Himachal Pradesh High Court
M/S Lomash Pharmaceuticals Through vs State Of H.P. & Ors on 29 July, 2015
Author: Tarlok Singh Chauhan
Bench: Tarlok Singh Chauhan
IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA CWP No. 9635 of 2013.
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Judgement reserved on: 23.7.2015.
Date of decision: 29.7.2015 M/s Lomash Pharmaceuticals through its sole Prop. Smt. Vandana Sharma ...... Petitioner of Vs. State of H.P. & ors. ..... Respondents Coram rt The Hon'ble Mr. Justice Tarlok Singh Chauhan, Judge.
Whether approved for reporting? Yes 1 For the petitioner : Mr. Sanjeev Bhushan, Advocate.
For the respondents : Ms. Meenakshi Sharma, Mr. Rupinder Singh, Addl. Advocate Generals with Ms. Parul Negi, Dy. Advocate General, for respondents No. 1 and 2.
Mr. Tara Singh Chauhan, Advocate, for respondent No.3.
Tarlok Singh Chauhan, Judge.
By medium of this petition, the writ petition has claimed the following substantive reliefs:-
1. That a writ in the nature of certiorari may be issued and Annexure P-7 dated 29.10.2013 may kindly be quashed and set-aside.
2. That a writ in the nature of mandamus may be issued directing the respondents to revive the rate contracts of the petitioner for various medicines as entered into with the petitioner firm in the interest of law and justice.
2. The question which arises in the instant case is as to whether in the first instance the writ petition is entertainable or not. In Whether the reporters of the local papers may be allowed to see the Judgment? Yes ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...2...
this regard, it may be pertinent to mention here that the respondents have taken a preliminary objection regarding maintainability of the writ .
petition on the ground that there exists an arbitration clause contained in condition No. 40 of the tender document, and therefore, writ petition would not be maintainable.
3. This contention of the respondents that the High Court of would not be competent to entertain the writ petition on account of the arbitration clause has been contested by the petitioner. It has been rt contended that merely because there exists an arbitration clause, it would not be a ground for not entertaining the writ petition. Clause 40 of the tender document reads thus:-
"40. In case of any dispute, the same will be resolved through a reference of the matter to an Arbitrator to be appointed by the Secretary, Animal Husbandry to the Government of Himachal Pradesh, Shimla. Thereafter any dispute concerning this tender shall be subject to the court jurisdiction of Shimla, Himachal Pradesh only.
The contract shall be interpreted under Indian Laws and in case of any legal dispute at any point of time the same shall be subject to local or pecuniary jurisdiction of the Courts of Shimla Himachal Pradesh"
4. Therefore, before proceeding any further, this court is required to adjudicate and render findings regarding the maintainability of the writ petition in view of the aforesaid arbitration clause.
5. Similar issue has been subject matter of various decisions of the Hon'ble Supreme Court and some of them may be noticed as under:-
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6. In Indian Aluminium Company vs. Kerala State Electricity Board AIR 1975 SC 1967 the question before the Hon'ble .
Supreme Court was as to whether the respondent- Board had the power under clause-13 of the agreement to levy any coal surcharge at all and was a question arising under the agreement, which contained an arbitration clause and it was held as follows:-
of "38. But that does not put an end to the controversy between the parties. It is true that in the Press Note the Board relied only on Sections 49 and 59 and the Sixth Schedule of rt the Supply Act as the source of the power under which it claimed to levy the coal surcharge and these provisions have been found not to contain the power sought in them. But, if there is one principle more well settled than any other, it is that, when an authority takes action which is within its competence, it cannot be held to be invalid, merely because it purports to be made under a wrong provision if it can be shown to be within its power under any power provision. A mere wrong description of the source of power - a mere wrong label - cannot invalidate the action of an authority, if it is otherwise within its power. The Board claimed that in any event, even if Sections 49 and 59 and the Sixth Schedule to the Supply Act could not be construed as authorising the Board to enhance unilaterally the rates for supply of electricity, the Board had the power under clause (13) of the agreement to levy the coal surcharge on the appellant and the decision to levy the call surcharge could be justified by reference to this power. Now. if this claim of the Board were well founded, it would afford a complete answer to the challenge made on behalf of the appellant. But the appellant raised various contentions in answer to this plea based on clause (13) of the agreement. We have referred to some of these contention in an earlier part of the judgment. It is here that the case of the appellant founders on the reck of the preliminary objection. Clause (23) of the agreement provides that any dispute or difference relating to a question thing or ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...4...
matter arising under the agreement shall be referred to the arbitration of a single arbitrator. Questions such as : whether .
the Board had power under clause (13) of the agreement to levy any coal surcharge at all when no such power was conferred on it by the Act, whether the action of the Board in levying the coal surcharge on the appellant under clause (13) of the agreement was arbitrary and unreasonable or whether it was based on extraneous and irrelevant considerations and of whether, on the facts and circumstances of the case, the Board was justified under clause (13) of the agreement to levy the coal surcharge on the appellant, are plainly questions rt arising under the agreement and they are covered by the arbitration provision contained in clause (23) of the agreement. All the contentions raised by the appellant against the claim to justify the levy of the coal surcharge by reference to clause (13) of the agreement would, therefore, seem to be covered by the arbitration agreement and there is no reason why the appellant should not pursue the remedy of arbitration which it has solemnly accepted under clause (23) of the agreement and instead invoke the extraordinary jurisdiction of the High Court under Article 226 of the Constitution to determine questions which really form the subject-matter of the arbitration agreement. We are, therefore, of the view that the High Court was right in exercising its discretion against entertaining the writ petition on merits, in so far as it was directed against the validity of the levy of the coal surcharge under clause (13) of the agreement. The merits of the contentions raised by the appellant would have to be decided by arbitration as provided in clause (23) of the agreement."
