Karnataka High Court
M/S Udyog Enterprises vs The Principal Secretary & on 18 December, 2013
Author: A.S.Bopanna
Bench: A S Bopanna
1
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 18TH DAY OF DECEMBER 2013
BEFORE
THE HON'BLE MR. JUSTICE A S BOPANNA
WRIT PETITION No.37013/2013 (GM-TEN)
c/w
WRIT PETITION No.18142/2013 (GM-RES)
W.P.NO.37013/2013
BETWEEN:
M/S UDYOG ENTERPRISES
NO.252, 4TH MAIN, 2ND BLOCK
NANDINI LAYOUT
BANGALORE- 560096
REP. BY ITS PROPRIETOR
SRI UDAYA KUMAR ... PETITIONER
(BY SRI S B MUKKANNAPPA &
SRI G S NAVEEN KUMAR, ADVS.)
AND:
1. THE PRINCIPAL SECRETARY &
APPELLATE AUTHORITY
TRANSPORT DEPARTMENT
GOVERNMENT OF KARNATAKA
VIKAS SOUDHA
BANGALORE- 560 001
2. THE CHIEF TRAFFIC MANAGER
(COMMERCIAL), TENDER
INVITTING-CUM-ACCEPTING AUTHORITY
KARNATAKA STATE ROAD
TRANSPORT CORPORATION
CENTRAL OFFICES, K H ROAD
BANGALORE- 560027
2
3. DURGA FACILITY MANAGEMENT
SERVICES PVT. LTD.,
NO.316-317, KUNIL COMPLEX
1ST FLOOR, BENDOORWELL,
KANAKANADY, MANGALORE 575 002
REP. BY ITS MANAGING DIRECTOR
D. S. SHETTY. ... RESPONDENTS
(BY SRI H V MANJUNATH, AGA. FOR R1
SRI P D SURANA, ADV. FOR R2
SRI SANDESH J CHOUTA, ADV. FOR R3)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 &
227 OF THE CONSTITUTION OF INDIA, WITH A PRAYER TO
QUASH THE IMPUGNED ORDER DATED 31.07.2013 PASSED BY
R2 VIDE ANNX-T; DIRECT THE R2 TO CONTINUE THE SERVICES
OF THE PETITIONER IN TERMS OF THE CONTRACTUAL
AGREEMENT ENTERED INTO BETWEEN THE PARTIES
PURSUANT TO THE WORK ORDER DATED 7.2.13 ISSUED BY R2
AT ANNX-J OR IN THE ALTERNATIVE DIRECT THE R2
CORPORATION TO REFUND THE SECURITY DEPOSIT OF
RS.50,00,000/- [RUPEES FIFTY LAKHS] ONLY WITH 12%
INTEREST.
W.P.NO.18142/2013
BETWEEN:
M/S UDYOG ENTERPRISES
NO.252, 4TH MAIN, 2ND BLOCK
NANDINI LAYOUT
BANGALORE- 560096
REP. BY ITS PROPRIETOR
SRI UDAYA KUMAR C V ... PETITIONER
(BY SRI S B MUKKANNAPPA & ASSTS., ADVS.)
AND:
1. THE PRINCIPAL SECRETARY &
APPELLATE AUTHORITY
TRANSPORT DEPARTMENT
GOVERNMENT OF KARNATAKA
VIKAS SOUDHA
BANGALORE- 560 001
3
2. THE CHIEF TRAFFIC MANAGER
(COMMERCIAL), TENDER
INVITTING-CUM-ACCEPTING AUTHORITY
KARNATAKA STATE ROAD
TRANSPORT CORPORATION
CENTRAL OFFICES, K H ROAD
BANGALORE- 560027
3. DURGA FACILITY MANAGEMENT
SERVICES PVT. LTD.,
NO.316-317, KUNIL COMPLEX
1ST FLOOR, BENDOORWELL,
KANAKANADY, MANGALORE 575 002
REP. BY ITS MANAGING DIRECTOR
D. S. SHETTY. ... RESPONDENTS
(BY SRI H V MANJUNATH, AGA. FOR R1
SRI P D SURANA, ADV. FOR R2
SRI V G BHANU PRAKASH, ADV. FOR C/R3)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 &
227 OF THE CONSTITUTION OF INDIA, WITH A PRAYER TO
QUASH THE IMPUGNED ORDER DATED 9.4.13 PASSED BY THE
R1 AT ANNX-N; DIRECT THE R2 CORPORATION TO CONTINUE
THE SERVICES OF THE PETITIONER IN TERMS OF THE
CONTRACTUAL AGREEMENT ENTERED INTO BETWEEN THE
PARTIES PURSUANT TO THE WORK ORDER DATED 7.2.13
ISSUED BY R2 AT ANNX-J.
