Andhra Pradesh High Court - Amravati
Vtc Transport Pvt. Ltd., vs Union Of India, on 18 January, 2021
Author: U.Durga Prasad Rao
Bench: U.Durga Prasad Rao
THE HON'BLE SRI JUSTICE U.DURGA PRASAD RAO
Writ Petition No.19561 of 2020
ORDER:
The petitioner prays for a writ of mandamus
i) to declare the action of respondent Nos.2 and 3 in rejecting the technical bid/technical RFx offer dated 16.09.2020 (uploaded on 25.09.2020) pursuant to the Notice Inviting Tender (for short 'NIT') vide VSP/MKTG/CDY/2020-21 RFX No.2400000654 dated 14.08.2020 issued by respondent Nos.2 and 3 on the alleged ground of blacklisting/debarment vide letter Ref.No.MKTG/SY/35/01/170-172 dated 21.02.2005, as illegal, arbitrary, unconstitutional and against the principles of natural justice, and consequently to set aside the impugned e-mails dated 16.10.2020 and 17.10.2020 issued by respondent Nos.2 and 3;
ii) to direct respondent Nos.2 and 3 to consider the technical bid/technical RFx dated 16.09.2020 submitted by the petitioner as technically qualified/eligible as per the terms of the NIT vide VSP/MKTG/CDY/2020-21 RFX No.2400000654 dated 14.08.2020;
iii) to declare the alleged blacklisting/debarment vide letter Ref.No. MKTG/SY/35/01/170-172 dated 21.02.2005 issued by respondent Nos.2 and 3, as illegal, unconstitutional and against the terms of the NIT, and consequently to set aside the same qua the petitioner;
iv) consequently, to direct respondent Nos.2 and 3 to consider the bid of the petitioner as technically qualified and permit the petitioner to participate in reverse e-
UDPR,J W.P.No.19561 of 2020 2 auction and open the price bid of the petitioner and award the impugned NIT (as mentioned supra) dated 14.08.2020 to the petitioner in case its rate quoted in reverse e-auction is considered as the lowest/L-1;
v) alternatively, to direct respondent Nos.2 and 3 to consider the bid of the petitioner as technically qualified and conduct a fresh reference e-auction and open the price bid of the petitioner and award the impugned NIT (as stated supra) dated 14.08.2020 in case its rate quoted in the fresh reverse e-auction is considered as the lowest/L-1;
vi) alternatively, without prejudice to the above, to direct respondent Nos.2 and 3 to undertake re-bidding/re- tendering with reference to the scope of work involved in the impugned NIT (as stated supra) dated 14.08.2020 and thereby permit the petitioner to participate and submit its offer/bid in the re-bidding/re-tendering.
2. The case of the petitioner is succinctly thus:
i) M/s. Varma Transport Company was a partnership firm whose liabilities and assets were taken over by M/s. VTC Transport Private Limited which was a public limited company incorporated in the year 1997. The said company was later converted into a private limited company in the year 2008. As a result of the said metamorphosis, the Directors and management of the petitioner company were changed.
The petitioner company is engaged in providing highly skilled and specialized services for handling, carrying and forwarding iron and steel and it enjoys untarnished reputation in the area of transportation UDPR,J W.P.No.19561 of 2020 3 of heavy and lengthy material concerning iron and steel and it has been the consignment agent of various Public Sector Undertakings (PSUs), State Corporations, such as, Steel Authority of India, Bharat Heavy Electricals, Indian Oil Corporation, etc.
ii) While so, respondent No.3 on behalf of respondent No.2, issued two tenders vide NIT VSP/MKTG//CDY/2020-21 RFx No.2400000653 dated 14.08.2020 and VSP/MKTG//CDY/2020-21 RFx No.2400000654 dated 14.08.2020 for the purpose of handling of steel materials at its Central Dispatch Yard. As per the tender conditions, the bidder can bid for both contract No.1 and contract No.2. The bidding process is in two parts, the technical bid and financial bid. If a bidder is found to be L-1 tenderer of contract No.1, his bid for contract No.2 shall not be processed further.
