Gujarat High Court
Ummed Engineering And Construction vs State Of Gujarat & on 2 February, 2015
Author: Vijay Manohar Sahai
Bench: Vijay Manohar Sahai
C/SCA/13765/2014 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 13765 of 2014
FOR APPROVAL AND SIGNATURE:
HONOURABLE THE ACTING CHIEF JUSTICE
MR. VIJAY MANOHAR SAHAI
and
HONOURABLE MR.JUSTICE R.P.DHOLARIA
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1 Whether Reporters of Local Papers may be allowed to see
the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law as
to the interpretation of the Constitution of India, 1950 or any
order made thereunder ?
5 Whether it is to be circulated to the civil judge ?
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UMMED ENGINEERING AND CONSTRUCTION....Petitioner(s)
Versus
STATE OF GUJARAT & 1....Respondent(s)
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Appearance:
MR KG SUKHWANI, ADVOCATE for the Petitioner(s) No. 1
MR VANDAN BAXI, AGP for the Respondent(s) No. 1
RULE SERVED BY DS for the Respondent(s) No. 1 - 2
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CORAM: HONOURABLE THE ACTING CHIEF JUSTICE MR.
VIJAY MANOHAR SAHAI
Page 1 of 11
C/SCA/13765/2014 JUDGMENT
and
HONOURABLE MR.JUSTICE R.P.DHOLARIA
Date : 02/02/2015
ORAL JUDGMENT
(PER : HONOURABLE THE ACTING CHIEF JUSTICE MR. VIJAY MANOHAR SAHAI)
1. We have heard Mr. K.G.Sukhwani, learned counsel appearing for the petitioner and Mr. Vandan Baxi, learned AGP appearing on behalf of the respondents.
2. The petitioner, by way of this petition has prayed to issue an appropriate writ, order or directions by quashing and setting aside the decision to suspend business activity of the petitioner for the period of one year as communicated by the respondent no.1 vide letter dated 25.8.2014 and has further prayed to direct the respondent no.2 to renew the registration of the petitioner as Class-A contractor.
3. The petitioner is a proprietary concern of Mr. Ummed Shikarvar, which carries on business as Government Contractor & Engineers. The respondents invited tenders for construction of protection wall at Uttareshwar Temple on the bank of river Narmada at village:Sinor, Taluka:Sinor, District:Vadodara by agreement No. B-2/5 of 2008- 2009. The estimated cost of the work was Rs. 1,86,07,309.63 and the petitioner's tender cost was Rs. 1,57,59,657.51 i.e. 15.30% below the estimated cost. The petitioner furnished bank guarantee dated 6th February, 2009 for Rs. 9,30,500/- as well as Sardar Sarovar Narmada Nigam Limited FDR of Rs. 4,66,000/- at the time of entering into the contract. Further amount of Rs. 4,65,183/- was recovered from various running account bills towards the security deposit. The work Page 2 of 11 C/SCA/13765/2014 JUDGMENT order was issued to the petitioner on 6th February, 2009 and the work was to be completed within the stipulated period of six months. Thus, the work was to be completed by 5th August, 2009. However, the work could not be completed due to the following reasons:-
[a] Site was not approachable and there were heaps of earth. [b] After receipt of work order, there was change in planning and design of the work, accordingly drawings were changed and the approval of drawings took two months and the planning was disturbed.
[c] Due to change of design, the quantity of various items like concrete increased.
[d] The site was located near the Narmada River due to which work could not be continued for two months after 10.6.2009. Thus, the work was stopped since July, 2009.
It appears that the time for completion of the work was extended and ultimately, the work was completed by the petitioner on 30th June, 2010.
4. The above fact of completion of work is admitted by the respondent no.2 in his affidavit-in-reply in para-5.6. In the agreement there was Clause-17A, which provides for the Defect liability period. The said Clause-17A is extracted herein below:
"Clause 17A: Defect liability period:
The contractor shall be responsible to make good and remedy at his own expenses any defect which may develop or may be noticed before the period mentioned hereunder from the certified date of completion. The Engineer-in-charge shall give the contractor a notice in writing about the defects and the contractor shall make good the same within 15 days of receipt of the notice. In the case of failure on the part of the contractor, the Engineer-in-charge may rectify or remove or re-Page 3 of 11
C/SCA/13765/2014 JUDGMENT execute the work at the risk & cost of the contractor. The Engineer-in-charge shall be entitled to appropriate the whole or any part of the amount of security deposit towards the expenses, if any, incurred by him in rectification, removal or re- execution. The Defects Liability period shall be two years from the certified date of completion of work."
