Gujarat High Court
Kadambari Enterprise vs State Of Gujarat & 2 on 21 March, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, Z.K.Saiyed
C/SCA/19041/2015 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 19041 of 2015
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KADAMBARI ENTERPRISE....Petitioner(s)
Versus
STATE OF GUJARAT & 2....Respondent(s)
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Appearance:
MR BHARAT T RAO, ADVOCATE for the Petitioner(s) No. 1
MS JIRGA JHAVERI, AGP for the Respondent(s) No. 1
MR A A ZABUAWALA, ADVOCATE for the Respondent(s) No. 3
MR AD OZA, ADVOCATE for the Respondent(s) No. 2
RULE SERVED for the Respondent(s) No. 1 - 2
RULE UNSERVED for the Respondent(s) No. 3
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE Z.K.SAIYED
Date : 21/03/2016
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. The petitioner had applied for the contract for pulping the OMR answer sheets and other documents to be discarded by respondent No.2 - the Gujarat Secondary and Higher Secondary Education Board, for which the tender was floated by the Board. The petitioner was awarded such contract for a period of one year between 18.09.2014 to 17.09.2015. Under such contract, the petitioner would as and when work order is placed, lift such papers during the contract period and send them for pulping for which Page 1 of 16 HC-NIC Page 1 of 16 Created On Thu Mar 24 01:31:00 IST 2016 C/SCA/19041/2015 ORDER the petitioner would pay agreed rate to the Board for the quantity of papers so lifted. The petitioner had deposited Rs.10 lacs by way of security deposit at the time of executing the contract.
2. It is not in dispute that for majority of the period of contract, the petitioner lifted pulping material as and when work orders were issued by the Board. Disputes arose at the fag end of the contract period, when according to the Board a work order dated 07.09.2015 was issued to the petitioner asking him to clear the pulping material. It is an admitted position that the petitioner did not clear such material. The defence of the petitioner is that on 07.09.2015, he was away at Kerala in connection with his domestic issues and returned to Ahmedabad only on 17.09.2015. In any case, the petitioner never received such work order from the Board. Even when upon return from Kerala, the petitioner approached the Board personally, copy of the work order was never supplied to him. It was because of these reasons that the petitioner could not remove the pulping material and therefore, had not committed any default. According to the Board, however, the petitioner willfully defaulted in performance of the contractual obligations.
3. In view of such situation, the Board issued a show cause notice dated 28.09.2015 conveying to the Page 2 of 16 HC-NIC Page 2 of 16 Created On Thu Mar 24 01:31:00 IST 2016 C/SCA/19041/2015 ORDER petitioner that a work order was issued on 07.09.2015 which was dispatched by post at his address. It was also conveyed to him on his mobile telephone. He had, however, conveyed to the Board that at that time, he was at Kerala. He was instructed to contact officers upon return, despite which, till 15.09.2015, the petitioner had not taken any steps for carrying out the pulping activity and had, thus, breached the conditions of the contract. He was, therefore, called upon to show cause why for such breach, security deposit of Rs.10 lacs should not be forfeited. It may be noted that in this show cause notice, there was no proposal for blacklisting the petitioner.
4. In reply to such show cause notice dated 28.09.2015, the petitioner, under communication dated 03.10.2015 conveyed to the Board that he had received oral communications regarding pulping order. However, he had conveyed that he was out of town for his domestic reasons and assured the authorities that upon his return, he would meet personally on 15.09.2015. He had also conveyed that he must be provided the details of the pulping material and from where it has to be lifted. He contended that till date, he has not received the order dated 07.09.2015. When he has not received any such work order, there is no question of executing the work order. Page 3 of 16 HC-NIC Page 3 of 16 Created On Thu Mar 24 01:31:00 IST 2016 C/SCA/19041/2015 ORDER So far, he has done satisfactory work and lifted goods worth Rs.86,63,046/-. He has not breached any conditions of the contract. There is, therefore, no question of forfeiture of security deposit. The period of contract is over on 15.09.2015. Any work order issued thereafter automatically becomes null and void.