THESE WRIT PETITIONS HAVING BEEN RESERVED FOR
ORDERS, COMING ON FOR PRONOUNCEMENT THIS DAY, THE
COURT PRONOUNCED THE FOLLOWING :
ORDER
In W.P.No.18142/2013, the petitioner is assailing the order dated 09.04.2013 passed by the first respondent-Appellate Authority whereby the work awarded on 07.02.2013 in favour of the petitioner is set- aside. As a consequence thereof and on investigation, 4 the second respondent-KSRTC proceeded further and by the order dated 31.07.2013 has cancelled the agreement, forfeited the security deposit of ` 50,00,000/- and also blacklisted the petitioner. The said order is assailed in W.P.No.37013/2013. The petitioner in that context is seeking continuation of the contractual agreement. Since the issues raised are inter-related and is between the same parties, both the petitions are taken up together and disposed of by this common order.
2. The facts in brief are that the second respondent issued a tender notification dated 10.11.2012 for mechanized/non-mechanized cleaning and maintenance of all bus stands situate in 15 divisions in the State. The petitioner submitted his Tender on 11.01.2013 responding for 11 divisions. On the petitioner being technically qualified, his tender was considered further and his rates were found competitive in respect of 10 divisions. The petitioner was accordingly issued the work order on 07.02.2013 and 5 the agreement was entered into on 27.02.2013. The third respondent herein who was also one of the tenderer in respect of one division filed an appeal before the first respondent as contemplated under Section 16 of the Karnataka Transparency in Public Procurement, Act ('KTPP Act' for short). The petitioner filed his objection statement. The Appellate Authority on considering the rival contentions has allowed the appeal by its order dated 09.04.2013. While allowing the appeal, the Appellate Authority has concluded that the petitioner had produced fake documents which were also considered in the pre-qualification.
3. On the work order in favour of the petitioner being set-aside, the second respondent issued a show cause notice dated 16.04.2013 calling upon the petitioner to show cause against cancellation, forfeiture of security deposit and blacklisting. The reply dated 22.04.2013 made by the petitioner was considered and the second respondent not being satisfied by the explanation issued a second show cause notice dated 6 06.06.2013. The petitioner replied to the same on 11.06.2013 reiterating his earlier reply. The second respondent has thereafter passed the impugned order dated 31.07.2013.
4. The petitioner has therefore assailed both the order dated 09.04.2013 by which the appeal filed by the third respondent was allowed and also the order dated 31.07.2013 by which security deposit was forfeited and was blacklisted. Insofar as the order passed by the Appellate Authority, it is contended that when the third respondent was aggrieved only in respect of one division, the entire work order should not have been interfered. The documents relied on were not false, but certain documents which were not relevant had been wrongly uploaded by the employees. The work had already been commenced after making huge investment of ` 1.5 crores and as such, the work order ought not to have been set-aside at that stage. The Appellate Authority has not held a proper enquiry. On the termination order, it is contended that forfeiture and 7 blacklisting can be made only in the circumstance stated in Clauses 56 and 57 of the agreement and not for the reason as has been done. Even with regard to the machineries and equipments to be possessed, there is a difference in the details indicated in the tender document and as contained in the agreement. Hence, it is required to be possessed only at the time of commencement of work and the grace period furnished in that regard will indicate this aspect.
