Gujarat High Court
Shivranjani Cosntructions Co., vs Paschim Gujarat Vij Company Limited, on 7 August, 2018
Author: S.R.Brahmbhatt
Bench: S.R.Brahmbhatt, R.P.Dholaria
C/SCA/21983/2017 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 21983 of 2017
With
R/SPECIAL CIVIL APPLICATION NO. 21984 of 2017
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE S.R.BRAHMBHATT
and
HONOURABLE MR.JUSTICE R.P.DHOLARIA
==============================================================
1 Whether Reporters of Local Papers may be
allowed to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the
fair copy of the judgment ?
4 Whether this case involves a substantial
question of law as to the interpretation
of the Constitution of India or any order
made thereunder ?
==============================================================
SHIVRANJANI COSNTRUCTIONS CO.,
Versus
PASCHIM GUJARAT VIJ COMPANY LIMITED,
==============================================================
Appearance in S.C.A.No. 21983 of 2017:
MR MIHIR JOSHI Sr. ADVOCATE WITH MR SALIL M THAKORE(5821)
for the PETITIONER
MS LILU K BHAYA(1705) for the RESPONDENT No. 3
Appearance in S.C.A.No. 21984 of 2017:
MR MIHIR JOSHI Sr. ADVOCATE MR SALIL M THAKORE(5821) for
the PETITIONER
MS LILU K BHAYA(1705) for the RESPONDENT No. 3
==============================================================
CORAM: HONOURABLE MR.JUSTICE S.R.BRAHMBHATT
and
HONOURABLE MR.JUSTICE R.P.DHOLARIA
Date : 07/08/2018
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COMMON ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE S.R.BRAHMBHATT)
1. Heard learned counsels for the parties. As the facts and controversy involved in both the petitions are similar in nature, learned counsels appearing for the parties have requested the Court to hear both the matters together and dispose of the same by common judgment and order and accordingly, both the matters are heard together and they are being disposed of by this common judgment and order.
2. The petitioners in both these petitions have approached this Court by way of these petitions under Article 226 of the Constitution of India for the following reliefs:
Prayer in S.C.A. No.21983 of 2017 "(A) That the Hon'ble Court be pleased to issue a writ of or in the nature of certiorari or any other appropriate writ, order or direction quashing and setting aside notices dated 12.7.2017 and 24.8.2017 issued by the Respondents to the Petitioner and restricting the Respondents from taking any further proceedings against the Page 2 of 133 C/SCA/21983/2017 JUDGMENT Petitioner;
(B) That the Hon'ble Court be pleased to issuing a writ of or in the nature of mandamus commanding the Respondents:-
i) to allow the Petitioner to do work without any obstruction and without imposing any unreasonable demands;
ii) to process the tenders in which the Petitioner has participated or participates and award work orders with respect to tenders where the Petitioner is found to be the lowest bidder;
iii) to make payments to the Petitioner for all works done by it or which may be done by it in the future;
(C) That pending the hearing and final disposal of this petition, the Hon'ble Court be pleased to stay notices dated 12.7.2017 and 24.8.2017 issued by the Respondents to the Petitioner and be pleased to direct that no coercive steps be taken against the Petitioner;Page 3 of 133
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(D) That pending the hearing and
final disposal of this petition,
the Hon'ble Court be direct the
Respondents :-
i) to allow the Petitioner to do
work without any obstruction and
without imposing any unreasonable
demands;
ii) to process the tenders in which the Petitioner has participated or participates and award work orders with respect to tenders where the Petitioner is found to be the lowest bidder;
iii) to make payments to the Petitioner for all works done by it or which may be done by it in the future;
(E) For ad-interim relief in terms of prayer C and D;
(F) For costs;
(G) For such other and further reliefs as the Hon'ble Court may deem just and proper in the facts and circumstances of the case;"
Page 4 of 133C/SCA/21983/2017 JUDGMENT Prayer in S.C.A. No.21984 of 2017 "(A) That the Hon'ble Court be pleased to issue a writ of or in the nature of certiorari or any other appropriate writ, order or direction quashing and setting aside notices dated 12.7.2017 issued by the Respondents to the Petitioner and restricting the Respondents from taking any further proceedings against the Petitioner;
(B) That the Hon'ble Court be pleased to issuing a writ of or in the nature of mandamus commanding the Respondents:-
i) to allow the Petitioner to do work without any obstruction and without imposing any unreasonable demands;
ii) to process the tenders in which the Petitioner has participated or participates and award work orders with respect to tenders where the Petitioner is found to be the lowest bidder;
iii) to make payments to the
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Petitioner for all works done by it or which may be done by it in the future;
(C) That pending the hearing and final disposal of this petition, the Hon'ble Court be pleased to stay notices dated 12.7.2017 issued by the Respondents to the Petitioner and be pleased to direct that no coercive steps be taken against the Petitioner;
(D) That pending the hearing and final disposal of this petition, the Hon'ble Court be direct the Respondents :-
i) to allow the Petitioner to do work without any obstruction and without imposing any unreasonable demands;
ii) to process the tenders in which the Petitioner has participated or participates and award work orders with respect to tenders where the Petitioner is found to be the lowest bidder;
iii) to make payments to the Petitioner for all works done by it Page 6 of 133 C/SCA/21983/2017 JUDGMENT or which may be done by it in the future;
(E) For ad-interim relief in terms of prayer C and D;
(F) For costs;
(G) For such other and further reliefs as the Hon'ble Court may deem just and proper in the facts and circumstances of the case;"
Thus, essentially the challenge is to the notice dated 12.07.2017 in both the matters, whereas in 1st petition i.e. S.C.A. No.21983 of 2017 there is an additional challenge to one more Show Cause Notice dated 24.08.2017 issued by the respondents to the petitioners.
3. The facts in brief as could be gathered from the memo of petition i.e. in Special Civil Application No. 21983 of 2017, deserve to be set out as under:
(i) The petitioner is sole proprietorship concern of Shri Gunjanbhai Rameshchandra Mehta.
The respondent no. 1 is a distribution company having duties under the Electricity Act, 2003 (hereinafter referred to as 'the Act' for short) and other allied laws. Respondent No.1 PGVCL is a Page 7 of 133 C/SCA/21983/2017 JUDGMENT distribution company and has a duty to develop and maintain an efficient, co-ordinated and economical distribution system in its area of supply and to supply electricity in accordance with the Act. For achieving its objectives and performing its duties PGVCL gets work done through various contractors by issuing them work orders for doing different jobs.
(ii) It is the case of petitioner that since about 14 years he has been doing various small and large works like laying underground electrical cables, erection and maintenance of high tension and low tension lines, consumer earthing etc for PGVCL. The area of operation of the petitioner has been mainly Bhavnagar District and it has acquired very strong reputation and has been doing work satisfactorily as per the requirements.
(iii) It is case of petitioner that PGVCL makes payment to the contractors and refunds security deposit to the contractor only after satisfactory completion of the work and not otherwise. The bills are prepared by the concerned Sub-Division Officer of PGVCL and scrutinized by the concerned Division Officer of PGVCL before payments are made. For each work done by it in the last about 14 years, PGVCL has made payments to the petitioner and the security deposit for each work has been refunded to it by Page 8 of 133 C/SCA/21983/2017 JUDGMENT PGVCL.
(iv) It is case of petitioner that impugned actions under challenge suffer from malafides and are the result of grudges that the Chief Engineer Mr. A.G. Tannarana - respondent no. 5 has against another officer of PGVCL Mr. Y.M. Yadav because of certain actions that Mr. Yadav had been taken against Mr. Tannarana in the year 2006. In 2006, Mr. Tannarana was the Deputy Engineer, Power House Sub-Division under Bhavnagar City Division
- 1, at that time, the Deputy Engineer, High Tension Sub-division and Kala Nala Division, Bhavnagar City Division -1 was Mr. Yadav and at relevant time, the Executive Engineer, Bhavnagar city Division-1 was one Mr. Parikh. In February, 2006, the petitioner had gone to the office of Power House Sub-Division of PGVCL in Bhavnagar for signing some documents. On that day, Mr. Tannarana was in Lucknow and Deputy Engineer Mr. Yadav was in charge of the Power House Sub- division. In trying to search for the documents, substantial cash of about Rs.20,000/- was found in the chamber of Mr. Tannarana and Mr. Tannarana was informed about the same. As per his instructions, the cash was handed over to Mr. Vora. All this happened in the presence of the petitioner. The petitioner was later informed by Mr. Yadav that Mr. Tannarana had threatened him over telephone with dire consequences and had also alleged that Mr. Parikh (then Executive Page 9 of 133 C/SCA/21983/2017 JUDGMENT Engineer) Mr. Yadav and the petitioner were conspiring against him. Mr. Yadav had also written a letter to the Executive Engineer Mr. Parikh in respect of the misbehaviour of and threatening by Mr. Tannarana.
(v) There were some allegations with respect to illegal shifting of electrical lines under the Power House Sub Division and this was reported in Saurashtra Samachar daily newspaper in February, 2006. This issue was inquired into by Mr. Yadav and he filed a report which had findings against Mr. Tannarana who was Deputy Engineer, Power House Sub-division. Pursuant to which report, the then Executive Engineer Mr. Parikh also made observations against Mr. Tannarana. Finally the matter was closed with the observations being overturned by a higher officer. It is stated that after holding different positions, Mr. Yadav held the position of Executive Engineer, Palitana Division from 7.10.2013 to 14.10.2015. In January 2016, Mr. Tannarana was appointed as the Additional Chief Engineer, Zonal Office, Bhavnagar and in February, 2006 Mr. M.B. Jadeja the Chief Engineer, Zonal Office, Bhavnagar retired and accordingly in March, 2016 Mr. Tannarana was given the charge of Chief Engineer, Zonal Office, Bhavnagar and thereby became the highest officer in the region which covers the districts of Bhavnagar, Surendranagar, Amreli and Botad.
Page 10 of 133C/SCA/21983/2017 JUDGMENT (vi) Mr. Tannarana constituted a Committee
for doing an investigation by a team headed by two individuals namely Mr. Padhiyar and Mr Kuriakose with respect to work done by the petitioner. It is the case of petitioner that against both Mr. Padhiyar and Mr. Kuriakose, there are serious adverse reports containing serious allegations of integrity, misuse of company property, dishonesty, negligence, lack of knowledge, inefficiency, etc. In response to this, PGVCL has relied on document at page-268 to contend that the charges against Mr. Kuriakose have been overturned. The document at page-268 does not reveal any such thing.
(vii) It is case of petitioner that four FIRs came to be filed against four different contractors and all the four complaints relate to works done in Palitana Division and pertain to the period when Mr. Yadav was the Executive Engineer, Palitana Division i.e. 7.10.2013 to 14.10.2015. Under the norms of PGVCL, the Executive Engineer would have responsibilities with respect to measurements and payment of bills. There is no satisfactory explanation forthcoming why only a particular period and a particular area which have been targeted. There is also no satisfactory explanation forthcoming as to why suddenly after 3 years work done in a particular period is being targeted. There is Page 11 of 133 C/SCA/21983/2017 JUDGMENT also no satisfactory explanation forthcoming as to why only after Mr. Rannarana took over the charge of Chief Engineer, Zonal Division, Bhavnagar in March, 2016 that actions have been taken pertaining to the period 2013-14. The complaints are filed by Mr. Parikh, Executive Engineer, Division Office, Palitana who comes under the Chief Engineer, Zonal Division, Bhavnagar.
(viii) It is stated that the allegations pertain to 68 works orders from the period 26.2.2014 to 30.12.2014. With respect to all these work orders, PGVCL has generated bills after due scrutiny and has made payments to the petitioner and also refunded security deposits to the petitioner, things which are done only after satisfactory completion of the work and invited Court's attention to Annexure - F, G and H collectively. The No objection certificates are with respect to refunding security deposits. The security deposits for each of the work orders were refunded at the relevant time. The petitioner has completed the work as per the work orders in a proper and satisfactory manner and the allegations made against petitioner are totally false.
(ix) The petitioner received a document titled as a Show cause notice on 26.7.2016. The said document has been sent by Mr. Parikh, Page 12 of 133 C/SCA/21983/2017 JUDGMENT Executive Engineer, Division Office, Palitana who has filed the criminal complaint against the petitioner. From said document / notice, it is evident that notice contains definitive conclusions of guilt against the petitioner. It was evident from the notice that the respondents had already taken the decision to blacklist / ban the petitioner. The notice stated that the petitioner 'should credit all amounts indulged in the fraud which is already shown under the FIR lodged against you". In the notice, the petitioner had also been directed 'to stop / hold working further with immediate effect." The directions had been given without hearing the petitioner. They further showed that the respondents had already taken their decision and were only attempting to complete the formality of giving a so-called opportunity to file reply in order to avoid the allegation of violation of natural justice. In view of aforesaid, in August, 2016, the petitioner has filed Special Civil Application No. 12996 of 2016 challenging the first show cause notice and this Hon'ble Court vide order dated 3.8.2016 passed interim order staying the first show cause notice (which included a direction to not work) on the ground that it was issued with premeditation and contained conclusions and also take a note that the actions were the result of inter departmental rivalry / grudges.
Page 13 of 133C/SCA/21983/2017 JUDGMENT (x) It is also stated that by order dated
11.8.2016, the Sessions Court, Bhavnagar rejected the anticipatory bail application preferred by present petitioner. Accordingly, the petitioner filed Criminal Misc. Application No. 20719 of 2016 before this Court praying for grant of anticipatory bail and vide order dated 23.8.2016, this Court issued notice and granted interim protection from arrest observing in para-4 that "since the allegations are leveled against the officer of the rank of the Chief Engineer, the matter needs to be looked into by the Managing Director himself.' Vide order dated 2.9.2016, the Court observed in Anticipatory bail application of petitioner that 'the contents of the affidavit dated 02.09.2016 further fortifies the prima- facie impression gathered by the Court, which is recorded in the order dated 23.8.2016. Even now, the investigation is being done at the instance of the person, against whom serious allegations are leveled and in which this Court prima-facie has found substance. Expanding the scope of the investigation, as claimed by the learned Additional Public Prosecutor, on instructions, further indicates that, those officers with whom the concerned Chief Engineer (who is named in the application) has to settle scores, are likely to be named in the offence in question."
Accordingly, vide order dated 28.9.2016, the
Court granted anticipatory bail to the
petitioner, interalia observing in para-5 'in
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totality, the applicant appears to have been
singled out at the instance of the Chief
Engineer, who is named in the application,
reference to which is also made by this Court in the earlier order.' It is the case of petitioner that respondent no. 5 Mr. Tannarana who is holding the position of Chief Engineer, Zonal Office, Bhavnagar is taking special interest in this matter is also apparent from the fact that he was present in the court room during one of the hearing of the anticipatory bail application filed by the petitioner.
