Delhi High Court - Orders
Cipl Cobra Jv Through Its Authorized ... vs Executive Director Railway ... on 2 November, 2020
Author: Najmi Waziri
Bench: Najmi Waziri
$~15
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P.(C) 4587/2020 & CM APPL. 16581/2020
CIPL COBRA JV THROUGH ITS AUTHORIZED
SIGNATORY MR. JAVIER GOMEZ ..... Petitioner
Through: Mr. Nalin Kohli and Mr. Umesh
Sharma, Advocates.
versus
EXECUTIVE DIRECTOR RAILWAY
ELECTRIFICATION & ORS. ..... Respondents
Through: Mr. Jagjit Singh, Senior Standing
Counsel for Railways with Mr. Ashok
Singh, Advocate.
CORAM:
HON'BLE MR. JUSTICE NAJMI WAZIRI
ORDER
% 02.11.2020 The hearing was conducted through video conferencing.
1. Notice was issued on 27.07.2020. The learned Senior Standing Counsel for the Railways seeks and is granted 4 weeks' time to file a reply. Rejoinder, if any, be filed before the next date.
2. The respondent contends that the writ petition is not maintainable because of laches and the fact that there is an arbitration proceeding pending before the High Court of Madhya Pradesh, involving the same set of facts. That the forum conveniens would be the said High Court since all facts pertain to that the State of Madhya Pradesh.
3. Mr. Nalin Kohli, the learned counsel for the petitioner, submits that respondent's order dated 23.07.2018, banning the petitioner from participating in any Railways' contract for 5 years is unreasoned, arbitrary and in any case drastic in effect. The said order has been shared Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 on the screen by Mr. Jagjit Singh and is reproduced hereinunder: The impugned order dated 23.07.2018 has reasoned, inter alia, as under:-
Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:054. The petitioner argues that the pending arbitration proceedings are apropos the termination of the contract, and not regarding the ban imposed on the petitioner. This issue has been pursued by the petitioner for the past over 2 years with the respondents though at least 6 written communications, repeatedly requesting them to reconsider the ban, especially since the merits of the termination were still under examination in the arbitral proceedings. In support of these contentions, the learned counsel for the petitioner relies upon following judgments:
(i) Kulja Industries Ltd. v. Chief General Manager, Western Telecom Project BSNL (2014) 14 Supreme Court Cases 731.
(ii) Mekaster Trading Corporation v. Union of India 2003 (71) DRJ 376 in the High Court of Delhi.Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05
(iii) Prakash Atlanta JV & Ors. v. National Highway Authority of India & Ors. 2010 SCC OnLine Del 471 : ILR (2010) 5 Del 38 : (2010) 169 DLT 664.
5. The relevant paragraphs in Kulja Industries Ltd. v. Chief General Manager Western Telecom Project BSNL are as under:
"Leave granted. The short question that falls for determination in this appeal is whether the respondent, Bharat Sanchar Nigam Ltd. (for short "BSNL") could have blacklisted the appellant for allotment of future contracts for all times to come. The High Court of Judicature of Bombay before whom the blacklisting order was assailed by the appellant has answered that question in the affirmative and dismissed [Kulja Industries Ltd. v. Western Telecom Project BSNL, WP (C) No. 2289 of 2011, order dated 6- 4-2011 (Bom)] Writ Petition No. 2289 of 2011 filed by the appellant giving rise to the present appeal. ......
7. What is important for the present is that by a letter dated 21-4- 2010, BSNL blacklisted the appellant permanently on the ground that the appellant had committed gross misconduct and irregularities by receiving excessive payments amounting to Rs.7,98,55,508 from BSNL thereby wrongfully causing loss to the said Company. The appellant denied these allegations, inter alia, contending that BSNL Policy/Manual did not provide for punitive action in the nature of blacklisting and that excess payment at best was an irregularity which had been cured by refund of the amount in question. The appellant also alleged that reconciliation of accounts revealed that the appellant was entitled to an amount, far in excess of the payments received by it. That assertion was repeated in a legal notice sent by the appellant Company but since BSNL took no corrective action in terms of the reconciliation, WP No. 4536 of 2010 was filed before the High Court of Judicature of Bombay in which it assailed the blacklisting order. The High Court allowed [Kulja Industries Ltd. v. Chief General Manager, WP (C) No. 4536 of 2010, order dated 5-10-2010 (Bom)] the petition on the short ground that the appellant had not been afforded any opportunity of being heard before the blacklisting Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 order was issued by the respondent. The High Court did not go into the merits of the dispute but reserved liberty to the appellant to raise all such contentions as were open to it if and when BSNL issued a show-cause notice for blacklisting it again. BSNL was left free to pass a fresh order and take a final decision in the matter within six weeks from the date of the issue of the show-cause notice.
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18. The legal position on the subject is settled by a long line of decisions rendered by this Court starting with Erusian Equipment & Chemicals Ltd. v. State of W.B. [(1975) 1 SCC 70] where this Court declared that blacklisting has the effect of preventing a person from entering into lawful relationship with the Government for purposes of gains and that the authority passing any such order was required to give a fair hearing before passing an order blacklisting a certain entity. This Court observed: (SCC p. 75, para 20) "20. Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the 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."
