Calcutta High Court (Appellete Side)
Blue Dreamz Advertising Pvt. Ltd. & Anr vs The Kolkata Municipal Corporation & Ors on 23 December, 2016
Author: I.P. Mukerji
Bench: I.P. Mukerji
IN THE HIGH COURT AT CALCUTTA
Constitutional Writ Jurisdiction
Appellate Side
W.P. No. 6616 (W) of 2016
Blue Dreamz Advertising Pvt. Ltd. & Anr.
v.
The Kolkata Municipal Corporation & Ors.
For the petitioners:- Mr. Kishore Dutta, Sr. Advocate
Mr. Arjun Roy Mukherjee
...Advocates
For the K.M.C:- Mr. L.K. Gupta, A.A.G.
Mr. Alok Kumar Ghosh
Mr. Gopal Chandra Das
Ms. Piyali Sengupta
...Advocates
For the Municipality:- Mr. N.C. Behani
...Advocate
Judgement On: - 23rd December, 2016
I.P. MUKERJI, J.
Blue Dreamz Advertising Private Limited, the writ petitioner does the business of displaying advertisements of their clients. They do so in various places of West Bengal including the area covered by the Kolkata Municipal Corporation.
The respondent Corporation on 6th February, 2014 invited tenders for display of advertisements on bus shelters, kiosks and hoardings which were under their control and ownership. The writ petitioner was successful in this tender process. On 28th February, 2014 they were awarded a contract by the respondent Corporation to display advertisements in five clusters, each comprising of 50 hoardings, in total 250 hoardings in the Kolkata Municipal Corporation area. It was for a period of one year commencing from 1st July, 2014 till 30th June, 2015. The writ petitioner had to make payment of a sum of Rs. 3,70,00,000/- per cluster for the entire contract period. Payment was to be made quarterly in advance. Payment per quarter was Rs. 4,62,50,000/-. The letter of the writ petitioner dated 14th November, 2014 to the respondent Corporation is very important. They said that it was the obligation of the respondent to identify and handover these 250 street hoardings and the bus shelters to the petitioner. 250 street hoardings could not be located by them. They were only able to locate 200 of them. The respondent Corporation should only demand payment for 174 hoardings. In other words the writ petitioner claimed novation of the contract by reduction of the number of hoardings and the licence fee.
At this point of time it is very important to note that the disputes between the parties were referred to the Joint Municipal Commissioner (Revenue), Kolkata Municipal Corporation as the arbitrator. The learned arbitrator held a hearing on 13th December, 2014. A joint inspection by the respondent Corporation and the writ petitioner was also made. It further appears that the petitioner made an application before the learned arbitrator under Section 12 of the said Act which is still pending.
On 16th December, 2014 the respondent raised a demand of Rs. 7,75,44,330/- upon the petitioner in respect of the said hoardings from July to December 2014.
On 27th August, 2015 they were issued a show cause notice by the respondent Corporation. It said that an amount of Rs. 16,84,34,431/- which included interest was due and payable by them as licence fee. Furthermore, they allegedly did not execute the agreement for street hoardings, did not submit the bank guarantee and had illegally "shifted" the hoardings. On 15th September, 2015 the writ petitioner made their reply to the show cause notice. They said that the 174 hoardings allotted were "non-lucrative". Amongst other things they said that there was an arbitration agreement clause (Clause No. 18) in the agreement between the parties.
In the written notes they inter alia said that a "no objection certificate" was not given by the Corporation, as a result of which CESC Limited could not provide the lighting arrangements for the hoardings allotted i.e. 174 in number. By his letter dated 3rd December, 2015 the Chief Manager (Advertisement) of the respondent Corporation directed the petitioner to appear before him on 10th December, 2015 at 3 p.m. for hearing them on the show cause notice. On 2nd March 2016 the Chief Manager (Advertisement) made the impugned decision to black list the petitioner. The effect was that they could not participate in any tender of the respondent Corporation for a period of 5 years or till the payment of their claim.
