Andhra HC (Pre-Telangana)
Balaji Rail Road Systems Private ... vs Rail Vikas The Nigam Limited, Rep. By Its ... on 20 February, 2017
Equivalent citations: AIR 2017 (NOC) 497 (HYD.)
Author: A.Ramalingeswara Rao
Bench: A.Ramalingeswara Rao
THE HONBLE SRI JUSTICE A.RAMALINGESWARA RAO
Writ Petition No.748 of 2017
20-02-2017
Balaji Rail Road Systems Private Limited, Rep. by its Whole Time Director
Mr.Manoranjan Pershad Petitioner
Rail Vikas the Nigam Limited, rep. by its Deputy General Manager and others
Respondents
Counsel for the Petitioner: Sri K. Vivek Reddy
Counsel for the Respondents: Sri P. Bhaskar
Sri G. Venkat Reddy
<Gist :
>Head Note :
? Cases referred:
1. (1975) 1 Supreme Court Cases 70
2. (1978) 3 SCC 36
3. 1994 Supp(2) SCC 699
4. (1995) 4 SCC153
5. (2007) 11 SCC 335
6. (2012) 11 SCC 257
7. (2014) 14 SCC 731
8. AIR 1953 SC 210
9. AIR 1961 SC 532
10. (2014) 9 Supreme Court Cases 329
11. (1996) 4 SCC 69
12. 2010 (9) SCC 496
13. 1978 (1) SCC 405
HONBLE SRI JUSTICE A. RAMALINGESWARA RAO
Writ Petition No.748 of 2017
Order:
Heard learned counsel for the petitioner and learned counsel for
the respondents 1 and 2.
This Writ Petition was filed challenging the order passed by the
second respondent dated 17.08.2016 confirming the order of the first
respondent dated 17.05.2016 declaring the petitioner as a poor
performer for a period of three years.
The undisputed facts in the present case are that the petitioner is a
Company offering consultancy services primarily to the Government and
Public Sector Organizations running the Railways. The petitioner
Company executed several projects. They also executed projects for
clients located outside India. In respect of Indian Railways, they have
executed over 150 projects from its inception in 1988. Based on the
performance of the petitioner, the petitioner was selected to execute
projects for the first respondent. On 30.09.2013 the first respondent
floated seven distinct tenders (Request For Proposal) for appointment of
consultant from project consultancy services for bankability studies. The
successful bidder was required to evaluate the commercial viability and
engineering feasibility of the new rail projects. In response to the said
tender notice, the petitioner along with others submitted its bid and the
petitioner became a successful bidder. A letter of award was issued on
28.01.2014, 31.01.2014, 06.02.2014 and 07.02.2014 for seven projects.
The seven projects are located in various parts of India including doubling
of Guntur - Tenali Railway line and its electrification in the State of Andhra
Pradesh. Separate agreements were entered on various dates on
03.04.2014, 04.04.2014, 09.04.2014 and 26.04.2014 in respect of seven
projects. The contracts were executed in Secunderabad. The petitioner
states that all the seven projects were executed by the petitioner.
However, there was delay in execution of the contract and since the delay
resulted in financial loss to the first respondent, a show cause notice was
issued on 14.08.2015 asking the petitioner to show cause as to why it
should not be declared as a poor performer. The petitioner submitted its
response on 01.09.2015 explaining the reasons and attributing some of
the reasons to the first respondent. After complying with the procedure
relating to the declaration as poor performer, the petitioner was declared
to be a poor performer by the first respondent by proceedings dated
17.05.2016. Since there was a provision for appeal, the petitioner
appealed to the second respondent and he confirmed the same by order
dated 22.06.2016.
The petitioner addressed a letter on 22.06.2016 requesting for
appointment of an arbitrator and maintaining status quo till the decision of
the arbitrator in respect of declaration as a poor performer and the first
respondent, vide letter dated 11.08.2016, stated that the declaration as a
poor performer is an administrative order which was issued under a
separate laid down procedure and the contract agreement does not
mandate arbitrators to arbitrate on the issue of poor performance, as such
declaration can be made on various issues even beyond the
contract/contracts. It appears that the first respondent also imposed
penalty for delayed performance by making reduction from the payments
due to the petitioner and the petitioner invoked the arbitration clause and
challenged the same before the High Court of Delhi. The impugned
orders were initially challenged before the Delhi High Court in OMP (I)
(COMM.) 445 of 2016 and the same was withdrawn on 21.12.2016 with
liberty to file a Writ Petition to challenge the impugned orders.