Subsequent decisions of this Court in Southern Painters v. Fertilizers & Chemicals Travancore Ltd. [1994 Supp (2) SCC 699 : AIR 1994 SC 1277] ; Patel Engg. Ltd. v. Union of India [(2012) 11 SCC 257 : (2013) 1 SCC (Civ) 445] ; B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd. [(2006) 11 SCC 548] ; Joseph Vilangandan v. Executive Engineer (PWD) [(1978) 3 SCC 36] among others have followed the ratio of that decision and applied the principle of audi alteram partem to the process that may eventually culminate in the blacklisting of a contractor. .......
Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:0520. It is also well settled that even though the right of the writ petitioner is in the nature of a contractual right, the manner, the method and the motive behind the decision of the authority whether or not to enter into a contract is subject to judicial review on the touchstone of fairness, relevance, natural justice, non- discrimination, equality and proportionality. All these considerations that go to determine whether the action is sustainable in law have been sanctified by judicial pronouncements of this Court and are of seminal importance in a system that is committed to the rule of law. We do not consider it necessary to burden this judgment by a copious reference to the decisions on the subject. A reference to the following passage from the decision of this Court in Mahabir Auto Stores v. Indian Oil Corpn. [(1990) 3 SCC 752] should, in our view, suffice: (SCC pp. 760-61, para 12) "12. It is well settled that every action of the State or an instrumentality of the State in exercise of its executive power, must be informed by reason. In appropriate cases, actions uninformed by reason may be questioned as arbitrary in proceedings under Article 226 or Article 32 of the Constitution. Reliance in this connection may be placed on the observations of this Court in Radhakrishna Agarwal v. State of Bihar [(1977) 3 SCC 457 : (1977) 3 SCR 249] . ... In case any right conferred on the citizens which is sought to be interfered, such action is subject to Article 14 of the Constitution, and must be reasonable and can be taken only upon lawful and relevant grounds of public interest. Where there is arbitrariness in State action of this type of entering or not entering into contracts, Article 14 springs up and judicial review strikes such an action down. Every action of the State executive authority must be subject to rule of law and must be informed by reason. So, whatever be the activity of the public authority, in such monopoly or semi-monopoly dealings, it should meet the test of Article 14 of the Constitution. If a governmental action even in the matters of entering or not entering into contracts, fails to satisfy the test of Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 reasonableness, the same would be unreasonable. ... It appears to us that rule of reason and rule against arbitrariness and discrimination, rules of fair play and natural justice are part of the rule of law applicable in situation or action by State instrumentality in dealing with citizens in a situation like the present one. Even though the rights of the citizens are in the nature of contractual rights, the manner, the method and motive of a decision of entering or not entering into a contract, are subject to judicial review on the touchstone of relevance and reasonableness, fair play, natural justice, equality and non-discrimination in the type of the transactions and nature of the dealing as in the present case." .....
22. The guidelines also stipulate the factors that may influence the debarring official's decision which include the following:
(a) The actual or potential harm or impact that results or may result from the wrongdoing.
(b) The frequency of incidents and/or duration of the wrongdoing.
(c) Whether there is a pattern or prior history of wrongdoing.
(d) Whether the contractor has been excluded or disqualified by an agency of the Federal Government or has not been allowed to participate in State or local contracts or assistance agreements on the basis of conduct similar to one or more of the causes for debarment specified in this part.
(e) Whether and to what extent did the contractor plan, initiate or carry out the wrongdoing.
(f) Whether the contractor has accepted responsibility for the wrongdoing and recognized the seriousness of the misconduct.
(g) Whether the contractor has paid or agreed to pay all criminal, civil and administrative liabilities for the improper activity, including any investigative or administrative costs incurred by the Government, and has made or agreed to make full restitution.
(h) Whether the contractor has cooperated fully with the government agencies during the investigation and any court or Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 administrative action.
(i) Whether the wrongdoing was pervasive within the contractor's organization.
(j) The kind of positions held by the individuals involved in the wrongdoing.
(k) Whether the contractor has taken appropriate corrective action or remedial measures, such as establishing ethics training and implementing programs to prevent recurrence.
(l) Whether the contractor fully investigated the circumstances surrounding the cause for debarment and, if so, made the result of the investigation available to the debarring official."
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25. 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 never permanent and the period of debarment would invariably depend upon the nature of the offence committed by the erring contractor.
....."
