Karnataka High Court
Sri C G Nanjaraj S/O Late R S ... vs The Board Of Directors on 26 July, 2024
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 26TH DAY OF JULY, 2024
BEFORE
THE HON'BLE MR JUSTICE SACHIN SHANKAR MAGADUM
WRIT PETITION NO. 22002 OF 2012 (S-RES)
C/W
WRIT PETITION NO. 22003 OF 2012 (S-RES)
IN WRIT PETITION No. 22002/2012
BETWEEN:
SRI. C.G. NANJARAJ
S/O LATE R.S. GANGADHARAPPA
AGED ABOUT 59 YEARS
DEPUTY DIRECTOR
KARNATAKA RURAL INFRASTRUCTURE
DEVELOPMENT LTD
HEAD OFFICE, BANGALORE
R/A NO.711, SHIVA KRUPA
15TH A MAIN, MIG 'A', SECTOR
III PHASE, NEAR SHESHADRIPURAM COLLEGE
YELAHANKA NEW TOWN
BANGALORE-560 106.
...PETITIONER
(BY SRI. VIJAY KUMAR, ADVOCATE )
AND:
1. THE BOARD OF DIRECTORS
KARNATAKA RURAL INFRASTRUCTURE
DEVELOPMENT LTD.
REPRESENTED BY ITS MANAGING DIRECTOR
CHINNASWAMY STADIUM
GATE NO.18, RAJ BHAVAN ROAD
BANGALORE-560 001.
2. THE MANAGING DIRECTOR
KARNATAKA RURAL INFRASTRUCTURE
DEVELOPMENT LTD.
CHINNASWAMY STADIUM
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GATE NO.18, RAJ BHAVAN ROAD
BANGALORE-560 001.
....RESPONDENTS
(BY SRI. K. RAMACHANDRAN, ADVOCATE FOR R1 AND R2 )
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227
OF THE CONSTITUTION OF INDIA PRAYING TO
CALL FOR RECORDS RELATING TO THE ISSUE OF THE IMPUGNED
OFFICIAL MEMORANDUM DATED 13.9.11 VIDE ANNX-R ISSUED BY
R2 AND THE IMPUGNED ENDORSEMENT DATED 04/07.5.12 VIDE
ANNX-V ISSUED BY R2 AND AFTER PERUSAL SET ASIDE THE SAME
AND ETC.
IN WRIT PETITION No. 22003/2012
BETWEEN:
SRI. B.R. NAGARAJ
S/O. LATE B.N. RAMACHANDRAIAH
AGED ABOUT 54 YEARS
ASSISTANT DIRECTOR
KARNATAKA RURAL INFRASTRUCTURE
DEVELOPMENT LTD
HEAD OFFICE, BANGALORE
R/A NO.12, 6TH A CROSS,
MARENAHALLI EXTENSION, SUBBANNA GARDEN
VIJAYANAGAR, BANGALORE-560 040.
...PETITIONER
(BY SRI. RAGHAVENDRA G. GAYATRI)
AND:
1. THE BOARD OF DIRECTORS
KARNATAKA RURAL INFRASTRUCTURE
DEVELOPMENT LTD.
REPRESENTED BY ITS MANAGING DIRECTOR
CHINNASWAMY STADIUM
GATE NO.14
RAJ BHAVAN ROAD
BANGALORE-560 001.
2. THE MANAGING DIRECTOR
KARNATAKA RURAL INFRASTRUCTURE
DEVELOPMENT LTD.
CHINNASWAMY STADIUM
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GATE NO.18, RAJ BHAVAN ROAD
BANGALORE-560 001.
....RESPONDENTS
(BY SRI. K. RAMACHANDRAN, ADVOCATE FOR R1 AND R2)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227
OF THE CONSTITUTION OF INDIA PRAYING TO
CALL FOR RECORDS RELATING TO THE ISSUE OF THE IMPUGNED
OFFICIAL MEMORANDUM DATED 13.09.2011 VIDE ANNX-R ISSUED
BY R2 AND THE IMPUGNED ENDORSEMENT DATED 04/07.05.2012
VIDE ANNX-V ISSUED BY R2 AND AFTER PERUSAL SET ASIDE THE
SAME AND ETC.
THESE WRIT PETITIONS HAVING BEEN HEARD AND RESERVED
FOR ORDERS ON 25.07.2024, THIS DAY ORDER WAS PRONOUNCED
THEREIN, AS UNDER
CORAM: HON'BLE MR JUSTICE SACHIN SHANKAR MAGADUM
C.A.V ORDER
These two petitions are filed by Deputy Director and
Assistant Director of Karnataka Rural Infrastructure
Development Limited (for short "KRIDL") assailing the
order passed by respondent No.2 in a proceeding to
recover loss stated to have been caused to the tune of
Rs.92,69,149/-. Both the petitioners have questioned the
correctness and validity of official Memorandum dated
13.9.2011 issued by respondent No.2, imposing multiple
penalty of withholding of annual increments with
cumulative effect till petitioners retirement, thereby
denying promotion to them and consequent recovery of a
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sum of Rs.34,97,418.50 each to be recovered from the
assets (both movable and immovable). This order is
confirmed by the appellate authority/respondent No.1 vide
order dated 12.04.2012 held in the 169th Board Meeting
under subject No.169/25.