5. The Board thereupon issued a fresh notice dated 15.10.2015. In such notice, it was conveyed to the petitioner that the work order dated 07.09.2015 was duly issued. He was aware about such work order, despite which under false pretext, he has refused to clear the goods. On 07.09.2015, telephonic communication was also made. He had conveyed that he was out of station. He was, therefore, instructed to remain present before the officer on 14.09.2015 or 15.09.2015 so that the work of clearing the answer sheets can be undertaken. Thus, despite service of work order oral as well as in writing, he has not cleared the same, due to which show cause notice dated 28.09.2015 was issued to him. His representation to such show cause notice cannot be accepted. It appears that the rates offered by him are no longer affordable for him, due to which he is avoiding clearance of the papers. He was, therefore, given last opportunity to clear the goods within four days from the date of receipt of the notice, failing which penal action Page 4 of 16 HC-NIC Page 4 of 16 Created On Thu Mar 24 01:31:00 IST 2016 C/SCA/19041/2015 ORDER would be taken against him for forfeiture of security deposit and for blacklisting.
6. The petitioner replied to such show cause notice under letter dated 19.10.2015 and contended that period of contract is over on 15.09.2015. He has never received the work order dated 07.09.2015. The period of contract is not extended. The petitioner has not committed any default. Question of forfeiting the security deposit or blacklisting the petitioner, therefore, does not arise.
7. The Board did not accept such explanation and passed order dated 07.11.2015 imposing blacklisting of three years against the petitioner for his said failure to clear the pulping material. In such order, it was conveyed that space had to be rented for keeping such material, for which the Board had to bear hefty rental charges every month. His defences that the work order was not served on him and that he has not committed any breach of the contract were turned down. It was concluded that the petitioner has committed serious breach of the contract. Despite repeated opportunities, he has not completed the work. It was therefore ordered that the petitioner agency would be blacklisted from being awarding any contract.
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8. At that stage, this petition was filed, in which the petitioner also questioned the action of the Board in inviting fresh tender and the process of awarding fresh contract pursuant to such tender process. At the outset, learned Counsel for the petitioner clarified that in this petition, the petitioner is not agitating those issues, but would confine to question of blacklisting the petitioner and the further action of the Board in withholding the security deposit of Rs.10 lacs without passing any order of forfeiture.
9. We have heard learned Counsel for the parties at considerable length. As noted, the prime defences of the petitioner in not lifting the pulping material though directed by the Board under the said work order dated 07.09.2015 are (1) that such work order was never supplied to him, (2) that he was away at Kerala at that time and therefore, could not immediately execute the work and even when he returned, copy of the work order was not supplied and (3) after the contract period was over, there was no question of removing the material for a work order which was issued earlier.
10. In our opinion, all the three defences are not valid. As per the Board work order dated 07.09.2015 was dispatched to the petitioner at his address. In absence of any proof of delivery of such work order, we are Page 6 of 16 HC-NIC Page 6 of 16 Created On Thu Mar 24 01:31:00 IST 2016 C/SCA/19041/2015 ORDER prepared to proceed on the basis that the petitioner did not receive a hard copy of such work order. However, the issuance of the work order and the follow-up steps that the petitioner should take in connection with the same was conveyed to the petitioner admittedly on telephone. According to the petitioner, he was away at Kerala for almost a week from 07.09.2015 for his personal reasons, due to which he could not comply with such directives.
11. Whatever be the reasons for the petitioner's absence for temporary period, he could simply not have disobeyed the directives of the Board for indefinite period. As soon as he returned, which according to him he did on 17.09.2015, he ought to have, in full earnest, started removing the material. Instead, he took a rather technical stand. According to him, he approached the authorities of the Board and demanded copy of the work order, only upon which he would do such work. Here also, for the sake of argument, we are prepared to accept the petitioner's stand that unless and until such work order in writing was supplied to him, he was not duty bound to clear the goods. However, on 15.10.2015, the Board, while issuing a final show cause notice, conveyed to the petitioner that as a last chance, he may clear the material within four days from the date of receipt of the notice, failing which further action would be taken. Page 7 of 16 HC-NIC Page 7 of 16 Created On Thu Mar 24 01:31:00 IST 2016 C/SCA/19041/2015 ORDER Even in response to this show cause notice, the petitioner took technical defences without ever showing any genuine intention to complete the work. In reply to such show cause notice, the petitioner again raised the question of non-supply of copy of the work order dated 07.09.2015 and further projected that the period of contract being over, it was no longer be possible for the petitioner to lift the goods without a formal extension.