iii) Apropos to the above notification, the petitioner submitted its bid for Contract Nos.1 and 2. It has submitted its offer vide letter dated 16.09.2020 (technical bid) and uploaded financial bid on 25.09.2020 by duly enclosing the necessary documents. The petitioner received several communications from respondent Nos.2 and 3 seeking certain clarifications/additional documents and the petitioner has scrupulously submitted them. Clause No.17.6 of the tender notification says that offers received from tenderers debarred/blacklisted by the Government Departments and PSUs will not be considered and Companies/Proprietorship/Partnership firms, UDPR,J W.P.No.19561 of 2020 4 where any tenderer who got tainted in course of conducting business with RINL/VSP/any other PSUs/Government Departments in the past has controlling interest, will not be considered. However, the petitioner is concerned, the respondents never sought for any clarification on the aspect of the eligibility of the petitioner to offer for tender. The petitioner was neither debarred/blacklisted by any Government Department/PSU/respondent Nos.2 and 3 nor any person concerning to petitioner has the controlling interest. However, the petitioner's technical bid was rejected by respondent Nos.2 and 3 by referring to the alleged blacklisting proceedings/orders initiated against the partnership firm of M/s. Varma Transport Company whose assets and liabilities were taken over by M/s. VTC Transport Limited who is the predecessor in interest of the present petitioner. To clear the doubts regarding its disqualification, the petitioner immediately addressed a representation dated 16.10.2020 to respondent Nos.2 and 3 requesting them not to disqualify its offer dated 25.09.2020 and to provide an opportunity of hearing before making any decision. However, without considering the request of the petitioner, respondent Nos.2 and 3 sent the impugned e-mail dated 16.10.2020 at 5.18 p.m. to the petitioner stating that its technical bid was not considered as per Clause 17.6 of the NIT on account of the alleged blacklisting/debarment proceedings against M/s. VTC Transport Private Limited. The said rejection is mechanical, vague, cryptic and illegal. The blacklisting proceedings initiated against M/s. Varma Transport Company cannot be imputed to the petitioner company UDPR,J W.P.No.19561 of 2020 5 which has nothing to do with the former ones. Hence, the petitioner company sent another e-mail dated 16.10.2020 at 7.30 p.m. stating that the petitioner was not aware of the blacklisting/debarment orders allegedly passed vide Ref.No.MKTG/SY/35/01/170-172 dated 21.05.2005 and requested to furnish a copy of the debarment proceedings. Without furnishing a copy of the said proceedings, respondent Nos.2 and 3 in turn replied by e-mail that the alleged letter dated 13.09.2005 sent by the predecessor in interest of the petitioner would clearly show that the debarment letter was acknowledged by its predecessor.
iv) While so, respondent Nos.2 and 3, addressed e-mail dated 17.10.2020 at around 12.50 by attaching the technical evaluation report of the petitioner with reference to tender RFx No.2400000653 stating that the bid was rejected as per Clause 17.6 of the NIT and they would proceed with the conducting of reverse e-auction bid, which is illegal and arbitrary. Any action initiated against the partnership firm of M/s. Varma Transport Company including the alleged blacklisting orders, if any, cannot bind an act to the prejudice of the petitioner. Even otherwise, as per the judicial pronouncements of the Hon'ble Apex Court, blacklisting can only be done for a definite period and the same cannot result in the civil death of a company by barring such company from participating in Government contracts for indefinitely long period. On that ground UDPR,J W.P.No.19561 of 2020 6 also, respondent Nos.2 and 3 cannot reject the technical bid of the petitioner.
Hence the writ petition.
3. Respondent Nos.2 and 3 filed counter opposing the writ petition and inter alia contending thus:
i) Deprecating the petition averments, respondent Nos.2 and 3 contended that the petitioner is blowing hot and cold by taking the plea on one hand that M/s. VTC Transport Public Limited Company was blacklisted and on the other hand, taking another plea that the petitioner converted the said public limited company into private limited company. Respondent Nos.2 and 3 contended that the petitioner is very much aware and conscious that M/s. VTC Transport Public Limited Company was blacklisted and the said stigma still continues and applies to the petitioner also. In fact, during 2013 their attempt to participate in tender proceedings for appointment of C.A. of Ludhiana was rejected on the same ground of blacklisting during 2005. At that time also, the petitioner did not take any steps either by requesting the respondents to cancel such order or challenging the same before any Court of law. As such, the petitioner cannot raise such an issue by way of representations dated 16.09.2020 and 16.10.2020 while participating in the tender proceedings by submitting the tender papers. Thus, the contention of the petitioner that the blacklisting order passed against the predecessor in interest of the petitioner cannot operate to prejudice the petitioner and the UDPR,J W.P.No.19561 of 2020 7 petitioner is a separate and new entity from its predecessor in interest, is untenable.
