Jharkhand High Court
Ankush Aggarwal vs Food Corporation Of India Through Its ... on 13 June, 2018
Author: Rajesh Shankar
Bench: Rajesh Shankar
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IN THE HIGH COURT OF JHARKHAND AT RANCHI
W.P.(C) No.-2254 of 2018
Ankush Aggarwal
Son of late Arun Kumar Aggarwal, resident of At + PO + PS- Ujiarpur,
District- Samastipur, Bihar ...Petitioner
-V e r s u s-
1. Food Corporation of India through its Chairman-cum-Managing
Director, having its office at New Delhi.
2. General Manager (R), Ranchi, Food Corporation of India having its
office at New Collectorate Building, Ranchi
3.General Manager (Jharkhand), Food Corporation of India, Ranchi
4. Assistant General Manager (Contracts), Ranchi, Food Corporation of
India, Ranchi .... Respondents
CORAM: - HON'BLE MR. JUSTICE RAJESH SHANKAR
For the Petitioner :- Mr. R.S.Mazumdar, Sr.Advocate
Mr. Kumar Vaibhav, Advocate
For the Respondents :- Mr. Satish Bakshi, Advocate
Order No.-04 Dated: 13.06.2018
1. The present writ petition has been filed for quashing the letter
no. S&C-13/Reg.HTC/RH-MADHUPUR-PEG GIRIDIH/2018-20 dated
26.04.2018 (Annexure- 5 to the writ petition) whereby the contract
for handling and transport work from RH Madhupur to PEG Giridih
and vice versa and at inside PEG Giridih awarded to the petitioner
pursuant to the NIT dated 11.01.2018 has been terminated and
further he has been debarred from participating in future tenders for
a period of five years. A further prayer has been made for quashing
the Tender Notice no. 03/2018 dated 23.04.2018 (Annexure-7 to the
writ petition) issued by the respondents inter alia for regular HTC for
handling and transport work from RH Madhupur to PEG Giridih and
vice versa and at inside PEG Giridih, which refers to the same work
as was awarded to the petitioner under Tender No. 01/2018.
2. The factual background of the case as stated in the writ
petition is that the respondent-Food Corporation of India (in short
'FCI') had issued the Tender Notice No. 01/2018 on 11.01.2018 for
appointment of HTC contractor for handling and transport work from
RH Madhupur to PEG Giridih and vice versa and handling work at RH
Madhupur and at inside PEG Giridih. The petitioner participated in
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the tender and his bid was accepted by the FCI vide its letter dated
28.02.2018 and he was directed to arrange payment of security
deposit of Rs.61,60,000/- on or before 15 working days from
issuance of the Letter of Acceptance which was issued to the
petitioner on 28.02.2018 and the time frame of 15 working days was
to expire on 22.03.2018. On 20.03.2018, the petitioner submitted a
request to the Union Bank, Samastipur (Bihar) for RTGS in favour of
the FCI for security deposit, however the Bank vide letter dated
21.03.2018 informed the petitioner that the same could not be
transferred due to some technical problem. On the next day i.e on
22.03.2018, the petitioner made representation to the FCI stating
that the security deposit could not be transferred on 21.03.2018 due
to some technical failure in the Bank and 22.03.2018 was a public
holiday, thus one day opportunity might be given to him for transfer
of the security deposit. Thereafter, the petitioner deposited the
security deposit on 23.03.2018. On 26.04.2018, he was served an e-
mail with an order contained in letter no. S&C-13/Reg.HTC/RH-
MADHUPUR-PEG GIRIDIH/2018-20 dated 26.04.2018 whereby the
contract of handling and transport work from RH Madhupur to PEG
Giridih and vice versa and at inside PEG Giridih awarded to the
petitioner pursuant to the NIT dated 11.01.2018 was terminated and
was further debarred from participating in future tenders for a
period of five years.
3. The learned Senior Counsel for the petitioner submits that the
impugned order dated 26.04.2018 has been passed in violation of
the principles of natural justice as no opportunity of hearing was
given to the petitioner before passing the impugned order. It is
further submitted that the impugned order has been passed for no
fault of the petitioner as the delay caused in depositing the security
deposit was beyond his control, rather it was caused due to some
technical failure in the Bank as well as the last day i.e. 22.03.2018
being a public holiday. While referring to Annexures-3 to the writ
petition, learned Senior Counsel for the petitioner submits that the
petitioner's banker namely Union Bank of India, vide a certificate
dated 23.03.2018 supported the factual stand of the petitioner that
the request for RTGS transfer was made to it on 20.03.2018,
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however due to some technical reason, the same could not be
transferred. The petitioner had also taken steps for furnishing the
bank guarantee which was to be furnished after the remittance of
the security deposit and for this, the petitioner also sought guidance
from the respondents vide his letter dated 19.04.2018. It is further
submitted that the petitioner also filed representation dated
30.04.2018 before the respondents but of no avail. The malafide
action on the part of the respondents is apparent from the fact that
on 23.04.2018, the respondents floated a fresh tender being Tender
Notice no. 03/2018 for the same work without cancelling the earlier
tender awarded to the petitioner. It is also submitted that the
calculation of the time frame of 15 working days made by the
respondents is itself erroneous.
4. The learned counsel for the petitioner in support of his
argument, puts reliance on the judgment of the Hon'ble Supreme
Court rendered in the case of M/s Poddar Steel Corporation
Vs. M/s Ganesh Engineering Work & Ors. reported in (1991) 3
SCC 273.