2. The facts leading to the case are as under:
The KRIDL is an executive agency under Rural
Development and Panchayath Department. The works of
the Statement Government and its agencies relating to
construction/civil works of the department and said
agencies are entrusted to KRIDL. While in turn the KRIDL
gets the project executed through independent
contractors.
3. Respondent No.2 for the first time took up
execution of tender works outside the State in respect of
Madana Distributory of Narmada Valley Development
Authority(for short "NVDA") in Panagar, Jabalpur District,
Madhya Pradesh. Respondent No.2 was awarded the work
of construction of balance work of Madana Distributory and
its complete distribution system including excavation and
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earth works, cement concrete lining and structure
completion. Respondent No.2 in turn entered into an
agreement with a private contractor and authorized the
private contractor to be an associate contractor for
execution of said project.
4. The Narmada Authority rescinded the contract
on 23.7.2007 on the ground that there is delay in
implementing the project. The respondents countered the
termination notice by issuing a reply notice. On the
contrary, contended that NVDA have breached the terms
and conditions of the agreement. The respondents
contended that on account of non-acquisition of land by
NVDA the works at Madana Main Cannel and at some
various locations could not commence. The respondents
also contended that there is delay in furnishing the
working drawings and there is delayed payment of interim
bills. The respondents also contended that there was
change in quarry size and designs and there was also
delay due to non-shifting of electric power lines. The
respondents also contended that on account of breach by
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NVDA there was increase in quantity of works. The
respondents initiated arbitral proceedings against the
NVDA.
5. In the midst of the dispute between
respondents and M.P. Government and pending
consideration of arbitral proceedings, respondents
appointed an Disciplinary authority against the petitioners
and charge sheet was issued. Both the petitioners
submitted their reply to the show cause notice. One Sri.
S.V. Anantharamaiah, retired Chief Engineer was
appointed as Inquiring Authority on 22.1.2008. Both the
petitioners contested by submitting their reply to the
Disciplinary authority. The Disciplinary authority though
dropped the charges 1 to 5 and 7, however proceeded to
hold that charge No.6 is proved and petitioners are found
to be guilty. Charge No. 6 related to 'advances' paid to
the associate contractors.
6. Respondent No.2 issued a second show-cause
notice along with inquiry report on 15.4.2009. Both the
petitioners again tendered detailed explanation to the
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second show-cause notice and respondent No.2 proceeded
to impose multiple penalties which was challenged by both
the petitioners before Respondent No.1. Respondent No.1
has confirmed the orders passed by Respondent No.2.
7. Learned counsel appearing for the petitioners
reiterating the grounds urged in the petitions have
vehemently argued and contended that the penalty
inflicted by respondent No.2/Disciplinary authority is
contrary to records. The counsel have further contended
that though the petitioners have brought to the notice of
the Disciplinary authority and have substantiated that the
findings of the Inquiry Authority are perverse, respondent
No.2 ignoring these significant details has proceeded to
impose penalty. Both the counsel have pointed out that
though the inquiry Officer has come to the conclusion that
the Corporation has suffered a loss of Rs.64,94,897/-, the
official witnesses examined on behalf of the Corporation
have disputed the alleged loss during the course of
enquiry and therefore, the counsel would contend that the
penalty inflicted is in absence of no evidence.
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8. Both the counsel arguing in the same vein have
further brought to the notice of this Court that Disciplinary
authority erred in placing reliance on the audit check while
coming to the conclusion that both the petitioners have
paid advances to the Assistant Contractors without any
proper security. The petitioners' counsel has brought to
the notice of this Court that this is disputed by the
auditors. They would further submit that the finding of the
Inquiring authority that Project Manager has no authority
to rescind the contract is erroneous as respondent No.2
has executed power of attorney permitting Project
Executive to release advance. They would further submit
that during the course of enquiry, it has come on record
that these advances were released with the consent of
respondent No.2. Both the counsel would further point
out that the advances were made within the parameters of
bills approved NADA and all the requisitions which were
sent to the Head Office were duly approved and therefore,
he would contend that the recovery initiated on the ground
that the Corporation has incurred revenue loss is perverse
and contrary to the evidence in that regard.
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9. Both the counsel have also placed reliance on
the pending arbitration proceedings. They would point out
that pending consideration of arbitral proceedings between
respondent No.2 and NVDA, the loss quantified while
answering Charge No.6 against the petitioners is without
any basis and this aspect is not considered by the
Disciplinary Authority and the Appellate Authority.
10. On these set of grounds, both the counsel
contended that the Department enquiry initiated against
the petitioners is premature when respondent No.1 has
invoked arbitral clause and arbitration proceedings are
pending. Both the counsel have brought to the notice that
arbitral award is passed and writ petition is pending.