ii) The further contention of the petitioner that in the website of the respondents, the petitioner's name is not appeared in the list of blacklisted entities has no significance because the said list is only an inclusive but not exhaustive or conclusive. It is further contended that the assets and liabilities of M/s. Varma Transport Company, a partnership firm, were taken over by M/s.VTC Transport Company which was a public limited company and later it was changed into a private limited company i.e., the present writ petitioner. In that view, the contention of the petitioner that the present entity of the petitioner is quite different from its predecessor who suffered the ignominy of blacklisting will not effect to it, is untenable. It is contended that the blacklisting order invariably follows the petitioner even after changing the name, nature and character of the entity. It is further contended that the only way the petitioner could have avoided the stigma of blacklisting was by way of challenging the same before the Court of law between 2005 and 2020 but they did not do so and on the other hand, the petitioner participated in some other contracts during 2013 and the present respondents rejected the technical bid of the petitioner on the ground that the blacklisting order was staring at the petitioner. Even at that juncture also, the petitioner did not take any legal recourse. It is further contended that the petitioner cannot take shelter under the decisions of the Hon'ble Apex Court expounding that the UDPR,J W.P.No.19561 of 2020 8 blacklisting cannot be imposed in perpetuity, without making a request to the respondents to reconsider the earlier blacklisting order before submitting the tender papers. On the other hand, the petitioner purportedly enclosed a representation dated 16.09.2020 along with the tender bid which cannot be considered by the tender committee, rather such representation should be submitted to the Board of Directors, at whose instance the earlier blacklisting order was passed, so as to enable them to take a decision. So, the petitioner has not approached the Court with clean hands. The respondents thus prayed to dismiss the writ petition.
4. The writ petitioner filed a rejoinder as against the counter filed by respondent Nos.2 and 3. In the rejoinder, while refuting the counter allegations, it is contended that blacklisting of the petitioner's predecessor cannot be for an indefinite period to prejudice the petitioner and the rejection of the petitioner's bid on that ground is wholly arbitrary and orchestrated to favour the petitioner's competitors. The petitioner cannot be attributed the knowledge of blacklisting of its predecessor. Regarding the allegations in the counter that the petitioner's tender for appointment of C.A. of Ludhiana was rejected, the petitioner contended that the same is irrelevant.
i) Anticipating the petitioner's bid may be rejected malafidely to favour others, the petitioner, as an abundant caution, issued representation dated 16.09.2020 along with its bid documents.
UDPR,J W.P.No.19561 of 2020 9 Though the respondents had sufficient time of one month to consider the said representation, however they remained silent purposefully till rejection of the petitioner's bid. The respondents' action of rejecting the petitioner's bid on 16.10.2020 and immediately conducting e- auction on 17.10.2020 and opening the financial bid within few hours thereafter, amply demonstrates that they were motivated by extraneous considerations.
ii) It is further contended that the tenders vide RFx No.2400000653 and RFx No.2400000654 are still at the negotiation stage and in that regard, the petitioner addressed e-mail dated 26.10.2020 requesting the respondents to provide the workable rates given by the participants and stating that while the L-I tenderer quoted the price of Rs.74 for RFx No.2400000653 and Rs.78/- for RFx No.2400000654, the petitioner is willing to perform at a lesser rate. The respondents ought to have considered the said offer of the petitioner so as to save an amount of Rs.2.5 crores approximately for RFx No.2400000653 and Rs.2.00 crores approximately for RFx No.2400000654 for the public exchequer. Further, as per the information of the petitioner, there were certain arbitral proceedings pending between the respondents and the L-1 company for the tender RFx No.2400000653 which was blacklisted and the said order was suspended by the respondents pending the arbitral proceedings. This shows that the respondents were acting in undue haste in favour of the petitioner's competitors.
UDPR,J W.P.No.19561 of 2020 10
5. Heard arguments of Sri S. Niranjan Reddy, learned senior counsel representing Ms. Gorantla Sriranga Pujitha, learned counsel for the petitioner, learned Assistant Solicitor General for the 1st respondent, and Sri Ravindra Rao, learned counsel, representing Sri K. Sarvabhouma Rao, learned counsel for respondent Nos.2 and 3.
6. Reiterating the writ petition averments, Sri S. Niranjan Reddy, learned senior counsel, would submit that the petitioner company offered tender bid in both the contract Nos.1 and 2 by fulfilling all the formalities hopping that the respondents would clear its technical bid and call for financial bid under reverse tendering process. However, he would argue, to its utter dismay, the respondents have unjustly and illegally rejected the technical bid of the petitioner on an unenviable ground that the predecessor in interest of the petitioner suffered blacklisting in 2005 which haunts the petitioner also. Learned senior counsel at the first instance, sought to vehemently argue that M/s. VTC Transport Public Limited Company, which is said to have suffered blacklisting in the year 2005, underwent corporate transformation into M/s.VTC Transport Private Limited in the year 2008 and none of the Directors of its predecessor is continuing in the petitioner company. So, for all the practical and legal purposes, the petitioner is a new entity and therefore, no stigma of blacklisting relating to its predecessor can even remotely be attached and attributed to the petitioner. In that view, the rejection of the UDPR,J W.P.No.19561 of 2020 11 petitioner's technical bid is wholly unjust and illegal and against the canons of law.
