Dismissed

Ebix Cash Pvt. Ltd. through Its Authorised Representative Shaikh Fayazuddin Tajuddin v. State of Maharashtra through Chief Secretary and Others

Bombay HC22 Jul 2024WP/6707/2024

Case brief

AI extract

What is this about?

Petitioner challenged termination of its e-ticketing contract with Aurangabad Smart City Development Corporation under Article 226. The Court found disputed questions of fact and an arbitration clause (clause 16.2) covering the dispute; relying on precedents that arbitration clauses survive contract termination, it declined to entertain the petition and dismissed it.

What the court decided

AI extract

Ebix Cash Pvt. Ltd. through Its Authorised… — Public Procurement and Tenders | Bombay HC (2024)

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2024:BHC-AUG:15296-DB

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
BENCH AT AURANGABAD.

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WRIT PETITION NO.6707 OF 2024

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EBIX Cash Pvt. Ltd
A Private Limited company incorporated
under the provisions of the Companies Act, 2013
through its authorised representative
Shaikh Fayazuddin Tajuddin,
having office at Plot No.122 & 123, NSEZ,
Noida, Uttar Pradesh .. Petitioner

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Versus

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1. State of Maharashtra, Through Chief Secretary, Govt of Maharashtra, Mantralaya, Mumbai

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2.Aurangabad Smart City Development
Corporation Limited
Through Smart City Bus Division,
Aurangabad Smart city Office,
Near Aamkhas Maidan,
Aurangabad

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3. The Chief Executive Officer, Aurangabad Smart City Development Corporation Limited (ASCDCL) Aurangabad Smart City Office, Near Aamkhas Maidan, Aurangabad .. Respondents

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Mr. Shrirang B. Varma a/w. Mr. Viraj Parekh & Mr. Gautam Swaroop,
Advocate for the Petitioner

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Mr. A. R. Kale, Add. G. P. for the Respondent / State.

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CORAM : R. G. AVACHAT AND
 NEERAJ P. DHOTE, JJ.

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Reserved on : July 12, 2024
Pronounced on : July 22, 2024

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FINAL ORDER (PerNEERAJ P. DHOTE, J.) :-

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.The Petitioner, a Private Limited Company, has invoked the
jurisdiction of this Court under Article 226 of the Constitution of India,
taking exception to the termination notice dated 13.06.2024 by which
the Contract for E-ticketing system for the city buses plied in
Aurangabad city allotted to the Petitioner Company is terminated.

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2.It is submitted by learned Advocate for the Petitioner that
the Petitioner was awarded the contract for the aforesaid purpose on
18.02.2020, pursuant to tender process of 2019. The Petitioner
implemented the contract as per the tender document and ‘Go Live
Certificate’ was issued by the Respondent No.2 – Aurangabad Smart City
Development Corporation Limited (ASCDCL) on 01.11.2021. The
Petitioner was implementing the contract successfully for over a period
of four (4) years. ASCDCL issued a new tender on 05.02.2024 for
procurement of Electronic Ticket Issuing Machines (ETIM). On
08.02.2024 the Petitioner Company objected for allotment of the scope
of the work relating to ETIM, as the same was colliding with the scope
of work covered by the Petitioner’s contract.

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3.It is further submitted that the scope of work in the tender
process initiated in February, 2024 was overlapping the work which was
being carried out by the Petitioner Company. The tender issued in
February, 2024 was not a substitute tender for the Petitioner Company’s

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contract. The Petitioner Company would be put to loss due to the said
new tender process. The act of ASCDCL was mala fide and covered by
the principles of ‘doctrine of malice in law’ as the act of ASCDCL was
withoutany lawful excuse.

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4.It is further submitted that on 23.02.2024 the ASCDCL
issued a show cause notice to the Petitioner Company for terminating
the contract on the following two grounds:

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(a) That, there were penalties levied upon the Petitioner Company for software being down and other reasons.

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(b) That, the ETIM provided by the Petitioner Company had a functionality of printing a ‘Zero Value Ticket’ which caused revenue losses to the ASCDCL.

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5.It is further submitted that, the Petitioner Company
responded to the show cause notice in detail on 26.02.2024. The
Petitioner Company categorically stated that the delay in any software
related things was resolved within 30 (thirty) minutes and as such, there
was no violation of contract conditions and thus the penalties levied
upon the Petitioner Company was illegal and clarified that the
functionality of printing ‘Zero Value Ticket’ was as per the specification
provided in the tender document. The ASCDCL without there being any
consideration or providing any reasons, terminated the contract allotted

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to the Petitioner Company by the impugned termination notice.