6. The relevant paragraphs of Mekaster Trading Corporation v. Union of India are as under:
"Vide order dated 19th March, 2002 petitioner has been black- listed. Order has been passed by the Government of India, Ministry of Commerce and Industry, Department of Commerce to the effect that all departments/ Ministries/offices of the Government of India are forbidden to have commercial/business dealings with the petitioner and its subsidiaries, if any, for a period of five years with effect from the date of the order, i.e. 19th March, 2002. Petitioner has impugned this order in the present writ petition and the prayer is for issuance of writ of certiorari and any other writ quashing the said order.Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05
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18. The first and foremost question which arises for consideration is as to whether the impugned order dated 9th March, 2002 is a reasoned order and the submission of the petitioner and the reply to show cause notice were duly deliberated and dealt with in the said order? It would be seen that one common show cause notice was directed to both alleged defaulting parties, namely, M/s. Barin as well as the petitioner. It is for this reason this detailed show cause notice dated 26th July, 2001 points out the purported lapses on the part of M/s. Barin as well as the petitioner. The show cause notice starts by pointing out certain general and special conditions (GCC and SCC) of the contract and thereafter it lists the breaches on the part of M/s. Barin. These include the allegations that the four MBIUs were found having deviations from the contract specifications by the team during inspection and still these rejected MBIUs were despatched to the respondents on the basis of which M/s. Barin claimed and received 90% payment. Thereafter the supplier (i.e. M/s. Barin) failed to fulfill its obligation in the testing of these equipments, correcting the defects which were observed in trail runs. M/s. Barin also did not take necessary steps for extension of the performance guarantee, misrepresented the facts of the case to Italian Court. It also failed to perform its role in the area of commissioning of MBIUs, training of staff both in Italy and at the consignee's premises. After enumerating the aforesaid lapses in the detail, the show cause notice on the part of M/s. Barin proceeds to implicate the petitioner, an Indian agent of M/s. Barin, by alleging that its conduct in the proper execution of the contract was equally unhelpful in all stages of the contract, namely, initial stages of tendering by supplier, at all stages of contract execution after the award of the contract, the aborted trials at Mumbai on Unit no. 66/96 on 12th and 13th December, 1997, the subsequent trials on the said units conducted on 19th November, 1998 and20th November, 1998 with new test equipments procured by DGS&D. Thereafter also the petitioner did not cooperate in the commissioning and maintenance of the remaining three MBIUs at Mumbai, Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 Lucknow and Patna and did not attend to the defective MBIUs or could prevail upon the supplier to abide by his contractual obligation, the show cause notice alleges. After spelling out these deficiencies the show cause notice blames both M/s. Barin and the petitioner by stating "whereas the conduct of both the supplier and the Indian agent in this collective manner indicates abundantly that the Indian agent was fully aware of the intentions and actions of the supplier as described above, and by not alerting the purchaser of these in advance has exhibited his full collusion in the wrongful actions with the supplier."
....
20. After considering the matter the Joint Secretary and Chief Vigilance Officer in the Ministry of Commerce and Industry, Department of Commerce (Supply Division) passed impugned order dated 19.3.2002 black-listing the petitioner and banning commercial/business dealing with the petitioner for a period of five years. In this order it is noted that on 26.7.2001 a show cause notice was issued to which reply dated 18.8.2001 was filed by the petitioner denying the allegations and stating that petitioner had all along been cooperated and never worked in collusion with M/s. Barin and therefore, requested to withdraw the show cause notice in so far as it pertain to the petitioner. It is further noted that on 23.1.2001 an opportunity of personal hearing was extended to the petitioner. The petitioner had requested a copy of the reply filed by M/s. Barin which request was considered and rejected vide order dated 28.1.2002 on the ground mat reply furnished by M/s. Barin with reference to show cause notice was privileged communication between M/s. Barin and competent authority and another opportunity was given to the petitioner to furnish any other facts or arguments. Whether petitioner could be denied copy of reply filed by M/s. Barin on this ground may be doubtful. However, this aspect is not dealt with as this contention was not taken or argued. By filing written statement the petitioner had given reply dated 6.2.2002 explaining its role and responsibility as aft Indian agent and requested for personal hearing which was given on 4.3.2002 on which dated representative of the petitioner Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 attended the hearing and argued the case explaining at length their role and responsibility. The representative of DGS&D presented the facts of the case on the basis of available evidence and stated that the petitioner was contractually responsible for installation, commissioning, testing and after sales support for the equipment ordered and it did not discharge its responsibility sincerely and in full measure. After making recital of the aforesaid events in the order, thereafter order proceeds to record as under:--
"I have examined the case and heard the presentation made by the DGS&D representatives and submissions made by M/S Mekaster Trading Corporation, New Delhi in their letters dated 18.8.2001 and 6.2.2002 and oral presentations on 4.3.2002. The sum and substance of the allegations against the firm is that M/s Mekaster Trading Corporation, New Delhi could not fulfill their contractual obligations as an Indian agent of foreign supplier M/s Barin SPA, Italy. The reply submitted by them vide their letter dated 18.8.2001 and 6.2.2002 and oral presentations made by them during hearing of the case on 4.3.2002 have not been found convincing. The available evidence does not reveal that the firm has fulfilled its contractual obligations, Keeping the above facts in view, I hereby order that all Departments/Ministries /Offices of the Government of India are forbidden to have commercial/business dealings with the firm, and its subsidiaries, if any. The ban of commercial/ business dealings with the firm by the Government in the non-statutory sphere will be operative for a period of five years commencing from the date of this order i.e. 19th March, 2002."
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DUTY TO GIVE REASONS:
22. It is now well settled proposition of law, laid down by series of judgments, that even an administrative authority is required to Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 support its decision by reasons. Lord Denning in Breen Amalgamated Engineering Union, (1971) 2 QB 175 (CA) observed that "giving of reasons is one of the fundamentals of good administration". Fairness founded on reasons is the essence of guarantee epitomised in Article 14 of the Constitution. The requirement of giving reason is a shackle on acting arbitrarily and whimsically. It is for this reason that the rule requiring reasons to be given in support of an order is now accepted as a basic principle of natural justice.
