Karnataka High Court
M/S Seundo Energy Pvt Ltd vs Mangalore Refinery And Petrochemicals ... on 18 December, 2024
Author: Hemant Chandangoudar
Bench: Hemant Chandangoudar
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NC: 2024:KHC:52750
WP No. 26754 of 2024
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 18TH DAY OF DECEMBER, 2024
BEFORE
THE HON'BLE MR JUSTICE HEMANT CHANDANGOUDAR
WRIT PETITION NO. 26754 OF 2024 (GM-RES)
BETWEEN:
M/S SEUNDO ENERGY PVT LTD
A COMPANY INCORPORATED UNDER
THE COMPANIES ACT, 2013
HAVING ITS REGISTERED OFFICE AT 733,
2ND FLOOR, LEO ARCADE 19TH MAIN,
9TH CROSS, MEI LAYOUT,
BAGALGUNTE, BENGALURU - 560073
REPRESENTED BY ITS CHIEF EXECUTIVE OFFICER.
...PETITIONER
(BY SRI. SRIRANGA S, SENIOR COUNSEL FOR
SMT. SUMANA NAGANAND., ADVOCATE)
AND:
MANGALORE REFINERY AND
PETROCHEMICALS LIMITED
A COMPANY INCORPORATED
Digitally signed by B UNDER THE COMPANIES ACT, 1956
K
MAHENDRAKUMAR SCHEDULE A GOVERNMENT OF INDIA ENTERPRISE
Location: HIGH
COURT OF
HAVING ITS REGISTERED OFFICE AT
KARNATAKA KUTHETHOOR P O VIA KATIPALLA
MANGALURU - 575 030
REPRESENTED BY ITS MANAGING DIRECTOR.
...RESPONDENT
(BY SRI. C K NANDAKUMAR, SENIOR COUNSEL FOR
SRI. V G PRASHANTH., ADVOCATE)
THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF
THE CONSTITUTION OF INDIA PRAYING TO QUASHING THE
TERMINATION NOTICE BEARING NO. MRPL/PSUS/SEPL/005
DATED 24.09.2024 (ANNEXURE-S1) AND ETC.
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WP No. 26754 of 2024
THIS PETITION, COMING ON FOR FURTHER DICTATION,
THIS DAY, ORDER WAS MADE THEREIN AS UNDER:
CORAM: HON'BLE MR JUSTICE HEMANT CHANDANGOUDAR
ORAL ORDER
The petitioner challenges the termination notice bearing No. MRPL/PSUP/SEPL/005, dated 24.09.2024 issued by the respondent No.1, by which, the contract entrusted to the petitioner vide Letter of Acceptance dated 04.08.2023, to complete the tender work came to be terminated with effect from 24.9.2024.
2. The petitioner is a company incorporated under the Companies Act, and is a Engineering Procurement and Construction (EPC) company registered under MSME Act, 2008.
3. The respondent is central public sector undertaking, under the Ministry of Petroleum and Natural Gas and operates an Aromatic Complex, a petrochemical unit capable of producing 0.905 MMTPA of Para Xylene and 0.273 MMTPA of Benzene. The respondent had issued a notice inviting tender, bearing E-Public Tender No. 3300010195, dated 02.05.2023, for Main EPC Package for MRPL Aromatic Complex Power System Upgradation Project. The brief scope of work under the tender document states that tender is invited for a "completely new 110/33 kV substation, named SS-10, shall be -3- NC: 2024:KHC:52750 WP No. 26754 of 2024 engineered, procured (engineered items) and constructed adjacent to the existing MSEZ substation GSS-03 besides other activities within the existing substation SS-01A & other areas within MRPL Aromatic Complex premises along with installation of a single 110/34.5 kV, 36/45 MVA free issued transformer in SS-10 and laying of 33 kV free issued cables inside the newly constructed (by others) RCC cable trench of approximately 1.8 km length between the substation SS-10 and SS-01A".
4. The petitioner was declared as the successful bidder and a Letter of Acceptance (LOA) was issued to the petitioner on 4.8.2023 to complete the tender work. Following the (LOA), the petitioner and the respondent entered into a contract agreement, and as per the terms of the agreement, the work was to be completed within 9 months from the date of the (LOA).
