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Madhya Pradesh High Court

M/S Gulshan Rai Jain Ii vs Municipal Corporation, Bhopal on 7 November, 2024

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                                                              W.P. No.26679 of 2024
IN     THE        HIGH COURT OF MADHYA PRADESH
                       AT JABALPUR
                                    BEFORE
               HON'BLE SHRI JUSTICE SANJEEV SACHDEVA,
                                 &
               HON'BLE SHRI JUSTICE VINAY SARAF
                     ON THE 7th OF NOVEMBER, 2024
                     WRIT PETITION No. 26679 of 2024


                   M/S GULSHAN RAI JAIN II
                           Versus
         MUNICIPAL CORPORATION, BHOPAL AND OTHERS

Appearance:
Shri Naman Nagrath - Senior Advocate with Shri Anand Dixit and Shri Jubin
Prasad - Advocate for petitioner.

Shri Anubhav Jain - Government Advocate for the respondent No.1/State.
Shri Sanjay Kumar Agrawal - Senior Advocate with Ms. Ankit Khare - Advocate for
respondents.


                                    ORDER

Per : Justice Sanjeev Sachdeva

1. Petitioner seeks quashing of letter dated 29.08.2024, terminating the contract of the petitioner; b blacklisting the petitioner and appropriating the performance security and security deposit made by the petitioner, petitio pursuant to the award of contract. Petitioner further seeks a direction to 2 W.P. No.26679 of 2024 the respondent to make balance payment of the running bills/ bills work done to the petitioner.

2. Respondent spondent Mun Municipal Corporation of Bhopal had invited bids for construction of houses and Development of Infrastructure for slum localities in Bhopal under Prime Minister Awas Yojna. Bid id was invited for construction of 2232 flats. Petitioner was successful in the bid and was awarded the contract on 04.02.2019, the term of completion of project was two years.

3. As per the petitioner petitioner, the work ork was delayed on account of factors attributable solely to the respondent and aaccordingly ccordingly petitioner requested for extension tension of time on 25.01.2021, which extension was granted on 02.03.2021.

1. As per the petitioner petitioner, work further got delayed on account of factors attributable to the respondents and petitioner once again asked for extension of time on 28.01.2022 28.01.2022, which was granted on 11.03.2022. Similar extensions were requested for by the petitioner on grounds attributable to the respondents and extensions were granted from time to time till April, petitioner, 28th running bill was raised and payment there 2024. As per the petitioner under was requested for by the petitioner on 22.04.2024. Said bill was hereafter 29th partly paid. However substantial amount was withheld. Thereafter running bill was raised by the petitioner on 08.07.2024, but payment was not made. Subsequently by communication dated 29.08.2024 29.08.2024,, respondents r terminated inated the contract and passed an order of blacklisting of petitioner 3 W.P. No.26679 of 2024 from participation in further contracts for a period of 5 years and also directed appropriation of performance e security and security deposit.

4. Learned Senior counsel for the petitioner inter alia contends that there was no show cause notice issued to the petitioner prior to passing the order of blacklisting the petitioner from participation in other projects. It is further contended that termination letter dated 29.08.2024 made no reference to communication dated 15.03.2022 wherebyy the work was substantially de-scoped.

scoped. He submits that the work was de scoped on account of factors attributable to the respondents inter alia non availability of adequate land for raisi raising construction. Learned Senior counsel further submits that the termination is contrary to the factual matrix and the appropriation of performance erformance and security deposit is also illegal as no amount has been quantified for the alleged loss suffered. Learned Senior counsel for the petitioner submits that the contract stipulated that prior to termination of the contract contract, the e employer was obliged to give 14 days' notice to the contract contractor to rectify the defects ts and only on the contractor failing to comply with the same could the power to terminate be exercised. He further submits that very basis of termination is incorrect and the respondents have not taken into account the factual matrix and the de-

de scoping of the project by reduction of the number of flats.

5. Learned Senior counsel for the petitioner further submits that respondents could d not have directed invocation of the bank guarantee without quantification of the loss and damage suffered by the he respondents 4 W.P. No.26679 of 2024 and nd there is no reference to any loss or damage amage suffered by the respondents in the impugned letter dated 29.08.2024 29.08.2024.. Further, there t is no quantification and adjudication of the loss or damage suffered prior pr to issuance of letter dated 29.08.2024.

6. A preliminary objec objection is raised by learned Senior counsel appearing for the respondent with regard to the maintainability of the present petition. It is contended that the issue issues raised by the petitioner are covered by the Provisions of the Madhya Pradesh Madhyastham Adhikaran Adhiniyam , 1983 and the remedy remedy, if any, of the petitioner is to invoke the procedure as stipulated in the Adhiniyam and then to approach the statutory Arbitration Tribunal Tribunal.. Insofar as the issue of blacklisting is concerned, it is candidly conceded by learned Senior counsel for the respondent that no show cause notice was issued to the petitioner on the issue of blacklisting prior to the impugned order dated 29.08.2024.

