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2018 DIGILAW 1608 (JHR)

Food Corporation of India v. Rajhans Transport

2018-07-24

APARESH KUMAR SINGH, RATNAKER BHENGRA

body2018
JUDGMENT : 1. Heard learned counsel for the parties. 2. The appellant Food Corporation of India is aggrieved by the order dated 14.08.2015 passed in WP (C) No. 1436 of 2015 with WP (C) No. 1458 of 2015 whereunder the learned Single Judge quashed the order of termination of petitioner’s contract and debarment from participating in future tenders for a period of five years and directed to refund the earnest money to the petitioner. Learned Single Judge, however, refused to interfere in the fresh tender notice issued by the respondent-corporation. 3. Under the Tender Notice No. 2/2013 dated 01.09.2013 appellant, Food Corporation of India invited tenders for appointment of R&T Contractor for handling and transportation of food grain from Railhead (RH), Madhupur to inside PEG, Jamtara and vice versa . Writ petitioner turned out to be successful. By letter dated 21.11.2013, the competent authority under the Food Corporation of India communicated the acceptance of the tender for two years w.e.f. 21.11.2013 to 20.11.2015 at the quoted rate 475% ASOR. Petitioner was asked to furnish security deposit of Rs. 16,80,000/- bank guarantee of Rs. 33,60,000/- in the format prescribed in Appendix-IV and additional bank guarantee of Rs. 33,60,000/- in the format prescribed in Appendix-V as performance guarantee in favour of the Food Corporation of India. As per the terms and conditions of the MTF, petitioner submitted security deposit through letter dated 09.12.2013 for Rs. 1,68,000/- only, though the last date of submission was 07.12.2013. He was reminded vide letter dated 24.12 .2013 to deposit bank guarantee of the amount indicated earlier in the formats indicating that since the last date for submission of bank guarantee had already lapsed on 07.12.2013 (Clause-7(ii) of MTF) would be applicable. Petitioner deposited a single bank guarantee of Rs. 67,20,000/- on 17.01.2014 instead of two separate bank guarantees in favour of the Food Corporation of India, as per terms and conditions of MTF and without penalty amount. Petitioner approached this Court, thereafter in WP (C) No. 6582 of 2014 for a direction upon the respondent, Food Corporation of India to allot work order for handling and transportation of food grain from Railhead (RH), Madhupur to Jamtara and the return away. It asserted that despite representations, no work order had been issued. Petitioner approached this Court, thereafter in WP (C) No. 6582 of 2014 for a direction upon the respondent, Food Corporation of India to allot work order for handling and transportation of food grain from Railhead (RH), Madhupur to Jamtara and the return away. It asserted that despite representations, no work order had been issued. During the pendency of the writ petition, the order dated 11.02.2015 terminating the contract and debarring him from participating in future tenders for five years was issued which became the subject matter of the instant writ petition WP (C) No. 1436 of 2015. Writ petition WP (C) 6582 of 2014 was dismissed with liberty to the petitioner to challenge the order dated 11.02.2015, vide order dated 17.03.2015 (Annexure-17 to the writ petition). Petitioner was served with a show cause notice on 20.01.2015 asking him to explain as to why the contract be not terminated and the earnest money be not forfeited and further why the Corporation should not proceed to appoint another Contractor and to recover the losses and damages arising out of the contract with the petitioner. Petitioner was also required to show cause as to why he be not debarred in participating in future tenders of Corporation for a period of five years. Under the show cause, the Corporation pointed out the following discrepancies: (a) Writ petitioner had submitted only one bank guarantee amounting to RS. 67,20,000/- in Appendix-IV format only, instead of two bank guarantees of Rs. 33,60,000/- in different formats. (b) The validity period of the bank guarantee was up to 15.01.2016, while as per Model Tender Form Clause No. 7(i)(b) & (c), it shall be enforceable till further six months after completion of contractual period up to 20.05.2016 (from the date of communication of acceptance of the offered rate of 475% ASOR). (c) Instead of the word “tenderer”, the word “tendered” was indicated in the bank guarantee at points no. 6 and 7 and the date has been mentioned as 15.01.2016 instead of 20.05.2016 at Points No. 5 and 8 of the Bank Guarantee. (d) The earlier bank guarantee was modified and made valid till 15.01.2016. (c) Instead of the word “tenderer”, the word “tendered” was indicated in the bank guarantee at points no. 6 and 7 and the date has been mentioned as 15.01.2016 instead of 20.05.2016 at Points No. 5 and 8 of the Bank Guarantee. (d) The earlier bank guarantee was modified and made valid till 15.01.2016. (e) The bank guarantee was valid up to 15.01.2016, whereas at Clause ‘C’ it had indicated that the bank would be liable to pay the guarantee amount or any part thereof under this Bank Guarantee only and only if the Corporation served upon them written claim or demand on or before 15.07.2016. The corporation alleged that despite extended time limits, rectification of the defects and shortcomings in his documents were not corrected, instead the writ petitioner was dragging his feet, haggling and coming forth with one or other excuse. It also referred to the writ petition filed by the petitioner