5. Per contra, the learned counsel for the respondents submits
that the action of the respondents is strictly in accordance with law
and also in conformity with the terms and conditions of the NIT. All
the parties are bound by the terms and conditions of the tender and
since the petitioner has failed to comply with the terms and
conditions of the NIT, he is not entitled to any relief. In a private
contract between the parties where the consequence of each default
is defined in the contact itself, the question of additional opportunity
of hearing does not arise. Admittedly, the petitioner has defaulted in
depositing the security deposit in time and as such, he has to face
the consequence. It is further submitted that the petitioner had to
furnish at least 50% of the Security Deposit specified in clause
7(i)(a) within 15 working days from 28.02.2018 i.e., by 22.03.2018,
but he could not arrange the same till 22.03.2018, and in the late
evening hours, sent a request letter scanned through e-mail for
being allowed an additional day for remitting the security deposit
amount. It is also submitted that the certificate issued by the
petitioner's Bank, annexed by him as Annexure-3 to the writ petition,
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does not appear to be authentic as there is no reason mentioned in
the said certificate as to why the payment was not made on
21.03.2018 which was also a working day. The office of the General
Manager, F.C.I., Jharkhand had sent a written communication dated
16.05.2018 to the Branch Manager, Union Bank of India,
Samastipur, Bihar requiring confirmation regarding authenticity of
the certificate and the same was confirmed vide its letter dated
22.05.2018. However, the respondents also sent another letter
dated 24.05.2018 to the Bank requiring RTGS details during the
period from 20.03.2018 to 23.03.2018 which was followed by a
string of reminders through e-mails sent on 25.05.2018, 29.05.2018
and 05.06.2018. The Bank responded the same vide its letter dated
08.06.2018 wherefrom it transpired that there was insufficient fund
in the account of the petitioner and only on the availability of fund
on 23.03.2018, the transfer was made. It is further submitted that
the petitioner has not approached this Court with clean hands and
has wilfully suppressed that funds were not available in his bank
account for transfer on 20.03.2018. There is no provision in the
tender documents for extending the period for providing Security
Deposit through Electronic Clearance System (ECS). The extension
of time is limited to clause 7(b) and 7(c) only of Model Tender Form
(MTF). The respondents were bound to strictly abide by the terms
and conditions of the tender and were compelled to take action by
terminating the contract and also by debarring the petitioner from
participating in future tenders of the Corporation for a period of five
years as per clause 7(iv) of the MTF. It is also submitted that
considering the urgency of work and the fact that there are more
than 20 lakhs beneficiaries likely to be affected, an appropriate
arrangement was required to be made well within time and as such,
a decision was taken to float a fresh tender for the work in question.
The plea of the petitioner that 22.03.2018 was a Bank holiday due to
'Bihar Diwas', is wholly untenable as 15 working days necessarily
and obviously refers to working days observed in the FCI. The work
order was floated by the Jharkhand Regional Office and was to be
carried out exclusively in the State of Jharkhand, and therefore, 15
working days had to be calculated excluding weekly holidays and
other holidays that are allowed in the Jharkhand region of Food
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Corporation of India. In Jharkhand State, there was no holiday for
'Sarhul' or for 'Bihar Diwas'. It is further submitted that in view of
the order of this Court dated 14.05.2018, the respondents have not
finalized the subsequent tender notice no. 03/2018, however bids
were opened and the rate received from the lowest bidder of
38.97% ASOR is 5.38% lower than the rate quoted by the
petitioner. The net result is saving of Rupees Seventy five lakhs. It is
further submitted that in view of clause XVII(b) of MTC, an
alternative remedy is available to the petitioner through
Dispute/Grievance Redressal Committee constituted and functioning
at Zonal Office of the Corporation. The floating of new tender was
imperative considering the fact that the exiting contract would lapse
on 21.06.2018. It is also clarified that the decision to terminate the
contract and to debar the petitioner was not taken in haste, rather a
reasoned and informed decision was duly taken after seeking
clarifications. It is further submitted that the respondent no.4 vide
letter dated 04.05.2018 has also disposed of the representation filed
by the petitioner in relation to the delay in payment of security
deposit by giving cogent reasons and by referring to the relevant
and applicable clauses in the MTF and also Circular
no. F.1(21)/CVC/2011/Cont dated 30.01.2013 which specifies that in
case of failure of the tenderer to deposit the Security Deposit within
the time limit, no relaxation will be allowed in view of clause 7(i)(a)
and IX(a)(i) of the MTF.
6. The learned counsel for the respondents puts reliance on the
judgment of the Hon'ble Supreme Court rendered in the case of
Bakshi Security and Personnel Services Private Limited Vs.
Devkishan Computed Private Limited and Ors. reported in
(2016) 8 SCC 446.
7. Heard the learned counsel for the parties and perused the
materials available on record. The petitioner was awarded the
aforesaid contract by the respondents. As per the condition of
tender, the petitioner had to deposit the security money within 15
working days from the date of issuance of the Letter of Acceptance.
Thus, as per the respondent-FCI, the petitioner had to deposit the
security money till 22.03.2018. The petitioner deposited the security
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money only on 23.03.2018 i.e., after a delay of one day from the
due date of depositing the security money. The respondent-FCI, vide
letter dated 26.04.2018 sent through e-mail cancelled the contract
awarded to the petitioner and debarred him from participating in
future tenders of the FCI for a period of five years. The petitioner
has challenged the impugned order mainly on the ground that the
same has been passed in violation of the principles of natural justice
and also on the ground that whatever delay has occasioned in
depositing the security deposit was not intentional, rather the same
was caused due to technical fault of the bank for which the
petitioner should not be penalized. On the contrary, the stand of the
respondents is that one of the specific conditions of the tender was
that the petitioner was required to deposit the security deposit
within 15 working days from the date of the issuance of the Letter of
Acceptance and since the same was admittedly deposited after the
prescribed period, the concerned authority has cancelled the
contract awarded to the petitioner and has also blacklisted him for a
period of five years.
8. From the aforesaid factual context, it appears that the present
issue concerns a contractual dispute involving alleged violation of the
terms and conditions of the contract which resulted into the
termination of the contract along with the debarment of the
petitioner for a period of five years.
9. To appreciate the rival contentions of the parties on the issue
of maintainability of the writ petition, it would be appropriate to
discuss the law laid down by the Hon'ble Apex Court on the said
issue. In the case of "ABL International Limited & Anr. Vs.
