Partly allowed

M/S Shivam Construction v. Jharkhand Police Housing Corpo

Jharkhand HC18 Nov 2019WPC/4191/2009

Case brief

AI extract

What is this about?

High Court quashed the blacklisting order against the petitioner in a construction contract dispute, holding that natural justice mandates a show-cause notice. The court rejected the challenge to the termination of the agreement and security forfeiture due to factual disputes.

What did the court decide?

Impugned order dated 07.01.2009 is quashed to the extent of blacklisting/debarment of the petitioner.

M/S Shivam Construction Vs Jharkhand Police… — Public Procurement and Tenders | Jharkhand HC (2019)

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IN THE HIGH COURT OF JHARKHAND AT RANCHI W.P.(C) No. 4191 of 2009

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M/s Shivam Construction, Julu Park, Hazaribagh through its partner

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… … Petitioner

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Versus

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Jharkhand Police Housing Corporation Limited, Ranchi through its Managing Director

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The Managing Director, Jharkhand Police Housing Corporation Limited, Ranchi

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The Chief Engineer, Jharkhand Police Housing Corporation Limited, Ranchi

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The Executive Engineer, Jharkhand Police Housing Corporation Limited, Hazaribagh Division, Hazaribagh

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The State of Jharkhand

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… … Respondents

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CORAM: HON'BLE MR. JUSTICE RAJESH SHANKAR

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----- For the Petitioner : Mr. Anurag Kashyap, Advocate Mr. Rajiv Kumar Shekhar, Advocate Mr. Abhilash Kumar, Advocate For the Respondent-State : Mr. Nipun Bakshi, SC (Mines)-III Mr. S. Bhowmik, AC to SC (Mines)-III For the Respondent-JPHCL : Mr. Indranil Bhaduri, Advocate -----

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Order No. 13 Dated: 18.11.2019

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The present writ petition has been filed for quashing the order as contained in letter no. C.E/657/19 dated 07.01.2009 issued under the signature of the respondent no. 3 – Chief Engineer, Jharkhand Police Housing Corporation Limited, Ranchi, whereby the security money deposited by the petitioner in terms with the agreement executed for construction of 16 classrooms of school building at Police Training Centre, Hazaribagh has been forfeited and the petitioner has also been blacklisted. Further prayer has been made for quashing the Tender Notice no. 12/2010-11 dated 01.10.2010 and 07.10.2010 by reasons of which tender for the work earlier allotted to the petitioner has been reissued. The petitioner has also prayed for issuance of direction upon the respondents to allow the petitioner to complete the work and consequently to make payment of all the due amount relating to the said work lying before the respondents.

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2. The factual background of the case as stated in the writ petition is that a tender notice was issued by the respondents vide Tender Notice No. 08/2007-08 for construction of 16 classrooms of school

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building at Police Training Centre, Hazaribagh. The petitioner submitted the tender and was finally allotted the work and an agreement being agreement no. 36 F2/2007-08 dated 22.01.2008 for estimated value of Rs. 65,72,605/- was executed. The work was to be completed within six months i.e., by 21.07.2008. The petitioner repeatedly requested the respondent authorities in writing to supply the sanctioned map etc. as per the terms of the agreement, but the same was not responded. On the contrary, the respondent no. 4 – Executive Engineer, Jharkhand Police Housing Corporation Ltd. Hazaribagh Division, Hazaribagh vide letter dated 12.11.2008 blamed the petitioner for committing delay in execution of the work and imposed a penalty of 1% on the amount of agreement. Again, vide letter dated 24.12.2008, a penalty to the extent of 3% was imposed upon the petitioner due to non-completion of work in time which, according to the petitioner, was imposed without issuance of any show-cause notice and without considering its request for supply of a sanctioned map. Finally, the respondent no. 3 passed the impugned order dated 07.01.2009 by forfeiting the security money deposited by the petitioner and also blacklisting it for non-completion of the work in question within the time frame.

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3. The learned counsel for the petitioner submits that inspite of repeated request made by the petitioner, the sanctioned site map was not provided to it which attributed to the delay in execution of the work. The petitioner also made several request before the respondent authorities to revise the rate of work, but the same remained unresponded by them. Though the delay in completion of the work occurred due to inaction of the respondents, yet the petitioner has been blamed for the same without any rhyme or reason. Even after issuance of the impugned letter dated 07.01.2009, the petitioner preferred a detailed representation on 19.01.2009 mentioning all the facts in detail that since the map was provided to it on 10.12.2008 after much delay the said work could not be completed within the stipulated period. It is further submitted by the learned counsel for the petitioner that before passing the impugned letter dated 07.01.2009, the petitioner was neither issued any show-cause notice nor any opportunity of hearing was provided to it by the respondent authorities. In fact, the petitioner was always ready and willing to complete the work and if any delay occurred

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in completion of the work, the same can only be attributed to the inaction of the respondent authorities.

