Andhra HC (Pre-Telangana)
Deep Industries Ltd., vs Oil And Natural Gas Corporation Ltd., ... on 19 September, 2017
Equivalent citations: AIR 2018 HYDERABAD 45, (2018) 2 CIVLJ 607, (2019) 1 BANKCAS 136, (2017) 6 ANDHLD 499
Author: Challa Kodanda Ram
Bench: Challa Kodanda Ram
HONBLE SRI JUSTICE CHALLA KODANDA RAM WRIT PETITION No.28527 OF 2017 19-09-2017 Deep Industries Ltd., Petitioner.. Oil and natural Gas Corporation Ltd., and another Respondents Counsel for the Petitioner: Senior Counsel Sri Vedula Venkata Ramana Counsel for the respondents: Senior Counsel Sri D.Prakash Reddy <Gist: >Head Note: ? Cases referred: 1.(1987) 2 Supreme Court Cases 160 2.(2011) 5 Supreme Court Cases 697 3.(2003) 2 Supreme Court Cases 107 4.(2006) 10 Supreme Court Cases 236 5.(2010) 11 Supreme Court Cases 186 6.(2004) 3 Supreme Court Cases 553 7.(1996) 6 Supreme Court Cases 22 8.2004(4) ALD 682 (DB) 9.(2015) 9 Supreme Court Cases 433 THE HONBE SRI JUSTICE CHALLA KODANDA RAM WRIT PETITION No.28527 OF 2017 ORDER:
The brief facts, for the purpose of disposal of the Writ Petition, are stated as under:-
2) Pursuant to a notification issued by the 1st respondent Oil and Natural Gas Corporation Limited (hereinafter referred to as Oil Company) for the execution of work under the title Hiring of Gas Dehydration System for Five production installations at Rajahmundry Assets (hereinafter referred to as Gas Dehydration Work), the petitioner has participated in the tender process and become the successful bidder. A contract agreement dated 24.06.2015 was also executed in favour of the petitioner. The term of the contract is for 3 years and the petitioner is required to mobilize and install the necessary equipment within 120 days and accordingly, it has commenced the work within the stipulated period. A show cause notice dated 28.04.2017 was issued against the petitioner alleging that it had claimed the experience of M/s Craft production systems inc. Texas, (CPS), which, in fact, did not have the relevant experience and as the contract dated 24.06.2015 was awarded based on a misrepresentation, it is liable to be terminated. The petitioner claims that necessary replies were submitted. After considering the said explanations submitted by the petitioner and after exchange of correspondence, finally, the contract agreement came to be terminated by the order dated 31.07.2017. However, the petitioner was directed to carry on the operations for a further period of 300 days. Simultaneously, by letter dated 03.08.2017, he was also prohibited from participating in future tenders. Challenging the said proceedings, the petitioner filed Writ Petition No.26400 of 2017, wherein an interim order was passed by this Court on 08.08.2017, which, on Appeal (Writ Appeal No. 1149 of 2017), came to be modified by the Division Bench of this Court on 21.08.2017 restricting the scope of blacklisting.
3) While things stood thus, vide impugned proceedings dated 17.08.2017, the petitioner was directed to remit a sum of Rs.66.95 crores, on account of alleged excess payments received up to 31.05.2017 and further, the respondents proposed to pay a lower rate based on the rates quoted by the petitioner in subsequent tenders. Aggrieved by the said decision of the respondent corporation dated 17.08.2017, challenging the same as illegal and contrary to the contract agreement, the petitioner filed the present Writ Petition.