before the High Court and alleged that the aforementioned laches and defaults were deliberately suppressed by him. Show cause notice dated 20.01.2015 required the petitioner to furnish his reply within seven days. The writ petitioner replied on 28.01.2015, inter-alia, stating that the notice is unwarranted and misconceived, issued after filing of the writ petition. The writ petitioner was granted further five days time by reminder dated 04.02.2015 to respond to the notice. Petitioner again furnished his reply on 08.02.2015 reiterating his earlier stand. The impugned order was passed on 11.02.2015, inter-alia, holding that he had failed to reply to the show cause even within the extended time. It referred to the terms of Clause X (b) and XI (b) of the MTF and proceeded to terminate his contract and forfeit the earnest money without prejudice to any appropriate action as may be deemed fit to recover the loss. He was also debarred from participating in any future tenders of the Corporation for a period of five years. 4. Learned Single Judge noticed the provisions of Clause 7 of the MTF which provides for extension of fifteen days’ time for submission of Bank Guarantee with penalty at the rate of 1% of the whole amount of the security deposit and another fifteen days’ time with penalty at the rate of 2%. Learned Single Judge also took note that petitioner furnished security deposit on 17.01.2014 but in single bank guarantee of Rs. Learned Single Judge also took note that petitioner furnished security deposit on 17.01.2014 but in single bank guarantee of Rs. 67, 20,000/- instead of two separate Bank Guarantees. It observed that the petitioner showed his capacity to furnish the security deposit by way of bank guarantee for whole of the amount. The deviations pointed out in the show cause notice dated 20.1.2015 were held to be not of such nature which could result in substantial prejudice to the other party or would not be in public interest. Reliance was placed on the judgment of the Apex Court in the Case of G.J. Fernandez Vs. State of Karnataka, (1990) 2 SCC 488 . Learned Single Judge also observed that the impugned order dated 11.02.2015 did not take note of the representation submitted by the petitioner. It also did not disclose why show cause notice was issued to the petitioner after about one year and in the meantime, petitioner was permitted to carry additional work vide letter dated 27.11.2013. One year after the submission of the bank guarantee, the first show cause notice was issued to the petitioner on 20.01.2015. Thus, it appeared that time was not the essence of the contract. All other communications were prior to 17.01.2014 when the petitioner furnished the bank guarantee. In the meantime, petitioner had commenced additional work and made representations for issuing letter of appointment, however, no action was taken by the respondent. The refusal of the corporation in granting further time for rectifying the alleged discrepancies in the bank guarantee was in teeth of the principles of fair play in action. The learned writ court, therefore, held that the contract could not have been terminated on the ground mentioned in letter dated 11.02.2015. 5. The appellant-corporation in this appeal is primarily aggrieved by the quashing of the order of debarment as the learned Single Judge had refused to interfere in the fresh tender notice issued by the corporation or direct the corporation for award of work to the petitioner, despite quashing of the order dated 11.02.2015. The present challenge is, therefore, confined to the quashing of the order of debarment and the refund of earnest money, as such. 6. Learned counsel representing the appellant has narrated the sequences of facts undisputed and taken note of in the foregoing paragraphs. The present challenge is, therefore, confined to the quashing of the order of debarment and the refund of earnest money, as such. 6. Learned counsel representing the appellant has narrated the sequences of facts undisputed and taken note of in the foregoing paragraphs. He submits that Clause 7(iv) of the MTF which applied to the allotment of the work to the writ petitioner stipulated that in the event of the failure of the tenderer to furnish the requisite security deposits by due date including extended time not only the contract would be summarily terminated with forfeiture of earnest money but he shall also be debarred from participating in the future tenders of the corporation for a period of five years. The writ petitioner despite issuance of Letter of Acceptance dated 21.11.2013, failed to furnish the bank guarantee within time and even after reminder, furnished a single bank guarantee in one format under Appendix-IV only, instead of two separate bank guarantee in separate formats. Non-compliance with an essential terms of the tender entails penalty of termination and also debarment. He has relied upon the judgment of the Apex Court in the case of Central Coalfields Limited and Another Vs. SLL-SML (Joint Venture Consortium & Others with PLR-RPL-SMASL (JV) Vs. SLL-SML (Joint Venture Consortium and Others, (2016) 8 SCC 622 , in support of his submission that requirement to furnish a bank guarantee in a prescribed format as earnest money is an essential requirement of NIT and had to be strictly adhered to. The corporation considered the show cause of the writ petitioner which was perfunctory and found the default clearly established. Learned Single Judge has therefore, committed serious error in interfering with the order of debarment which was issued after due show cause notice and the specific conditions under Clause-7(iv) of the MTF, relating to the proposed penalty. 