Andhra HC (Pre-Telangana)
M/S. Techno Industries, A ... vs Indian Oil Corporation Ltd., (Iol), ... on 23 April, 2014
Author: P.Naveen Rao
Bench: P.Naveen Rao
THE HONBLE SRI JUSTICE P.NAVEEN RAO
WRIT PETITION 9437 of 2014
23-4-2014
M/s. Techno Industries, a proprietorship firm having Its office at AE-456,
Saltlake City, Kolkata, rep., By its proprietress Mrs. Rupa Biswas, daughter of
late
Amiyo Madhab Majumdar, another. Petitioner
Indian Oil Corporation Ltd., (IOL), A.P. State House,3-6-436-438, naspur
House, Himayat Nagar,Hyd., rep. by the Deputy General Manager, APSO And
Purchasing Authority and others.. Respondents
Counsel for the petitioners : Smt Sundari R Pisupati
Counsel for the Respondents 1 to 3:Sri Deepak Bhattacharjee
<Gist :
>Head Note:
? Cases referred:
2004 (76) DRJ259
1975 (1) SCC 70
2003(71) DRJ 376
2011 (2) ADJ 723
(1984) 1 SCC 43
2014 (1) ALT 299
(2004) 3 SCC 553
AIR 1987 SC 1359
HONBLE SRI JUSTICE P.NAVEEN RAO
WRIT PETITION No. 9437 OF 2014
Date:23-04-2014
This Court made the following :
HONBLE SRI JUSTICE P.NAVEEN RAO
WRIT PETITION No. 9437 OF 2014
ORDER:
With the consent of the learned counsel for the petitioners and learned counsel for the respondents this Writ Petition is disposed of at the stage of admission.
2. There are two petitioners in this writ petition. Both the petitioners are proprietary concerns and deponent to the affidavit is a proprietrix of both petitioner firms. The proprietary concerns have been engaged in the business of manufacture of PVC seals and Safety Caps. The petitioner firms are Small Scale Industry units registered under MSME Act, 2006 as also with National Small Industries Corporation Limited. Both petitioners were empanelled vendors of the Indian Oil Corporation Limited (for short IOCL) for supply of heat shrinkable preformed PVC seals as well as safety caps for Liquefied Petroleum Gas (for short LPG) cylinders.
3. IOCL-respondent No.1 invited tenders dated 14.09.2011 for supply of heat shrinkable preformed PVC seals to Indane Bottling Plants in Andhra Pradesh State from IOCL empanelled vendors. The petitioner No.1 firm participated in the tender and was successful bidder for supply of PVC seals. Accordingly, contract was signed initially for a period of one year and was renewable with mutual consent for a further period of two years. Petitioner No.1 has supplied the quantity as agreed upon. Petitioner No.1 has also agreed and supplied additional quantity as required by IOCL. With mutual consent, contract was renewed for one more year. When further renewal was due the petitioner No.1 expressed inability to continue the supplies since the cost has escalated and it is no more viable for the petitioner No.1 to undertake the supplies.
4. Show cause notice dated 20.11.2013 was served on both the petitioners directing the petitioners to submit their explanation as to why they should not be placed on the Holiday List and be debarred from entering into any contract and why they should not be de listed from the list of approved vendors/contractors. The show cause notice alleges that the petitioners have indulged in breach of contract and poor performance resulting in abandonment of contract. Both petitioners have submitted detailed replies denying the allegations and explaining their version of the issue. On 27.01.2014 an order was passed in the name of the Deputy General Manager (LPG) holding that both the petitioners were placed on Holiday List and debarred from entering into any contracts with IOCL for a period of three years effective from that date. It is a common order passed with respect to both the petitioners. Hence, this writ petition.
