Delhi High Court
National Building Construction ... vs New Delhi Municipal Council And Anr. on 27 November, 2006
Equivalent citations: 2007(2)CTLJ125(DEL), 138(2007)DLT414
Author: S. Ravindra Bhat
Bench: S. Ravindra Bhat
JUDGMENT S. Ravindra Bhat, J.
1. The petitioner (hereafter referred to as "NBCC"), a Centrally owned Government company, claims a quashing order in respect of the letter issued by the New Delhi Municipal Corporation (NDMC) debarring it from participating in any tenders, for five years. It also seeks a direction to the Government of National Capital Territory (NCT) to permit it to participate in a tender process notified by it, in August, 2006.
2. NDMC invited tenders on 16.05.1994 for construction of the New Delhi City Centre Phase II comprising B& C blocks. After due negotiations the offer of NBCC was accepted for Rs. 23,80,81,978. The stipulated dates of start and completion were 02.09.1994 and 01.09.1997 respectively. It is alleged that work was actually completed by 16.08.2003 due to several alleged defaults/acts of omission and commission on the part of NDMC. The NBCC resorted to arbitration, a sole arbitrator was appointed on 16.08.1998, to decide upon 18 claims made by the Petitioner. An interim award was published on 21.09.2000 wherein an award was made for the sum of Rs. 70,19,081.32. NDMC satisfied the interim award on 19.12.2000. In the meantime ten further claims were raised by the Petitioner, all of which were referred on 01.05.2000 to the arbitrator.
3. The arbitrator in the second arbitration published the second interim award on 04.10.2001 and as on 31.12.2001. The amount payable under the second interim award was Rs. 2,19,65,029/-. The third arbitration was invoked in August 2004, and the learned arbitrator entered upon reference on 28.01.2005. It is alleged that by letter dated 17.03.2005 to the Secretary Ministry of Urban Development the Chairman of NDMC cast aspersions with an intent to tarnish the image of NBCC. This was raised before the Arbitrator and claims were preferred by the petitioner on 09.09.2005 for compensation against this action. It is alleged, that as a counter blast to this NDMC issued a mischievous and mala fide show cause notice dated 20.09.2005, during the pendency of the arbitration proceedings, in relation to an alleged defective work listed by its letter dated 03.09.2003. It is alleged that the letter dated 03.09.2003 was also relied on by the NDMC before the Arbitrator, in its counter claims.
4. The petitioner, in response to the show cause notice, refuted the allegations levelled, and refrained from commenting on the same in deference to the proceedings before the learned arbitrator. It further alleged that in two successive arbitrations it was established that NDMC failed to fulfilll its promise leading to undue prolongation of the contract. Despite the detailed reply sent by the petitioner and pendency of the disputes before the arbitration proceedings NDMC by letter dated 22.11.2005 unreasonably, arbitrarily and without any reason debarred it from further tendering in all projects for five years. It is alleged that NBCC wrote to the concerned departments, after receipt of the impugned letter dated 22.11.2005 explaining its conduct and further highlighting that it would not be legally permissible to the such departments to disqualify or debar it from tendering for their works as it would be violative of principles of natural justice.
5. While the position stood thus, the Govt of NCT invited tenders for the work of construction of Advocate Chambers at District Court, Saket, through their press Notice Inviting Tenders (NIT) published in Hindustan Times dated 10.12.2005. As per the said NIT the NBCC fulfillled the eligibility criteria and applied for the purchase of the tender forms. During the pre-bid meeting on 06.06.2006 the Respondent No. 2 asked all the parties to submit an undertaking that they had not been disqualified and blacklisted. It is alleged that this clause was not placed in the original NIT. The last date for submission of tender was on 23.06.2006 and NBCC and one M/s Era Constructions Ltd. submitted their tender. A purchase preference was applicable to the NBCC and as a result it had every chance of securing the contract. After submission of tender the Govt of NCT requested the petitioner to furnish an undertaking that the it had not been disqualified or blacklisted. NBCC in its letter dated 19.07.2006 informed Respondent No. 2 about the action of the NDMC. The second Respondent re-invited the tender through press notice, published in Times of India dated 29.08.2006 with some reduction in scope of work and with a further eligibility criteria that the applicant firms should submit a certificate about their not being blacklisted/debarred. Thereafter, the second respondent by letter dated 30.082006 informed the NBCC that its competent authority decided to recall the tender and requested it to collect the earnest money deposited.