23. In S.N. Mukherjee's case (supra) the Supreme Court pointed out that if reasons are recorded it would enable the Supreme Court or the High Courts to effectively exercise the appellate or the supervisory power. Such orders passed are subject to judicial review; albeit on the limited grounds on which such judicial review is available. These grounds include observance of principle of natural justice, namely, proper hearing and decision by an unbiased person, taking into consideration the relevant factors and conversely excluding all irrelevant factors in the decision making process etc. Therefore, in order to appreciate as to whether there was proper application of mind to the contention raised by the noticee and those who are duly considered, it is not necessary to give reason. It is for this reason that in S.N. Mukherjee's case(supra) the Court laid down some other considerations. In the background of the dicta laid down in the aforesaid judgment as well as other judgments and commentaries of celebrated authors on administrative law, following justifications can be enlisted in support of the proposition that there is a need to give reasons for administrative decisions:
A) It would guarantee consideration by the authority; B) It would introduce clarity in the decisions; C) It would minimise chances of arbitrariness in decision making indicating that the authority has given due consideration to the points in controversy;
D) A duty to give reasons entails a duty to rationalise the decision.
Reasons, therefore, help to structure the exercise of discretion, and the necessity of explaining why a decision is reached;
Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05E) Furnishing reasons satisfies an important desire on the part of the individual to know why a decision was reached (Lawrence Baxter, Administrative Law (1991 p. 228);
F) Basic fairness requires that those in authority over others should tell them why they are subject to some liability or have been refused some benefit (De Smith, Woolf and Jowell, Judicial Review of Administrative Actions (1995 p. 459); G) Rationale criticism of a decision may only be made when the reasons for it are known. This subjects the administration to public scrutiny and it also provides an important basis for appeal or review;
H) If reasons are assigned, they can provide guidance to others on the administrator's likely future decisions, and so deter applications which would be unsuccessful. I) It may also protect the body from unjustified challenges, because those adversely affected are more likely to accept a decision if they know why it has been taken.
24. Thus, the most impelling consideration for insistence upon disclosure of reasons in support of an order or decision is that it ensures proper application of mind, reduces the possibility of casualness and minimises whim and caprice, and thereby serves to provide legal protection to persons against arbitrary official conduct (See Bhagat Raja v. Union of India, AIR 1967 SC 1606; Travancore Rayons v. Union of India, AIR 1971 SC 862 and C.B. Gautam v. Union of India, 1993 (1) SCC 78.
25. Another judicial rationale for requirement of reasons is that a person affected by an adverse order is entitled to know why the decision has gone against him or her. „The decision might be perfectly right, but the person against whom it was made was left with the real grievance that he was not told why the decision had been made‟ (See Poyser and Mills‟ Arbitration, [1964] 2 QB 467 at p.
467). The obligation to give reasons according to the decision of the Supreme Court in Siemens Engg. & Mfg.
Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05Co. of India Ltd. v. Union of India, AIR 1976 SC 1785 stems from the mandate of natural justice. The Court held that absence of reasons leads to denial of justice because "the rule requiring reasons to be given in support of an order is, like the principle of audi alteram partem, a basic principle of natural justice which must inform every quasi-judicial process and this rule must be observed in its proper spirit and mere pretence of compliance with it would not satisfy the requirement of law". These threads were picked up and given a further boost in Organo Chemical Industries v. Union of India, AIR 1979 SC 1803. There, the Court emphasised that one of the requirements of natural justice was "spelling out reasons for the order made, in other words, a speaking order. The inscrutable face of the sphinx is ordinarily incongruous with a judicial or quasi-judicial performance"..
26. The recording of such reasons is imperative not only when the administrative authority discharges quasi- judicial function but also it is a pure administrative function and the decision is visited by civil or evil consequences as far as affected party is concerned (See Ramesh B. Desai v. Union of India, AIR 1988 Delhi
288). So far as cases of blacklisting are concerned, this requirement will, all the more, be imperative having regard to the spirit of the judgments of the Supreme Court in the cases of M/s. Erusion Equipment(supra) and M/s. Star Enterprises(supra).
EXTENT OF REQUIREMENT TO GIVE REASONS:
27. Having said that it has now become an obligation to give reasons in support of an administrative order, we may hasten to add that what is needed is not a detailed or elaborate judgment, but a brief and pithy statement of reasons for the decision. The administrative authorities, after all, are not dis charging the judicial function like Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 that of a Court and, therefore, not required to write an order in the manner in which normally a judgment is written by a court of law. The reasons given by an authority need be no more than a concise statement of the way in which it arrives at the decision. Way back in the year 1996 the Supreme Court pointed out in M.P. Industries' case(supra) that "when we insisted upon reasons, we do not prescribe any particular form or scale of the reasons. The extent and the nature of the reasons depend upon each case." What is essential is that the order must be a speaking order and must state the elements which had led to the decision and tell its own story and one is able to infer as to why the order was made. De Smith, Woolf and Jowell point out that the reasons must "meet the substance of the principle arguments that the tribunal was required to consider. In short, the reasons must show that the decision maker successfully came to grips with the main contention advanced by the parties, and must tell the parties in broad terms why they lost, or as the case may be one". Reasons are links between materials on which certain conclusions are based and the actual conclusion drawn. They would disclose how the mind is applied to the subject matter; whether done relevantly or rationally. Therefore, it would be sufficient if reasons indicate application of mind is discernible and mental process leading from the dispute to its solution is found in the order.