Thus, arguing as above, learned senior counsel, however fairly admitted that he is not pressing the said argument but for academic purpose, and his main thrust of argument is thus:
Even assuming that the blacklisting imposed on the predecessor of the petitioner company is also percolated down to the petitioner, still in view of the decision of the Hon'ble Apex Court in Kulja Industries Limited Vs. Chief General Manager W.T.Proj. BSNL and others1, debarment can never be permanent and the length of debarment would invariably depend upon the nature of the offence committed by the erring contractor. Learned counsel would submit that the aforesaid ratio was followed in many other decisions also. He would thus formidably argue that it would be preposterous on the part of the respondents to contend that the blacklisting of the petitioner's predecessor should invariably be understood as a permanent one, afflicting its successor in interest also, that too after a long period of 15 years. Learned counsel would submit that the petitioner, in fact, along with the tender bid filed a representation dated 16.10.2020 requesting respondent Nos.2 and 3 not to disqualify its offer dated 25.09.2020 and to provide an opportunity of hearing. In the light of these facts, he would conclude, interest of justice requires setting aside the rejection order and afford an opportunity to the petitioner to 1 MANU/SC/1014/2013=(2014) 14 SCC 731 UDPR,J W.P.No.19561 of 2020 12 participate in the financial bid or to set aside the entire tender process and direct respondent Nos.2 and 3 to go for fresh bids.
7. In oppugnation, Sri Ravindra Rao, learned counsel for respondent Nos.2 and 3, argued that the petitioner company cannot escape from the blacklisting stigma imposed on its predecessor. In expatiation, he would argue that during 2002 a fraud was committed by the partners of M/s. Varma Transport Company in the contract between it and the respondents, and on detection of the fraud, necessary actions were initiated both on administrative side and also by way of CBI investigation. While both the actions were in progress, the key persons representing the then M/s. Varma Transport Company, petitioner's predecessor, as well as the petitioner, ingeniously came up with an idea of changing the nomenclature of the original partnership firm to wriggle out of the inevitable action. He would argue, accordingly some persons, who were there in M/s. Varma Transport Partnership Firm, have floated a public company with the same name viz., M/s.VTC Transport Public Limited Company which took over the assets and liabilities of the partnership firm. This itself would show that the said public limited company is an offshoot of M/s. Varma Transport Company apparently to bail out the partnership firm from the legal actions. Ultimately, the blacklisting order was passed against the predecessor of the petitioner company i.e., M/s.VTC Transport Limited while it was a public limited company. It appears, thereafter the said public limited UDPR,J W.P.No.19561 of 2020 13 company was changed into M/s.VTC Transport Private Limited. Learned counsel strenuously argued that these metamorphological changes would clearly demonstrate that not only the assets and liabilities but also the stigma of blacklisting of petitioner's predecessor were succeeded by the petitioner which will be discernible on lifting the corporate veil. Therefore, the petitioner cannot naively argue either it had no knowledge of its predecessor's suffering blacklisting or such stigma will not stick to the petitioner.
Nextly, while admitting that the Hon'ble Apex Court held that the blacklisting cannot run in perpetuity and it requires re- consideration basing on the gravity of misconduct of the concerned contractor or entity, learned counsel would argue that in the instant case, since inception, the petitioner knew about the blacklisting of its predecessor. In fact, the Directors of all these three concerns are inter-related to one another. Further, the present petitioner tried to participate in tender proceedings for appointment of C.A. at Ludhiana in the year 2013 and the respondents had rejected such a bid of the petitioner in view of blacklisting order. The petitioner has not challenged the said rejection nor did submit any representation for setting aside the blacklisting order. Even in the present case also, except submitting a representation dated 16.09.2020 along with the technical bid, the petitioner did not submit any prior representation to the Board of the respondents for setting aside the blacklisting order. Learned counsel would argue that the representation submitted along with the tender papers will only go before the tender committee which UDPR,J W.P.No.19561 of 2020 14 cannot take a decision. Had an advance representation was made before the Management, suitable action would have been taken. Instead of doing so, the petitioner cannot plead that his representation dated 16.09.2020 was kept in cold storage and it was hurriedly rejected on 17.10.2020 and the respondents conducted a reverse tender process on the same date. Learned counsel thus prayed to dismiss the writ petition.