5. However, at the instance of the petitioners, the respondents had extended the time period for completion of the tender works till 15.08.2024, vide 1st change order dated 03.05.2024.
6. Subsequently, the petitioners issue another letter dated 19.06.2024 with an intention to bring to the notice of the respondents the reasons for the delay in executing tender works attributable to inter alia, financial constraints resulting in delayed procurements and in bringing the inspected -4- NC: 2024:KHC:52750 WP No. 26754 of 2024 equipment and construction material at the site, and construction of road for equipment transportation. The petitioners contended therein that the most feasible way to transport the power transformer to the site is by increasing the slope of the existing road to make it suitable with the approach bridge, the construction of which is pending approval from the respondents.
7. In response, the respondents vide letter dated 31.07.2024 dispute the same and further point out that the actual progress has been lower than the scheduled progress and that delay in submitting engineering drawings, site resource mobilizations payments to sub-vendors for despatch of required materials. It further stated that since the petitioners had defaulted in performance resulting in severe delays, thereby breaching the contractual obligations as per clause No. 7.0.1.0. (i) c, d, e and g of the GCC and therefore required the petitioners to show cause within 10 calendar days from 31.07.2024 as to why the contact should not be terminated.
8. Subsequently, the petitioner vide letter dated 08.08.2024 had sought to keep the show cause notice in abeyance and grant another extension of the time period to perform the tender works on account of unprecedented rains. The respondents vide 2nd change order dated 22.08.2024 -5- NC: 2024:KHC:52750 WP No. 26754 of 2024 had extended the time period for completing the tender works till 05.09.2024.
9. Prior the issue of the 2nd change order, the respondents had issued a detailed letter dated 21.08.2024 wherein the respondents had stated that despite financial constraints faced by the petitioner due to issues with the bankers of the petitioner, there existed uncertainty and ambiguity about the financial arrangements of the petitioner to resume on site work and secure materials from the vendor. The letter further stated that the work on site had been completely halted since 18.06.2024 and that there had been no advancement on procurement activities, and summarised the outstanding procurement activities. The respondents further disputed therein the petitioner's contention of the unavailability of the approach road on the ground that there existed an alternate approach road to the site and further stated that the claim of the petitioner regarding the construction of the approach bridge as extra work was addressed by the project management consultants and the respondents. Furthermore, the respondent No.1 categorically disputes the allegation that the delay in lifting material from the vendor was due to the incomplete approach road and rebutted the same by stating that manufacturing of the several materials was pending due to financial incapacity. Moreover, the respondents have also highlighted that failure on part of -6- NC: 2024:KHC:52750 WP No. 26754 of 2024 the petitioners to produce the initial billing schedule without an activity breakdown and quantity details had only contributed to the hampered cash flow. It further stated that petitioner was required to complete the following contractual milestones for considering the case of the petitioner:
i. Settle all outstanding payments to M/s. Schneider towards supply of 33kV GIS.
ii. Resume site activities in full and ensure all pending payments to your sub-contractors are completed. The petitioner is to provide a written declaration that no further work stoppages will occur until all activities are completed. iii. Ensure readiness of SS-10 GIS installation. iv. Make necessary payments to vendors for the despatch of all materials ready at their works, as listed.
v. Release all the advance payments to vendors to commence the manufacturing of pending materials.
vi. Complete all pending engineering materials. vii. Complete the HR compliance till date.
10. On 05.09.2024, the petitioners issues a letter yet again stating that the tender works were delayed, on account of the incomplete approach bridge and that the completion of the same required a clearance from the respondent No.1 and that the existing pathway for the subject project site was closed by the MSEZ, as the land was allotted for GAIL and construction activities had commenced thereon.
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11. Subsequently, the respondents issued a 3rd change order vide order dated 09.09.2024 and extended the time limit for completing tender works to 23.09.2024. Additionally, the respondents had issued a letter dated 06.09.2024 which states that the petitioners shall have to fully achieve the contractual milestones, as specified therein, and that if the same were to remain unfulfilled by 23.09.2024, the contract shall be terminated and steps shall be taken to claim compensation and damages on account of non-performance of the contract.
