Telangana High Court
Devi Engineering And Construction ... vs Ramagundam Fertilizers And Chemicals ... on 6 June, 2022
Author: G. Radha Rani
Bench: G. Radha Rani
THE HON'BLE Dr. JUSTICE G. RADHA RANI
WRIT PETITION No.18723 OF 2021
ORDER:
This writ petition is filed by the petitioner challenging the action of the 1st respondent in invoking the bank guarantee dated 29.05.2018 vide BG No.02218IGPER0017, as illegal, arbitrary and contrary to the provisions of the General Conditions and Special Conditions of the Contract and consequently to direct the 1st respondent to withdraw its letter dated 20.07.2021 invoking the bank guarantee dated 29.05.2018.
2. Heard Sri Pratap Narayan Sanghi, learned Senior Counsel representing Sri B. Ramulu, learned counsel for the petitioner and Sri Vikram Poosarla, learned counsel for the 1st respondent.
3. Learned Senior Counsel for the petitioner submitted that the petitioner company was engaged in the field of Construction and Engineering. The 1st respondent company invited tenders for "Refurbishment of Township for Revival of Ramagundam Fertilizer Complex" of M/s. Ramagundam Fertilizers and Chemicals Limited (RFCL). The petitioner company submitted its Technical Bid and Price Bid. The 1st respondent, after being satisfied that the petitioner had met its liability criteria and since the petitioner company was the lowest bidder, declared the petitioner company to be the L1 in the said tender and issued Dr.GRR,J 2 WP No.18723 of 2021 letter of acceptance dated 14.03.2017. The original estimated value of the work order was Rs.28,48,55,100/-. Subsequently, the same was revised to Rs.25,84,97,134/-. The work was supposed to be completed in 10 months. The initial date of completion of the contract was 13.02.2018. The 2nd respondent - Engineers India Limited (EIL) was a joint venture partner in the 1st respondent company and was the consultant for the job execution contract. The 1st respondent company through the 2nd respondent had not provided the entire work front even until 13.02.2018 which was the original date of completion as contemplated under the contract. Due to various reasons that were not attributable to the petitioner, such as delay in the release of drawings/revised drawings for execution by EIL/RFCL, delay in handing over the work fronts etc, the work could not be completed. As such, the petitioner sought time extensions from the 1st respondent company and the 1st respondent granted such extensions regularly to the petitioner for the execution of the contract. Though the petitioner was diligent in its efforts to undertake the execution of the contract, due to non-furnishing of the drawings and work fronts at appropriate time and adding of additional scope of work, the petitioner could not complete execution of work as per the schedule. Clause-55.1 of the Special Conditions of Contract would stipulate that in case time Dr.GRR,J 3 WP No.18723 of 2021 extension was granted during the execution of contract, pending detailed delay analysis, payment against Running Account Bills should be released to the contractor without deducting price reduction subject to the condition that the Contractor would submit an additional bank guarantee to cover the price reduction amount. In the light of the said clause, the petitioner issued a price reduction bank guarantee vide BG No. 02218IGPER0017 in favour of the 1st respondent for an amount of Rs.2,58,49,714/- drawn on the 3rd respondent bank, namely, Union Bank of India (erstwhile Andhra Bank), Ameerpet Branch, Hyderabad dated 29.05.2018. The said bank guarantee was initially valid for a period of six months and the same was extended by the petitioner periodically. The last date of extension was on 15.05.2021 and the bank guarantee was extended till 16.08.2021. The petitioner was granted extension of time till 30.10.2020 by the 1st respondent through the 2nd respondent and issued letter dated 01.10.2020. The petitioner managed to complete the execution of work by the given date.
