Research › Search › Judgment

Kerala High Court · body

2023 DIGILAW 78 (KER)

Roy Construction Co. v. Union of India

2023-01-23

SHAJI P.CHALY

body2023
JUDGMENT : This writ petition is filed by a contractor engaged in civil contracts seeking to quash Exhibits P15 and P15(a) workload reports dated 05.10.2021 and 21.01.2021 respectively, whereby the list of working contractors of Southern Naval Command considered not capable of handling more load, is provided by including the petitioner firm also, showing that ‘the work under arbitration’, and to permit the petitioner to participate in tender proceedings of the respondent Military Engineering Services Department. 2. A further writ of mandamus was also sought for directing the respondents to take all necessary steps to permit the petitioner to participate in the tender for works with Military Engineering Services Department and award the work unimpaired by Exhibits P15 and P15(a) workload reports, if the petitioner is otherwise qualified. 3. Shorn of unnecessary details, the basic facts required for the disposal of the writ petition are as follows: The petitioner firm was awarded work under Exhibit P1 work order dated 13.07.2011 with respect to the repairs of Southern Naval Command Officers’ mess at Naval Base, Kochi and to provide all materials and labour for the full and entire completion of works. According to the petitioner, the work was prolonged solely due to the inability of the respondents to fulfil their obligations under the contract, such as handing over of the site, which was considerably delayed for a period of three years dividing the site into 30 stretches; the delay in issuing of approvals/decisions; gross short certification of payments; non-recording of proper measurements and so on, which are evident from Exhibit P6 internal correspondence dated 08.10.2014 issued by the third respondent. Resultantly, the petitioner raised claims on account of the cost of work done, unlawfully withheld amounts and escalation during the prolonged period and consequent to which a retired Judge of this Court was appointed as Arbitrator, who, in turn, appointed a technical expert for taking stock of actual work done. 4. In fact, some of the claims raised by the petitioner were allowed. Even though counter claims were raised by the Chief Engineer, Southern Command, they were declined. Anyhow, the challenge made by both the parties against the award passed by the Arbitrator is pending consideration in appeal. 4. In fact, some of the claims raised by the petitioner were allowed. Even though counter claims were raised by the Chief Engineer, Southern Command, they were declined. Anyhow, the challenge made by both the parties against the award passed by the Arbitrator is pending consideration in appeal. Now, the grievance highlighted by the petitioner is that merely because claims were raised by the petitioner against the respondents and arbitration proceedings were initiated, as a counter blast, the petitioner was not permitted to participate in the contracts invited by the respondents assigning the reason that “work under arbitration’. 5. The paramount contention raised by the petitioner is that the action of the respondents amounts to blacklisting of the petitioner without issuing any notice. It is the further case of the petitioner that the Manual of the respondents, relevant portion of which is produced as Exhibit P12, provides the manner in which a contractor is to be dealt with in the event of any latches or delay emerging from the contractor’s site. The learned counsel has invited my attention to Section 33.2(vii) dealing with show cause notices, which specifies that ‘show cause notices for proposed adverse remarks in workload returns shall be served by the Accepting Officer of Contracts latest by 10th of the last month of the quarter and copy of the same along with reply of Contractors shall be enclosed with WLR by GE/CWE, while forwarding report to CE Zone, and by CE Zone to CE Command’. 6. Therefore, it is contended that the entire action of the respondents are illegal and arbitrary liable to be interfered with and the petitioner may be permitted to participate in the contracts invited by the respondents. It is also the case of the petitioner that he participated in the subsequent contracts and carried out two works for the respondents, which were completed in January, 2016 and December, 2017 without any fine. However, at a later point of time, the workload reports were being issued and the petitioner was precluded from participating in the tenders. Therefore, according to the petitioner, the action of the respondents has no legal foundation and liable to be interfered with. 7. Respondents 1 to 4 have filed a detailed counter affidavit justifying their stand. However, at a later point of time, the workload reports were being issued and the petitioner was precluded from participating in the tenders. Therefore, according to the petitioner, the action of the respondents has no legal foundation and liable to be interfered with. 7. Respondents 1 to 4 have filed a detailed counter affidavit justifying their stand. Among other contentions, it is stated that a long list of defects on work executed by the petitioner was notified to them; but, the same were not rectified by the petitioner and some of those were got done through another contractor, for which the Government had preferred a counter claim before the Arbitrator. (The counter affidavit was filed at a time when the arbitration proceedings were pending before the Arbitrator.) 