5. Heard the learned counsel for the petitioners and the learned Standing Counsel for the respondent Corporation.
6. The order of Holiday List is challenged primarily on the ground that the order is non-speaking order and is therefore liable to be set aside on that ground alone. The learned counsel for the petitioners contends that the order has got civil and evil consequences. It deprives the petitioners right to carry on business and participate in the contracts. It also affect their reputation and therefore no such order can be passed without observing procedural formalities. Assigning reasons in support of a decision adversely affecting a person is a sine-qua-non of any order affecting the rights of a person.
7. It is further contended that there is a dispute regarding amounts of supplies the petitioners were required to be made as per the terms of contract and the supplies actually made as also the petitioner No.1s entitlement not to renew the contract after the period of contract initially agreed upon was over. She further contended that the reason for not renewing the contract was that, initially the petitioner offered lowest price, far less than even suggested by the respondent Corporation, and on account of subsequent cost escalation it had become unviable for the petitioner to supply the quantities as requested. In fact, as originally agreed the quantities required to be supplied were far less but since other suppliers were not coming forward to supply the quantity required by the respondent Corporation, the entire supply burden was put on the petitioner No.1 and the petitioner No.1 was unable to cope up with the demand. It is for genuine reasons the petitioner did not opt to renew and accordingly informed the respondent Corporation its intention not to undertake further supplies.
8. The learned counsel further submits that clause 29 of Annexure III of tender document, as also incorporated in the agreement, provides for settlement/resolution of disputes/differences of any nature whatsoever regarding any right, liability, act, omission or account of any of the parties arising out of or in relation to the agreement should be referred to the sole arbitrator. The issue agitated by the respondent Corporation is fully covered by the said clause and, therefore, the respondent Corporation ought to have referred the issue to the arbitrator and on the issues as provided in clause 29, the petitioners could not have been blacklisted and it amounts to arbitrary exercise of power and authority by an instrumentality of the state.
9. It is further contended that the contract was entered into with the petitioner No.1. Petitioner No.1 is a separate firm and is nothing to do with the petitioner No.2. Though both firms are promoted by the same proprietrix, it does not mean that those firms do not have independent existence. Thus, even assuming that the petitioner No.1 has not fulfilled the obligations of the agreement and therefore is liable to be blacklisted, on the ground that the petitioner No.1s performance was not satisfactory, merely because the same proprietrix has promoted both the firms, second firm could not have been blacklisted.
10. Placing reliance on the counter affidavit filed on behalf of the respondent Corporation the learned Standing Counsel made his submissions. The Standing Counsel contended that since the petitioners have agreed to supply the requested quantities and have also agreed for extension of the contract after completion of the first year it is not open to the petitioners to withdraw from the contract before the conclusion of the two years period after the renewal and it is mandatory for the petitioners to supply all the quantities agreed upon. Non-supply of the quantities amounts to violation of the terms of agreement and therefore action was validly taken. The learned Standing Counsel further contended that both firms are involved in supply of PVC seals and safety caps and both the petitioners were successful bidders for supply of safety caps and thus action is taken against both of them.
11. The contention of the learned counsel for the petitioners that the order impugned is without reasons and therefore liable to be set aside is denied. The learned Standing Counsel submits that the show cause notice gives reasons why the petitioners are to be blacklisted and simultaneously a Committee of Officers were nominated to look into the issue. The Committee of Officers considered the tender conditions and the replies given to the show cause notice and submitted its observations on the issue. The Committee recommended to include both the entities on Holiday List for a period of three years. Thus, the explanations submitted by the petitioners were considered by the Committee of Officers and having found no merit in the explanation, the order impugned is passed. He therefore contends that no reasons need be assigned in blacklisting the petitioners and since enough opportunity was granted to the petitioners before the order impugned is passed, the order cannot be nullified on the ground that order does not contain the reasons. The normal principle of a speaking order could not apply in a matter concerning a decision of the company to include a supplier in holiday list and prohibit the supplier from supplying the goods as it only amount to expression of lack of confidence between the two contracting parties.
12. It is further contended that the issues raised in the writ petition are in realm of contract and governed by the terms of agreement and such issues fall under the domain of the private law and therefore the writ petition under Article 226 of the Constitution of India is not maintainable.
