Gujarat High Court
Dilip Hrushikesh Mandal vs Indian Oil Corporation Limited. on 23 February, 2018
Author: A.Y. Kogje
Bench: M.R. Shah, A.Y. Kogje
C/SCA/3184/2018 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 3184 of 2018
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DILIP HRUSHIKESH MANDAL
Versus
INDIAN OIL CORPORATION LIMITED.
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Appearance:
MR MEHUL S. SHAH, Ld. SENIOR COUNSEL with MR SANDEEP R
LIMBANI for the PETITIONER(s) No. 1,2
MR AKSHAY A VAKIL for the RESPONDENT(s) No. 2
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CORAM: HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MR.JUSTICE A.Y. KOGJE
Date : 23/02/2018
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE A.Y. KOGJE)
1. This petition under Article 226 of the Constitution of India is filed challenging the decision of the respondent - Indian Oil Corporation Limited (hereinafter referred to in short as 'IOCL') in terminating the contract of the petitioner for house keeping facility management services for Gujarat S.O. Building at Indian Oil Bhavan, Behind Volks Wagon Showroom, S.G. Highway, Ahmedabad.
2. This petition is filed with the following prayers, inter- alia :-
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"(b) To hold and declare that the impugned action of the respondents in terminating the contract of the petitioner as being bad in law, illegal, arbitrary and against the principles of natural justice;
(c) To quash and set aside the impugned order dated 5-2-2018 which is at Annexure-
F, terminating the contract of the petitioner and thereby direct the respondent IOC to permit the petitioner to continue with contract arrangement without any interruption;
3. The facts in brief are as under :-
a) The petitioner had bidded in a tender floated by IOCL for the purpose of house keeping facility management services at one of its premises. The petitioner being L-1 succeeded and was awarded the work contract by an acceptance letter dated 22/30.05.2017 for a period between 05.06.2017 between 04.06.2019.
b) The petitioner was issued a showcause notice dated 25.10.2017 for violation and circumventing the provisions of the Labour law regulations and other statutory requirements, which was construed as a breach of Contract. Violation of labour laws was in Page 2 of 17 C/SCA/3184/2018 ORDER connection with non-payment of wages in time, non-
payment of ESI and PF to the workers / employees of the petitioner engaged for such work with IOCL through the petitioner.
c) The petitioner offered an explanation by a communication dated 26.10.2017 stating that the petitioner was facing financial constraints thereby causing the delay in making payment of salaries and ESI contribution. Again by a letter dated 13.12.2017, IOCL issued yet another letter communicating to the petitioner that he continues to be in breach of contract by violation of the labour law regulations and hence, IOCL would be constrained to take appropriate action. The petitioner once again offered an explanation by a letter dated 18.12.2017 wherein it was contended that the delay caused is not intentional and the petitioner had made efforts to make regular payments to its employees engaged with IOCL and also cleared the arrears of the petitioner's contribution towards ESI and PF.
d) By an order dated 05.02.2018, IOCL terminated the Page 3 of 17 C/SCA/3184/2018 ORDER contract and placed the petitioner in the holiday list for a period of three years.
4. Learned Advocate for the petitioner submitted that the action on part of the IOCL is arbitrary and in violation of the principles of natural justice. It is submitted that the petitioner had offered a valid explanation of financial crisis which had resulted into a delay in making payments to its workers and such delay was totally unintentional. Infact, the petitioner had rectified his mistake by making payment of the dues not only of the wages but also his part of the contribution towards EPF and ESIC. Learned Senior Counsel has drawn attention of this Court to the information stipulated in Paragraph B to indicate that the delay was not so gross so as to be considered as a serious breach of contract thereby terminating not only the contract but also putting the petitioner on the holiday list for a period of three years.