7. In M/s Bisra Lime Stone Company Ltd. and another vs. Orissa State Electricity Board and another (1976) 2 SCC 167 the Hon'ble Supreme Court was dealing with an agreement containing an arbitration clause and it refused to exercise discretion and leave the matter to arbitration by observing as under:-
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"24. It is then submitted that this Court should not use its discretion in favour of arbitration in a matter where it is a pure .
question of law as to the power of the Board to levy a surcharge. This submission would have great force if the sole question involved were the scope and ambit of the power of the Board under Sections 49 and 59 of the Act to levy a surcharge, as it was sought to be initially argued. The question in that event may not have been within the content of of clause 23 of the agreement. But all questions of law, one of which may be interpretation of the agreement, need not necessarily be withdrawn from the domestic forum because rt the Court has discretion under Section 34 of the Arbitration Act or under Article 226 of the constitution and that the Court is better posted to decide such questions. The arbitration clause 23 is a clause of wide amplitude taking in its sweep even interpretation of the agreement and necessarily, therefore, of clause 13 therein. We are therefore, unable to accede to the submission that we should exercise our discretion to withhold the matter from arbitration and deal with it ourselves."
8. In State of U.P. and others vs. Bridge & Roof Company (India) Ltd. (1996) 6 SCC 22, the Hon'ble Supreme Court when confronted with an arbitration clause observed that where a contract contains a clause providing inter-alia for settlement of disputes by reference to arbitration, the parties should follow and adopt the remedy as provided under the contract and it was held:-
"21. There is yet another substantial reason for not entertaining the writ petition. The contract in question contains a clause providing inter alia for settlement of disputes by reference to arbitration [Clause 67 of the Contract]. The Arbitrators can decide both questions of fact as well as question of law. When the contract itself provides for a mode of settlement of disputes arising from the contract, there is no reason why the parties should not follow and adopt ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...6...
that remedy and invoke the extraordinary jurisdiction of the High Court under Article 226. The existence of an effective .
alternative remedy - in this case, provided in the contract itself - is a good ground for the Court to decline to exercise its extraordinary jurisdiction under Article 226. The said Article was not meant to supplant the existing remedies at law but only to supplement them in certain well-recognised situations. As pointed out above, the prayer for issuance of a writ of of mandamus was wholly misconceived in this case since the respondent was not seeking to enforce any statutory right of theirs nor was it seeking to enforce any statutory obligation rt cast upon the appellants. Indeed, the very resort to Article 226 - whether for issuance of mandamus or any other writ, order or direction - was misconceived for the reasons mentioned supra."
9. The Hon'ble Supreme Court Harbanslal Sahnia and another vs. Indian Oil Corpn. Ltd. and others (2003) 2 SCC 107 has held that the rule of exclusion of writ jurisdiction on account of availability of an alternative remedy was a rule of discretion and not one of the compulsion and it was observed as follows:-
"7. So far as the view taken by the High Court that the remedy by way of recourse to arbitration clause was available to the appellants and therefore the writ petition filed by the appellants was liable to be dismissed, suffice it to observe that the rule of exclusion of writ jurisdiction by availability of an alternative remedy is a rule of discretion and not one of compulsion. In an appropriate case, in spite of availability of the alternative remedy, the High Court may still exercise its writ jurisdiction in at least three contingencies: (i) where the writ petition seeks enforcement of any of the fundamental rights; (ii) where there is failure of principles of natural justice or, (iii) where the orders or proceedings are wholly without jurisdiction or the vires of an Act and is challenged. [See Whirlpool Corporation v. Registrar of Trade Marks. Mumbai & Ore.] The present case attracts applicability of first two ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...7...
contingencies. Moreover, as noted, the petitioners' dealership, which is their bread and butter, came to be terminated for an .
irrelevant and nonexistent cause. In such circumstances, we feel that the appellants should have been allowed relief by the High Court itself instead of driving them to the need of initiating arbitration proceedings."
10. In Empire Jute Company Limited and others vs. Jute of Corporation of India Limited and another (2007) 14 SCC 680, the Hon'ble Supreme Court has held that the power of judicial review rt vested in the superior court undoubtedly has wide amplitude but the same should not be exercised when there exists an arbitration clause, the writ court ordinarily would not exercise its discretionary jurisdiction and it was observed as under:-
"14. Construction of the contract entered into by and between the parties is in question before us. There exists an arbitration agreement. The Arbitration Agreement is of wide amplitude; by reason whereof not only the dispute relating to quality of the jute sought to be supplied by the respondent No.1 may be gone into, the construction, meaning and operation and effect of the contract or breach thereof, if any, would have also fallen for determination of an Arbitrator.