7. Learned senior counsel for the writ petitioner/respondent herein submits that the corporation continued to take work from the writ petitioner after issuance of the Letter of Acceptance and furnishing of the bank guarantee for an year without issuing any letter of appointment. As such, it amounted to waiver of the terms and conditions of the MTF under which the impugned action was taken. As such, it amounted to waiver of the terms and conditions of the MTF under which the impugned action was taken. The corporation has acted with a vengeance by terminating the contract of the petitioner and debarring him for five years during the pendency of the writ petition WP (C) No. 6582 of 2014 where the petitioner had prayed for issuance of an order for allotment of work. Despite furnishing of the bank guarantee, the corporation had failed to allot the work and enter into a specific agreement. The order impugned dated 11.02.2015 completely failed to notice these material facts as raised by the writ petitioner. Learned Single Judge has duly considered the case of the parties, in the light of the terms and conditions of the MTF. Appellant-Corporation has failed to show any error in the findings of the learned Single Judge. On the other hand, the impugned order dated 11.02.2015 suffered from complete non-application of mind. He placed reliance upon para 17 & 19 of the decision in the case of Rashmi Metaliks Ltd. Vs. Kolkata Metropolitan Development Authority, (2013) 10 SCC 95 . Learned senior counsel further submitted that in the entire process, no prejudice has been caused to the corporation, while it is the writ petitioner who has suffered. Despite execution of work under the same NIT, outstanding payments have not been made to him to the tune of more than Rs. 33 lakhs and odd. He has placed reliance upon in the case of G.J. Fernandez Vs. State of Karnataka, (1990) 2 SCC 488 para 11 & 15 in support of his submission. It is submitted on behalf of the writ petitioner that the findings rendered by the writ court are proper and do not suffer from any error to invite interference in appeal. 8. We have considered the submissions of the learned counsel for the parties in the canvass of the facts and documents including the terms of the MTF, referred to hereinabove. 8. We have considered the submissions of the learned counsel for the parties in the canvass of the facts and documents including the terms of the MTF, referred to hereinabove. The impugned action was taken by the appellant-corporation invoking Clause 7 (iv) of the MTF, which are quoted herein below: “7(iv) In the event of the Tenderer’s failure, after the communication of acceptance of the tender by the Corporation, to furnish the requisite Security Deposit by the due date including extension period, his Contract shall be summarily terminated besides forfeiture of the Earnest Money and the Corporation shall proceed for appointment of another contractor. Any losses or damages arising out of and incurred by the Corporation by such conduct of the contractor will be recovered from the contractor, without prejudice to any other rights and remedies of the Corporation under the Contract and Law. The contractor will also be debarred from participating in any future tenders of the Corporation for a period of five years. After the completion of prescribed period of five years, the party may be allowed to participate in the future tenders of FCI provided all the recoveries/dues have been effect by the Corporation and there is no dispute pending with the contractor/ party.” It would be pertinent to note here that the MTF stipulated other conditions such as at Clause X i.e. “Liability of Contractor for losses etc. suffered by Corporation, due to contractor’s negligence and un-workman like performance of any services under the contract or breach of any terms thereof or failure to carry out the work with a view to avoid incurrence of demurrage, etc. whereunder Contractor was made liable for all the costs, damages, demurrages, wharfage and forfeiture of wagon fees, charges and expenses suffered or incurred by the corporation for such acts. Clause-X also provided for levy of liquidated damages @ Rs. 2000/- per day in the event of delay on the part of the Contractor in providing other services as mentioned in the MTF i.e. labour, weighment machines, weights and any other services efficiently and to the satisfaction of the General Manager or any other officer acting on his behalf. The total liquidated damages could not exceed 15% of the value of the contract during the operation period of the contract. The total liquidated damages could not exceed 15% of the value of the contract during the operation period of the contract. The MTF also provided for summary termination of the contract under Clause-XI, in the event, the Contractor is adjudged insolvent and goes into liquidation or on account of winding up. It also enables the General Manager to terminate the contract in the event of any breach by the Contractor of any of the terms and conditions, without prejudice to other rights and remedies and get the work done for the unexpired period of the contract at the risk and cost of the Contractor and/or forfeit the security deposit or any part thereof for the sum or sums due for any damages, losses etc suffered by the Corporation due to his negligence or un-workman like performance. 