12. Thus, from the beginning, the petitioner was well aware about the Board's requirement of removing pulping material. This was conveyed to the petitioner on telephone on 07.09.2015, a fact which the petitioner does not dispute. Even after return from Kerala, the petitioner did not start clearance work as directed. Even when on 15.10.2015, the Board granted one last opportunity to the petitioner to do so, failing which the petitioner would face penal consequences, the petitioner showed no intention of doing so.
13. The contention that after the period of contract was over on or around 15.09.2015, the Board could not have directed the petitioner to lift the pulping material and that the petitioner was not obliged to clear any such material, also cannot be accepted. We may recall the work order for clearance of such goods was issued on 07.09.2015, which was also to the notice of the Page 8 of 16 HC-NIC Page 8 of 16 Created On Thu Mar 24 01:31:00 IST 2016 C/SCA/19041/2015 ORDER petitioner. It was this consignment or quantity which the Board wanted the petitioner to remove. The work order and the consequential steps for removal of the material arose during the contract period. Merely because execution of such work got delayed on account of petitioner being away from Ahmedabad would not mean that the petitioner was not bound by the terms of the contract and lift the goods merely because by the time, he returned, the period of contract had expired. The work order was issued in connection with the contract when the contract was valid and the contract period had not expired. If the petitioner was sincere about performing his part of the obligation under the contract, he would have surely done so, even when on 15.10.2015, the Board granted one last opportunity. Instead of availing the opportunity, the petitioner took a contention that unless and until the contract period is extended after following the procedure and permission of the Government, such work order cannot be enforced against the petitioner. We may recall, it was not a fresh work order which the Board was issuing on 15.10.2015, but a mere opportunity was being given to the petitioner to discharge his contractual obligations.
14. Having stated that, we cannot appreciate how the Board has withhold the security deposit of the Page 9 of 16 HC-NIC Page 9 of 16 Created On Thu Mar 24 01:31:00 IST 2016 C/SCA/19041/2015 ORDER petitioner without any order of forfeiture being passed. As noted, the final order of blacklisting the petitioner does not contain any formula for forfeiture of part or full of the security deposit. Every breach of the condition of the contract, every misdemeanour or non- performance of obligation need not necessarily result into entire security deposit being forfeited. Security deposits are meant to cover any damage done to the Government or its agencies by the contractor during the course of executing a contract and without any reference to the loss which might have occurred on account of alleged breach of the contract, there cannot be automatic presumed forfeiture of the entire security deposit. In the present case, the Board has not even brought any facts on record before or after passing the impugned order as to what happened to the pulping material which the petitioner did not lift. Was it lifted through another agency. If so, did the Board make more money or less than what the petitioner had promised are some of the questions which are germane, to which there is no answer on record at all. Under the circumstances, we not uphold the action of the Board in withholding Rs.10 lacs of the petitioner's security deposit.