(xi) It is case of petitioner that in view of operation of interim order dated 3.8.2016 passed by this Court in Special Civil Application No. 12996 of 2016 staying show cause notice dated 26.7.2016, the respondent could not have stopped the petitioner from continuing to work for PGVCL. However, despite the passing of the above order, the respondents did not permit the petitioner to work, did not process the tenders in which the petitioner participated, did not awarding work orders with respect to tenders where the petitioner was found to be the lowest bidder. The respondents also did not make payment of bills already generated by PGVCL itself with respect to the works already done by the petitioner, did not generate bills for remaining works already done by the petitioner and did not make payment thereof to the petitioner and invited this Page 15 of 133 C/SCA/21983/2017 JUDGMENT Court's attention to Annexure - S, T, U.
(xii) The petitioner has also filed Civil Application No. 12747 of 2016 in Special Civil Application No. 12996 of 2016 praying for certain reliefs. On 16.1.2017, Mr. Tannarana, who was Incharge Chief Engineer, Zonal Office was appointed as the Chief Engineer, Zonal Office. On 6.2.2017, respondent nos. 1 and 2 filed affidavit in reply, which also shows that the respondents had already made up their mind. On 7.4.2017, respondent no. 3 filed an affidavit inter-alia stating that a decision had been taken to withdraw show cause notice dated 26.7.2016. On 5.5.2017, advocate for respondents made a statement before the Court that a decision had been taken to withdraw the show cause notice under challenge and in view of that, this Court disposed of the petition observing that as a decision had been taken to withdraw the show cause notice, the very basis of challenge of legality or otherwise of the show cause notices no more existed and accordingly, the matter was not adjudicated on merits. Despite withdrawal of show cause notice dated 26.7.2016, the respondents continued to not permit the petitioner to work, continued to not process the tenders in which the petitioner participated and continued to not award work orders with respect to tenders where the petitioner is found to be the lowest bidder. The respondents also continued to not make payment of bills already generated by Page 16 of 133 C/SCA/21983/2017 JUDGMENT PGVCL itself with respect to works already done by the petitioner, are not generating bills for remaining works already done by the petitioner and are not making payment thereof to the petitioner. Under the circumstances, a situation has arisen where the respondents are required to be given appropriate directions so that they permit the petitioner to work and the other directions prayed for.
(xiii) To the shock and surprise of the petitioner, on 12.7.2017, the petitioner received a fresh show cause notice from respondent no. 3 interalia calling upon the petitioner to show cause why the alleged loss should not be recovered from the petitioner and why the petitioner should not be blacklisted / banned for 7 years. The said document has been sent by Mr. Parikh, Executive Engineer, Division Office, Palitana, who has filed the FIR against the petitioner on 21.7.2016 and who had issued the first show cause notice, which came to be withdrawn. It is stated that the document though titled as a show cause notice once again contained definitive conclusions of guilt against the petitioner. The respondents had already taken the decision to blacklist / ban the petitioner and are only attempting to complete the formality of giving so called opportunity to file reply in order to avoid the allegation of violation of natural justice.
Page 17 of 133C/SCA/21983/2017 JUDGMENT (xiv) The petitioner is also served with
another show cause notice dated 24.8.2017 issued by the respondents. This show cause notice also contains conclusions. This is clear from the entire show cause notice. The fact that the authority issuing the show cause notice has already reached conclusions is also evident from the fact that the same authority/ officer has affirmed the plaint filed by PGVCL against the petitioner in connection with recovery of the amounts stated in the show cause notice. Once the said officer has already made averments on oath in the plaint, it would not be possible for him to fairly adjudicate upon the show cause notice. It is stated that on 3.11.2017, the petitioner made a without prejudice proposal offering to give bank guarantee for amount of loss claimed by PGVCL and for appointing Arbitrator to adjudicate the dispute but the said proposal was rejected by PGVCL. In view of aforesaid, the petitioner has filed present petitions on the grounds mentioned in the memo of petition.
4. Learned counsel for the petitioners produced the written submissions, the submissions stated therein, in verbatim reads as under:
"Submissions:
A) The show cause notices pertain to work orders for which bills have Page 18 of 133 C/SCA/21983/2017 JUDGMENT been prepared and scrutinized by PGVCL itself and for which no objection certificates have been given and payments made and security deposits released by PGVCL, a long time ago. The works against which allegations are now being leveled have been verified and approved by PGVCL itself a long time ago. In addition to the contents of para-5 of the petition, there are three further facts that are required to be considered in connection with the credentials of the petitioners:
(1) After the 68 work
orders with respect to which
allegations have been made by PGVCL the petitioner has been issued 50 work orders by PGVCL. In Palitana (June 2015 to July, 2016) and about 70 work orders by PGVCL across all areas (i.e. Bhavnagar City- 1 Division, Bhavnagar City-2 Division, Bhavnagar Rural, Rajkot city Divisions and Bedinaka Division). The list are annexed hereto and marked Annexure - A. Page 19 of 133 C/SCA/21983/2017 JUDGMENT (2) PGVCL has made false allegations that the work done by the petitioner in connection with 68 work orders results in public safety being compromised. That this is a false allegation is evident from the fact till date no steps have been taken by PGVCL for repairing/correcting the so-called faulty works.
(3) The investigation report based on which proceedings have been taken itself reveals on pg.
338 (Sr. no.3 - bottom of page)
that the same works had been
earlier checked by another
committee consisting of three very high ranking officers of PGVCL namely 1) Mr. Tewani, Superintending Engineer (now retired), Circle office, Bhavnagar,
2) Mr. A.G. Tejura, Superintending Engineer, Zonal Office, Bhavnagar and 3) Mr. M.N. Oza, the then Superintending Engineer, Zonal Office, Bhavnagar (now additional Chief Engineer, Corporate Officer, Bhavnagar) and found to be in order. Under the circumstances, there was no question of doing an Page 20 of 133 C/SCA/21983/2017 JUDGMENT investigating again and the fact that it was done shows that the petitioner is being targeted.
B.) Both show cause notices
deserve to be quashed as they
contain conclusion and are issued with premeditation resulting in breach of the principles of natural justice. That the authority has already come to definitive conclusions of guilt is also clear from the affidavit in reply filed by the respondents. The fact that show cause notice dated 12.7.2017 (pg.24) is issued with premeditation is also clear from the fact that the officer issuing the said show cause notice is the first informant in the FIR (89) registered against the petitioner and is named as the first witness in the chargesheet (191). The fact that show cause notice dated 24.8.2017 (238) is issued with premeditation is also clear from the fact the the officer issuing the show cause notice has affirmed the plaint of the civil suit being Special Civil Suit No. 98 of 2017 filed by PGVCL against the Page 21 of 133 C/SCA/21983/2017 JUDGMENT petitioner in connection with the said allegations. The investigation report itself concludes everything and removes the possibility of their being any fair decision making with an open mind.
For the proposition that show cause notices cannot contain conclusions and cannot be issued with premeditation, reliance is placed on the following judgments:
1. 2010 13 SCC 427, (para 27 to 40) (show cause notice cannot contain conclusions).
2. 2006 12 SCC 33, (para-9) (show cause notice cannot contain conclusions).
3. 2001 1 SCC 182, (para-23 to
25) (premeditation) C) The show cause notices are based on a report made by an investigation team headed by two individuals (Mr. Padhiyar and Mr. Kuriakose) against whom there are reports making serious observation with respect to their integrity, misuse of company property, dishonesty, negligence, lack of Page 22 of 133 C/SCA/21983/2017 JUDGMENT knowledge, inefficiency, etc. The action of the respondents of getting the investigation done by such officers whose integrity and credibility has been seriously doubted was arbitrary, unreasonable and malafide. The action of the authorities of initiating steps on the basis of such a report is arbitrary and unreasonable.
Consequently the show cause notices based on such investigation report are themselves bad and ought to be quashed.
D) The show cause notice
dated 12.7.2017 is based on an
investigation report in which one of the persons examined is Mr Parikh, Executive Engineer, Palitana. For this reference may be made to the report page-287 (point no.8) and pg.339 (point no.8). The show cause notice dated 12.7.2017 (pg.24) is issued by the same Mr. Parikh who was examined while doing the investigation report. Once he was subjected to investigation and once his statement has been taken in the investigation, he could not have issued a show cause notice to Page 23 of 133 C/SCA/21983/2017 JUDGMENT the petitioner. A person who is subjected to / part of an investigation cannot become an adjudicator in a proceedings based on such investigation. It is further stated that in Point no. 8 at page 287, Mr. Parikh has made a statement that some cable lying with the petitioner is unaccounted. Having made a statement against the petitioner in the investigation report, there was no question of the same officer initiating a proceeding against the petitioner and issuing a show cause notice. Such procedure is contrary to all canons of fairness. The show cause notice having been issued by an officer who was a witness testifying against the petitioner in an investigation based on which such show cause notice is issued ought to be quashed.
E. The show cause notice
is for stop dealing / banning /
blacklisting the petitioner on the basis of alleged contractual breaches committed by the petitioner. The PGVCL is a party to the contracts with the petitioner Page 24 of 133 C/SCA/21983/2017 JUDGMENT and cannot adjudicate contractual disputes / cannot decide whether the petitioner has committed a contractual breach. Only an independent judicial authority i.e. Arbitrator or Court can adjudicate the same. Consequently, unless and until an Arbitrator or any independent court / forum adjudicates and holds that the petitioner has committed a contractual breach, PGVCL cannot stop deal / ban/ blacklist the petitioner and direction to that effect ought to be issued. Reliance is placed on the following judgments :
1. 2007 (94) DRJ 382 (National Building Construction Corporation Limited V. New Delhi Municipal Council), (para-11,12, 15, 19, 25 to 27)
2. 2007 (88) DRJ 93 (DB) (IOC V. SPS Engineering Limited) (para-7 and 16)
3. ILR (2010) V Delhi 38 (Prakash Atlanta JV v. NHAI) (para 37 to 39)
4. AIR 2014 P&H 21, (para 11 & 12) Page 25 of 133 C/SCA/21983/2017 JUDGMENT Note: There is an arbitration clause between the parties. For showing that there is an arbitration clause, reliance is placed on additional affidavit at pate-362, the contents whereof have not been denied by the Respondent.
Reliance is placed on Annexure A. Pg. 363@370 (clause 6 which incorporates the terms of the booklet). The booklet is at Annexure B, pg.371@387 (condition no. 30 whereof contains an arbitration clause. Reliance is also placed on agreement at Annexure C, pg 396@397 (clause 2 which also incorporates the terms of the booklet) and on terms and conditions at Annexure D, pg.400@406 (clause 49 which also incorporates the terms of the booklet). The booklet is at Annexure B, pg.371@387 (condition no.30 whereof contains an arbitration clause. It is therefore clear that there is an arbitration clause between the parties. It is submitted that no prejudice will be caused if an independent arbitrator adjudicates the dispute. The Page 26 of 133 C/SCA/21983/2017 JUDGMENT petitioner stands by its proposal as contained in letter dated 3.11.2017, pg.236.
F) If the guidelines are interpreted to be meaning that the Executive Engineer has no power to stop deal/ ban / blacklist and such power rests only with the Committee referred to in para 1.5 or the Board referred to in para 1.6 of the "Guidelines for placing vendors/ contractors for purchase / works in stop deal / banning for business dealing / blacklisting"
dated 14.7.2015 meaning thereby that the Executive Engineer will only evaluate and not take any final decision, the show cause notice deserves to be quashed for the following reasons :
1) The show cause notice is a
show cause notice for stop
dealing / blacklisting / banning
the petitioner. Reference may be
made to para 8, pg-28 of the show cause notice. If the Executive Engineer has no power to do so, he ought to be prohibited from taking any decision for stop dealing / Page 27 of 133 C/SCA/21983/2017 JUDGMENT blacklisting / banning the petitioner.
2) Even in a situation where the Executive Engineer is to only do an 'evaluation' and not take a final decision, such 'evaluation' cannot be done with premeditation and has o be done fairly and with an open mind. That the evaluation must also be don in a fair, impartial manner, with an open mind and without premeditation is especially so considering that such 'evaluation' would become the basis for final decision by the Committee or the Board as is usually the practice. The contents of submission B above will also apply to such 'evaluation'. From the contents of submission B, it is evident that the Executive Engineer has reached definitive conclusions and is deciding with pre-meditation and the 'evaluation' will not be a fair evaluation. Under the circumstances, the show cause notice even if it is treated to be only for 'evaluation' ought to be quashed and set aside.Page 28 of 133
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It is again submitted that the
matters ought to be decided by an independent arbitrator and until then the authority cannot be permitted to take steps towards stop dealing / blacklisting or banning the petitioner. It is submitted that in a situation where PGVCL has initiated criminal proceedings and suit against the petitioner, there is no possibility of even the Committee or the Board taking a fair and independent decision. If a Committee or a Board of the PGVCL is to take a decision to not stop deal / ban/ blacklist the petitioner, it will be a decision that will run contrary to PGVCL's own decision and action to initiate criminal proceedings / suit against the petitioner and will result in the failure of its criminal proceedings and civil proceedings against the petitioner and this is something that the Committee / Board would be conscious of. Under the circumstances, there is no possibility that there will be any fair and independent decision making by the Committee or the Page 29 of 133 C/SCA/21983/2017 JUDGMENT Board as it will run counter to proceedings initiated by PGVCL. It is submitted that only an arbitrator or an independent adjudicatory forum can decide the matter fairly and independently.
G) In a situation where the Executive Engineer has no power to stop deal / ban / blacklist and such power rests only with the Committee referred to in para 1.4 or the Board referred to in para 1.6 of the 'Guidelines for placing vendors / contractors for purchase / works in stop deal / banning for business dealing / blacklisting" dated 14.7.2015, as the case may be, the Executive Engineer cannot stop deal / ban / blacklist the petitioner and ought to be restrained from doing so.
Further, if the power to stop deal/ban/ blacklist a party rests only with the Committee or the Board, in the absence of a decision by the Committee or the Board to stop deal/ban/ blacklist the petitioner, the petitioner could not have been stopped from doing work of PGVCL or from participating Page 30 of 133 C/SCA/21983/2017 JUDGMENT in tenders of PGVCL., PGVCL is not permitting the petitioner do work for PGVCL and is not processing the bids submitted by the petitioner without there being any decision of either the Committee or the Board to stop deal / ban/ blacklist the petitioner. Consequently the respondents ought to be directed to process the tenders in which the petitioner has participated or participates and award work orders with respect to tenders where the petitioner is found to be lowest bidder. Under the circumstances, prayer 38(i) and (ii) of the petition deserve to be granted.