THE CASE AT HAND:
28. After elaborate statement of law on the point, let us apply the same to the facts, of this case. The proposition that impugned order, which visits the petitioner with civil and/or evil consequences had to be supported by reasons, was not even contested by the respondents. The argument proceeded on the basis that such an order had to be a speaking order. While petitioner contended that Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 the impugned order was not speaking, this was stoutly disputed by the respondents and the learned Additional Solicitor General contented that impugned order was a reasoned order. It is for this reason that to test this argument, I have stated elaborately contents of the show cause notice, the main defence of the petitioner in their twin replies and the impugned order to blacklist. No doubt, in the show cause notice detailed statement of imputation and breaches on the part of M/s. Barin as well as the petitioner are made. However, the replies of the petitioner are equally elaborate and petitioner sought to explain its version in an attempt to meet each others allegation contained in the show cause notice and thereby contending that petitioner was not at fault and proposed action was not warranted. Whether the contention raised by the petitioners in their replies are considered and addressed, is the main question? Perusal of the impugned order shows that after making recital of the events which transpired after the show cause notice, i.e. filing of replies by the petitioner, giving of hearings to both parties who explained their respective cases, the penultimate para records that case has been examined and heard and the sum and substance of the allegation made against the petitioner was that petitioner could not fulfill its contractual obligation as Indian agent and replies submitted by the petitioner as well as oral representation made by them during hearing of the case have not been found convincing. All the arguments of the petitioners are brushed aside by the following utterances "the reply submitted by them vide their letters dated 18.8.2001 and 6.2.2002 and oral representation by them during hearing of the case on 4.3.2002 have not been found convincing. He available evidence does not reveal that the firm has fulfilled its contractual obligations."
29. Passing the order in such a slip shod manner which has the serious effect of blacklisting the petitioner for a long period of 5 years is certainly not act of good Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 administration.
..."
7. The relevant paragraphs in Prakash Atlanta JV & Ors. v. National Highway Authority of India & Ors. are as under:
"1. The challenge in this petition by Prakash Atlanta JV (PAJV) and its group companies is to the validity of a show cause notice dated 27th June 2008 and the consequent decision communicated by a letter dated 24th February 2009 issued by Respondent No. 1 the National Highways Authority of India („NHAI‟) barring the Petitioners from "short-listing, participating or bidding for any future projects to be undertaken by the NHAI", either directly or indirectly for a period of two years. ....
6. The Petitioners filed a statement of claims dated 28th February 2008 before the Arbitral Tribunal. Thereafter by a letter dated 27th June 2008 the NHAI asked the Petitioners to show cause why they should not be debarred from pre-qualification, participating and bidding in future events. The Petitioners received the aforementioned notice on 3rd July 2008 and sent a detailed reply dated 12th July 2008. In the reply a reference was made to an interim order dated 16th June 2008 passed by the Arbitral Tribunal in which the Tribunal did not accept the contention of the NHAI that it was the NHAI which had terminated the contract. It was observed that once the contract had been terminated by the Petitioners (claimant) "there was no question of termination of contract by the NHAI." The Arbitral Tribunal observed that it was merely to resort to Clause 51(i) "that the NHAI decided to terminate an already terminated contract".
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9. The challenge to the impugned show cause notice dated 27th June 2008 and the consequential impugned order dated 24th February 2009 in principally on the Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 grounds of violation of the principles of natural justice and malafides.
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21. The first issue that arises for consideration is whether the impugned order dated 24th February 2009 which bars PAJV from short-listing, participating or bidding for any future projects undertaken by the NHAI either directly in its name or indirectly in any other name or in association with any other person or entity with which it may use to carry on its business for a period of two years, is rendered illegal for failure to furnish reasons for such decision. The impugned order itself does uses the word „blacklisting‟ but the circular dated 24th February 2009 issued by the NHAI leaves no manner of doubt that it was indeed a „blacklisting, order. The said circular reads as under:
"NHAI/Arbitration/DW-15/2002-Tech./5807 Dated:
24/02/2009 Circular Sub.: Debarring/Blacklisting of Prakash-Atlanta Joint Venture from short-listing participating or bidding for projects of/or to be undertaken by NHAI. The National Highways Authority of India (NHAI) had entered into a Contract Agreement dated 10.08.2001 with Prakash Atlanta (JV) for the project of Construction of Segment of Lucknow Bypass Connecting NH-25 & NH-28 Via NH-56 passing through Lucknow City in the State of Uttar Pradesh (Contract Package No. EW- 15/UP).
NHAI has decided without prejudice to any other rights available to the NHAI in terms of the Contract and/or the applicable law to ban/blacklist. Prakash-Atlanta(JV) who are hereby barred from short-listing; participating or bidding for any future projects to be undertaken by NHAI either directly in their name or indirectly in any other name or in association with any other person or entity in which they may choose to carry on their Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 business for a period of two years.
The detailed banning/blacklisting Order No. NHAI/ Arbitration/EW-15/2002-Tech/5805 dated 24/02/2009 is enclosed. This is for information and records of all concerned.
(K.V. Sharma) General Manager (DK-I) Copy to:
(1) Director General (RD) & SS. Ministry of Shipping, Road Transport & Highways.
(2) Chief Secretaries/Secretaries (PWD/Roads) of all State Governments/UTs dealing with National Highways and Centrally Sponsored Schemes.
(3) Chief Engineers of all States/UTs dealing with National Highways and Centrally Sponsored Schemes. (4) Director General (Border Roads), Seema Sadak Bhawan, Ring Road, Naraina, New Delhi-110010. (5) All Officers of NHAI, HQ/PIUs/CMUs. (6) Media Relation/IT Divisio of NHAI with a request to get it hoisted on NHAI website.
