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2013 DIGILAW 39 (PAT)

NCC Ltd. v. State of Bihar

2013-01-10

RAMESH KUMAR DATTA

body2013
ORDER Heard learned counsel for the petitioners in both the cases and learned counsels for the State. 2. Both the writ applications raise common issues and have accordingly been heard together and are being disposed of by this common order. 3. In CWJC No. 19809 of 2011 direction has been sought to quash the order dated 18.10.2011 issued by the respondent Engineer-in-Chief (Central), Water Resources Department, Government of Bihar in which after holding the petitioner as having not made proportionate progress in completion of the work as per the contract in terms of Clauses 3.3 and 4.8 of the SBD (Standard Bidding Document) the petitioner M/s. NCC Ltd. has been declared a defaulter and debarred from participating in all future tenders. 4. In CWJC No.97 of 2012 also by an order dated 30.9.2011 the Engineer-in-Chief (Central) has for the same reasons held the petitioner M/s. IVRCL Ltd. as defaulter and debarred from participating in future tenders. 5. Both the orders have been challenged by the petitioners in the present writ petitions. 6. In the first writ petition M/s. NCC Ltd. had been awarded a contract for execution of certain works for restoration of Eastern Gandak Canal System including Gandak Barrage and its appurtenants after tender was floated for the said purpose. The contract value was Rs.448.84 crores and the final agreement dated 6.8.2009 was entered into and on the same date notice was issued to the petitioner to proceed with the work. The work was to be completed by 5.9.2011. It is the case of the petitioner that the contract consisted of reciprocal promises by which the promiser and the promisee had to fulfil their part of obligation as per the contract, i.e., authorities had to provide with encumbrance free sites so as to enable the petitioner to complete the contract, accord necessary approvals and necessary permissions, issue approved drawings, undertake joint measurements for 1722 structures to be repaired. A show cause notice dated 18.10.2011, which the petitioner claims to have received on 25.10.2011, was issued to the petitioner by the Engineer-in-Chief (Central), Water Resources Department seeking clarification on as many as eight grounds including not achieving proportionate progress in the work as per the contract and neglect, failure and delay on the part of the petitioner for which the reply to be filed within 15 days as to why blacklisting proceeding should not be started against it and on failure to reply ex parte steps would be taken for blacklisting proceedings against the petitioner company. On the same date as the show cause notice the impugned order dated 18.10.2011 was issued stating that the petitioner had not made proportionate progress in terms of the contract towards the completion of the work and therefore in terms of Clauses 3.3 and 4.8 of the SBD it was declared as a defaulter and debarred from participating in any future tender. The order is under challenge in the present proceedings. 7. The petitioner replied to the show cause letter dated 18.10.2011 by his letter dated 31.10.2011 in which various issues were raised including the failure on the part of the department on various counts which led to the delay in completion of the project. It also expressed its shock on the debarring order stating that it practically amounted to blacklisting without providing any opportunity of being heard. It was further stated in the show cause that the department cannot arrive at a unilateral finding of the contractor being a defaulter and proceed to initiate proceedings of blacklisting which has to be adjudicated by a competent judicial authority, in the present case by Arbitration. It was further stated that the department cannot use its sovereign power for the purposes of settling contractual disputes and in case the department has any grievance in respect of the contract it should invoke the arbitration clause which is the competent authority for settling these disputes and a request was made in the reply to the show cause to recall the show cause notice as also the debarring order. It is further pointed out that till date no order blacklisting the petitioner firm has been passed rather the department on the request of the petitioner dated 11.6.2011 and 14.6.2011 for extension of time has granted the extension till 31.5.2012 by letter dated 7.12.2011. 8. It is further pointed out that till date no order blacklisting the petitioner firm has been passed rather the department on the request of the petitioner dated 11.6.2011 and 14.6.2011 for extension of time has granted the extension till 31.5.2012 by letter dated 7.12.2011. 