H) The show cause notice is
the result of inter-departmental
rivalry and grudges that the
present Chief Engineer Mr.
Tannarana has against Mr. Yadav.
This is clear from the contents of the list of dates above. Reliance is also placed on orders passed in the anticipatory bail application, the notice suffers from arbitratariness and malafide.
I) The first show cause
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notice dated 26.7.2016 (pg. 30)
having been withdrawn by PGVCL, the second show cause notice could not have been issued.
J) PGVCL is not releasing
payments to the petitioner for
works already done by the
petitioner though there is no
defect / objection found /
allegation in connection with the said work. These are works done after the 68 work orders in connection with which allegations have been made. The action of PGVCL of not releasing payments for works in connection with which there is no objection is arbitrary, unreasonable and violative of Article 14 and 19(1)(g). Under the circumstances, prayer 38(iii) of the petition deserves to be granted.
In light of what is stated above and the oral submission made at the time of hearing, it is humbly submitted that the petition deserves to be allowed."
Page 32 of 133C/SCA/21983/2017 JUDGMENT 5. Learned counsel appearing for the
respondent placed on record Written Submission, which is reproduced verbatim hereinbelow:
"Petition is Premature:
(1) The petition is premature on the ground that the petition is preferred against show cause notice. The show cause notice is issued on the basis of the report of the Committee appointed by the Company. The Committee found that work related to electricity is concerned and where safety and security of public is involved, in such type of work the contractor has committed fraud in collusion with the officers of the Company.
(2) The Committee has stated in the report that fraud has been committed at all stages viz.
(1) in obtaining the contract; (2) in carrying out the work and (3) in taking payment by producing fraudulent bills twice and thrice (duplicate and triplicate).
(3) Petition is premature on the ground that petitioner has been served show cause notice dated 12.7.2017 and 24.8.2017 in which it has been stated Page 33 of 133 C/SCA/21983/2017 JUDGMENT that the work of laying of underground cable, earth terminal and ariel bunch was carried out during 2013-15 in collusion with the officers of the Company. That as per the report of Committee there are serious illegalities, irregularities and fraud committed with the Company. The report of the Committee alongwith documents and videography C.D. and other documents have been given to the petitioner calling upon him to show cause as to why Pashchim Gujarat Vij Ltd. should not stop deal with or black list/ban the petitioner for doing any business with the P"GVCL for a period of 7 years.
(4) The petitioner has been provided copy of the report of the Committee with documents running from pages-1 to 500 alongwith videography C.D. and all other documents on the basis of which report is prepared.
(5) Petitioner has not filed any reply to the said show cause notices nor appeared before the officer. It is at this stage that petitioner has approached this Hon'ble Court.
Page 34 of 133C/SCA/21983/2017 JUDGMENT (6) The notices which are issued to the petitioner are as per the guidelines issued by GUVNL, the holding company of the respondent. The guidelines are produced at page-412 wherein details are mentioned giving guidelines for placing vendor/contractor for purchase/works in stop deal/ban for business dealings/black listing.
(7) Clause-1.1 of the said guidelines gives the power to the Company for issuing such notice to the firm.
(8) Clause-1.2 thereof gives power to issue such notice to the firm and to place evaluation report before the Committee/Board.
(9) Clause-1.3 thereof provides reasons for placing the firm in stop deal/ ban for business dealing/black listing. The said clause provides detailed reasons. Clause-1.3.8 is where contractor is found to be indulging in construction and erection of defective work. Clause 1.3.11 says that the contractor has involved in malpractices such as bribery, corruption, fraud, canvassing and Page 35 of 133 C/SCA/21983/2017 JUDGMENT pilferage.
(10) The procedure envisaged in Clause-1.4 empowers the company to issue such show cause notice by Regd.
Post A.D. which is issued to the
petitioner to give him fair
opportunity to submit his case. The
clause 1.4.3 makes it clear that show cause notice should be issued by purchase/work order issuing authority.
(11) Rest of the procedure is yet to be followed. It is at this stage of show cause notice, without replying it the petitioner has approached this Hon'ble Court. Therefore petition is premature. The stages as provided under Clause-1.4 are not yet reached and further procedure as provided under Clauses-1.6, 1.7 or 1.8 are yet to be carried out. The Board will decide the issue about black-listing. Therefore petition is premature. Therefore on this ground only petition is required to be rejected since petitioner has not filed reply and except asking for extension of time petitioner has not proceeded further in the matter nor appeared before the respondent or filed written Page 36 of 133 C/SCA/21983/2017 JUDGMENT submissions. Therefore as stated in para-6 of the affidavit-in-reply petition deserves to be dismissed on the ground of being premature.
PREDETERMINED:
(1) While issuing show cause notice nowhere the company has decided anything. Company has decided nothing.
In the show cause notice nothing is decided nor it is pre-determined. The Company does not have any bias or malafide against the petitioner. In fact the Company has narrated the entire facts about the complaint having been received by the Company regarding illegalities, irregularities and fraud committed by the petitioner in collusion with officers of the company. On the basis of the said complaint, the competent authority at the Corporate Office of the respondent has instructed the concerned officer at the Zonal Office, Bhavnagar to get the matter inquired looking tot he allegations against the officers of the Company. In pursuance to the said directions, the Chief Engineer has appointed Committee of two officers.
The Committee has carried out
Page 37 of 133
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investigation, carried out random
sampling of earthing work. As stated in the affidavit-in-reply 34 officers from different Divisions and Circles of the respondent have personally verified the work. Site Rojkam have been done, Videography and photography has been done. All these facts have been mentioned in the report. In the show cause notice Company has not specifically stated that it has decided anything. What has been stated in the notice is only what is observed by the Committee in its report. The author of the notice has not decided anything and not stated anything else except reproducing the contents and findings of the report of the Committee.
(2) The aforesaid are observations of the Committee. The show cause notice only contains the factual aspects found by the Committee in its report and except that nothing has been stated by the officer who has issued notice. The financial loss which is mentioned is also part of the report of the Committee.
(3) The filing of criminal complaint Page 38 of 133 C/SCA/21983/2017 JUDGMENT and filing of Charge-sheet by police against the petitioner is a matter of record. This is nothing but reproduction of facts in the notice and in compliance with the principles of natural justice, before black listing the show cause notice is issued is in accordance with law calling upon petitioner to put his defense before the authority. There is nothing in the notice from which it can be said that the matter is pre- determined or pre-decided by the company. Petitioner has opportunity to rebut it or to adduce evidence by documents or submissions before the respondent.
ARBITRATION
1. The question of referring the matter to arbitration does not arise in such cases where criminal complaint has been filed against the petitioner for fraud, cheating, misappropriation and police has after investigation already filed charge-sheet. The financial loss is suffered by the respondent and therefore this amount has been taken away illegally by the petitioner by fraud over and above the amount to which he was entitled.
Page 39 of 133 C/SCA/21983/2017 JUDGMENT
2. Therefore for the financial loss
suffered by the respondent which is
due to fraud, there cannot be
arbitration for the amount which has been taken away by committing fraud.
3. It is work of 2013-2015 for which petitioner has been paid the amount. It is not the case of the petitioner either before this Hon'ble Court or before the respondent that he has yet to recover any amount for the work which was awarded to him. Petitioner has received the entire amount and No Objection has been obtained. This is a case where there is huge financial loss caused to the public exchequer for which there cannot be arbitration.
4. The very foundation of obtaining contract is by misuse of xerox copy of permission granted by Company for Rs.1.00 lac Limited Inquiry. The permission which was given by the Company in case of emergency to take immediate measures to cope up with the work, and that permission is given for particular case only. Whereas the petitioner has in collusion with the officer misused the xerox copy of the Page 40 of 133 C/SCA/21983/2017 JUDGMENT said approval and by committing fraud work order has been issued to the petitioner. Therefore the very foundation of obtaining work order is by committing fraud as observed by the Committee in its report. In obtaining works upto Rs.1.00 lacs fraud has been committed by misusing the xerox copy of the approval given by the competent authority for particular work for limited inquiry. For works above Rs.2.00 lacs have been obtained by forming ring of three firms and not even submitted documents of the rest of the two companies in collusion with the officer of the Company viz. Mr. Yadav as shown in the report of the Committee.
5. Therefore when the contract is obtained by committing fraud with the respondent company, the very foundation of the contract collapses and therefore for such contract there cannot be arbitration. In fact there has to be a dispute in a work order. Here in this case it is the case of the respondent that fraud has been committed with the respondent. Therefore Clause-30 for arbitration is not attracted ins such cases.
Page 41 of 133 C/SCA/21983/2017 JUDGMENT
6. Fro fraud, cheating, illegally
taking away money, misappropriation of the money of public exchequer there cannot be arbitration.
7. Further looking to the prayer of the petitioner in this petition in Para-38 it is essentially challenge to the show cause notices dated 12.7.2017 and 24.8.2017 issued by Palitana and Botad Division Offices. Once fraud has been committed, F.I.R. has been filed and police has filed charge-sheet after investigation and this Hon'ble Court has refused to entertain petition for quashing of the said F.I.R. there cannot be arbitration ins such cases.
8. Further once fraud has been committed, F.I.R. has been filed and police has filed charge-sheet after investigation and this Hon'ble Court has refused to entertain petition for quashing of the said F.I.R. and the fact that respondent has to recover huge amount from the petitioner, it is the prerogative of the respondent not to give petitioner any further work at this stage and therefore at this stage Page 42 of 133 C/SCA/21983/2017 JUDGMENT no prayer to give the petitioner any other or further work can be entertained by the respondent. Petitioner cannot be allowed to do the work under such circumstances.
9. Since it has caused huge loss to the public exchequer and public money and public interest and public safety is involved, the power of judicial review could not be invoked to protect the private interest a the cost of public interest and public exchequer.
EXPARTE REPORT:
1. The respondent is State instrumentality and has a right to inquire on the basis of the complaint received that fraud has been committed and has a right to carry out such investigation wherein the presence of the party who has committed fraud is not necessary. It is a question of public exchequer and public interest and public safety. The inquiry report prepared by the committee is exhaustive and does not require the presence of the petitioner. It is not necessary for the public exchequer when such complaint is received to Page 43 of 133 C/SCA/21983/2017 JUDGMENT keep the contractor present. It is the prerogative of the company to carry out investigation to find out the veracity of the complaint. The report has been provided to the petitioner.
Therefore it is incorrect to say that such report was required to be prepared in presence of the petitioner.
ALLEGATIONS OF BIAS OR MALAFIDE AGAINST chief ENGINEER MR. TANNARANA:
(1) So far as the allegations made against chief Engineer Mr. Tannarana are concerned, the respondent company has filed detailed affidavit in reply on behalf of all the respondents. It is specifically stated by the company that the amount was given to Mr. Tannarana was Temporary Imprest Cash given to him by the Company and the company has not found anything wrong therein. The respondent company has clearly stated that the petitioner has tried to create ghost by referring to the amount of Rs.20,000/- found from the drawer of Mr. Tannarana in presence of Mr. Yadav and at that time petitioner was present and therefore this action is taken against him. This Page 44 of 133 C/SCA/21983/2017 JUDGMENT allegation is far from the truth. It is the Company's stand that the Corporate Office of the company had instructed the Zonal Office of the respondent at Bhavnagar under whose jurisdiction Palitana Division falls to carry out the investigation since the complainant Mr. Hemant Dhilla has in his complaint given details about the fraud and names. Therefore Mr. Tannarana who was at that time I/c.
Chief Engineer has not done anything except following directions of the Corporate Office by appointing two officers to look into the allegations made in the complaint. It is clear stand of the respondent company that Mr. Tannarana has nothing to do against the petitioner. In fact the respondent has stated that the carrier of Mr. Tannarana shows that he has been promoted from the post of Deputy Engineer up to the post of Chief Engineer. The officer Mr. Yadav who had stated that he had found Rs.20,000/- in the drawer of Mr. Tannarana was earlier also charge- sheeted and punished and at present he is under suspension for this very case of fraud and cheating. He is the person who has in connivance with the Page 45 of 133 C/SCA/21983/2017 JUDGMENT contractors committed fraud and cheating with the respondent and therefore he is accused in the criminal complaint and charge-sheet is filed against him and he is placed under suspension by the respondent company.
(2) The other allegation made against Mr. Tannarana has no merits. As stated in the affidavit-in-reply it was Mr. Tannarana who had filed criminal complaint against the consumer and ultimately the said consumer has been convicted by competent criminal court.
(3) The allegations have been made to prejudice the court against Mr. Tannarana have no merits. Petitioner has made incorrect statement.
(4) Not only that even after Mr. Tannarana taking charge of this post, work order has been given to the petitioner. Therefore the allegations made against Mr. Tannarana have no merits and are baseless which can be seen from the documents produced on the record of this case. The respondent has made it clear that the amount of Rs.20,000/- found from the Page 46 of 133 C/SCA/21983/2017 JUDGMENT drawer of Mr. Tannarana was the amount of Temporary Imprest Cash withdrawn by him for the official work of the respondent company and it was authorised amount. For the other case, it was Mr. Tannarana who had filed complaint against the consumer and consumer has been convicted by the criminal court. These facts are sufficient to prove that incorrect statements have been made and false and baseless allegations have been made by the petitioner on oath.
ALLEGATIONS AGAINST THE OFFICERS WHO HAVE INQUIRED THE MATTER AND THE OFFICER WHO HAS ISSUED THE NOTICE:
(1) Petitioner has even tried to malign the officers who had carried out the investigation by making false allegations against them. The respondent has produced documents to show that the allegations made against the officers of the inquiry committee are false and frivolous and baseless.
Petitioner is very well aware that what is the truth and therefore petitioner has no other alternative but to make such allegations. Finally the petitioner has gone to the extent Page 47 of 133 C/SCA/21983/2017 JUDGMENT of alleging against the Executive Engineer who has issued show cause notice that he is pre-determined. This shows that because petitioner has no material to defend himself with documents he is making such allegations after allegations against various officers of the company.
(2) So far as the allegation against Executive Engineer Mr. Parikh who has issued the show cause notice is concerned, it is stated that he has come on the post after this incident has taken place and as per the Delegation of Powers he has been asked by the company to file complaint and issue show cause notice. It is not complaint filed by him, it is complaint filed by him in his official capacity and as per the Delegation of Powers. There is nothing personal. It is as per the Delegation of Powers which requires him to issue show cause notice and file complaint that he has done so.