Thereafter, the petitioner filed Arbitration Petition No.710 of 2016
before the High Court of Delhi and the High Court of Delhi disposed of the
said petition by order dated 21.12.2016 appointing Mr. S.K. Sarvaria, a
former Additional District Judge, Delhi, as a sole arbitrator to adjudicate
the disputes between the parties including their claims and counter claim
(other than the issue of placing the petitioner on the list of poor
performers). However, it is stated by the learned counsel for the
respondents 1 and 2 that against the said order, the first respondent
preferred an appeal in the Honble Supreme Court and it is likely to come
up for admission on 17.02.2017. In view of the said order of the Delhi
High Court excluding the declaration of poor performer from arbitration,
the above Writ Petition was filed by the petitioner.
Learned counsel appearing for the petitioner submits that the
procedure contemplated for declaring the consultant/contractor as a poor
performer was not complied with. He submits that no opportunity of
hearing as stipulated in Clause 9 was afforded to the petitioner. He also
submitted that the contract does not provide for blacklisting the petitioner
from future contracts. He states that the delay occurred due to the
defaults committed by the first respondent only and without a finding on
such default, no order can be passed declaring the petitioner as a poor
performer. He further submits that the impugned orders do not contain
any reasons and they are liable to be set aside on the said ground apart
from the ground of violation of principles of natural justice. He relied on
the decisions of the Honble Supreme Court reported in M/s. Erusian
Equipment and Chemicals Limited v. State of West Bengal ,
Joseph Vilangandan v. The Executive Engineer, (PWD),
Ernakulam and Southern Painters v. Fertilizers and Chemicals
Travancore Limited .
Learned counsel appearing for the respondents 1 and 2 submits
that they have complied with the procedure for declaring the
consultant/contractor as a poor performer and though the dispute might
arise from the contract, the present order is not amenable to arbitration.
He further submits that in view of existing clauses in the contract agreeing
for jurisdiction of Courts in Delhi, the petitioner cannot maintain the
present Writ Petition in this Court. He further submits that in the absence
of any request for personal hearing, no such hearing need be given to the
petitioner. He relied on the decisions reported in Angile Insulations v.
Davy Ashmore India Limited , Alchemist Limited v. State Bank of
Sikkim , Patel Engineering Limited v. Union of India and Kulja
Industries Limited v. Chief General Manager, Western Telecom
Project Bharat Sanchar Nigam Limited .
In view of the above facts and submissions, the following points
arise for consideration in the present Writ Petition.
1) Whether the present Writ Petition is maintainable in this Court
and whether this Court lacks territorial jurisdiction to entertain
the present Writ Petition?
2) Whether the orders passed by the respondents 1 and 2 are
valid in law?
Point No.1 (Jurisdiction):
Learned counsel appearing for the respondents 1 and 2 raised the
objection as to the territorial jurisdiction of this court to entertain the
present Writ Petition and he relied on part 2 of special conditions of
contract wherein it was stated that the agreement shall be interpreted,
construed and governed by the laws of India and legal proceedings, if any
shall be under the jurisdiction of the Court of Delhi/New Delhi. He also
relied on the averments made by the petitioner in the petition filed under
Section 9 of the Arbitration and Conciliation Act, 1996, filed before the
High Court of Delhi, at New Delhi, wherein it was stated as follows:
This Honble Court possesses territorial jurisdiction as
the registered office of the respondent is in New Delhi. The
contract agreements were executed in New Delhi. Further,
under the contract agreements the exclusive jurisdiction of
legal proceedings have been conferred upon the courts in
Delhi. Even the seat of arbitration is New Delhi. The show
cause notice and orders 1, 2 and 3 have been issued from
New Delhi. Thus, the entire cause of action has arisen in
New Delhi and accordingly, this Honble High Court has the
jurisdiction to entertain and determine the instant petition.
In this connection, he placed reliance on the decisions of Angile
Insulationss case (supra) and Alchemist Limiteds case (supra).
Learned counsel for the petitioner submitted that a part of cause of
action arose within the jurisdiction of this Court as the petitioner signed
the agreements within the jurisdiction of this Court and one of the
projects comes under the territorial jurisdiction of this Court.
The Honble Supreme Court in Angile Insulationss case (supra)
was considering a case of objection relating to the maintainability of the
suit on the ground of territorial jurisdiction in relation to a contract. The
Honble Supreme Court, holding that normally a Court would have
jurisdiction where the cause of action, wholly or in part arises, observed
that the same would be subject to the terms of the contract between the
parties and relied on a clause in the contract. In the instant case, though
the parties agreed for the jurisdiction of the Delhi High Court in relation to
the disputes arising out of the contract, but in view of the stand taken by
the respondents that the present dispute arises out of an administrative
order and does not arise out of the contract, the said clause cannot be
applied to the facts of the present case.