8. In reply, Sri S. Niranjan Reddy, learned senior counsel for the petitioner, while referring the judgment of the Hon'ble Apex Court in Daffodills Pharmaceuticals Ltd. And another Vs. State of U.P. and another2 wherein, considering the fact that the appellant company was debarred for a long period of four years and three months as against the norm of 3 to 5 years from supplying medicines to the Government Health Departments, the Apex Court set aside the debarment order, argued that the present writ petitioner need not make any representation because the blacklisting in this case is for about 15 years and therefore, the blacklisting order shall be deemed to have become extinct.
9. The points for consideration are:
1) Whether the blacklisting order inflicted against M/s. VTC Transport Public Limited Company i.e., the predecessor in interest of the petitioner will apply to the petitioner company also in respect of the subject tenders?
2) If point No.1 is held affirmatively, whether blacklisting can be applied perpetually under Law? and 2 2019 SCC Online SC 1607 UDPR,J W.P.No.19561 of 2020 15
3) To what relief?
10. POINT NO.1: As can be seen from the respective pleadings, the admitted facts are that M/s. Varma Transport Company, a partnership firm, was dealing with handling, transportation and consignment of goods and heavy materials. The assets and liabilities of the said transport company were later taken over by M/s.VTC Transport Limited (Public Limited Company) in the year 1997. Later, upon an application made for conversion into a private company under Section 31(1) of the Companies Act, 1956 and on the approval of the Central Government, the said public limited company got changed into M/s. VTC Transport Private Limited with effect from 15.01.2008 vide certificate of incorporation issued by the Registrar of Companies, Punjab, Himachal Pradesh and Chandigarh. Be that it may, while M/s. VTC Transport Company was operating as public company, in the course of handling and transporting of the consignments of the present respondents i.e., RINL, Visakhapatnam, some issues arose between M/s. VTC Transport Company and RINL, Visakhapatnam. As such, the present respondents i.e., RINL issued a letter dated 21.05.2005 to M/s. VTC Transport Company blacklisting and debarring the said VTC Transport Company from participating in the tenders floated by RINL, Visakhapatnam and entering into any agreement with RINL, Visakahaptnam. The said debarment was made consequent upon the civil suit in O.S.No.131 of 2002 filed by M/s. VTC Transport Company was dismissed by the Civil Judge UDPR,J W.P.No.19561 of 2020 16 (Senior Division), Chandigarh on 23.05.2005. M/s. VTC Transport Company seems to have not challenged the said order in a Court of law thereafter. While so, as stated supra, M/s. VTC Transport Company was changed into M/s. VTC Transport Private Limited with effect from 18.01.2008. The present writ petitioner is the said VTC Transport Private Limited.
Be that it may, the petitioner company submitted its bids for contract No.1 and contract No.2 vide letter dated 16.09.2020 (technical bid) and 25.09.2020 (financial bid) pursuant to the tender notification issued by respondent No.3 vide NIT VSP/MKTG//CDY/2020-21 RFx No.2400000653 dated 14.08.2020 and VSP/MKTG//CDY/2020-21 RFx No.2400000654 dated 14.08.2020. The technical bid was rejected by the respondents vide e- mail letter dated 16.10.2020 following the Clause 17.6 of the NIT on the ground that M/s. VTC Transport Private Limited (formerly M/s. VTC Transport Limited) was blacklisted and debarred from participating in the tenders floated by RINL, VSP and entering into an agreement with RINL, VSP with immediate effect vide letter dated 21.05.2005 of the Marketing Department of the respondents. The same is now under challenge.
11. The first and foremost contention of the petitioner is that the blacklisting of the petitioner's predecessor in interest was not known to the petitioner and at any rate, blacklisting and debarment proceedings against its predecessor cannot be attributed to the UDPR,J W.P.No.19561 of 2020 17 petitioner because there was a total transformation of the previous entity into the present one and none of the Directors of the previous company is holding any office in the present company. The present company is for all practical and legal purposes a new entity and therefore, the stigma of blacklisting relating to its predecessor cannot haunt the petitioner. The contention of the respondents is otherwise. The same company which was transferred from public company to a private limited company and the persons behind both the concerns are inter-related and therefore, it is preposterous for the petitioner to contend that both the entities are different from each other. Further, in the year 2013 when the present petitioner tried to participate in some other contracts for appointment of C.A. at Ludhiana, the respondents rejected the same on the ground that the petitioner's predecessor was blacklisted. Therefore, the petitioner was very much aware of the fact that its predecessor was blacklisted. Neither the petitioner nor its predecessor in interest took legal recourse to challenge the blacklisting and debarment proceedings. Therefore, if corporate veil is lifted, the truth will come out to the effect that both the entities are, in fact, one and the same or at least closely connected with each other, and therefore, along with the assets and liabilities, the stigma of blacklisting and debarment proceedings also transmute from predecessor to successor.