(3) Further to show that fullest and sufficient opportunity is given and there is compliance with the principles of natural justice, the Page 48 of 133 C/SCA/21983/2017 JUDGMENT respondent has while answering to the request of the petitioner for extension of time to reply the show cause notice has even gone to the extent of saying that if the petitioner is not comfortable with Mr. Parikh, Executive Engineer, then the respondent company will appoint some other officer of the company as per its rules. This is to show transparency and following the principles of natural justice. Therefore there is no basis for making allegations against the officer who has issued show cause notice.
(4) The respondent has produced documents before the Hon'ble Court including report of the inquiry committee. The Committee has while giving report, in the subject reference itself referred to the earlier complaints received by the company. Earlier complaint was received from the contractors working in Palitana and Botad Divisions. However since the said complaint was anonymous it was looked into by one officer. Whereas in the last complaint it was detailed complaint giving the details and names of the officers.
Page 49 of 133 C/SCA/21983/2017 JUDGMENT
Therefore looking to the nature of
fraud and the details given, the
Corporate office of the respondent
thought it appropriate to get the
matter investigated by the Zonal
Office. In pursuance of the said
directions, the I/c. Chief Engineer
appointed committee of two officers
and the said Committee has got matter investigated. The Committee deployed as many as 34 officers from different Divisions and Circles of the respondent company and physical verification was done by them. Site Rojkams were done, statements of the consumers recorded, videography done.
EARLIER COMPLAINTS:
(1) In fact against the petitioner respondent has earlier also received anonymous complaints that he is in collusion with Mr. Yadav, Executive Engineer, Palitana and obtained orders and carried out illegalities. All other contractors have made complaint but since it was anonymous and no details were given, the complaint was filed. This shows that there were continuous complaints against the petitioner since 2014.Page 50 of 133
C/SCA/21983/2017 JUDGMENT (2) In the earlier complaint it was grievance of the complainant that in Palitana Division after the transfer or Mr. Yadav as Executive Engineer, all the works are being given to the petitioners. It was not an individual complaint with name but by number of contractors. Since the complaint was anonymous and complainant has not shown any name or any details or documents to support the allegations made therein. Therefore the said complaint was filed.
(3) In the second complaint, Mr. Tejura S.E. has filed it since it was anonymous and there was no details or basis.
(4) In the third complaint, which was signed by number of contractors making allegations against Mr. Yadav, Executive Engineer that since the appointment of Mr. Yadav as executive Engineer, Palitana all the contractors are kept away and for one or other reasons without documents works are being given to petitioners and there is favouritism by giving works to particular contractors only. There was Page 51 of 133 C/SCA/21983/2017 JUDGMENT no substance found and Mr. Tevani, S.E. decided to file it.
(5) In the last complaint, the Corporate Office has looking to the details given and the nature of allegations of fraud and cheating, though it appropriate to get the matter investigated through Zonal Officer. There is nothing wrong in that. In fact all these complaints suggest that there was something against the petitioners. On the complaint of Mr. Hemant Dhilla which was with details, the respondent company thought it fit to get it investigated. The Committee investigated the matter and submitted report thereof which is self-
explanatory. The Committee found that the petitioners in collusion with the officers of the respondent company have committed fraud, cheating and misappropriation with the respondent company.
In light of he above, petition deserves to be dismissed with costs."
6. The Court has heard learned counsels appearing for the parties and perused the pleadings and papers of both the petitions. It is Page 52 of 133 C/SCA/21983/2017 JUDGMENT pertinent to note at this stage that both the petitions contain challenge to the Show Cause Notices dated 12.07.2017 almost identical in both the petitions and an additional Show Cause Notice in Special Civil Application No.21983 of 2017 being Show Cause Notice dated 24.08.2017, calling upon the petitioners as to why the respondent Company should not stop in dealing with the petitioners, blacklist/ ban the petitioners for doing business with the Company. Therefore, the contents of the Show Cause Notices and tenor thereof will assume greater importance, as it is required to be examined in light of the relevant provisions of law as well as scope of challenge to such Show Cause Notices under Article 226 of the Constitution of India.
7. The respondents have contended in these petitions that the petitions have been filed pre- maturely, as only Show Cause Notices have been issued. The petitioners should not have filed the petitions, at this stage, and this Court may not entertain these petitions against the Show Cause Notices. However, this contention of the respondents is required to be examined in light of the contention of the petitioners' counsel that the Show Cause Notices themselves are indicative of the pre-determination of the issue on the part of the show cause notices issuing authority and these notices were required to be quashed and set aside. The counsel for the Page 53 of 133 C/SCA/21983/2017 JUDGMENT respondents has contended that the Show Cause Notices are as per the guidelines issued by GUVNL, the holding Company of the respondent. These guidelines are produced at page 412, wherein details were mentioned for placing Vendors/ Contractor for Purchase/ Works in stop deal/ banned for business dealing/ black listing. It was further contended on behalf of the respondents that Clause 1.1 of the said guidelines gives the power to the company for issuing such notices to the firm. Clause 1.2 thereof gives power to issue Show Cause Notices and thereafter place evaluation to the Committee/Board. It is further contended by the counsel for the respondent that Clause 1.3 of the guidelines provides for recording reasons for placing the firm in Stop deal/ banned for business dealing/ black listing. In written submissions also in paragraph no.11 thereof, which is reproduced hereinabove, it is contended that the procedure after 1.4.3 is yet to be followed. In other words, it is the contention of the respondents that the Show Cause Notices are issued by the competent authority i.e. the purchase/ works order issuing authority and it is for the purpose of evaluating whether conduct of the firm is such as to make it undesirable to be dealt with.
8. In order to appreciate the aforesaid submissions, it would be most appropriate to set Page 54 of 133 C/SCA/21983/2017 JUDGMENT out hereinbelow, for ready reference, the relevant clauses of the guidelines for placing vendors/contractors for purchase/works in stop deal, banned for business dealing, black listing:
"Guidelines for Placing Vendors / Contractors for Purchase /Works in a Stop deal / Banned for business dealing / blacklisting:-
1.1 stop deal / banned for business dealing / blacklist means debarment of Parties from participating in the tendering process of the GUVNL and its subsidiary Companies.
1.1.1.1. Firm will mean Bidder/ Licensor/ Tenderer/ Consultant/ Vendor/ Contractor.
1.1.1.2. Reasons for putting a Firm on Stop deal / banned for business dealing / blacklisting, is to protect the GUVNL and its subsidiary Companies from dealing with an undesirable Firm.
1.2. In order to place a Firm in the category of stop dealing/ banned for business dealing/ blacklist, the initiating Department will evaluate whether the conduct of the Firm is such that which makes it undesirable for the Company to deal further with Page 55 of 133 C/SCA/21983/2017 JUDGMENT the Firm and place its evaluation before the Committee / Board.
However, it is desirable that stop dealing/ banned for business dealing of the firm shall be carried out in extreme situation only, while blacklisting of the firm on serious offences only.
1.3. The list of indicative reasons for placing the firm in a Stop deal / banned for business dealing / blacklist are as under:
A Firm will be placed in a Stop deal / banned for business dealing / blacklist, if the Firm:-
1.3.1. .....
....
....
....
1.3.16. In case the State Government directs the Company to place a firm in stop dealing/ banned for business dealing/ blacklisting.
1.4 The following procedures shall be followed before Stop dealing / Banned for business dealing / blacklisting:
1.4.1. Before placing a Firm on Stop dealing / Banned for business Page 56 of 133 C/SCA/21983/2017 JUDGMENT dealing / blacklist, as Show Cause Notice, indicating proposed action to be taken, should be issued by RPAD / Speed Post by the company, offering a fair opportunity to the Firm to submit its case.
1.4.2. For reply, at least 15 days' time from the date of show cause Notice should be given to the Firm, 1.4.3. The show cause notice should be issued by the Purchase / Works Order issuing Authority.
1.4.4. Any decision to place the firm on Stop dealing/ Banned for business dealing/ blacklist should be taken after duly considering the reply of the firm to the show cause notice.
1.4.5. Order issuing authority, shall issue a detailed reasoned & speaking order, which shows as to why such decision is taken, being a requirement under the Principle of Natural justice to the firm by RPAD/ Speed post for putting a firm for Stop dealing/ Banned for business dealing/ blacklist and cancellation of vendor registration.
1.4.6. The copy of the blacklisting Page 57 of 133 C/SCA/21983/2017 JUDGMENT Circular shall be given to all Government/ Semi Government Utilities dealing with the business of Distribution/ Transmission/ Generation of Electricity and others as per existing practice by RPAD/ Speed post.
(emphasis supplied) 1.4.7. The copy of the Stop dealing / Banned for business dealing Circular shall be given to GUVNL and its all Subsidiary Companies and others as per existing practice by RPAD/ Speed post. The initiating Company should ensure that all Subsidiary Companies have received the said Circular.
(emphasis supplied) 1.5 Formation of Committee for Stop dealing / Banned for business dealing 1.5.1. A Three member Committee shall be formed to decide action for Stop dealing / Banned for business dealing to the firm.
1.5.2 This Committee will comprise of:-
. Managing Director of the Company
- Chairman of the Committee.
. Head of Technical/ Procurement
Department
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- Member and Convener of the
Committee.
. Head of Finance and Account
Department - Member
1.6. The Board of the respective
Company shall decide to Placing
Vendors/ Contractors for Purchase/
Works in blacklisting with duration of blacklisting.
1.6.1. Before placing a Firm on blacklisting, an additional Notice for personal hearing, indicating proposed action to be taken, should be issued by RPAD/ Speed Post by the Company, offering a fair opportunity to the Firm to submit its case before the above Committee.
1.6.2 The Committee shall submit detailed report, after hearing the firm, before the Board.
1.7. Duration of Stop dealing/ Banned for business dealing/ blacklisting 1.7.1. The Board / Committee, as the case may be, should deliberate on the duration for which the firm is to be put for Stop dealing/ Banned for business dealing/ blacklist. Period, as decided by the Board / committee Page 59 of 133 C/SCA/21983/2017 JUDGMENT shall be informed to the firm in the circular.
(emphasis supplied) 1.8. Effect of putting a firm for Stop dealing/ Banned for business dealing/ blacklisting.
1.8.1. The proprietor / all the partners / directors of the stop deal / banned for business dealing/ blacklisting firm shall also be considered for stop deal/ banned for business dealing/ blacklist. All the firms / Company where such proprietor / partners / directors involve or participating as proprietor / partners / directors, such firms / company shall also be considered for stop deal / banned for business dealing/ blacklist.
1.8.2. Once the name of the firm and/or proprietor/partner/director of the firm appears in the list of Stop dealing / Banned for business dealing / blacklist in any Company of GUVNL and its Subsidiary Companies, 1.8.2.2. No bids / tender shall be considered for evaluation and the bid submitted by the Firm shall be Page 60 of 133 C/SCA/21983/2017 JUDGMENT returned.
1.8.3. Action to be taken, when a Firm and/or proprietor/ partner/ director of the firm is put on stop dealing/ Banned for business dealing/ blacklisting by GUVNL or any of its subsidiary Companies, during tender process:-
1.8.3.1. Before opening Technical bids, the bid submitted by the Firm will be treated as "Disqualified Bid"
and automatically stand as "Rejected Bid" at the time of scrutiny of Preliminary / Technical Bid.
1.8.3.2. After opening Technical bid but before opening the price bid, the price bid of the Firm should not be opened and the bid submitted by the Firm will be treated as "Disqualified Bid" and automatically stand as "Rejected Bid" at the time of scrutiny of Technical Bid.
1.8.3.3. After opening of price bid, the offer of the Firm should be ignored and will not be further evaluated. The Firm will not be considered for issue of order even if its price is the lowest. In this situation, the next lowest bidder Page 61 of 133 C/SCA/21983/2017 JUDGMENT shall be considered as L1.
1.8.3.4. The BG/EMD submitted by the Firm with tender should be returned after obtaining confirmation from GUVNL and its other subsidiary Companies that there are no outstanding dues recoverable from the firm.
1.8.4. If a Firm is put on Stop dealing / Banned for business dealing/ blacklisting in one Company and is already executing work and/ or Letter of Acceptance/ purchase order awarded to them by another company, then the firm would be allowed to complete such awarded work/ supply.
(emphasis supplied) 1.8.5. ...
1.8.6. ...
1.8.7. ...
1.9. Every bidder should , at the time of submission of bid, give a declaration that bidder and/or proprietor/ partner/ director of the firm has not been placed on Stop dealing / Banned for business dealing / blacklisting by GUVNL and it's any Subsidiary Companies.Page 62 of 133
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1.10. ...
1.11. Review of Stop dealing/ Banned for business dealing/ blacklisting period-
1.11.1. Review of Stop dealing/ Banned for business dealing/ blacklisting period should be considered in exceptional cases only.
1.11.2. The Company shall put up the proposal for such review before the Board of the Company. The Board of the company shall review the period of stop dealing/ banned for business dealing/ blacklisting.
1.11.3. if period of Stop dealing/ Banned for business dealing/ blacklisting is reduced after review, the Firm should be informed accordingly. However, reasons for granting such relaxation shall be appropriately recorded.
1.11.4. If, the Board of the company decides to withdraw the circular of Stop dealing/ Banned for business dealing/ blacklisting, in such case Vendor re-registration is not required and the status of the firm prevailing at the time of imposing ban, i.e. New-Page 63 of 133
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1, New-2 and Regular shall not be
changed. However, reasons for
withdrawing such circular shall be
appropriately recorded."
The petitioners have filed Additional
Affidavit starting from page 362 in the
compilation, whereunder he has placed on record some of the specimen copy of some works order containing the general terms and conditions forming part of the contract. Page 370 therein indicates that for the work contract PGVCL works and contract printed booklet and conditions mentioned thereunder will be binding on contractor. The said terms of contract relevant for examining the contention, which deserves to be set out as under for ready reference:
TENDER AND CONTRACT FOR WORKS General Rules And Directions For The Guidance Of Contractor Conditions Of Contract
2. Security deposit :
The contractor shall within 10 days of the issue of letter of intent, pay
2.5% of the contract value out of 5% as Security Deposit. The remaining 2.5% will be recovered from first two running account bills in two equal installments. The bank guarantee from Page 64 of 133 C/SCA/21983/2017 JUDGMENT schedule bank in lieu of cash or Government securities towards Security Deposit will be accepted provided amount of security deposit payable exceeds Rs.10,000/- Security Deposit can also be paid as fixed deposit receipt as prescribed in schedule "C". All damages, costs, charges, expenses and other sums which may be or may become due or payable by the contractor to the Board under the terms of the contract may be deducted from the cash in the proceeds of sale of the securities/bank guarantee so deposited (which the officer or person to whom the same may be endorsed as aforesaid is hereby authorised to sell/ to encash for that purpose) or from the interest of any such securities or from any sums due or which may become due to the contractor by the Board or from the whole or the balance unpaid as aforesaid of the encash securities so deposited being repaid or transferred and returned as may be to contractor after the date on which the final bill is paid or after the expiry of the date up to which the contractor has to maintain the work in good order whichever is later.