3.1. The petitioner addressed a detailed delay analysis with letter dated 19.11.2020 explaining various grounds of delay attributable to the 1st respondent. On 21.01.2021 the petitioner addressed a letter to the 1st respondent requesting for release of payments due to the petitioner that were forcibly retained by the 1st respondent for the various running account Dr.GRR,J 4 WP No.18723 of 2021 bills to a tune of Rs.58,14,788/-. In the said letter, the petitioner highlighted the abnormal delay in processing and certifying the Running Account Bills since inception of contract and that he received only partial payment even after certification of EIL in RA Bills. The petitioner had not received any communication from the respondents. The 1st respondent neither responded to the letter explaining the delay analysis nor to the letter dated 21.01.2021 seeking for the release of payments due to the petitioner. The petitioner submitted final bill dated 29.01.2021 by EIL for an amount of Rs.84,30,508.70 ps. on 19.02.2021 and the same was forwarded to the 1st respondent. The 1st respondent after lapse of two months on 05.04.2021 returned the certified bill on some minor technical reasons. The petitioner resubmitted the bill on 28.06.2021 with necessary clarifications and corrections and the same was forwarded by EIL on 12.07.2021 for an amount of Rs.89,59,188.03 ps. The 1st respondent was liable to pay the petitioner a total amount of Rs.1,47,73,973/- for the pending due amount in running account bills as well as the final bill amount due to the petitioner by the 1st respondent.
3.2. While the matter stood thus, the 1st respondent issued a letter dated 20.07.2021 to the 3rd respondent bank invoking the bank guarantee stating that the price reduction made to the contractor was not adequately Dr.GRR,J 5 WP No.18723 of 2021 adjusted, in utter dis-regard to the extension given by the 1st respondent himself and despite completion of execution of the work undertaken by the petitioner. The 1st respondent invoked the bank guarantee without issuing any notice to the petitioner. It was understandable if there was some work pending and if the petitioner failed to hold up its contractual obligations. However, despite, the 2nd respondent certifying the final bill twice and despite the numerous representations given by the petitioner to clear the final bill, the 1st respondent with a malafide intention sought to invoke the bank guarantee without any palpable reason and rationale. The petitioner approached the 1st respondent by way of letters and e-mails stating that he was ready to extend the bank guarantee for a period of six months till claims between the petitioner and the 1st respondent were settled. The 1st respondent was not regular in clearing the running account bills to the petitioner due to it lawfully. For an upcoming MSME company, the amounts withheld by the respondent company would account to its major revenue share making the company cash strapped. Crippling the company by invoking the bank guarantee illegally, despite the petitioner company completing the works of all fronts, was nothing but financially suffocating the company. If the respondent company was allowed to encash the bank guarantee, it would cause severe damage to the reputation and goodwill of Dr.GRR,J 6 WP No.18723 of 2021 the company thereby derailing its stability. Invoking the bank guarantee and levying liquidated damages was totally malicious and arbitrary in nature and prayed to allow the petition.
4. Learned counsel for the 1st respondent submitted that the 1st respondent invoked the bank guarantee furnished by the petitioner dated 20.07.2021, as the price reduction was not adequately adjusted by the petitioner and the petitioner had not extended the bank guarantee well in advance, as such, due to reasonable apprehension that the petitioner might not extend the bank guarantee, the 1st respondent was constrained to invoke the bank guarantee dated 29.05.2018 as per the terms of the General Conditions and Special Conditions of contract executed between the parties. He further contended that the price reduction bank guarantee dated 29.05.2018 was an absolute and unconditional bank guarantee. Therefore, there was no illegality, arbitrariness or violation of fundamental rights of the petitioner. He further contended that if the petitioner was aggrieved by the invocation of bank guarantee, the petitioner ought to have invoked the Arbitration Clause under 35.2.3 of the General Conditions governing the agreement vide Bidding Document No.SM/A747-310-CP- TN-8204/1024 dated 09.05.2017 between the parties. Filing a writ petition in relation to a contractual dispute between the parties was not Dr.GRR,J 7 WP No.18723 of 2021 maintainable. As per Clause 16 of the Price Reduction Bank Guarantee dated 29.05.2018, the parties mutually agreed that the courts of Delhi should have exclusive jurisdiction to the price reduction