15. It is not correct to contend that clause 8.0 provides for procedure for claim settlement. The said provision in regard to the quality of jute supplied has in our opinion nothing to do with clause 9.0. The arbitration agreement entered into by and between the parties is independent of clause 8.0. It is now well settled that when there exists an arbitration agreement, the writ court ordinarily would not exercise its discretionary jurisdiction to enter into the dispute.
16. The learned Single Judge embarked upon the question of construction of the agreement. In a sense, the Division Bench overturned the said decision. Construction of the agreement therefor fell for consideration of the High Court. Division Bench, as noticed hereinbefore, itself opined that the ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...8...
arbitration clause should be taken recourse to for the purpose of computation of the quantum of the carrying cost. The .
question of payment of carrying cost by the appellant in favour of the respondent would arise provided the same is payable. Payability of such carrying cost would, thus, depend upon construction of clause 2.0 read with clause 5.0 of the sale contract.
17. Respondent, no doubt, could have taken recourse to of clause 16.0 of the agreement in terms whereof it could realize any amount which the Corporation might have to pay. Disputed fact was required to be gone into before a definite rt opinion could be arrived at as to whether in the facts and circumstances, the obligation to pay the carrying cost was applicable.
18. The power of judicial review vested in the superior courts undoubtedly has wide amplitude but the same should not be exercised when there exists an arbitration clause. The Division Bench of the High Court took recourse to the arbitration agreement in regard to one part of the dispute but proceeded to determine the other part itself. It could have refused to exercise its jurisdiction leaving the parties to avail their own remedies under the agreement but if it was of the opinion that the dispute between the parties being covered by the arbitration clause should be referred to arbitration, it should not have proceeded to determine a part of the dispute itself.
19. Similar question arose for consideration in M/s. Bisra Stone Lime Co. Ltd. etc. Vs. Orissa State Electricity Board and another [AIR 1976 SC 127] wherein it was held that the High Court may refuse to exercise its jurisdiction, if there exists a valid arbitration clause stating;
"24. It is then submitted that this Court should not use its discretion in favour of arbitration in a matter where it is a pure question of law as to the power of the Board to levy a surcharge. This submission would have great force if the sole question involved were the scope and ambit of the power of the Board under Sections 49 and 50 of the Act to levy a surcharge, as it was sought to be initially argued. The question in that event may not have been within the content of clause 23 of the agreement. But all questions of law, one of which may be interpretation of the agreement, need not necessarily be withdrawn from the domestic forum because ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...9...
the court has discretion under Section 34 of the Arbitration Act or under Article 226 of the Constitution and that the court is better posted to decide such questions. The arbitration clause 23 is a clause of wide amplitude taking in .
its sweep even interpretation of the agreement and necessarily, therefore, of clause 13 therein. We are therefore, unable to accede to the submission that we should exercise our discretion to withhold the matter from arbitration and deal with it ourselves.
20. A similar view was taken by this Court in Sanjana M. Wig (Ms) Vs. Hindustan Petroleum Corpn. Ltd. [(2005) 8 SCC of 242 holding;
"12. The principal question which arises for consideration is as to whether a discretionary jurisdiction would be refused rt to be exercised solely on the ground of existence of an alternative remedy which is more efficacious. Ordinarily, when a dispute between the parties requires adjudication of disputed question of facts wherefor the parties are required to lead evidence both oral and documentary which can be determined by a domestic forum chosen by the parties, the Court may not entertain a writ application (See Titagarh Paper Mills Ltd. v. Orissa SEB and Bisra Stone Lime Co. Ltd. v. Orissa SEB)"
13. However, access to justice by way of public law remedy would not be denied when a lis involves public law character and when the forum chosen by the parties would not be in a position to grant appropriate relief."
21. Relying on some of the earlier decisions of this Court, this Court held:
"It may be true that in a given case when an action of the party is dehors the terms and conditions contained in an agreement as also beyond the scope and ambit of the domestic forum created therefore, the writ petition may be held to be maintainable; but indisputably therefore such a case has to be made out. It may also be true, as has been held by this Court in Amritsar Gas Service and E. Venkatakrishna that the arbitrator may not have the requisite jurisdiction to direct restoration of distributorship having regard to the provisions contained in Section 14 of the Specific Relief Act, 1963; but while entertaining a writ petition even in such a case, the court may not lose sight of the fact that if a serious disputed question of fact is involved arising out of a contract qua contract, ordinarily a writ petition would not be entertained. A writ petition, however, will be entertained when it involves a public law character or involves a question arising out of public law functions on the part of the respondent."
22. The legal position has undergone a substantial change, having regard to Section 5 of the Arbitration and Conciliation ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...10...
Act, 1996 vis-a-vis provisions of Arbitration Act, 1940. The said provision reads as under:-
"5. Extent of judicial intervention " Notwithstanding .
anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part."