3.....
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4. Action when whole of Security
Deposit is forfeited
In any case in which under any clause or clauses of this contract the contractor shall have tendered himself to pay compensation amounting to the whole of his security deposit (whether paid one sum or deducted by installments) or in the case of abandonment for the work owing to serious illness or death of the contractor or any other cause, the Executive Engineer on behalf of the Board, shall have powers to adopt (a) below and any of the following courses under (b) and (c) as he may deem best suited to the interest of the Board.
(a) To rescind the contract (for which rescission notice of 10 days) in writing to the contractor under the hand of the Executive Engineer shall be conclusive evidence and in that case the security deposit of the contractor shall stand forfeited and absolutely at the disposal of the Board.
(b) To employ labour paid by
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the Board, to supply
materials to carry out of
the works or any part of the
works debiting the
contractor with the cost of
the labour and the price of
the materials (as to the
correctness of which cost
and price the certificate of
the Executive Engineer shall be final and conclusive against the contractor) and crediting him with value of the work done, in all respects in the same manner and at the same rates as if it had been carried out by the contractor under the terms of this contract and in that case the certificate of the Executive Engineer as to the value of the work done shall be final and conclusive against the contractor.
(c) To order that the work
of the contractor be
measured up and to take such
part thereof, as shall be
unexecuted, out of his heads
and to give it to another
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contractor to complete, in
which case, any expenses,
which may be incurred in
excess of the sum, which
would have been paid to the
original contractor, if the
whole work had been executed
by him (as to the amount of
which excess expenses the
certificate in writing of
the Engineer-in-charge shall be final, conclusive and shall be borne and shall be paid by the original contractors and shall be deducted from any money due to him by the Board under the contract or otherwise from his security deposit of the proceeds sale thereof or a sufficient part thereof.
In the event of the above courses being adopted by the Executive Engineer the contractor shall have no claim to compensation for any loss sustained by him by reason of his having purchased or procured any materials or entered into any engagements or made any advances on account of or with a view to the execution of the work or the Page 68 of 133 C/SCA/21983/2017 JUDGMENT partformance of the contract. And in case the contract shall be rescinded under the provision aforesaid the contractor shall not be entitled to recover or be paid any sum for any works thereof actually performed by him under this contract unless and until the Executive Engineer shall have certified in writing the performance of such work and the amount payable to him in respect thereof and he only be entitled to be paid the amount so certified.
5.....
6. Action in the case of Default by Contractor In any case in which any of the powers conferred upon the Executive Engineer by Clauses 4 and 5 thereof shall have exercisable and the same shall not have been exercised the none exercised thereof shall not constitute a waiver of any of the conditions hereof and such powers shall not withstanding be exercisable in any further case of default by the contractor for which by any clauses here of, he is declared liable to pay compensation amounting to the while of his security deposit Page 69 of 133 C/SCA/21983/2017 JUDGMENT and liability of the contractor for past and future compensation shall remain unaffected in the event of the Executive Engineer taking action under sub-cluase (a) or (c) of Clause 4 he may, if he so desires, take possession of all or any tolls, plants, materials, and stores in so upon the work or the site thereof belonging to the contractor, or procured by him and intended to be used for the execution of the work of any part thereof paying for allowing for the same in account at the contract rates, or in the case of a contract rates not being applicable of current market rates to be certified by the Executive Engineer whose certificate thereof shall be final. In the alternative, the Executive Engineer may be notice in writing to the contractor or his clerk of works, foreman or other authorised agent require him to remove such tolls, plant, materials or stores from the Premises within a time to be specified in such requisition the decision to the contractor failing to comply with any such requisition, the decision of the Executive Engineer as to the expense of any such removal and the amount of the proceed and expense Page 70 of 133 C/SCA/21983/2017 JUDGMENT of any such sale, be final and conclusive against the contractor.
7....
8. Completion Certificate On completion of the work the Contractor shall be furnished with Completion Certificate by the Executive Engineer of such completion but no such certificate shall be given nor shall be the work considered to be complete until works are taken over and/or duly tested and put to operation as the case may be, nor until the work shall have been measured by the Engineer-in-Charge or where the measurement have been taken by his subordinates until they have received the approval of the Executive Engineer the said measurement being binding and conclusive against the contractor.
(emphasis supplied)
9. Effect of the Certificate No payment shall be made for any work estimated to cost less than Rs.1,000 till after the whole of said work shall have been completed and a certificate of completion given. But in a case of works estimated to cost Page 71 of 133 C/SCA/21983/2017 JUDGMENT more than Rs.1,000 Contractor shall on submitting a monthly bill thereof, be entitled to receive payments. Proportionate to the part of the work then approved and passed by the Engineer-in-charge, whose certificate of such approval and a passing of the sum so payable shall be final and conclusive against the contract. All such intermediate payment shall be regarded as payment by way of advance against the final payment only and not as payments for work actually done or completed and shall not preclude the Engineer-in-charge from requiring bad, unsound, imperfect or unskilful work to be removed and taken away and reconstructed or reerected nor shall any such payment be considered as admission of the due performance of the contract or any part thereof in any respect of the accuring of the claim nor shall conclude, determine or effect in any way the powers of the Engineer-in-charge as to the final settlement and adjustment of the accounts otherwise or in any other way, vary or affect the contract. The final bill shall be submitted by the contractor within one month of the date fixed for completion of work, Page 72 of 133 C/SCA/21983/2017 JUDGMENT otherwise the certificate of the Engineer-in-charge of the measurement and of total amount payable for the work shall be final and binding on all parties.
10....
11. Bills shall be submitted by the contractor each month on or before the date fixed by the Engineer-in-charge for all works, executed in the previous month and the Engineer-in-charge shall take or cause to be taken the requisite measurement for the purpose or having the same verified and the claim so far as it is admissible, shall be adjusted, if possible, within ten days from the presentation of the bills. If the contractor does not submit the bill, within the time fixed, as aforesaid, the Engineer-in-charge may depute a subordinate to measure up the said work in the presence of the contractor or his duly authorised agent, whose counter signature in the measurement shall be sufficient warrant and the Engineer-in-charge may prepare a bill from such list which shall be binding on the contractor in Page 73 of 133 C/SCA/21983/2017 JUDGMENT all respects.
12...
...
...
...
20. Action and compensation payable in case of Bad Work If at any time, before the security deposit is refunded to the contractor it shall appear to the Executive Engineer or his subordinate in charge of the work that any work has been executed with unsound, imperfect or unskilful workmanship or with materials of inferior quality or that any materials or articules provided by him for the execution of the work are unsound or of a inferior quality to that contracted for or are otherwise not in accordance with the contract, it shall be lawful for Engineer-in- charge to intimate this fact in writing to the contractor and then not withstanding the fact that the work, materials, or articles complained of may have been inadvertently passed, certified and paid for, the contractor shall be bound forthwith to rectify or remove and reconstruct the work so Page 74 of 133 C/SCA/21983/2017 JUDGMENT specified in while or any part, as the case may require or if so required shall remove the material or articles so specified and provided other suitable materials or articles at his own charge and cost, and in the event of his failing to do so within a period to be specified by the Engineer-in-charge in the written intimation aforesaid the contractor shall be liable to pay compensation at the rate of one percent on the amount of the estimate for every day not exceeding ten days during which the failure so continues and in the event of any such failure as aforesaid the Engineer-in-charge may rectify or remove and re-execute the work or remove and replace the materials or articles complained of, as the case may be, at the risk and expense in all respects of contractor should the Engineer-in-charge consider that any such inferior work or materials as described above may be accepted, or made use of, it shall be within his discretion to accept the same as such reduced rates as he may fix thereof.
Provided that in the case of any work of which visible check is not possible, if the Engineer-in-charge or Page 75 of 133 C/SCA/21983/2017 JUDGMENT his subordinate in charge of the work feels that such work has been executed with unsound, imperfect or unskilful workmanship or with materials of inferior quality, he shall take sample tests at random, cost of which shall have to be borne by the contractor and if after taking such test part of such work is found to be defective in any respect or to have been executed with materials of inferior quality, then the contractor shall be paid for the while work such amount as may be fixed by the office of the Engineer-in- charge on the basis of the lowest quality of work found by him in such sample tests.
Explanation I Sample Test shall mean (I) In relation to poles fixed as line supports, the token of one pole out of every 100 poles after taking it out from its foundation for inspection. (II) In relation to any other work such test as may be considered necessary by the Engineer-in-Charge or his subordinate in charge of the work.
Explanation II
Cost of the sample test shall mean
cost incurred for the purpose of
taking Samples & test and for
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restoring tested work to its original condition.
(emphasis supplied)
21...
..
..
24. Contractor Liable for all Damage Compensation for all damage done intentionally or unintentionally by contractors labourer, whether in or beyond the limit of Board's property, shall be estimated by the Executive Engineer, or such other office, as he may appoint and the estimates of the Executive Engineer, subject to the decision of the Superintending Engineer, on appeal, shall be final and the contractor shall be bound to pay the amount of the assessed compensation demand, failing which the same will be recovered from the contractor as damages or deducted by the Engineer in charge from any sums that may be due to or become due from Board to the contractor under this contract or otherwise.
The contract shall bear the expenses of defending any action or other legal proceeding that may be brought by any person for injury sustained by him Page 77 of 133 C/SCA/21983/2017 JUDGMENT owing to neglect of precautions to prevent the spread of fire and he shall also pay any damage and costs that may be awarded by the court if in consequence.
25....
26. Compensation All sums payable by a contractor by way of compensation under any of these conditions shall be considered as a reasonable compensation to be applied to the use of Board, without reference to the actual loss or damage sustained and whether any damage has not been sustained.
27...
28. Works under direction of Superintending Engineer All works to be executed under the contract shall be executed under the direction and subject to the approval of the Superintending Engineer of the Circle/Engineer in charge for the time being who shall be entitled to direct at what point or points and in what manner they are to be commenced and from time to time carried on.
Page 78 of 133 C/SCA/21983/2017 JUDGMENT
29. Decision of superintending
Engineer to be final
Except where otherwise specified in
contract and subject to the power
delegated to him by Board under the Board;s rules, then in force the decision of the superintending Engineer of the Circle/EIC, for the time being shall be final conclusive and binding on all of the specification, designs, drawings and instructions herein before mentioned and as to the quality of workmanship or material used on the or as to any other question, claim, right matter or thing whatsoever in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders or these conditions or otherwise concerning the works or the execution or failure to execute the same, whether arising during the progress of the work or after the completion or abandonment thereof.
30. Arbitration ALL QUESTIONS, DISPUTES OR DIFFERENCES, WHATSOEVER WHICH MAY AT ANY TIME ARISE BETWEEN THE PARTIES TO THIS CONTRACT IN CONNECTION WITH THE Page 79 of 133 C/SCA/21983/2017 JUDGMENT CONTRACT OR ANY MATTER ARISING OUT OF OR IN REPATION THERE TO, SHALL BE REFERRED TO THE "GUJARAT PUBLIC WORKS CONTRACTS DISPUTES ARBITRATION TRIBUNAL" AS PER THE PROVISION OF THE GUJARAT PUBLIC WORKS CONTRACTS DISPUTES ARBITRATION ACT, 1992.
The reference to arbitration proceedings under this clause shall not:
a) Affect the right of the Engineer-
in-charge to take possession of all or any tolls, plants, materials and stores, in or upon the work or site thereof or belonging to the contractor or procured by him and intended to be used for the execution of the work or any part thereof.
b) Preclude the Engineer-in-charge from utilising the materials purchased by the Contractor in any work or from removing such materials to other place, during the period the work is stopped or suspended in pursuance of notice given to the contractor under General Conditions.
c) Entitle the contractor to stop the progress of the work or carrying out the additional or altered work in Page 80 of 133 C/SCA/21983/2017 JUDGMENT accordance with the prevision of General Conditions for the work where there is no specification.
d) Proclude the Board from getting the work done by another agency.
Neither party is entitled to bring a claim to arbitration latest by thirty days after the expiration of the defects liability period.
The provisions of the Arbitration Act- 1992, Gujarat Public Works Contract Disputes Arbitration Tribunal Act, 1992, and rules made thereunder shall apply to the arbitration proceeding under this clause.
9. After setting out almost indisputable facts and relevant provisions of guidelines for black listing and terms of contract herein above it would be most appropriate to set proposition of law pertaining to Stop work, stop dealings and Black listing of contractor and respective rights of parties to a contract for governing their respective conducts and helping them defining their sphere and scope of enforcement of their respective rights and claims.:
(i) in case of M/s. Erusian Equipment & Chemicals Ltd. Vs. State of West Bengal And Another, reported in (1975) 1 SCC 70, the Hon'ble Page 81 of 133 C/SCA/21983/2017 JUDGMENT Court in paragraph nos.12 and 17 held as under:
(12) Under Article 298 of the
Constitution the Executive power of
the Union and the State shall extend to the carrying on of any trade and the acquisition, holding and disposal of property and the making of contracts for any purpose. The State can carry on executive function by making a law or without making a law.
The exercise of such powers and functions in trade by the State is subject to Part III of the Constitutional Article 14 speaks of equality before the law and equal protection of the laws. Equality of opportunity should apply to matters of public contracts. The State has the right to trade. The State has there the duty to observe equality. An ordinary individual can choose not to deal with any person. The Government cannot choose to exclude persons by discrimination. The order of black- listing has the effect of depriving a person of equality of opportunity in the matter of public contract. A person who is on the approved list is unable to enter into advantageous relations with the Government because of the order of black-listing. A person who has been dealing with the Page 82 of 133 C/SCA/21983/2017 JUDGMENT Government in the matter of sale and purchase of materials has a legitimate interest or expectation. When the State acts to the prejudice of a person it has to be supported by legality.