13. The learned Standing Counsel further contended that in terms of the arbitration clause the matter was referred to arbitrator and arbitrator appointed has issued notice to the petitioners on 27.03.2014. Since the matter is placed before the arbitrator, even according to the petitioners the arbitration clause ought to have been invoked, it is open to the petitioners to putforth all contentions, and therefore the writ petition is not maintainable.
14. The learned counsel for the petitioners in support of her contentions relied on SPS Engineering Ltd. Vs. Indian Oil Corporation Ltd. , Erusian Equipment & Chemicals Ltd. Vs. State of West Bengal and another & Union of India and others Vs. A.K.Mithiborwala and others , Mekaster Trading Corporation Vs. Union of India (UOI) and others and Allahabad Traders Vs. State of U.P. and another .
15. The learned Standing Counsel for the respondents relied on M/s. Erusian Equipment & Chemicals Ltd and K.L.Tripathi Vs. State Bank of India and others .
16. The issues that arise for consideration in this writ petition are:
1) Whether the writ petition is maintainable?
2) Whether the order impugned is sustainable? and
3) When arbitration clause which encompasses all issues
of contract is provided, is it permissible for one of the contracting parties to resort to blacklisting (holiday list) and prohibiting the other contracting party from participating in future contracts is permissible ?
ISSUE NO.1:
17. On the issue of scope of maintainability of writ petition in matters of this nature, a Division Bench of this Court after reviewing the entire case law on the subject has delineated the following principles:
48. On an analysis of the above decisions of the Supreme Court, it is clear that contractual obligations may fall under judicial review if there is some public law element involved therein. Where the dispute lies within the contractual field pure and simple in the realm of private law a writ petition is not maintainable. In such cases, the relations between the parties are governed by the contract which determines the rights and obligations of the parties inter se. However, where there is an element of arbitrariness or unreasonableness, illegality, irrationality or procedural impropriety in the action of state authorities offending Article 14 of the Constitution of India, even in respect of a dispute arising out of a private contract, the Court, in exercise of its power of judicial review under Article 226, can entertain the matter and grant relief as per law.
Thus, though judicial review in matters of contractual obligations is permissible, but such review must be within the permissible limits and in public interest and in accordance with the principles laid down by the Supreme Court. It must be intended to prevent arbitrariness or favoritism and it must be exercised in the larger public interest. It depends upon the facts and circumstances of each case. In cases where there is an element of arbitrariness, illegality or irrationality in the action of the State or its instrumentality the Court can interfere and grant relief (Italics supplied)
18) In A.Ramalingeswara Reddy Vs. Vice-Chairman and Managing Director, A.P. State Civil Supplies Corporation Limited and others the issue of maintainability of writ petition in matters concerning award of contract and blacklisting of the contractor was considered. In the said case the State Civil Supplies Corporation Limited terminated the contract of transportation forfeited the pending bills, security deposit and bank guarantee and blacklisted the petitioner from participating in any future tenders of the respondent Corporation. It was noticed that the petitioner was not put on notice to blacklist him and relevant material was not supplied to the petitioner before taking the extreme decision to subject him to blacklisting and the Managing Director who is the competent authority did not apply his mind independently in blacklisting the petitioner, following the decision of the Supreme Court in ABL International Limited and another Vs. Export Credit Guarantee Corporation of India Ltd. and others and State of Karnataka Vs. Shree Rameshwara Rice Mills, Thirthahalli and batch and the decision in M/s. Kulja Industries Ltd. Vs. Chief General W.T.Proj. BSNL & Others (Civil Appeal No.8944 of 2013 decided on 04.10.2013) the order of blacklisting the petitioner therein, canceling the bank guarantee and security deposit were held as illegal as the petitioner was denied of reasonable opportunity vitiating the decision making process.
19. In the instant case also, the decision making process is vitiated as the order having such severe consequences, as held by the Supreme Court in Erusian Equipment & Chemicals Ltd. (2 supra), is bereft of reasons.