23. In terms of 1940 Act, even a civil suit could have been entertained subject of course to exercise of the court's jurisdiction under Section 21 thereof. Section 5 of 1996 Act of takes away the jurisdiction of the Court. There cannot be any doubt whatsoever, the provision of the 1996 Act must be given effect to.
rt
24. As the disputed facts as also the law are required to be determined by the Arbitrator, we are of the opinion that all disputes between the parties should be directed to be resolved upon taking recourse to the arbitration agreement contained in clause 9.0 of the Sale Order. "
11. The Hon'ble Supreme Court in Union of India and others vs. Tantia Construction Private Limited (2011) 5 SCC 697, has held that the arbitration clause was not a bar to the invocation of writ jurisdiction when injustice is caused and the rule of law violated. It was further held that the constitutional powers vested in the High Court or the Supreme Court cannot be fettered by any alternative remedy available to the authorities and it was observed as follows:-
"33. Apart from the above, even on the question of maintainability of the writ petition on account of the Arbitration Clause included in the agreement between the parties, it is now well-established that an alternative remedy is not an absolute bar to the invocation of the writ jurisdiction of the High Court or the Supreme Court and that without exhausting such alternative remedy, a writ petition would not be maintainable. The various decisions cited by Mr. Chakraborty would clearly indicate that the constitutional powers vested in the High Court or the Supreme Court cannot be fettered by ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...11...
any alternative remedy available to the authorities. Injustice, whenever and wherever it takes place, has to be struck down .
as an anathema to the rule of law and the provisions of the Constitution.
34. We endorse the view of the High Court that notwithstanding the provisions relating to the Arbitration Clause contained in the agreement, the High Court was fully within its competence to entertain and dispose of the Writ of Petition filed on behalf of the Respondent Company. We, therefore, see no reason to interfere with the views expressed by the High Court on the maintainability of the Writ Petition rt and also on its merits."
12. In M/s Ram Barai Singh & Co. vs. State of Bihar & ors. JT 2014 (14) SC 357 the Hon'ble Supreme Court set aside the order passed by the Division Bench of Patna High Court, which had dismissed the writ petition on the ground of maintainability in view of existence of an arbitration clause. It was held that though existence of alternative remedy can be a ground of refusal to exercise writ jurisdiction, but the same cannot ipso facto, render a writ peti tion not maintainable and it was held as follows:-
"9. We find ourselves in agreement with case of the appellant that the Division Bench failed to notice the relevant facts including the history of earlier litigation. It also failed to notice that the agreement itself had worked out long back and in the earlier round of litigation as well as in the present round the respondents never raised any objection on the basis of arbitration clause.
10. The Division Bench noticed the judgment of this Court in the case of State of U.P. & Ors. v. Bridge & Roof Company (India) Ltd.(1996) 6 SCC 22 as well as in the case of ABL International Ltd. & Anr. v. Export Credit Guarantee Corporation of India Ltd. & Ors. (2004) 3 SCC 553 for coming to the conclusion that where the contract itself provides an ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...12...
effective alternative remedy by way of reference to arbitration, it is good ground for declining to exercise extraordinary .
jurisdiction under Article 226 of the Constitution of India and that the Court will not permit recourse to other remedy without invoking the remedy by way of arbitration, "unless, of course, both the parties to the dispute agree on another mode of dispute resolution."
11. In our considered view, the aforesaid two decisions did of not warrant setting aside of the judgment of learned Single Judge without going into merits and dismissing the writ petition at appellate stage on ground of alternative remedy rt when no such objection was taken by the respondents either before the writ court or even in the Memorandum of Letters Patent Appeal.
12. "In our view, a constitutional remedy by way of writ petition is always available to an aggrieved party and an arbitration clause in an agreement between the parties cannot ipso facto render a writ petition "not maintainable" as wrongly held by the Division Bench". Availability of alternative remedy is definitely a permissible ground for refusal by a writ court to exercise its jurisdiction in appropriate cases. But once the respondents had not objected to entertainment of the writ petition on ground of availability of alternative remedy, the final judgment rendered on merits cannot be faulted and set aside only on noticing by the Division Bench that an alternative remedy by way of arbitration clause could have been resorted to."
13. It is not necessary nor expedient here to refer various judgements rendered by this court and other High Courts on the point in detail so as to unduly dilate and burden the judgement any more in view of the exposition of law that is discernible from the conspectus of the judgements of the Hon'ble Supreme Court referred to supra.
14. From the conspectus of the above judgements of the apex court what emerges is that a constitutional remedy by way of ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...13...
writ petition is always available to an aggrieved party and an arbitration clause in an agreement between the parties cannot ifso .
facto render a writ petition "not available". Though availability of alternative remedy is definitely a permissible ground for refusal by a writ court to exercise its jurisdiction in appropriate case, but the same is a rule of discretion and not one of the compulsion.
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15. The respondents at this stage has pressed into service a Division Bench judgement of this court in CWP No. 4779 of 2014 rt titled M/s Indian Technomac Company Ltd. vs. State of H.P. & others, decided on 4.8.2014 alongwith connected matters, of which, I was one of the member, wherein this court after discussing various judgements held as follows:-
"16. The sum and substance of the above discussion is that the writ petitioners-Company have remedies of appeal(s), before approaching the High Court by way of the writ petitions, for the redressal of their grievances. The petitioners ought to have exhausted the remedy of appeal before the Deputy Excise and Taxation Commissioner or Additional Excise and Taxation Commissioner or the Excise Commissioner, as the case may be, and if the petitioners were not successful in those appeal proceedings, another remedy available to them was to challenge the said order(s) by the medium of appeal before the Tribunal, and again, if they were unsuccessful, they could have availed the remedy of revision before the High Court in terms of Section 48 of the HP VAT Act, 2005. Keeping in view the above discussion, read with the fact that the dispute raised in these writ petitions relates to revenue/tax matters, it can safely be concluded that the petitioners have sufficient efficacious remedy(ies) available."