According to this clause, before a period of two years, if any defect in the wall constructed by the contractor occurs, then, it is the duty of the contractor to repair the same at his risk and cost.
5. It appears that a crack developed in the wall which was constructed by the petitioner. The petitioner claimed that this crack occurred due to unprecedented flood in Narmada river and due to faulty structural design. The respondents took up the matter and constituted an inquiry committee to find out as to whether the crack occurred in the wall was developed due to the unprecedented flood or faulty structural design or due to the fault in the contract work completed by the petitioner. It is not disputed by the learned counsel for the respondents that the inquiry is yet pending.
6. In the meanwhile, the respondents issued a show cause notice dated 4th May, 2013, stating therein that on account of the sub- standard quality of work done during the monsoon of 2011, damage has occurred and the said damage falls under the defect liability period. It was further stated in the show cause notice that as per the provisions contained in Clauses 17A and 17B of the agreement, the period for damages and free maintenance guarantee is of two years. It was further stated that the petitioner had not undertaken any sort of work for the same despite informed by various letters. The petitioner was further called upon to show cause as to why registration of the petitioner should not be suspended for a period of three years. The petitioner submitted reply to the said show cause Page 4 of 11 C/SCA/13765/2014 JUDGMENT notice. However, the respondents did not take any final decision in the matter. It appears that the petitioner's registration as Class-A Contractor was valid till December, 2013. The petitioner thereafter, made an application to the respondents on 16th December, 2013 for renewal of its registration certificate as Class-A Contractor and deposited the requisite fee. However, the respondents did not pass any order thereon either renewing the registration or refusing the same.
7. On 16th August, 2014, the respondent no.2 informed the petitioner about the decision of the Government to suspend its business activity for a period of one year or till the inquiry of the work of construction of protection wall at Uttereswar Temple on the Bank of river Narmada at Village Sinor, Tal. Sinor, Dist: Vadodara gets completed, whichever is earlier.
8. On the aforesaid facts, Mr. K.G. Sukhwani, the learned counsel appearing for the petitioner submitted that the period of one year for which the business activity of the petitioner has been suspended would start running from 1st January, 2014 till 31st December, 2014 as any other interpretation would lead to the effect that the suspension of the business activity of the petitioner or its non- renewal of registration would continue beyond the period of one year. It is further submitted by Mr. Sukhwani that there is no power vested in the respondents not to renew the registration certificate of the petitioner in view of the policy of the Central Government, issued vide office memorandum dated 20th September, 1976, which provides for Standardized Code for Registration, Demolition, Removal, Suspension of Business and Banning of Business etc. of Building Contractors. Entire Clause-4 of the said revised Code is quoted hereunder:
Page 5 of 11C/SCA/13765/2014 JUDGMENT "4. Suspension of Business:
4.1 Suspension of business with a contractor may be ordered by the registering authority for an indefinite period where, pending full inquiry into the allegations, the registering authority is prima facie of the view that the contractor is guilty of an offence in relation to business dealings which if established, would result in his removal/banning business and it is not considered desirable to entrust new or continue business with the contractor.
4.2 Where a contractor is suspected to be disloyal to the State, the Ministry of Home Affairs may, pending investigation into the allegations, require Government department to suspend business with the contractor for an indefinite period. In such a case, the registering authority will issue orders to suspend business with the contractor in so far as it is reasonable under the existing terms and conditions of the contract.
4.3 Suspensions of business with a contractor for a specified period may be ordered by the registering authority where the contractor is responsible for some minor technical offence[s] when he fails to furnish the required Income Tax Clearance Certificate. In such a case, the fact of suspension should be communicated to the contractor giving reasons for the same. This action need not be communicated to Ministry of Works, Housing and Supply and other Ministries."