9. The comparison of the different penalty clauses of the MTF with Clause-7, shows that debarment is contemplated only in circumstances where there is a failure to deposit the bank guarantee as stipulated in Clause 7(i)(b)&(c), within fifteen working days of acceptance of tender and further extension of 15 working days with penalty of 1% with another extension of 15 working days with penalty up to 2% of the whole amount of security deposit. The terms and conditions of the agreement have been consciously entered into between the parties who are supposed to abide by that. However, it is only for a default in furnishing Bank Guarantee in terms of clause under 7(iv) that a debarment from participating in any future tenders of the Corporation for a period of five years has been stipulated. The language of Clause 7(iv) leaves no scope of levying any other proportionate penalty of less than five years in cases where the default is of varying degree. For Example, if a successful tenderer had not at all deposited the bank guarantee, despite the acceptance of his tender, he could also be subjected to debarment for a period of five years. At the same time, a Contractor, who had duly deposited the entire amount within the extended period or even thereafter could also be subjected to debarment for a period of five years. At the same time, a Contractor, who had duly deposited the entire amount within the extended period or even thereafter could also be subjected to debarment for a period of five years. In case where a contractor, though submitted the entire security deposit but failed to do so in two prescribed formats, as given, under Appendix-IV & V, he also is to face debarment for a period of five years. Appendix-IV & V are part of the tender document at Annexure-1, page-72 and 74. The only difference between the two is in the heading, Appendix IV reads as “Proforma of Bank Guarantee of Security Money Deposit” and Appendix-V reads “Proforma of Bank Guarantee to be furnished along with Security Deposit as Performance Guarantee (where Tenderer does not have requisite experience as stipulated in the Tender).” 10. Be that as it may, this defect was pointed out after one year of the submission of the bank guarantee on 17.01.2014 by show cause dated 20.01.2015. The capacity of the tenderer to submit the security deposit in full was not in question rather it was a matter of different format or rectification of few more shortcomings in the language of the tender. The Corporation did not consider it necessary to require its correction any time earlier before the period of one year from its submission. The Corporation also took a ground that contradictory to the terms of the MTF under which the performance guarantee should have been up to six months after completion of the contractual period i.e. 20.05.2016, the validity period of the bank guarantee was only up to 15.01.016. However as is evident Clause (c) of the Revised Bank Guarantee dated 20.01.2014 clearly stated that Bank would be liable to pay the bank guarantee amount or any part thereof under it only if it was served upon them written claim or demand on or before 15.07.2016. 11. From the facts and circumstances noted above, it is apparent that the appellant- corporation seems to have taken an extreme position in the matter of compliance of the conditions of Clause-7 of the MTF and proceeded to debar the writ petitioner in future tenders of the Corporation for a period of five years. 11. From the facts and circumstances noted above, it is apparent that the appellant- corporation seems to have taken an extreme position in the matter of compliance of the conditions of Clause-7 of the MTF and proceeded to debar the writ petitioner in future tenders of the Corporation for a period of five years. During pendency of this appeal, a coordinate bench of this Court, by order dated 17.01.2017 clarified that such debarment would be restricted only for participating in the appellant-corporation and that the writ petitioner/respondent would be permitted to participate in the tender process floated by other Corporation/Institution/Public Sector Undertakings, if otherwise, found eligible. The appellant has through I.A. No. 1399 of 2018 sought modification of this order asserting that the writ petitioner has participated in a tender under the Bihar State Warehousing Corporation, where the food stock of the appellant-corporation is being stored. This, however, may not detain us any further while dealing with the main grounds of challenge. 12. The Apex Court in the case of Gorkha Security Services Vs. Government (NCT of Delhi) and Others, (2014) 9 SCC 105 considered and laid down the ingredients of a show cause notice, Para 21 and 22 of the report are quoted hereunder: “21. The central issue, however, pertains to the requirement of stating the action which is proposed to be taken. The fundamental purpose behind the serving of show cause notice is to make the noticee understand the precise case set up against him which he has to meet. This would require the statement of imputations detailing out the alleged breaches and defaults he has committed, so that he gets an opportunity to rebut the same. Another requirement, according to us, is the nature of action which is proposed to be taken for such a breach. That should also be stated so that the notice is able to point out that proposed action is not warranted in the given case, even if the defaults/breaches complained of are not satisfactorily explained. When it comes to blacklisting, this requirement becomes all the more imperative, having regard to the fact that it is harshest possible action. 