8. In the case of the petitioner M/s. IVRCL Ltd. also the facts are more or less similar. On the basis of tender floated by the State Government the petitioner company was awarded a contract of Rs.322.9 crores for all works (including canal systems and buildings) under E.R.M. (Extension renovation and Modernisation) of Eastern Kosi Canal System including setting basin, repairing and construction of building, Airport, etc. The work was to be completed within a period of 24 months from 23.3.2010 which was the date of the agreement. The show cause notice was issued to the petitioner on 10.9.2011 by the Executive Engineer, Irrigation Division, Birpur alleging slow progress of work and stating that the notice was to be treated as notice under clause 3(iii) of the agreement and on failure of the petitioner to accelerate the work the department would be free to rescind the contract and further action for blacklisting will follow. The petitioner replied to the same stating that the delay was not attributable to the petitioner but due to fault of the authorities and there was no neglect or slow progress in the work which was proportionate to the actual time which was granted to the petitioner. In the case of the petitioner also by an order dated 30.9.2011 of the Engineer-in-Chief (Central), Water Resources Department in exercise of powers under clause 3.3 and 4.8 of the Standard Bid Document the petitioner has been declared a defaulter and prohibited from participating in future tenders. 9. Learned counsel for the petitioners submits that in both the cases the authorities have acted without any jurisdiction/power to declare the petitioners as defaulters either under clause 3.3 and 4.8 of SBD or clause 3(iii) of the contract. It is submitted that at best in terms of clause 3(iii) of the agreement the contract can be rescinded on fulfilment of the conditions laid down therein. 10. It is submitted that at best in terms of clause 3(iii) of the agreement the contract can be rescinded on fulfilment of the conditions laid down therein. 10. Learned counsel further submits that neither clause 3.3 nor 4.8 of the SBD gives any such power to declare the petitioner as a defaulter as those clauses only relate to the stage of consideration of the bid and do not apply to the stage after the agreement has been entered into with the successful bidder. In this regard learned counsel refers to the provisions of clause 3.3 and 4.8 of SBD which are as follows :- “3.3 Bidders shall not be under a declaration of ineligibility for delay, failure or corrupt and fraudulent practices by any of the State Govt. or Central Govt. or Public Undertaking or any Autonomous Body. 4.8 Even though the bidders meet the above qualifying criteria, they are subject to be disqualified if they have: made misleading or false representations in the forms, statements and attachments submitted in proof of the qualification requirements; and/or have record of poor performance such as abandoning the works, not properly completely the contract, inordinate delays in completion, litigation history, or financial failures etc; and/or participated in the previous bidding for the same work and had quoted unreasonably high bid prices and could not furnish rational justification to the employer.” 11. It is submitted by learned counsel that the said conditions relate to a period before the entering into the bidding process and not after the contract. 12. It is submitted that the said clauses 3.3 and 4.8 cannot be used subsequently during the performance of the agreement to declare the petitioner defaulter as the said clauses are only to be considered by the authorities at the time of deciding on the tender. 13. It is further submitted by learned counsel that the impugned order dated 18.10.2011 in the case of the petitioner NCC Ltd. has been passed in complete violation of the principles of natural justice without issuing any show cause and without giving the petitioner a reasonable opportunity of being heard in the matter. With respect to the impugned order dated 30.9.2011 it is submitted that the same is again without issuing any show cause notice for declaring the petitioner a defaulter. With respect to the impugned order dated 30.9.2011 it is submitted that the same is again without issuing any show cause notice for declaring the petitioner a defaulter. It is further submitted that the show cause notice was issued by the Executive Engineer only for the purpose of seeking explanation as to why contract of the petitioner be not rescinded and further action taken in terms of clause 3(iii) of the agreement and not for the purpose of declaring the petitioner a defaulter. It is also the contention of learned counsel that as a matter of fact the petitioner had replied to the show cause notice dated 10.9.2011 but even the explanation of the petitioner dated 16.9.2011 has neither been considered nor rejected and the order declaring the petitioner a defaulter is thus a non-speaking order showing lack of application of mind. 14. It is also submitted by learned counsel that the impugned orders are without jurisdiction as they visit the petitioners with civil consequences by debarring them from participating in any future tender of the State Government, but in view of the policy being followed by the Public Sector Undertakings, other State Governments and even the Central Government they effectively debar the petitioners from participating in any tender process, because on being blacklisted or debarred by one authority the other authorities refuse to entertain such contractors in the bidding process. Thus the action of the authorities is violative of Article 14 and 19(1)(g) of the Constitution. 