8. It is also pointed out that since the work undertaken by the petitioner was under arbitration at that point of time, in the workload report, it is shown as ‘work under arbitration’. It is further pointed out that the work has not been certified complete by the Department and hence, based on the recommendation of the lower formations, Chief Engineer, Southern Command, Pune, they have endorsed adverse remarks in workload report, so that the petitioner was not awarded further contracts before he completes the work in question. It is also the case of the respondents that Exhibit R1(k) show cause notice dated 23.04.2012 was issued to the petitioner, since he failed to complete the work in question. 9. A reply affidavit is filed by the petitioner and has produced various documents, including the workload reports for the subsequent periods, the award passed by the arbitrator etc. Anyhow, it is quite clear and evident that subsequent to the filing of the writ petition, the petitioner was permitted to participate in the contracts, as is evident from Exhibits P24 and P25 certificates of renewal of the enlistment of the petitioner dated 18.12.2015 and 17.12.2021 respectively and Ext.P26 approved list of contractors of CESC as on 28.05.2022. However, according to the learned counsel for the petitioner, still the tender documents are not issued to the petitioner. 10. I have heard the learned counsel for the petitioner Sri.Rahul Varghese and the learned Central Government Counsel Sri.M.N. Manmadhan, and perused the pleadings and material on record. 11. However, according to the learned counsel for the petitioner, still the tender documents are not issued to the petitioner. 10. I have heard the learned counsel for the petitioner Sri.Rahul Varghese and the learned Central Government Counsel Sri.M.N. Manmadhan, and perused the pleadings and material on record. 11. The deliberation of facts made above would make it clear that the prime contention advanced by the petitioner is that by preventing the petitioner from participating in the contracts, the respondents have virtually blacklisted the petitioner without issuing any show cause notice. In order to demonstrate the said action of the respondents is bad, the learned counsel has relied upon the judgments of the Apex Court in UMC Technologies Private Limited v. Food Corporation of India and another [ (2021) 2 SCC 551 ] and Vetindia Pharmaceuticals Limited v. State of Uttar Pradesh and another [ (2021) 1 SCC 804 ]. The relevant portion of UMC Technologies Private Limited (supra) is extracted hereunder: 13. At the outset, it must be noted that it is the first principle of civilised jurisprudence that a person against whom any action is sought to be taken or whose right or interests are being affected should be given a reasonable opportunity to defend himself. The basic principle of natural justice is that before adjudication starts, the authority concerned should give to the affected party a notice of the case against him so that he can defend himself. Such notice should be adequate and the grounds necessitating action and the penalty/action proposed should be mentioned specifically and unambiguously. An order travelling beyond the bounds of notice is impermissible and without jurisdiction to that extent. This Court in Nasir Ahmadv. CustodianGeneral,EvacueeProperty, (1980) 3 SCC 1 , has held that it is essential for the notice to specify the particular grounds on the basis of which an action is proposed to be taken so as to enable the noticee to answer the case against him. If these conditions are not satisfied, the person cannot be said to have been granted any reasonable opportunity of being heard. 14. Specifically, in the context of blacklisting of a person or an entity by the State or a State Corporation, the requirement of a valid, particularised and unambiguous show-cause notice is particularly crucial due to the severe consequences of blacklisting and the stigmatisation that accrues to the person/entity being blacklisted. 14. Specifically, in the context of blacklisting of a person or an entity by the State or a State Corporation, the requirement of a valid, particularised and unambiguous show-cause notice is particularly crucial due to the severe consequences of blacklisting and the stigmatisation that accrues to the person/entity being blacklisted. Here, it may be gainful to describe the concept of blacklisting and the graveness of the consequences occasioned by it. Blacklisting has the effect of denying a person or an entity the privileged opportunity of entering into government contracts. This privilege arises because it is the State who is the counterparty in government contracts and as such, every eligible person is to be afforded an equal opportunity to participate in such contracts, without arbitrariness and discrimination. Not only does blacklisting take away this privilege, it also tarnishes the blacklisted person's reputation and brings the person's character into question. Blacklisting also has long-lasting civil consequences for the future business prospects of the blacklisted person.” 12. In Vetindia Pharmaceuticals Limited (supra), it was held as follows by the Apex Court: 11. If the respondents had expressed their mind in the show-cause notice to blacklist, the appellant could have filed an appropriate response to the same. The insistence of the respondents to support the impugned order [Vetindia Pharmaceuticals Ltd. v. State of U.P., 2019 SCC OnLine All 6734] by reference to the terms of the tender cannot cure the illegality in the absence of the appellant being a successful tenderer and supplier. We therefore hold that the order of blacklisting dated 8-9-2009 stands vitiated from the very inception on more than one ground and merits interference. 