16. There is no quarrel with the proposition of the ratio laid down in the aforesaid judgement, but what has probably been ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...14...
overlooked by the respondents is that in M/s Indian Technomac Company Ltd. case (supra), the court was dealing with the case .
where there existed an alternative remedy under the statute itself and accordingly this court dismissed the writ petition on the ground of availability of an alternative remedy under the Act, which is not the fact situation obtaining in this case.
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17. It is more than settled that an alternative remedy is not an absolute bar to the exercise of extraordinary jurisdiction under rt Article 226 of the Constitution of India but where the statute provides efficacious and alternative remedy, the High Court will do well in not entertaining a petition under Article 226 of the Constitution of India because of misplaced consideration, statutory procedure cannot be allowed to be circumvented.
18. However, in the present case, as noticed above, there is no statutory bar and it is only on account of the arbitration clause that the respondents have challenged the maintainability of the writ petition. This contention in view of the aforesaid discussion cannot be upheld and accordingly the writ petition despite there being an arbitration clause in the agreement is held to be maintainable.
Now proceeding with the merits of the case, the brief facts, may be noted.
19. The petitioner's firm on 30.9.2011 was awarded a rate contract for the medicine called as 'Flumethrin', which is an Allopathic veterinary medicine. Another rate contract dated 18.6.2012 was awarded in his favour for supply of medicine called as 'Delta Methrine' which too is an Allopathic veterinary medicine. Vide rate contract ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...15...
dated 19.11.2011 and 18.6.2012, two other rate contracts were awarded in favour of the petitioner for the supply of Ayurvedic .
medicines called as 'Ayurvedic Stomachic Powder, Antibloat Powder and Astringent Powder.
20. These rate contracts were thereafter extended from time to time, till the time the petitioner received letters dated 26.9.2013 of and 1.10.2013 respectively, whereby the petitioner was informed that there was certain shortcomings in the supplies and the supplied rt medicine did not conform the standard specifications. It was also stated that the ingredient found in the medicine was not in accordance what was indicated on the label of the medicines or the details which had been submitted by the petitioner alongwith the quotation/ tender.
21. On 6.10.2013, the petitioner responded to these letters and explained his position and also appended a report from a laboratory, which according to the petitioner was duly approved by the Central Government under the Drug and Cosmetics Act, 1940 (for short the Act), wherein it was reported that the medicine was as per the prescribed standard and there was no shortcoming whatsoever.
22. The grievance of the petitioner is that the respondents without affording proper opportunity have now vide order dated 29.10.2013 not only withdrawn/ cancelled all the four contracts and forfeited the earnest money but have also blacklisted the petitioner.
23. The respondents No. 1 and 2 are the Secretary (Animal Husbandry) and Director, Animal Husbandry respectively and ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...16...
have filed the joint reply, wherein in the preliminary submissions, the very maintainability of the writ petition has been questioned in view of .
the arbitration clause contained in condition No. 40 of the tender document. In so far as the merits of the case is concerned, it has been mentioned that the contracts awarded in favour of the petitioner were cancelled keeping in view the negative reports given by the of Drug Testing Laboratory, Jogindernagar (RIISM), which were placed before a Committee constituted by the Director, Animal Husbandry rt headed by an officer of the rank of Joint Director. This committee comprised of five expert and came to the conclusion that there were certain shortcomings in the supplies and the supplied medicines did not conform to the standard specifications/ composition. It was also noticed that in some cases, the ingredients were not in accordance with what was indicated on the labels of the medicines or in accordance with the details submitted by petitioner at the time of submitting the quotation/ tender.
24. The explanation offered by the petitioner was not found to be satisfactory by the committee and was rather found to be incomplete and also that "fresh test reports' did not cover the specifications quoted by the petitioner in his tender. The Committee, therefore, proposed that clauses 27 and 28 of the tender documents be invoked and the petitioner be debarred from further supplies for a period of five years and be blacklisted besides taking other action.
25. The respondent No. 3 is the Chief Executive Officer, H.P. State Cooperative Wool Procurement and Marketing Federation and has filed a separate reply, wherein similar preliminary objection ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...17...
as has been taken by respondents No. 1 and 2 in their reply regarding maintainability of the writ petition in view of an arbitration .
clause in the agreement has been raised. Apart from other grounds, this respondent has set out in detail what according to it is the factual position of the records, as under:-
I. Certain Ayurvedic Veterinary Medicines were supplied of by the petitioner to the field offices of the Animal Husbandry Department, Himachal Pradesh at Kangra rt at Dharamshala, Solan, Bilaspur and Chamba against rate contracts.
II. As per the stipulation at clause 27 of the tender document governing rate contracts, the Deputy Directors Animal Health/ Breeding, Kangra at Dharamshala, Solan, Bilaspur and Chamba got the samples of the medicines supplied by the petitioner tested from the Drug Testing Laboratory (RIISM), Jogindernagar.