11. To buttress their arguments, they have placed
reliance on the following judgments:
1. Union of India .vs. H.C. Goel [AIR 1964 SC 364]
2. Kuldeep Singh .vs. Commissioner of Police
[(1999) 2 SCC 10
3. Roop Singh Negi .vs. Punjab National Bank and
others [(2009) 2 SCC 570]
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4. State of U.P. .vs. Saroj Kumar Sinha [(2010) 2
SCC 772]
5. Commissioner of Police .vs. Jai Bhagwan
[(2011) 6 SCC 376
6. Allahabad Bank and others .vs. Krishna Narayan
Tewari [(2017) 2 SCC 308]
7. Union of India and another .vs. Col.A.D.
Nargolkar and others [(2019) 13 SCC 723]
8. United Bank of India .vs. Biwanath
Bhatacharjee [(2022 SCC Online 108]
9. Man Singh .vs. State of Haryana and others
[(2009) 12 SCC 331]
10. LIC .vs. Triveni Sharan Mishra [(2014) 10 SCC
346]
11. Pawan Kumar Agarwala .vs. General Manager-
II and Appointing Authority, State Bank of India and
others [(2015) 15 SCC 184]
12. University of Delhi .vs. Union of India [(2020)
12 SCC 745]
13. Bhagwati Prasad Dubey .vs. Food Corporation
of India [1987 Supp SCC 579]
14. State of M.P. .vs. Sheetla Sahai [(2009) 8 SCC
617]
15. Bongaigaon Refinery & Petrochemicals Ltd. .vs.
Girish Chandra Sarma [(2007) 7 SCC 206]
16. Union of India .vs. Gyan Chand Chattar [(2009)
12 SCC 78]
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17. Allahabad Bank .vs. Krishna Narayan Tewari
[(2017) 2 SCC 308
18. Narinder Mohan Arya .vs. United India
Insurance Company Limited [(2006) 4 SCC 713]
19. Abhay Jain .vs. High Court of Rajasthan [(2022)
13 SCC 1]
12. Per contra, learned counsel appearing for
respondents would vehemently argue and contend that
except the advance amount released as evidenced at
Annexure-F which were approved by the M.D., the amount
released by the petitioners which is to the tune of
Rs.4 Crores is in absence of M.D's approval, petitioners are
liable to remit the loss of revenue caused to the
Corporation. He would further contend that advance
amount which was the subject matter of Departmental
Enquiry is not the subject matter or arbitral proceedings.
They would contend that Arbitration proceedings were
confined to recovery of Rs.5,46,22,497/- from NVDA and
therefore, contend that the advance amount released by
the petitioners was not the subject matter of arbitral
proceedings. Learned counsel for respondent would
therefore contend that petitioners were guilty of releasing
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Rs.69 lakhs unilaterally without seeking approval of the
M.D. and without securing security of the contract and
hence, they are principally liable to remit the revenue loss
caused to the Corporation.
13. Heard the learned counsel for the petitioners
and the learned counsel for respondents. This Court has
thoroughly reviewed the records in both the petitions and
has given anxious considerations to the citations relied on
by the learned counsel for the parties.
14. Before this Court delves upon the order of
penalty imposed by the Disciplinary Authority, the
conditions incorporated in the agreement of Association
entered into between respondent No.1 and Private
Contractor at Jabalpur would be relevant.
"7. M. Channaiah will be responsible for preparation of bills
of the work done regularly on a monthly basis. KLAC
will not be liable for any delay. M. Channaiah will also
liaison and act accordingly for release of all bills
including final bill. However, the measurements will be
restricted to those maintained and released by the
Executive Engineer, Narmada Development Division
No. 2, Panagar, District Jabalpur.
8. Security Deposit of 5% deducted as Security Deposit by
the Executive Engineer, Narmada Development Division
No. 2, Panagar, District Jabalpur will be retained by
KLAC as Security Deposit until the completion of the
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work. The Security Deposit will be released on
successful completion of work and handing over the
site to the Executive Engineer, Narmada Development
Division No. 2, Panagar, District Jabalpur.
12. The Project Manager, KLAC may at his discretion
provide advances to M. Channaiah if required which
shall be deducted from the subsequent running bills."
15. The cause to initiate departmental enquiry
against the petitioners is on account of termination notice
issued by the NVDA. The NVDA alleging that progress
achieved by the respondents in a period of 32 ½ months
being not found satisfactory and thereby alleging that for
almost four months there is absolutely no progress and
the project is at standstill, has by invoking clause 4.3.3. of
the agreement, the part of the project which was left
unexecuted was withdrawn, consequently terminating the
contract. The portion which is relevant is extracted as
under:
"From the above details it is clear that you have
deliberately neglected and failed to proceed with work
with due diligence. Either you are not willing to complete
the work or you are not capable of doing the same. As
such you have rendered yourself liable for action under
clause 4.3.3 of the agreement.
Therefore clause 4.3.3 of the agreement is invoked
and part of the work that is left unexecuted under this
agreement is withdrawn and taken out of your hand.
As per clause 4.3.31 of the agreement the amount
of Rs.5,00,000/- as earnest money, Rs. 95,00,000/- as
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performance security and Rs. 4296991/- as security
deposit deducted from running bills shall stand forfeited
and as per clause 3.26 of the agreement additional
security deposit on account of unbalanced rate amounting
Rs. 5832176/- shall also, stand forfeited with immediate
effect.