bank guarantee, as such, the courts of Delhi had exclusive jurisdiction. As the dispute was arising out of a commercial transaction/contract, it was a settled law that the bar of judicial review would not be permitted to be invoked to protect private interest at the cost of public interest or to decide contractual disputes and relied upon the judgments of the Hon'ble Apex Court in Kerala State Electricity Board v. Kurien E.Kalathil1 and Jagadish Mandal v. State of Orissa and others2. He further contended that the petitioner ought to have invoked the arbitration clause as per the general conditions of the contract. The Hon'ble Apex Court in a number of judgments held that there could not be any injunction against invocation of an unconditional bank guarantee except in cases of fraud and irretrievable loss or injury, there were no instances of fraud in the present case, as such, the bank was obligated to encash the bank guarantee furnished in favour of the 1st respondent and prayed to dismiss the petition. 1 200 (6) SCC 293 2 2007 (14) SCC 517 Dr.GRR,J 8 WP No.18723 of 2021
5. Perused the record. Clause No.13.2 of the General Conditions of the contract pertains to price reduction due to delay in completion. It reads as follows:
"13.2. Price Reduction due to delay in completion:
13.2.1 If the Contractor fails to complete the Works within the Time for Completion, and completion of any specific work(s) in respect of which a separate progress schedule has been established is not achieved by the date of completion thereof specified in the Works Completion Schedule (each of the said date(s) is hereinafter referred to as the "starting date for discount calculation) other than due to an event of Force Majeure any reason solely attributable to RFCL, then the Contract Price shall be reduced by 1% (one percent) per week of delay or part thereof subject to a maximum deduction of 10% (ten percent) of the Contract Price. After any adjustments made to the Contract Price pursuant to this Clause 13.2.1, if any amount is due to RFCL from the Contractor, then such amount will either be set-off against any amount due or that becomes due to the Contractor or be recovered by invoking the Contract Performance Bank Guarantee.
The decision of the Engineer-in-Charge in regard to applicability of price reduction shall be final and binding on the Contractor."
6. Thus, as per clause - 13.2, if any amount was due to the 1st respondent from the petitioner, then the 1st respondent could recover the said amount by invoking the bank guarantee. The petitioner executed a price reduction bank guarantee dated 29.05.2018 in terms of clause - 55.1 of the Special Conditions of the contract. Clause - 55 of the Special Conditions of contract pertains to price reduction for delay in completion and clause -55.1 reads as follows:
Dr.GRR,J 9 WP No.18723 of 2021 "55.0 PRICE REDUCTION FOR DELAY IN COMPLETION:
55.1 Provisions mentioned in GCC stands modified to the extent that in case time extension is granted during execution of the contract pending detailed delay analysis, payment against RA bills shall be released to the Contractor without deducting Price Reduction subject to the condition that contractor submits the additional BG to cover the Price Reduction amount."
7. The petitioner executed a price reduction bank guarantee dated 29.05.2018 in favour of the 1st respondent for an amount of Rs.2,58,49,714/- which was initially given for a period of six months from 29.05.2018 to 24.11.2018 and the same was extended from time to time. As per clause - 4 of the price reduction bank guarantee it was an absolute and unconditional bank guarantee. The enforcement of 1st respondent's rights under the price reduction bank guarantee was under an independent contract between the 3rd respondent and the 1st respondent. The 3rd respondent was obliged to honour its commitment of encahsing an unconditional bank guarantee irrespective of any legal dispute pending between the parties. The Hon'ble Apex Court in U.P. State Sugar Corporation v. Sumac International ltd.3, held that "The law relating to invocation of such bank guarantees is by now well settled. When in the course of commercial dealings an unconditional bank guarantee is given or accepted, the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes. The bank giving such a guarantee is bound to 3 AIR 1997 SC 1644 Dr.GRR,J 10 WP No.18723 of 2021 honour it as per its terms irrespective of any dispute raised by its customer. The very purpose of giving such a bank guarantee would otherwise be defeated. The courts should, therefore, be slow in granting an injunction to restrain the realization of such a bank guarantee. The courts have carved out only two exceptions. A fraud in connection with such a bank guarantee would vitiate the very foundation of such a bank guarantee. Hence if there is such a fraud of which the beneficiary seeks to take advantage, he can be