6. The action of the second respondent in insisting that the tendering firm should not be blacklisted or debarred, has been attacked as arbitrary. The action of NDMC in debarring the petitioner from precipitating in tendering process has been challenged as illegal and arbitrary. It is alleged that when the matter is pending arbitration, and claims as well as counter claims are pending adjudication, the NDMC could not have, on the same allegations, issued the impugned order, debarring the NBCC. It is also alleged that the show cause notice also never gave a clue that the action of debarring for five years was contemplated; likewise, the NDMC did not disclose any reason as to why such drastic action had been taken. The order is therefore, attacked as violative of principles of natural justice, and also beyond the jurisdiction of NDMC, as the same dispute is pending adjudication on merits, in the arbitration.
7. The NDMC, in its return, avers that the petitioner had not challenged the impugned order dated 22.11.2005 for more than 10 months and has not even stated that due to this letter, it was denied any other contract. It is claimed that the NDMC being a government body was forced to agree for reference to arbitration by the Petitioner in the project given in 1994 and has incurred huge loses due to non-completion of work and the work had to be rescinded and to be awarded to the other contractor.
8. It is averred that the NDMC had given sufficient accommodation for the completion of the project awarded to NBCC, and even extended additional advances, but there was no improvement. The petitioner made no attempt to explain as to why it ought not to be proceeded with administratively. The only reply was that the disputes were pending decision of the arbitrator. It was alleged, that the NDMC had rescinded the contract as per Clause 14 in February, 2005, after which there was an attempt to resolve the differences between the parties; high level meetings were held between its officials. But nothing came out of it. The NDMC also claims that the order of debarring is restricted only between it and the NBCC.
9. It is further alleged that in examining the order of debarring, this Court has to consider the performance of the petitioner because the disputes which are pending before the arbitrator can go on for long and if the NDMC has taken a conscious decision not to deal with the NBCC it has a right to decide for future contracts, as it cannot be forced to allow it to apply for the future tenders after such a protracted litigation and loss.
10. The Government of NCT, in its counter affidavit has stated that when the tender was floated in December, 2005, for construction of lawyers' chambers, the NBCC did not make any grievance. It had been informed about the condition that tenderers would not be considered if they were debarred by other organizations. The fresh tender was issued in August 2006 only because the previous NIT did not attract favorable offers, and it was felt that the project ought to be re-tendered. There was in a sense, no fresh tender, and the same project was advertised. The petitioner could not claim to be aggrieved by the condition which it was known to it, and was a matter of policy of the Government.
11. Mr. Neeraj Kaul, learned senior counsel for NBCC, submitted that as per the decision of a Division Bench of this Court, in Indian Oil Corporation Ltd. v. SPS Engineering Ltd. 128 (2006) DLT 417 (DB) where the Court upheld the decision of a single judge that where disputes are pending inter parties, the public authority should not base its decision to place the party/ contractor in the "holiday list" or debar it for a limited time. It was also submitted that the NDMC could not take the plea that the NBCC had sought additional damages for the wrongful action. What was sought before the arbitrator, in addition to the various claims arising out of the contract, was the damage to the reputation of the NBCC caused by the unwarranted communication addressed by the NDMC, on 17th March, 2005. This additional claim was made on 9th September 2005. The show cause notice was issued on 20th September, 2005. Therefore, there was no question of the NBCC pursuing dual remedies. The claim in arbitration was for additional damages, for loss of reputation. The other disputes pending inter alia, included as to the liability for Rs. 8.19 crores, which adverted to in a letter, that was referred to in the show cause notice dated 20th September 2005. There being complete identity in the claim by the NDMC and the petitioner in arbitration proceedings, the latter could not resort to blacklisting.
12. Learned Counsel also submitted that the notice issued by NDMC nowhere indicated that it had proposed to take action for blacklisting. It was urged that one of the cardinal rules of natural justice, was that the person likely to be affected by an adverse order, ought to be issued a notice, indicating such action. In the absence of such requirement, the party likely to be prejudiced would be in the dark about the precise nature of allegations which would lead to the order, having civil consequences.