12. I gave my anxious consideration to the respective pleadings and arguments. I find considerable force in the argument of the UDPR,J W.P.No.19561 of 2020 18 respondents. As can be seen from the letter in Ref.No.MKTG/SY/35/01/170-172 dated 21.05.2005 addressed by the Additional General Manager (Mktg.)/E&S of RINL, a copy of which is filed along with the material papers enclosed to the counter, the respondents informed to M/s. VTC Transport Company i.e., the predecessor in interest of the petitioner stating that the said concern was blacklisted and debarred from participating in the tenders floated by RINL, VSP and entering into any agreement with RINL, VSP with immediate effect. No time stipulation was mentioned for the blacklisting and debarment in the said letter. It is pertinent to note that the blacklisting and debarment was inflicted on M/s. VTC Transport Limited as an entity but not on any individual. Admittedly, during the year 2008 M/s.VTC Transport Company was transformed into M/s. VTC Transport Private Limited vide certificate of incorporation dated 15.01.2008 issued by the Registrar of Companies. Merely because a public company has been transformed into a private limited company with apparently some new members, that does not mean that the stigma of blacklisting attached to the public company is altogether obliterated. As rightly pointed out by learned counsel for the respondents, if the corporate veil is lifted, one can understand that obviously to wriggle out the debarment proceedings. M/s. VTC Transport Public Limited Company was converted into M/s. VTC Transport Private Limited. In the decision in Delhi Development Authority Vs. Skiper Construction Company (P) Limited and UDPR,J W.P.No.19561 of 2020 19 others3, the Hon'ble Apex Court has expounded the doctrine of corporate veil and the circumstances when the Court can lift or pierce the said veil. It was observed thus:
"24. In Aron Salomon V. Salomon & Company Limited (1987) AC 22, the House of Lords had observed , "the company is at law a different person altogether from the subscriber....; and though it may be that after incorporation the business is precisely the same as it was before and the same persons are managers and the same hands received the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as members liable, in any shape or form, except to the extent and in the manner provided by that Act". Since then, however, the Courts have come to recognize several exceptions to the said rule. While it is not necessary to refer to all of them, the one relevant to us is "when the corporate personality is being blatantly used as a cloak for fraud or improper conduct (emphasis supplied)". (Gower: Modern Company Law - 4th Edn. (1979) at P. 137). Pennington (Company Law - 5th Edn.
1985 at P.53) also states that "where the protection of public interests is of paramount importance or where the company has been formed to evade obligations imposed by the law", the court will disregard the corporate veil.
xxxxx The various classes of cases where the concept of corporate entity should be ignored and veil drawn aside have now been briefly reviewed. What general rule, if any, can be laid down? The nearest approximation to generalization which the present state of the authorities would warrant is this: When the conception of corporate entity is employed to defraud creditors, to evade an existing obligation, to circumvent a statute, to achieve or perpetuate monopoly, or to protect knavery or crime, the courts will draw aside the web of entity, will regard the corporate company as an association of live, up-and- doing, men and women shareholders, and will do justice between real persons (emphasis supplied) .
xxxxx 3 MANU/SC/0497/1996=AIR 1996 SC 2005 UDPR,J W.P.No.19561 of 2020 20
26. The law as stated by Palmer and Gower has been approved by this Court in Tata Engineering and Locomotive Company Limited v. State of Bihar MANU/SC/0036/1964 : [1964]6SCR885. The following passage from the decision is apposite :
Gower has classified seven categories of cases where the veil of a corporate body has been lifted. But, it would not be possible to evolve a rational consistent and inflexible principle which can be invoked in determining the question as to whether the veil of the corporation should be lifted or not. Broadly, where fraud is intended to be prevented, or trading with enemy is sought to be defeated, the veil of corporation is lifted by judicial decisions and the shareholders are held to be 'persons who actually work for the corporation.
xxxxx
28. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned."