5. The second respondent has filed the objection statement justifying their action. Insofar as the manner in which the tender notification was issued and the consideration was made, there is no dispute. The order dated 09.04.2013 passed by the first respondent is sought to be justified on the findings that has been rendered by the first respondent. Though the second respondent has accepted the petitioner's tender, it was impugned by the third respondent in the appeal filed before the first respondent. For pre-qualification, the tenderers were to produce the documents for possessing 8 and owning the equipments as per the tender condition. The petitioner had produced certain documents which were not genuine and though the same had been considered earlier, an investigation was conducted by the Deputy Chief Security and Vigilance Officer of Kempegowda Bus Stand, Bangalore. While investigating the genuineness or otherwise of the documents, on verifying from the source from where it was claimed to have originated, atleast ten documents were found not to be genuine which also included a document of a non-registered company. This indicated that the petitioner had misrepresented the facts and relied upon the fake documents, the consideration of which had helped the petitioner in pre-qualification. In addition to the documents to establish the possession of equipments and machineries, the petitioner had also furnished fake certificates of four entities for having performed their work.
6. When the above aspects had been placed before the first respondent, the petitioner was unable to 9 controvert or substantiate the genuineness of the said bills and certificates. The first respondent had accordingly concluded that the petitioner had secured qualification in the tender process by adopting such method and as such, the acceptance of his tender had been set aside. Even in reply to the show cause notice issued by the second respondent, the petitioner was unable to establish the genuineness, but has only attempted to justify his action by putting forth certain excuses. Since the work order was issued based on the misrepresentation made by the petitioner, he had committed breach of Clause 13 of the Tender Conditions which provides for forfeiture of the security deposit. The contention of the petitioner that subsequent to the award of work, he has invested around ` 1.5 crores including the security deposit is disputed and contended that such contention would not be of avail to the petitioner due to his conduct of producing fake documents to procure the work order.
10
7. The further contentions with regard to the purchase of machineries as stated by the petitioner is denied and the very nature of investment made for purchase of machineries as claimed by the petitioner would establish that the machineries claimed as per the invoices produced were not available, but the invoices were relied only to secure the contract. The reason put forth by the petitioner about the wrong documents being uploaded by his staff is also disputed. Apart from the terms of the tender providing for forfeiture of security deposit, it is also contended that when at the first instance the petitioner had secured the work order by adopting such method, the cancellation of the same would involve the repetition of the process of calling for tenders and finalizing the same and the process involved would be an additional burden. Hence, the forfeiture is justified and the consequence of obtaining the work order due to misrepresentation will also entail blacklisting. Therefore, the consideration had been made in an appropriate manner which cannot be 11 termed as arbitrary and the same would not call for interference.
8. In the light of the rival contentions, I have heard Sri S.B. Mukkannappa, learned counsel for the petitioner and Sri P.D. Surana, learned counsel for the second respondent, learned Government Advocate for first respondent and perused the petition papers.
9. The fallout no doubt is in a circumstance where the third respondent preferred the appeal under Section 16 of KTTP Act against the award of contract in favour of the petitioner being set aside. The learned counsel for the petitioner therefore at the outset contends that when the Appellate Authority had set- aside the award dated 07.02.2013 at the instance of the third respondent herein, it relates only to Puttur Division. Hence, the second respondent was not justified in forfeiting the security deposit in respect of all the ten divisions for which the petitioner was successful is the contention. However, in my opinion, the nature of consideration made by the Appellate Authority and the 12 second respondent subsequently relating to the genuineness or otherwise of the documents regarding pre-qualification becomes more relevant as it is the same consideration for all divisions. Hence, the entire conspectus of the matter requires to be noticed instead of proceeding on the narrow premise that it should be limited only to the contract regarding which the third respondent was interested. That is due to fact that if the conduct of the petitioner in securing the pre-qualification is accepted to be by adopting undesirable method, it would have a bearing on the entire process.
