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2019 DIGILAW 1623 (ALL)

Virat Constructions v. State of U. P.

2019-07-08

BALA KRISHNA NARAYANA, PRAKASH PADIA

body2019
JUDGMENT : Prakash Padia J. 1. Heard Shri Shashi Nandan learned Senior Advocate assisted by Sri Udayan Nandan learned counsel for the petitioners and Ms. Archana Singh, learned Additional Chief Standing Counsel learned counsel for the respondents. 2. The petitioners have preferred the present writ petition writ challenging the order 31.5.2019 and consequential recovery certificate dated 1/4.6.2019 (Annexure Nos.4 and 5 to the writ petition respectively) passed by the District Magistrate, Shahjahanpur. 3. Facts in brief, as contained in the writ petition are that the petitioners were granted lease on 15th February, 2018 for a period of five years, i.e., from 15.2.2018 to 14.2.2023 at the rate of Rs.604/-per cubic meter for the first year with a stipulation of 10% increase in the said amount in each successive year during the currency of the lease. After the aforesaid lease was granted, the petitioners deposited a sum of Rs.1,64,95,995/-towards security as per the terms of the lease deed. A further amount of Rs.1,64,95,995/-was payable by the petitioners during the first year of the lease period in four equal installments. From the date of execution of the lease deed, the petitioners started excavating the minerals from the area forming part of the lease deed as per the terms and conditions of the lease deed dated 15.2.2018. 4. It is contended in the writ petition that respondent No.2 on a number of occasions orally directed the petitioners to stop the work of excavation without any rhyme and reason and as such, the petitioners were unable to pay certain installments on time as per the payment schedule of the lease deed, a show-cause notice dated 16.2.2019 was issued by the District Mining Officer/respondent No.3 to the petitioners levelling certain allegations to the effect that the petitioners are executing mining lease in contravention of the terms and conditions of the lease deed and Minor Mineral Concession Rules, 1963. A further allegation was made in the show-cause notice that the petitioners have failed to pay some amount with regard to the fourth installment of the first year and first installment of the second year, thus, an amount of Rs.2,46,41,590/-was liable to be paid by the petitioners. The petitioners submitted a reply vide reply dated 8.3.2019. 5. A further allegation was made in the show-cause notice that the petitioners have failed to pay some amount with regard to the fourth installment of the first year and first installment of the second year, thus, an amount of Rs.2,46,41,590/-was liable to be paid by the petitioners. The petitioners submitted a reply vide reply dated 8.3.2019. 5. It is further contended in paragraph 13 of the writ petition that on 16.4.2019, the petitioners addressed a communication to the respondent No.2 stating therein that the District Administration are completely non-co-operative and created various difficulties in running the excavation work by the petitioners. It is contended that without considering the reply submitted by the petitioners, respondent No.2 passed order dated 31.5.2019 cancelling the lease deed granted in favour of the petitioners and blacklisted the petitioners’ firm for a period of five years and the respondent No.2 has also directed for recovery of Rs.3,37,38,653.30/-along with 10% amount payable on royalty and 2% TDS along with 18% interest per year. 6. After the aforesaid order dated 31.5.2019 was passed, a consequential recovery certificate dated 1/4.6.2019 was also issued against the petitioners for recovery of amount of Rs.3,97,87,185/-along with 2% TDS and 10% mineral development charges. The total amount payable by the petitioners as per the recovery certificate is Rs.4,79,72,794.17/-. The petitioners have filed the present writ petition challenging the order of blacklisting dated 31.5.2019 as well as recovery certificated dated 1/4.6.2019 issued by the respondent No.2, copies of which are appended as Annexure Nos.4 and 5 to the writ petition respectively. 