Thus, the judicial pronouncements would show that the misty corporate veil can be pierced by the Courts for the purpose of preventing any fraud or improper conduct or for the protection of the public interest or prevention of evasion of tax by an entity. Coming to the instant case, M/s. VTC Transport Company had suffered the ignominy of blacklisting in the hands of the respondents way back in 2005 and in the year 2008, it only metamorphosed into M/s. VTC Transport Private Limited. As already stated supra, it was the predecessor entity that was blacklisted and not an individual. So, merely because that entity was converted into a different one and with UDPR,J W.P.No.19561 of 2020 21 different persons as in the seats of Directors, the debarment tattoo will not be obliterated and, if so, it would amount to permitting the successor in interest with apparent name change to successfully obviate the blacklisting inflicted on the predecessor. So, when the corporate veil is lifted, except conversion from the public company to a private limited company, there appears to be no substantial change in the functioning of the previous company. Further, according to the respondents, when the present writ petitioner tried to participate in the bid process for appointment of C.A. at Ludhiana in 2013, the respondents rejected its bid on the ground that M/s. VTC Transport Company was blacklisted in 2005. If really the present writ petitioner concern and its predecessor were two different entities and one has nothing to do with the other, certainly the petitioner would have resorted to legal course of action then itself. That it did not take up any legal action gives strength to the arguments of the respondents. It is true that in the rejoinder, the petitioner made a faint attempt to deny about its participation in the tender proceedings for appointment of C.A. at Ludhiana. At the same time, it is mentioned that the said fact was irrelevant and not within the knowledge of the deponent. Even assuming for a moment that the petitioner did not participate in the said tender process in the year 2013 and hence, it had no occasion of knowing about its predecessor being blacklisted in the year 2005, however the letter dated 16.09.2020 addressed by the petitioner to the respondents would clearly manifest that in the year 2016 the present petitioner participated in the tender notification issued by the present UDPR,J W.P.No.19561 of 2020 22 respondents and the petitioner was rejected on the ground of blacklisting of the partnership firm. The copy of the letter dated 16.09.2020 is enclosed to the material papers and filed along with the counter. Thus, from the said letter, it is manifest that at least by the year 2016, the petitioner had knowledge about its predecessor's debarment. So, the petitioner cannot claim to be ignorant of the said fact. All these would show that except the change in the corporate nomenclature, the two entities, in reality, are one and the same and as such. By lifting the corporate veil, this aspect gets confirmed. Therefore, the blacklisting and debarment proceedings inflicted on the petitioner's predecessor in interest would equally apply to the petitioner. Of course, learned counsel for the petitioner submitted that he is not shoring his case much on this point and his main thrust is on the next point.
13. POINT NO.2: Since point No.1 is held in affirmation, the next question for determination is whether the blacklisting and debarment imposed on the predecessor of the petitioner shall operate in perpetuity and affect the petitioner. In Kulja Industries Limited case (supra), the Apex Court was dealing with the question as to whether the respondent-BSNL could have blacklisted the appellant for allotment of future contracts for all times to come. The High Court of Judicature at Bombay held the point affirmatively and dismissed the writ petition and hence, the appellant was before the Apex Court. In UDPR,J W.P.No.19561 of 2020 23 this context, the Hon'ble Apex Court on referring various other decisions made the following observations:
"17. That apart the power to blacklist a contractor whether the contract be for supply of material or equipment or for the execution of any other work whatsoever is in our opinion inherent in the party allotting the contract. There is no need for any such power being specifically conferred by statute or reserved by contractor. That is because 'blacklisting' simply signifies a business decision by which the party affected by the breach decides not to enter into any contractual relationship with the party committing the breach. Between two private parties the right to take any such decision is absolute and untrammelled by any constraints whatsoever. The freedom to contract or not to contract is unqualified in the case of private parties. But any such decision is subject to judicial review when the same is taken by the State or any of its instrumentalities. This implies that any such decision will be open to scrutiny not only on the touchstone of the principles of natural justice but also on the doctrine of proportionality. A fair hearing to the party being blacklisted thus becomes an essential pre-condition for a proper exercise of the power and a valid order of blacklisting made pursuant thereto. The order itself being reasonable, fair and proportionate to the gravity of the offence is similarly examinable by a writ Court.
xxxxx
22. As regards the period for which the order of debarment will remain effective, the guidelines state that the same would depend upon the seriousness of the case leading to such debarment.
23. Similarly in England, Wales and Northern Ireland, there are statutory provisions that make operators ineligible on several grounds including fraud, fraudulent trading or conspiracy to defraud, bribery etc.
24. Suffice it to say that 'debarment' is recognised and often used as an effective method for disciplining deviant suppliers/contractors who may have committed acts of omission and commission or frauds including misrepresentations, falsification of records and other breaches of the Regulations under which such contracts were allotted. What is notable is that the 'debarment' is UDPR,J W.P.No.19561 of 2020 24 never permanent and the period of debarment would invariably depend upon the nature of the offence committed by the erring contractor."