5. It is submitted that the decision has serious commercial and civil consequences and therefore, the Page 4 of 17 C/SCA/3184/2018 ORDER petitioner ought to have been given a sufficient opportunity. It is further submitted that the decision is also disproportionate to the alleged breach of contract. It is submitted that for the purpose of putting the petitioner on the holiday list for mere delay in making payment is completely disproportionate and infact for such purpose, the respondent ought to have followed due procedure by communicating to the petitioner that he was to be put on the holiday list, thereby giving opportunity to represent against this particular issue of putting the petitioner on holiday list.
6. Learned Senior Counsel submits that the contract itself provides for penalty upto Rs.10,000/= incase of non-deposit of provident fund, ESI contribution of workers engaged by the petitioner for the tender work. Therefore, the action on part of the respondent is not in conformity with the general terms and conditions of the contract.
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7. Learned Senior Counsel for the petitioner referred to and relied upon the judgment of the Apex Court reported in the case of M/s. Erusian Equipment and Chemicals Ltd. v. Union of India and Another reported in AIR 1975 1 SCC 70 to submit that in government contracts incase of blacklisting, a party blacklisted is entitled to be given a notice to be heard and the principles of natural justice is required to be followed. He relied upon paragraph 20 of this judgment in this regard. Learned Senior Counsel then relied upon the judgment of the Apex Court in the case of Kulja Industries Limited v. Chief Gen. Manager, W.T. Proj., BSNL and Others reported in AIR 2014 SC 9 and submitted that decision to blacklist is open to judicial review on the touch stone of proportionality and principles of natural justice. He has also relied upon the decision of the Apex Court in the case of Gorkha Security Services v. Government (NCT Of Delhi) and Others reported in AIR (2014) 9 SCC 105 and contended that the principles of natural justice envisages issuance of proper showcause notice and purpose thereof. It is Page 6 of 17 C/SCA/3184/2018 ORDER contended that the showcause notice must necessarily contain reference to the action of blacklisting, which is proposed or possible, or it should be possible to draw a clear inference that blacklisting would be a possible outcome of such showcause notice. It is submitted that in the instant case, the petitioner had no idea that alongwith the termination of contract, he would also be placed on the holiday list.
8. Learned Advocate for the respondent - Caveator contended that the petitioner was aware of the breach and the showcause notice was very clear and categorical in mentioning the nature of breach and the proposed punishment. It is submitted that though an opportunity was given, the petitioner has defaulted not only once but twice with the labour laws which forms one of the essential conditions of the terms of contract, and the breach of such conditions would entail necessary consequence which are already prescribed under the Contract. The petitioner having signed the Contract with open eyes and accepting all the terms and conditions including the condition of Page 7 of 17 C/SCA/3184/2018 ORDER consequences to follow if breach is committed of any of the conditions, the petitioner cannot therefore escape the consequences.
9. Having heard learned Advocates for the rival parties and having gone through the documents on record, the petitioner was given the work contract pursuant to the Tender No.WRCC/2016-17/PT/193/HK & FM dated 17.03.2017 for the purpose of house keeping facility management service for GSO Building at Gujarat S.O. Building at Indian Oil Bhavan, Behind Volks Wagon Showroom, S.G. Highway, Ahmedabad. The work contract was executed and signed by both the parties on 17.03.2017.
10. Relevant terms of the contract necessary for the purpose of this case are :-
"19. BLACK LISTING / HOLIDAY LISTING / BANNING / REMOVING FROM APPROVED PANEL Incase if a party put on holiday list, no tender enquiry / bid / work order will be issued to the party as long as the party's name is on the holiday list. The period of holiday listing may be for one or more years Page 8 of 17 C/SCA/3184/2018 ORDER depending on the sole discretion of IOCL. The holiday listing will be party specific and when the party is put on holiday list, all the offices of the party shall be on holiday for all locations of IOCL and for all services / locations of the party. If the party placed on holiday, is proprietary concern, all the concerns of the same proprietor shall also be considered to be on holiday and if that proprietor is the managing partner of any firm, such firm shall also be considered to be on holiday. The Functional Director may however, if he considers this to be in the interest of the Corporation, remove the bar in rspect of any specific service / location.......
