Research › Search › Judgment

Patna High Court · body

2001 DIGILAW 891 (PAT)

Gammon India Limited v. State Of Bihar

2001-09-20

AFTAB ALAM

body2001
Judgment 1. The petitioner M/s. Gammon India Limited (hereinafter referred to as the Company) is a company incorporated under the Indian Companies Act. It has its registered office in Mumbai and a branch office at Patna. It undertakes construction of large projects on contract from Government and other agencies and it has to its credit some large and important constructions both within and outside the country. 2. The petitioner has filed this writ petition seeking to challenge the decision of the Commissioner-cum-Secretary, Water Resources Department, Government of Bihar, dated April 30/May 2, 2001 and the order, dated, 10.5.2001 issued pursuant to that decision. By the impugned decision and order the company has been black-listed. The petitioner company might or might not have contested so strongly the decision for its black-listing if the effect and consequences of black-listing were confined to the concerned department, as appears to be the import of the relevant rules, but copies of the order, dated 10.5.2001 were despatched for information, to the Chief Secretaries of all the States in the Union of India. This action of the respondent authorities is likely to have devastating consequences for the company and it finds itself pushed to a corner; the country-wide circulation of the black-listing order has put into serious jeopardy the companys chances of winning contracts even outside the State and this leaves it with no option but to contest the decision and the order of its black listing with full seriousness. 3. The provision for black listing is contained in a set of guide lines called the Revised Bihar Enlistment of Contractors Rules, 1992. These rules were published in the Bihar gazette of 29.12.1993. Evidently the so called rules are not framed under any statutory provisions but are a set of executive instructions and guide-lines but that would not detract from their application and enforceability. Clause 18(1) of these rules deals with deregistration of a registered contractor and clause 18 (2) deals with the black-listing of a contractor. Clause 18 (2) is as follows: "18(ii) Black-listing.If obvious defect is found at a later date in the work done by the contractor or his conduct and behaviour is found unbecoming of a civilised person either during or after the construction period (but within period of registration or he is found guilty of any. Clause 18 (2) is as follows: "18(ii) Black-listing.If obvious defect is found at a later date in the work done by the contractor or his conduct and behaviour is found unbecoming of a civilised person either during or after the construction period (but within period of registration or he is found guilty of any. criminal offence, or it is established that he has managed to receive excess payment from the Department, or Engineers, employed by him are found to be assopiated or employed simultaneously with other firms, or any information furnished by him is found to be wrong or misleading during any time his registration is valid, then for any, or all of the above reasons, it will be open to the Department to black-list the contractor for an indefinite or a specified period and/or de-register him and withhold any further payment due to him and forfeit his earnest money, and security deposit after giving him proper opportunity to present his case. During the period the contractor has been black listed, he will not be eligible to purchase tender or apply for any work or receive contract anywhere for any work in the Department." 4. On a plain reading of the provision its object and purpose appears to enable the departmental authorities to brand a contractor as undesirable on the basis of his conduct and performance and to bar him from any future working relationship with the department either permanently or for a specified period of time, as the case may be. 5. The petitioner company was given the contract for construction of a concrete masonary dam called the Barmar dam, a major irrigation project in this State. An agreement for this purpose was executed between the State Government and the company on 2.9.1988. The agreement, bearing no. 62F2 of 1988-89, provided for construction of the dam within a period of four years at a cost of Rs. 46.96 crores. Following the execution of the agreement the government made a secured advance of Rs. 121.95 lacs to the company and the company, in turn, gave a bank guarantee of Rs. 2.30 crores in favour of the State Government. The contract went bad and the dam in question was never constructed. The parties blame each other for the break down of the contract and each party has lots of allegations to make against the other. 