15. Coming to the question of blacklisting, we uphold the power and authority of the Board to do so. Page 10 of 16 HC-NIC Page 10 of 16 Created On Thu Mar 24 01:31:00 IST 2016 C/SCA/19041/2015 ORDER Quite apart from the specific term in the contract, it is by now well settled that the power to impose blacklisting inheres in any Government agency awarding work contracts. However, it is undoubtedly true that blacklisting results into grave adverse consequences to a contractor. Legality of blacklisting including proportionality of punishment can be subject matter of judicial review. As rightly pointed out by the Counsel for the petitioner, in case of Kulja Industries Limited Vs. Chief General Manager, Western Telecom Project, Bharat Sanchar Nigam Limited & Ors., reported in (2014) 14 SCC, page No.731, the Supreme Court observed as under:-
"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 West Bengal and Anr. (1975) 1 SCC 70 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:
"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."Page 11 of 16
HC-NIC Page 11 of 16 Created On Thu Mar 24 01:31:00 IST 2016 C/SCA/19041/2015 ORDER Subsequent decisions of this Court in M/s Southern Painters v. Fertilizers & Chemicals Travancore Ltd. and Anr. AIR 1994 SC 1277; Patel Engineering Ltd. Union of India (2012) 11 SCC 257; B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd. & Ors. (2006) 11 SCC 548; Joseph Vilangandan v. The Executive Engineer, (PWD) Ernakulam & Ors. (1978) 3 SCC 36 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 and Ors. v.
State of Bihar & Ors. (1977) 3 SCC 457;
E.P. Royappa v. State of Tamil Nadu and Anr. (1974) 4 SCC 3; Maneka Gandhi v. Union of India and Anr. (1978) 1 SCC 248; Ajay Hasia and Ors. v. Khalid Mujib Sehravardi and Ors., (1981) 1 SCC 722; R.D. Shetty v.
International Airport Authority of India and Ors., (1979) 3 SCC 489 and Dwarkadas Marfatia and sons v. Board of Trustees of the Port of Bombay (1989) 3 SCC 751 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 Page 12 of 16 HC-NIC Page 12 of 16 Created On Thu Mar 24 01:31:00 IST 2016 C/SCA/19041/2015 ORDER this Court in M/s Mahabir Auto Stores & Ors. v. Indian Oil Corporation Ltd., (1990) 3 SCC 752 should, in our view, suffice:
"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 Miss Radha Krishna Agarwal and Ors. v. State of Bihar and Ors., [1977] 3 SCR 249 ...... 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 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."Page 13 of 16
HC-NIC Page 13 of 16 Created On Thu Mar 24 01:31:00 IST 2016 C/SCA/19041/2015 ORDER
25. Suffice it to say that 'debarment' is recognised 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."
16. We do not notice any discernible reason cited in the impugned order why the authorities thought that the breach committed by the petitioner is so serious that the agency should be blacklisted for a period of as long as three years. The contention of the petitioner that it had completed major portion of the work during contract period and paid revenue of more than Rs.86 lacs to the Board during such period would merit reference.
17. Under the circumstances, the petition is disposed of with following directions:-
I. Respondent No.2-Board shall release security deposit of the petitioner of Rs.10 lacs after adjusting unpaid dues, if found, other than relatable to not removing the material pursuant to work order dated 07.09.2015.
Page 14 of 16 HC-NIC Page 14 of 16 Created On Thu Mar 24 01:31:00 IST 2016 C/SCA/19041/2015 ORDER II. The Board shall reconsider the question of period of blacklisting, for which the petitioner may make further representation, if so desired latest by
31.03.2016. Fresh decision may be passed as expeditiously as possible thereafter.
18. Before closing, learned Counsel for the petitioner drew our attention to prayer clause-33-(d) for returning a sum of Rs.3 lacs which the petitioner had deposited with the Board for participating in the next tender process. This is an issue completely outside the question of forfeiture of petitioner's security deposit for the previous contract and blacklisting by the impugned order and has direct relation to a fresh tender which the Board had issued, which otherwise the Board, upon completion of the petitioner's contract period, was authorised to do. If the petitioner has participated in such tender, the return of EMD would depend on facts and circumstances arising during the consideration of such tender and would not form part of the controversy which we have resolved. This prayer is, therefore, not considered in this petition.
(AKIL KURESHI, J.) Page 15 of 16 HC-NIC Page 15 of 16 Created On Thu Mar 24 01:31:00 IST 2016 C/SCA/19041/2015 ORDER (Z.K.SAIYED, J.) SHITOLE Page 16 of 16 HC-NIC Page 16 of 16 Created On Thu Mar 24 01:31:00 IST 2016