In Alchemist Limiteds case (supra) the Honble Supreme Court
was considering the maintainability of a Writ Petition under Article 226 of
the Constitution of India with reference to a part of cause of action. The
Honble Supreme Court, noticed that the decision in Election
Commission v. Saka Venkata Rao , which was confirmed in Lt. Col.
Khajoor Singh v. Union of India , held that no High Court other than
the High Court of Punjab (before the establishment of the High Court of
Delhi) has jurisdiction to issue any direction, order or Writ to the Union of
India, because the seat of the Government of India was located in New
Delhi. The Honble Supreme Court also noticed that this resulted in
amendment of the Constitution by the Constitution (Fifteenth
Amendment) Act,1963 by inserting Clause (1-A) to Clause (1) which was
renumbered as Clause(2) under the Constitution (Forty-Second
Amendment) Act,1976. The said amendments enabled the High Courts to
have jurisdiction when cause of action arose within its jurisdiction.
Thereafter, the Honble Supreme Court considered the meaning of
expression cause of action and the decisions which came up for
consideration after the said amendments. It was ultimately held that in
order to constitute a part of cause of action one has to consider whether
such fact constitutes a material, essential, or integral part of the cause of
action. It was also held that even if a small fraction of the cause of action
arises within the jurisdiction of the Court, the Court would have territorial
jurisdiction to entertain the suit/petition.
In Nawal Kishore Sharma v. Union of India , the Honble
Supreme Court examined the question relating to the jurisdiction under
Article 226 of the Constitution of India and after examining various
decisions observed as follows:
14. In Om Prakash Srivastava vs. Union of
India (2006) 6 SCC 207, answering a similar question
this Court observed that on a plain reading of Clause (2)
of Article 226 it is manifestly clear that the High Court can
exercise power to issue direction, order or writs for the
enforcement of any of the fundamental rights or for any
other purpose if the cause of action in relation to which it
exercises jurisdiction notwithstanding that the seat of the
Government or authority or the residence of the person
against whom the direction, order or writ is issued is not
within the said territory. In para 7 this Court observed:-
(SCC P.210)
7. The question whether or not cause of
action wholly or in part for filing a writ petition has
arisen within the territorial limits of any High Court
has to be decided in the light of the nature and
character of the proceedings under Article 226 of
the Constitution. In order to maintain a writ petition,
a writ petitioner has to establish that a legal right
claimed by him has prima facie either been infringed
or is threatened to be infringed by the respondent
within the territorial limits of the Courts jurisdiction
and such infringement may take place by causing
him actual injury or threat thereof.
15. In Rajendran Chingaravelu v. CIT (2010) 1
SCC 457, this Court while considering the scope of Article
226(2) of the Constitution, particularly the cause of action
in maintaining a writ petition, held as under: (SCC P.461,
paras 9 & 11)
9. The first question that arises for
consideration is whether the Andhra Pradesh High
Court was justified in holding that as the seizure
took place at Chennai (Tamil Nadu), the appellant
could not maintain the writ petition before it. The
High Court did not examine whether any part of
cause of action arose in Andhra Pradesh. Clause (2)
of Article 226 makes it clear that the High Court
exercising jurisdiction in relation to the territories
within which the cause of action arises wholly or in
part, will have jurisdiction. This would mean that
even if a small fraction of the cause of action (that
bundle of facts which gives a petitioner, a right to
sue) accrued within the territories of Andhra
Pradesh, the High Court of that State will have
jurisdiction.
In the light of the above law laid down by the Supreme Court, the
facts of the present case have to be examined. The petitioners registered
office is situated in Secunderabad within the jurisdiction of this Court and
the petitioner has to execute the work of bankability of Guntur Tenali
doubling with RE in South Central Railway under letter of acceptance
dated 07.02.2014 in the territorial jurisdiction of this Court. The contracts
were executed within the territorial jurisdiction of this court. Though in
part 2 of the special conditions of contract, it was stated that the legal
proceedings shall be under the local jurisdiction of Delhi/New Delhi, the
respondents themselves took the matter out of the purview of the
contract and the action of declaration of the petitioner as a poor
performer was termed as an administrative order. It is not open to the
first respondent to rely on a part of the contract for one purpose and deny
the application for another purpose. Faced with this situation only,
learned counsel appearing for the respondents 1 and 2 submitted that
though the disputes arise out of contract, the arbitration clause contained
in the contract is not applicable and hence this matter was specifically
excluded from reference to the arbitration by the High Court of Delhi and
in spite of the same, since the matter arise out of contract, the special
condition with regard to jurisdiction is applicable to the instant case. I am
not in agreement with the said contention of the learned counsel for the
respondents as it is the case of the respondents from the beginning that
the action was an administrative action taken on the basis of applicable
rules governing the declaration of poor performer. In such a situation
the legality of the impugned order has to be looked into in terms of the
said guidelines contained in the order for declaring the
consultant/contractor as poor performer issued on 18.06.2010. The
averments made in support of the application filed under Section 9 of the
Arbitration and Conciliation Act by the petitioner before the High Court of
Delhi do not stand in the way of the petitioner in the present Writ Petition,
since the said application was filed under Section 9 of the Arbitration and
Conciliation Act and it was later on withdrawn. Even otherwise also the
maintainability of the present Writ Petition has to be looked into from the
angle of the applicable law relating to the entertaining of Writ Petitions.