In addition to above, as per clause 4.3.2 of the
agreement, the amount payable for the work done but
not paid shall also be forfeited which will be assessed
after preparation of final bill.
The work executed by you will be measured up
from 27-07-2007 onward in presence of you or your
authorized representative who may remain present at site
during final measurements, failing which measurement
will be taken by department and the same shall be final
and binding on you, as per provisions in agreement."
16. The reply by Karnataka Land Army Corporation
Limited has a direct bearing on the departmental enquiry
initiated by respondents. In reply, the respondents while
contesting the termination of contract by issuing a legal
notice have contended that the main reasons for delay
was account on of breach of conditions by NVDA. The
relevant portion is extracted as under:
"Due to this non acquisition of land by NVDA in the
following reaches the work could not be commenced at
those places and this difficulty still exists.
a. Madana Main Canal from 22800 RD to 25000
b. Minor No.2, from RD 8000 to 11200 RD
c. Sub minor M2, R2 800 to 5400 RD
d Sub minor M2, R2 3600 to 5800 RD
e. Sub minor M2, R3 3600 to 6000 RD
b) Delay in furnishing working drawings:
The Employer has expressly contracted to supply
the drawings and instructions on demand by the contract
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without which the work cannot be progressed and
prevents the performance if the drawings and instructions
are not furnished within a reasonable time.
The District Road bridges work contemplated in the
contract was revised to Siphon type. The drawing of these
structures is still not furnished though even after lapse of
nearly 3 years.
The longitudinal levels are still not furnished all the
places.
The locations of the quarry for materials are still not
furnished.
c) Payment of Interim bills:
This construction contract provides payment of
installments every month vide Clause No. the contract
Non payment of these interim bills for certain works
amounts to breach of contract. Upon such default the
contractor can stop the work and may abandon the
contract and seek compensation on the basis of fair and
reasonable value of the work done. A contract involving a
large expenditure stipulation for payment on account to
be made from time to time must be deemed so material
that the substantial failure to pay would justify the
contractor to decline to proceed. It is evidently was in
contemplation of the parties that the contractor could not
be expected to finance the operation to completion
without receiving the payment on account of the work
executed. Nearly about Rs.2.80 Crores of payments is still
due for the work completed. In such cases a substantial
compliance as to advance payment is a condition
precedent to the contractor's obligation to proceed with
the work.
The Supreme Court has held that the withholding of
substantial amount over a long period without any
reasonable cause amounts to breach of contract.
d) Change in the quarry site:
The contract clause refers to allotment of quarry for
procurement of sand and other materials. Murrum was to
be obtained from Right Bank Canal, 8 Kms from site of
works as stated in the contract. This obligation of the
Employer is not fulfilled. A quarry was shown near 1 Km
of the main canal. It later brought to our notice that this
quarry comes under Forest area and the Forest
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department did not allow quarry of CNS materials. Every
request of the contractor to the the Employer to indicate
the quarry location failed. As the work was at stand still
and our tools and plants were idling at site. We have to
obtain the CNS material from other places at our own cost
and expenses. Only as small quantity sufficient enly for a
5 Kms of the Canal be obtained. In spite of repeated
requests no quarry was shown till date. In fact a latter
was written on 6-1-2006 indicating the difficulty in
obtaining CNS materials and this difficulty is still
persisting.
A similar situation has occurred for other materials
such as Sand and aggregates also. Consequently the
progress was hampered financial loss we had to suffer. in
addition
Further the contract specifies only 5 Kms lead for
CNS materials whereas at site the lead is more than 20
Kms.
e) Change in the Nalla design.
The level of the Nalla has been changed frequently.
The levels are to be indicated at the time of handing over
of the site for the entire longitudinal section but the levels
are being given at the time of excavation only. The work
has to suffer due to default of the employer. It is evident
that the levels are not given at the time of work started
which is a bounden obligation of the NVDA. Hence KLAC
could not plan and execute the won as they envisaged at
the of tendering.
It was seen that the earth required for the work
was not sufficient and the same has to be brought from
outside the NVDA land. For this we have to incur
additional expenditure in conveying the materials beyond
3 Kms and also the cost of the earth obtained for
embankment reaches. This is also already brought to your
notice during April 2005. This failure of NVDA to indicate
the borrow area has delayed the execution of the work
and the KLAC has to incur addition expenses.
f) Delay due to not shifting of electric power lines:
It is an obligation of the NVDA to hand over the site
free of all encumbrances and hindrances. Though
promises were made that electric line Crisis crossing the
canal will be removed immediately after acceptance this
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was not removed even up to February 2006. Because of
this hindrance the work could not be progressed and we
were facing difficulties in using JCBs for excavation. In
fact certain accidents also happened due to electrocution
and heavy expenditure has to be incurred in addition to
the delay in progress of the works. The electric power
lines were partly shifted during January to March 2007
and the work of shifting of electric power lines is still not
complete. This has prevented the progress of work.