10. In this backdrop, a perusal of the order dated 09.04.2013 (Annexure-N) would disclose that the contention put forth in the appeal against the petitioner herein is that the machinery bills produced by the petitioner, more particularly for purchase of goods from M/s Bhagya Electricals is not genuine as the TIN number does not belong to that establishment. Similar discrepancy was also pointed out with regard to the 13 invoices of M/s Lawn Mowers and M/s ABV Systems and Services. It was specifically pointed out that though the dealer was registered with effect from 25.05.2012, the bill produced is dated 11.09.2011. The discrepancy is also in the work done certificate relating to HDFC Bank, King Fisher Airlines and BIESSE Manufacture which are also not genuine. The Appellate Authority on taking note of the said contention and also the memo filed by the second respondent herein that the documents would be verified and appropriate action would be taken has thereafter taken into consideration the pre-qualification criteria fixed in the tender documents. In that light, having noticed the documents regarding which objection has been raised, the other documents produced by the petitioner for undertaking the cleaning work at Vikasa Soudha, BHEL-EDL Township and Avery Dennison was also considered, but was however of the view that even though the said documents could satisfy the pre- qualification, when other documents which would raise suspicion are produced and are considered in totality 14 for the pre-qualification requirement, the inappropriate production of documents becomes relevant. With regard to the possession of machinery, it has been observed that the necessary invoices in support of having purchased the machineries have not been produced and the discrepancy with regard to the TIN number has been noticed.
11. In such circumstance, among other aspects, taking note of the manner in which the petitioner had sought to push his pre-qualification credentials and on finding that some of the documents are not genuine, was of the view that the very pre-qualification decided in favour of the petitioner would not be justified and the action has been set-aside. While examining such findings in the instant writ proceedings, there is no other contrary material placed on record to come to a conclusion that the decision is either perverse or without basis since the Appellate Authority after referring to the materials and the discrepancies pointed out has come to the conclusion that the documents are 15 not genuine. Among the documents produced, even if some of the documents would have satisfied the pre- qualification criteria, when a set of documents has been relied in that direction, certainly even if few of the documents therein are discovered as not genuine, the same cannot be deciphered and grant the benefit of pre-qualification as it is a composite consideration. It is another matter if among the set of documents produced, some documents are genuine, but does not satisfy the criteria, it could be kept aside and the qualifying documents can be considered. But, if some documents are not genuine, then it would vitiate the entire claim for pre-qualification. Hence, the Appellate Authority was justified in its conclusion.
12. In addition, what is also necessary to be noticed is the investigation made by the second respondent and the details secured with regard to the documents submitted by the petitioner, which would also be relevant to point out regarding the correctness of the finding by the Appellate Authority and the 16 consequent action taken by the second respondent. The show cause notice dated 16.04.2013 issued to the petitioner would in addition to referring the order dated 09.04.2013 passed by the Appellate Authority has also referred to the documents which were proved to be fake and in that regard, it was proposed to forfeit the entire security deposit amount and blacklist from participating in the future tenders for the next five years and/or two tenders. The petitioner has replied to the show cause notice on 22.04.2013. It has been stated that he has purchased machineries worth ` 8,96,594/- prior to submission of the tender application and has purchased machineries worth ` 62,68,139/- after the issuance of work order. The very explanation put forth would indicate that the invoices for purchase of machineries beyond the extent of ` 8,96,594/- had been produced but, the petitioner seeks to explain the same by stating that his staff without his knowledge had sent some of the invoices pertaining to the purchase of machineries. He has pleaded ignorance as to how his staff had uploaded the same. In that context, the petitioner 17 contends that from the other documents when he has satisfied the criteria that would be sufficient.
13. The second respondent has provided the specific details of the falsified bills submitted by the petitioner by referring to it in para-5 (a) to (j) of the objection statement. The details have been obtained in the enquiry conducted by the Deputy Chief Security and Vigilance Officer. The documents at Annexure-R1 to R3 stand testimony to the veracity of the enquiry held. Therefore, in such circumstance when the invoices and bills produced relating to the purchase of equipments are found to be falsely submitted, apart from the same directly effecting the pre-qualification criteria, the contention of the learned counsel for the petitioner relating to the list of machineries and equipments shown in the tender documents as against the one contained in the agreement being at variance and there being grace period for acquiring the machineries is of no consequence. Hence, when there is misrepresentation and that too by producing false documents to secure 18 qualification for tender being accepted it would certainly amount to fraud and blacklisting also would be justified.