(7) M/s Prakash-Atlanta (JV)"
(emphasis supplied)
22. There are at least three things which are significant from the above circular. One is that the subject matter clearly says "debarred/blacklisting of Prakash Atlanta Joint Venture.......". The body of the circular refers to the impugned order dated 24th February 2009 as a "banning/blacklisting" order. Secondly, the circular was issued Mr. K.V. Sharma, General Manager (DK-I), by the same person who issued the blacklisting order. Third and most important is that the circular is sent to the "Chief Secretaries/Secretaries (PWD/Roads) of all State Governments/UTs dealing with National Highways and Centrally Sponsored Schemes; Chief Engineers of all States/UTs dealing with National Highways and Centrally Sponsored Schemes; Director General (Border Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 Roads), Media Relation/IT Division of NHAI with a request to get it hoisted on NHAI website". In other words, the blacklisting of the Petitioner was instantaneously given extensive publicity by the NHAI by hoisting it on a website while simultaneously transmitting it all over the country to several states and organisations. The circular underscores the extent of the adverse impact on the Petitioners as a result of the impugned blacklisting order. This has to be kept in the background while examining if the impugned blacklisting order satisfies the legal requirement of compliance with the principles of natural justice.
23. The requirement of an administrative authority to record reasons for its decisions was considered by the Constitution Bench of the Supreme Court in S.N. Mukherjee v. Union of India (supra). In para 9 of the said judgment (AIR @ p. 1988) one of the first questions formulated was "is there any general principle of law which requires an administrative authority to record the reasons for its decisions". It was noticed that there was a divergence of opinion on the issue in common law countries. While in the United States of America, the Federal Administrative Procedure Act, 1946 required administrative decisions to indicate a statement of findings and conclusions as well as reasons or basis therefor, in England there was no such requirement. A reference was then made to the recommendations of the Donoughmore Committee and the Franks Committee which led to the enactment in the United Kingdom (U.K.) of the Tribunals and Enquiries Act, 1958 which mandated the tribunal or Minister to furnish a statement, either written or oral, and the reasons for the decision, if requested, on or before the giving of notification of the decision to support the decision. The Tribunals and Enquiries Act, 1971 also contained a similar provision. As far as India was concerned, the 14th Report of the Law Commission of India relating to reforms in judicial Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 administration, recommended that administrative decisions should be accompanied by reasons. A reference was made to the decision of the Supreme Court in Madhya Pradesh Industries Ltd. v. Union of India (supra) and Bhagat Raja v. Union of India, AIR 1967 SC 1606. Reference was also made to the decisions in Travancore Rayon Ltd. v. Union of India, (1969) 3 SCC 868 : AIR 1971 SC 862: Mahabir Prasad Santosh Kumar v. State of U.P., (1970) 1 SCC 764 : AIR 1970 SC 1302 and Raipur Development Authority v. Chokhamal Contractors, (1989) 2 SCC 721 : AIR 1990 SC 1426. Thereafter in paras 34 and 35, the Supreme Court observed as under (AIR @ p. 1995):
"34. The decisions of this Court referred to above indicate that with regard to the requirement to record reasons the approach of this Court is more in line with that of the American Courts. An important consideration which has weighed with the Court for holding that an administrative authority exercising quasi-judicial functions must record the reasons for its decision, is that such a decision is subject to the appellate jurisdiction of this Court under Article 136 of the Constitution as well as the supervisory jurisdiction of the High Courts under Article 227 of the Constitution and that the reasons, if recorded, would enable this Court or the High Courts to effectively exercise the appellate or supervisory power. But this is not the sole consideration. The other considerations which have also weighed with the Court in taking this view are that the requirement of recording reasons would (i) guarantee consideration by the authority; (ii) introduce clarity in the decisions; and (iii) minimise chances of arbitrariness in decision-making. In this regard a distinction has been drawn between ordinary Courts of law and tribunals and authorities exercising judicial functions on the ground that a Judge is trained to Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 look at things objectively uninfluenced by considerations of policy or expediency whereas an executive officer generally looks at things from the standpoint of policy and expediency.
35. Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this Court in holding that an administrative authority must record reasons for its decision, are of no less significance. These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances of arbitrariness and ensures a degree of fairness in the process of decision-making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi- judicial functions irrespective of the fact whether the decision is subject to appeal, revision or judicial review. It may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a Court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge."
24. Thereafter in para 38, the Supreme Court observed "keeping in view the expanding horizon of the principles of natural justice, we are of the opinion, that the requirement to record reason can be regarded as one of the principles of natural justice which govern exercise of power by administrative authorities", (emphasis supplied) The decision in S.N. Mukherjee v. Union of India by Constitution Bench of the Supreme Court, rendered in the context of court martial proceedings under the Army Act, 1950, has been consistently followed by the courts in other contexts as well and in particular in the context of orders blacklisting contractors. The decision of the Supreme Court in Madhya Pradesh Industries Ltd., to which a reference is made by the learned Senior counsel for the NHAI, was considered by the Constitution Bench of the Supreme Court in S.N. Mukherjee which then explained the law as noted hereinbefore. Therefore the decision of the larger Bench in S.N. Mukherjee, which has been consistently followed by this Court in the decisions noted hereinafter, holds the field.