Increase in quantity of works.
g) Increase in quantity of works:
It is observed that the quantities. Indicated in Bill
of Quantities are inaccurate and the final quantities are
bound to increase enormously and in certain cases it may
exceed more than 30% of the quantity stated in the Bill of
Quantity. As per the terms of the Contract if there is any
increase in the quantity of works an appropriate extension
of time is required to be given. This extension is still not
been given. It is to be noted that though KLAC has been
asked to Proceed with the work no order for increase in
quantity has also been placed on the KLAC.
h) Non finalization of rates:
The following extra works has been ordered and
executed at site for which rates have not been finalized.
In fact the measurements have been recorded in certain
cases.
a) Head Regulated gates for change of specification from
Cast iron to M.S.
b) Diversion road
c) Rubber strip for expansion joint
d) Sand and boulder treatment for foundation of the
structures
e) Filling Murrum alround the structures to avoid contact
of BC soil to the structures.
Non-finalization of rates have resulted in non
payment for the work done and financial difficulty to
KLAC. This financial crunch also affected the progress of
work.
i) Stoppage of work:
a) The Concrete lining was being executed in the Canal.
At this juncture NVDA directed KLAC to stop the progress
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of the lining work and to divert the laborers to the work of
the structures. This interference of NVDA has completely
jeopardized the planning and progress of the work by
KLAC resulting in delay in execution.
a) The Concrete lining was being executed in the Canal.
At this juncture NVDA directed KLAC to stop the progress
of the lining work and to divert the laborers to the work of
the structures. This interference of NVDA has completely
jeopardized the planning and progress of the work by
KLAC resulting in delay in execution.
b) The District Road bridge was taken up for construction
and all arrangements including fabrication of scaffolding
were carried out. At this juncture NVDA changed the
design and instructed the KLAC to provide Syphon type in
lieu. It is incumbent for the NVDA to furnish all drawings
etc., well in time much before the actual work is taken up.
This late action of NVDA particularly after the work is
taken up has delayed the progress of the work in
additional to the extra expenditure to the KLAC.
In the absence of expression stipulation, the NVDA
has no right to dictate the order in which work will be
carried out and the refusal to alow KLAC to carry out the
work in the order of their choice has affected the progress
of work. KLAC for that reason is entitled to damages for
wrongful interferences. The contract does not
contemplate interference by the employer in the method
and order of execution of work planned by the KLAC.
c) M5 Canal which was originally included in the contract.
The site was cleared of Shrubs and vegetation by KLAC
and arrangement was made to progress the works. NVDA
did not furnished the alignment and level thereby
preventing KLAC to progress the work. Even on date the
alignment is not furnished and resulted in delay in
progress of work.
j) Curtailment of payment:
As already stated entire payment has not been
made for CNS soil, change in specification for the gates,
escalation for the work executed as the period of contract
has been enlarged, for more than 12 months. As the work
is being executed beyond the original contracted period
revised rates are also payable to the KLAC. This crunch in
the financial flow has greatly affected the progress of
work.
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h) Foreclosure of works
The Contract contemplates various works as
indicated in Bill of Quantities as well as drawing NVDA has
omitted certain which are as follows:
i) 193 Structures were originally contemplated for
execution. This has been reduced to 145 number
which is more than the limit stipulated in the
contract. This has affected the progress as proper
planning-could not be done. Also due to this
reduction revised rates has to be agreed between the
parties for the work executed.
ii) It is also been stated in the letter referred above that
certain works have also been withdrawn from the
contract. As per the terms of the contract KLAC is
entitled to execute the entire work and NVDA cannot
order omission of certain works, perhaps with the
intention of getting it done by other agencies, If such
an event occurred KLAC has the right for the
damages incurred.
5. It can be seen from the above that the main causes of
the delay are:
a) Delay in land acquisition
b) Non availability of CNS material
c) Non payment of the monies due to the contractor.
6. The above has been highlighted by no less than the
Chief Minister of Karnataka himself as far back as 12-06-
2007. However no constructive action has been taken by
you. Apart from the above the delay is also due to non
furnishing of instructions and drawings in time, increase
in the quantity of work, curtailment of payment of certain
works, increase in lead for materials and deviation and
stoppage of works. In fact the entire site devoid of any
interferences and hindrances has still not been handed
over to us. As per the Contract Act, the obligations of the
contractor commences only after the completion of the
obligations of the employer. This has not been completed
by you yet. The main requirement is handing over the
entire site. KLAC cannot commence the work at all
reaches without handing over the entire site and this is
still not completed.
It is therefore requested that the letter dated 23-07-2007
may please be cancelled and our request for extension of
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time as requested in our letter dated 05-06-2007 may
please be granted at an early date.
We, on our part are ready to do our best to
complete the work as early as possible provided that the
main issues as brought out above are sorted out by you."
17. The respondents while submitting the draft
letter of claims before the Superintendent Engineer,
Jabalpur, have furnished significant details under clause
4.3.29.2 of the agreement, the relevant portion is
extracted as under:
"The salient features of the afore said contracted
work are:-
1. Name of Work : As above
2. Date of Tender submitted : 06/08/2004
3. Date of Acceptance by NVDA : 06/09/2004 Secretary
NVDA
4. Value of Contract awarded : Rs.18,88,61,477.00
5. Percentage over USR 1998 : @14.89 of above 1998 USR
6. Date of agreement : 05/11/2004
7. Work order No. : 818/SAC/Panagar/2004
Date: 05/11/2004.