121.95 lacs to the company and the company, in turn, gave a bank guarantee of Rs. 2.30 crores in favour of the State Government. The contract went bad and the dam in question was never constructed. The parties blame each other for the break down of the contract and each party has lots of allegations to make against the other. Both the parties went to court and a number of judicial proceedings came to be instituted at the instance of one or the other of the two contracting parties. The State Government also filed a criminal case on 23.2.1997 citing as accused some of the officials of the company. It is not necessary or even relevant to go into the details of the various judicial proceedings instituted by one or the other party some of which remain pending till date. Suffice it to note, that it was in this back ground that an order of black-listing was passed against the company and it was given intimation of its being black-listed by letter issued by the Joint Secretary in the Water Resources Department, Govt. of Bihar, under his memo no. 59, dated 27.5.1997. 6. Later on in this judgment there will be occasion to examine the grounds on which that order of black-listing was passed and we shall also see the reasons why the company took some time in taking that black-listing order to court. But for simply narrating the events in their sequence, it may be stated here that the company challenged the order of black-listing, dated 27.5.1997 by filing a writ petition being CWJC No. 11890 of 1999 before this court. That writ petition was allowed by judgment and order, dated 9.8.2000 by which the order of black-listing, dated 27.5.1997 was quashed. 7. The courts order was completely silent on the issue whether or not it was open to the respondent authorities to proceed afresh in the matter after giving a notice to the company but the authorities chose to proceed further in the matter. A notice, dated 7.10.2000 was accordingly issued to the company under the signature of the Joint Secretary to the Government in the Department of Water Resources (Irrigation), asking the company to show cause why it may not be black-listed on charges indicated in the notice. A notice, dated 7.10.2000 was accordingly issued to the company under the signature of the Joint Secretary to the Government in the Department of Water Resources (Irrigation), asking the company to show cause why it may not be black-listed on charges indicated in the notice. The company sought to challenge the show cause notice once again before this court in CWJC No. 13024 of 2000 but the court deciined to interfere with the show cause notice and disposed of that writ petition by order, dated 14.12.2000 making the following observation: "In the facts of this case to my mind, the petitioner pursuant to Annexure 1 should file its show cause raising all its grievances and bringing the aforesaid facts also on record and the respondent authorities shall pass an appropriate reasoned order after considering all the aspects of the matter, including the grievances as raised." 8. The company then filed a lengthy show cause with a number of annexures on 29.12.2000 whereupon a reasoned order, in some detail, was passed by the Commissioner-cum-Secretary, Water Resources Department on April 30/May 2, 2001. In her decision the Commissioner reiterated the earlier decision of the Department for the black-listing of the company. Following the decision taken by the Commissioner-cum-Secretary, an order, dated 10.5.2001 was issued under the signature of the Joint Secretary, copies whereof were sent to the Chief Secretaries of all the States in the Union of India, apart from the petitioner company itself. The company then filed this writ petition challenging the decision, dated April 30/May 2, 2001 and the consequential order, dated 10.5.2001. 9. Mr. Ram Balak Mahto, learned Senior counsel appearing in support of this writ petition submitted that though the matter should have come to a close after the passing of the earlier order of black-listing, dated 30.2.1997 and there should not have been any further dialogue between the company and the concerned department on the issue, in this case the facts appear to be otherwise. Even after passing of the earlier order of black-listing on 27.5.1997 discussions and negotiations continued to be held between the company and the concerned department with a view to sort out and settle the dispute. Mr. Mahto pointed out that the negotiations and discussions between the company and the concerned department finally culminated in an understanding, arrived at in a meeting held on 4.12.1998. 10. Mr. Mahto pointed out that the negotiations and discussions between the company and the concerned department finally culminated in an understanding, arrived at in a meeting held on 4.12.1998. 10. A reference to the meeting held on 4.12.1998 is made in paras 24 to 29 of the writ petition and the recorded minutes of the meeting are brought on record as Annexure 12 to the affidavit filed by the petitioner in reply to the supplementary affidavit on behalf of the respondents. Annexure 12 is the recorded minutes of the meeting held on 4.12.1998 on the subject of construction of Barnar dam (Agreement No. 62F2 of 1988-89). From the side of the Department the meeting was attended by the Commissioner-cum-Secretary herself along with four other officials, including the Engineer-in-Chief, Water Resources Department. In that meeting the parties arrived at an agreement which is incorporated in the minutes and it will be appropriate to reproduce here the entire agreement: "The following points have been agreed to by both the parties. "1. Gammon India Ltd. will submit Bank Guarantee for the amount of advance plus simple interest @ 13% as per contract upto the date of termination of the contract as below : Outstanding advance Rs. 1,21,95,304.00 Intt. upto 8.12.96 Rs. 1,08,27,132.00 TOTAL Rs. 2,30,22,436.00 "This Bank guarantee is in lieu of secured advance with interest to be deposited by the agency as taken earlier against their agreement No. 62F2/1988-89 with interest, within 6 months from this day i.e. 4th Dec. 98. "2. Gammon India Ltd. will withdraw the court cases regarding arbitration etc. before 9th December 1998. "3. Deptt. will also withdraw all the court cases such as money suit, criminal cases, etc. "4. Deptt. agree to consider the Gammon Indias genuine claims. "5. Deptt. will lift the black listing and allow the Gammon India Ltd. to participate in the Tender for the above job due on 9.12.98." 