7. It is contended by Sri Shashi Nandan, learned Senior Counsel that order dated 31.05.2019 passed by respondent No.2 is wholly illegal and arbitrary and has been passed without providing any opportunity of hearing to the petitioners. It is further contended that a reply of the petitioners dated 8.3.2019 was not at all taken into consideration, while passing the order dated 31.5.2019. It is further contended that the District Level Committee under the chairmanship of Additional District Magistrate was formed by the order of the District Magistrate on 11.3.2019 and the said committee submitted its report on 24.4.2019. It is contended that the report submitted by the Committee dated 24.4.2019 has formed the basis of the impugned order passed by the respondent No.2. However, the petitioners have never been provided copy of the said report before passing the order impugned dated 31.5.2019. It is contended that the report submitted by the Committee dated 24.4.2019 has formed the basis of the impugned order passed by the respondent No.2. However, the petitioners have never been provided copy of the said report before passing the order impugned dated 31.5.2019. It is further contended that the petitioners are entitled to get a copy of the report submitted by the District Level Committee dated 24.4.2019 before passing the order impugned. It is further contended that since the copy of the aforesaid report was not provided to the petitioners which was heavily relied upon by respondent No.2 while passing the order impugned, therefore, the order impugned is liable to be set aside only on account of non-supplying of the said report. 8. Heard learned counsel for the parties. With the consent of learned counsel for the parties, the present writ petition is disposed of at the admission stage itself without calling a counter affidavit from the respondents. 9. From perusal of the facts which are not disputed by the learned Additional Chief Standing Counsel, it appears that before passing the order of blacklisting, no opportunity of hearing whatsoever has been provided to the petitioners. It is further not disputed that copy of the report submitted by District Level Committee dated 24.2.2019, which was relied upon by respondent No.2 while passing the order dated 31.5.2019, was never supplied to the petitioners. Although the order of blacklisting having serious civil consequences but in the present case before passing the same, no opportunity of hearing has been provided to the petitioners at any point of time. The law on the subject of blacklisting is well settled in light of numerous decisions of the Supreme Court on this subject. 10. In the case of Erusian Equipment & Chemicals Ltd. Vs. State of West Bengal (1975) 1 SCC 70 , it was held by the Supreme Court that blacklisting has the affect of preventing a person from the privilege and advantage of name into relationship with the Government for purpose of aim. It was held by the Supreme Court in the aforesaid case that the fundamentals of fair play require that a person concerned should be given an opportunity to represent his case. Paragraphs 12 and 20 of the said judgment is quoted below :- "12. It was held by the Supreme Court in the aforesaid case that the fundamentals of fair play require that a person concerned should be given an opportunity to represent his case. Paragraphs 12 and 20 of the said judgment is quoted below :- "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 to 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 Constitution. 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 blacklisting 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 blacklisting. A person who has been dealing with the 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. 20. Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist." 11. Further in the case of Gorkha Security Services Vs. Government of NCT of Delhi & Others (2014) 9 SCC 105 , the Supreme Court reiterated the principles laid down in the case of Erusian Equipment & Chemicals Ltd. v. State of W.B. (supra) and highlighted the necessity of giving an opportunity of hearing or show-cause before blacklisting him. Further in the case of Gorkha Security Services Vs. Government of NCT of Delhi & Others (2014) 9 SCC 105 , the Supreme Court reiterated the principles laid down in the case of Erusian Equipment & Chemicals Ltd. v. State of W.B. (supra) and highlighted the necessity of giving an opportunity of hearing or show-cause before blacklisting him. Paragraph 17 of the aforesaid judgment is quoted below:- 17. Way back in the year 1975, this Court in Erusian Equipment & Chemicals Ltd. v. State of W.B. [Erusian Equipment & Chemicals Ltd. v. State of W.B., (1975) 1 SCC 70 ], highlighted the necessity of giving an opportunity to such a person by serving a show-cause notice thereby giving him opportunity to meet the allegations which were in the mind of the authority contemplating blacklisting of such a person.” 12. Again in the case of Raghunath Thakur Vs. State of Bihar [(1989) 1 SCC 229] the aforesaid principles was reiterated in the following manner: (SCC p. 230, para 4). "4. ........ 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 insofar as it directs blacklisting of the appellant in respect of future contracts, cannot be sustained in law.........." 20. Thus, there is no dispute about the requirement of serving show-cause notice. We may also hasten to add that once the show-cause notice is given and opportunity to reply to the show-cause notice is afforded, it is not even necessary to give an oral hearing. The High Court has rightly repudiated the appellant's attempt in finding foul with the impugned order on this ground. Such a contention was specifically repelled in Patel Engg. [Patel Engg. Ltd. v. Union of India, (2012) 11 SCC 257 : (2013) 1 SCC (Civ) 445]." 