The copies of the 'Tender Documents' containing the Terms and Conditions governing the rate contracts, duly accepted by the petitioner at the time of filing his tenders in respect of medicines found substandard are already annexed as Annexure R-3/A and R-3/B. III. The test reports preferred by the Drug Testing Laboratory (RIISM), Jogindernagar were considered by a committee of six officers headed by an officer of the rank of Joint Director and having five experts on board. The committee was constituted in the interest of fair play and justice by the Director of Animal Husbandry, HP i.e. the respondent No.2. It was concluded by the said committee tha t there are certain shortcomings in the supplies as the supplied medicines did not conform to the standard specifications. It was also noticed that in some cases the ingredients were not in accordance with either as indicated on the lebels of the medicines or details submitted by the petitioner at the time of submitting the quotation/ tender.::: Downloaded on - 15/04/2017 18:39:11 :::HCHP
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IV. The petitioner was accordingly afforded an opportunity by the respondent No. 3 who is the nodal agency for .
the procurement of Veterinary medicines for the respondent No. 2 to explain its position in the matter by 03/10/2013 and 07/10/2013 vide communications No.1-305/2011(W.F.)-9238, 9250 dated 26.9.2013 and No.1-305/2011 (W.F.)-9409, 9413 dated 1.10.2013 respectively.
of The copies of above communications are annexed at Annexure R-3/D, R-3/E, R-3/F and R-3/G respectively.
rt The copy of government notification declaring the respondent No. 3 as nodal agency is annexed at Annexure R-3/H. V. The petitioner submitted his reply as a single letter alongwith certain fresh test reports after the stipulated time frame i.e. on 10/10/2013.
VI. Although the petitioner submitted its reply after the stipulated time frame i.e. on 10/10/2013 again in the interest of justice and fair play the same alongwith the 'fresh test reports' submitted by the petitioner were duly considered and examined by the committee supra. Since the petitioner has not submitted the complete copy at Annexure P-6 with the petition, the complete copy of the communication as received from the petitioner by the respondent No. 3 is annexed at Annexure R-3/J. VII. The explanation tendered by the party was not found satisfactory by the committee supra as the deficiencies pointed out in the test reports of testing laboratory at Jogindernagar, H.P. (RIISM) wherefrom the testing was got done by the fields officers of the Department of Animal Husbandry, H.P. were not taken care of in the 'fresh test reports' submitted by the petitioner. It was also found that the explanation tendered by the petitioner was incomplete and also that the 'fresh test reports' did not cover the specifications quoted by the petitioner in his tender.::: Downloaded on - 15/04/2017 18:39:11 :::HCHP
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VIII. In view of above the committee constituted by the Director Animal Husbandry, H.P, to consider the matter .
regarding supply of 'substandard' medicine by the petitioner concluded that as per the test reports of testing laboratory at Jogindernagar, HP (RIISM), wherefrom the testing was got done by the fields officers of the Department of Animal Husbandry, HP, the products supplied by the petitioner are technically of deficient and thus substandard.
The committee supra thus decided to go with the findings of the test report of RIISM and agreed/ was rt convinced that the supplies made by the petitioner were substandard and against the terms of the tender.
IX. The committee therefore proposed that under clause 27 and 28 of the tender document governing the supplies, the petitioner be debarred from further supplies for a period of 5 years and accordingly blacklisted, besides other actions.
X. The report of the committee was finally accepted by the Director, Animal Husbandry, HP i.e. respondent No.2.
The nodal agency i.e. Respondent No.3 was thereafter directed to initiate action in the matter. XI. The Nodal Agency i.e. respondent No.3 accordingly issued a self speaking communication/ order dated 29.10.2013 to the petitioner and all other concerned- (Annexure P-7).
This respondent like respondents No. 1 and 2, has sought to justify its action as being just and legal on the basis of what has been stated in paras-I to XI (supra).
I have heard the learned counsel for the parties and have gone through the records of the case.
26. The learned counsel for the petitioner has vehemently argued that in the teeth of the reports submitted by the petitioner, which reports were from a duly recognized laboratory, the ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...20...
respondents could not have withdrawn/ cancelled the rate contracts and forfeited its security. He further contended that nowhere in the .
show cause notice issued to it, was it contemplated that petitioner would be black-listed. In absence of a specific notice to this effect, the action of the respondents in black-listing the petitioner's firm cannot therefore, be countenanced.
of
27. While on the other hand, the respondents have strenuously argued that it was only on account of the medicines not rt being in conformity with the specifications as prescribed under the law and further the same being not in accordance with what had been quoted by the petitioner, that the respondents had to resort to the aforesaid action. It is further contended that the reports submitted by the petitioner alongwith its reply could not at all be considered since the laboratory from where these tests had been conducted was not recognized either by the Central Government or the State Government.
28. Keeping in view of the nature of defence taken by the respondents, the petitioner was called upon to show any document on record or even in his possession, which may prove that the Dove Research and Analytic whose reports had been submitted by it was in fact a recognized laboratory under the provisions of Drugs and Cosmetic Act, 1940. The petitioner failed to do so, therefore, no credence can be attached to the reports submitted by the petitioner in response to the show cause notice.
29. The further question in such circumstances is as to whether once the samples of medicines as supplied by the petitioner ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...21...
did not conform to the provisions of the Act, could the rate contracts be withdrawn/ cancelled, security be forfeited and the petiti oner's firm .
be blacklisted?