restrained from doing so. The second exception relates to cases where allowing the encashment of an unconditional bank guarantee would result in irretrievable harm or injustice to one of the parties concerned. Since in most cases payment of money under such a bank guarantee would adversely affect the bank and its customer at whose instance the guarantee is given, the harm or injustice contemplated under this head must be of such an exceptional and irretrievable nature as would override the terms of the guarantee and the adverse effect of such an injunction on commercial dealings in the country. The two grounds are not necessarily connected, though both may co-exist in some cases. In the case of U.P. Cooperative Federation Ltd. v. Singh Consultants and Engineers (P) Ltd. (988 [1] SCC 174), which was the case of works contract where the performance guarantee given under the contract was sought to be invoked, this Court, after referring extensively to English and Indian cases on the subject, said that the guarantee must be honoured in accordance with its terms. The bank which gives the guarantee is not concerned in the least with the relations between the supplier and the customer; nor with the question whether the suppler has performed his contractual obligation or not, nor with the question whether the supplier is in default or not. The bank must pay according to the tenor of its guarantee on demand without proof or condition. There are only two exceptions to this rule. The first exception is a case when there is a clear fraud of which the bank has notice. The fraud must be of an egregious nature such as to vitiate the entire underlying transaction. Explaining the kind of fraud that may absolve a bank from honouring its guarantee, this Court in the above case quoted with approval the observations of Sir John Donaldson, M.R. in Bolivinter Oil SA v. Chase Manhattan Bank NA (1984 [1] AER 351 at 352): "The wholly exceptional case where an injunction may be granted is where it is proved that the bank knows that any Dr.GRR,J 11 WP No.18723 of 2021 demand for payment already made or which may thereafter be made will clearly be fraudulent. But the evidence must be clear both as to the fact of fraud and as to the bank's knowledge. It would certainly not normally be sufficient that this rests on the uncorroborated statement of the customer, for irreparable damage can be done to a bank's credit in the relatively brief time which must elapse between the granting of such an injunction and an application by the bank to have it charged". This Court set aside an injunction granted by the High Court to restrain the realisation of the bank guarantee."
8. Learned counsel for the 1st respondent also relied upon the judgment of the Hon'ble Apex Court in Vinitec Electronics Private Ltd., v. HCL Infosystems Ltd.4, wherein it was held that:
"11. The law relating to invocation of bank guarantees is by now well settled by a catena of decisions of this court. The bank guarantees which provided that they are payable by the guarantor on demand is considered to be an un- conditional bank guarantee. When in the course of commercial dealings, unconditional guarantees have been given or accepted the beneficiary is entitled to realize such a bank guarantee in terms thereof irrespective of any pending disputes."
9. Learned counsel for the 1st respondent contended that the petitioner ought to have invoked the Arbitration clause under clause - 35.2.3 of the General Terms and Conditions governing the agreement, the writ petition was filed in relation to contractual disputes as such, the same was not maintainable and relied upon the judgment of the Hon'ble Apex Court in Kerala State Electricity Board's case (1 supra). In the said judgment, the Hon'ble Apex Court held that:
4
2008 (1) SCC 544 Dr.GRR,J 12 WP No.18723 of 2021 "We find that there is a merit in the first contention of Mr. Rawal. Learned Counsel has rightly questioned the maintainability of the writ petition. The interpretation and implementation of a clause in a contract cannot be the subject matter of a writ petition. Whether the contract envisages actual payment or not is a question of construction of contract? If a term of a contract is violated, ordinarily the remedy is not the writ petition under Article 226. We are also unable to agree with the observations of the High Court that the contractor was seeking enforcement of a statutory contract. A contract would not become statutory simply because it is for construction of a public utility and it has been awarded by a statutory body. We are also unable to agree with the observation of the High Court that since the obligations imposed by the contract on the contracting parties come within the purview of the Contract Act, that would not make the contract statutory. Clearly, the High Court fell into an error in coming to the conclusion that the contract in question was statutory in nature.