11. It is further stated in the writ petition and in different affidavits filed on behalf of the company and not denied on behalf of the respondents that the company discharged its two obligations in terms of the agreement; it furnished a bank guarantee in favour of the Government for a sum of Rs. It is further stated in the writ petition and in different affidavits filed on behalf of the company and not denied on behalf of the respondents that the company discharged its two obligations in terms of the agreement; it furnished a bank guarantee in favour of the Government for a sum of Rs. 2,30,22,436/- on 8.12.1998 and also filed a petition in this court for withdrawal of its Request Case No. 16/1998 which was pending at that time (Request Case No. 16/1998 was finally permitted to be withdrawn by order, dated 5.2.1999 passed on the basis of the withdrawal petition filed on 9.12.1998). Having thus satisfied the two conditions, the company was allowed to participate in the tender for the construction of Barnar dam held on 9.12.1998 as provided in clause 5 of the agreement. It is stated by the company, and again not denied by the State that the government did not proceed further on the basis of the tender held on 9.12.98 for want of sufficient funds; the bids submitted by the parties, were never opened and the company, like other bidders was refunded the earnest money deposited by it. What is significant to note, however, is that pursuant to the agreement dated 4.12.1998 the company was allowed to participate in the bid notwithstanding the order of its black-listing, dated 27.5.1997. It is, thus, to be seen that the effect of the order of black-listing, dated 27.5.1997 was waived in the case of the petitioner following the agreement arrived at on 4.12.1998. It is noted above that the direct and the most immediate consequence of black-listing is that the black-listed contractor is forbidden from participating in the bids for future contracts by the concerned department. It is seen above that in the case of the petitioner the order of black-listing, dated 27.5.1997 was nullified by the department by allowing the petitioner to participate in the tender on 9.12.1998. 12. Unfortunately for the petitioner the matter did not end there. The concerned department resiled from the agreement and did not discharge its obligations which included recalling the black-listing order. According to the petitioner, after the agreement was arrived at in the meeting, dated 4.12.1998 the Government seemed to change its mind and later made a further demand for a deposit of about Rs. 97 lacs. This demand the company was unable to accept. 13. Mr. According to the petitioner, after the agreement was arrived at in the meeting, dated 4.12.1998 the Government seemed to change its mind and later made a further demand for a deposit of about Rs. 97 lacs. This demand the company was unable to accept. 13. Mr. Mahto in this regard invited my attention to a letter, dated 27.10.1999 from the company to the Commissioner- cum-Secretary, Department of Irrigation. In this letter, a reference is made to the demand for a deposit of Rs. 96 lacs by way of compensation to the Water Resources Department before any action could be taken on the agreement, dated 4.12.1998. The letter goes on to express the companys inability to meet the demand which was described as quite unjust and unfair. Any reply of this letter or the charges made therein has not been brought on record from the side of the State. 14. On the basis of the agreement, dated 4.12.1998 and the attending facts and circumstances Mr. Mahto submitted that though the government failed to issue an order of recall, the order of black-listing, dated 27.5.1997 was in effect superseded, rescinded and nullified by the agreement, dated 4.12.1998. The nullification of the black-listing order, was evident from the fact that the petitioner was allowed to participate in the tender on 9.12.1998 and further from the refund of the earnest money to the petitioner when the government decided not to proceed with the contract. 15. Mr. Mahto submitted that it also explains why the company took some time in taking the earlier order of black-listing to court. It was stated that the company brought the matter to court only after it was convinced that the departmental authorities were adamant not to discharge their obligations under the agreement, dated 4.12.1998 even after the petitioner company had discharged its obligations under that agreement. 