30. The respondents have sought to justify their action by invoking clause(s) 27 and 28 of the agreement, which reads thus:-
"27. The approved suppliers shall have to provide test of certificate/ analysis report in respect of all batches of medicines alongwith supplies separately from any of the Govt. Analytical Laboratories set up by the Central or State Govt. or rt any analytical drug testing laboratory licensed under Drugs and Cosmetics Act, 1940 and rules there under. The supplies will be deemed to be completed only upon receipt of above said analytical test report. Further to ensure the quality of medicines to be supplied by the approved suppliers, pre-
dispatch/ post dispatch sampling of the same may be got done from competent authority and samples got tested independently from any analytical laboratory(s) in the country established under the Drugs and Cosmetics Act, 1940 and rules there under for which testing charges will be borne by the suppliers.
28. If any of the products supplied by the tenderer after such sampling (whether partially or wholly used/ consumed after supply) are subsequently fund to be sub-standard or Misbranded or spurious or under-weight, then the cost of such supplies shall be recovered from other dues of the tenderer, even if, payment for that particular medicine stands already released. The tenderer shall not be entitled to any payment whatsoever for such batches of products. Further, the tenderer will lift back the unconsumed quantity of such product at his cost within 15 days from the date of intimation by the concerned Indenting officers/ Federation, failing which the concerned Indenting Officers shall have the right to destroy the same. The State Government/ Federation reserves the right to take any other action against the supplier which may include forfeiture of the security deposits, debarment for next five years from participation in medicine ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...22...
tender for Animal Husbandry Hospitals/ Dispensaries and any other action as may be deemed fit to be taken against such .
supplier(s)."
31. Undoubtedly, the respondents in order to ensure the quality of the medicines have got the samples of the medicines supplied by the petitioner tested independently from the Laboratory of at Jogindernagar. These tests have confirmed that the supplies made by the petitioner were not in conformity with the provisions of rt the Drugs and Cosmetic Act, 1940 and were sub-standard, therefore, no fault much less illegality can be found in the action of the respondents, whereby they cancelled the rate contract of the petitioner and ordered the forfeiture of the security as this is in conformity with clause(s) 27 and 28 of the agreement (supra).
32. Now the only question which remains for consideration is as to whether the respondents could have blacklisted the petitioner from supplying the medicines for a period of five years?
33. It is not in dispute that in terms of clause-28 of the agreement, the respondents are competent and have reserved their right to take any action against the supplier, which may include forfeiture of security and debar him for next five years from participation in medicines tender or any other action, which they may deem fit. But then the question arises as to whether in absence of specific notice to this effect can the action of the respondents be sustained.
34. Now in case, the first notice dated 26.9.2013 is seen, it after making reference of certain shortcomings in the supplies, then ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...23...
calls upon the petitioners to explain its position and the operative portion of the same reads as under:-
.
"From the perusal of the test report it appears that there are certain shortcomings in the supplies/ the supplied medicines do not conform to the standard specifications. It is also made out that the ingredients are not in accordance with either as indicated on the labels of the medicines or details of submitted by you along with your quotation/ tender.
Before further action in the matter is initiated as per the terms of the tender, you are hereby afforded an opportunity to rt explain your position latest by 03.10.2013. In the event of no reply from your end by this date, it will be presumed that you have nothing to say and action will be taken without any further notice, please take note."
35. To the similar effect is the show cause notice dated 1.10.2013, the relevant extract whereof reads as under:-
"From the perusal of the test reports it appears that there are certain shortcomings in the supplies/ the supplied medicines do not conform to the standard specifications. It is also made out that the ingredients are not in accordance with either as indicated on the labels of the medicines or details submitted by you alongwith your quotation/ tender.
Before further action in the matter is initiated as per the terms of the tender, you are hereby afforded an opportunity to explain your position latest by 07.10.2013. In the event of no reply from your end by this date. It will be presumed that you have nothing to say and action will be taken without any further notice, please take note."
36. The learned counsel for the respondents have vehemently argued that in view of existence of clause(s) 27 and 28 (supra), they could take any of the action, as contemplated in the ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...24...
aforesaid clause(s) and therefore, there is no illegality in their action, whereby they have blacklisted the petitioner for five years.
.
37. It is more than settled that the fundamental purpose behind the serving of show cause notice is to make the noticee understand the precise case set up against him which he has to meet. Therefore, this not only requires the statement of imputations of detailing out the alleged breaches and defaults one has committed, so that he gets an opportunity to rebut the same, but another rt requirement is the nature of the action, which is proposed to be taken for such a breach, that has to be clearly set out so that the noticee is able to point out that proposed action is not warranted in the given case, even if the defaults/ breaches complained of are not satisfactorily. When it comes to black listing, this requirement becomes all the more imperative, having regard to the fact that it is harshest possible action.
38. In observing so, I draw strength from the recent judgement of the Hon'ble Supreme Court in Gorkha Security Services vs. Government (NCT of Delhi) and others (2014) 9 SCC 105, wherein it was observed as follows:-
"Necessity of serving show cause notice as a requisite of the Principles of Natural Justice:
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.::: Downloaded on - 15/04/2017 18:39:11 :::HCHP
...25...