25. In Mekaster Trading Corp. v. Union of India (supra), a learned Single Judge of this Court was considering the validity of an order issued by the Government of India, Ministry of Commerce and Industry, blacklisting the Petitioner, a contractor, for a period of five years with effect from 19th March 2002. The Petitioner was the Indian representative of Barin Spa, Italy which had submitted a bid for procurement of Mobile Bridge Inspection Units (MBIU). The other bidder was a German company. The bid of Barin was accepted and a formal contract was entered into. The Petitioner as agent Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 of Barin Spa was to act for the purpose of liaisoning and coordination for which Barin was to pay agency commission. On 24th June 1996 the Director General of Supply and Disposal (DGS&D) issued Rejection Inspection Certificate in respect of the equipment supplied by Barin. Thereafter a lot of correspondence was exchanged between the parties. The equipments were again tested and rejected by the DGS&D by its letter dated 12th May 1999. After about two years on 26th July 2001 the DGS&D issued a notice to Barin asking them to show cause why they should not be blacklisted for having violated the terms of the contract. It was noticed by this Court in the said judgment that one common show cause notice was issued to both Barin as well as the Petitioner Mekaster Trading Corporation in which the purported lapses of both Barin as well as Mekaster were listed. Both Barin as well as Mekaster submitted replies after which the blacklisting order was passed. It was noticed by this Court that in the blacklisting order the contentions of the two parties were brushed aside by stating "the reply submitted by them vide their letters dated 18.8.2001 and 6.2.2002 and oral representation by them during hearing of the case on 4.3.2002 have not been found convincing. The available evidence does not reveal that the firm has fulfilled its contractual obligations".
26. After discussing the relevant case law concerning the duty to give reasons, including the decision in S.N. Mukherjee v. Union of India, this Court in Mekaster Trading Corp. quashed the blacklisting order by observing that "passing the order in such a slip shod manner which has the serious effect of blacklisting the petitioner for a long period of 5 years is certainly not an act of good administration". It observed that "the aforesaid summation cannot be called as „reasons‟ in support of the order. It can, at best, be termed as conclusion. Apart from this conclusion there is nothing in Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 the order to indicate any supportive reason". This Court pointed out that the link between the material on which conclusions are based and the actual conclusion had to be found. "If that has remained at the back of the mind of the authority passing the order, and has not surfaced on the records of the case, the ingredients of a reasoned order are not met". Further it was emphasized that the reasons for arriving at the conclusions "should be discernible from the order itself. It is trite law that when authority has omitted to give reasons in the impugned order such a deficiency cannot be supplied by the State by adducing sufficient ground therefor when the validity of the order is challenged".
27. The above dictum in Mekaster Trading Corp. has been followed by this Court in G.D. Tewari & Co. v. DDA, Indian Oil Corporation v. SPS Engineering Ltd., 128 (2006) DLT 417 (DB) and National Building Construction Corp. Ltd. v. NDMC, 138 (2007) DLT 414. ....
32. The first of the above paragraphs is no different from the reasons given by the Government of India in its blacklisting order in Mekaster Trading Corp. It is one solitary statement which states that after considering the relevant records, show cause notice, replies and the oral/written submissions, the NHAI is of the view that those replies and written submissions "are wholly unsatisfactory and no justifiable grounds have been made out." The other again is a conclusion which simply states that "keeping in view the performance and conduct of the addressees, NHAI finds that they are not reliable and trustworthy for any future works".
33. At best the above statements can be termed as conclusions and not reasons. As pointed out by this Court in Mekaster Trading Corp., the above order does not indicate that "the decision maker successfully came to grips with the main contention advanced by the Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 parties". It also fails to disclose "how the mind is applied to the subject matter; whether done relevantly or rationally". There are no reasons to indicate the application of mind and the mental process leading to the conclusion. Further as pointed out by the Division Bench of this Court in Indian Oil Corporation v. SPS Engineering Ltd. (supra) (DLT, p. 425). "reasons must be contained in the order under challenge, and mere existence of reasons in the show cause notice, or any material referred to in the show cause notice, is not sufficient....the authority concerned must, at least in brief, deal in the impugned order with the explanation given in the reply, and give its reasons for holding that the explanation is not satisfactory."
34. In the considered view of this Court, the impugned order does not satisfy the requirement of the principles of natural justice i.e. of furnishing reasons for the conclusions. Considering that the impugned order read with the circular dated 24th February 2009 has adverse civil consequences for the Petitioner, it simply cannot be sustained in law. The damage, that has already been done in terms of the Petitioner not being awarded works by other organizations and even by the NHAI itself in not allowing it to bid. cannot possibly be reversed. However, on this aspect this court does not wish to dwell, as it is best left to be determined in appropriate proceedings in the civil court, if instituted, by the petitioners.