15. It is also submitted by learned counsel that as a matter of fact the authorities have in both the cases extended the period of contract realizing the fact that the authorities of the State were also largely to be blamed for the execution of the contract for the reasons shown by the petitioners for the same and thus their action in declaring the petitioners defaulters is contradictory to their action of extending the period of contract. 16. It is also the contention of learned counsel that the authorities being party to the contract it is not open to them to unilaterally take a decision that the petitioners are defaulters when the petitioners have not admitted any such fault and have alleged liability and fault on the part of the State authorities in the matter and the said issue can only be decided by an impartial adjudicatory body. In support of the said proposition learned counsel relies upon a decision of the Apex Court in the case of M/s. J.G. Engineers Pvt. Ltd. vs. Union of India & Anr. : AIR 2011 SC 2477 , in paragraph-15 of which it has been held as follows:- “15. In fact the question whether the other party committed breach cannot be decided by the party alleging breach. A contract cannot provide that one party will be the arbiter to decide whether he committed breach or the other party committee breach. That question can only be decided by only an adjudicatory forum, that is, a court or an Arbitral Tribunal. In State of Karnataka v. Shree Rameshwara Rice Mills (1987) 2 SCC 160 : ( AIR 1987 SC 1359 ) this Court held that adjudication upon the issue relating to a breach of condition of contract and adjudication of assessing damages arising out of the breach are two different and distinct concepts and the right to assess damages arising out of a breach would not include a right to adjudicate upon as to whether there was any breach at all. This Court held that one of the parties to an agreement cannot reserve to himself the power to adjudicate whether the other party has committed breach. This Court held (Paras 7 and 8 of AIR): “Even assuming for argument’s sake that the terms of Clause 12 afford scope for being construed as empowering the officer of the State to decide upon the question of breach as well as assess the quantum of damages, we do not think that adjudication by the other officer regarding the breach of the contract can be sustained under law because a party to the agreement cannot be an arbiter in his own cause. Interests of justice and equity require that where a party to a contract disputes the committing of any breach of conditions the adjudication should be by an independent person or body and not by the other party to the contract. The position will, however, be different where there is no dispute or there is consensus between the contracting parties regarding the breach of conditions. In such a case the officer of the State, even though a party to the contract will be well within his rights in assessing the damages occasioned by the breach in view of the specific terms of Clause 12. In such a case the officer of the State, even though a party to the contract will be well within his rights in assessing the damages occasioned by the breach in view of the specific terms of Clause 12. We are, therefore, in agreement with the view of the Full Bench that the powers of the State under an agreement entered into by it with a private person providing for assessment of damages for breach of conditions and recovery of the damages will stand confined only to those cases where the breach of conditions is admitted or it is not disputed.” 17. Learned counsels for the State, on the other hand, refer to the series of letters issued by the different authorities of the State from time to time informing the petitioners that work was not progressing properly. It is submitted that the said correspondences ought to be treated as show cause for the purpose of committing of default in the matter of execution of the contract, even though no specific show cause for the said purpose had been issued. It is urged that from the various correspondences on the record including those mentioned in the impugned orders it is evident that several opportunities were given to the petitioners to rectify the situation by speeding up the progress of work but no such action was taken by the petitioners and therefore they have rightly been declared defaulters and debarred from participating in all future tenders. 