Remanded

M/S M R Enterprises, Thru. Proprietor Nausheen Ara Zakir Khan v. Union of India Thru. Secy., Ministry of Railways, New Delhi and Others

Allahabad HC25 Sept 2024WRIC/7069/2024

Case brief

AI extract

What is this about?

Court examined Railways' cancellation of a signed contract after an e-auction. Bench analyzed termination clauses citing Supreme Court precedents opposing cancellation due to potential revenue loss. Court mandated impleadment of competing bidder and restrained Railways from proceeding with the cancellation until detailed counters were filed.

What did the court decide?

Respondents restrained from proceeding with contract award; detailed counter-affidavit required; impleadment of M/s Vikas Constructions ordered; earnest money refund directed.

M/S M R Enterprises, Thru. Proprietor Nausheen Ara… — Company and Corporate | Allahabad HC (2024)

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Court No. - 3

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Case :- WRIT - C No. - 7069 of 2024

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Petitioner :- M/S M R Enterprises, Thru. Proprietor Nausheen Ara Zakir Khan Respondent :- Union Of India Thru. Secy., Ministry Of Railways, New Delhi And Others Counsel for Petitioner :- Sudha Pal,Praveen Tripathi Counsel for Respondent :- A.S.G.I.

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Hon'ble Mrs. Sangeeta Chandra,J. Hon'ble Brij Raj Singh,J.

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Order on Petition

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1. This Writ Petition was filed on 13.08.2024 after serving notice to the office of the ASGI on 12.08.2024. When the writ petition was filed it is presumed that notice of the same may also have been sent to the Respondents including the Opposite party no.3. It was taken up as fresh on 20.08.2024, the counsel for the Respondents was not present in the first call, and the matter was taken up in the revised call.

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2. The Court noted the arguments raised by the counsel for the petitioner that E-Auction was already held amongst various Bidders and a Contract was signed between the petitioner and the Respondents on 22.07.2024 but the Contract was cancelled and fresh Tender Notices were issued. The Court noticed the copy of the Contract signed between the parties being filed as Annexure-3 to the petition and directed the counsel for the petitioner to serve a copy of the petition in the office of the Respondent nos.2 and 3 on that very day and also directed the Respondent nos.2 and 3 to send an appropriate Counsel/Officer to assist the Court on their behalf on the next date . The matter had directed to be listed on 22.08.2024. The Counsel for the petitioner had expressed an urgency in the matter and therefore, the matter was listed after two days on 22.08.2024. When the matter was listed on 22.08.2024, it could not be taken up on merits and thereafter it could also not be taken up on three dates on which it was listed that is on 29.08.2024, 04.09.2024 and 11.09.2024. Only a direction for listing of the matter was passed in a routine manner. When the matter was taken up on 21.09.2024, the counsel for the petitioner pointed out the order passed on 20.08.2024 and also informed this Court that he has already served

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copy of the writ petition in the office of the Respondent nos.2 and 3. The Court noted that no counsel had appeared on behalf of the Respondents to assist the Court and therefore, directed the Senior Divisional Commercial Manager to appear in person on 25.09.2024 to assist the Court and the Registry was directed to communicate the order to the Senior Divisional Commercial Manager, the Opposite party no.3.

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3. When the matter was taken up today, the learned DSG assisted by Ms. Akansha Dubey, has appeared and has pointed out that the Contract has been awarded to one M/s Vikas Construction on 23.08.2024 in pursuance of the Notice dated 06.08.2024 and the petitioner has not impleaded M/s Vikas Construction as a Respondent in this writ petition and that the petitioner has remedy of filing an Appeal against an order cancelling the Contract and that the petitioner has not filed a complete copy of the Contract signed between the parties. It has also been stated that a remedy of Arbitration is also available to the petitioner.

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4. It is not understood as to how an argument has been raised that the writ petition be dismissed for non-joinder of necessary party, when the copy of the petition was served in the office of the Central Government counsel on 12.08.2024, no auction had been conducted in pursuance of the impugned Notice dated 06.08.2024. On the first day, when the case was taken up on 20.08.2024 the respondents chose not to remain present and the Court presumes that this was only to enable them to carry on with the proposed holding of E-Auction. The E-Auction was held. The matter could not be taken up on several dates which were fixed and when it was eventually taken up on 21.09.2024, the Respondents chose not to appear.

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5. This Court can only draw an adverse inference regarding absence of the counsel for the Respondents deliberately on the two dates when it was taken up on merit to allow the Respondents to go ahead with the Auction that was proposed to be held on 23.08.2024.