Since a part of cause of action, more particularly relating to bankability
study in respect of Guntur Tenali was involved which falls within the
jurisdiction of this Court, I have no hesitation to hold that this Court has
jurisdiction to entertain the present Writ Petition.
Point No.2 (Legality of the Order):
The first respondent framed an order containing procedure for
declaring a consultant/contractor as poor performer by its policy dated
18.06.2010. In the preamble to the said policy, it was stated as follows:
CPM/GM/AGM Incharge of a PIU on being satisfied
that there is a prima facie case for initiating action for
declaring a consultant/contractor as a poor performer due
to persistent non adherence of laid down quality
standards/execution of sub standard work, wrong
measurements/wrong billing and non compliance of terms of
reference of contract/breach of contractual obligations, poor
physical/financial progress, may submit a proposal to
Corporate office for initiation of the process of declaring the
said consultant/contractor as a poor performer.
After the said preamble, the procedure for declaration of a
consultant/contractor as a poor performer was indicated. It is stated that
after issuance of show cause notice and receiving a reply from the
consultant/contractor, the case should be placed before the committee of
four EDs which submits its report to the competent authority. After
receipt of the said report, the procedure further states as follows:
9. The Competent Authority may give an opportunity
to the firm to hear them in person.
10. The firms submissions in written/oral hearing will
be taken into consideration by the Competent Authority and
a final speaking decision may be taken.
a) For exonerating the Agency, if the charges are not
established;
b) For declaring the Agency a Poor Performer for
specific period, if the charges are proved. On expiry of
the said period the orders shall be consider as
withdrawn.(emphasis supplied)
11. Decision of Competent Authority will be intimated
to CPM/GM/AGM Incharge of PIU, through concerned ED, to
convey the same to the delinquent firm and circulate it to all
officers of corporate office and all PIUs for applying these
orders uniformly in RVNL.
12. The Firm may file an appeal against the order of
the Competent Authority for declaring it as Poor Performer
in RVNL. The appeal shall lie with the Appellate Authority
(MD/RVNL). Such an appeal shall be preferred within one
month from the date of receipt of the order of declaring the
firm as Poor Performer. Appellate Authority may consider
the appeal and pass an appropriate order. If the decision of
the Competent Authority is modified by the Appellate
Authority the same will be intimated to CPM/GM/AGM
Incharge of PIU to take action as per Para 11 above.
It is an admitted case that no opportunity of hearing was given to
the petitioner, but an order was passed on 17.05.2016 by the Competent
Authority declaring the petitioner as a poor performer. The relevant
portion of the order reads as follows.
3. Accordingly, the Competent Authority has
considered the show cause notice issued to you vide
reference (1) above and submission made by you vide
reference (2) and passed the following Speaking Order.
Competent Authority concludes that M/s Balaji
Railroad System Limited (BARSYL) did not fulfil its
contractual obligations of adhering to the agreed time
schedules, and carrying out the services professionally and
with due diligence, in all the seven studies probably due to
absence of its key experts. Therefore, M/s. Balaji Rail Road
System Limited (BARSYL) cannot be relied upon to complete
studies in time and with due diligence in the future and
hence declared M/s. Balaji Rail Road System Limited
(BARSYL) as a poor performer for a period of 3 years with
immediate effect.
When an appeal was preferred to the second respondent, the second
respondent passed the following order.
Appellate Authority has considered your appeal and
passed the following order:
I find from Appellants Appeal dated 06.06.2016 that
the Appellants have not brought out any new facts in
their appeal to demonstrate that the Appellants have
not failed to perform their contractual obligation in a
timely and in qualitative manner. I also find that all
the issues have been deliberated, discussed and
addressed in detail by a committee of EDs and
Director Operations and there is no new point/issue
which has been raised in their representation or
brought out on file which needs to be deliberated now
by me in the capacity of an Appellate Authority. The
Appellant contention that non-availability of experts
cannot be considered the reasons for poor quality of
the reports, defies all logics as it is on the basis of
proposed deployment of specific experts satisfying
requisite qualification and experience, the studies
were awarded to M/s. BARSYL. The appellants
contention that penalties have already been imposed
as per contract conditions for non-availability of
experts and hence it should not be the reasons for
declaring M/s BARSYL as poor performer cannot be
agreed to as imposition of penalties is part of contract
management of the particular contract and
declaration of poor performer is an administrative
decision of an organization regarding the quality of
working on an entity and the nature of association of
that entity for future assignments.