12. The petitioners however, issued another letter dated 18.09.2024 seeking an extension till 30.09.2024 and latest by 10.10.2024. Subsequently, the respondents issued the 4th change order dated 21.09.2024 wherein the contract value was evaluated to the tune of INR 12,83,23,535.00 and further stated that all other terms of the contract shall remain unchanged.
13. Finally, on 24.09.2024 the respondent No.1 issued a letter of termination of contract stating that the petitioner had been informed by virtue of the show cause letter dated 31.07.2024 that failure to attain the tender contractual milestones by 15.08.2024 would result in cancellation of the contract. Nevertheless, the time period for completion of the -8- NC: 2024:KHC:52750 WP No. 26754 of 2024 tender works was extended to 21.08.2024 and finally till 23.09.2024.
14. Aggrieved by the fact that despite making a request for extension of time for completion of the project, till 15.12.2024, the 1st respondent unilaterally terminated the contract, which is arbitrary and discriminatory, the petitioner has filed the instant petition.
15. Heard the learned counsels for the petitioner and perused the materials on record. The issue that arises for consideration is whether the instant case requires any interference of this Court in the exercise of its writ jurisdiction under Article 226 of the Constitution of India.
16. Before proceeding any further, it may be relevant to advert to the governing provisions of the contract.
17. As per clause 3.8.1.0 of the General Condition of the Contract (GCC), it was the responsibility of the petitioner at his own cost initiate arrange for and provide any access to the work area and straining or other yards for labour, equipment and material as may be necessary for any cause in addition to the ingress and egress available through public highways.
18. As per clause 8.21.1.0 of the General Condition of the Contract (GCC), it was the responsibility of the petitioner to -9- NC: 2024:KHC:52750 WP No. 26754 of 2024 obtain all approvals from any authority (except for environment clearance) required under any statute, rule or regulation of the Central or State Government concerned with the performance of the Contract and/or the contractual work.
19. The application on behalf of the owner for submission to relevant authorities along with copies of required certificates complete in all respects shall be prepared and submitted by the CONTRACTOR well ahead of time so that the actual construction/commissioning of the works is not delayed for want of the approval
20. As per clause 10.15.1.0 of the General Condition of the Contract (GCC) it was the responsibility of the petitioner to apply for photo Entry Passes for his workers and staff and the workers and staff of his subcontractors in a prescribed proforma provided by the owner.
21. As per clause 9.0.0.0 of the General Condition of the Contract (GCC) provides Arbitration and Conciliation and states that, in the event of any dispute arising out of the contract, the matter shall be referred to the Conciliator or Arbitrator.
22. As per clause 5.4 (c) and (d) of the Special Conditions of Contract (SCC), the petitioner was required to construct proper approach roads, drains, underground
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NC: 2024:KHC:52750 WP No. 26754 of 2024 systems, cable trenches and complete major civil works well in advance before start of mechanical job and construction of temporary roads including access to fencing and gates.
23. As per Clause 1.4 of SCC, where any portion of GCC is repugnant or at variance with any provisions of SCC, then unless a different intention appears, the provisions of SCC shall be deemed to override the provisions of GCC only to the extent of such repugnancies of variations in SCC.
24. As per the terms of the contract, the petitioner was required to carry out the following work:
5.4. Construction Execution Plan EPC Contractor shall submit construction execution plan to Owner/PMC for review/approval during kick-off meeting. The plan shall detail the execution methodology of the EPC Contractor during construction phase of the project. EPC Contractor construction execution plan shall include:
a) EPC Contractor's manpower and man-hour histogram by major section and discipline and his manpower deployment schedule on monthly basis with distribution of foreign/Indian/local personnel.
b) Major equipment mobilization plan on monthly basis with short description. EPC Contractor to develop this plan with due consideration to maximize the mechanization of construction activities.
c) EPC Contractor's plan to construct proper approach roads, drains, underground systems, cable trenches and complete major civil works well in advance before start of mechanical job.