4) Learned Senior Counsel Sri Vedula Venkata Ramana appearing for the petitioner contends that the action of the respondents in unilaterally determining that they had made excess payments, is totally impermissible, as the same is like - a party to the contract unilaterally determining the damages, which are payable, though there is a specific mechanism for determination of the damages. Placing reliance on the judgments of the Supreme Court in State of Karnataka v. Shree Rameshwara Rice Mills , Union of India v. Tantia Construction Private Limited , Harbanslal Sahnia v. Indian Oil Corpn. Ltd. and Noble Resources Ltd. V. State of Orissa , the learned Senior Counsel submits that such unilateral determination is illegal and impermissible. By placing reliance on Zonal Manager, Central Bank of India v. Devi Ispat Limited , ABL International Ltd. V. Export Credit Guarantee Corporation of India Ltd. the respondent Corporation being a State, within Article 12 of the Constitution of India, cannot act arbitrarily in total derogation of the contractual terms and in those circumstances learned senior counsel for the petitioner prays for Writ of mandamus declaring the action of the respondents in issuing the impugned communication dated 17.08.2017 as illegal, arbitrary and unconstitutional.
5) Sri D. Prakash Reddy, learned Senior Advocate instructed by Sri K. Venkata Rao for respondent company opposes the very entertainment of the Writ Petition. The learned Senior Counsel submits that the very writ affidavit itself discloses that, in essence, the petitioner is seeking to enforce the contractual terms under Article 226 of the Constitution of India, which is impermissible. As, admittedly, there is a specific dispute resolution mechanism provided in the contract agreement, dated 24.06.2015 the Writ Petition is not maintainable and the same is liable to be dismissed in limini. According to the learned Senior Counsel, the action taken against the petitioner is justified to protect the revenues of the State organisation. But for the experience and expertise of the collaborator, which the petitioner had claimed, it would not have been eligible to participate in the tender process and quote the rates at which the contract came to be awarded. As it is found that the petitioner had misrepresented and thereby breached Clause 34 Integrity Pact, the action of the respondents is justified and at any rate, the Writ Petition is not maintainable and hence, prays for dismissal of the Writ Petition. To support his contention, the learned Senior Counsel places reliance on State of U.P. v. Bridge & Roof Company (India) Ltd. , U.P.S.R.T.C. v. K.L. Hi-Tech Secure Print Ltd., Hyd and State of Kerala v. M.K. Jose. The learned Senior Counsel submits that in two Division Bench judgments of this Court, after taking into consideration the judgment of the Supreme Court in ABL International Case (cited supra), categorically held that in cases where there is arbitration clause, the Writ Petition is not maintainable and the High Court should refuse to entertain the Writ Petition.
6) After hearing the submissions made by the learned Senior Counsel on either side and after going through the writ affidavit and the other relevant material documents placed before the Court, including the Contract agreement dated 24.06.2015, the question that falls for consideration is :
whether the impugned letter dated 17.08.2017 proposing to pay the petitioner at a lower rate than what has been agreed to in the contract and further demanding Rs.66.95 crores, is arbitrary, illegal and liable to be interfered with in exercise of the jurisdiction under Article 226 of the Constitution of India.
7) After going through the various judgments rendered by the Supreme Court, cited supra by both the learned Senior Counsel, no manner of doubt is left in the mind of this Court that a Writ Petition is maintainable albeit in certain circumstances. It is not necessary for this Court to extract portions of the judgments referred to supra, as it would be burdening the record and creating more confusion. The sum and substance and the ratio of the judgments cited by both the learned Senior Counsel can be summed up as under:
1) Normally a Writ Court shall not interfere in cases involving contracts, particularly where there are disputed questions of fact, and interpret the contractual terms.
2) Further, even in cases where there is a specific dispute resolution mechanism by way of arbitration, as a rule, there is no bar, but the Writ Court would be slow in entertaining a Writ Petition.
3) On appreciation of the material placed before it, if the Writ Court comes to a conclusion that the State has acted in an arbitrary and unreasonable manner, infringing or likely to infringe the Fundamental Rights of a petitioner before it, a Writ is maintainable. The Writ Court, while exercising the writ jurisdiction, is required to examine the facts of each case and then decide to proceed or not.
8) Keeping the above guiding principles in mind, the undisputed facts of the present case are required to be examined, for which purpose, a reference to certain clauses in the contract may be examined.
6.2 Entire Agreement:
The CONTRACT constitutes the entire agreement between the ONGC and the CONTRACTOR with respect to the subject matter of the CONTRACT and supersedes all communication, negotiations and agreement (whether written or oral) of the parties with respect thereto made prior to the date of this agreement.