Hence I find no grounds to withdraw the order of
Director Operation to declare M/s. BARSYL a poor
performer for a period of three years.
It can be seen from the above that your request for
revoking the competent authoritys decision to declare
BARSYL as poor performer and debarring BARSYL
from participating in RVNL tenders for a period of
three years has not been acceded to by the Appellate
Authority.
In the light of the above facts, it is submitted by the learned
counsel for the petitioner that the orders passed by the respondents 1 and
2 are bad, as no opportunity was given to the petitioner for hearing and
the order does not contain any reasons. He relied on M/s. Erusian
Equipment and Chemicals Limiteds case (supra), Joseph
Vilangandans case (supra) and Southern Painterss case (supra) in
support of his contention. Learned counsel for the respondents 1 and 2,
on the other hand, submits that the petitioner never asked for a right of
hearing and in those circumstances only no opportunity of hearing was
given. With respect to the reasons, learned counsel for the respondents
submits that the report of the committee of EDs was taken into
consideration by the competent authority and the order was passed by
the competent authority applying his mind and hence it cannot be termed
as void. He relied on Patel Engineering Limiteds case (supra) and
Kulja Industries Limiteds case (supra).
A reading of the extracts of the above procedure clearly indicates
that a prima facie case has to be made out for initiating action for
declaring a consultant as a poor performer due to the reasons mentioned
therein. A show cause notice has to be given indicating therein clearly the
charges (based on facts as can be proved). The party against whom
action is sought to be taken is entitled to submit a reply. Thereafter, after
submission of recommendations by the committee, the competent
authority may give an opportunity to the firm to hear them in person and
pass an order duly giving findings on the charges. The impugned order
was passed after issuing a show cause notice and receiving a reply from
the petitioner. But, no opportunity of hearing was given as there was no
request for the same. It is also evident that no finding was recorded with
regard to charges levelled against the petitioner. The decisions cited by
the learned counsel for the petitioner are not applicable to the facts of the
case so far as violation of principles of natural justice are concerned, as
the impugned order was preceded by a show cause notice and affording
an opportunity to submit explanation by the petitioner.
With regard to the lack of opportunity of hearing also I am not in
agreement with the petitioner as in Patel Engineering Limiteds case
(supra), the Honble Supreme Court clearly held that there is no inviolable
rule that a personal hearing of the affected party must precede every
decision of the State and the said decision was based on Union of India
v. Jesus Sales Corporation , which was a case relating to a quasi
judicial decision. But, the impugned orders cannot be sustained in the
absence of reasons. No order involving civil consequences shall be
passed without reasons.
In Southern Painterss case (supra), while examining the case of
a black listed contractor, the Honble Supreme Court observed as follows:
5. The Full Bench decision in V. Punnen Thomas v. State
of Kerala (AIR 1969 Ker. 81) presents an interesting
stage in the development of law on the matter. The facts
were somewhat similar. The majority opinion in that case
held:
"Surely, the term, 'civil consequences' means
something more than consequences which the
person concerned does not like. There must be at
least the possibility of an invasion of some civil right
of his before it can be said that anything done in
respect of him has civil consequences. A mere
refusal to afford a man the prospect of doing
profitable or unprofitable business with the
Government, of entering into advantageous
relationships with the Government as it has been
put entails no civil consequences however serious a
blow that might be to the person concerned.
It is said that the impugned order casts a
stigma on the petitioner. Assuming that it does,
does that by itself attract the principle of natural
justice? We think not. The question whether an
impugned act involves a stigma or not is relevant
only for the purpose of determining whether the act
sounds only in the region of contract or involves a
punishment attracting the rules of natural justice....
To accept the contention of the petitioner
would so widen the scope of the principle of audi
alteram pattern and therefore the scope for judicial
interference as to seriously hamper the
administration. It would mean, for example, that
before Government refuses to deal with a person....
it would have to give the person concerned a
hearing." (pp. 84-85)
6. However, in his dissenting opinion, Justice Mathew (as he
then was) said:
"Government has right like any private citizen
to enter into contracts with any person it chooses
and no person has a right fundamental or otherwise
to insist that Government must enter into a
contractual relation with him. A contractual
relationship presupposes a consensus of two minds.