Export Credit Guarantee Corporation of India Limited &
Ors.", reported in (2004)3 SCC 553, the Hon'ble Supreme Court
has held that in absence of any disputed question of fact, availability
of alternative forum is not a bar to invoke an extra ordinary
jurisdiction of the High Court under Article 226 of the Constitution of
India.
10. In the case of "Global Energy Ltd. & Anr. Vs. Adani
Exports Ltd. & Ors." reported in (2005) 4 SCC 435, the Hon'ble
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Supreme Court has held that the terms of the NIT are not amenable
to judicial scrutiny and the courts cannot whittle down the terms of
the tender as these are in the realm of contract unless the same are
wholly arbitrary, discriminatory or actuated by malice.
11. In the case of "Kisan Sahkari Chini Mills Limited & Ors.
Vs. Vardan Linkers & Ors." reported in (2008) 12 SCC 500, the
Hon'ble Supreme Court has held that the remedy for a party
complaining breach of contract is before the Civil Court and in such
cases, public law remedy by way of writ petition under Article 226 of
the Constitution of India cannot be invoked.
12. In the case of Noble Resources Ltd. Vs. State of Orissa
and others reported in (2006) 10 SCC 236, the Hon'ble Supreme
Court has held as under:-
"18. It may, however, be true that where serious
disputed questions of fact are raised requiring
appreciation of evidence, and, thus, for determination
thereof, examination of witnesses would be necessary; it
may not be convenient to decide the dispute in a
proceeding under Article 226 of the Constitution of India.
19. On a conspectus of several decisions, a Division
Bench of this Court in ABL International Ltd. opined that
such a writ petition would be maintainable even if it
involves some disputed questions of fact. It was stated
that no decision lays down an absolute rule that in all
cases involving disputed questions of fact, the party
should be relegated to a civil court.
20. In Mahabir Auto Stores v. Indian Oil Corpn. this
Court observed: (SCC p. 761, para 12)
"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 action by State instrumentality in dealing
or
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."
21. In State of U.P. v. Vijay Bahadur Singh a Division
Bench of this Court held that the Government cannot be
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denied to exercise its discretionary power provided the
same is not arbitrary.
22. Interplay between writ jurisdiction and contractual
disputes has given rise to a plethora of decisions by this
Court. See, for example, Dwarkadas Marfatia & Sons v.
Board of Trustees, Port of Bombay and Mahabir Auto
Stores.
23. In Jamshed Hormusji Wadia v. Board of Trustees,
Port of Mumbai this Court stated: (SCC p. 235, paras 16-
17)
"16. The position of law is settled that the State and
its authorities including instrumentalities of States
have to be just, fair and reasonable in all their
activities including those in the field of contracts. Even
while playing the role of a landlord or a tenant, the
State and its authorities remain so and cannot be
heard or seen causing displeasure or discomfort to
Article 14 of the Constitution of India.
17. It is common knowledge that several rent control
legislations exist spread around the country, the
emergence whereof was witnessed by the post-World
War scarcity of accommodation. Often these
legislations exempt from their applicability the
properties owned by the Government, semi-
government or public bodies, government-owned
corporations, trusts and other instrumentalities of
State."
24. Non-statutory contracts have, however, been treated
differently. (See Bareilly Development Authority v. Ajai
Pal Singh.)
25. A distinction is also made between performance of a
statutory duty and/or dealing of a public matter by a
State and its commercial activities. (See Indian Oil
Corpn.Ltd. v. Amritsar Gas Service8 and LIC of India v.
Escorts Ltd.)
26. In ABL International Ltd. this Court opined that on a
given set of facts, if a State acts in an arbitrary manner
even in a matter of contract, a writ petition would be
maintainable. It was opined: (SCC p. 570, para 23)
"23. It is clear from the above observations of this
Court, once the State or an instrumentality of the
State is a party to the contract, it has an obligation in
law to act fairly, justly and reasonably which is the
requirement of Article 14 of the Constitution of India.
Therefore, if by the impugned repudiation of the claim
of the appellants the first respondent as an
instrumentality of the State has acted in contravention
of the abovesaid requirement of Article 14, then we
have no hesitation in holding that a writ court can
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issue suitable directions to set right the arbitrary
actions of the first respondent."
27. Contractual matters are, thus, not beyond the realm
of judicial review. Its application may, however, be
limited.
13. Further, In the case of Joshi Technologies International
Inc. Vs. Union of India and others reported in (2015) 7 SCC
728, it is held as under:-
69. The position thus summarised in the aforesaid
principles has to be understood in the context of
discussion that preceded which we have pointed out
above. As per this, no doubt, there is no absolute bar to
the maintainability of the writ petition even in contractual
matters or where there are disputed questions of fact or
even when monetary claim is raised. At the same time,
discretion lies with the High Court which under certain
circumstances, it can refuse to exercise. It also follows
that under the following circumstances, "normally", the
Court would not exercise such a discretion:
69.1. The Court may not examine the issue unless the
action has some public law character attached to it.
69.2. Whenever a particular mode of settlement of
dispute is provided in the contract, the High Court would
refuse to exercise its discretion under Article 226 of the
Constitution and relegate the party to the said mode of
settlement, particularly when settlement of disputes is to
be resorted to through the means of arbitration.
69.3. If there are very serious disputed questions of fact
which are of complex nature and require oral evidence
for their determination.
69.4. Money claims per se particularly arising out of
contractual obligations are normally not to be entertained
except in exceptional circumstances.
70. Further, the legal position which emerges from
various judgments of this Court dealing with different
situations/aspects relating to contracts entered into by
the State/public authority with private parties, can be
summarised as under:
70.1. At the stage of entering into a contract, the State
acts purely in its executive capacity and is bound by the
obligations of fairness.
70.2. State in its executive capacity, even in the
contractual field, is under obligation to act fairly and
cannot practise some discrimination.