7.0 REMUNERATION AND TERMS OF PAYMENT:
7.1 CORPORATION shall pay to CONTRACTOR for the services, to be provided by the CONTRACTOR as per the Scope of Work (Annexure-III), as per the price Schedule at Annexure-A. The rates payable, shall be firm during the entire CONTRACT period, including extension period, if any.
7.5. In the event of any dispute in a portion or whole of any invoice, the CORPORATION shall make payment of undisputed portion and shall promptly notify the CONTRACTORs representative in writing for the remaining portion in CONTRACT to mutually resolve the dispute and if resolved in part or full, payment shall be made to the CONTRACTOR within 30 days of such settlement.
7.6. ONGCs right to question the amounts claimed:
Payment of any invoice shall not prejudice the right of the Corporation to question the allowability under this Agreement of any amounts claimed therein, provided ONGC, within one year beyond the expiry of each CONTRACT year, delivers to CONTRACTOR, written notice identifying any item or items which it questions and specifying the reasons therefor. Should ONGC so notify CONTRACTOR, such adjustment shall be made as the parties shall agree. These provisions shall be reciprocal for similar rights to the CONTRACTOR.
The CONTRACTOR shall provide on demand a complete and correct set of records pertaining to all costs for which it claims reimbursement from ONGC and as to any payment provided for hereunder, which is to be made no the basis of CONTRACTORs costs.
27. ARBITRATION
28. CONTINUANCE OF THE CONTRACT:
Notwithstanding the fact that settlement of dispute(s) (if any) under arbitration may be pending, the parties hereto shall continue to be governed by and perform the work in accordance with the provisions under this CONTRACT.
9) By the impugned proceedings, the 1st respondent decided to deprive the petitioners of the contractually-agreed price for the work to be done. Clause 7.1 referred to above does not permit any unilateral right for variation of the prices. In the event of dispute, there is also no unilateral deduction permissible, as is evident from Clause 7.6. This is clear from the methodology provided in Clause 7.6 with respect to the claims of the respondent company, assuming the nature of the claims that are being made by the respondent fall within the said clause of the Contract. Clauses 7.5 and 7.6 provide for settlement through mutual negotiations. Though Clause 27 provides for arbitration, the clause, as read in whole, can be resorted to only after exhausting settlement through mutual discussions. Further, Clause 28 mandates respective parties to adhere to the contractual terms. In the light of the above, the proposed action of the respondent Corporation cannot be said, in any way, fair and justifiable and the consequences of the arbitrary and unilateral action of the said respondent would have deleterious effect on the finances of the petitioner depriving them of cash flows which would also affect its operations. It may also be noted that as of date, the respondents themselves have to depend on the petitioner and they desired the petitioner to continue to carryout the work for a further period of 300 days even after the termination of the contract. This would indicate the indispensable nature of the services of the petitioner at least for a period of 300 days.
Viewed from that angle also, the action of the respondents cannot be termed to be in public interest. Even with respect to the demands on the petitioner, the principle that a party to the contract cannot be a judge of his own case determining the amounts payable / damages, would squarely apply in the present facts of the case. Prima facie, the demands, which are made by the respondents, at best would qualify as unascertained claims, but not the claims determined in an adjudication proceedings. The judgment cited by the learned Senior counsel appearing for the petitioner squarely applies to the same.
10) The observations made above are only for the limited purposes of this Court coming to a prima facie conclusion whether the action of the respondents is arbitrary and also the same is condonable keeping in view of the public interest and shall not be construed as interpreting any of the clauses of the agreement expressing a firm opinion. However, as the Court is obliged to appreciate and judge in a given case whether the allegation of arbitrariness is made out, a prima facie opinion has been expressed.
11) In those circumstances, the Writ Petition is allowed setting aside the impugned communication dated 17.08.2017, declaring the same as arbitrary, illegal and violative of the rights of the petitioner under Article 14 of the Constitution of India. There shall be no order as to costs.
12) Miscellaneous Petitions, if any, pending in the Writ Petition, shall stand closed.
____________________________ CHALLA KODANDA RAM, J Date:19.09.2017.