If Government is not willing to enter into contract
with a person, I do not think that Government can
be forced to do so. It is one thing to say that
Government, like any other private citizen can enter
into contract with any person it pleases, but a
totally different thing to say that Government can
unreasonably put a person's name in a blacklist and
debar him from entering into any contractual
relationship with the Government for years to come.
In the former case, it might be said that
Government is exercising its right like any other
private citizen, but no democratic government
should with impunity passing proceeding which will
have civil consequences to a citizen without notice
and an opportunity of being heard. The reason why
the proceeding for blacklisting the petitioner and
debarring him from taking Government work for ten
years was passed, is that he committed irregularities
in connection with the tender of the contract work.
An ex parte adverse adjudication that the
petitioner committed irregularities in connection
with the tender for working down timber
from Udumbandhola Block No. 1 by Government on
the report of some petty officer without notice and
an opportunity of being heard to the petitioner and
putting his name in the blacklist and debarring him
from 'taking any Government work for ten years' by
way of punishment, appear to me, to be against all
notions of fairness in a democratic country." (pp.
86-87)
7. Justice Mathew held that "Reputation can be viewed both
as an interest of personality and as an interest of substance,
viz., as an asset" and recalled these words of Roscoe Pound:
"On the one hand there is the claim of the
individual to be secured in his dignity and honour as
part of his personality in a world in which one must
live in society among his fellow-men. On the other
hand there is the claim to be secured in his
reputation as a part of his substance in that in a
world in which credit plays so large a part the
confidence and esteem of one's fellow-men may be
a valuable asset." (See: Interest of Personality' 28
Harvard Law Review, pp. 445, 447).
Concluding, Justice Mathew observed:
"As the memorandum in question casts a
stigma on the reputation of the petitioner, which is
both an interest of personality and an interest of
substance, and as it is attended with civil
consequences to the petitioner, and as it operates
as a punishment for an alleged irregularity, I think,
the memorandum should have been proceeded by
notice and an opportunity of being heard. If
anybody were to say that Ext. P-1 is an
administrative proceeding and so no notice or
opportunity of being heard was required and that no
interference under Article 226 is possible, I would
answer him in the high and powerful words of Mr
Belloc, 'you have mistaken the hour of the night: it
is already morning'." (p. 89)
8. The minority view of Justice Mathew is now the law. The
majority view in V. Punnen Thomas case is not good law
and must be considered to have been, impliedly, overruled
by the Erusian case. Indeed, in Joseph Vilangandan v.
Executive Engineer, Buildings & Roads (PWD)
Division, Ernakulam (1978) 3 SCC 36, 41) it was held:
"The majority judgment of the Kerala High
Court, inasmuch as it holds that a person is not
entitled to a hearing, before he is blacklisted, must
be deemed to have been overruled by the decision
of this Court in Erusian Equipment......
9. In Erusian Equipment & Chemicals Ltd. v. State of
W.B. this Court observed: (SCC p. 75, paras 17, 18 & 20)
"The State need not enter into any contract
with any one but if it does so, it must do so fairly
without discrimination and without unfair procedure.
Reputation is a part of a person's character and
personality. Blacklisting tarnishes one's reputation.
Exclusion of a member of the public from
dealing with a State in sales transactions has the
effect of preventing him from purchasing and doing
a lawful trade in the goods in discriminating against
him in favour of other people.
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."
10. Again, in Raghunath Thakur v. State of
Bihar ((1989) 1 SCC 229) this Court observed: (SCC p. 230,
para 4)
"Indisputably, no notice had been given to
the appellant of the proposal of blacklisting the
appellant. It was contended on behalf of the State
Government that there was no requirement in the
rule of giving any prior notice before blacklisting any
person. Insofar as the contention that there is no
requirement specifically of giving any notice is
concerned, the respondent is right. But it is an
implied principle of the rule of law that any order
having civil consequence should be passed only
after following the principles of natural justice. It
has to be realised that blacklisting any person in
respect of business ventures has civil consequence
for the future business of the person concerned in
any event. Even if the rules do not express so, it is
an elementary principle of natural justice that
parties affected by any order should have right of
being heard and making representations against the
order."
In Kranti Associates Private Limited v. Masood Ahmed
Khan , the Honble Supreme Court examined the principles of natural
justice that have to be complied with by emphasizing the duty to give
reasons. The court examined the earlier decisions and quoted with
approval the following observations made in those decisions:
28. In Gurdial Singh Fijji vs. State of Punjab,
(1979) 2 SCC 368, this Court, dealing with a service
matter, relying on the ratio in Union of India v. Mohan Lal
Capoor ((1973) 2 SCC 836), held that "rubber-stamp
reason" is not enough and virtually quoted the observation
in Capoor (supra) to the extent that:
28..Reasons are the links between the
materials on which certain conclusions are based
and the actual conclusions." (See AIR p.377 para
18).