18. It is also the contention of the respondents that after execution of the agreement the petitioners did not take effective steps towards the completion of work in the scheduled time but by unnecessary communications tried to mislead the respondent authorities stating about various hindrances in execution of the contract caused by the respondent authorities although there were no such hindrances and further the petitioners never bothered to respond to the enquiries made to them relating to the status of the work. It is also the contention that the petitioner in the first case had completed only 40% of the work by the last date fixed in the contract and so it had failed to make proportionate progress of work as mentioned in the schedule of work. It is also the contention that the petitioner in the first case had completed only 40% of the work by the last date fixed in the contract and so it had failed to make proportionate progress of work as mentioned in the schedule of work. It is urged that on account of the default of the petitioners which was pointed out and specific instructions and directions were issued by the respondent authorities in that regard from time to time and warning of action to be taken against them was also made to them as per the terms and conditions of the agreement, yet they failed to improve the progress of work and thus in terms of clause 3.3 and 4.8 of the SBD the petitioners were declared defaulters and debarred from participating in future tenders by the impugned orders. With respect to the petitioner in the second case it is stated that as per the report dated 19.6.2012 of the Executive Engineer the physical progress made by the petitioner was only to the extent of 72% while financial progress was of 64%, as against the criteria of 80% fixed by the State Government in this regard and thus rightly it was declared defaulter. 19. Learned counsel for the State also refers to the Circular dated 25.11.2011 issued by the Government of Bihar in the Water Resources Department in which the procedure has been laid down for declaring a contractor defaulter in terms of clause 4.8(b) of the SBD. In the said Circular letter it is provided that in the tender notice a clause shall be added that an affidavit issued by a First Class Magistrate should be submitted by the tenderer of his being qualified under clause 4.8 along with the tender form. It is further provided therein that in case of such contractors who have been allotted work from before it is found that they have not completed 80% progress in the work as per the target fixed then after obtaining the recommendation of the Work Divisions the order declaring them defaulters should be issued at the level of the Engineer-in-Chief and on their so declaring defaulters they shall be debarred from participating in future tenders and similar procedure should be adopted with respect to clause 3.3 and 4.8(a) & (c) of the SBD. It is also provided that after issuance of the defaulter order such contractors would be debarred from participating in future tenders only until their names are removed from the defaulters’ list. It is further stated in such circular that the name of defaulter contractor should be put on the departmental website. 20. Apart from the aforesaid submissions learned counsel for the State also submits that the present writ applications being concerned with purely contractual matters are not maintainable and should not be entertained by this Court in its writ jurisdiction under Article 226 of the Constitution. In support of the said proposition learned counsels rely upon a decision of the Supreme Court in the case of M/s. Master Marine Services Pvt. Ltd. vs. Metcalfe & Hodgkinson Pvt. Ltd. & Anr. : 2005(3) PLJR (SC) 97, in paragraph-12 of which it has been held as follows:- “12. The law relating to award of contract by State and public sector corporations was reviewed in Air India Ltd. vs. Cochin International Airport Ltd. : (2000) 2 SCC 617 and it was held that the award of a contract, whether by a private party or by a State, is essentially a commercial transaction. It can choose its own method to arrive at a decision and it is free to grant any relaxation for bona fide reasons, if the tender conditions permit such a relaxation. It was further held that the State, its corporations, instrumentalities and agencies have the public duty to be fair to all concerned. Even when some defect is found in the decision making process, the Court must exercise its discretionary powers under Article 226 with great caution and should exercise it only in furtherance of public interest and not merely on the making out of a legal point. The Court should always keep the larger public interest in mind in order to decide whether its intervention is called for or not. Only when it comes to a conclusion that overwhelming public interest requires interference, the Court should interfere.” 