22. The High Court has simply stated that the purpose of show cause notice is primarily to enable the notice to meet the grounds on which the action is proposed against him. No doubt, the High Court is justified to this extent. 22. The High Court has simply stated that the purpose of show cause notice is primarily to enable the notice to meet the grounds on which the action is proposed against him. No doubt, the High Court is justified to this extent. However, it is equally important to mention as to what would be the consequence if the notice does not satisfactorily meet the grounds on which an action is proposed. To put it otherwise, we are of the opinion that in order to fulfil the requirements of principles of natural justice, a show cause notice should meet the following two requirements viz. (i) The material/grounds to be stated which according to the department necessitates an action. (ii) Particular penalty/action which is proposed to be taken. It is this second requirement which the High Court has failed to omit. We may hasten to add that even if it is not specifically mentioned in the show cause notice but it can clearly and safely be discerned from the reading thereof, that would be sufficient to meet this requirement.” As held above, the particular penalty/action proposed to be taken should be so stated in the notice so that the noticee is able to point out that the proposed action is not warranted in the given case, even if the defaults/breaches complained of are not satisfactorily explained. When it comes to blacklisting, this requirement becomes all the more imperative, having regard to the fact that it is harshest possible action. 13. In the Case of Kulja Industries Limited Vs. Chief General Manager, Western Telecom Project, Bharat Sanchar Nigam Limited and Others, (2014) 14 SCC 731 , the Apex Court held that the power to blacklist is inherent in the party allotting the contract. Such blacklisting/debarment is not permanent but such period depends upon the nature of offence committed by the erring contractor. 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 inherent in the party 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. 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 untrammelled 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 precondition 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. The Apex Court, after noticing the legal position, governing the blacklisting of supplier in USA and UK and other jurisdictions at para 25 held as under: “25. Suffice it to say that “debarment” is recognized and often used as an effective method for disciplining deviant suppliers/contractors who may have committed acts of omission and commission or frauds including misrepresentations, falsification of records and other breaches of the regulations under which such contracts were allotted. What is notable is that the “debarment” is never permanent and the period of debarment would invariably depend upon the nature of the offence committed by the erring contractor.” 14. We have discussed above a variety situations where the default may be committed by a successful tenderer in furnishing the bank guarantee towards the security deposits. The appellant-corporation does not attribute any fraudulent act or falsification of records etc. against the writ petitioner. Facts of the case reveal that writ petitioner had deposited the entire amount, though in one format instead of two, in respect of which the appellant-corporation sought to remain silent for a period of one year till the show cause notice was issued. The penalty of debarment imposed upon the contractor/writ petitioner under Clause-7(iv) of the MTF, is for five years. The penalty of debarment imposed upon the contractor/writ petitioner under Clause-7(iv) of the MTF, is for five years. The appellant-corporation has, in such a way, not considered the nature of the offence committed by the erring contractor. The penalty should be reasonable, fair and proportionate to the gravity of the offence, which is subject to examination by a writ court as held, in the case of Kulja Industries (supra). We are, therefore, of the considered view that the order of debarment was disproportionate to the alleged misconduct. In the light of the principles laid by the Apex Court, the next question is whether this Court ought to itself determine the time period for which the appellant should be blacklisted or remit the matter back to the authority to do so having regard to the attendant facts and circumstances. Learned Single Judge has, for the reasons, indicated in the impugned order, however quashed the order of blacklisting without remanding the matter to the corporation to decide as to the quantum of penalty. The order of debarment has operated for a period of three and half years from the date of its issuance by now. In such circumstances, we are of the view that the impugned order passed by the learned Single Judge needs to be modified to the extent that the appellant-corporation may, if so considers necessary, take a fresh decision on the quantum of penalty to be imposed in accordance with the law having due regard to the nature and gravity of misconduct. We are, however, not inclined to interfere with the order of refund of earnest money as it would be unjust, in the facts and circumstances of the case and for the reasons recorded hereinabove. The order passed by the learned Single Judge is interfered only to the extent indicated herein above. 15. The instant appeal stands partially allowed. All the pending I.As are closed. Appeal allowed.