13. Counsel also submitted that the order of the NDMC did not disclose any reasons as to why the NBCC was being debarred for five years. Such an order was harsh, and affected the NBCC's rights. It was submitted that the order though confined in its application, to relationship with NDMC, inevitably operated against NBCC so to affect its future commercial prospects. Counsel relied upon the decision in S.N. Mukherjee v. Union of India AIR 1990 SC 1984 in support of the submission that reasons had to be recorded in support of the order. He also relied upon the judgment of this Court in Mekaster Trading Corporation v. Union of India 2003 VII AD (Delhi) 161.
14. Ms. Anjana Gosain, learned Counsel for the NDMC submitted that the court ought not to entertain this writ petition, because the cause of action arose in November, 2005, when the impugned blacklisting order was issued. The NBCC did not challenge it, or take any steps. On the contrary, it chose to pursue its claim for damages for loss of reputation. In these circumstances, the court should reject its petition, on the ground of laches. Counsel also submitted that without disclosing as to how during the intervening period, NBCC lost opportunities, and was prevented from tendering on account of the impugned order, it could not be allowed to maintain these proceedings, merely on its allegation that it was prevented from tendering as late as in August, 2006, by the Government of NCT. She relied upon the decision of the Supreme Court in Patna Region Development Authority v. Rashtriya Pariyojana Nirman Nigam AIR 1996 SC 2074, where it was held that the performance record of the contractor, while executing previous contracts was relevant in deciding whether to award the contract. The court had upheld the decision of the appellant there, in refusing to consider the offer of the respondent, since it had been blacklisted, and had approached belatedly, after four years, challenging the order, and the decision not to award the contract.
15. Learned Counsel also submitted that the show cause notice mentioned in detail as to why the NBCC had defaulted in its obligations, and proposed administrative action. It was not as if the NBCC was unaware of what could be done by the NDMC. It was also submitted that though the content of the arbitration proceedings was the same, as the show cause notice that itself did not inhibit the NDMC from taking a decision to blacklist the petitioner. The NDMC was always concerned with the quality of work to be executed on its behalf and the track record of the NBCC did not inspire much confidence. Hence the NDMC proposed, and took action in refusing to consider any bids for five years; the order did not operate indefinitely. Being a public body, the NDMC was accountable for the standards and quality of constructions which were put up on its behalf. The previous record of NBCC in such circumstances was relevant, and NDMC could not be compelled to enter into contract with it.
16. Learned Counsel also submitted that though the Division Bench in the Indian Oil Corporation case (supra) had upheld the decision quashing an order of blacklisting, on the ground that the issues or disputes were the same and were pending adjudication in arbitration, such a rule could not be construed as invariable. Learned Counsel also relied upon the decision of he Supreme Court in Delhi Development Authority v. UEE Electrical Engineering AIR 2004 SC 2100, no statutory rule requires that an approved contractor cannot be black listed without affording an opportunity of show cause.
17. Ms. Iram Majid, learned Counsel for Government of NCT, adopted the submissions about the delay in approaching the court by the petitioner; made on behalf of NDMC; she also relied upon the decision reported as Patna Development Authority's case (supra). She further submitted that the court under writ jurisdiction does not interfere in matters of policy, particularly as to the choice of entering into contracts, and the conditions. Therefore, it was within the rights to insist that a tender from a firm or concern, facing blacklisting, though issued by another organization. Counsel also submitted that during pre-bid meeting on 15.6.2006 which was attended by a representative of NBCC it was stipulated that all the participating agencies had to submit a certificate that they were not debarred/ blacklisted by any Government agency. Thereafter two tenders were received, out of which only one qualified for opening of the financial bid. In view of the single tender, the competent authority decided to recall the tenders in order to have competitive rates. It was submitted that NBCC did not qualify as it had been debarred for a period of five years on 5.11.2005.
18. Counsel urged that the petitioner is seeking to achieve indirectly what it could not achieve directly without having the order debarring the petitioner by letter dated 22.11.2005 from tendering set aside. She also relied upon the decision in Tata Cellular v. Union of India 1994 (6) SCC 651, particularly the following passage:
... (4) The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract. Normally speaking, the decision to accept the tender or award the contract is reached by process of negotiations through several tiers. More often than not, such decisions are made qualitatively by experts.