16. In these facts and circumstances Mr. Mahto submitted that the impugned decision and order of black-listing passed now by the authorities amounted to an attempt to resurrect and revive an earlier order which was long dead and nullified. 17. I find considerable substance in the submission made by Mr. Mahto but before making up the mind finally I must also consider the submissions in opposition made by Mr. S.K. Ghosh, learned A.A.G. II. 18. Mr. 17. I find considerable substance in the submission made by Mr. Mahto but before making up the mind finally I must also consider the submissions in opposition made by Mr. S.K. Ghosh, learned A.A.G. II. 18. Mr. Ghosh submitted that though an understanding was undoubtedly arrived at in the meeting of 4.12.1998, its operation was put in abeyance by the Government and the petitioner company was intimated by letter, dated 17.2.1999 (a copy whereof was at Annexure 3 in CWJC No. 11890 of 1999). In this letter sent to the company by the Joint Secretary, it was stated that the implementation of the agreement, dated 4.12.1998 would remain in abeyance until the Government took a decision after full consideration of the different aspects of the matter. 19. Mr. Ghosh further submitted that the agreement, dated 4.12.1998 could be used to assail the order of black-listing dated 4.12.1998. But that order was quashed by this court by order passed in the earlier writ petition. And from that stage the agreement dated 4.12.1998 lost all relevance. Learned AAG II submitted that the decision and the order of black listing passed after the order of this court, dated 9.8.2001 and coming under challenge in this writ petition could not, therefore, be assailed on the basis of any event prior to the passing of that order, including the agreement, dated 4.12.1998. 20. I am unable to accept either of the two submissions made by Mr. Ghosh. 21. The minutes of the meeting, dated 4.12.1998 incorporating the terms of the agreement were duly signed, for the department, by the Commissioner- cum- Secretary. In furtherance of that agreement, the company gave a bank guarantee for the sum specified in the agreement which was accepted by the Government. The company also filed a petition for withdrawal of its case pending before this court at that time. The company, thus, fully discharged its obligations within a few days of the execution of the agreement. Following the agreement, the Government allowed the company to take part in the bid held on 9.12.1998. Therefore, it was, rather late in the day to declare by letter, dated 17.2.1999 that the Government was opting, unilaterally, to walk out of the agreement until such time as it pleased. Following the agreement, the Government allowed the company to take part in the bid held on 9.12.1998. Therefore, it was, rather late in the day to declare by letter, dated 17.2.1999 that the Government was opting, unilaterally, to walk out of the agreement until such time as it pleased. I am, therefore, quite clear in my mind that the Governments unilateral declaration to keep the implementation of the agreement, dated 4.12.1998 in abeyance is of no consequence and it only supports the contention of the petitioner that having executed the agreement, the Government seemed to change its mind and chose to add up fresh demands against the company. 22. I am also unable to accept the submission of Mr. Ghosh that after the order of this court quashing the earlier order of black-listing the agreement dated 4.12.1998 cannot be employed as a ground to assail the fresh decision and order of black-listing. I am unable to accept the submission made by Mr. Ghosh. The submission would have carried some strength only under three contingencies which may be enumerated as follows: (i) If the petitioner had not relied upon and raised the issue of the agreement, dated 4.12.1998 while challenging the earlier order of black-listing, dated 27.5.1997 in the earlier writ petition being CWJC No. 11890 of 1999 (stretching the principle of constructive res-judicata). (ii) in case the issue though raised was rejected by the court while allowing the writ petition and quashing the earlier order of black-listing on some other grounds (res-judicata); and (iii) If the show cause notice for black listing after the earlier order of this court, dated 9.8.2000 was on charges different from those forming the basis of the earlier order of black-listing, dated 27.5.1997. 23. As we shall see hereinafter, none of the three contingencies arise in the facts and circumstances of this case. 24. From a perusal of the petition in CWJC No. 11890 of 1999 it becomes evident that the petitioner had squarely raised the issue of the agreement, dated 4.12.1998 and had fully relied upon that agreement for assailing the order of black-listing, dated 27.5.1997. The relevant averments are to be found in paras 7, 7A, 7B and 7C of that writ petition. 25. As regards the second contingency, it may be noted that this aspect of the matter was duly taken note of by this court in its order, dated 9.8.2000. The relevant averments are to be found in paras 7, 7A, 7B and 7C of that writ petition. 25. As regards the second contingency, it may be noted that this aspect of the matter was duly taken note of by this court in its order, dated 9.8.2000. While discussing the case of the petitioner company, this court made the following observation: "Learned counsel also pointed out that after Annexure 1 there was compromise and the petitioner was allowed to purchase tender form and participate whereas learned counsel for the respondents relying upon Annexures 13 and 18 submitted that proper notices was given to the petitioner." 