A statute may expressly or impliedly confer power on a statutory body to enter into contracts in order to enable it to discharge its functions. Dispute arising out of the terms of such contracts or alleged breaches have to be settled by the ordinary principles of law of contract. The fact that one of the parties to the agreement is a statutory or public body will not of itself affect the principles to be applied. The disputes about the meaning of a covenant in a contract or its enforceability have to be determined according to the usual principles of the Contract Act. Every act of a statutory body need not necessarily involve an exercise of statutory power. Statutory bodies, like private parties, have power to contract or deal with property. Such activities may not raise any issue of public law. In the present case, it has not been shown how the contract is statutory. The contract between the parties is in the realm of private law. It is not a statutory contract. The disputes relating to interpretation of the terms and conditions of such a contract could not have been agitated in a petition under Article 226 of the Constitution of India. That is a matter for adjudication by a civil court or in arbitration if provided for in the contract. Whether any amount is due and if so, how much and refusal of the appellant to pay it is justified or not, are not the matters which could have been agitated and decided in a writ Dr.GRR,J 13 WP No.18723 of 2021 petition. The contractor should have been relegated to other remedies."
10. Learned counsel for the petitioner relied upon the judgment of the Hon'ble Apex Court in M/s. Surya Construction v. State of Uttar Pradesh5, wherein it was held that:
"It is well settled that where the State behaves arbitrarily, even in the realm of contract, the High Court could interfere under Article 226 of the Constitution of India ['ABL International Ltd. and Another v. Export Credit Guarantee Corporation of India Ltd. and Others (2004 (3) SCC 553)].
11. Clause - 35.2 of the General Conditions of the contract deals with dispute resolutions. It reads as under:
"35.2 Dispute Resolution 35.2.1. If any disagreement arises out of or in connection with the validity, application or interpretation of the Contract (the "Dispute"), the Parties shall endeavour in good faith to resolve the Dispute through negotiation within 7 (seven) days of a written notice setting out the nature of such Dispute.
35.2.2. In the event that any Dispute is unable to be resolved between the Parties pursuant to Clause 35.2.1 within 21 (twenty-one) days of receipt of the notice under Clause 35.2.1, then such Dispute shall be referred to arbitration.
35.2.3. The arbitration will be conducted as per the 'Arbitration Act'. The arbitral tribunal shall comprise of a sole arbitrator whom shall be appointed by RFCL. The place of arbitration for any Disputes and Related Disputes shall be Delhi (save and except where otherwise specified under the Main Contract for the Related Dispute, in which event the place of arbitration shall be the place of arbitration for such Related Dispute). The language to be 5 AIR Online 2019 SC 2478 Dr.GRR,J 14 WP No.18723 of 2021 used in the arbitral proceedings shall be English. The arbitral award shall be final and binding upon both the Parties.
12. Thus, the contract provides for a dispute resolution mechanism and that the parties should approach an Arbitrator in case of any dispute, to be appointed by RFCL and the place of Arbitration was also agreed between the parties to be in Delhi. Thus, in case of dispute with regard to the invocation of bank guarantee or completion of works within the time, the petitioner could have invoked the arbitration clause as provided under the General Conditions of contract and a writ petition is not maintainable and such activities would not rise any issue of public law, as observed by the Hon'ble Apex Court in Kerala State Electricity Board's case (1 supra) and the petitioner failed to show that the 1st respondent behaved arbitrarily.
13. With regard to the contention of the learned counsel for the 1st respondent that the place of arbitration and the dispute should be raised before the High Court of Delhi, the learned counsel for the petitioner relied upon the judgment of the Hon'ble Apex Court in Maharashtra Chess Association v. Union of India6, wherein it was held that:
"21 The mere existence of alternate forums where the aggrieved party may secure relief does not create a legal bar on a High Court to exercise its writ jurisdiction. It is a 6 AIR Online 2019 SC 708 Dr.GRR,J 15 WP No.18723 of 2021 factor to be taken into consideration by the High Court amongst several factors. Thus, the mere fact that the High Court at Madras is capable of granting adequate relief to the Appellant does not create a legal bar on the Bombay High Court exercising its writ jurisdiction in the present matter.