The petitioners challenge this black listing.
Mr. Dutta, learned Counsel appearing from them says that the claim of the Corporation is out of a contract and is purely contractual. The petitioners have paid them substantial sums of money in respect of the contract. The contract period was over on 30th June, 2015. Arbitration has been commenced. Therefore, it was most unfair on the part of the Corporation to have black listed the writ petitioner. Thereby, the petitioner would be deprived of entering into any contract with the Corporation for five years. The result would be that the Corporation was pursuing their rights under the contract before the learned arbitrator. In addition to that they were penalising the writ petitioner by black listing them. Learned Counsel also submitted that unless the disputes were resolved through arbitration, the Corporation was in no position to adjudge that they were a defaulter and should be blacklisted. Moreover, he relied on Section 610 to 621 and Section 202 to 208 of the Kolkata Municipal Corporation Act, 1980. He submitted that these provisions of the Act nowhere provided for this punishment of blacklisting. I was shown B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd and another reported in (2006) 11 SCC 548 (paragraph 39 onwards).
Mr. L.K. Gupta, learned Additional Advocate General on the other hand took me in detail through the correspondence appended to the affidavit-in- opposition. He submitted that the writ petitioner had admitted that they were not able to perform the entire contract of displaying advertisements in 250 hoardings and had sought for remission of the consideration payable thereunder. They conceded that they could only display advertisements in 174 hoardings. There was substantial default in the payment of the licence fee. The respondent Corporation had rightly declared the writ petitioner as a black listed contractor.
He submitted that as of now the claim of the Corporation against the writ petitioners was substantial. If this amount or a significant part of it was paid by them then the black listing could be lifted.
Lastly, he also took the point of maintainability of the writ. He said that no public law element was involved in this writ. It was founded on pure contractual obligation. This court should not entertain it. He maintained that the writ petitioner had been correctly blacklisted, following the principles in Kulja Industries Limited v. Chief General Manager, Western Telecom Project Bharat Sanchar Nigam Limited and Others reported in (2014) 14 SCC 731.
ANALYSIS The blacklisting order is mostly a narration of the case of the Corporation to black list the writ petitioner and the defence taken by them. The substantial, if not the only ground to black list the writ petitioner was their inability to pay the demand of the Corporation.
The defence of the writ petitioner was that 174 clusters could be identified and delivered to them whereas the rest of them could not be identified and delivered to them by the respondent Corporation. The Corporation denied this assertion.
In the impugned decision the Chief Manager (Advertisement) stated that this defence of the writ petitioner was not to be believed. The real reason was that they did not have the financial ability to carry out the contract in relation to 5 clusters. The writ petitioner was setting a bad example to others. The question is: Can this black listing order be sustained? This concept of black listing has to be first understood. When the term black listing is used in contract, it means that one person or one party has decided that it will not enter into any kind of a contract or even a legal relationship with another person or party. The decision whether to enter into a contract with one person or not is entirely the prerogative of the other person. Since a contract is brought about by my mutual consent, nobody can force another person to enter into a contract. This applies in the private law field when a private person is taking a decision whether to enter into a contract with another. It is the same in the public law domain when the state is entering into a contract with a private person. Whether it is a private party or the state the decision has to be in the negative. In other words: I shall not enter into any contract with X. The party resolving not to enter into a contract with X may have had a bitter experience during the performance of a previous contract or even before entering into the contemplated contract with him. He may have heard that X is most dishonest and unfair in his dealing and that he is avoidable as a contracting partner. When it comes to the state as a contracting party the decision to enter into a contract, the terms and conditions thereof the performance, discharge recession etc. are all largely in the private law field. The public law element also steps in because the state has a larger responsibility under the Constitution and the laws to be the protection of public interest, impartial, fair and just in the matter of contracts. When these duties are not performed by the state the court can step in and interfere with its decision. The court has the power to scrutinise whether an act of