While observing as above, the Apex Court ultimately held thus:
"26. The next question then is whether this Court ought to itself determine the time period for which the Appellant should be blacklisted or remit the matter back to the authority to do so having regard to the attendant facts and circumstances. A remand back to the competent authority has appealed to us to be a more appropriate option than an order by which we may ourselves determine the period for which the Appellant would remain blacklisted. We say so for two precise reasons. Firstly, because blacklisting is in the nature of penalty the quantum whereof is a matter that rests primarily with the authority competent to impose the same. In the realm of service jurisprudence this Court has no doubt cut short the agony of a delinquent employee in exceptional circumstances to prevent delay and further litigation by modifying the quantum of punishment but such considerations do not apply to a company engaged in a lucrative business like supply of optical fibre/HDPE pipes to BSNL. Secondly, because while determining the period for which the blacklisting should be effective the Respondent-Corporation may for the sake of objectivity and transparency formulate broad guidelines to be followed in such cases. Different periods of debarment depending upon the gravity of the offences, violations and breaches may be prescribed by such guidelines. While, it may not be possible to exhaustively enumerate all types of offences and acts of misdemeanour, or violations of contractual obligations by a contractor, the Respondent-Corporation may do so as far as possible to reduce if not totally eliminate arbitrariness in the exercise of the power vested in it and inspire confidence in the fairness of the order which the competent authority may pass against a defaulting contractor."
Thus holding, the Apex Court referred the matter to the competent authority to determine the period for which the blacklisting of the appellant shall remain operative. From the above decision, it is UDPR,J W.P.No.19561 of 2020 25 crystal clear that permanent debarment from future contracts for all times to come would be too harsh and a heavy punishment. To this extent, the argument of the petitioner that the blacklisting and debarment commenced with its predecessor and continued with the petitioner shall end at a point is worthy of consideration. Since the respondent authorities did not prescribe time limit for the blacklisting and debarment imposed on the petitioner's predecessor in interest, following the dictum in the above decision, this Court has to direct the respondents to pass an order as to the period for which such blacklisting and debarment would be operative. The contention of the respondents is that so far, the petitioner has not submitted any representation except tendering the representation dated 16.09.2020 along with the technical bid and hence, there was no occasion for the respondents to consider this aspect. Per contra, the argument of the petitioner is that in view of the ratio in Daffodills Pharmaceuticals case (supra), the normal blacklisting period will be only three or maximum five years and exceeding that period, the blacklisting shall be deemed to extinct and the Court can expunge the same and in that view, he need not submit any representation. I am unable to agree with the submission of the petitioner. It appears the petitioner along with the technical bid papers submitted the representation dated 16.09.2020 seeking to set aside the blacklisting and debarment order and permit them to submit the bid. However, as rightly submitted by the counsel for the respondents, all those papers would land in the hands of only the bid committee and not before the authorities at helm UDPR,J W.P.No.19561 of 2020 26 of affairs who have power to re-consider the blacklisting order. Therefore, the petitioner ought to have submitted a representation in advance to the concerned authority. So far as the observations in Daffodills Pharmaceuticals case are concerned, in my view, they were made with reference to the facts surrounding to that case. Considering that the blacklisting was made infinitely which was co-terminus with the lifetime of the criminal case and even the charges have not been framed against the accused in the criminal case and already debarment proceedings were issued more than four years and three months ago, the Apex Court quashed the Government's debarment order. In this case, this Court does not find any compelling circumstances to take upon itself the authority to decide the length of the blacklisting and debarment. On the other hand, by following the ratio in Kulja Industries Limited case, it is considered apposite to leave the decision to the respondent authorities.
14. POINT NO.3: Thus on a conspectus of facts and law, this Writ Petition is dismissed, however giving liberty to the petitioner to submit a representation to the respondent authorities seeking to set aside the blacklisting and debarment order passed against its predecessor which is held to be continued against the petitioner, whereupon the respondent authorities shall consider the same in terms of the relevant judicial pronouncements and, if necessary, afford a personal hearing to the petitioner and pass an appropriate order within four weeks from the date of receipt of such representation and UDPR,J W.P.No.19561 of 2020 27 communicate the same to the petitioner. There shall be no order as to costs.
As a sequel, interlocutory applications, if any, pending for consideration shall stand closed.
__________________________ U. DURGA PRASAD RAO, J 18.01.2021 CBS UDPR,J W.P.No.19561 of 2020 28 THE HON'BLE SRI JUSTICE U. DURGA PRASAD RAO Writ Petition No. 19561 of 2020 18.01.2021 cbs