7. We note that the controversy raised by the petitioner is on four issues;

i) Alleged wrongful termination of the contract

ii) The decision to invoke the bank guarantee and forfeiture of the performance security

iii) appropriation of the security deposit which was deducted @5% from each running bill and

iv) blacklisting lacklisting of petitioner form participation in future contracts.

8. Reference may be had to communication dated 15.03.2022 issued by the respondents wherein it is specifically stated that the scope of work is de -scoped from 2232 dwel dwelling units to 768 and 15 plots. We note that by letter dated 19.04.2022 19.04.2022,, it was noticed that there was substantial delay in execution of the work. Reference was made to an inspection of site wherein it was noticed that there were very few number of labour available on site to carry out the construction work. Petitioner was instructed to start the work in full speed by deploying sufficient number of labour and construction n material within 15 days' time so that the houses could be completed and handed over to the beneficiaries by end of April, 2024. Said notice stipulated that failing to do so would entail action in terms of clauses 27.1 and 27.2 towards termination of co contract ntract and forfeiture of performance security and other dues besides claim for damages.

9. As per the petitioner, petitioner thereafter continued to carry on with the project till the termination by communication dated 29.08.2024.

10. It is not in disp dispute that as on 29.08.2024 the project was not completed.. The contention of learned senior counsel for the petitioner is that the respondent in their communication have overlooked the letter dated 15.03.2022 whereby the work was de-scoped from 2232 dwelling units to 768 dwelling units units. Be that as it may it is not in dispute that even those 768 dwelling units were not completed and handed over to the respondents as on 29.08.2024.

11. The question as to whether the contract has been rightly terminated t or wrongfully terminated and the bank guarantee rightfully or wrongfully forfeited and the performance formance security as well as the security deposit being forfeited and decision to invoke the bank guarantee is rightful or wrongful are dependent on the factual matrix of the case and same would require a detailed examination of the facts and circumstances of the case as well as the correspondence exchanged between the parties. In our view, the contention of learned senior counsel for the petitioner that it is an ex facie wrongful termination and wrongful forfeiture of performance security and security deposit and ex facie illegal decision to invoke the bank guarantee is not sustainable for the reason that the decision on the said aspects aspect would require re detailed examination of the factual mat matrix rix of the case. Said aspects can be raised and adjudicated through the alternative dispute mechanism as provided under the Madhyastham Adhiniyam. We are thus of the view that insofar as the said issues are concerned,, petitioner should avail of the alternative remedy as provided by the Adhiniyam and this court in exercise of powers under Article 226 would refrain from entertaining a dispute which would be subject matter of an arbitration proceedings particularly particu in view of several disputed questions of facts being raised in the subject matter. Insofar as the issue of blacklisting is concerned, since it has been conceded by the respondent that no show cause notice on the said aspect was given to the petit petitioner ioner and a concession has been made on behalf of the respondent that the order insofar as it relates to blacklisting of the petitioner is concerned be set aside with liberty to the respondent to issue 7 W.P. No.26679 of 2024 a show cause notice in accordance with law and then adjudicate adjudicat the said issue after giving an opportunity of hearing to the petitioner.

12. Consequently, the impugned communication dated 29.08.2024 to t limited extent that is passes an order of blacklisting of petitioner for a period of 5 years is set aside aside. However, respondent would be at liberty to issue a show cause notice to the petitioner in case they propose to blacklist the petitioner from par participation in future contracts. On issuance of a show cause notice, opportunity would be given to the petitionerr to respond to the show cause notice and thereafter an opportunity of personal hearing shall also be granted,, prior to passing ing an order on the said show cause notice.

13. With ith regard to the contention of learned Senior counsel for the petitioner that there re should ould be an interim protection with regard to invocation of bank guarantee on the ground that there is no quantification of loss and damage, we are of the view that respondents have, at this stage, only decided d to invoke the bank guarantee and there is no invocation of bank guarantee rantee as yet. The question of the validity of an invocation of a bank guarantee being being, in terms the agreement and the of bank guarantee itself can only be tested once the invocation of bank guarantee takes place. Thus challenge to the invocation at this stage is premature.

premature In case respondents issue a communication invoking the bank guarantee, guarantee pursuant to the decision dated 29.08.2024 29.08.2024, it would be open to the petitioner to take such legal remedies as may be permissible in law against agai the said 8 W.P. No.26679 of 2024 invocation. Further we find no merit in the contention of learned senior counsel for the petitioner that termination of the contract is not in accordance with the contractual terms.