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6.It is further submitted that in November-2023 the Petitioner

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had strongly objected to levy of penalties as the same were
inappropriately imposed and the Petitioner Company provided complete
data as to the software issues being resolved within thirty (30) minutes
of any error and the same was being used effectively. The reason cited
by the ASCDCL for terminating the contract was without any application
of mind as the functionality of the ‘Zero’ value ticket was contemplated
in the tender document itself. The Petitioner company was being
punished for providing the ETIM’s, which was perfectly as per tender
document, and the ASCDCL never raised any complaint from 2020 to
2024.

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7.It is further submitted that the ASCDCL did not adhere to
the termination procedure as laid down in the tender document. Clause
15.4.1 provides for issuance of preliminary notice to the service provider
so as to rectify the defect and thereafter if the defects are not rectified,
issue termination notice. As the ASCDCL has completely disregarded
the procedure laid down for termination of contract in the tender
document, the impugned notice is unsustainable and liable to be set
aside.

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8.It is further submitted that this Court can examine the
action of the ASCDCL, which is arbitrary, unreasonable and

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unauthorised. Though there is an arbitration clause in the contract,
there is no bar to entertain the Writ Petition. In support of his
submission, he relied on the following Judgments of the Hon’ble
Supreme Court of India :

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(i) Subodh Kumar Singh Rathour Vs. The Chief Executive Officers Ors. in Civil Appeal No.6741/2024

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(ii) M. P. Power Management Company Limited Jabalpur Vs. Sky Power Southeast Solar India Private Limited and Ors., (2023) 2 SCC 703

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(iii) Uttar Pradesh Power Transmission Corporation Limited and Anr. Vs. CG Power and Industrial Solutions Limited and Anr., (2021) 6 SCC 15

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9. Following legal principles emerges from the above referred Judgments.

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(a) Relief against the State or its instrumentalities in matters related to contractual obligations can be sought under the writ jurisdiction.

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(b) The power to issue writ under Article 226 being discretionary and plenary, the same should only be exercised to set right the arbitrary actions of the State or its instrumentality in matters related to contractual obligation.

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(c) Writ under Article 226 of the Constitution will also lie against a termination on a breach of a contract, wherever such action is found to either be palpably unauthorized or arbitrary.

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(d) Although the disputes rising purely out of contracts are not

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amenable to writ jurisdiction, when contractual power is being
used for public purpose, it is certainly amenable to judicial
review.

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(e) Availability of an alternative remedy does not prohibit High Court from entertaining a writ petition in an appropriate case.

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(f) In the matters concerning specific modalities of the contract – such as required work, execution methods, material quality, time frame and other aspects impacting the tenders purpose – the Court usually refrains from interference.

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(g) Writ jurisdiction being discretionary, the High Court usually refrain from entertaining a writ petition which involves adjudication of disputed question of fact which may require analysis of evidence of witnesses.

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10.In the matter at hand, the parties entered into a Contract
for the purpose referred above. The enclosures to the petition show,
several communications inter se ASCDCL and the Petitioner Company,
dated 20.10.2020 (Sub - delay in implementation of project),
05.11.2020 (Sub - implementation of Smart Card Project – Reg),
26.12.2020 (Sub - delay in Sign on time from Nov. 05, 2020 to Nov. 10,
2022 – Reg.), 21.12.2020 (Sub - Service Provider Event of Default-
Preliminary Termination Notice), 22.12.2020 (Sub - Delayed in sign on
time from 5 Nov. 2020 to 10 Nov. 2020), 04.01.2021 (Sub - Service
Provider Event of Default – Preliminary termination notice – Reg.),

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01.11.2021 (GO-LIVE CERTIFICATE), 02.12.2021 (Sub - Regarding
Implementation of E-Ticketing Solution), 12.08.2022 (Sub - Ebix Cash
objection for receipt of short payment for the invoices processed for the
period of Nov-2021 to June-2022), 23.09.2022 (Sub - Ebix Cash
submission on repeated short payment received – Reg.), 30.12.2022
(Sub - Regarding Extension of E-ticketing Project), 24.11.2023
(Sub -Penalty Reimbursement Request in ASCDCL E-Ticketing Solution
Project), 09.01.2024 (Sub - Regarding Zero amount ticket issuance in
ETIM Project), and 31.01.2024 (Sub - Response to letter 42 regarding
zero amount ticket issuance in ETIM project).