8. Stipulated Time for completion : 12 months excluding 3
months Rainy season.
9. Stipulated date of completion : 04/02/2006.
10. Period of contract extended : a) 1st extension granted
upto 31/3/06.
b) 2nd extension granted
upto 15/6/06.
c) 3rd extension granted
upto 31/12/06.
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d) 4th Extension granted
upto 31/3/07 further
extension applied upto
31/3/2008 and is under
consideration.
11. Value of bills cleared by NVDA : Rs.8,61,08,841
upto 31/3/07.
12. Date of Termination of Contract : 23/7/07
13. Position of Final Bill : It is in the process of
preparing the final bill by
the employer.
14. Amount of EMD deposited : Rs.500000.00 (Forfeited
With the tender by EE on 23/7/07.
15. Performance Security deposited : Rs.9500000.00
amount at the time Contract (5%Forfeited by EE on
of signing agreement 23/7/07).
16. Amount of security deposit : Rs.4296991.00 forfeited
Recovered from running Bills by E.E on 23/7/07
@ 5% upto 20th RA bill :
17. Addl. Security deposit towards: Rs.4972158.00 forfeited
Unbalanced rate by E.E on 23/7/07.
18. Amount with held from : Rs.1860758.00 forfeited
R.Bills or some filmsy and by E.E on 23/7/07
unjust grounds
19. Amount of pending bills : Rs.31248795.00
Submitted as per the Actual : Communicated to E.E.
execution vide Itr No:
PM/KLAC/NVDA/ Madana.
2007-08 /932 dt:
4/7/07."
18. The entire edifice on which the enquiry is
constituted and petitioners are subjected to departmental
proceedings relates to advances paid to associate
contractors. Disciplinary authority while dealing with
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charge No.6 has made certain observations and therefore,
this Court is of the view that these observations are too
critical to analyze whether departmental proceedings
initiated against the petitioners are sustainable pending
consideration of the arbitral proceedings between
respondents and State of Madhya Pradesh.
19. The relevant extracts are extracted as under:
"15. The works entrusted to KLAC by NVDA authorities were
being executed by the following four (4) agencies, as per
"Agreement for Association" entered into by KLAC
• Shri. M. Channaih
• M/s SV Quality Construction Co.
• M/s. Elcon Infratech
• Shri. B. Ramesh Naidu.
A copy of such an agreement with Shri. M. Channaih is
placed as Exhibits ME11. Agreements with others are
identical. Clause 12 of this agreement states "The project
manager KLAC may at his discretion, provide advances to M.
Channaih, if required, which shall be deducted from the
subsequent running bills". The agreement however, does not
provide for any guarantee clause for such advance
payments.
16. Advance payments were being made to the above
agencies by the Project Manager and the Project
Executive, being Joint Account, operated by both.
17. An audit check was conducted by officers of KLAC
during May 2007. After examining all the monthly A/c's
(KLAC Job Bills, MRA's etc.), it was established that
total net outstanding advances against the above four
agencies as on 29.05.2007 were as under
• Mr Channiah Rs. 4,03,07,712
• M/s. SV Quality constant co. Rs. 28,43,879
• M/s. Elcon Infratec Rs. 33,36,563
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• Mr. Ramesh Naidu Rs. 11,67,761
TOTAL Rs. 4,76,55,915
Copy of Audit Check report is at Exhibit ME9
18. The Presenting Officer in his written statements brought
out that as per a final abstract statement furnished by
the Project Manager and the Project Executive, the
reconciled figures of advance, were as under (as on
06.06.2007).
• Mr Channiah Rs. 4,05,12,024
• M/s. SV Quality constant co. Rs. 28,77,556
• M/s. E/con Infratec Rs. 33,36,563
• Mr. Ramesh Naidu Rs. 11,96,111
TOTAL Rs. 4,79,22,254
19. As the advances outstanding against the above four
agencies, have become irrecoverable as the works
have been withdrawn by NVDA authorities, and no
security is held with KLAC, the amount is considered as
loss to KLAC. Both the CSO's viz the Project Manager
(PM) and the Project Executive (PE) have therefore
been made responsible for this loss of Rs. 4,79,22
Lakhs
20. The pleadings of the CSO's (Exhibits DE5 and DE6) have
been examined in detail. The main points brought out
by them, and my views on the same, wherever
applicable are recorded in the succeeding paragraphs.
20.1. There is no dispute on the total amount of Rs.
4,79,22,254 shown as outstanding advances against
the four agencies, as on 06.06.2007. In fact the
statement showing details leading to this figure is
signed by both CSO's (Exhibits ME6 & ME7).
20.2. The CSO's in their defence statement (page 13 of
Exhibits DES and DE6) have stated that all advance
payments at various stages, were made by the Project
Manager, after obtaining specific approvals from the
Managing Director. This statement is not in line with
the evidences produced, and cannot be accepted. Only
two payments viz Rs.,60 Lakhs on 08.10.2004 and Rs.