(17) The Government is a government of laws and not of men. It is true that neither the petitioner nor the respondent has any right to enter into a contract but they are entitled to equal treatment with others who offer tender or quotations for the purchase of the goods. This privilege arises because it is the Government which is trading with the public and the democratic form of Government demands equality and absence of arbitrariness and discrimination in such transactions. Hohfeld treats privileges as a form of liberty as opposed to a duty. The activities of the Government have a public element and, therefore, there should be fairness and equality. The State need not enter into any contract with any one but if it does so, it must do so fairly without discrimination and without unfair procedure. Reputation is a part of person's character and personality. Blacklisting tarnishes one's reputation.
Page 83 of 133 C/SCA/21983/2017 JUDGMENT
(emphasis supplied)
(ii) in case of Joseph Vilangandan Vs. The
Executive Engineer, (PWD), Ernakulam And Others, reported in (1978) 3 SCC 36 ;
Para-17: The majority judgment of the Kerala High Court, inasmuch as it holds that a person is not entitled to a hearing, before he is blacklisted, must be deemed to have been overruled by the decision of this court in Erusian Equipment (ibid) wherein it was held that (SCC p.75, para20):
Fundamentals of fair-
play require that the person concerned should be given an opportunity to represent his case before he is put on the black-list.
Controversy in the instant case, therefore, narrows dawn into the issue, whether such an opportunity was given to the appellant. Answer to this question will turn on an interpretation of the Notice, dated April 17, 1968 (Ex. P-8) given by the Executive Engineer to the appellant. This Notice has been extracted in a foregoing part of this judgment. The material sentence therein is:
Page 84 of 133 C/SCA/21983/2017 JUDGMENT
You are therefore
requested to show cause...
why the work may not be
arranged otherwise at your
risk and loss, through other
agencies after debarring you as a defaulter.....
The crucial words are those that have been underlined. They take their colour from the context. Construed along with the links of the sentence which precede and succeed them, the words "debarring you as a defaulter", could be understood as conveying no more than that an action with reference to the contract in question, only, was under contemplation. There are no words in the notice which could give a clear intimation to the addressee that it was proposed to debar him from taking any contract, whatever, in future under the Department. A perusal of the appellant's reply (Ex. P-7), dated May 20, 1968, sent to the Executive Engineer, also appears to show that by the word "debarring" mentioned in the Executive Engineer's letter dated April 17, 1968 (Ex. P-6), he understood as debarring him from executing the contract in question Page 85 of 133 C/SCA/21983/2017 JUDGMENT after declaring him a defaulter, and the getting the same work done by other agencies, at his risk and loss. All that has been said in Ex. P-7 by the appellant is directed to justify that the non-execution of the contract was not due to his fault, but due to the delay on the part of the Department in handing over the building to him for starting the work within the time specified in the Agreement, and consequently, if any loss would be incurred by the Department in getting the work done through any other agency, he would not be liable to make good the same. In short, the letter (Ex. P-6) dated April 17, 1968 from the Executive Engineer, did not give any clear notice to the appellant that action to debar him from taking in future any contract, whatever, under the Department or its Ernakulam Division was in contemplation. The appellant was thus not afforded adequate opportunity to represent against the impugned action.
(emphasis supplied)
(iii) in case of Raghunath Thakur Vs. State Of Bihar And Others, reported in (1989) 1 SCC 229, in paragraph no.4 the Hon'ble Court held as under:
Page 86 of 133C/SCA/21983/2017 JUDGMENT [4] Indisputably, no notice had been given to the appellant of the proposal of blacklisting the appellant. It was contended on behalf of the State Government that there was no requirement in the rule of giving any prior notice before blacklisting any person. In so far as the contention that there is no requirement specifically of giving any notice is concerned, the respondent is right. But it is an implied principle of the rule of law that any order having civil consequence should be passed only after following the principles of natural justice. It has to be realised that blacklisting any person in respect of business ventures has civil consequence for the future business of the person concerned in any event. Even if the rules do not express so, it is an elementary principle of natural justice that parties affected by any order should have right of being heard and making representations against the order. In that view of the matter, the last portion of the order in so far as it directs blacklisting of the appellant in respect of future contracts, cannot be sustained in law. In the premises, that portion of the order directing that the appellant be Page 87 of 133 C/SCA/21983/2017 JUDGMENT placed in the blacklist in respect of future contracts under the Collector is set aside. So far as the cancellation of the bid of the appellant is concerned, that is not affected. This order will, however, not prevent the State Government or the appropriate authorities from taking any future steps for blacklisting the appellant if the Government is entitled to do so in accordance with law, i.e. giving the appellant due notice and an opportunity of making representation. After hearing the appellant, the State Government will be at liberty to pass any order in accordance with law indicating the reasons therefor. We, however, make it quite clear that we are not expressing any opinion on the correctness or otherwise of the allegations made against the appellant. The appeal is thus disposed of.
(emphasis supplied)
(iv) in case of Sothern Painters Vs. Fertilizers And Chemicals Travancore Ltd., reported in 1994 Supp.(2) SCC 699;
(v) in case of Style (Dress Land) Vs. Union
Territory, Chandigarh And Another, reported in
Page 88 of 133
C/SCA/21983/2017 JUDGMENT
(1999) 7 SCC 89, the Hon'ble Court held in
paragraph nos.10 and 12 as under:
10. In the absence of the rules, the action of the respondents regarding imposition of the terms and conditions of the lease including the enhancement of rent is required to be fair and reasonable and not actuated by considerations which could be termed as arbitrary or discriminatory. The Government cannot act like a private individual in imposing the conditions solely with the object of extracting profits from its lessees. Governmental actions are required to be based on standards which are not arbitrary or unauthorised. This Court in Ramana Dayaram Shetty V. International Airport Authority of India while agreeing with the observations of Mathew, J. Held:
"12. we agree with the observations of Mathew, J., in V. Punnen Thomas V. State of Kerala that:
'The Government is not and should not be as free as an individual in selecting the recipients for its largesse. Whatever its activity, Page 89 of 133 C/SCA/21983/2017 JUDGMENT the Government is still the Government and will be subject to restrains, inherent in its position in a democratic society. A democratic Government cannot lay down arbitrary and capricious standards for the choice of persons with whole alone it will deal.' The same point was made by this Court in Erusian Equipment and Chemicals Ltd. Vs. State of W.B. where the question was whether black-listing of a person without giving him an opportunity to be heard was bad? Ray, C.J., speaking on behalf of himself and his colleagues on the Bench pointed out that black-listing of a person not only affects his reputation which is in Poundian terms as interest both of personality and substance, but also denies him equality in the matter of entering into contract with the Government and it cannot, therefore, be supported without fair hearing. It was argued for the Government that no person has a right to enter into contractual relationship with the Government and the Government, like any other private individual, has the absolute right to enter into contract with any one it pleases. But the Page 90 of 133 C/SCA/21983/2017 JUDGMENT court, speaking through the learned Chief Justice, responded that the Government is not like a private individual who can pick and choose the person with whom it will deal, but the Government is still a Government when it enters into contract or when it is administering largess and it cannot, without adequate reason, exclude any person from dealing with it or take away largess arbitrarily. The learned Chief Justice said that when the Government is trading with the public, "the democratic form of Government demands equality and absence of arbitrariness....The activities of the Government have a public element and, therefore, there should be fairness and equality. The State need not enter into any contract with anyone, but if it does so, it must do so fairly without discrimination and without unfair procedure." This proposition would hold good in all cases of dealing by the Government with the public, where the interest sought to be protected is a privilege. It must, therefore, be taken to be the law that where the Government is dealing with the public, whether by way of giving jobs or entering into contracts or issuing quotas or licences or granting other forms of largess, the Government Page 91 of 133 C/SCA/21983/2017 JUDGMENT cannot act arbitrarily at its sweet will and, like a private individual, deal with any person it pleases, but its action must be in conformity with standard or norm which is not arbitrary, irrational or irrelevant. The power or discretion of the Government in the matter of grant of largess including award of jobs, contracts quotas, licences etc., must be confined and structured by rational, relevant and non- discriminatory standard or norm and if the government departs from such standard or norm in any particular case or cases, the action of the Government would be liable to be struck down, unless it can be shown by the Government that the departure was not arbitrary, but was based on some valid principle which in itself was not irrational, unreasonable or discriminatory."
12. This Court in Kumari Shrilekh Vidyarthi (kumari) Vs. State of U.P. held that every State action, in order to survive, must not be susceptible to the vice of arbitrariness which is the crux of Article 14 and basic to the rules of law, the system which governs us, arbitrariness being the negation of the rule of law. Non-arbitrariness, Page 92 of 133 C/SCA/21983/2017 JUDGMENT being a necessary concomitant of the rule of law, it is imperative that all actions of every public functionary in whatever sphere must be guided by reason and not humour, whim, caprice or personal predilections of the persons entrusted with the task on behalf of the State and exercise of all powers must be for public good instead of being an abuse of the power. Action of renewability should be gauged not on the nature of function but public nature of the body exercising that function and such action shall be open to judicial review even if it pertains to contractual field. The State action which is not informed by reason cannot be protected as it would be easy for the citizens to question such an action being arbitrary.
(vi) in case of B.S.N. Joshi & Sons Ltd. Vs. Nair Coal Services Ltd., reported in (2006) 11 SCC 548, the Hon'ble Court in paragraph 41 held as under:
(41) The expression 'declaration' has a definite connotation. It is a statement of material facts. It may constitute a formal announcement or a deliberate statement. A declaration must be announced solemnly or Page 93 of 133 C/SCA/21983/2017 JUDGMENT officially. It must be made with a view 'to make known' or 'to announce'.
[See Prativa Pal v. J.C. Chatterjee [AIR 1963 Cal. 470 at 472]. When a person is placed in the category of a declared defaulter, it must precede a decision. The expression 'declared' is wider than the words 'found' or 'made'. Declared defaulter should be an actual defaulter and not an alleged defaulter.
(emphasis supplied)
(vii) in case of Patel Engineering Limited Vs. Union of India And Another, reported in (2012) 11 SCC 257;
(viii) in case of Natural Resources Allocation, In Re, Special Reference No.1 of 2012, reported in (2012) 10 SCC 1;
(ix) in case of Kulja Industries Limited Vs. Chief General Manager, Western Telecom Project Bharat Sanchar Nigam Limited And Others, reported in (2014) 14 SCC 731, the Hon'ble Court held in para 17, 20 and 25 as under:
[17] That apart, the power to
blacklist a contractor whether the
contract be for supply of material or equipment or for the execution of any other work whatsoever is in our opinion inherent in the party Page 94 of 133 C/SCA/21983/2017 JUDGMENT allotting the contract. There is no need for any such power being specifically conferred by statute or reserved by contractor. That is because 'blacklisting' simply signifies a business decision by which the party affected by the breach decides not to enter into any contractual relationship with the party committing the breach. Between two private parties the right to take any such decision is absolute and untrammeled by any constraints whatsoever. The freedom to contract or not to contract is unqualified in the case of private parties. But any such decision is subject to judicial review when the same is taken by the State or any of its instrumentalities. This implies that any such decision will be open to scrutiny not only on the touchstone of the principles of natural justice but also on the doctrine of proportionality. A fair hearing to the party being blacklisted thus becomes an essential pre- condition for a proper exercise of the power and a valid order of blacklisting made pursuant thereto. The order itself being reasonable, fair and proportionate to the gravity of the offence is similarly examinable by a writ Court.
Page 95 of 133C/SCA/21983/2017 JUDGMENT
20. 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 M/s. Mahabir Auto Stores & Ors. Vs. Indian Oil Corpn. Ltd., 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, Page 96 of 133 C/SCA/21983/2017 JUDGMENT 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 Miss RadhaKrishna Agarwal V. State of Bihar....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 semimonopoly dealings, it should meet the test of Article 14 of the Constitution. If a Governmental Page 97 of 133 C/SCA/21983/2017 JUDGMENT action even in the matters of entering or not entering into contracts, fails to satisfy the test of 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."
25. Suffice it to say that "debarment" is recognised and often used as an effective method for Page 98 of 133 C/SCA/21983/2017 JUDGMENT 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.
(emphasis supplied)
10. Thus, from the aforesaid discussions of the proposition of law, it becomes amply clear that the State and its instrumentality has to adhere to the norms of fair play and their action even in the realm of contracting over exercising power under Article 298 of the Constitution of India is subject to the judicial scrutiny and the avowed principles annunciated in Articles 14 and 19 and part III of the Constitution. Therefore, the State or its instrumentality or agencies, as defined under Article 12 cannot claim absolute freedom qua entering into contract or not, as it is otherwise available to a contracting party.
Bearing this proposition of law in mind
annunciated from quite celebrated judgment in
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case of M/s. Erusian Equipment & Chemicals Ltd.
Vs. State of West Bengal And Another (supra), one has to accept that the State or its instrumentality before characterizing or dubbing an agency or a contractor to be 'undesirable or non-desirable' has to follow principles of natural justice, fair play and its decision should be informed by reason and required to be in accordance with law, principles of equality and fair play and should be guided by reasonableness. The Show Cause Notices impugned in these petitions, therefore, are required to be examined in light of the aforesaid discussion. Ordinarily, the Court would be very slow in interfering with the issuance and processing of show cause notice per se, but when the party receiving the show cause notice is assailing them on the ground of lack of jurisdiction malafied, arbitrariness or on account of perversity, then the petition cannot thrown away on dubbing it to be a pre-mature petition. The peculiar facts narrated hereinabove dissuade this Court from accepting the submission of learned counsel for the respondents that the petitions deserve to be dismissed on account of they being pre-mature. In fact, the petitioners' counsel has extensively submitted as to how and why the Show Cause Notices are suffering from the serious Page 100 of 133 C/SCA/21983/2017 JUDGMENT infirmities on merits as well as on account of they being not in consonance with the guidelines prevalent for issuing the same.
11. The Show Cause Notices are required to be examined on anvil of three factors, which are very relevant and significant for deciding the tenability thereof namely; (I) the guideline issued by the parent company GUVNL whose subsidiary is the respondent company PGVCL for stop dealing, banned for doing business with and blacklisting. The said guideline is produced in the compilation and the relevant extract of the clauses thereof have already been set out hereinabove, (II) the terms of the contract between the parties, which cannot be overlooked or brushed aside by either side as the rights and liabilities would arise and require to be dealt with in accordance therewith, (III) The Show Cause Notices' tenability or otherwise in its present form and purport.