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11.The aforesaid communications clearly indicate existence of
disputed questions of facts between the parties. The above referred
communications, indicate that according to ASCDCL, there was delay in
implementation of project by the Petitioner Company and Petitioner
Company refuted the same. According to Petitioner Company they
implemented the contract as per the tender document and therefore, ‘Go
Live Certificate’ was issued to them. The impugned termination notice
states that the Petitioner Company was provided the details and
particulars of breach by the show cause notice and there were various
technical and major issues with the functioning of EBIX. It further states
that the Petitioner Company was imposed with penalty on multiple
occasions. It further states that the Petitioner Company failed to rectify
its mistakes. It further states of financial loss to the ASCDCL. It is seen

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from the above communications that, before issuing impugned
termination notice, the ASCDCL had issued preliminary termination
notice (Exh. ‘F’) wherein there is reference of clause 15.4.1 (Termination
for Service Provider Event of Default) from Volume II of Request For
Proposal (RFP). This indicate that the termination was within the
contractual domain. RFP provides for termination of contract. The RFP
provides mechanism for dispute resolution through arbitration vide
clause 16.2 in Volume II of the RFP. The dispute is arbitrable.

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12.It would not be out of context to refer the relevant
observations of the Hon’ble Supreme Court of India in SBI General
Insurance Co. Ltd. vs. Krish Spinning, Civil Appeal No. 7821 Of 2024
(Arising Out of SLP (C) No. 3792 Of 2024), 2024 Live Law (SC) 489 /
MANU/SC/0719/2024 (Paragraph Nos.49 to 51) wherein the settled
legal position that Arbitration clause survives after termination of
Contract, is reiterated.

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“49. The arbitration agreement, by virtue of the presumption
of separability, survives the principal contract in which it was
contained. Section 16(1) of the Act, 1996 which is based on
Article 16 of the UNCITRAL Model Law on International
Commercial Arbitration, 1985 (hereinafter, “Model Law”)
embodies the presumption of separability. There are two aspects
to the doctrine of separability as contained in the Act, 1996: -

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i.An arbitration clause forming part of a contract is
treated as an agreement independent of the other terms
of the contract.

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ii.A decision by the arbitral tribunal declaring the contract
as null and void does not, ipso facto, make the
arbitration clause invalid.

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50. The doctrine of separability was not part of the

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legislative scheme under the Arbitration Act, 1940. However,
with the enactment of the Act, 1996, the doctrine was expressly
incorporated. This Court in National Agricultural Coop.
Marketing Federation India Ltd. v. Gains Trading Ltd. reported
in (2007) 5 SCC 692, while interpreting Section 16 of the Act,
1996, held that even if the underlying contract comes to an end,
the arbitration agreement contained in such a contract survives
for the purpose of resolution of disputes between the parties.

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51.The fundamental premise governing the doctrine of
separability is that the arbitration agreement is incorporated by
the parties to a contract with the mutual intention to settle any
disputes that may arise under or in respect of or with regard to
the underlying substantive contract, and thus by its inherent
nature is independent of the substantive contract.”

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.The relevant observations from National Agricultural Coop.
Marketing Federation India Ltd. vs. Gains Trading Ltd., (2007) 5 SCC
692 referred in the aforesaid Judgment,are in para no.6 which reads as

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under:-

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“6. The Respondent contends that the contract was abrogated
by mutual agreement; and when the contract came to an end,
the arbitration agreement which forms part of the contract,
also came to an end. Such a contention has never been
accepted in law. An arbitration clause is a collateral term in
the contract, which relates to resolution disputes, and not
performance. Even if the performance of the contract comes
to an end on account of repudiation, frustration or breach of
contract, the arbitration agreement would survive for the
purpose of resolution of disputes arising under or in
connection with the contract. [Vide : Heymen vs. Darwins Ltd
- 1942 (1) All ER 337, Union of India vs. Kishori Lal Gupta &
Bros. - AIR 1959 SC 1362 AND The Naihati Jute Mills Ltd VS.
Khyaliram Jagannath - AIR 1968 SC 522]. This position is
now statutorily recognized. Sub-section (1) of section 16 of
the Act makes it clear that while considering any objection
with respect to the existence or validity of the arbitration
agreement, an arbitration clause which forms part of the
contract, has to be treated as an agreement independent of
the other terms of the contract; and a decision that the
contract is null and void shall not entail ipso jure the
invalidity of the arbitration clause. The first contention is,
therefore, liable to be rejected.”

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13.In the light of above discussion, no case exist to entertain

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this Writ Petition. Hence, the following order :

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ORDER

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(i)The Writ Petition is dismissed.

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( NEERAJ P. DHOTE, J. )

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( R. G. AVACHAT, J. )

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GGP

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Signed by: Gajanan G. Punde Designation: PA To Honourable Judge Date: 23/07/2024 15:03:38

Ebix Cash Pvt. Ltd. through Its Authorised Representative Shaikh Fayazuddin Tajuddin v. State of Maharashtra through Chief Secretary and Others

Case brief

What is this about?

What the court decided

Ebix Cash Pvt. Ltd. through Its Authorised Representative Shaikh Fayazuddin Tajuddin v. State of Maharashtra through Chief Secretary and Others

Case brief

What is this about?

What the court decided

A compact analysis

Issues for consideration

Cases cited

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