75 Lakhs on 19.01.2006 have the specific approval of
MD KLAC. (Exhibits D II Pages 2 & 10 refer). Other
payments made to the agencies appear to be at the
discretion of the Project Manager/Project Executive, out
of the bulk allotments periodically placed at the
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disposal of the Project Manager. It is seen that as per
the procedure introduced and followed as per found
indicated BHUSIRI ACCOUNT. full details like work done
so far and basis of advance payments if any, planned
to be made, are not (Exhibits ME12 & ME13). The
requirement of bulk funds demanded by the Project
Manager, appear to be on an ad hoc basis. This is
evident such demand projected for Rs. 75 Lakhs during
Jan 2006. from one Approval bulk allotment is seen to
have been periodically issued by MD for KLAC.
Statements of the CSO's that all advance payments are
made to the Associate contractors, after obtaining
approval of MD KLAC are not borne by facts. The power
of Attorney documents signed by MD KLAC on 12 Oct
2004 (Exhibit ME10) does not empower Sri. CG
Nanjaraj to make any advance payments. Release of
funds cannot be taken as approval for making advance
payments.
20.3. It can be seen from the statement at Annexure H to
the audit check referred to in para 17 ante (Exhibit
ME9) payments have been made on a regular basis to
the Associate contractors, without maintaining any
measurements of work done. There are instances
where such "work advance" payments have been made
more than once, on a single day. No details were
produced to establish the basis for the advance
payments.
20.4. It is agreed that, there are two stages involved for
making payments. The work is executed by Associate
Contractors, and the work done is jointly measured by
the Project Manager/Project Executive, with the NVDA
authorities, and the bill is released for payment by the
NVDA. In the meanwhile, the associate contractors
need payments for the work done by them, to enable
them to progress the work further. There should have
been a set of measurements with the PM/PE to
examine and justify demand for "work advance"
payments by the Associate Contractors. Keeping a
record of work done by Associate contractors, has been
stressed in HQ KLAC letters dt. 13.02.07 and 19.02.07
(Exhibit ME8). No such details are made available by
the PM/PE in their defence statements, and as such the
payments made are considered to be ad-hoc without
any authority.
20.5. It is an established practice that there should be some
sort of Security to be retained with the Department
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before making any advance payment of huge amounts
to an external agency. Even otherwise, the periodical
"work advances" paid should have been related to the
actual work executed/ to executed, by the Associate
Contractors. This aspect seems to have been missed at
all levels, even at the time of release of funds."
20. The department alleges that both the
petitioners have lent advances to the external agency
without retaining some amount towards security with the
department. To consider these allegations, this Court now
deems fit to examine the stand taken by respondents in
arbitration proceedings. The relevant portion is extracted
as under:
"c) Payment of Interim bills:
This construction contract provides payment of
installments every month vide Clause No. the contract
Non payment of these interim bills for certain works
amounts to breach of contract. Upon such default the
contractor can stop the work and may abandon the
contract and seek compensation on the basis of fair and
reasonable value of the work done. A contract involving a
large expenditure stipulation for payment on account to
be made from time to time must be deemed so material
that the substantial failure to pay would justify the
contractor to decline to proceed. It is evidently was in
contemplation of the parties that the contractor could not
be expected to finance the operation to completion
without receiving the payment on account of the work
executed. Nearly about Rs.2.80 Crores of payments is still
due for the work completed. In such cases a substantial
compliance as to advance payment is a condition
precedent to the contractor's obligation to proceed with
the work.
The Supreme Court has held that the withholding of
substantial amount over a long period without any
reasonable cause amounts to breach of contract.
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g) Increase in quantity of works:
It is observed that the quantities. Indicated in Bill
of Quantities are inaccurate and the final quantities are
bound to increase enormously and in certain cases it may
exceed more than 30% of the quantity stated in the Bill of
Quantity. As per the terms of the Contract if there is any
increase in the quantity of works an appropriate extension
of time is required to be given. This extension is still not
been given. It is to be noted that though KLAC has been
asked to Proceed with the work no order for increase in
quantity has also been placed on the KLAC.
h) Non finalization of rates:
The following extra works has been ordered and
executed at site for which rates have not been finalized.
In fact the measurements have been recorded in certain
cases.
a) Head Regulated gates for change of specification from
Cast iron to M.S.
b) Diversion road
c) Rubber strip for expansion joint
d) Sand and boulder treatment for foundation of the
structures
e) Filling Murrum alround the structures to avoid contact
of BC soil to the structures.
Non-finalization of rates have resulted in non
payment for the work done and financial difficulty to
KLAC. This financial crunch also affected the progress of
work."
21. If the stand by the first respondent in
arbitration proceedings is examined in the context of
charge No.6 leveled against the petitioners, this Court is of
the view that department is blowing hot and cold. The
culled out stand taken by respondents in arbitration
proceedings clearly gives an indication that the claim
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made in the departmental proceedings against the
petitioners relating to advance payment which is subject-
matter of Charge No.6 is clearly inter linked with the claim
made by respondent No.1 in arbitral proceedings. The
allegations in the departmental proceedings are complex
in nature and the superior authorities of petitioners
obviously constituted a committee to enquire relating to
advance payments made to external agency. These
allegations are clearly intertwined with the claim made by
respondents 1 and 2 against State of Madhya Pradesh.