32. WAGES :
In the event of wages not being paid timely, i.e. by 7th of the month and statutory compliance not completed by the due date, the contractor will be penalized at the rate of Rs.10,000/- per week for the delay or part thereof till the payment is actually made to the contract labourers, subject to maximum of 10% of monthly bill. This amount of penalty shall be recovered in the next running bill. In case of final bill, the payment shall be released after wage disbursement and statutory compliance as per dates given above. The penal amount shall not be distributed to the labourers as this is the additional administrative cost incurred by the Corporation due to notice (expected) from labour authorities, compliant redressal and expenses to attend meetings in this regard......
33. PROVIDENT FUND :
The contractor shall strictly comply with the provision of Employees Provident Funds Act. The contractor shall deposit Employees and Employer contributions in the designated account with the designated Page 9 of 17 C/SCA/3184/2018 ORDER authority every month. The contractor shall furnish along with each running bill, the challan / receipt for the payment towards ESI for preceding month(s).
34. ESIC :
The contractor shall strictly comply with the provisions of Employees State Insurance Act. The contractor shall deposit Employees and Employer contributions in the designated account with the designated authority every month. The contractor shall furnish along with each running bill, the challan / receipt for the payment towards ESI for the preceding month.
43. TERMINATION DUE TO BREACH OF CONTRACT'S TERMS AND CONDITIONS :
Notwithstanding anything to the contrary herein contained, the corporation shall be at liberty to terminate this contract forthwith upon or at any time, breach or default of any terms, conditions or stipulations contained herein is committed by you and / or by your workmen deployed in our premises. A three member committee consisting of HR, Finance and Law will take decision for termination contract."
11. The documents on record indicate that on 25.10.2017, a showcause notice was issued to the petitioner to showcause as to why the petitioner be not placed on holiday list and debar him from entering into the contract with IOCL citing reasons of violation and circumventing the provisions of labour laws / regulations / other statutory requirements and Page 10 of 17 C/SCA/3184/2018 ORDER committing breach of contract. The said communication specifically communicated the instances of breach of provisions of law which included failure to pay wages to the contract workers engaged to work at the offices of IOCL, failing to deposit PF contribution and despite several mails and reminders, failure to deposit such contribution since July 2017, failure to deposit ESI contribution to the contract workers, failure for timely supply of consumable materials for house keeping, which was delivered only after several phone calls, newspaper bills, florist bills, washing bills which were to be borne by the petitioner were not paid at all and the supervisors not furnished with sufficient funds for petty house keeping expenses.
12. In response to such showcause notice, the petitioner in his reply has admitted to all such breaches and had cited financial burden on the petitioner. The letter was followed with an Undertaking to overcome all such breaches and thereby comply with the terms and conditions of the Page 11 of 17 C/SCA/3184/2018 ORDER contract. Despite this, once again a Notice dated 13.12.2017 was issued by IOCL to indicate that the petitioner despite the Undertaking, was still in breach of the conditions of the Contact and there is non- compliance of the statutory obligations like payment of wages. To this letter also, the response of the petitioner dated 18.12.2017 was an admission on his part being unable to fulfill the statutory requirements and attributed the same to their financial conditions and again gave an assurance to comply with the terms and conditions and the statutory requirements.
13. It appears that finally by an impugned order dated 05.02.2018, the contract of the petitioner stood terminated and the petitioner was put on holiday list for a period of three years. In the order, it was stated that the petitioner had committed breach of the statutory requirements of the EPF and ESI remittance to the workers engaged. The contractor was also in breach of requirement of payment of wages, which was also cited and the failure on part of the petitioner to comply with the terms and conditions of the Page 12 of 17 C/SCA/3184/2018 ORDER contract as well as statutory regulations despite being issued a showcause notice and given an opportunity to improve.