14. Reference may be had to the Clause 27 of the agreement which reads as under:-

27. Termination by Engineer in Charge 27.1 if the Contractor fails to carry out any obligation under the Contract, the Engineer Engineer-in-Charge Charge may by notice require the Contractor to make good the failure and to remedy it within a specified reasonable time. 27.2 The Engineer in Charge shall be entitled entitle to terminate the Contract if the Contractor

a) Abandons the Works or otherwis otherwisee plainly plainl demonstrates the intention not to continue performance of his obligations under the Contract;

b) The Contractor is declared as bankrupt or goes into liquidatio liquidationn other than for approved reconstruction or amalgamation;

c) Without reasonable excuse fails to comply with the notice to correct a particular defect within a reasonable period of time;

d) The Contractor does not maintain a valid instrument of financial security as prescribed;

e) The Contractor has delayed the completion of the Works by such duration for which the maximum amount of liquidated damage sis recoverable;

f) If the Contractor fails to deploy machinery and equip mentor personnel or set up a field laboratory as specified in the Contract Data;

g) If the contractor, in the judgment of the Engineer in charge has engaged in corrupt or fraudulent practices in competing for or in executing the contract;

h) Any other fundamental breaches as specifie specified d in the Contract Data.

27.3 In any of these events or circumstances, the Engineer in Charge may, upon giving 14 days' notice to the Contractor, terminate the Contract and expel the Contractor from the Site. However, in the case of sub-

sub paragraph (b) or (g) of clause 27.2, the Engineer-in-

Engineer Charge may terminate the Contract immediately. 27.4 Notwithstanding the above, the Engineer Engineer-in--Charge may terminate the Contract for convenience by giving notice to the Contractor.

15. Clause 27 stipulates that if a contr contractor fails ails to carry out any obligation under the contract contract, the Engineer in Charge may byy notice require the contractor to make good the failure and to remed remedyy it within a specified reasonable time.

16. Clause 27.3 stipulates that the Engineer in Charge may upon giving 14 days' notice to the contractor terminate the contract and expel the contractor from site site. Ass noticed above, by communication dated 19.04.2024, the Superintending Engineer had noticed immense delay caused by the petitioner and also the negligible progress being made. It was also noticed that petitioner had virtually abandoned the work, work however petitioner was instructed to start the work in full speed by deploying sufficient number of labour labours and construction material terial within 15 days' time. Prima facie, we are of the view that letter dated d 19.04.2024 complies with the requirement of giving 14 days' notice to the petitioner prior to termination of the contract for the default. However, we are refraining from commenting ting any further on the said issue as this would wou be also 10 W.P. No.26679 of 2024 subject matter of an adjudication between the parties parties, if such a dispute is raised by the petitioner petitioner, before the appropriate Arbitration Tribunal.

17. In view of the above, this petition is disposed of directing the petitioner to take appropriate steps in accordance with law for redressal of his grievances before fore an appropriate forum under the Madhyastham Adhiniyam. Insofar as the issue of blacklisting is concerned the order is set aside to the limited extent extent, with liberty to the respondent as noticed hereinabove of using a show cause notice and then deciding the show cause notice after complying with principles of natural justice.

18. We may note that iin n terms of Clause 12 of the agreement, agreement petitioner is obliged to raise the dispute within 45 days' of his occurrence. Since petitioner had filed the subject petition on 05.09.2024 05.09.2024, and the petition was entertained by this Court and certain interim orders were ere also passed, we direct that the period between 05.09.2024 till today be excluded for computing the period of 45 days' in terms of Clause 12 of the Agreement. Petition etition is accordingly disposed of in the above terms. It is clarified that this Court neither ther considered nor commented on the merits of the contentions of either party or on the merits of the dispute dispute.. All rights and contentions of the parties are reserved.

       (SANJEEV SACHDEVA)                                          (VINAY SARAF)
           JUDGE                                                      JUDGE

AKM
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                                             W.P. No.26679 of 2024
AKANKS
         Digitally signed by AKANKSHA
         MAURYA
         DN: c=IN, o=HIGH COURT OF
         MADHYA PRADESH, ou=JABALPUR,

2.5.4.20=249af511aff03adb5e1023e8 HA 36f6223dd6fcc17fe5560a49be80567 d4ab381a9, postalCode=482001, st=Madhya Pradesh, serialNumber=08FDD0FD574AF6278 MAURYA 257F149F3D11B8DF5BC8C51B2811B AF3E9439DD98282D77, cn=AKANKSHA MAURYA Date: 2024.11.18 10:49:23 +05'30'