70.3. Even in cases where question is of choice or
consideration of competing claims before entering into
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the field of contract, facts have to be investigated and
found before the question of a violation of Article 14 of
the Constitution could arise. If those facts are disputed
and require assessment of evidence the correctness of
which can only be tested satisfactorily by taking detailed
evidence, involving examination and cross-examination of
witnesses, the case could not be conveniently or
satisfactorily decided in proceedings under Article 226 of
the Constitution. In such cases the Court can direct the
aggrieved party to resort to alternate remedy of civil suit,
etc.
70.4. Writ jurisdiction of the High Court under Article
226 of the Constitution was not intended to facilitate
avoidance of obligation voluntarily incurred.
70.5. Writ petition was not maintainable to avoid
contractual obligation. Occurrence of commercial
difficulty, inconvenience or hardship in performance of
the conditions agreed to in the contract can provide no
justification in not complying with the terms of contract
which the parties had accepted with open eyes. It cannot
ever be that a licensee can work out the licence if he
finds it profitable to do so: and he can challenge the
conditions under which he agreed to take the licence, if
he finds it commercially inexpedient to conduct his
business.
70.6. Ordinarily, where a breach of contract is
complained of, the party complaining of such breach may
sue for specific performance of the contract, if contract is
capable of being specifically performed. Otherwise, the
party may sue for damages.
70.7. Writ can be issued where there is executive action
unsupported by law or even in respect of a corporation
there is denial of equality before law or equal protection
of law or if it can be shown that action of the public
authorities was without giving any hearing and violation
of principles of natural justice after holding that action
could not have been taken without observing principles
of natural justice.
70.8. If the contract between private party and the
State/instrumentality and/or agency of the State is under
the realm of a private law and there is no element of
public law, the normal course for the aggrieved party, is
to invoke the remedies provided under ordinary civil law
rather than approaching the High Court under Article 226
of the Constitution of India and invoking its extraordinary
jurisdiction.
70.9. The distinction between public law and private law
element in the contract with the State is getting blurred.
However, it has not been totally obliterated and where
the matter falls purely in private field of contract, this
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Court has maintained the position that writ petition is not
maintainable. The dichotomy between public law and
private law rights and remedies would depend on the
factual matrix of each case and the distinction between
the public law remedies and private law field, cannot be
demarcated with precision. In fact, each case has to be
examined, on its facts whether the contractual relations
between the parties bear insignia of public element. Once
on the facts of a particular case it is found that nature of
the activity or controversy involves public law element,
then the matter can be examined by the High Court in
writ petitions under Article 226 of the Constitution of
India to see whether action of the State and/or
instrumentality or agency of the State is fair, just and
equitable or that relevant factors are taken into
consideration and irrelevant factors have not gone into
the decision-making process or that the decision is not
arbitrary.
70.10. Mere reasonable or legitimate expectation of a
citizen, in such a situation, may not by itself be a distinct
enforceable right, but failure to consider and give due
weight to it may render the decision arbitrary, and this is
how the requirements of due consideration of a
legitimate expectation forms part of the principle of non-
arbitrariness.
70.11. The scope of judicial review in respect of
disputes falling within the domain of contractual
obligations may be more limited and in doubtful cases
the parties may be relegated to adjudication of their
rights by resort to remedies provided for adjudication of
purely contractual disputes.
71. Keeping in mind the aforesaid principles and after
considering the arguments of the respective parties, we
are of the view that on the facts of the present case, it is
not a fit case where the High Court should have
exercised discretionary jurisdiction under Article 226 of
the Constitution. First, the matter is in the realm of pure
contract. It is not a case where any statutory contract is
awarded.
14. Having gone through the aforesaid judgments of the Hon'ble
Supreme Court, it may be construed that there is no absolute bar in
entertaining a writ petition in a contractual matter where some
disputed questions of facts are involved. However, if the dispute
involved in a matter is so complex that it can only be determined
after a thorough long-drawn adjudicatory process by leading
evidences, the writ petition should not be entertained. Each and
every case is to be dealt with on its own facts. If the materials on
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record are clearly evincible, the writ court may exercise the power of
judicial review.
15. The power under Article 226 of the Constitution of India is
plenary in nature. The High Court has discretion to exercise or not to
exercise such discretion having regard to the facts of each case.
However, the High Courts have imposed self-restraints in such
exercise of their extraordinary jurisdiction to issue prerogative writs,
and thus, the same are not normally issued to the exclusion of other
available remedies, unless such action of the State or its
instrumentality is wholly arbitrary and unreasonable so as to violate
the constitutional mandate of Article 14 of the Constitution of India,
or for other valid and legitimate reasons, for which the High Courts
think it necessary to exercise the said jurisdiction.
16. It is true that by way of judicial review, the High Court is not
expected to act as a court of appeal while examining an
administrative decision and to record a finding as to whether any
different decision could have been taken in the facts and
circumstances of the case. By way of judicial review, the Writ Court
should ordinarily refrain from examining the details of the terms and
conditions of the contract which have been entered into by the
public bodies or the State. The Writ Court has inherent limitations on
the scope of any such enquiry. However, the Writ Court can certainly
examine whether "decision making process" is unreasonable,
irrational, arbitrary and violative of Article 14 of the Constitution of
India. Once the procedure adopted by an authority in the matter of
a contract is found to be against the mandate of Article 14 of the
Constitution of India, the Writ Court cannot ignore such action on
the pretext that the authorities concerned must have some latitude
or liberty in contractual matters and any interference by the Writ
Court would amount to encroachment on the exclusive right of the
authority to take such decision.
17. In the case of Bakshi Security & Personnel Services (P)
Ltd. Vs. Devkishan Computed (P) Ltd. and others, reported in
(2016) 8 SCC 446 as has been cited by the learned counsel for the
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respondents, the Hon'ble Supreme Court in para 19 has held as
under:-
"19. It is also well to remember the admonition given by
this Court in Michigan Rubber (India) Ltd. v. State of
Karnataka in cases like the present, as under: (SCC p.