12. In view of the aforesaid conclusion, there may have been no need to go into the question of the duration of the blacklisting, but for the arguments addressed before us. An order of blacklisting operates to the prejudice of a commercial person not only in praesentibut also puts a taint which attaches far beyond and may well spell the death knell of the organisation/institution for all times to come described as a civil death. The repercussions on the appellant were clearly spelt out by it in the representations as also in the writ petition, including the consequences under the Rajasthan tender, where it stood debarred expressly because of the present impugned order. The repercussions on the appellant were clearly spelt out by it in the representations as also in the writ petition, including the consequences under the Rajasthan tender, where it stood debarred expressly because of the present impugned order. The possibility always remains that if a proper show-cause notice had been given and the reply furnished would have been considered in accordance with law, even if the respondents decided to blacklist the appellant, entirely different considerations may have prevailed in their minds especially with regard to the duration. 13. This Court in Kulja Industries Ltd. v. Western Telecom Project BSNL, (2014) 14 SCC 731 , despite declining to interfere with an order of blacklisting, but noticing that an order of permanent debarment was unjustified, observed : (SCC p. 744, para 28) “28.2. Secondly, because while determining the period for which the blacklisting should be effective the respondent Corporation may for the sake of objectivity and transparency formulate broad guidelines to be followed in such cases. Different periods of debarment depending upon the gravity of the offences, violations and breaches may be prescribed by such guidelines. While it may not be possible to exhaustively enumerate all types of offences and acts of misdemeanour, or violations of contractual obligations by a contractor, the respondent Corporation may do so as far as possible to reduce if not totally eliminate arbitrariness in the exercise of the power vested in it and inspire confidence in the fairness of the order which the competent authority may pass against a defaulting contractor.” 14. Since the order of blacklisting has been found to be unsustainable by us, and considering the long passage of time, we are not inclined to remand the matter to the authorities. In Daffodills Pharmaceuticals Ltd. v. State of U.P., (2020) 18 SCC 550 : 2019 SCC OnLine SC 1607, relied upon by the appellant, this Court has observed that an order of blacklisting beyond 3 years or maximum of 5 years was disproportionate. 15. That brings us to the question of delay. There is no doubt that the High Court in its discretionary jurisdiction may decline to exercise the discretionary writ jurisdiction on the ground of delay in approaching the court. 15. That brings us to the question of delay. There is no doubt that the High Court in its discretionary jurisdiction may decline to exercise the discretionary writ jurisdiction on the ground of delay in approaching the court. But it is only a rule of discretion by exercise of self-restraint evolved by the court in exercise of the discretionary equitable jurisdiction and not a mandatory requirement that every delayed petition must be dismissed on the ground of delay. The Limitation Act strictosensu does not apply to the writ jurisdiction. The discretion vested in the court under Article 226 of the Constitution therefore has to be a judicious exercise of the discretion after considering all pros and cons of the matter, including the nature of the dispute, the explanation for the delay, whether any third-party rights have intervened, etc. The jurisdiction under Article 226 being equitable in nature, questions of proportionality in considering whether the impugned order merits interference or not in exercise of the discretionary jurisdiction will also arise. This Court in Basanti Prasad v. Bihar School Examination Board, (2009) 6 SCC 791 : (2009) 2 SCC (L&S) 252, after referring to Moon Mills Ltd. v. M.R. Meher, AIR 1967 SC 1450 , Maharashtra SRTC v. Balwant Regular Motor Service, (1969) 1 SCR 808 : AIR 1969 SC 329 ] and State of M.P. v. Nandlal Jaiswal [State of M.P. v. Nandlal Jaiswal, (1986) 4 SCC 566 ], held that if the delay is properly explained and no third-party rights are being affected, the writ court under Article 226 of the Constitution may condone the delay, holding as follows : Basanti Prasad v. Bihar School Examination Board, (2009) 6 SCC 791 : (2009) 2 SCC (L&S) 252 , SCC p. 796, para 18) 13. However, the basic contention advanced by the respondents is that the contract work pertaining to Exhibit P1 was not completed by the petitioner. It is also pointed out that the petitioner has raised a claim of more than Rs.8 crores before the Arbitrator under various heads; but, the Arbitrator has allowed the claims raised by the petitioner only in part, and later released only an amount of Rs.99,14,208/-. It is also pointed out that the petitioner has raised a claim of more than Rs.8 crores before the Arbitrator under various heads; but, the Arbitrator has allowed the claims raised by the petitioner only in part, and later released only an amount of Rs.99,14,208/-. Therefore, it is contended that since there was laches and delay on the part of the petitioner in completing the work, the respondents were justified in submitting their workload reports during every quarter, during which the arbitration proceedings were pending. 