14. Before taking such decision, the petitioner has been provided an opportunity by issue of show cause notice and also the second show cause notice was issued. No further opportunity of hearing is contemplated as held by the Hon'ble Supreme Court in the case of Union of India and another -vs- M/s. Jesus Sales Corporation (AIR 1996 SC 1509) cited by the learned counsel for the second respondent. Further, the severity of the action in blacklisting the petitioner in a case of falsification of documents is also justified in view of the observation of the Hon'ble Supreme Court in the case of M/s. Patel Engineering Ltd., -vs- Union of India & Anr. (AIR 2012 SC 2342) relied on by the learned counsel for the second respondent. Hence, I am fortified in my conclusion reached above.
19
15. The learned counsel for the petitioner would however contend that the second respondent is not justified in forfeiting the security deposit of all the ten divisions amounting to a sum of ` 50,00,000/-. The petitioner has not committed breach of the agreement and the two circumstances providing for forfeiture of security deposit has not occurred and as such the second respondent is not justified. There is no loss caused to the second respondent. The learned counsel for the petitioner has relied on the following decisions;
(i) The case of Maula Bux -vs- Union of India (1970 (1) SCR 928), wherein the Hon'ble Supreme Court keeping in view Section 74 of the Contract Act has distinguished the forfeiture of earnest money if it is reasonable where Section 74 does not apply and in that context has held that in so far as security amount, if there is breach, the undertaking is in the nature of penalty and Section 74 is applicable. Hence, the judgment of trial Court holding that forfeiture of the 20 entire amount was not justified was upheld by setting aside the judgment of the High Court.
(ii) The case of Union of India -vs- Rampur Distillery & Chemical Co.Ltd., (AIR 1973 SC 1098) wherein the case of Maula Bux was referred and it is held that the party taking security deposit from the other party to ensure due performance of the contract is not entitled to forfeit the deposit on the ground of default when no loss is caused to him in consequence of such default. On facts, it was held that no loss was caused since the stipulated quantity was supplied subsequently.
16. Per contra, the learned counsel for the second respondent has contended that it is forfeiture of earnest money and not penalty. The qualification itself was obtained by misleading and as such, contract cannot be relied. Hence, it cannot be contended that there is no breach of contract. The loss cannot be quantified and the forfeiture is justified. The learned counsel has relied on the following decisions.
21
(i) The case of T Nagappa & Others -vs-
M/s. Adarsha Associates, Bangalore (2011 (5) KCCR 3830-DB) wherein the forfeiture of ` 1 crore by the owner of the property was upheld though there was no stipulated condition to forfeit the security deposit. However, it is seen that in the facts of this case, the Court had taken note of the admission of PW-1 that the sum of ` 1 crore was estimated as loss which may be caused to the owner of property if the project is not completed. The Court therefore took note that the plaintiffs themselves had estimated the loss at the time of entering into agreement.
(ii) The case of State of Maharashtra & Ors -vs- A.P. Paper Mills Ltd., (AIR 2006 SC 1788), wherein while considering the correctness of forfeiture of EMD, it was upheld since the tenderer therein had withdrawn before the last date after having submitted his tender. The terms of tender 5 (v) therein provides for forfeiture if withdrawn.
22
(iii) The case of Villayati Ram Mittal (Pvt.) Ltd.,
-vs- Union of India & Anr. (AIR 2011 SC 301), wherein the forfeiture of EMD was upheld. In that case also, the Tender condition stipulated for forfeiture of EMD if offer is revoked. The Tenderer therein had made his offer and had not stood by it and in that circumstance when it did not conclude, the earnest money was forfeited.
(iv) The case of M/s. Ajay Enterprises P.Ltd., & Anr. -vs- M.C.D. & Ors. (AIR 2009 Delhi 133), wherein the forfeiture of EMD was upheld. That was a case where the petitioners who were successful bidders did not pay or offer to pay the balance 75% of the bid amount. In fact, a distinction has been made therein that it was not a case of forfeiture of security deposit but it was forfeiture of earnest money deposit. Further, the fact that the plots remained unutilised because of the petitioner was also noticed.