228, para 21)
"21. In Jagdish Mandal v. State of Orissa, the
following conclusion is relevant: (SCC p. 531, para 22)
'22. Judicial review of administrative action is
intended to prevent arbitrariness, irrationality,
unreasonableness, bias and mala fides. Its purpose is
to check whether choice or decision is made "lawfully"
and not to check whether choice or decision is
"sound". When the power of judicial review is invoked
in matters relating to tenders or award of contracts,
certain special features should be borne in mind. A
contract is a commercial transaction. Evaluating
tenders and awarding contracts are essentially
commercial functions. Principles of equity and natural
justice stay at a distance. If the decision relating to
award of contract is bona fide and is in public interest,
courts will not, in exercise of power of judicial review,
interfere even if a procedural aberration or error in
assessment or prejudice to a tenderer, is made out.
The power of judicial review will not be permitted to
be invoked to protect private interest at the cost of
public interest, or to decide contractual disputes. The
tenderer or contractor with a grievance can always
seek damages in a civil court. Attempts by
unsuccessful tenderers with imaginary grievances,
wounded pride and business rivalry, to make
mountains out of molehills of some
technical/procedural violation or some prejudice to
self, and persuade courts to interfere by exercising
power of judicial review, should be resisted. Such
interferences, either interim or final, may hold up
public works for years, or delay relief and succour to
thousands and millions and may increase the project
cost manifold. Therefore, a court before interfering in
tender or contractual matters in exercise of power of
judicial review, should pose to itself the following
questions:
(i) Whether the process adopted or decision
made by the authority is mala fide or
intended to favour someone;
OR
Whether the process adopted or decision
made is so arbitrary and irrational that the
court can say: "the decision is such that no
responsible authority acting reasonably and
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in accordance with relevant law could have
reached";
(ii) Whether public interest is affected.
If the answers are in the negative, there
should be no interference under Article 226.
Cases involving blacklisting or imposition of
penal consequences on a tenderer/contractor
or distribution of State largesse (allotment of
sites/shops, grant of licences, dealerships
and franchises) stand on a different footing
as they may require a higher degree of
fairness in action."
18. In the aforesaid case also, the Hon'ble Supreme Court held
that the court will exercise the power of judicial review if the
decision making process is found malafide or intended to favour
someone or the same is arbitrary and irrational and/or public interest
is affected.
19. On perusal of the impugned order dated 26.04.2018, it
appears that the same has been passed solely on the ground that
the successful bidder (the petitioner herein) has furnished the
security deposit on 23.03.2018, though, the last date for furnishing
the same was 22.03.2018 which, according to the respondents,
attracts Clause 7(iv) and IX(f) of the MTF.
20. There appears to be two parts of the impugned order. First is
the termination of contract and the second is the order of
blacklisting/debarment where such power is additionally reserved
with the respondent-FCI in case of such failure of the successful
bidder.
Order of blacklisting
21. The petitioner has challenged the order of blacklisting on the
ground that the same has been passed in violation of the principles
of natural justice. The respondents have also not stated as to
whether before passing the order of blacklisting, any show-cause
notice was served upon the petitioner.
22. In the case of Kulja Industries Ltd. Vs. Western Telecom
Project BSNL, reported in (2014) 14 SCC 731, the Hon'ble
Supreme Court held as under:-
15
"17. That apart, the power to blacklist a contractor
whether the contract be for supply of material or
equipment or for the execution of any other work
whatsoever is in our opinion inherent in the party
allotting the contract. There is no need for any such
power being specifically conferred by statute or reserved
by contractor. That is because "blacklisting" simply
signifies a business decision by which the party affected
by the breach decides not to enter into any contractual
relationship with the party committing the breach.
Between two private parties the right to take any such
decision is absolute and untrammelled by any constraints
whatsoever. The freedom to contract or not to contract is
unqualified in the case of private parties. But any such
decision is subject to judicial review when the
same is taken by the State or any of its
instrumentalities. This implies that any such
decision will be open to scrutiny not only on the
touchstone of the principles of natural justice but
also on the doctrine of proportionality. A fair
hearing to the party being blacklisted thus
becomes an essential precondition for a proper
exercise of the power and a valid order of
blacklisting made pursuant thereto. The order
itself being reasonable, fair and proportionate to
the gravity of the offence is similarly examinable
by a writ court."
23. In the case of Gorkha Security Services Vs. Govt. (NCT
of Delhi) and others, reported in (2014) 9 SCC 105, the Hon'ble
Supreme Court has held as under:-
"16. It is a common case of the parties that the
blacklisting has to be preceded by a show-cause notice.
Law in this regard is firmly grounded and does not even
demand much amplification. The necessity of compliance
with the principles of natural justice by giving the
opportunity to the person against whom action of
blacklisting is sought to be taken has a valid and solid
rationale behind it. With blacklisting, many civil and/or
evil consequences follow. It is described as "civil death"
of a person who is foisted with the order of blacklisting.
Such an order is stigmatic in nature and debars such a
person from participating in government tenders which
means precluding him from the award of government
contracts.
17. Way back in the year 1975, this Court in Erusian
Equipment & Chemicals Ltd. v. State of W.B., highlighted
the necessity of giving an opportunity to such a person
by serving a show-cause notice thereby giving him
opportunity to meet the allegations which were in the
mind of the authority contemplating blacklisting of such a
16
person. This is clear from the reading of paras 12 and 20
of the said judgment. Necessitating this requirement, the
Court observed thus: (SCC pp. 74-75)
"12. Under Article 298 of the Constitution the
executive power of the Union and the State shall
extend to the carrying on of any trade and to the
acquisition, holding and disposal of property and the
making of contracts for any purpose. The State can
carry on executive function by making a law or
without making a law. The exercise of such powers
and functions in trade by the State is subject to Part
III of the Constitution. Article 14 speaks of equality
before the law and equal protection of the laws.