29. In a Constitution Bench decision of this Court in
H.H. Shri Swamiji of Shri Admar Mutt etc. etc. vs.
The Commissioner, Hindu Religious and Charitable
Endowments Dept. and Ors., AIR 1980 SC 1, while
giving the majority judgment Chief Justice Y.V.
Chandrachud referred to (SCC p.658, para 29) Broom's
Legal Maxims (1939 Edition, page 97) where the principle
in Latin runs as follows:
"Cessante ratione legis cessat ipsa lex"
30. The English version of the said principle given by
the Chief Justice is that: (H.H. Shri Swamiji case (supra),
SCC p.658, para 29)
"29.reason is the soul of the law, and when
the reason of any particular law ceases, so does the
law itself." (See AIR para 29 page 11)
31. In Bombay Oil Industries Pvt. Ltd. vs. Union
of India and Others, AIR 1984 SC 160, this Court held
that while disposing of applications under Monopolies and
Restrictive Trade Practices Act the duty of the Government
is to give reasons for its order. This court made it very
clear that the faith of the people in administrative
tribunals can be sustained only if the tribunals act fairly
and dispose of the matters before them by well considered
orders. In saying so, this Court relied on its previous
decisions in Capoor (supra) and Siemens Engineering and
Manufacturing Co. of India Ltd. v. Union ofIndia (1976) 2
SCC 981), discussed above.
32. In Ram Chander vs. Union of India, AIR 1986
SC 1173, this Court was dealing with the appellate
provisions under the Railway Servants (Discipline and
Appeal) Rules, 1968 condemned the mechanical way of
dismissal of appeal in the context of requirement of Rule
22(2) of the aforesaid Rule. This Court held that the word
"consider" occurring to the Rule 22(2) must mean the
Railway Board shall duly apply its mind and give reasons
for its decision. The learned Judges held that the duty to
give reason is an incident of the judicial process and
emphasized that in discharging quasi-judicial functions the
appellate authority must act in accordance with natural
justice and give reasons for its decision (SCC pp.106-07,
Para 4 : AIR page 1176 para 4).
33. In Star Enterprises vs. City and Industrial
Development Corporation of Maharashtra Ltd. and
others, (1990) 3 SCC 280, a three-Judge Bench of this
Court held that in the present day set up judicial review of
administrative action has become expansive and is
becoming wider day by day and the State has to justify its
action in various field of public law. All these necessitate
recording of reason for executive actions including the
rejection of the highest offer. This Court held that
disclosure of reasons in matters of such rejection provides
an opportunity for an objective review both by superior
administrative heads and for judicial process and opined
that such reasons should be communicated unless there
are specific justification for not doing so (see SCC Para 10,
page 284-285).
34. In Maharashtra State Board of Secondary
and Higher Secondary Education vs. K.S. Gandhi
and others, (1991) 2 SCC 716, this Court held that
even in domestic enquiry if the facts are not in dispute
non-recording of reason may not be violative of the
principles of natural justice but where facts are disputed
necessarily the authority or the enquiry officer, on
consideration of the materials on record, should record
reasons in support of the conclusion reached (see SCC
para 22, pages 738-739)
35. In M.L. Jaggi vs. Mahanagar Telephones
Nigam Limited and others, (1996) 3 SCC 119, this
Court dealt with an award under Section 7 of the
Telegraph Act and held that since the said award affects
public interest, reasons must be recorded in the award. It
was also held that such reasons are to be recorded so that
it enables the High Court to exercise its power of judicial
review on the validity of the award. (see SCC para 8, page
123).
The Honble Supreme Court ultimately summarized the principles as
follows:
47. Summarizing the above discussion, this Court holds:
a. In India the judicial trend has always been to record
reasons, even in administrative decisions, if such decisions
affect anyone prejudicially.
b. A quasi-judicial authority must record reasons in support
of its conclusions.
c. Insistence on recording of reasons is meant to serve the
wider principle of justice that justice must not only be done
it must also appear to be done as well.
d. Recording of reasons also operates as a valid restraint
on any possible arbitrary exercise of judicial and quasi-
judicial or even administrative power.
e. Reasons reassure that discretion has been exercised by
the decision maker on relevant grounds and by
disregarding extraneous considerations.
f. Reasons have virtually become as indispensable a
component of a decision making process as observing
principles of natural justice by judicial, quasi-judicial and
even by administrative bodies.