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6. It has been informed to this Court that the Agreement that was signed between the parties had given a right to the Railways to terminate the Contract at any time. A copy of the Agreement has been produced and the relevant clauses have been read out by the learned DSG. The counsel for the Respondents has placed reliance upon the Exit Clause-17.2 where it has been stated that the

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Railways shall have the right to terminate the Contract/ Agreement without any financial repercussions on either side, for any reason whatsoever after serving one month's notice to the Contractor. It has also been stated that the Railways also reserves the right to terminate the Contract with immediate effect, without any financial repercussions on either side, in case of operational exigencies or in cases where the asset for which the Contract was awarded, is not available for commercial exploitation due to some other development or change in site or for any for other reason. Full Earnest Money Deposit and Security Money deposits and lump-sump Freight/ Rent /License fee paid by the Contractor shall be refunded to the Contractor without any interest.

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7. It is evident from a perusal of the language of Clause 17.2 that immediate termination of contract is permissible, but only in cases of "operational exigencies", or in cases where the "asset for which the contract was awarded is not available for commercial exploitation due to some other development or change in site" or any other reasons. The phrase "or any other reason" shall be read ejusdem generis and the arguments raised by the learned D.S.G.I. is to the effect that there was a technical break down of the site where the E-auction bids were to be accepted has been reported to be the reason for termination of Contract.

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8. The counsel for the Respondents has placed reliance upon the report submitted by CRIS with regard to technical unavailability of the site w.e.f. 10:30 AM upto 11:32 AM on 22.06.2024 when the fault was corrected. This report is dated 22.07.2024. The counsel for the petitioner has argued that the Web Page crashed only for 1 hour and even before the petitioner placed his bid at least forty other bids had already been uploaded.

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9. The counsel for the petitioner has placed reliance upon judgement rendered by the Hon'ble Supreme Court in the case of Subodh Kumar Singh Rathour Vs. The Chief Executive Officer and Others reported in MANU/SC/0585/2024 decided on 09.07.2024; where the Supreme Court in almost similar circumstances has made certain observations in Paragraph-112. The Supreme Court noted that the Respondent therein had floated a Tender Notice inviting bids for maintenance of two underpasses and its abutting area against a License Fee and Advertisement Rights over designated sites at each underpass. The Tender process was undertaken and the

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appellant submitted his bid with quotation. Out of the total bids received, the appellant's quotation was found to be the highest and he was issued two Letter of Intents in his favour, accepting his quotation and declaring his firm as successful bidder for the tender, and a formal memorandum of tender for work was executed and issued to the appellant. Upon completion of all formalities, the Work orders were issued by the Executive Engineer, in pursuant to which the appellant commenced his work in terms of the Contract. The bypasses on which maintenance work was to be done were directed to be handed over to the appellant with immediate effect. However, one notice was also issued to the appellant stating that the tender for work of maintenance had been cancelled on account of technical fault in the tender.

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Aggrieved by the aforesaid, the appellant preferred a writ petition before the High Court assailing the respondents notice cancelling the tender and the said writ petition was rejected by the Single Judge, who observed that the decision to cancel the tender had been taken on account of Administrative exigencies and due to change in policy and that the cancellation of tender was not borne out of any ulterior motives on the part of the Respondent. Aggrieved by such order of the Single Judge, the appellant went in Appeal before the Division Bench. The Division Bench found no fault in the decision of the Single Judge and dismissed the Appeal. The appellant thereafter filed Special Leave Petition which was admitted and converted into a Civil Appeal. The Court observed in Paragraph-112 of the judgement as follows:-

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" 112. Even assuming for a moment that there was a technical fault in the tender, which if rectified had the possibility of generating more revenue, the same by no stretch could be said to be a cogent reason for cancelling an already existing tender. In this regard reference may be made to the decision of this Court in Vice Chariman & Managing Director, City & Industrial Development Corporation of Maharashtra Ltd. and Anr. v. Shishir Realty Pvt. Ltd. and Ors. reported in MANU/SC/1161/2021, 2021:INSC:797; wherein it was held that mere possibility of more money in public coffers does not in itself serve 'public interest'. A blanket claim by the State claiming loss of public money cannot be used to forgo contractual obligations, especially when it is not based on any evidence or examination as the larger interest of upholding contracts is also in the play.

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The relevant observations read as under:

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58. When a contract is being evaluated, the mere possibility of more money in the public coffers, does not in itself serve public interest. A blanket claim by the State claiming loss of public money cannot be used to forgo contractual obligations, especially when it is not based on any evidence or examination. The larger public interest of upholding contracts and the fairness of public authorities is also in play. Courts need to have a broader understanding of public interest while reviewing such contracts."