The allegations indicated in Charge No.6 cannot be
enquired pending consideration of arbitral proceedings.
22. Respondent No.1's own admission while raising
arbitral dispute wherein there is unequivocal admission
that the contract involved large expenditure and there
were compelling reasons to make payment from time to
time, the respondents have also indicated that failure to
make advance payments would have justified the
contractor to decline to proceed with the project.
Petitioners who were implementing the project at Madhya
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Pradesh cannot be solely held accountable if the accounts
were released by the accounts section from the head
quarters, that too pending consideration of the arbitral
proceedings.
23. The respondents have initiated departmental
enquiry only on the count that the advances paid to these
four external agencies have become irrevocable as the
project is withdrawn by the NVDA. This factual aspect is
evidenced at the finding recorded by the Disciplinary
authority at Paragraph 19 of the Enquiry report.
24. The observations of the Disciplinary authority
reveal that the departmental charges are intricately linked
to the arbitral disputes. The arbitral proceedings
themselves reflect an admission by the respondents that
the project involved significant expenditures and that the
contractors required advance payments to proceed
with the work. The Supreme Court, in cases such as
State of Uttar Pradesh v. Kharak Singh1
1 2008 AIR SC 0
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and Jaswant Singh v. State of Punjab2, has
emphasized the importance of conducting a fair and
independent inquiry by the disciplinary authority. In this
case, the respondents' admissions in the arbitration
proceedings, where they acknowledged that failure to
provide payments would have justified the contractor's
cessation of work, cast doubt on whether the petitioners
alone can be held responsible for the alleged financial loss.
25. It appears that the petitioners were acting in
accordance with the financial decisions taken at higher
levels within the organization. This raises a critical issue:
did the disciplinary authority adequately consider these
facts before deciding to impose the extreme penalty of
dismissal?
26. The disciplinary authority is duty-bound to
independently assess all evidence, including the
petitioners' defense, rather than merely relying on the
findings of the Disciplinary authority. The Supreme Court
in State of Uttar Pradesh v. Saroj Kumar Sinha
2
(1991 AIR 385)
- 30 -
(supra) stressed that the disciplinary authority cannot be a
mere rubber stamp but must apply its own mind to the
findings and the material on record before arriving at a
conclusion. In this case, it is unclear whether the authority
took into account the entirety of the facts or simply
endorsed the Disciplinary authority's conclusions, which
would be a violation of the principles laid down in Union
of India v. H.C. Goel (supra).
27. The respondents' reliance on the Disciplinary
authority's report to impose a penalty on the petitioners,
without independently evaluating the broader context of
the arbitral proceedings and the operational difficulties
faced by the project, amounts to an unfair and incomplete
assessment of the facts. The disciplinary authority's
decision appears to lack the required independent
analysis, as emphasized in Union of India v. P.
Gunasekaran3, where the Court reiterated that the
authority must give due consideration to all material
evidence before concluding on a disciplinary matter.
3
(Civil Appeal No. 010386/2014 SLP No.(civil) 23631/2008)
- 31 -
28. Given the complex and intertwined nature of
the departmental proceedings with the ongoing arbitral
proceedings, the premature conclusion of the disciplinary
inquiry and the subsequent penalty inflicted upon the
petitioners cannot be sustained. The disciplinary authority
should have deferred its decision until the resolution of the
arbitration to avoid a miscarriage of justice.
29. Thus, based on the above analysis and the
principles laid down in several Supreme Court judgments,
the penalty of dismissal imposed on the petitioners is not
legally tenable and warrants reconsideration
30. On an overall assessment of the records,
respondents 1 and 2 have ventured in implementing
projects at Madhya Pradesh without having infrastructure
to undertake the said projects. Respondents have
admitted in unequivocal terms that for want of staff, the
respondents were entirely dependent on external agencies
and sub-contractors. This departmental enquiry is clearly
an off-shoot of termination of contract by NVDA. Had
NVDA proceeded with the projects, probably the
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respondents would not have contemplated a departmental
enquiry against the petitioners. Though few heads have to
roll as public money is spent on risky projects beyond the
control of respondents 1 and 2 that cannot be at the cost
of petitioners alone.
31. The respondents could have initiated
proceedings only after conclusion of arbitral proceedings.
The penalty inflicted by the Disciplinary authority and
confirmed by the appellate authority are not sustainable.
For the reasons stated supra, the departmental enquiry is
held to be premature.
32. For the foregoing reasons, this Court proceeds
to pass the following:
ORDER
(i) Writ petitions are allowed.
(ii) The impugned proceedings dated 12.04.2012 of respondent No.1 held in the 169th Board Meeting under Subject No.169/25 confirming the order of respondent No.2 imposing penalty as per Annexure-U is hereby quashed. Consequently, the impugned official memorandum dated 13.09.2011 and the
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endorsement dated 4/7.5.2012 issued by respondent No.2 as per Annexures-R and V are also quashed.
(iii) The respondents are accordingly directed to grant all consequential and retiral benefits to the petitioners in accordance with law.
SD/-
(SACHIN SHANKAR MAGADUM) JUDGE *alb/-