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22. "The principles of judicial review would apply to the exercises of contractual powers by government bodies in order to prevent arbitrariness or favoritism. However, there are inherent limitations in exercise of the powers of judicial review, government is the guardian of the finances of the State. It is expected to protect the financial interest of the state. The right to refuse the lowest or any other tender is always available to the Government. But the principles laid down in Article 14 of the Constitution have to be kept in view while accepting or refusing a tender. There can be no question of infringement of Article 14, if the Government tries to get the best person or the best quotation. The right to choose cannot be considered to be an arbitrary power. Of course, if the said power is exercised for any collateral purpose, the exercise of that power will be struck down...
Reliance was also placed upon the decision of the Supreme Court in Air India Ltd. v. Cochin International Airports Ltd. 2000(2) SCC 617.
19. The challenge by the petitioner NBCC is limited, and premised upon two grounds. One, that no effective opportunity was given, since the show cause notice which preceded the blacklisting order, did not advert to the adverse order likely to be issued, and that the order itself contained no reasons. Two, that there being identity in the subject matter of the allegations leading up to the blacklisting order, and arbitration proceedings, NDMC could not have precipitately issued the impugned order. The show cause notice issued by NDMC on 20-9-2005, inter alia, reads as follows:
The progress of the work was poor from the beginning which was brought to the notice of the officers in charge from your Organization similarly, the quality of work executed by you is rather poor which has also been pointed out by the NDMC. In this connection, your attention is invited to the correspondence resting with letter No. D/117/EE (CVI) dated 03.09.2003 from CE (C) -1 NDMC vide which detailed list of defects in the work has been provided to M/s. NBCC Ltd. But no positive steps were ever taken by M/s. NBCC to rectify the said defective work with the result that NDMC will not be forced to get the defects rectified your risk and cost.
A Major source of embarrassment to NDMC on account of various acts of omission and commission is that the other agencies working in the same premises have filed huge claims against NDMC due to your failure. The site could not be made available to the contractor for plumbing work due to delay on your part. Similarly, six nos. lift shafts have been cast out of plumb as a result of which the size of the care cage will have to be reduced and fresh brickets will have to be fabricated. As a result, extra money has to be paid to the agency for supplying and fixing lifts has raised huge claims amounting to Rs. 66.00 Lacs against NDMC. This extra amount could have been avoided the work in question has been abandoned by work. You have failed to complete the said work inspite of the out of way financial assistance provided to you by way of grant of two additional advances to you amounting to Rs. 1.40 crores. The extent of the co-operation on the part of the NDMC is further demonstrated by deferring the recovery due to cost of cement and steel issued by the NDMC from the 66th RA Bill to bail you out of miserable financial position. However you still could not complete the work.
You are hereby asked to show cause as to why administrative action should not been taken against you for your failure to perform within ten days from the receipt of this communication. Please note that in case the cause shown by you in not to my satisfaction or no cause is shown within the period mentioned above, further action will be taken as deemed fit.
The reply of NBCC to the notice, inter alia, reads as follows:
It is NDMC's case that NBCC had abandoned the project in May 2003 Yet NDMC took no action to rescind the contract till Feb. 2005. It is thus abundantly clear that NDMC's decision to rescind the contract was not based on ay breach of contract by NBCC but the direct result of the invocation of Arbitration by NBCC in August 2004, for the recovery of their claims that had accrued after 2000.
It is clear from the record that the other contractors working on the project were also having problems with NDMC due to the non payment of their dues. It is therefore not surprising that they have also gone for arbitration against NDMC. As far as NBCC is concerned, we are neither contractually nor legally liable for the claims that these contractors may have raised against NDMC.
The show cause notice under reference is reflective of NDMC's high handed manner of functioning. By raising issues which are subject matter of an ongoing arbitration before the Hon'ble Sole Arbitrator Shri S.C. Vasudeva, it has committed contempt of the High office of the Arbitrator. The notice is apparently aimed at coercing NBCC into withdrawing their claims pending before the Arbitrator, under the threat of administrative action.
For the reasons referred above, your notice under reference is not only illegal but also totally devoid of merit.
Please therefore take notice that if inspite of what is stated above NDMC chooses to take any action against NBCC as mentioned in the notice under reference, the same shall be contested for the cost and consequences whereof NDMC shall solely be liable.
20. In Erusian Equipment & Chemicals Ltd. etc. v. State of West Bengal and Anr. AIR 1975 SC 266, the Supreme Court stated the law thus:
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.