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10. The respondent's stance of a mere possibility of fetching higher license fee was held to be no ground to cancel the Tender already issued to the appellant. The counsel for the respondent has pointed out that the petitioner had quoted Rs.16 Lacs, but later on, the amount that has been quoted in pursuance of the impugned Tender Notice by M/s Vikas Constructions is more than Rs.50 Lacs. This Court feels it appropriate to refer to the observations made in Paragraph-112 of the judgement rendered by the Hon'ble Supreme Court which we have quoted herein above.

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11. The counsel for the respondents has also referred to Clause-18 of the Terms of the Contract where it has been stated that the Railway shall reserve the right to terminate the Contract as a punitive measure without any notice at any time in case of violation of any of the terms and conditions of the Contract or due to any other serious misconduct (including but not limited to violation of Railway Act, 1989, commissioning of an unlawful act which is not in-line with good industry practices, or an activity of moral turpitude) by the lease holder, forfeiting full Earnest Money Deposit/ Security Deposit Amount.

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12. It is not the case of the Railways that termination of contract has taken place as a punitive measure, therefore, the Clause-18 relied upon by the counsel for the respondent is inapplicable.

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13. Learned counsel for the Respondent has also referred to Clause-22 which relates to dispute resolution and arbitration where such Resolution and Arbitration will be as per the provisions of Indian Railways Standard 'General Conditions of Contract' for Works Contractsissued by the Engineering Department in April, 2022.

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14. The counsel for the respondents has also referred to Clause-23 which says that the Railway reserves the right to cancel the E-auction and/or reject all the bids at any stage without citing any reason, before the issue of bidsheet. However, this Clause-23 is also inapplicable in the case of the petitioner as the bid-sheet was issued, the E- auction was carried out and a Contract was signed between the parties.

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15. It appears that the respondents have not taken care to note Clause-17.2 which mentions that in case the Railways want to cancel a Contract it shall have to give one month's notice to the Contractor and also returned the earnest money deposit and the security deposit. No effort of Return/ Refund of earnest money deposit or security deposit or license fee paid by the Contractor has been made by the Railways while cancelling the contract unilaterally, no opportunity of hearing has also been given at any stage of the decision making process to the petitioner.

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16. At this stage,the counsel for the respondent has pointed out on the basis of instructions that the process of return of earnest money deposit and security deposit and license fee has been initiated.

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17. We find prima facie that the matter requires consideration.

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18. Let detailed counter affidavit containing parawise reply to the writ petition be filed by the Respondents within three weeks. The petitioner shall implead M/s Vikas Constructions whose details shall be provided by the Office of the learned D.S.G. to the petitioner by moving an appropriate impleadment application and notice to the newly impleaded proposed Respondent no. 5 is issued, dasti as well.

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19. The petitioner shall serve and file an affidavit of service within three weeks.

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20. List this case on 23.10.2024 within top ten cases of the Board.

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21. Till the next date of listing, the Respondents shall not proceed in any manner in pursuance of Award of Contract dated 23.08.2024.

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(C.M. APPLICATION NO.IA/3/2024- Application for

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Exemption of personal appearance of Opposite party no.3)

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1. An application for exemption has been filed on behalf of the Opposite party no.3- Senior Divisional Commercial Manager, Northern Railways, Lucknow, by Ms. Akansha Dubey, counsel for the Respondents. In the affidavit filed in support of the such application, it has been stated that due to an inadvertent error, the case was omitted to be marked in the cause list by the Clerk of the counsel who was nominated for the said case and he was unable to attend the case on behalf of the Central Government when it was called out. The Deponent of the affidavit, the Senior Divisional Commercial Manager, has tendered his apology for such error on the part of the Clerk of the counsel concerned.

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2. We are satisfied with the reasons mentioned in the affidavit filed in support of the Exemption application. Our only concern with regard to the non-assistance even after service of notice has been met as now the Senior Divisional Manager is being represented by Ms. Akansha Dubey assisting the learned DSG Shri Surya Bhan Pandey, learned Senior Advocate.

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3. We are satisfied with the explanation and we exempt the Opposite party no.3 from personal appearance till further orders of this Court.

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Order Date :- 25.9.2024 N.PAL

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Digitally signed by :- NARESH PAL High Court of Judicature at Allahabad, Lucknow Bench

M/S M R Enterprises, Thru. Proprietor Nausheen Ara Zakir Khan v. Union of India Thru. Secy., Ministry of Railways, New Delhi and Others

Case brief

What is this about?

What did the court decide?

M/S M R Enterprises, Thru. Proprietor Nausheen Ara Zakir Khan v. Union of India Thru. Secy., Ministry of Railways, New Delhi and Others

Case brief

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What did the court decide?

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