Equality of opportunity should apply to matters of
public contracts. The State has the right to trade. The
State has there the duty to observe equality. An
ordinary individual can choose not to deal with any
person. The Government cannot choose to exclude
persons by discrimination. The order of blacklisting
has the effect of depriving a person of equality of
opportunity in the matter of public contract. A person
who is on the approved list is unable to enter into
advantageous relations with the Government because
of the order of blacklisting. A person who has been
dealing with the Government in the matter of sale and
purchase of materials has a legitimate interest or
expectation. When the State acts to the prejudice of a
person it has to be supported by legality."
* * *
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."
18. Again, in Raghunath Thakur v. State of Bihar the
aforesaid principle was reiterated in the following
manner: (SCC p. 230, para 4)
"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
17
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 that view of the matter, the last
portion of the order insofar as it directs blacklisting of
the appellant in respect of future contracts, cannot be
sustained in law. In the premises, that portion of the
order directing that the appellant be placed in the
blacklist in respect of future contracts under the
Collector is set aside. So far as the cancellation of the
bid of the appellant is concerned, that is not affected.
This order will, however, not prevent the State
Government or the appropriate authorities from
taking any future steps for blacklisting the appellant if
the Government is so entitled to do in accordance
with law i.e. after giving the appellant due notice and
an opportunity of making representation. After
hearing the appellant, the State Government will be at
liberty to pass any order in accordance with law
indicating the reasons therefor. We, however, make it
quite clear that we are not expressing any opinion on
the correctness or otherwise of the allegations made
against the appellant. The appeal is thus disposed of."
19. Recently, in Patel Engg. Ltd. v. Union of India
speaking through one of us (Justice Chelameswar, J.)
this Court emphatically reiterated the principle by
explaining the same in the following manner: (SCC pp.
262-63, paras 13-15)
"13. The concept of 'blacklisting' is explained by this
Court in Erusian Equipment & Chemicals Ltd. v. State
of W.B. as under: (SCC p. 75, para 20)
'20. Blacklisting has the effect of preventing a
person from the privilege and advantage of
entering into lawful relationship with the
Government for purposes of gains.'
14. The nature of the authority of the State to
blacklist the persons was considered by this Court in
the abovementioned case and took note of the
constitutional provision (Article 298), which authorises
both the Union of India and the States to make
contracts for any purpose and to carry on any trade
or business. It also authorises the acquisition, holding
and disposal of property. This Court also took note of
the fact that the right to make a contract includes the
right not to make a contract. By definition, the said
right is inherent in every person capable of entering
into a contract. However, such a right either to enter
or not to enter into a contract with any person is
subject to a constitutional obligation to obey the
command of Article 14. Though nobody has any right
to compel the State to enter into a contract,
18
everybody has a right to be treated equally when the
State seeks to establish contractual relationships. The
effect of excluding a person from entering into a
contractual relationship with the State would be to
deprive such person to be treated equally with those,
who are also engaged in similar activity.
15. It follows from the above judgment in Erusian
Equipment case that the decision of the State or its
instrumentalities not to deal with certain persons or
class of persons on account of the undesirability of
entering into the contractual relationship with such
persons is called blacklisting. The State can decline to
enter into a contractual relationship with a person or
a class of persons for a legitimate purpose. The
authority of the State to blacklist a person is a
necessary concomitant to the executive power of the
State to carry on the trade or the business and
making of contracts for any purpose, etc. There need
not be any statutory grant of such power. The only
legal limitation upon the exercise of such an authority
is that the State is to act fairly and rationally without
in any way being arbitrary--thereby such a decision
can be taken for some legitimate purpose. What is the
legitimate purpose that is sought to be achieved by
the State in a given case can vary depending upon
various factors."
20. Thus, there is no dispute about the requirement of
serving show-cause notice. We may also hasten to add
that once the show-cause notice is given and opportunity
to reply to the show-cause notice is afforded, it is not
even necessary to give an oral hearing. The High Court
has rightly repudiated the appellant's attempt in finding
foul with the impugned order on this ground. Such a
contention was specifically repelled in Patel Engg."
24. In the aforesaid judgments, the Hon'ble Supreme Court held
that when a contract is entered between two private parties, in case
of any breach of contract by one party, the other party has every
right to blacklist the defaulter and such right is unqualified.
However, in a situation where an order of blacklisting has been
passed by the State or its instrumentalities, such order is within the
realm of power of judicial review of the Writ Court and the same has
to be tested in the touchstone of the principle of natural justice,
doctrine of proportionality, reasonableness and fairness. The order
of blacklisting has the effect of depriving a person of equality of
opportunity in the matter of public contract. Blacklisting has the
effect of preventing a person from the privilege and advantage of
entering into lawful relationship with the government/government
19
agencies for the purposes of gains. Thus, prior to taking such a
harsh decision, the person concerned should be given an opportunity
to represent his case before he is put on the blacklist. The show
cause must not be a mere formality, rather the same should
specifically mention the grounds which necessitates the action and
also the proposed action by the department so that the person
aggrieved may explain the circumstances properly.
25. On perusal of the impugned order dated 26.04.2018, it
appears that the order of termination of contract coupled with the
debarment of the petitioner has been passed without describing any
cogent or strong reason for the same. The order cancelling the
awarded work is one aspect while the order of blacklisting is
another. The order of termination of contract is passed merely for
violation of any mandatory terms and conditions of the contract,
however, the order of blacklisting debars any person from dealing
with the government instrumentality within the time frame
mentioned in the order. Thus, before passing the order of
blacklisting, it is a sine-qua-non to hear the alleged delinquent to
make sure so as to satisfy as to whether the default is intentional or
has been caused under the situation beyond one's control. In the
present case, the respondent-FCI has not called upon the petitioner
to explain the circumstances under which the delay was caused
before passing the order of debarment. The impugned order has
been passed merely on the ground that in case of default, the
respondent-FCI has the discretion to pass any such order. It is a
settled position of law that the State or its instrumentality while
dealing with any private individual has to exercise the said discretion
in a fair and equitable manner.