Learned counsel for the petitioner has urged that the petitioner's case would not be covered under the provisions of Clauses 4.1, 4.2 and 4.3 as suspension for specific period could be ordered by the registering authority in a case where the contractor is responsible for some minor technical offence[s] when he fails to furnish the required Income Tax Clearance Certificate. This is not the case of non-furnishing of Income Tax Clearance Certificate. The show cause notice was not issued to the petitioner with regard to the issues contained in the Clauses 4.1 and 4.2, but the same was issued proposing to suspend the business activity of the petitioner for a specific period of three years. Therefore, there is no power with the Page 6 of 11 C/SCA/13765/2014 JUDGMENT respondents authorities to suspend the business activity of the petitioner by invoking the powers under clauses 4.1, 4.2 and 4.3 of the revised Code.
9. On the other hand, Mr. Vandan Baxi, the learned AGP has urged that since the order of suspension has been passed on 30 th July, 2014 by the Officer on Special Duty [IP], Narmada, Water Resources, Water Supply and Kalpsar Department, one year period would start from 30th July, 2014 and end on 29th July, 2015. It appears that the said order of suspension of business activity of the petitioner has been communicated to the petitioner on 16th August, 2014. Mr. Baxi has placed reliance upon the provisions of Clauses 5, 6.1 and 7 of the revised Code, however, he very fairly states that he is not relying upon clauses 6.2 to 6.4 of the revised Code. Clauses 5, 6.1 and 7 of the revised Code are quoted hereunder:-
"5. Removal from the Approved List:
The registering authority may remove the name of a contractor from the approved list of the contractor if he -
[a] has, on more than one occasion, failed to execute a contract or has executed it unsatisfactorily, or [b] is proved to be responsible for constructional defects in a number of cases; or [c] persistently violates any important conditions of the contract; or [d] fails to abide by the conditions of registration or is found to have given false particulars at the time of registration; or [e] is found to have given false information at the time of registration; or [f] is declared or is in the process of being declared bankrupt, insolvent, would up [sic], dissolved or partitioned; or [g] persistently violates the labour regulations and rules.
6.1 The decision regarding removal from registration/suspension of business/removal from approved list taken after the issue of a show cause notice and consideration Page 7 of 11 C/SCA/13765/2014 JUDGMENT of representation, if any, in reply thereto should be communicated to the firm concerned, [Kindly see Appendix I] xxx xxx xxx
7. Banning:
7.1 Banning of business dealings with a firm/contractor shall be of two types:-
[i] Banning by one Ministry including its attached and subordinate offices.
[ii] Banning by all Ministries of the Govt. of India including their attached and subordinate offices. 7.2 The Head of the Department may ban business with a firm/contractor where an offence is not considered serious enough to merit a baning order of the second type but at the same time, an order removing the name of the contractor from the approved list of contractors is not considered adequate. It shall not be circulated to other Ministries/Departments but shall cover all the attached/subordinate offices of the Ministry issuing the order. It shall be extended to the allied firms and partners also. No contract of any kind whatsoever shall be placed with a banned firm including its allied firms or partners by the Ministry/Department issuing the order and its attached and subordinate offices after the issue of a banning order. Contract concluded before the issue of banning order shall, however, not be effected by the banning order.
7.3 Banning by all Ministries:
An order of the second type for banning business dealings with a contractor implies that all Ministries/Departments/offices of the Government of India are forbidden dealing with that contractor. Banning of this and revocation thereof shall be ordered with the approval of the Ministry of Works and Housing. It shall be extended to all its allied firms and partners and the banning order should specify the names of such allied firms and partners. No contract of any kind whatsoever shall be placed with a banned firm, including its allied firms by any Ministry/Department/Office of the Government of India after the issue of a banning order. 7.4 Banning of business by all Ministries may be ordered where:-
[a] there are sufficient and strong evidence on record to believe that the contractor of his employee has Page 8 of 11 C/SCA/13765/2014 JUDGMENT been guilty of malpractice[s] such as bribery, corruption, fraud including substitution and interpolation in tenders, pilfering or unauthorized use or disposal of Government materials issued for a specific work, obtaining income tax clearance certificate by underhand means obtaining official information or copies of official documents by adopting questionable methods etc., or [b] a contractor contumaciously refuses to pay Government dues without showing adequate reasons and where the Head of Department is satisfied that no reasonable dispute attracting reference to arbitration or a court of Law exists for the contractor's action; or [c] a contractor or his partner or his representative has been convinced by a Court of Law for offence involving moral turpitude in relation to business dealings;
or [d] security considerations including suspected disloyalty to the State so warrant.