22. This brings us to the question of whether Clause 21 itself creates a legal bar on the Bombay High Court exercising its writ jurisdiction. As discussed 13 1958 SCR 595 above, the writ jurisdiction of the High Court is fundamentally discretionary. Even the existence of an alternate adequate remedy is merely an additional factor to be taken into consideration by the High Court in deciding whether or not to exercise its writ jurisdiction. This is in marked contradistinction to the jurisdiction of a civil court which is governed by statute. 14 In exercising its discretion to entertain a particular case under Article 226, a High Court may take into consideration various factors including the nature of the injustice that is alleged by the petitioner, whether or not an alternate remedy exists, or whether the facts raise a question of constitutional interpretation. These factors are not exhaustive and we do not propose to enumerate what factors should or should not be taken into consideration. It is sufficient for the present purposes to say that the High Court must take a holistic view of the facts as submitted in the writ petition and make a determination on the facts and circumstances of each unique case.
26. It is certainly open to the High Court to take into consideration the fact that the Appellant and the second Respondent consented to resolve all their legal disputes before the courts at Chennai. However, this can be a factor within the broader factual matrix of the case. The High Court may decline to exercise jurisdiction under Article 226 invoking the principle of forum non convenience in an appropriate case. The High Court must look at the case of the Appellant holistically and make a determination as to whether it would be proper to exercise its writ jurisdiction. We do not express an opinion as to what factors should be considered by the High Court in the present case, nor the corresponding gravity that should be accorded to such factors. Such principles are well known to the High Court and it is not for this Court to interfere in the discretion of the High Court in determining when to engage its writ jurisdiction Dr.GRR,J 16 WP No.18723 of 2021 unless exercised arbitrarily or erroneously. The sole and absolute reliance by the Bombay High Court on Clause 21 of the Constitution and Bye Laws to determine that its jurisdiction under Article 226 is ousted is however one such instance."
14. Thus, discretion lies with this Court to exercise the writ jurisdiction under Article 226 of the Constitution of India, inspite of the parties agreeing the place of arbitration to be at Delhi, when it gives rise to a question of constitutional interpretation. But, there is no question of constitutional interpretation arising in this case in view of the existence of alternate adequate remedy. Exercise of writ jurisdiction is discretionary and this court is not inclined to exercise its jurisdiction under Article 226 of the Constitution of India.
15. As per Section 5 of the Arbitration and Conciliation Act, 1996 when there is an Arbitration clause in the agreement, no judicial authority shall intervene. The learned counsel for the petitioner contended that as per clause - 13.2.1 of the General Conditions of the Contract, the decision of the Engineer-in-Chief in regard to the applicability of price reduction should be final and binding on the contractor and even without approaching the Engineer in Chief, the 1st respondent invoked the bank guarantee pre-maturely, the decision of EIC was final, the 1st respondent could not have invoked the bank guarantee without the report of the EIC, Dr.GRR,J 17 WP No.18723 of 2021 an amount of Rs.19.00 crores was held up with the 1st respondent, as such the question of claiming damages would not arise.
16. The contention of the learned counsel for the 1st respondent, on the other hand, was that the petitioner had caused inordinate delay in completing the work in adherence with the terms of the contract and he was supposed to extend the bank guarantee well in advance which was not done by them, therefore, there was reasonable apprehension that they might not extend the bank guarantee as such, the 1st respondent was constrained to issue invocation notice dated 20.07.2021 as price reduction made to the contract was not adequately adjusted.
17. Clause 9.4.2 of the General Conditions of the contract pertains to Contract Performance Bank Guarantee (CPBG)/Security Deposit (SD), which reads as under:
"9.4.2. Contract Performance Bank Guarantee (CPBG)/ Security Deposit (SD)
(a) The Contractor shall procure the Contract Performance Bank Guarantee in the form set out in Appendix 1 (Form of Contract Performance Bank Guarantee). The Contractor shall maintain the Contract Performance Bank Guarantee at its own expense, and shall ensure it shall remain valid for a period of not less than 3 (three) months after the expiry of the Extended Defects Liability Period. The Contract Performance Bank Guarantee shall be extended by such period as RFCL may require if the Completion is delayed beyond the Time for Completion and/or the Final Completion is delayed beyond the scheduled date of Final Completion and any extension thereof as per directions of the Dr.GRR,J 18 WP No.18723 of 2021 Engineer-in Charge. In the event that the Contract Price is increased during the Contract Validity Period for any reason whatsoever, the value of the Contract Performance Bank Guarantee shall be increased proportionately by the Contractor within 7 (seven) Business Days to ensure that it remains an amount which is equivalent to 10% of the revised Contract Price, as determined by the Engineer-in-
Charge.