26. For the aforesaid reason, I am of the view that the decision
making process of the respondent-FCI in blacklisting the petitioner is
vitiated as the same has been passed in violation of the principles of
natural justice i.e., without affording any opportunity to the
petitioner to explain the reasons of alleged default.
20
Termination of Contract
27. The learned Senior Counsel for the petitioner has submitted
that the condition of furnishing the security deposit within a fixed
period of 15 working days of issuance of Letter of Acceptance is not
a mandatory condition and as such, the delay could have been
condoned taking into consideration the facts and circumstances of
the case. It has further been contended that the petitioner had
explained sufficient ground for condonation of the delay of one day
in furnishing the security deposit, however, the respondents
completely ignored the same.
28. On perusal of the record, it appears that the petitioner has
committed a delay of only one day in furnishing the security deposit.
Now, the question is as to whether the delay of one day on the part
of the petitioner was required to be condoned by the respondents in
view of the present facts and circumstances of the case.
29. I have perused the judgment of the Hon'ble Supreme Court
rendered in the case of M/s Poddar Steel Corporation (supra),
wherein the Hon'ble Supreme Court has held thus :-
"6. It is true that in submitting its tender accompanied by
a cheque of the Union Bank of India and not of the State
Bank clause 6 of the tender notice was not obeyed
literally, but the question is as to whether the said non-
compliance deprived the Diesel Locomotive Works of the
authority to accept the bid. As a matter of general
proposition it cannot be held that an authority inviting
tenders is bound to give effect to every term mentioned
in the notice in meticulous detail, and is not entitled to
waive even a technical irregularity of little or no
significance. The requirements in a tender notice can be
classified into two categories -- those which lay down
the essential conditions of eligibility and the others which
are merely ancillary or subsidiary with the main object to
be achieved by the condition. In the first case the
authority issuing the tender may be required to enforce
them rigidly. In the other cases it must be open to the
authority to deviate from and not to insist upon the strict
literal compliance of the condition in appropriate cases.
This aspect was examined by this Court in C.J. Fernandez
v. State of Karnataka a case dealing with tenders.
Although not in an entirely identical situation as the
present one, the observations in the judgment support
our view. The High Court has, in the impugned decision,
relied upon Ramana Dayaram Shetty v. International
21
Airport Authority of India but has failed to appreciate that
the reported case belonged to the first category where
the strict compliance of the condition could be insisted
upon. The authority in that case, by not insisting upon
the requirement in the tender notice which was an
essential condition of eligibility, bestowed a favour on
one of the bidders, which amounted to illegal
discrimination. The judgment indicates that the court
closely examined the nature of the condition which had
been relaxed and its impact before answering the
question whether it could have validly condoned the
shortcoming in the tender in question. This part of the
judgment demonstrates the difference between the two
categories of the conditions discussed above. However it
remains to be seen as to which of the two clauses, the
present case belongs.
8. In the present case the certified cheque of the Union
Bank of India drawn on its own branch must be treated
as sufficient for the purpose of achieving the object of
the condition and the Tender Committee took the
abundant caution by a further verification from the bank.
In this situation it is not correct to hold that the Diesel
Locomotive Works had no authority to waive the
technical literal compliance of clause 6, specially when it
was in its interest not to reject the said bid which was
the highest. We, therefore, set aside the impugned
judgment and dismiss the writ petition of respondent 1
filed before the High Court. The appeal is accordingly
allowed with costs throughout."
30. In every contract, the terms and conditions are invariably
mentioned, however all those conditions are not mandatory in
nature. Though some conditions of the tender are mandatory and
violations of the same cannot be condoned, however, there are
some conditions which are ancillary to the main conditions whose
violations are not fatal in nature. It is to be kept in mind that in any
contract where the State or its instrumentality is dealing with a
private party, the former stands in upper pedestal and the conditions
are fixed by it and the other party has no option but to accept the
same. Under such a situation, it is the bounden duty of a State/its
instrumentality to act fairly and in equitable manner.
31. Before coming to the merit of the case, it would be
appropriate to go through the relevant provisions of the MTF being
part of the NIT, which deals with the security deposit and also the
consequence of failure to deposit the same within the time as
stipulated. The relevant provisions of the MTF are quoted as under:
22
IX. Security Deposit
(a) The successful Tenderer shall furnish within fifteen working days of
acceptance of his tender, a Security Deposit for the due, proper and
compelte discharge of all their obligations under the Contract. The
Security Deposit will comprise of the total of the amounts specified in
following clauses (i) (ii) and (iii)
---------------------------------------------------------------------------
(b) In case of failure of tenderer to deposit the Bank Guarantee as stipulated in clause 7(i)(b)(c) within fifteen working days of acceptance of his tender, further extenstio of 15 working days be given subject to levy of penalty @ 1% of the whole amount of the security deposit and another 15 working days with levy of penalty @ 2% on the whole amount of hte Security Deposit by GM(R).
(c)----
(d) -----
(e) -----
(f) In the event of the Tenderer failure, after the communication of acceptance of the tender by the Corporation, to furnish the requisite Security Deposit by the due date including extension period, his contract shall summarily terminated besides forfeiture of the Earnest Money and the Corporation shall proceed for appointment of another contractor. Any losses or damages arising out of and incurred by the corporation by such conduct of the contractor will be received from the contractor, without prejudice to any other rights and remedies of the Corporation under the Contract and Law. The contractor will also be debarred from participating in any future tenders of the Corporation for a period of five years. After the completion of prescribed period of five years, the party may be allowed to participate in the future tenders of FCI provided all the recoveries/dues have been effected by the Corporation and there is no dispute pending with the contractor/party.