Guideline:
(I) The learned counsel for the respondent has vehemently contended that these petitions are premature as the petitioners have challenged the show cause notices only when they are called upon to respond to the Show Cause Notices and they Page 101 of 133 C/SCA/21983/2017 JUDGMENT will have all the opportunity to put forward their cases. The counsel for the respondent has submitted that the initiating department as per the guidelines cited hereinabove is competent and rather required to issue Show Cause Notice when the department is to evaluate and assess the conduct of the contractor to decide as to whether to deal with him is desirable or not. Thus the procedure only upto Clause No.1.4.3 is reached and the rest of the procedure is yet to be followed. Therefore, these Show Cause Notices may not be interfered with. The close perusal of the relevant clauses of the said guidelines clearly indicate that the contractor, whose conduct has rendered him to be "undesirable to deal with" is required to be either declared as so undesirable to stop dealing with him or banned for doing business dealing or deserves to be blacklisted.
The guidelines heavily relied upon by both the sides makes clear distinction between two groups of "undesirable firms" namely the firm or contractor, whose undesirable conduct renders him to stop dealing with or banned from business dealing. These two types of contractors and firms are grouped together and for them the assessment criteria and the procedure is slightly different than the contractor or firms, which are so undesirable as to place them in the blacklisting Page 102 of 133 C/SCA/21983/2017 JUDGMENT of the company. For the said firms little more elaborate and stringent procedure is prescribed in the guidelines. The said difference is evident from close perusal of clause No.1.2 of the guidelines which indicates that the stop dealing, banned for business dealing of the firm shall be carried out in extreme situation only while blacklisting of the firm on serious offences only. Meaning thereby, in a extreme situation the firm or a contractor could be classified to be liable to be subjected to stop dealing or banned for business dealing, whereas when serious offences are noticed then, blacklisting is resorted in such cases only. At the cost of repetition the said clause deserves to be reiterated with due emphasis:
"Clause 1.2 : In order to place a Firm in the category of stop dealing/ banned for business dealing/ blacklist, the initiating Department will evaluate whether the conduct of the Firm is such that which makes it undesirable for the Company to deal further with the Firm and place its evaluation before the Committee / Board.
However, it is desirable that stop dealing/ banned for business dealing of the firm shall be carried out in extreme situation only, while Page 103 of 133 C/SCA/21983/2017 JUDGMENT blacklisting of the firm on serious offences only."
(Emphasis supplied) I.(a) In the instant case the Show Cause Notices are issued based upon the preliminary inquiry carried out without any information to the contractor petitioner and based whereupon the First Information Report has been filed. Therefore, it can be said that though the Show Cause Notices contain all the three proposed eventuality i.e. stop dealing, banned for business dealing and blacklisting, but the tenor and background of the Show Cause Notices issued to the petitioner clearly indicate that the last eventuality is blacklisting and even 7 years duration is proposed in the Show Cause Notice. The relevant paras of the Show Cause Notice indicating the purport, scope and consideration would required to be reproduced hereinabove to appreciate the same and to examine as to whether the said is in consonance with the guidelines as canvassed on behalf of the respondent.
"Page-27, para- 4. Thus the Committee found that in the contracts awarded to your firm by the Division Office, Palitana there were so may irregularities and illegalities. This Page 104 of 133 C/SCA/21983/2017 JUDGMENT has affected public safety and security. As per the report of the Committee, the PGVCL has suffered huge financial loss. As per the report, you have in collusion and in connivance with various officers of the PGVCL caused financial loss of Rs.1,53,34,613/- to the PGVCL.
5. On the aforesaid facts being revealed, the Company has filed criminal complaint against you with Palitana Town Police Station being C.R.No.I/33/2016 for the offences punishable under Sec.406, 420, 468, 477(A), 465, 467, 409, 201, 120(B), 208, 167, 196, 197, 198, 119, 114 of I.P.C. Thereafter police has also filed charge-sheet against you and others.
8. You are, therefore, hereby called upon to show cause and submit your explanation in writing as well as in person as to why financial loss of Rs.1,53,34,613/- caused to the PGVCL by your illegalities and irregularities in carrying out the works of laying underground cable and providing earth terminal at consumer premises during the period 2013 to 2015 which has also affected the public safety and security should not be recovered from you and also why PGVCL should not take action of not dealing with your Page 105 of 133 C/SCA/21983/2017 JUDGMENT firm/blacklisting your firm/ ban your firm for any business with the PGVCL for a period of 7 years."
I(b) Thus, the Show Cause Notice contains findings recorded by the committee which was constituted under the instructions of In-charge Chief Engineer and the committee who undertook the inquiry, without noticing the same to the petitioner, which is being dubbed by the respondent as preliminary inquiry resorting into findings recorded in paras 4, 5 and 8 and the respondent's counsel has submitted that the process of issuance of Show Cause Notice is only preliminary and upto clause 1.4.3 and the examining process is yet to be completed. Now as per the guidelines, the committee is to be formed as provided under Clause 1.5, which is to be consisting of 3 Members and that committee is only for the purpose of the contractor or firm, which are liable to be subjected to stop dealing and/or banned for business dealing. A close perusal of clause 1.5 would clearly indicate that the omission of blacklisting in the prescribed purview of committee in clause 1.5 would clearly indicates that that 3 members' committee is to be decided and deal with the aspect only if it pertaining to stop dealing / banned for business Page 106 of 133 C/SCA/21983/2017 JUDGMENT dealing. So far as the blacklisting is concerned that entire exercise is only entrusted to the Board and not to the Committee as could be seen form the provisions of Clause 1.6 of the guidelines.
I(c) The said guidelines clearly provide that though the Show Cause Notice for assessing and evaluating is required to be issued by Order Issuing Authority and it is incumbent upon the said authority after complying with the principles of natural justice to indicate its detail reasoning for its conclusion for placing the firm for stop dealing or for banning for business dealing etc. I(d) The Show Cause Notice in question in the instant case in our opinion goes beyond the scope of the guidelines and that clearly indicates that the contention of the learned counsel of the respondent qua Show Cause Notice is in absolute consonance with the guidelines cannot be accepted. The stage, as per the submission for learned counsel of the respondent, is only at the initiation of the proceedings by issuing notice by the concerned Department placing the order. The rest of the things which are required to be done either by the Committee or by the Board as envisaged under the Page 107 of 133 C/SCA/21983/2017 JUDGMENT guidelines, would not permit the Show Cause Notice issuing authority to incorporate even the recovery of amount as mentioned in the Show Cause Notice and duration for blacklisting etc. The inquiry, which was undertaking by the two officers appointed by respondent no.5, which formed basis for registering FIR cannot be said to be an inquiry as envisaged under law for assessing or arriving at the conclusion qua delinquency of the contractor. The principles of natural justice and inquiry would require appropriate notice to the contractor to participate on the proposed inquiry. In the instant case learned counsel for the petitioner appears to be justified in submitting that the entire inquiry by those two officers was behind the back of the petitioner and findings were only given to the petitioner by incorporating some of the part of the Show Cause Notice, which clearly indicates that the same cannot be classified to be in consonance with the guidelines.
I(e) It is further required to be noted that the clause 1.6 of the guidelines is exclusively dealing with the procedure to be followed when blacklisting is envisaged. The Board and the Committee is not required to form an opinion and require to issued an additional notice affording opportunity to the petitioner and the Board Page 108 of 133 C/SCA/21983/2017 JUDGMENT itself is require to decide the duration for blacklisting etc. The plain and simple reading of the Show Cause Notice in the light of the guidelines leaves many questions unanswered which would render the Show Cause Notices being not in consonance with the guidelines.
I(f) It is required to be noted at this stage that the counsel for the respondent has contended that the petitioner were not required to be called upon to participate in the inquiry, which was conducted by two officers appointed by respondent No. 5, as that can be said to be an investigation, not warranting the presence of the petitioner. This contention also appears to be contrary to the the facts on recorded which would indicate that the said inquiry by two officers was for collecting evidences which warranted the presence of the petitioner so as to obviate any misgivings from any quarter and apprehension for incorrect recording. The entire approach of the respondent so far as the report of those two officers, which runs in to as many as 62 pages, which indicates that it was merely an investigating exercise in which evidences were collected after unearthing and digging up some work. All these factors needs to be borne in mind while examining the contention of the parties. We Page 109 of 133 C/SCA/21983/2017 JUDGMENT are therefore of the considered view that the so called notices cannot strictly be said to be in consonance with the guidelines.
(II) The Show Cause Notices and the terms of Contracts: The counsel for the petitioners invited Court's attention to the Additional Affidavit placed in the compilation, wherein specimen copy of the the works contract referring to the general terms and conditions being part of the contract have been placed on record. We have already set out hereinabove few relevant terms of contract to appreciate the contentions of the parties in proper perspective. The parties to the contract would be governed by the terms of the contract and the principles governing the contractual relationship under the Contract Act. The terms of the contract, if found to be inconsistent with or not in consonance with the provisions of the Contract Act, would render them unenforceable and the parties would be governed by the principles governing contractual relationship in which obviously a party cannot arrogate to itself a unilateral function of adjudging the issue or dispute. The tenor of the Show Cause Notices with relevant extracts cited hereinabove needs to be examined in light of the terms of the contract which have been extracted Page 110 of 133 C/SCA/21983/2017 JUDGMENT hereinabove.
II(a) The counsel for the petitioners has vehemently contended that the petitioners were in fact working for the Respondent Company since last 14 years and on account of rivalry amongst the officials of the Respondent Company, the Show Cause Notices and allegations were slept upon the petitioners. The counsel for the petitioners also contended that the entire allegations revolves around a period from 26.02.2014 to 30.12.2014 for which 68 work contracts were performed. The final bills were paid. The Completion Certificates were issued. The No Objection for refunding the security deposits were issued and security deposits were refunded. Two officers have appointed for inquiring into the contract work which had been over long ago and the report thereof has formed not only basis for registration of complaint but issuance of Show Cause Notices, which have been impugned in these two petitions. Therefore, the terms of the contract would assume significance for examining the challenge to the Show Cause Notices. The Clause 2 of the Contract talks about security deposit which clearly provides that the security deposit may be returned or refunded to the Page 111 of 133 C/SCA/21983/2017 JUDGMENT contractor after the date on which the final bill is paid or after the expiry of the date up to which the contractor has to maintain the work in good order which ever is lesser. This condition clearly indicates that the security deposit once is refunded gives rise to the resumption that there exists complete sanctification on the part of the Company qua work being in order and therefore the inquiry at the back of the petitioner giving rise to filing of not only FIR but issuance of Show Cause Notices, deserves to be appreciated in its proper perspective.
II(b) Clause 4 of the terms of contract produced at page 378 in the compilation also provides complete guidance, guidelines and terms and conditions for action when whole of security deposit is to be forfeited. The said clause has already been reproduced hereinabove, suffice it to say that the refund of security deposit would give a complete presumption in favour of the petitioners. Similarly, Clause 6 provides for action in case of the default by the contractor which also clearly indicates the actions which were available to be taken in case if the contractor's work was found to be sub-standard or not in order. Clause 8 talks about completion certificate, which is already reproduced Page 112 of 133 C/SCA/21983/2017 JUDGMENT hereinabove, which clearly provides that on completion of the work, the contractor shall be furnished with completion certificate by the Executive Engineer of such completion, but not until the work shall have been measures by the Engineer in-charge. The Clause 9 provides for the effects of Certificate, Clause 11 provides for bills and Clause 20 provides for action and compensation payable in case of bad work. The said Clause also needs to be borne in mind, as the said Clause clearly provides that if at any time but before the security deposit is refunded to the contractor, it shall appear to the Executive Engineer or the employer that any work is sub-standard etc. This rider in the Clause 20 for compensation also clearly envisages that the action for compensation, if appear before the security deposit, is refunded to the contractor and not thereafter. Clause 24, 26, 28 and 29 have been set out hereinabove, which would indicate the interest, relationship, liabilities and rights of the parties. Clause 30 provides for arbitration.
II(c) In light of the aforesaid clear stipulation in the contract, the Show Cause Notice prima facie indicate that the same is based upon the conclusion of the inquiry officers Page 113 of 133 C/SCA/21983/2017 JUDGMENT qua the damage and the losses and a unilateral action of seeking the recovery without there being any proper adjudication and when has culminated into the charge sheet and the trial is yet to commence and when the losses for the work at Botad, the Show Cause Notice dated 24.08.2017 whose author has affirmed the plaint of Special Civil Suit No.98 of 2017, cannot be said to be strictly in consonance with the terms of the contract between the parties.
II(d) Learned counsel for the respondent has submitted that as there was a fraud even in obtaining the contract by placing the xerox copy, as the officer concerned did not have authority and competence to place the order and by placing xerox copy thereof, the orders were placed being subject matter of criminal proceedings and the arbitration Clause is not to be invoked and the losses to the public exchequer were required to be recovered and for which the opportunity is given. This submission, in our view, cannot be accepted, as the Respondent Company cannot arrogate to itself the unilateral exercise of deciding the quantum of damage without there being any proper entitlement for recovering the same. The Show Cause Notice and the relevant paragraph extracted hereinabove would clearly Page 114 of 133 C/SCA/21983/2017 JUDGMENT indicate that the Show Cause Notices cannot be said to be confined only to the aspect of blacklisting, but it has gone further in showing cause against the recovery etc. therefore, in our view, when the terms of contracts clearly defines the scope and right and entitlement to the parties, the Show Cause Notices being not in consonance therewith cannot be sustained in eye of law.
(III) The Show Cause Notices' tenability or otherwise in its present form and purport: The following indisputable aspects deserves to be taken into consideration for examining the tenability of the Show Cause Notice in its present form namely;
III(a) The contention of the petitioners that the inquiry by the two officers appointed by respondent no.5 at his back was in respect of 68 work orders which were completed by fulfilling the obligation and the completion certificate were issued and final bills were paid and security deposits were refunded, have not been controverted at all.
III (b) The contention of the petitioners that the respondent company did not carry out any rectification work, if at all the fact finding committee appointed by respondent no.5 had Page 115 of 133 C/SCA/21983/2017 JUDGMENT noticed any deficiency and quality in the work performed by the petitioner creating safety hazard, has also not been controverted nor has there been any evidence to controvert the said contention placed on record.
III (c) The petitioners' contention qua petitioner being allotted 50 more works order after that 68 orders were completed also has not been controverted by the respondent.
III(d) The petitioners have alleged that the timings of initiation of inquiry by the respondent no.5 in respect of already completed work in which even the security deposit had been refunded with the timing of respondent no.5 being entrusted with the charge of Chief Engineer assume significance.
III(e) The respondents have in fact placed on record that there was a complaint by one Shri Hemant Dhilla received by the head office or corporate office and that had been forwarded to the respondent no.5 for inquiry has not been controverted by the petitioner.