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4. On the contrary, the learned counsel for the respondents submits that the petitioner has delayed the work alleging that the sanctioned site map was not provided to it, whereas the actual fact is that the petitioner was not at all interested in sincerely executing the work within the stipulated time. Though the sanctioned map of the construction site was ready with the respondent-Corporation, yet the petitioner did not approach the concerned authority for receiving the same. The respondent no. 4 vide letters dated 09.09.2008 and 06.10.2008 apprised the petitioner that information was telephonically given to collect the sanctioned map, but no one appeared to collect the same. Though the petitioner made several representations before the authorities of the Corporation for providing the sanctioned map, yet even after repeated information, the same was not collected from the office of the Corporation which clearly indicates that the petitioner was deliberately delaying the construction work. Since the progress of the work was found to be quite slow, penalty was also imposed against the petitioner. The respondent no. 4 vide letter no. 891 dated 17.09.2008 directed the petitioner to complete the work within the stipulated period mentioned in the agreement and work order. It was also informed that the progress of the work was not proportionate to the time stipulated in the work order. Several letters in this regard were issued to the petitioner including letters dated 12.04.2008, 06.05.2008 and 17.09.2008, however, since the petitioner did not expedite the construction work inspite of several intimation, the Executive Engineer, Hazaribagh Division, Hazaribagh, vide letter no. 939 dated 29.09.2008 directed the petitioner to start the work by 03.10.2008, otherwise the agreement would be rescinded and the petitioner would be blacklisted. The Executive Engineer, Hazaribagh Division, Hazaribagh intimated the petitioner vide letter no. 1160 dated 23.12.2008 that the work had already gone five months beyond the scheduled date of completion of work i.e., 21.07.2008, but the progress of the work was quite slow. In the said letter also, the petitioner was directed to expedite the progress of the work, failing which appropriate action including the cancellation of agreement would be taken against it. However, the petitioner did not pay

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any heed to the said letters issued by the concerned authority of the Corporation. Under the said situation, the petitioner cannot claim that it was not provided opportunity before issuing the impugned letter. The learned counsel for the respondents further submits that after execution of the agreement on a particular amount, the rate of work cannot be revised as claimed by the petitioner. Due to slow progress of the work, the Chief Engineer, Jharkhand Police Housing Corporation Limited vide letter no. CE/657/1832 dated 24.12.2008 addressed to the Executive Engineer, Jharkhand Police Housing Corporation Limited Hazaribagh Division, Hazaribagh mentioned that on review of the progress of the work, it came to light that the petitioner had only completed 15% of the work even after expiry of four months from the scheduled date of completion of the work and thereby a decision was taken to impose penalty @ 3% upon the petitioner. Thereafter, the Chief Engineer, Jharkhand Police Housing Corporation Limited cancelled the agreement due to non-completion of the work vide memo no. CE/657/19 dated 07.01.2009. After cancellation of the agreement, the respondent no. 3 vide letters dated 10.01.2009, 26.04.2009 and 30.07.2009 directed the petitioner to remain present on the given date at the work site so that the final measurement of the work executed by the petitioner could be done by the Assistant Engineer and Junior Engineer. It had also been stated in those letters that if no one appears for the said purpose, further claim will not be entertained. It is also submitted by the learned counsel for the respondents that as per Clause 3(a) of the F2 agreement (Conditions of Contract), the respondent-Corporation is entitled to rescind the contract and to forfeit the security deposit of the contractor. Due to non-performance of the petitioner, the respondent-Corporation has suffered administrative as well as financial burden. Since the work allotted to the petitioner was not completed by it, the respondentCorporation was compelled to issue re-tender for completion of the same. After re-tender, the remaining work has been completed by another contractor. The work allotted to the petitioner was relating to the construction of the school building which was to be completed within the stipulated period in public interest. The petitioner failed to perform in terms with the stipulation made in the agreement by defying several directions issued by the competent authorities of the respondent-

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Corporation. It is lastly submitted by the learned counsel for the respondents that the petitioner has however been paid an amount of Rs. 6,82,105.00 against first account bill and Rs. 11,37,104.00 against second account bill.

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5. Heard the learned counsel for the parties and perused the materials available on record. There appears to be two parts of the impugned letter dated 07.01.2009. First part is with regard to the cancellation of the agreement with forfeiture of security deposit and the second part is in relation to the blacklisting/debarment of the petitioner.