14. In view of the aforesaid facts and the admitted position which appears on record, where the petitioner himself has accepted the breach in the Contract, the respondents were justified in resorting to Clause 19 and 43 of the terms and conditions of the Contract. The submission of the petitioner regarding provisions of inflicting penalty on account of non-deposit of PF and ESI being the only action with breach taken against the petitioner under the contract cannot be accepted. The conditions in the Contract provided for penalty cannot be read in isolation to other terms and conditions which include putting the Contractor on holiday list or terminating the contract due to breach of terms and conditions. Non-payment of wages, EPF and ESIC as provided under Clauses 32, 33 and 34 of the Tender Contract emanate to the breach of terms and conditions of the contract for which action under Clause 43 was agreed upon and contemplated. The Page 13 of 17 C/SCA/3184/2018 ORDER clause of penalty appears to be provided for to cover statutory penalities which would be the consequences following the breach of such statutory regulations. Therefore, such terms may not be read as an isolated provision for non-payment of provident fund, ESIC which will also cover breach of conditions under Clauses 32, 33 and 34. Over and above, the showcause notice mentions the breach of terms and conditions of contract, which are over and above the breach on account of non-payment of wages, ESIC and EPF to the workers as mentioned in the Contract.
15. This Court is of the view that the Contract awarded was a complete contract and the payment made to the petitioner under the Contract include the wages to the workers engaged as well the payment under the concerned labour legislations like ESIC, PF, minimum wages etc. It is not the case of the petitioner before us that the petitioner has not received such payments from the respondent - IOCL which include the wages and statutory dues of the workers engaged under the Contract. Therefore, it Page 14 of 17 C/SCA/3184/2018 ORDER appears that the petitioner has received all the money including the wages and statutory dues of the workers from the respondent - IOCL but has not deposited the same with the authorities or paid to the workers engaged under the Contractor. In the judgment relied upon by the petitioner incase of Erusian Equipment and Chemicals Ltd. (supra), the Apex Court has held in Paragraphs 17 and 20 as under :-
"17. The Government is a Government of laws and not of men. It is true that neither the petitioner nor the respondent has any right to enter into a contract but they are entitled to equal treatment with others who offer tender or quotations for the purchase of the goods. This privilege arises because it is the Government which is trading with the public and the democratic form of Government demands equality and absence of arbitrariness ad discrimination in such transactions. Hohfeld treats privileges as a form of liberty as opposed to a duty. The activities of the Government have a public element and, therefore, there should be fairness and equality. The State need not enter into any contract with any one but if it does so, it must do so fairly without discrimination and without unfair procedure. Reputation is a part of a person's charater and personality. Blacklisting tarnished one's reputation.
20. Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Page 15 of 17 C/SCA/3184/2018 ORDER 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 an opportunity to represent his case before he is put on the blacklist."
16. Considering this principle and perusal of the showcause notice dated 25.10.2017, it is found that the showcause notice not only contains the nature and instance of breach committed by the petitioner but also specifically envisages the consequences of placing the petitioner on holiday list for breach thus committed. Incase of Kulja Industries Limited (supra), the Apex Court has examined the powers of the parties to the contract and the decision of the parties pursuant to the terms of the contract especially distinguishing such powers where the parties to the contract are private parties as against one party being the State or its instrumentalities. The Apex Court has held that the decision of blacklisting when is taken by the State or its instrumentalities, such decision will be open to scrutiny on the touchstone of principles of natural justice as also on the doctrine of Page 16 of 17 C/SCA/3184/2018 ORDER proportionality.
17. In the facts of this case, the showcause notice issued by IOCL on 25.10.2017 was replied by the petitioner on 26.10.2017. Thereafter in another notice dated 13.12.2017 and reply to it by the petitioner dated 18.12.2017 had preceded the decision of 05.02.2017 which demonstrates that the IOCL appears to have complied with the principles of natural justice and not only that but nature of breach of the conditions of the contract as well the statutory requirements under the Labour Legislation Act on part of the respondent - IOCL under Clauses 19 and 43 of the tender contract conditions.
18. In view of the aforesaid discussion, no case for interference is made out. The petition therefore, deserves to be dismissed and is hereby dismissed. No order as to costs.
Sd/-
(M.R. SHAH, J) Sd/-
(A.Y. KOGJE, J) Caroline Page 17 of 17