21. He also relies upon a decision of the Apex Court in the case of M/s. Radhakrishna Agarwal and others vs. State of Bihar and others : AIR 1977 SC 1496 , in paragraphs-12 & 15 of which it has been held as follows:- “12. He also relies upon a decision of the Apex Court in the case of M/s. Radhakrishna Agarwal and others vs. State of Bihar and others : AIR 1977 SC 1496 , in paragraphs-12 & 15 of which it has been held as follows:- “12. The Patna High Court had, very rightly, divided the types of cases in which breaches of alleged obligation by the State or its agents can be set up into three types. These were stated as follows:- “(i) Where a petitioner makes a grievance of breach of promise on the part of the State in cases where on assurance or promise made by the State he has acted to his prejudice and predicament, but the agreement is short of a contract within the meaning of Art. 299 of the Constitution: (ii) Where the contract entered into between the person aggrieved and the State is in exercise of a statutory power under certain Act or Rules framed thereunder and the petitioner alleges a breach on the part of the State; and (iii) Where the contract entered into between the State and the person aggrieved is non-statutory and purely contractual and the rights and liabilities of the parties are governed by the terms of the contract, and the petitioner complains about breach of such contract by the State.” 15. It then, very rightly, held that the cases now before us should be placed in the third category where questions of pure alleged breaches of contract are involved. It held, upon the strength of Umakant Saran v. State of Bihar, AIR 1973 SC 964 and Lekhraj Sathram Das v. N.M. Shah, AIR 1966 SC 334 and B.K. Sinha v. State of Bihar, AIR 1974 Pat 230 that no writ or order can issue under Art. 226 of the Constitution in such cases “to compel the authorities to remedy a breach of contract pure and simple”. In reply, in support of their stand on the issue of maintainability of the writ petition in contractual matters learned counsel for the petitioners has also relied upon a decision of the Apex Court in the case of Popcorn Entertainment and another vs. City Industrial Development Corporation and another : (2007) 9 SCC 593 , in paragraph 47 of which it has been held as follows:- “47. We have given our careful consideration to the rival submissions made by the respective counsel appearing on either side. In our opinion, the High Court has committed a grave mistake by relegating the appellant to the alternative remedy when clearly in terms of the law laid down by this Court, this was a fit case in which the High Court should have exercised its jurisdiction in order to consider and grant relief to the respective parties. In our opinion, in the instant case, 3 of the 4 grounds on which writ petitions can be entertained in contractual matter were made out and hence it was completely wrong of the High Court to dismiss the writ petitions. In the instant case, 3 grounds as referred to in Whirlpool Corpn. have been made out and accordingly the writ petition was clearly maintainable and the High Court has committed an error in relegating the appellant to the civil court.” 22. Learned counsel for the petitioners further submits that no reliance can be placed on the Circular dated 25.11.2011, apart from the submissions made earlier, on the ground that the impugned orders have been passed prior to the issuance of the said Circular and it is not open to the respondents to rely upon the said Circular for declaring the petitioners as defaulters. It is also the contention of learned counsel for the petitioners that the Circular is otherwise bad in terms of the law laid down by the Apex Court in M/s. J.G. Engineers Pvt. Ltd.’s case (supra). Learned counsel for the petitioners also relies upon a decision of the Apex Court in which similar proposition has been laid down by the Apex Court in the case of Executive Engineer, Southern Electricity Supply Company of Orissa Limited (Southco) and another vs. Sri Seetaram Rice Mill : (2012) 2 SCC 108 . It is submitted that so far as the reliance placed by learned counsel for the State in the case of M/s. Master Marine Services (supra) is concerned, the said decision has no relevance in the present matter as it related to the award of contract and the principles laid down therein and thus cannot be applied in the present matter. Similarly the law laid down in Radhakrishna Agarwal’s case (supra) was in the context of pure alleged breach of contract and thus cannot cover the present matters. 23. Similarly the law laid down in Radhakrishna Agarwal’s case (supra) was in the context of pure alleged breach of contract and thus cannot cover the present matters. 23. I have considered the rival submissions of learned counsels for the parties. So far as the issue of maintainability is concerned, it has been clearly held by the Apex Court in the aforesaid Popcorn Entertainment case (supra) relying upon the earlier decision in Whirlpool Corporation vs. Registrar of Trade Marks : (1998) 8 SCC 1 that even in contractual matters or where there is existence of alternative remedy there is no absolute bar to exercise of jurisdiction by this Court if issues of jurisdiction and violation of natural justice arise. The present matter cannot be treated as action by the respondent authorities of the State purely in exercise of power under the contract; rather the power exercised is of declaring the petitioners defaulter and debarring from participating in future tenders which was not part of the contract entered into between the State and the petitioners and even if could have formed part of the contract would be considered as going beyond the purview of contract, so far as it relates to the existing contractual obligation between the State and the petitioners. 