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d) Other plans of EPC Contractor and procedures to be submitted at least four (4) weeks prior to start of respective activity at site, with the following as a minimum:
• Temporary facilities, etc. • Piling plan (if applicable) • Excavation and underground work plan • Civil Construction • Structural Erection • Scaffolding plan • Working during monsoon and de watering • Monsoon counter measures and preparation • Storm water management plan • Working in shifts including holidays. Separate manpower
shall be considered for each lift of work • Heavy transport and heavy lifting plan (Rigging Plan) • Pre-fabrication plan • Hydro-test plan • Other activity plans e.g. piping, equipment and steel structure erection plan etc. • Instrument loop check plan • Emergency evacuation procedure • Sub-Contracting Plan a. Temporary Facilities EPC Contractor's construction execution plan shall include:
• Exact location of temporary work area, access and general layout inside the area.
• Plan and description of the temporary facilities for EPC Contractor / sub- contractor.
• Identification of borrow earth area (if required)/excess earth dumping yards.
• EPC Contractor / sub-contractor site office and fabrication yards, open storage area and warehouse.
• Miscellaneous workshops.
• Temporary roads including access road to plant, fencing
and gates.
• Security, watch & ward, security gates, watch towers.
• Utility supply systems viz. construction power, construction
water, drinking water etc.
• Area lighting.
• Firefighting equipment.
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WP No. 26754 of 2024
• Drainage and sanitation.
• Labour camp accommodation.
• Field testing laboratory.
• Communication facilities viz. telephone, fax, e-mail, etc.
• Canteen for staff and workers as per Owner's rules and
regulations applicable inside Refinery.
• Vehicle parking area.
• First aid arrangement/medical and health care facilities.
• EPC Contractor shall develop the temporary facilities layout
for approval of Owner/PMC.
b. Monthly Estimation of all utility consumption including
drinking/ construction water & power (electricity).
25. It is undisputed that the respondents had to give access to the project site through permanent road and Katchha road for the purpose of monitoring the project and petitioner by going through Katchha road completed 77.40% of the work. However, insofar it relates to shifting of transformer and other mechanical works in relation to installation of transformer, the respondents had to give access on the site belonging to the GAIL.
26. Admittedly, the project site is situated in Mangalore Special Economic Zone (MSEZ). Since there are utility crossings in the vicinity, the petitioner sent an e-mail to respondent No.1 for providing a temporary crossing considering safety of the utilities. Consequently, the project management consultants (PMC) had been informed of an alternate approach behind the plot which might be considered for temporary access, and also requested to provide the
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NC: 2024:KHC:52750 WP No. 26754 of 2024 permanent approach location and design for the said plot considering the movement of heavy machinery during construction activity. Thereafter, the SEZ sent an e-mail dated 16.9.2023 to respondent No.1 to provide the approach road location and detail in advance for approval as it has a lot of utility crossings. PM Consultants sent an e-mail to the petitioner on 24.9.2023 to submit design details for the project road which needs to be approved by the MSEZ.
27. Thereafter the petitioner sent a revised drawing to the 2nd respondent which was approved on 4.1.2024 which is evident from the mail sent by the 2nd respondent to the petitioner. It is only after approval of the design the petitioner proceeded to construct a bridge which was completed in the month of May 2024, and the additional construction work of the project was approved by change order dated 21.09.2024.
28. Upon consideration of the aforementioned facts and the material on record, it appears that the matter at hand involves a complex question of fact as to whether unfavourable climatic conditions prevented servicing the tender works, or whether there exists an alternate approach road or whether the concept of approach road is part of the scope of tender work, and the conclusion of the same being subject to a detailed investigation and examination of witnesses and analysis of the evidence. Furthermore, this
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NC: 2024:KHC:52750 WP No. 26754 of 2024 Court cannot sit in judgment on the issue of relevance of the contractual milestones or whether non-performance thereof could be attributed to the petitioner or the respondent.