(this was followed in Joseph Vilangandan v. The Executive Engineer, (PWD), Ernakulam and Ors. AIR 1978 SC 930 and also in Raman Dayaram Shetty v. International Airports Authority of India AIR 1979 SC 1628)
21. Yet again in Raghunath Thakur v. State of Bihar and Ors. AIR 1989 SC 620, it was held as follows:
4. Indisputably, no notice had been given to Appellant of the proposal of blacklisting 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...
22. The above cardinal principles were forgotten by the NDMC, which proposed "administrative action" even after recession of the contract, which had become the subject matter of arbitration. It however, proceeded to issue a drastic order blacklisting the petitioner for five years. The notice dated 20-11-2005 did not advert to the proposal to blacklist.
23. NBCC's other complaint is that the order of blacklisting is an unreasoned, non-speaking one. The Division Bench of this Court in the Indian Oil Corporation Ltd case (supra) had quoted, and applied the decision of a Constitution Bench of the Supreme Court, in S.N. Mukherjee v. Union of India AIR 1990 SC 1984. The Supreme Court dealt with the development of administrative law and the principle of the requirement to record reasons. The Supreme Court held -
In view of the expanding horizon of the principles of natural justice, the requirement to record reason can be regarded as one of the principles of natural justice which govern exercise of power by administrative authorities....
Therefore except in cases where the requirement has been dispensed with expressly or by necessary implication, an administrative authority exercising judicial or quasi-judicial functions is required to record its reasons for its decision.
What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage.
In Mekaster Trading Corporation v. Union of India 2003 VII AD (Delhi) 161, this Court held, the impelling consideration for insistence upon disclusoure of reasons in support of an order or decision is that it ensures proper application of mind, reduces the possibility of casualness and minimizes whim and caprice, and thereby serves to provide legal protection to persons against arbitrary official conduct.
24. It is therefore apparent, that both the fundamental requirements, viz issuance of a specific show cause notice, as a prelude to the blacklisting order, proposing such order, and the duty to record reasons, in the order, were observed in the breach.
25. In the Indian Oil case, where an identical complaint was made about the public agency founding the blacklisting order, on allegations which were the subject matter of arbitration proceedings, the Division Bench upheld the decision of the single judge, that such a course of action was impermissible. The Division Bench held that:
16. The learned Single Judge in the impugned judgment held that when the entire matter was pending before the Arbitrator there was no need to have proceeded with the issue of placing the petitioner on the 'holiday list' with the undue haste. We agree with this reasoning. When the matter was subject matter of arbitration, the respondent should have awaited the decision of the Arbitrator before taking such a decision in a hurry.
In view of the above reasoning, I am of the opinion that the NDMC acted in haste, and precipitately, in basing the show cause notice, and issuing the blacklisting order, on the same allegations. It was necessary to await the outcome of those proceedings. The impugned blacklisting order is therefore arbitrary.
26. It was argued on behalf of the NDMC that the petitioner is in effect pursuing two remedies, in respect of the blacklisting orders. One, it has filed a claim for damages, and two, it has questioned it belatedly. I am of the opinion that there is no merit in both the submissions. The claim for damages preceded the show cause notice, and the blacklisting order; it was triggered by a letter issued by the Chairperson of NDMC about the alleged dismal performance of NBCC in its contracts, dated 17-3-2005; the blacklisting order was issued in November, 2005. As regards the argument that the NBCC being disentitled to relief, on the ground of delay, I am of the view that the decision in Patna Development Authority's case does not afford a parallel, and cannot be of assistance in this petition. The petitioner there had impugned the blacklisting four years after it was issued, and implemented, and sought to challenge its exclusion from consideration of a tender process. The court had, under such circumstances, held that the exercise of discretion under Article 226 was inappropriate. Here, however, the order was issued in November, 2005. The NBCC is a responsible public sector body, not expected to rush to court, but under a duty to attempt resolving disputes with other government bodies such as NDMC before approaching the court. Moreover, the cause of action for this petition arose in the end of August, 2006, when the second respondent issued a Notice inviting Tender, which contained a restrictive clause, debarring those issued with blacklisting orders, from offering bids.
27. In view of the above discussion, I am of the opinion that the petition deserves to be allowed. The impugned letter dated 22.11.2005 issued by the NDMC is hereby quashed/ set aside. The respondent No. 2 is directed to process and consider the tender/ bid of the petitioner, on its merits, within the time stipulated in the advertisement, issued, and the procedures applicable, in that regard. No costs.