7.5 The decision regarding removal from registration/suspension/banning of business dealings taken after the issue of a Show Cause Notice and consideration of representation, if any, in reply thereto should be communicated to the firm concerned, but reasons may not be disclosed in such communication [kindly see Appendix I].
7.6 Fifty copies of such orders together with reasons for the action taken as also names of partners and list of allied concerns coming within the effective influence of the contractor, will be forwarded by the administrative Ministry concerned to the Ministry of Works, Housing and Supply for transmission to the other Ministries of Central Government responsible for major construction works and to State Government who will issue necessary instructions to the departments under their control for immediate cessation of all future business with the contractor.
7.7 Action for banning business with a contractor should be taken only where it is established that the offence was committed in order to secure advantage to the contractor and not where the object may be to secure advantage to any employee of representative of the contractor personally.
7.8 Care should be taken to see that the banned contractor does not transact business with Government under a Page 9 of 11 C/SCA/13765/2014 JUDGMENT different name or title or through a benamdar. 7.9 Once the banning orders are issued, they should ordinarily not be revoked unless:-
[a] on a review, the administrative Ministry concerned is of the opinion that the punishment already undergone is adequate in the circumstances of the case, or [b] in respect of the same offence the accused has been honourably acquitted by a Court of law."
10. Clause-5 of the revised Code applies to removal from the approved list. The name of the contractor can be removed from the approved list of the contractors for various reasons, but no notice was issued by the respondent authority under Clause-5 to the petitioner. So far as Clause 6.1 is concerned, it speaks about the communication of the decision. Powers under Clause-5 could be exercised only after giving show cause notice and then such decision has to be communicated as per Clause 6.1. So far as Clause-7 is concerned, Clause 7.1 talks about banning of business dealings with a firm/contractor. For this also, show cause notice is required to be issued under Clause-7. Mr. Baxi failed to demonstrate that any show cause notice under Clauses 5, 6.1 or 7 was issued to the petitioner. Only notice issued by the Executive Engineer, respondent no.2 indicates that it has been issued for failure of defect in the construction of wall and for repairing and called upon the petitioner to show cause as to why for specific period of three years, the petitioner's business activity may not be suspended. This clearly means that the show cause notice was issued by the respondent no.2 exercising power under Clause 4.3. Clause 4.3 only applies in a case where Income Tax Clearance Certificate has not been furnished. If there is any violation of the agreement which requires cancellation of removal, then, such provision has to be made in the show cause notice. In the absence of any mention about Clause 5, 6.1 or 7 in the notice, the notice cannot be deemed to be a notice under Clauses Page 10 of 11 C/SCA/13765/2014 JUDGMENT 5,6.1 or 7 and the argument of Mr. Baxi made to this effect is based on misunderstanding of the said Clauses. Mr. Baxi has failed to point out that the show cause notice was issued under Clauses 5,6.1 or 7 of the revised Code.
11. The period from which the suspension would operate is not mentioned, therefore, one year has to be treated to be from 1 st January, 2014 till 31st December, 2014. It is not disputed by Mr. Baxi that the inquiry is still pending. Therefore, suspension period has come to an end as on 31st December, 2014 and therefore, the direction is required issued to the respondent authorities to renew the registration certificate of the petitioner as Class-A Contractor so that it may be able to carry out its business activities.
12. In the result, this petition succeeds and is allowed accordingly. The impugned order dated 30th July, 2014 passed by the Officer on Special Duty [IP], Narmada Water Resources, Water Supply & Kalpsar Department, as communicated to the petitioner on 16th August, 2014 is hereby quashed. Writ of mandamus be issued to the respondents to renew the registration certificate of Class-A Contractor to the petitioner forthwith.
13. Rule is made absolute to the aforesaid extent. There shall be no order as to costs. Direct service permitted.
(V.M.SAHAI, ACJ.) (R.P.DHOLARIA,J.) pirzada Page 11 of 11