29. Admittedly, the petitioner has been suffering a negative cash flow since commencement of the tender works, owing to several reasons including procedural delays in the availment of loans and in the receipt of payments from other projects. However, the fact remains that financial incapacity has restricted the petitioners from material procurement and consequently, fund disbursement toward attaining contractual milestones has not been made periodically. Furthermore, the respondents contend that no actual performance has taken place on the work site since June, 2024.
30. Additionally, the petitioner has adduced a detailed affidavit, alongwith the layout plans drawing and site photographs in support of its contentions, the merits of which can be established only in a trial. The respondent No. 1 has filed an affidavit rebutting and disputing the contentions of the petitioner. Therefore, such disputed questions of fact cannot ordinarily be entertained by this Court in judicial review. Furthermore, a conjoint reading of the terms of the contract governing the 'Construction Execution Plan' and Clause 9 of the GCC reveals that the dispute at hand is the express subject matter of the contract, and any dispute arising from the
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NC: 2024:KHC:52750 WP No. 26754 of 2024 terms of the contract is to be referred to conciliation or arbitration.
31. In the case of M/.s Titagarh Paper Mills Ltd. v. Orissa State Electricity Board and Anr. (1975) 2 SCC 436, the Apex Court had opined that where the substance of the dispute raised as regards to the competency of the respondent-Board to levy a coal surcharge was subject of an arbitration agreement, the merits of such contention could only be decided in arbitration, as per the contract agreement. The same has been consistently reiterated by the Courts in the cases of Ghan Shyam Das Gupta and Anr v. Anant Kumar Sinha and Ors., AIR 1991 SC 2251 and Mohan Pandey v. Smt . Usha Rani Rajgarhia AIR 1993 SC 1225 and Raj Kumar Rajinder Singh v. State of Himachal Pradesh 1995 1 Shim LC 442.
32. The learned counsel for the petitioner places reliance on the decisions of Subodh Kumar Singh v. Chief Executive Officer and Ors. (2024) SCC OnLine SC 1682 and of M/s Vijayalakshmi Enterprises v. KPTCL in W.P. No. 203/2023 : D.D. 16.05.2023, where Courts had interfered in the arbitrary cancellation of the awarded tender contracts.
33. In the case of Subodh Kumar, the Apex Court had exercised interference with in a case of arbitrary cancellation
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NC: 2024:KHC:52750 WP No. 26754 of 2024 of tender contract on the basis of a concerned minister in charge but also observed therein that public authorities must be circumspect in disturbing or evading its contractual obligations through means beyond the terms of the contract in exercise of their executive powers. In the case at hand however, it appears on the face of it that the contract was terminated by respondent No. 1 in terms of the provisions of the contract. No allegation, much less any evidence has been adduced by the petitioners to allege any mala fides or consideration of extraneous factors in arriving at the decision to terminate the contract.
34. In the case of Vijayalakshmi Enterprises, this Court had set aside the cancellation of contract on account of non-performance of the tender works, which included the supply, erection and the incidental civil works for the purpose of testing and commissioning of the transmission lines. Contrary to the terms and conditions of the tender document, the KPTCL had chosen to disburse the compensation to the landowners on whose lands such lines were to be drawn, and as and when to be drawn. The KPTCL had failed to disburse the compensation and the petitioner tenderer had failed to execute the works, as the landlords persistently agitated and blocked the petitioners and officers of the KPTCL from entering into their lands.
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35. Thus, this Court had set aside the termination of the contract where non-performance was unmistakably attributable to the failure to discharge the contractual obligations and nonfeasance on part of the respondent- KPTCL. However, in the case at hand, a perusal of the multiple correspondences between the petitioner and the respondent No.1 does not, at this stage, fully attribute the reasons for non-performance to either party.
36. In view of the fact that the case at hand involves a complex question of fact necessitating appreciation of evidence and examination of witnesses, this Court cannot exercise its writ jurisdiction in disputed questions of facts.
37. Accordingly, the instant petition stands dismissed and liberty is reserved with the petitioner to agitate the merits of all contentions raised herein before the appropriate forum.
Sd/-
(HEMANT CHANDANGOUDAR) JUDGE BKM