35. The petition should succeed on the above ground alone. However, since other points were urged, they are also being dealt with. The next contention of the Petitioners is that they were given a hearing by the Member (Technical) but the impugned order was passed by the GM (DK-I) who was not the person who heard the Petitioners. In its counter affidavit it is sought to be explained by the NHAI that Mr. Sharma was the person who issued the show cause notice and to whom the reply Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 was furnished. Mr. Sharma was physically present at the time the Member (Technical) gave a hearing to the Petitioner and therefore Mr. Sharma was conversant with all the submissions made in response to the show cause notice. It is accordingly submitted by the NHAI that no illegality was committed only because the person who heard the Petitioners was different from the person who passed the impugned order. Reliance was placed on certain observations of the Supreme Court in Gullapalli Nageswara Rao v. Andhra Pradesh State Road Transport Corporation, AIR 1959 SC 308 where the Supreme Court disapproved of the procedure prescribed under the Motor Vehicle Rules which permitted the Secretary to give a hearing and the Minister to take the decision. It was observed that "this divided responsibility is destructive of the public concept of judicial hearing"
37. The third ground on which the impugned order is attacked is that it concerns issues which form the subject matter of arbitration proceedings. It is submitted that the Petitioners have in para 32 of the writ petition given details of the various disputes between the parties which are pending by way of arbitration before various tribunals. The learned Senior counsel for the Respondents on the other hand submits that the defects pointed out by the independent Engineer appointed in terms of the contract, and which were not contested by the petitioners, formed the basis of the blacklisting order and is therefore independent of any disputes that may be pending adjudication before the Arbitral Tribunal. It is further pointed out that given the importance of the projects of the NHAI and the necessity for completing them in time, the NHAI cannot be expected to wait for the completion of arbitration proceedings before deciding whether a contractor should be blacklisted. In response to this argument it is pointed out by the learned Senior counsel for the Petitioner that the Engineer under the contract in terms of clause 4.1, is expected to decide Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 "contractual matters between the employer and the contractor in the role representing the employer".
Therefore, the Engineer is in fact not an independent person as is sought to be projected by the NHAI.
38. One of the contentions raised in the show cause notice by the NHAI is that the Petitioners have by their letter dated 14th March 2008 issued "an invalid notice of termination of contract" and that by so doing the petitioners had "in no uncertain terms clearly refused to perform your obligation under the Contract". It appears that the validity of the action of the Petitioner in terminating the contract is indeed pending reference before an arbitral tribunal. In National Building Construction Corp. Ltd. v. NDMC (supra), a leaned Single Judge of this Court dealt with a similar issue. In para 19 of the said decision (DLT @ p. 420), the court noted that there was an "identity in the subject matter of the allegations leading up to the blacklisting order and arbitration proceedings". After referring to the judgments in Eurasian Equipment & Chemicals Ltd. v. State of West Bengal AIR 1975 SC 266, Raghunath Thakur v. State of Bihar AIR 1989 SC 620 as well as the earlier decisions of this Court, the learned Single Judge held that it was clear that the NDMC had proceeded to blacklist the contractor "even after recession of the contract which had become the subject matter of arbitration". In Indian Oil Corporation vs. SPS Engineering Ltd., the Division Bench of this Court agreed with the reasoning of the learned Single Judge that "when the entire matter was pending before the Arbitrator there was no need to have proceeded with the issue of placing the petitioner on the holiday list.." The Division Bench held: "when the matter was subject matter of arbitration, the respondent should have waited the decision of the Arbitrator before taking such a decision in a hurry". Therefore, on this ground also the petitioner is entitled to succeed. There was no occasion Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 yet for the NHAI to have issued the impugned show cause notice dated 27th June 2008 to the petitioners.
39. Consequently the impugned show cause notice dated 27th June 2008 and the consequential order dated 24th February 2009 passed by the NHAI blacklisting the petitioners are hereby set aside. The NHAI will, consistent with this order, and within a period of one week from today, issue a corrective circular to withdraw and replace its earlier circular dated 24th February 2009 which has been referred to hereinbefore. Simultaneously, the NHAI will place the new circular on its website and also send copies to all entities to whom the earlier circular was sent. It is clarified that depending on the outcome of the proceedings before the Arbitral Tribunal, it would be open to the NHAI to proceed thereafter in accordance with law.
...."
8. Reliance is also placed on this court's decision in Aqua Designs India Private Limited v. Union of India 2017 SCC OnLine Del 9381, [W.P. (C) 6699/2016].
9. In para 10 of the impugned order dated 23.07.2018, it is recorded that the petitioner had offered, as a gesture of good faith, to recast the foundations. Evidently, the respondent has construed this gesture of good faith as an admission of wrong doing and has imposed the ban for 5 years. Since the petitioner is contesting the termination of the contract on the ground of alleged wrong doing, therefore, ex facie, its gesture of good faith, cannot be construed as an expression of its liability.
10.The petitioner contends that the impugned order is non-speaking, arbitrary and in any case not commensurate with what the petitioner could be accused of. It is not the respondents' case that the petitioner has Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05 misled the respondents or committed a deliberate breach or committed fraud. If it is so found in the arbitration proceedings, then it will have its own consequences. Surely, that cannot be the reason for banning the petitioner for 5 years and thereby causing it irreparable loss. It is further argued that the ban is prejudging the issue.
11.The preceding arguments are persuasive. Except for narrating the sequence of events, quoting from the petitioner's reply to the show cause, the passing reference in one sentence in the impugned order 23.07.2018 that the petitioner has committed serious breach of the terms of the contract, there are no cogent reasons given for a ban for half a decade. The court is of the view that a prima facie case has been made out for grant of interim relief. Accordingly, till the next date of hearing, there shall be a stay of the impugned ban order dated 23.07.2018,
12.List on 27.01.2021.
13.The order be uploaded on the website forthwith.
NAJMI WAZIRI, J.
NOVEMBER 02, 2020 AB/sb Signature Not Verified Digitally signed By:KAMLESH KUMAR Signing Date:05.11.2020 14:02:05