24. The effect of an order declaring defaulter is grave enough so as to debar a contractor from participating in any future tender. Clause 3.3 of the SBD itself makes it clear that if such an action is taken by any of the authorities, including any State or any public sector undertaking or even by the Central Government, then the other authorities act upon the said defaulter orders and the contractor in question is practically debarred from participating in any future tender with all such authorities. Such an action would have serious consequences upon the right of a contractor to exercise his fundamental right under Article 19(1)(g) of the Constitution and hence cannot be considered as a purely contractual situation or violation of contractual right. Thus the issue not only of jurisdiction but also of compliance of principles of natural justice would automatically arise in such cases and it cannot be assumed that such a matter is not maintainable before this Court in its writ jurisdiction. The challenge to the maintainability of the writ applications is, accordingly, rejected. 25. Thus the issue not only of jurisdiction but also of compliance of principles of natural justice would automatically arise in such cases and it cannot be assumed that such a matter is not maintainable before this Court in its writ jurisdiction. The challenge to the maintainability of the writ applications is, accordingly, rejected. 25. From a perusal of the facts and circumstances enumerated above it is evident that in the present matter the petitioners have been declared defaulters in carrying out their contractual work by the authorities of the State which factual situation is denied by the petitioners who have on the other hand made allegations against the State authorities as being equally liable and at fault in the matter. The contention of learned counsel for the petitioners that in such circumstances the issue regarding default can only be decided by an impartial adjudicatory body has much force in view of the law laid down by the Apex Court in M/s. J.G. Engineers case (supra). The Apex Court has clearly held that the question whether the other party has committed a breach cannot be decided by the party which alleges the breach nor the contract can provide that one party to the contract can decide whether they committed the breach or the other party committed the breach, which question can only be decided by a judicial forum, i.e. a court or an Arbitral Tribunal. 26. The said proposition laid down by the Apex Court applies squarely in the present situation where the petitioners have been declared defaulters by alleging breach of contractual terms on their part and as being liable and at fault on account of the slow progress of the work as compared to what was required under the contract. This should be specially so since the petitioners not only do not admit such allegation of liability and fault on their part as made by the respondents but have on the contrary raised the plea of liability and fault on the part of the State authorities in the matter on various grounds. It is evident that the authorities of the State cannot be permitted to decide such matter which involves liability on the part of the State officials also. It is evident that the authorities of the State cannot be permitted to decide such matter which involves liability on the part of the State officials also. Thus, even if it is accepted that the authorities of the State have the power to debar a contractor from participating in future contract after they are declared defaulter on account of not making the targeted progress to the extent of 80% in the work, still the finding regarding the default cannot be made by the State authorities and that must come from a proper adjudicatory forum, whether a court or arbitral tribunal. Only after such finding it can be open to the authorities of the State to declare a contractor as a defaulter and debar it from participating in future tenders. It is evident that the effect of such declaration as defaulter and debarment would have serious civil consequence on the party concerned and cannot be left to be decided by the party which has made allegation against whom also there is counter allegation by the contractor concerned. 27. This Court also finds substantial force in the submission of learned counsel for the petitioners that the Circular dated 25.11.2011 cannot be applied to the cases of the petitioners for declaring them defaulters in terms of the procedure and the percentage of progress laid down in the said Circular. For the said reason also the impugned orders dated 18.10.2011 and 30.9.2011 cannot be permitted to be defended on the basis of the Circular dated 25.11.2011. 28. Thus, in the light of the aforesaid discussions this Court finds that the impugned orders dated 18.10.2011 and 30.9.2011 cannot be allowed to stand. They are accordingly quashed. 29. The writ applications are thus allowed.