equipments and Chemicals Ltd. v. State of West Bengal, and Raghunath Thakur v. State of Bihar, as well as later decisions have now clarified that before any executive decision maker proposes a drastic adverse action, such as a debarring or blacklisting order, it is necessary that opportunity of hearing and representation against the proposed action is given to the party likely to be affected. This has been stated in unequivocal terms in Raghunath Thakur (supra) as follows:
"20. Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist."
16. In Southern Painters (supra) the grievance was with respect to unilateral deletion of the petitioners' name from -6- the list of approved contractors, maintained by the public sector agency. This court held that such an action was arbitrary:
"The deletion of the appellant's name from the list of approved contractors on the ground that there were some vigilance report against it, could only be done consistent with and after due compliance with the principles of natural justice. That not having been done, it requires to be held that withholding of the tender form from the appellant was not justified. In our opinion, the High Court was not justified in dismissing the writ petition."
11. It would, thus, be evident from the ratio laid down by the Hon'ble Apex Court in the aforesaid cases that when a contract is entered between the two private parties, then in the case of any breach by one party, the other party has every right to blacklist the defaulter, and such right is unqualified. However in a situation where an order of blacklisting has been passed by the State or its instrumentalities, such order is within the realm of power of judicial review of the Writ Court and the same has to be tested on the touchstone of the principles of natural justice, doctrine of proportionality, reasonableness and fairness. The order of blacklisting has the effect of depriving a person of equality of opportunity in the matter of public contract. Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the government/its agencies for the purposes of gain. Thus, before taking such a harsh decision, the person concerned should be afforded an opportunity to represent his case before he is put on blacklist. The show-cause notice should not be a mere formality, rather the same must specifically mention the grounds according to which, the department necessitates the action and also the proposed action so that the person aggrieved may explain the circumstances in his defense appropriately.
12. On perusal of the impugned decision dated 18th January, 2018, it appears that the order of blacklisting has been passed suo motu without affording any opportunity of hearing to the petitioner. The respondent- RMC in its counter affidavit had tried to justify the said order but it has failed to controvert the specific contention of the petitioner that the impugned decision has been passed without serving any show cause notice to it, as also the said decision has not been communicated to it. It is a trite law that before passing the order of blacklisting, it is sine- qua-non to afford reasonable opportunity of hearing to the concerned delinquent, so as to satisfy as to whether the alleged default is intentional or has been caused under the situation beyond one's control.
-7-In the present case, the Procurement Committee of respondent-RMC has not called upon the petitioner to explain the alleged conduct. The State or its instrumentality while dealing with any private individual is required to exercise discretion in a fair and equitable manner. Moreover, the order to blacklist the petitioner has not specified any duration of the same and, thus, the same can be said to be permanent in nature which is contrary to the ratio laid down by the Hon'ble Supreme Court in the case of Kulja Industries Limited (Supra). The learned counsel for the petitioner has also assiduously argued that the impugned order of blacklisting is further vitiated on the ground that the same has not been communicated to the petitioner. To appreciate the said argument, I have gone through the judgment of the Hon'ble Supreme Court rendered in the case of Bipromasz Bipron Trading SA Vs. Bharat Electronics Limited (BEL) reported in (2012) 6 SCC 384, the relevant paragraph of which reads as under :
"33. The aforesaid observations make it clear that an order passed by an authority cannot be said to take effect unless the same is communicated to the party affected. The order passed by a competent authority or by an appropriate authority and kept with itself, could be changed, modified, cancelled and thus denuding such an order of the characteristics of a final order. Such an uncommunicated order can neither create any rights in favour of a party, nor take away the rights of any affected party, till it is communicated."
13. Considering the facts and circumstances of the present case and the ratio laid down by the Hon'ble Apex Court in the judgments quoted hereinabove, I am of the view that the decision of the Procurement Committee of respondent-RMC in blacklisting the petitioner is vitiated in law being in violation of the principles of natural justice i.e., without affording any opportunity to the petitioner to explain the allegations levelled against it.
14. In view of the aforesaid factual and legal position, the impugned decision dated 18th January, 2018 taken by the Procurement Committee of the respondent-RMC to the extent of blacklisting of the petitioner is, hereby, quashed and set aside. The respondent-RMC is, however, at liberty to proceed afresh against the petitioner on the present issue and to pass an appropriate reasoned order in accordance with law after providing due opportunity of hearing to the representative of the petitioner. Since the petitioner has not pressed other prayers made in the writ petition, there is no need of making any comment on the -8- remaining issues and the parties are at liberty to take appropriate recourse against each other before appropriate forum in accordance with law.
15. The writ petition is accordingly disposed of with aforesaid observation.
16. I.A. No.638 of 2019 also stands disposed of accordingly.
(Rajesh Shankar, J.) Rohit/N.A.F.R.