g. Reasons facilitate the process of judicial review by
superior Courts.
h. The ongoing judicial trend in all countries committed to
rule of law and constitutional governance is in favour of
reasoned decisions based on relevant facts. This is virtually
the life blood of judicial decision making justifying the
principle that reason is the soul of justice.
i. Judicial or even quasi-judicial opinions these days can
be as different as the judges and authorities who deliver
them. All these decisions serve one common purpose
which is to demonstrate by reason that the relevant factors
have been objectively considered. This is important for
sustaining the litigants' faith in the justice delivery system.
j. Insistence on reason is a requirement for both judicial
accountability and transparency.
k. If a Judge or a quasi-judicial authority is not candid
enough about his/her decision making process then it is
impossible to know whether the person deciding is faithful
to the doctrine of precedent or to principles of
incrementalism.
l. Reasons in support of decisions must be cogent, clear
and succinct. A pretence of reasons or `rubber-stamp
reasons' is not to be equated with a valid decision making
process.
m. It cannot be doubted that transparency is the sine qua
non of restraint on abuse of judicial powers. Transparency
in decision making not only makes the judges and decision
makers less prone to errors but also makes them subject
to broader scrutiny. (See David Shapiro in Defence of
Judicial Candor (1987) 100 Harward Law Review 731-737).
n. Since the requirement to record reasons emanates from
the broad doctrine of fairness in decision making, the said
requirement is now virtually a component of human rights
and was considered part of Strasbourg Jurisprudence. See
Ruiz Tarija v. Spain (1994) 19 EHRR 553, at 562 para 29
and Anya vs. University of Oxford, 2001 EWCA Civ 405
(CA), wherein the Court referred to Article 6 of European
Convention of Human Rights which requires,
"adequate and intelligent reasons must be given for
judicial decisions".
o. In all common law jurisdictions judgments play a vital
role in setting up precedents for the future. Therefore, for
development of law, requirement of giving reasons for the
decision is of the essence and is virtually a part of "due
process".
A perusal of the impugned orders show that for coming to the conclusion
that the petitioner is a poor performer, no findings were recorded on the
charges levelled against the petitioner. In fact, the show cause notice
itself does not contain any specific charges, except narrating the events
that led to the issuance of show cause notice. In legal parlance, framing
of charge has a definite connotation and the charges have to be
conformed to the said requirement. Learned counsel for the respondents
tried to sustain the order by producing before this Court a copy of
recommendation made by the committee. Even assuming that there are
recommendations of the committee, in the absence of findings recorded
by the competent authority, the order suffers from illegality. Even the
appellate authority also did not cure the said defect. The very preamble
of the procedure indicates that the issuance of show cause notice should
be based on certain grounds and those grounds which take the shape of
charges should be specific and should result in a finding. Though the
learned counsel for the respondents relied on Kulja Industries
Limiteds case (supra) to show that the order can be upheld as it debars
the petitioner only for a period of three years, but the order cannot be
held to be valid in the absence of reasons. As held in Mohinder Singh
Gill v. Chief Election Commissioner, New Delhi , the action of an
authority has to be judged by the reasons stated while making the order
and supplementary reasons in the shape of affidavits have to be excluded.
The relevant observations of the Honble Supreme Court are:
8. The second equally relevant matter is that
when a statutory functionary makes an order based on
certain grounds, its validity must be judged by the reasons
so mentioned and cannot be supplemented by fresh
reasons in the shape of affidavit or otherwise. Otherwise,
an order bad in the beginning may, by the time it comes to
court on account of a challenge, get validated by additional
grounds later brought out. We may here draw attention to
the observations of Bose J. in Commissioner of Police,
Bombay v. Gordhandas Bhanji (AIR 1952 SC 16):
"Public orders, publicly made, in exercise of a
statutory authority cannot be construed in the light of
explanations subsequently given by the officer making the
order of what he meant, or of what was in his mind, or
what he intended to do. Public orders made by public
authorities are meant to have public effect and are
intended to effect the actings and conduct of those to
whom they are addressed and must be construed
objectively with reference to the language used in the
order itself.
Orders are not like old wine becoming better as
they grow older.
In the normal circumstances, I would have remanded the case to
the second respondent for giving reasons in support of the order. As
stated above, I noticed that right from the stage of issuing show cause
notice, the charges were not properly framed and there cannot be any
finding with regard to a particular charge in the absence of properly
framed charges. In the circumstances, the Writ Petition is allowed and the
impugned orders are set aside. There shall be no order as to costs.
As a sequel thereto, the miscellaneous petitions, if any, pending in
this Writ Petition shall stand closed.
____________________________
A.RAMALINGESWARA RAO, J
Date: 20th February, 2017