20. The order is vitiated by element of arbitrariness, procedural impropriety and illegality. Violation of procedural safeguards amounts to jurisdictional error. Hence, the writ petition is maintainable.
ISSUE NO.2:
21. The Holiday List has an impact of depriving the petitioners from the privilege and advantage of entering into lawful relationship. Both the petitioners are empanelled vendors for supply of heat shrinkable preformed PVC seals as well as safety caps for LPG cylinders. On account of the impugned order they are prohibited from participating in the future contracts for next three years. Thus, the impugned order has the effect of depriving the petitioners equality of opportunity in the matter of public contracts by public corporation. It can also have the impact of denying such contracts from any other similar Corporation. It is not uncommon practice that whenever tenders are called the persons who respond to the tenders are subjected to scrutiny by the company. They also look into the past performance of the tenderer with the same company or any other entity and if the reports received by the company about the past performance with any other company or with the same company on earlier occasion are negative, the company refuses to enter into contract even if the tenderer offered the lowest price. Thus, the consequences of the Holiday List are more severe. It has civil and evil consequences. It would not only affect the entitlement of the petitioners to participate in the future contracts with the respondent Corporation, but it would also deprive such participation with any other similar Corporation or entity, private or public.
22. The order which results in civil and evil consequences must be a reasoned order assigning detailed reasons for taking such course and reasons for not accepting the explanation submitted by the concerned persons. More particularly when a decision which affects the right of earning and participation in future contracts, strict compliance of procedural formalities is mandatory and any violation thereof would vitiate the decision to blacklist the contractor. The order impugned has not assigned reasons. It only says that the allegations made in the show cause notice and reply to the show cause notice were considered and the petitioners are placed on holiday list and debarred from entering into future contracts for three years. The petitioners have explained in detail the reasons in their support. Whether those reasons are valid or not is a different matter, but an authority while passing an adverse order cannot withhold reasons which compelled it to pass an adverse order.
23. The facts in issue in the decision of Delhi High Court in Mekaster Trading Corporation (3 supra) are identical to the facts in this case. It was also a case of blacklisting. The order blacklisting the petitioner therein did not assign reason for such blacklisting. On exhaustive consideration of the principles of law on the issue of assigning reasons and of providing an opportunity, the Delhi High Court held that it is now well settled proposition of law that even the administrative authority is required to support its decision by reasons. The most impelling consideration for insistence upon disclosure 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. It is held as under:
In short, the reasons must show that the decision maker successfully came to grips with the main contention advanced by the parties, and must tell the parties in broad terms why they lost, or as the case may be won. Reasons are links between materials on which certain conclusions are based and the actual conclusion drawn. They would disclose how the mind is applied to the subject matter; whether done relevantly or rationally. Therefore, it would be sufficient if reasons indicate application of mind is discernible and mental process leading from the dispute to its solution is found in the order.
24. The Delhi High Court on consideration of principles of law on the subject held that the order blacklisting the petitioner therein for a period of five years was certainly not an act of good administration.
25. Both the decisions relied upon by the learned Standing Counsel are in fact lay down the principle that normally the procedural safeguards should be strictly followed, if the consequences are adverse to a person and affect the earning capacity. K.L.Tripathi is not a case where the petitioner was denied opportunity at all. The petitioner was given show cause notices and his explanations were considered. The party against whom allegations were made did not dispute the allegations nor demanded to test the veracity or the credibility of the statements made against him. On most of the allegations the person admitted the mistakes committed by him as an employee of the Bank. While upholding the principles of law with reference to opportunity of hearing and observance of principles of natural justice, in the facts of that case the Court held against the employee as no real prejudice was caused to the petitioner. The Court held that the party who does not want to controvert the veracity of the evidence from record or testimony gathered behind his back cannot expect to succeed in any subsequent demand that there was no opportunity of cross objection specially when it was not asked for and there was no dispute about the veracity of the statements. Therefore, the said decision do not come to the aid of the respondents.