blacklisting done by the state or an instrumentality of it is just, fair and equitable. Now the authorities on the subject need to be first discussed. In B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd and another reported in (2006) 11 SCC 548 Mr. Justice S.B. Sinha made a most important pronouncement that if a person raised a bona fide dispute with regard to the claim he may not be declared a defaulter or a blacklisted candidate so long as the dispute was not resolved (para-41). His lordship also remarked that blacklisting was a civil consequence and that the rules of natural justice had to be scrupulously followed before a contractor could be blacklisted. This case was referred to in the later case of Kulja Industries Limited v. Chief General Manager, Western Telecom Project Bharat Sanchar Nigam Limited and Others reported in (2014) 14 SCC 731. Mr. Justice Thakur delivering the judgement affirmed that blacklisting was a "business decision"
by which one party swore not to enter into any contractual relationship with another. It was part of the freedom to contract. However, in the case of a decision taken by the state or its instrumentalities, it was open to scrutiny by the court on the touch stone of natural justice, proportionality, reasonableness, fairness etc. It does appear from its reliance on the principles for blacklisting contractors in the USA and UK, that Supreme Court concurred with them and approved the principle that infringement of public interest by non-responsible and dishonest contractors or the practice of illegal conduct by them were very relevant considerations, in blacklisting a contractor. First of all, in the impugned decision dated 27th August, 2015 I do not find any discussion by the respondent authority as to the reason why they were blacklisting the writ petitioner. Let alone the reasons conceived of in the decision of Kulja Industries Limited v. Chief General Manager, Western Telecom Project Bharat Sanchar Nigam Limited and Others reported in (2014) 14 SCC 731, no reason whatsoever is forthcoming. The impugned order only narrates the facts. The only reason advanced was that the writ petitioner was setting a bad example to others. The conduct of the petitioner was branded as "negligent action".
It is well settled by the above authorities that blacklisting is a civil consequence. The rules of natural justice have to be scrupulously followed. This denotes that proper reasons have to be given. The reasons, should have suggested that public interest would be affected if the writ petitioner was continued to be awarded contracts by the respondent Corporation. Or it was to be established that the writ petitioner was a dishonest business organisation, or irresponsible or wholly lacking in business integrity. The government or a government agency like the respondent Corporation could not blacklist the writ petitioner without assigning these reasons or reasons akin thereto. There is a civil dispute between the parties. The matter has gone to arbitration. At best, the writ petitioner can be accused of taking the contract, not fully paying for it and not performing it. The respondent Corporation has a monetary claim against the writ petitioner. It does not appear that the writ petitioner has made payment of any significant part of the contract price. It is astonishing that the respondent Corporation did not terminate the contract within the contract period and award hoardings to another party when the writ petitioner made a breach of the payment condition to pay the quarterly licence fee in advance. It waited till after the expiry of the contract period on 30th June, 2015. Thereafter, they proceeded to show cause the writ petitioner. This shows considerable fault on the part of the respondent Corporation. It also goes to indicate that expressly or impliedly the respondent Corporation had accepted the alleged breach of contract made by the petitioner. Moreover, the defence of the writ petitioner in their written notes of argument is that 174 hoardings which were awarded to them were "non-lucrative". As the respondent Corporation did not issue a no objection certificate, CESC Limited could not give permission to light the hoardings. The writ petitioner could not put them to any use.
If this is the defence raised by the writ petitioner it could not be cast aside as one totally devoid of any merit. Therefore, following the ratio laid down by Mr. Justice Sinha in the case of B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd and another reported in (2006) 11 SCC 548 blacklisting proceeding should not have proceeded with because the writ petitioner in my opinion raised a bona fide dispute. Furthermore blacklisting ought not to have been made until and unless this dispute was resolved.
For all the above reasons, the impugned order dated 2nd March, 2016 is set aside. Only the issue of blacklisting is decided by this order. Any observation regarding any other dispute between the parties is to be taken as tentative. This writ application is accordingly allowed.
Certified photocopy of this Judgment and order, if applied for, be supplied to the parties upon compliance with all requisite formalities.
(I.P. MUKERJI, J.)