26. Having thus noticed the different grounds on which the company was assailing the earlier black-listing order, dated 27.5.1997 this court proceeded to allow the petition and quash the order of black-listing only on the ground of breach of principal of natural justice. On examining the relevant facts and circumstances, this court came to a finding that no opportunity was given to the petitioner to represent its case before passing the black-listing order, dated 27.5.1997 and that was considered sufficient for quashing the order and to allow the writ petition. This court never said that the action of the Government in black-listing the company could not be assailed on the ground that it was nullified by the subsequent agreement, dated 4.12.1998. 27. Coming now to the last and the third contingency, it is to be noted that the grounds on which the earlier order of black-listing was passed are exactly the same indicated in the show cause notice, dated 7.10.2000. 28. In the black-listing order, dated 27.5.1997 it was stated that the company had executed an agreement for construction of the Barnar dam at a cost of Rs. 46.97 crores and it was given a secured advance of Rs. 121.953 lacs against the machineries brought to the site but the company completed work only of the value of Rs. 57.259 lacs and the Government had in deposit a sum of Rs. 12.953 lacs of the company; that later on the company removed its machineries from the site without the permission of the Government. The second charge against the company was that it had given a bank guarantee of Rs. 94.94 lacs but it withdrew the money even while the bank guarantee was subsisting. 12.953 lacs of the company; that later on the company removed its machineries from the site without the permission of the Government. The second charge against the company was that it had given a bank guarantee of Rs. 94.94 lacs but it withdrew the money even while the bank guarantee was subsisting. It was further stated that on a consideration of its explanation it was found that the company had committed breach of a number of conditions of the agreement, had violated the departmental directions and had wrongly and illegally obtained crores of rupees by committing fraud on the department. On these charges the company was directed to be black-listed. 29. Now on a perusal of the show cause notice, dated 7.10.2000 it appears that exactly the same very chrges were now being levelled against the company for black-listing it all over again. 30. It is thus to be seen the black-listing order which was passed earlier on exactly the same charges was considered by the government fit to be waived and nullified on certain conditions to be fulfilled by the company. The company fulfilled those conditions. And yet the very same charges were once again picked up for the impugned decision and order. 31. Mr. Mahto, therefore, appears quite right in his submission that the impugned decision of black listing was passed without any objective and fair application of mind and that the show cause notice was issued by the authorities with the mind already set on passing the black-listing order. The submission gains further strength from the fact that the impugned decision of black-listing, though in considerable detail does not even mention all the points raised by the petitioner. It was pointed out that in para 15 of its lengthy reply to the show cause notice, dated 7.10.2000 the company had specifically made a reference to the agreement, dated 4.12.1998 and had relied upon the terms of the agreement stating that that it had fully discharged its obligations under that agreement and therefore it was not liable to be black-listed on the same very charges. But in the impugned decision there is no reference to this objection raised by the company. This makes the impugned decision quite vulnerable to the charge of procedural impropriety and irregularity. But in the impugned decision there is no reference to this objection raised by the company. This makes the impugned decision quite vulnerable to the charge of procedural impropriety and irregularity. In all fairness, the competent authority was expected atleast to refer to the points raised by the company in its reply to the show cause notice. By not even mentioning an important point of defence the impugned decision exposes itself to the charge of non-application of mind. 32. For the reasons discussed above I find myself unable to sustain the impugned decision and order of black-listing of the company. Accordingly, I set aside the decision, dated April 30/May 2, 2001 and the order, dated 10.5.2001 issued in pursuance of that decision. 33. It is, however, made clear that this decision is rendered only on the issue of black-listing. Any other rights and obligations of the parties which may be pending adjudication in different judicial proceedings will be determined on their own merits without in any manner being influenced by any observation or comments made in this order. 34. In the result, this writ petition is allowed but with no order as to costs.