(b) RFCL shall have an unqualified option under the Contract Performance Bark Guarantee to draw on the security and claim the amount there under in the event of the Contractor's failure to honor any of its obligations, responsibilities or commitments under the Contract or in respect of any amount due from the Contractor to RFCL. Provided however that, nothing stated under this Clause shall make it incumbent upon RFCL to utilize the Contract Performance Bank Guarantee in preference to any other remedy which RFCL may have, nor shall it be construed as confining the claims of RFCL against the Contractor to the value of the Contract Performance Bank Guarantee."
18. As per the terms of the contract, General Conditions of the contract and Special Conditions of the contract, the price reduction bank guarantee had to be furnished and extended by the petitioner till full and final settlement of all issues between the parties under the contract. But, the petitioner failed to extend the bank guarantee till the final settlement of all the issues. Hence, the 1st respondent issued a notice for invocation of the bank guarantee. The petitioner had renewed the bank guarantee on 11.08.2021 after issuing the notice by the 1st respondent dated 20.07.2021. Hence, it cannot be stated that the 1st respondent issued the notice arbitrarily.
Dr.GRR,J 19 WP No.18723 of 2021
19. The Hon'ble Apex Court in Jagadish Mandal's case (2 supra) stated the relevant factors to be kept in view while invoking the power of judicial review in matters relating to Government contracts/tenders. It held that:
"Judicial review of administrative action is intended to prevent arbitrariness, irrationality, unreasonableness, bias and malafides. Its purpose is to check whether choice or decision is made 'lawfully' and not to check whether choice or decision is 'sound'. When the power of judicial review is invoked in matters relating to tenders or award of contracts, certain special features should be borne in mind. A contract is a commercial transaction. Evaluating tenders and awarding contracts are essentially commercial functions. Principles of equity and natural justice stay at a distance. If the decision relating to award of contract is bona fide and is in public interest, courts will not, in exercise of power of judicial review, interfere even if a procedural aberration or error in assessment or prejudice to a tenderer, is made out. The power of judicial review will not be permitted to be invoked to protect private interest at the cost of public interest, or to decide contractual disputes. The tenderer or contractor with a grievance can always seek damages in a civil court. Attempts by unsuccessful tenderers with imaginary grievances, wounded pride and business rivalry, to make mountains out of molehills of some technical/procedural violation or some prejudice to self, and persuade courts to interfere by exercising power of judicial review, should be resisted. Such interferences, either interim or final, may hold up public works for years, or delay relief and succour to thousands and millions and may increase the project cost manifold. Therefore, a court before interfering in tender or contractual matters in exercise of power of judicial review, should pose to itself the following questions:
i) Whether the process adopted or decision made by the authority is malafide or intended to favour someone.
OR Dr.GRR,J 20 WP No.18723 of 2021 Whether the process adopted or decision made is so arbitrary and irrational that the court can say: 'the decision is such that no responsible authority acting reasonably and in accordance with relevant law could have reached',
ii) Whether public interest is affected.
If the answers are in the negative, there should be no interference under Article 226. Cases involving black- listing or imposition of penal consequences on a tenderer/contractor or distribution of state largesse (allotment of sites/shops, grant of licences, dealerships and franchises) stand on a different footing as they may require a higher degree of fairness in action."
20. Hence, considering that evaluation of tenders and awarding of contracts are essentially commercial functions and principles of natural justice stay at a distance in such matters and Courts would not interfere by exercising power of judicial review to decide the contractual disputes and the tenderer or contractor with a grievance can always seek damages in a civil court, it is considered not fit to allow the writ petition.
21. In the result, the Writ Petition is dismissed and the stay granted earlier is vacated. No costs.
Miscellaneous Petitions pending, if any, shall stand closed.
_____________________ Dr. G. RADHA RANI, J June 06, 2022 KTL