(v) The case of State of Bihar & Ors -vs-
Bhawani Industries Ltd., (AIR 2008 Patna 121), 23 wherein the forfeiture of EMD and blacklisting was upheld. That is a case where the successful tenderer who had deposited EMD was required to pay the security deposit and enter into an agreement. However, they had failed to do so on one pretext or the other. The Court observed that the Department was ready, but the tenderer had failed to complete and were at fault.
(vi) The case of INFOTECH 2000 India Limited & Ors. -vs- State of Punjab & Ors. (AIR 2007 P & H
58), wherein again the forfeiture of earnest money was upheld.
(vii) The case of H.U.D.A. and Another -vs- Kewal Krishan Goel and Others [(1996) 4 SCC 249], wherein the forfeiture of EMD was upheld. The applicant for site was required to deposit 10% of the value as earnest money along with the application. On allotment, if accepted, further amount was to be deposited which together with the earlier deposited earnest money would be 25% of total price as earnest money. When balance is not paid and transaction was 24 not completed, the earnest money was forfeited which is upheld.
17. From the cumulative perusal of all the decisions cited by both the learned counsel, the position is clear that when the circumstances exist where the Tenderer has committed default, the Authority concerned would be entitled to forfeit the earnest money and that position has been held in all the decisions cited by the learned counsel for the second respondent where the issue pertains to forfeiture of earnest money. In the instant case, what has been forfeited is the security deposit as the process had been finalised, agreement entered and work entrusted. In fact, in the decision of the Delhi High Court cited by the learned counsel for the second respondent, the learned Judge has referred to the decision of the Hon'ble Supreme Court in the case of Maula Bux cited by the learned counsel for the petitioner herein and has distinguished it as it relates to security deposit whereas, in the case being considered, it was forfeiture of earnest money. In 25 fact, the Hon'ble Supreme Court in the case of Maula Bux has held that forfeiture of earnest money, if the amount is reasonable is permissible as it does not fall within the scope of Section 74 of the Contract Act. It is also held that the amount undertaken in the nature of penalty is to be treated in terms of Section 74 of the Contract Act with regard to actual loss.
18. In the above circumstance, the contention of the learned counsel for the petitioner that the security deposit can be forfeited only for default of the petitioner, but in the instant case the second respondent has cancelled it and as such petitioner cannot be held liable cannot be accepted. Since, the conduct of the petitioner was such that it lead to the present situation, certainly the second respondent would be entitled to forfeit the amount, but the question is as to whether the entire amount of ` 50,00,000/- can be forfeited. In view of the position brought about by the petitioner, the second respondent would have to re-tender the work for the ten divisions which would involve time and money. That 26 apart, due to the petitioner having to be stopped from carrying on with the work, the second respondent was required to make alternate arrangement and the loss suffered can be quantified on a fair assessment and recovery from security deposit could be made. The impugned order dated 31.07.2013 (Annexure-T) however except stating that the security deposit made in respect of all 10 divisions is forfeited does not refer the actual loss or the estimated loss or the need for forfeiting the entire amount. For the misdemeanor committed by the petitioner, he is denied the work by cancelling the work order and is also blacklisted. Insofar as the penalty in terms of money, it would be the estimated loss suffered by the second respondent. Hence, only to the extent of quantifying the actual amount, the same will require re-consideration by the second respondent.
19. For all the above stated reasons, I pass the following:
27
ORDER
(i) W.P.No.18142/2013 is dismissed.
(ii) W.P.No.37013/2013 is allowed in part.
(iii) Consequently, the order dated 09.04.2013 passed by the first respondent and the order dated 31.07.2013 passed by the second respondent, to the extent of setting aside the work order and blacklisting the petitioner is upheld.
(iv) The portion of the order dated 31.07.2013 to the extent of forfeiting the entire security deposit amount is set-aside. Liberty is however reserved to the second respondent to reconsider the issue regarding forfeiture to arrive at the appropriate quantum and pass fresh order in that regard.
(v) The parties to bear their own costs.
Sd/-
JUDGE
st/bms