III(f) The fact remains to be noted that
the respondent no.5 appointed two officers to
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carry out inquiry but if the said action is
viewed from the terms of the contract then, in our opinion the same ought to have been after issuing notice to the petitioner for informing him that the proposed random survey of the work performed was ordered and required to be carried out. In absence thereof, it can well be said that the petitioner was justified in submitting that the said inquiry was behind the petitioners' back.
III(g) The said two officers who were appointed by respondent no.5 for conducting inquiry in turn took help of many officers, as the work and volume involved greater task of even digging up certain earthing work etc., the same indicate that there was evidence collecting process also. Now, this finding of the inquiry officers have been relied upon for not only filing FIR but also issuing Show Cause Notices not only for black listing but also recovering damage and losses.
III(h) The compliant by Shri Hemant Dhilla was dated 16.02.2016. The head office or corporate office had issued instructions thereafter and the respondent no.5 acted on 03.03.2016. The inquiry report appears to be Page 117 of 133 C/SCA/21983/2017 JUDGMENT submitted on 16.07.2016 running into around 62 pages. The FIR being no.33/2016 in Bhavnagar Police Station came to be filed on 27.07.2016 for the offences under Sections 406, 420, 468 & 477 of the Indian Penal Code. The informant appears to be the author of the show cause notice. The allegation is in respect of the work dated 26.02.2014 to 30.12.2014.
III(i) The petitioners appear to have filed Criminal Misc. Application No.20719 of 2016 in this Court for seeking anticipatory bail in respect of the said FIR. This Court on 23.08.2016 granted interim protection by passing the following order.
"1. This is an application for anticipatory bail.
2. The applicant apprehends his arrest in connection with FIR being I- CR No.33 of 2016 registered with the Palitana Town Police Station, Dist. Bhavnagar for the offences punishable under Section 406, 420, 468 and 477 of the Indian Penal Code.
3. Learned advocate for the applicant seeks permission to join Paschim Gujarat Vij Company Limited (through Page 118 of 133 C/SCA/21983/2017 JUDGMENT its Managing Director) having its office at Rajkot, as party respondent. Permission as prayed for is granted.
4. Since the allegations are leveled against the officer of the rank of Chief Engineer, the matter needs to be looked into by the Managing Director himself. Response if any in this regard, may come by the next date of hearing.
5. Rule returnable on 31.08.2016. Learned Additional Public Prosecutor waives service of notice of Rule on behalf of respondent State.
6. It is ordered that, till the next date of hearing, the applicant shall not be arrested in connection with the offence in question.
Direct service is permitted."
III (j) In the very same application on 02.09.2016, the Court passed the following order:
"1. Mr.Maulik Nanavati, learned advocate for the respondent Electricity Company has tendered affidavit.
2. List for further consideration on 21.09.2016.Page 119 of 133
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3. It is noted that, this Court had, while issuing notice on 23.08.2016, granted protection in favour of the applicant, recording reasons therein. In response to the said notice, the stand, ostensibly from the Head Office of the Electricity Company, has come on record. The contents of the affidavit dated 02.09.2016 further fortifies the prima facie impression gathered by the Court, which is recorded in the order dated 23.08.2016. Even now, the investigation is being done at the instance of the person, against whom serious allegations are leveled and in which this Court, prima facie, has found substance. Expanding the scope of the investigation, as claimed by the learned Additional Public Prosecutor, on instructions, further indicates that, those Officers, with whom the concerned Chief Engineer (who is named in the application) has to settle scores, are likely to be named in the offence in question. This aspect would require serious consideration by this Court.
4. To examine the matter from that angle, list for further consideration on 21.09.2016.Page 120 of 133
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5. Interim protection granted by this Court vide order dated 23.08.2016, shall operate during the pendency of this application.
Direct service is permitted."
III(k) On 28.09.2016 in the same matter, the Court passed the following order.
"1. This is an application for anticipatory bail.
2. The applicant has prayed for anticipatory bail in the event of his arrest in connection with C.R.-I No.33 of 2016 registered with the Palitana Police Station, District : Bhavnagar for the offences punishable under Sections 406, 420, 468 and 477 of the Indian Penal Code, 1860.
3. Learned senior advocate for the applicant has invited the attention of this Court to the complaint and the nature of the allegation against the applicant and has submitted that, considering the totality the applicant be granted anticipatory bail.
4. On the other hand, learned Additional Public Prosecutor and learned advocate for the complainant have contested this application and have opposed the grant of anticipatory Page 121 of 133 C/SCA/21983/2017 JUDGMENT bail.
5. Having heard learned advocates for the respective parties and having gone through the material on record, and which is made available to the Court by learned Additional Public Prosecutor, this Court finds that, this is the fit case to grant anticipatory bail to the applicant in exercise of powers under Section 438 of the Code of Criminal Procedure, 1973. This Court has taken into consideration the circumstances reflected in the order dated 23.08.2016 and 02.09.2016. This Court has also taken into consideration the say of the Electricity Company with regard to the offence in question. In totality, the applicant appears to have been singled out at the instance of the Chief Engineer who is named in the application, reference to which is also made by this Court in the earlier order. This application therefore, needs to be allowed.
6. In view of above, the following order is passed.
6.1 This application is allowed.
6.2 It is directed that, in the event
of arrest of the applicant in
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connection with C.R.-I No.33 of 2016
registered with the Palitana Town
Police Station, District : Bhavnagar,
the applicant shall be released, on
bail on furnishing personal bond of
Rs.10,000/- (Rupees ten thousand only) and one surety of the like amount, on the following conditions.
(a) Shall cooperate with the
investigation and make
himself available for
interrogation whenever
required;
(b) shall not directly or
indirectly make any
inducement, threat or
promise to any person
acquainted with the fact of
the case so as to dissuade
him from disclosing such
facts to the court or to any
police officer;
(c) shall not obstruct or hamper the police investigation and shall not play mischief with the evidence collected or yet to be collected by the police.
6.3 At the trial, the Trial Court shall not be influenced by the prima Page 123 of 133 C/SCA/21983/2017 JUDGMENT facie observations made by this Court while recording this order.
6.4 Rule is made absolute. Direct service is permitted."
III (l) It would also required to be noticed that the petitioner also appears to have preferred Special Criminal Application (Quashing) No.8796 of 2016 which came to be disposed of by this Court with the following observations. The said order is reproduced as under :-
"I am not inclined to entertain this application at this stage since the investigation is in progress. I am told that the applicant is already released on bail. I am of the view that the investigation should be permitted to be completed in accordance with law. Ultimately, if charge-sheet is filed and there is no legal evidence to connect the applicant herein with the alleged offence, it shall be open for the applicant to challenge the charge-sheet before the appropriate forum in accordance with law.
With the above, this application is disposed of. I clarify that I have otherwise not gone into the merits of the matter.Page 124 of 133
C/SCA/21983/2017 JUDGMENT Direct service is permitted."
III(m) The FIR being no.33 of 2016 has culminated into a charge-sheet being charge-sheet no.8 of 2017 dated 31.03.2017, wherein as contended by the petitioners, the author of the show cause notice appears to be witness no.1 and in the said notice Mr.Y.M.Yadav is shown as accused no.8.
III(n) As it is mentioned hereinabove, the author of the notice has also affirmed the plaint of civil suit being Special Civil Suit No.98 of 2017 in respect of the recovery, which is also forming part of the subject matter of the notice dated 24.08.2017.
III(o) The guidelines, relevant clauses whereof produced hereinabove, as well as the terms of the contract between the parties clearly indicate that the said notice cannot be said to be in consonance with either of the guidelines or the terms of contract so far it also pertains to seeking explanation of the petitioners on purported claim of recovery for losses said to have been incurred. As it is stated hereinabove, the party to a contract can not be a judge in its own cause to slap the otherside with recovery Page 125 of 133 C/SCA/21983/2017 JUDGMENT notices, as it is not in consonance with the law on the contract and contractual relationship. The Show Cause Notices are not strictly for the purpose of blacklisting only, nor do the Show Cause Notices indicate that the petitioners have an opportunity to explain as the author of the Show Cause Notice himself is first informant, who has lodged the FIR against the petitioner. In that view of the matter, the Show Cause Notices in the present form cannot be said to be tenable in the eye of law.
12. The Show Cause Notices have been not in consonance with either the guidelines or the principles for issuance of such Show Cause Notices, as the guidelines themselves have made clear distinction between two groups of 'undesirable contractor' namely, the contractor in whose case extreme circumstances would warrant 'stop dealing or banned for business dealing', but would not be treated as so grave as to blacklist them and therefore, only the committee is given power and entrusted with the task of assessing, examining and imposing the ban or stop dealing orders, whereas, the contractors, who have indulged in serious offences have to be dealt with by severe and extreme step by blacklisting them for a given period, but that power is given to the Board and not to the Page 126 of 133 C/SCA/21983/2017 JUDGMENT committee. Therefore, the Show Cause Notices, which do not spell out very clearly this distinction, otherwise also would not be sustainable, as the same cannot be issued in the present form. Having held that Show Cause Notices are bad in eye of law, the question arises as to whether the Show Cause Notices, if were issued strictly in accordance with guidelines in a given fact of present case, could they have been permitted to be proceeded to its logical end. Perhaps the answer would be in negative, as the narration of almost indisputable facts in 3rd factor mentioned hereinabove, would merit consideration that the likelihood of buyers or lack of objective assessment, cannot be ruled out and the entire exercise may result into mere formality and therefore, when the guidelines itself contains the word "offences", then it can well be said that the offences, even if they are culminated into chargesheet, the same cannot be held out against the petitioners unless they are declared to have been guilty for commission thereof. It is also required to be noted that the Show Cause Notices are based upon a detail inquiry conducted at the back of the petitioners and in that inquiry the evidence collection procedure was forming part of the inquiry report and based whereupon First Information Report has Page 127 of 133 C/SCA/21983/2017 JUDGMENT been filed and it has culminated into filing of the chargesheet.
In that view of the matter, a question arises as to whether the respondents shall have no right to stop dealing with the petitioner against whom a criminal case is filed and the chargesheet is also pending. The normal answer in a normal situation would weigh in favour of the respondents, but the judgments of the Supreme Court cited hereinabove right from M/s. Erusian Equipment & Chemicals Ltd. Vs. State of West Bengal And Another (supra) to Kulja Industries Limited Vs. Chief General Manager, Western Telecom Project Bharat Sanchar Nigam Limited And Others (supra), indicate that the principles of fair play and natural justice are required to be observed even while State or its instrumentality acting under Article 298 of the Constitution of India and this being a case, we are of the view that the criminal proceedings against backdrop of the peculiar facts may not at present be held out against the petitioners, so far as the petitioners' right to do business is concerned, as the blacklisting or stop dealing will have serious effect upon the petitioners' right to deal with any government agencies, as the guidelines themselves provide for the same.
Page 128 of 133C/SCA/21983/2017 JUDGMENT 13. The counsel for the petitioners contended that the respondents have no
justification for preventing the petitioners from participating in the tendering process for the new work orders nor are the respondents justified in preventing the petitioners from carrying out their work under the different contracts with the respondent company. The petitioners have made prayer in the petitions that on account of Show Cause Notices or purported action, the petitioners cannot be prevented from receiving the legitimate payment which the respondents are liable to make to the petitioners in respect of other contracts and contractual work with the respondent company. The respondents' answer to this, is according to us is an attempt to broadly sweep the submissions on specious plea of petitioners' substandard work, losses to the company's coffers, and endangering public safety. The Court hasten to add here that all the three pleas if found on a sound pillar of facts, cannot be brush aside by any Court. However, at the same time, the provisions of law in the right of the contracting party against the State instrumentality and its expansion of being dealt with fairly, equally demands closer scrutiny and on undertaking the close scrutiny it would emerged that the fine principle of fair play and Page 129 of 133 C/SCA/21983/2017 JUDGMENT justice have unfortunately been overlooked by the respondents.
14. The entire set of guideline do not envisage any abrupt, interim secession of work in respect of other contract when the contractor is in process of being called-upon to furnish explanation for this misdeeds or undesirable conduct warranting he being stopped with provision of stop dealing, banned for business dealing or blacklisting. The guidelines rather positively provide that the works undertaken under the validly issued order cannot be stopped and the contractor, who is under scanner is required to be permitted to complete the work which is undertaking. So far as the payment of the work already done in respect to the other contracts concerned, the same also cannot be withheld or stopped without there bing any proper finding recorded by the adjudicating authority declaring respondents to be entitled to recover the said amount. In other words, an unilateral act of a party to the contract seeking recovery cannot be countenanced in any manner nor the same can be part of the show cause notice for blacklisting envisaged under the guidelines.
15. We are therefore, of the considered opinion that there is no justification for the Page 130 of 133 C/SCA/21983/2017 JUDGMENT respondents to withhold the payment due to the petitioners in respect of the other contract and contractual work especially when the petitioner has volunteered vide his letter dated 03.11.2017 placed in the compilation at page no.236, which he is stated to have been adhered to even today of furnishing bank guarantee for securing the financial losses mentioned in the letter would not be justified.
16. Having come to the conclusion that the Show Cause Notices, in its present form and purport cannot be said to be sustainable, the Court has to bear in mind the fact that even if it is State or its instrumentality, it has a right to take-out appropriate proceedings against the concerned contractor in case, if the contractor is found to be a firm or person 'undesirable to work with'. However the same have to be strictly in accordance with law as said by the Supreme Court in the catena of judgments.
17. The Court needs to be mindful of the fact that the FIR has not been quashed by this Court and it has culminated into filing of charge-sheet. In view of this development, we are of the considered view that the observations made hereinabove shall have no bearing upon the Page 131 of 133 C/SCA/21983/2017 JUDGMENT criminal proceedings nor would those observations preclude the respondents from seeking any appropriate remedy permissible under law against the petitioners and in such an eventuality the observations of this Court made hereinabove shall have no bearing upon those proceedings and the same shall be decided without being influenced of the observations made hereinabove.
18. In the result, the petitions are allowed to the aforesaid extent. The Show Cause Notices are hereby quashed and set aside with the following directions:
The respondent shall not withhold the permissible and admissible dues to the petitioners in respect of the other contractual work undertaken by the petitioners with the company.
The respondent shall also not prevent the petitioners from participating in other tender proceedings.
It would be open to the
respondents to initiate blacklisting
proceedings, in case if the outcome of criminal proceedings is against the present petitioners, in accordance Page 132 of 133 C/SCA/21983/2017 JUDGMENT with the prevalent guidelines and provisions of law.
The petitions shall stand disposed of.
(S.R.BRAHMBHATT, J.) (R.P.DHOLARIA, J.) PANKAJ/PALLAV/RATHOD Page 133 of 133