14. I have evaluated the rival submissions made across the Bar. In my considered opinion, from the facts and circumstances pointed out by the respondents itself, it is clear that no proper show cause notice was issued to the petitioner before preventing him from participating in the contracts by submitting the periodical workload reports. It is, in fact, creating a stigma on the contractor from participating in the tenders invited by the respondents. It also causes an adverse reputation to the petitioner contractor. When the State is endowed with the power and authority to enter into contracts, it has a duty tempered with a legal obligation to conduct itself in a commercial transaction in accordance with the mandates under the Constitution. 15. It is true, the State is at liberty to enter into contracts with persons of its choice; but, when it decides to eliminate a person from entering into contracts, it has the duty to adhere to the basic principles of law, including the principles of natural justice, stemming from Article 14 of the Constitution of India. This I say because, blacklisting has serious repercussions even beyond comprehension. The Black's Law Dictionary, 9th Edition defines the said terminology as "to put a person on a list of those who are to be boycotted or punished". In my considered view such an action would be nothing but declining an equal treatment to the aggrieved. 16. It is a well rooted principle in law that no one shall be condemned unheard. This is more when Article 14 of the Constitution of India casts a duty on the State not to deny any person equality before the law or the equal protection of the laws within the territory of India. That said, Article 16 of the Constitution further guarantees that there shall be equal opportunities for all citizens. This is more when Article 14 of the Constitution of India casts a duty on the State not to deny any person equality before the law or the equal protection of the laws within the territory of India. That said, Article 16 of the Constitution further guarantees that there shall be equal opportunities for all citizens. In sum and substance, a blacklisting done flouting the above principles enshrined in the Constitution of India would be nothing but an absolute arbitrary action. That apart, every person affected by an action of the State is entitled, as of right, to litigate the issues in a manner recognized by law, and merely because such a course of action was adopted by an aggrieved, it cannot be treated as a basis for treating him differently and arbitrarily. 17. Going by the provisions of the Manual discussed above and the well settled proposition of law laid down by the Apex Court in the matter of blacklisting, it is evident that the petitioner is not liable to be prevented from participating in the contracts without issuing a show cause notice, securing a reply from and adjudicating the issues, after providing sufficient opportunity of participation. 18. In this case, it is clear that the petitioner was awarded with the works subsequently and the amounts awarded by the Arbitrator was paid partly during the pendency of the writ petition. Merely because the claims were raised by the petitioner against the respondents and merely because the Arbitrator declined some of the claims, that is not an enabling circumstance for the respondents to preclude the petitioner from participating in the contracts. 19. In my considered view, the action of the respondents amounts to blacklisting of the petitioner without providing sufficient notice, since the petitioner has submitted that even now, in many of the contracts invited, tender documents are not issued to the petitioner. Considering the facts circumstances and the law , I am of the view that the action initiated against the petitioner by issuing the workload reports on the ground that ‘work under arbitration’, cannot be sustained under law, since it is a clear inroad and interference with the rights and liberty provided under Part III of the Constitution of India. Considering the facts circumstances and the law , I am of the view that the action initiated against the petitioner by issuing the workload reports on the ground that ‘work under arbitration’, cannot be sustained under law, since it is a clear inroad and interference with the rights and liberty provided under Part III of the Constitution of India. If the respondents have a case that the work under Exhibit P1 contract was not completed by the petitioner, they are at liberty to issue notice to the petitioner and conduct a joint measurement of the work done by the petitioner. 20. Anyhow, the respondents have no case that such a course of action was undertaken by the respondents so as to prevent the petitioner from participating in the tenders invited by the respondents. Therefore, the writ petition is allowed and there will be a direction to the respondents to permit the petitioner to participate in the tenders invited by the respondents and consider the bid documents submitted by the petitioner as per the terms and conditions of the Notice Inviting Tender and in accordance with law. Since the period in the workload reports produced by the petitioner is already over, there is no requirement to quash the same. However, I make it clear that the earlier workload reports should not stand in the way of the respondents to issue bid documents to the petitioner.