13. In the case of M/s Mahabir Auto Stores & Ors. Vs. The High Court has rightly repudiated the appellant's attempt in finding foul with the impugned order on this ground. Such a contention was specifically repelled in Patel Engg. [Patel Engg. Ltd. v. Union of India, (2012) 11 SCC 257 : (2013) 1 SCC (Civ) 445]." 13. In the case of M/s Mahabir Auto Stores & Ors. Vs. Indian Oil Corporation Ltd. (1990) 3 SCC 752 it was held by the Supreme Court that arbitrariness and discrimination in every matter is subject to judicial review. Paragraph 11 of the aforesaid judgment is quoted below :- “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, 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 M/s Radha Krishna Agarwal & Ors. v. State of Bihar & Ors., [1977] 3 SCC 457.1t appears to us, at the outset, that in the facts and circumstances of the case, the respondent-company IOC is an organ of the State or an instrumentality of the State as contemplated under Article 12 of the Constitution. The State acts in its executive power under Article 298 of the Constitution in entering or not entering in contracts with individual par- ties. Article 14 of the Constitution would be applicable to those exercises of power. Therefore, the action of State organ under Article 14 can be checked. M/s Radha Krishna Agarwal v. State of Bihar, (supra) at p. 462, but Article 14 of the Constitution cannot and has not been construed as a charter for judicial review of State action after the contract has been entered into, to call upon the State to account for its actions in its manifold activities by stating reasons for such actions. In a situation of this nature certain activities of the respondent company which constituted State under Article 12 of the Constitution may be in certain circumstances subject to Article 14 of the Constitution in entering or not entering into contracts and must be reasonable and taken only upon lawful and relevant consideration, it depends upon facts and circumstances of a particular transaction whether heating is necessary and reasons have to be stated. 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 (1975) 1 SCC 70 . 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 semi-monopoly dealings, it should meet the test of Article 14 of the Constitution. If a Governmental action even in the matters of entering or not entering into contracts, fails to satisfy the test of reasonableness, the same would be unrea- sonable. In this connection reference may be made to E.P. Royappa v. State of Tamil Nadu & Anr., [1974] 4 SCC 3; Maneka Gandhi v. Union of India & Anr., [1976] 1 SCC 248; Ajay Hasia & Ors. v. Khalid Mujib Sehravardi & Ors., [1981] 1 SCC 722; R.D. Shetry v. International Airport Authority of India & Ors., [1979] 3 SCC 1 and also Dwarkadas Marlaria and sons v. Board of Trustees of the Port of Bombay, [1989] 3 SCC 293. 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.” 14. From perusal of the aforesaid legal preposition, which itself is a reiteration of the principles laid down by the Supreme Court in Erusian Equipment & Chemicals Ltd. v. State of W.B. (supra), we are of the view that the petitioner could not have been blacklisted without being afforded an opportunity of hearing. From perusal of the aforesaid legal preposition, which itself is a reiteration of the principles laid down by the Supreme Court in Erusian Equipment & Chemicals Ltd. v. State of W.B. (supra), we are of the view that the petitioner could not have been blacklisted without being afforded an opportunity of hearing. It cannot be disputed that an order of blacklisting does carry serious civil consequences. It therefore follows as a necessary corollary that an adherence to the fundamental precepts of natural justice is essential and a prerequisite. 15. Since in the facts of the present case, there is a complete failure to follow due process, we find ourselves unable to sustain the order dated 31.05.2019 and the recovery certificate dated 1/4.6.2019 passed by the respondent No.2 (Annexure No.4 and 5 to the writ petition respectively) 16. We accordingly allow the writ petition and quash the order dated 31.05.2019 and the recovery certificate dated 1/4.6.2019. We further clarify that in case the respondents do choose to initiate fresh proceedings for blacklisting the firm of the petitioner, we leave it open to them to do so subject to the observation that the proceedings if initiated shall be undertaken in accordance with law and the observations appearing herein above.