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 the case of M/s. Erusian Equipment & Chemicals Ltd. v. State of West Bengal & Anr. (1975) 1 SCC 70 , highlighted the necessity of giving an opportunity to such a person by serving a show of cause notice thereby giving him opportunity to meet the allegations which were in the mind of the authority contemplating blacklisting of such a person. This is clear from rt the reading of Para Nos. 12 and 20 of the said judgment. Necessitating this requirement, the court observed thus:
"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 ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...26...
an opportunity to represent his case before he is put on the blacklist".
.
18. Again, in Raghunath Thakur v. State of Bihar and Ors.
(1989) 1 SCC 229 the aforesaid principle was reiterated in the following manner:-
"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 of 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 rt 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. 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 of otherwise of the allegations made against the appellant. The appeal is thus disposed of."
18. Recently, in the case of Patel Engineering Ltd. v. Union of India and Anr. (2012) 11 SCC 257 speaking through one of us (Jasti Chelameswar, J.) this Court emphatically reiterated the principle by explaining the same in the following manner: "
"13. The concept of "blacklisting" is explained by this Court in Erusian Equipment & Chemicals Ltd. v. State of W.B. as under:
'20. Blacklisting has the effect of preventing a person from the privilege and advantage of entering ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...27...
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 of 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 rt 14. Though nobody has any right to compel the State to enter into a contract, 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 Engineering (supra).
Contents of Show Cause Notice ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...28...
21. The Central issue, however, pertains to the requirement of stating the action which is proposed to be .
taken. The fundamental purpose behind the serving of Show Cause Notice is to make the noticee understand the precise case set up against him which he has to meet. This would require the statement of imputations detailing out the alleged breaches and defaults he has committed, so that he gets an opportunity to rebut the same. Another requirement, of according to us, is the nature of action which is proposed to be taken for such a breach. That should also be stated so that the noticee is able to point out that proposed action is not rt warranted in the given case, even if the defaults/ breaches complained of are not satisfactorily explained. When it comes to black listing, this requirement becomes all the more imperative, having regard to the fact that it is harshest possible action.
22. The High Court has simply stated that the purpose of show cause notice is primarily to enable the noticee to meet the grounds on which the action is proposed against him. No doubt, the High Court is justified to this extent.
However, it is equally important to mention as to what would be the consequence if the noticee does not satisfactorily meet the grounds on which an action is proposed. To put it otherwise, we are of the opinion that in order to fulfil the requirements of principles of natural justice, a show cause notice should meet the following two requirements viz:
i) The material/ grounds to be stated on which according to the Department necessitates an action;
ii) Particular penalty/action which is proposed to be taken. It is this second requirement which the High Court has failed to omit.
We may hasten to add that even if it is not specifically mentioned in the show cause notice but it can be clearly and safely be discerned from the reading thereof, that would be sufficient to meet this requirement."
"27. We are, therefore, of the opinion that it was incumbent on the part of the Department to state in the show cause notice that the competent authority intended to impose such a ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...29...
penalty of blacklisting, so as to provide adequate and meaningful opportunity to the appellant to show cause against .
the same. However, we may also add that even if it is not mentioned specifically but from the reading of the show cause notice, it can be clearly inferred that such an action was proposed, that would fulfill this requirement. In the present case, however, reading of the show cause notice does not suggest that noticee could find out that such an action could of also be taken. We say so for the reasons that are recorded hereinafter."
"29. No doubt, rules of natural justice are not embodied rt rules nor can they be lifted to the position of fundamental rights. However, their aim is to secure justice and to prevent miscarriage of justice. It is now well established proposition of law that unless a statutory provision either specifically or by necessary implication excludes the application of any rules of natural justice, in exercise of power pre-judicially affecting another must be in conformity with the rules of natural justice."
"31. When it comes to the action of blacklisting which is termed as 'Civil Death' it would be difficult to accept the proposition that without even putting the noticee to such a contemplated action and giving him a chance to show cause as to why such an action be not taken, final order can be passed blacklisting such a person only on the premise that this is one of the actions so stated in the provisions of NIT."
39. Tested on the touch-stone of the principles and the guidelines laid down by the Hon'ble Supreme Court in the aforesaid case, the action of the respondents in black listing the petitioner-firm cannot be countenanced. The mere existence of clause(s) 27 and 28 in the agreement entered into between the parties does not meet the mandatory requirement of the show cause notice in which it ought to have been either specifically mentioned or could clear ly and safely be discerned from the reading thereof that would sufficient to meet this ::: Downloaded on - 15/04/2017 18:39:11 :::HCHP ...30...
requirement and the petitioner could thereafter be black-listed.
Therefore, without any specific stipulation in the show cause notice, .
noticed above, the respondents could not have been imposed the penalty of blacklisting the petitioner. Hence, the impugned order of blacklisting the petitioner without proper notice is contrary to the principle of natural justice and accordingly the same is quashed and of set-aside.
40. Consequently, the writ petition is partly allowed to the rt aforesaid extent. However, I may make it clear that it would be open to the respondents to take any action in this behalf after complying with the necessary procedure or formalities delineated above. The parties to bear their own costs.
July 29, 2015. ( Tarlok Singh Chauhan ),
(Hem) Judge.
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