26. In Erusian Equipment & Chemicals Ltd. and Union of India and others (2 supra) the Supreme Court held that State need not enter into any contract with any one but if it does so, it must do so fairly without discrimination and without unfair procedure. Reputation is a part of persons character and personality. Blacklisting tarnishes ones reputation.
27. In addition to non-observance of the procedural formalities before passing an adverse order, including the name of the second petitioner in the holiday list and debarring the second petitioner from entering into future contracts with the respondent corporation for three years is ex-facie illegal. Second petitioner was not the contractor and therefore the question of holding him as violating the conditions of contract would not arise. Merely because same propritix promoted both the firms, it cannot be a ground to include both the petitioners in holiday list. As pointed out by the learned counsel for petitioners, which fact is not denied by the learned standing counsel for respondent corporation, there is no clause incorporated in the contract which empowers the respondent corporation to black list any other firm which is floated by the same partners of the contractor. When such clause is not provided in the contract, question of including the second petitioner in the holiday list is illegal and amounts to arbitrary exercise of power.
ISSUE NO.3
28. Clause 29 of annexure III of tender document read as under:
any dispute and/or difference of any nature whatsoever regarding any right liability, act, omission or account of any of the parties hereto arising out of or in relation to this agreement shall be referred to the sole arbitrator of the Director (Marketing) of the Corporation, of some officer of the Corporation who may be nominated by the Director (Marketing)
29. Same clause is incorporated in the contract entered with the first petitioner. In terms of the clause therein any dispute or difference arising out of the contract should be referred to an Arbitrator. It is an exhaustive provision encompasses of all aspects of contract including the issue of non supply of the requisite quantity as agreed upon and not renewing the agreement for further period. Thus when an arbitration clause encompasses all aspects, ignoring the said provision and resorting to general power of employer to cancel the contract and to penalize the contractor on the allegations of violation of terms of contract amounts to arbitrary exercise of power.
30. In SPS Engineering Ltd. (1 supra) the Delhi High Court has considered similar issue. The petitioner therein was also blacklisted by the same respondent company. The terms of contract envisaged reference to arbitrator of any dispute arising on account of the agreement. The Delhi High Court held as under:
I am in agreement with the contention of the learned counsel for the petitioner that the subject matter of arbitration and the question of placement in the Holiday List are intertwined and cannot be put into separate compartments. The records of the case itself reveal that the placement of the petitioner in the holiday List is not on account of reasons outside the contractual obligations of the parties.
31. It was also a case of allegation of qua performance or non- performance with regard to the contracts which were awarded to the petitioner. Alleging improper performance the petitioner was placed in the holiday list.
32. As Averred by the respondent corporation subsequent to the institution of writ petition, the arbitration clause was invoked and Arbitrator was appointed. Thus, including the petitioners in the holiday list and prohibiting them from participating in the future contracts floated by the respondent corporation for the next three years and then invoking arbitration clause amounts to arbitrary exercise of power, non application of mind and illegal. It amounted to predetermining the issue.
33. Since respondent corporation has now invoked the arbitration clause, all the issues which were the basis to include the petitioners in the holiday list and preventing them from participating in future contracts shall also be considered by the Arbitrator. It is always open to respondent corporation to regulate its future relationship with the petitioner after the decision by Arbitrator.
34. All issues are held against respondents and in favour of petitioners. For all the aforesaid reasons, writ petition is allowed setting aside the order impugned in the writ petition including the petitioners in the holiday list and prohibiting them from participating in the future contracts to be floated by the respondent corporation for a period of three years. It is made clear that observations made herein and findings recorded are only for the purpose of deciding the validity of the order impugned in accordance with the issues formulated and the Arbitrator shall independently deal with the issues referred to him uninfluenced by any of the findings arrived at in this writ petition.
Miscellaneous Petitions, if any, pending in this Appeal shall also stand dismissed.
__________________________ JUSTICE P.NAVEEN RAO Date: 23-04-2014