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6. The Hon’ble Supreme Court has held that there is no absolute bar in entertaining the writ petition in contractual matters where some disputed questions of fact are involved. However, if the dispute raised in the writ petition is so complex which can only be determined after a long drawn adjudicatory process by leading evidences, the writ petition should not normally be entertained. Each and every case is, however, required to be dealt with on its own facts. If the materials available on record are clearly evincible, the writ court may exercise the power of judicial review under Article 226 of the Constitution of India, which is plenary in nature. However, the discretion depends on the facts of a particular case. The High Courts have nonetheless imposed self-restraint in such exercise of extraordinary jurisdiction in issuing prerogative writs which is normally not exercised to the exclusion of other remedies unless the action of the State or its instrumentality is found arbitrary and unreasonable so as to violate the constitutional mandate of Article 14 or for other valid and legitimate reasons.

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7. In the present case, on the one hand, the petitioner has contended that inspite of its repeated request, the respondent authorities did not supply the sanctioned site map in terms with the agreement which caused in delayed execution of the work and on the other hand, the respondents have claimed that the sanctioned site map for the construction work was ready with the respondents, but no one collected the same on behalf of the petitioner as it did not want to collect the same and was not interested in executing the work within the stipulated time. In support of the said contention, the respondents have annexed letters dated 09.09.2008 and 06.10.2008 (Annexure- B/1 and B respectively to the counter affidavit). The petitioner has not controverted

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the said factual stand of the respondents by filing any rejoinder affidavit. Moreover, it is not the case of the petitioner that there was no delay in execution of the work, rather the contention of the petitioner is that the same occurred due to inaction on the part of the respondents. Clause 2 of the Conditions of Contract specifically provides that the time allowed for carrying out the work as entered in the tender shall be strictly observed by the contractor. Further, Clause 3(a) of the Conditions of Contract provides that the rescission notice given by the Executive Engineer shall be a conclusive evidence to rescind the contract and in that case the security deposit of the contract or shall be forfeited. The respondents have brought on record several notices, whereby the petitioner was intimated about the slow progress of the work including the notice of the Executive Engineer directing the petitioner to expedite the work, failing which the contract would be terminated. Since in the present case, the petitioner has sought intervention of this Court purely on factual plea which has categorically been controverted by the respondents, I am of the considered view that the present case is not a fit one for exercising the discretionary writ jurisdiction to adjudicate the legality of the termination of the agreement and forfeiture of the security deposit. Moreover, prima facie there is no procedural lapse on the part of the respondents while issuing the impugned letter to the said extent.

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8. So far as the issue of blacklisting/debarment of the petitioner is concerned, the same has been challenged by it on the ground of violation of the principles of natural justice. The respondents have not stated in the counter affidavit as to whether before passing the impugned letter of blacklisting/debarment, any specific show-cause notice on the said issue was served upon the petitioner.

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9. The Hon’ble Supreme Court in the case of “Kulja Industries Ltd. Vs. Chief General Manger, Western Telecom Project BSNL & Ors.” , reported in (2014) 14 SCC 731 , has held as under:

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“ 17. That apart, 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 in our opinion 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

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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.”

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10. Further, in the case of “Gorkha Security Services Vs. Govt. (NCT of Delhi) & Ors.” , reported in (2014) 9 SCC 105 , the Hon’ble Supreme Court has held as under:

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“ 16. It is a common case of the parties that the blacklisting has to be preceded by a show-cause notice. Law in this regard is firmly grounded and does not even demand much amplification. The necessity of compliance with the principles of natural justice by giving the opportunity to the person against whom action of blacklisting is sought to be taken has a valid and solid rationale behind it. With blacklisting, many civil and/or evil consequences follow. It is described as “civil death” of a person who is foisted with the order of blacklisting. Such an order is stigmatic in nature and debars such a person from participating in government tenders which means precluding him from the award of government contracts.

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Way back in the year 1975, this Court in Erusian Equipment & Chemicals Ltd. v. State of W.B., 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. This is clear from the reading of paras 12 and 20 of the said judgment. Necessitating this requirement, the Court observed thus: (SCC pp. 74-75).

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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

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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.

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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.