32. The aforesaid conditions of the tender provide that the security deposit should be furnished within 15 days of issuance of the Letter of Acceptance or within the extended period. In case the successful bidder fails to comply with the said requirement, it will be a sufficient ground for the respondent-FCI to cancel the awarded work. Apart from the termination of contract, additional right is reserved with the respondent-FCI to blacklist/debar the bidder in future tenders for a period of five years.
33. Since the condition of the contract itself provides for furnishing security deposit within fifteen days of issuance of the Letter of Acceptance or within extended period, in my considered view, the same referred herein above is not a mandatory condition and as such, the respondent-FCI should not have terminated the contract awarded to the petitioner for delay of merely one day, in 23 exercise of its discretionary power. Moreover, admittedly, even after the lapse of the said period of 15 days, the respondents enquired from the bank about the true fact with regard to the explanation made by the petitioner for non-furnishing the security deposit and thus, it reflects that the respondents had not treated the said time frame for furnishing the security deposit as a mandatory condition.
34. It has been submitted by the learned Senior Counsel for the petitioner that the action of the respondent was malafide, arbitrary and unreasonable. It has also been pointed out that the respondents floated a fresh tender on 23.03.2018 even before the cancellation of the work awarded to the petitioner. On perusal of the record, it appears that the order of termination of the contract was passed on 26.04.2018. Clause 7(iv) of the MTF provides for the consequence of failure of the tenderer to deposit the security money by the due date. It provides that the contract would be summarily terminated besides forfeiture of the earnest money and the Corporation would proceed for appointment of another contractor. It is thus explicitly provided therein that before proceeding with the appointment of a new contractor, the respondents are required to terminate the existing contract. Otherwise also, it was not logical that during the subsistence of an old contract, steps should be taken to enter into a new contract. This action of the respondents indicates that they were predetermined to pass the impugned order of termination and blacklisting.
35. The respondents have tried to impress upon this Court that the said action was necessary as more than 20 lakhs beneficiaries were likely to be affected by the project. However, on perusal of the facts of the present case, it appears that the Letter of Acceptance was issued to the petitioner on 28.02.2018 with a condition to furnish the security deposit within 15 days from the date of issuance of Letter of Acceptance. The petitioner applied to his banker for transfer of the security deposit through RTGS in favour of the respondents, however the Bank failed to do the same. By way of Annexure-3, it has been certified by the Bank that due to some technical problem, the security deposit could not be transferred. The contention of the petitioner is that on 22.03.2018, the Bank was 24 closed due to public holiday and the said fact has not been denied by the respondent-FCI. The petitioner, by way of a representation dated 22.03.2018, had shown his inability to furnish the security deposit within the stipulated time and asked for extension of time, however on the next day i.e 23.03.2018, the security deposit was transferred to the respondent-FCI.
36. From the aforesaid facts, it appears that before the expiry of the stipulated time of deposit of the security deposit, the petitioner had made representation to the respondent-FCI to extend the time for furnishing the security deposit, however, the respondent-FCI neither allowed nor rejected the said request of the petitioner. In the meantime, before issuance of the impugned order, the petitioner furnished the security deposit just on the next day of the time limit. The entire chain of events suggest that the petitioner was vigilant enough to furnish the security deposit but the same could not be furnished due to some technical failure in the bank as well as the last day i.e., 22.03.2018 being a Bank holiday. The contention of the respondent-FCI is that when there is a specific time frame mentioned in the tender document, no deviation whatsoever is permissible and the petitioner having delayed in submitting the security deposit is, thus, liable to face the consequences as provided under the terms and conditions of the contract. However, it appears from the record that the time frame for furnishing the security deposit is directive in nature and thus, its extension should have been considered by the respondent-FCI keeping in view the aforesaid circumstances. Since the delay in furnishing the security deposit was only of one day, the same was required to be condoned in view of the fact that the circumstance was beyond the control of the petitioner as supported by the certificate (annexed as Annexure- 3 to the writ petition) issued by the bank in favour of the petitioner.
37. The contention of the learned counsel for the respondent-FCI is that the FCI Headquarters vide Circular No. F.1(21)/CVC/2011/Cont dated 30.01.2013 resolved that in case of failure of the tenderer to deposit the Security Deposit within the time limit, there will be no relaxation in the time frame as provided in clause 7(i)(a) and IX (a)(i) of the MTF.
2538. However, in the present case, the petitioner was vigilant enough to furnish the security deposit in time but the same could not be furnished within the stipulated period of 15 days from the date of issuance of Letter of Acceptance due to the situation discussed hereinabove. There was some procedural delay by the Bank due to which the security deposit could not be furnished in time and the intimation to that effect was also given by the petitioner, vide letter dated 22.03.2018 to the respondent-FCI. Finally, on the following day of the prescribed period, Security Deposit was furnished. Since the petitioner, who was allotted the work, was found eligible in all respects for being awarded the contract, the delay of one day in furnishing the security deposit was required to be condoned in the interest of justice. Even if, it is assumed that the petitioner had insufficient balance in his account, the said fact was brought to his notice by the Bank only on 21.03.2018 when the technical error of the Bank was rectified and as the next day was a the Bank holiday and therefore the fund could not be transferred on 22.03.2018. Moreover, on the same day, the petitioner had intimated the respondents about his inability to transfer the security deposit on that day i.e. 22.03.2018 and had assured that the same would be transferred on the very next date and accordingly he deposited the security deposit on 23.03.2018. The respondent-FCI, which is an instrumentality of the State, is required to act in a fair and proper manner while taking such decision.
39. Under the aforesaid facts and circumstances, letter no. S&C-13/Reg.HTC/RH-MADHUPUR-PEG GIRIDIH/2018-20 dated 26.04.2018 is quashed with a direction to the respondents to proceed with the petitioner for the work allotted to him. The present writ petition is accordingly allowed.
40. I.A No. 4855 of 2018 also stands disposed of.
Ritesh/A.F.R (Rajesh Shankar, J.)