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18. Again, in Raghunath Thakur v. State of Bihar the aforesaid principle was reiterated in the following manner: (SCC p. 230, para 4)

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Indisputably, no notice had been given to the appellant of the proposal of blacklisting the appellant. It was contended on behalf of the State Government that there was no requirement in the rule of giving any prior notice before blacklisting any person. Insofar as the contention that there is no requirement specifically of giving any notice is concerned, the respondent is right. 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 civilconsequence 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. In the premises, that portion of the order directing that the appellant be placed in the blacklist in respect of future contracts under the Collector is set aside. So far as the cancellation of the bid of the appellant is concerned, that is not affected. This order will, however, not prevent the State Government or the appropriate authorities from taking any future steps for blacklisting the appellant if the

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Government is so entitled to do in accordance with law i.e. after giving the appellant due notice and an opportunity of making representation. After hearing the appellant, the State Government will be at liberty to pass any order in accordance with law indicating the reasons therefor. We, however, make it quite clear that we are not expressing any opinion on the correctness or otherwise of the allegations made against the appellant. The appeal is thus disposed of.

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19. Recently, in Patel Engg. Ltd. v. Union of India speaking through one of us (Justice Chelameswar, J.) this Court emphatically reiterated the principle by explaining the same in the following manner: (SCC pp. 262-63, paras 13-15)

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The concept of ‘blacklisting’ is explained by this Court in Erusian Equipment & Chemicals 8 Ltd. v. State of W.B. as under: (SCC p. 75, para 20)

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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.

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The nature of the authority of the State to blacklist the persons was considered by this Court in the abovementioned case and took note of the constitutional provision (Article 298), which authorises both the Union of India and the States to make contracts for any purpose and to carry on any trade or business. It also authorises the acquisition, holding and disposal of property. This Court also took note of the fact that the right to make a contract includes the right not to make a contract. By definition, the said right is inherent in every person capable of entering into a contract. However, such a right either to enter or not to enter into a contract with any person is subject to a constitutional obligation to obey the command of Article 14. Though nobody has any right to compel the State to enter into a contract, everybody has a right to be treated equally when the State seeks to establish contractual relationships. The effect of excluding a person from entering into a contractual relationship with the State would be to deprive such person to be treated equally with those, who are also engaged in similar activity. 15. It follows from the above judgment in Erusian Equipment case that the decision of the State or its instrumentalities not to deal with certain persons or class of persons on account of the undesirability of entering into the contractual relationship with such persons is called blacklisting. The State can decline to enter into a contractual relationship with a person or a class of persons for a legitimate purpose. The authority of the State to blacklist a person is a necessary concomitant to the executive power of the State

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to carry on the trade or the business and making of contracts for any purpose, etc. There need not be any statutory grant of such power. The only legal limitation upon the exercise of such an authority is that the State is to act fairly and rationally without in any way being arbitrary— thereby such a decision can be taken for some legitimate purpose. What is the legitimate purpose that is sought to be achieved by the State in a given case can vary depending upon various factors.

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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.”

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11. It may thus be construed from the aforesaid judgments that when a contract is entered between the two private parties, in case of any breach of contract by one party, the other party has every right to blacklist the defaulter and such right is unqualified. However, in a situation where an order of blacklisting is passed by the State or its instrumentalities, such order is within the realm of the power of judicial review of the writ court and the same is required to be tested in the touchstone of the principles of natural justice, doctrine of proportionality, reasonableness and fairness. The order of blacklisting has the effect of depriving a person of equality of opportunity in the matter of public contract. Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the government/government agencies for the purpose of gains. Thus, prior to taking such a harsh decision, the person concerned is required to be given an opportunity to represent his case before he is put on blacklist. On this issue, the show-cause notice is not a mere formality, rather the same is mandatory specifying the grounds which necessitate the proposed action so that the person aggrieved may put forth his defence properly.

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12. On perusal of the record, it is evident that the order of blacklisting/debarment of the petitioner has been passed in a routine manner in consequence of passing the order of termination of

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agreement. No specific reason has been assigned in the impugned letter on the issue of blacklisting of the petitioner. It is also evident from the record that no separate show-cause notice was issued to the petitioner in this regard so as to enable it to properly defend itself.

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13. Under the aforesaid facts and circumstance, the impugned order as contained in letter no. C.E/657/19 dated 07.01.2009 issued by the respondent no. 3 – Chief Engineer, Jharkhand Police Housing Corporation Limited is quashed to the extent of blacklisting/debarment of the petitioner.

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14. The writ petition is partly allowed to the above extent. I.A. No. 4363 of 2010 also stands disposed of accordingly.

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(Rajesh Shankar, J.)

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Manish/A.F.R.

M/S Shivam Construction v. Jharkhand Police Housing Corpo

Case brief

What is this about?

What did the court decide?

M/S Shivam Construction v. Jharkhand Police Housing Corpo

Case brief

What is this about?

What did the court decide?

What the court decided

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