Dismissed

Larsen and Toubro Limited v. Bharat Heavy Electricals Ltd. - Isg

Karnataka HC12 Feb 2021WP/2378/2021

Case brief

AI extract

What is this about?

The Karnataka High Court dismissed a writ petition filed by L&T challenging restrictions imposed by BHEL in a fresh tender notice following contract termination. The Court held that the dispute is contractual and governed by the valid contract terms, not constitutional provisions.

What did the court decide?

Writ petition seeking declaration of unconstitutionality of tender conditions and removal of blacklist was dismissed; IA No.1 disposed off.

Larsen and Toubro Limited Vs Bharat Heavy… — Company and Corporate | Karnataka HC (2021)

¶1

¶2

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 12^TH DAY OF FEBRUARY, 2021

¶3

BEFORE

¶4

THE HON’BLE MR. JUSTICE P.S. DINESH KUMAR

¶5

WRIT PETITION No.2378 OF 2021 (GM-TEN)

¶6

BETWEEN :

¶7

LARSEN AND TOUBRO LIMITED P.B.979, MOUNT POONAMALLEE ROAD MANAPAKKAM CHENNAI-600 089 REPRESENTED BY ITS AUTHORISED SIGNATORY (VENKATANAEEVN D )

¶8

TPOA, REPTD. BY ... PETITIONER

¶9

(BY SHRI. K.G. RAGHAVAN, SENIOR COUNSEL FOR SHRI. HITESH KUMAR, ADVOCATE OF M/S. A.K.LAW CHAMBERS) [THROUGH VIDEO CONFERENCE]

¶10

AND :

¶11

BHARAT HEAVY ELECTRICALS LTD - ISG REGIONAL OFFICE PROF. CNR RAO CIRCLE MALLESWARAM BANGALORE-560 012 REPRESENTED BY ITS MANAGING DIRECTOR

¶12

PATRATU VIDYUT UTPADAN NIGAM LIMITED PATRATU, RAMGARH JHARKHAND-829 119

¶13

REPRESENTED BY ITS

¶14

¶15

MANAGING DIRECTOR ... RESPONDENTS

¶16

(BY SHRI. ADITYA NARAYAN, ADVOCATE OF M/S. SAAKSHYA LAW FOR C/R1)

¶17

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO DECLARE CAUSE 27 OF THE NOTICE INVITING TENDER DATED 23.01.2021 AS ANNEXURE-A UNCONSTITUTIONAL AND CONSEQUENTLY REMOVE THE BLACKLISTING OF THE PETITIONER AND DECLARE ANNEXURE-11 OF THE NOTICE INVITING TENDER DATED 23.01.2021 ANNEXURE-A1 AS UNCONSTITUTIONAL AND ETC.

¶18

THIS WRIT PETITION, HAVING BEEN HEARD AND RESERVED FOR ORDERS ON 05.02.2021 COMING ON FOR PRONOUNCEMENT OF ORDERS THIS DAY, THE COURT PRONOUNCED THE FOLLOWING:-

¶19

ORDER

¶20

Bharat Heavy Electricals Ltd., ('BHEL' for short)

¶21

awarded a Contract for Main Ash Handling Systems Package

¶22

for NTPC PATRATU STPS Project to M/S. Larsen and Toubro Ltd ('L&T' for short). The 'Letter of intent' was issued on January 18, 2019.

¶23

During the bidding process, L&T gave an undertaking that its associate Partner would be one among three Companies namely Nari Technologies, Magaldi and Clyde Bergman. Initially, L&T associated with Nari Technologies and later with Magaldi. But it could not finalize

¶24

¶25

with the said Company also. BHEL gave a prior notice of termination on June 24, 2020. In response, L&T sought for further time to finalize the Vendor. On December 11, 2020, BHEL called upon L&T to finalize the Vendor for Dry Bottom Ash System with any one of the approved Vendors within 14 days therefrom failing which, BHEL would proceed with termination of Contract and invoke the 'Risk Purchase Clause' of the Contract and give order on alternative Vendors. In addition, BHEL again called upon L&T vide its communication dated December 24, 2020 to comply with the requirements specified in its previous notice and also conveyed that, should L&T fail to comply, it would take action as contemplated in the previous notice.

¶26

L&T filed an application under Section 9 of the Arbitration and Conciliation Act, in the Commercial Court, Bengaluru in Com.AA 161/2020 and prayed for an order to restrain BHEL from taking coercive action contemplated in the two notices.

¶27

¶28

BHEL has issued notice of termination on January

¶29

1, 2021.

¶30

The Commercial Court initially granted an ad-

¶31

interim injunction against BHEL from taking coercive action and subsequently by its order dated January 23, 2021 the Commercial Court has partly allowed the application and restrained BHEL from invoking the Bank Guarantee for a period of 90 days or till any order that an Arbitral Tribunal would pass.

¶32

On January 23, 2021, BHEL has issued a Notification calling for fresh tenders. In these

¶33

circumstances, L&T has presented this writ petition with following prayers:

¶34

" I. Issue a writ of declaration, or any other order or direction of like nature, declaring Clause 27 of the Notice Inviting Tender dated 23.01.2021 as Annexure-A unconstitutional and consequently remove the blacklisting of the Petitioner;

¶35

II. Issue of writ of declaration, or any other order or direction of like nature, declaring Annexure- 11 of the

¶36

¶37

Notice Inviting Tender dated 23.01.2021 as Annexure-A1 unconstitutional.

¶38

III. Issue of writ of Mandamus or any other order or direction of like nature directing Respondent No.1 to allow the Petitioner to participate in the online bidding process.

¶39

IV. To award costs and grant such other reliefs or pass such other orders as this Hon'ble court deems fit and expedient in the circumstances of this case in the interest of justice and equity. "

¶40

Shri. K.G. Raghavan, learned Senior Advocate

¶41

for petitioner argued that the name of the Arbitrator has been finalized. The breach of Contract if any, can be decided by the Arbitrator. BHEL has prevented L&T from participating in the new tender. L&T is a reputed organization and satisfactorily completed various assignments. Though BHEL has chosen to call for a fresh tender at the risk and cost of L&T, it cannot prevent L&T from participating in the new tender.

¶42

Shri. Aditya Narayan for BHEL, opposing the writ petition, submitted that the project is a time bound one. L&T has failed to complete the work. Therefore, by invoking

¶43

¶44

Clause 38.11 of the Conditions of Contract between the parties, BHEL has rightly included a special condition that L&T will not be eligible to participate in the tender and any bid submitted by any Company in collaboration with L&T will also be not considered.

¶45

I have carefully considered rival contentions and perused the records.

¶46

Clause 38.11 of the Contract between BHEL and L&T is unambiguous and it reads as follows:

¶47

"38.11 RISK & COST

¶48

BHEL reserves the following rights in respect of this contract during the original contract period or its extensions if any, as per the provisions of the contract, without entitling the contractor for any compensation :-

¶49

a) To withdraw any portion of work and/or to restrict/alter quantum of work as indicated in the contract during the progress of work and get it done through other agencies to suit BHEL's commitment to its customer or in case BHEL, decides to advance the date of completion due to other emergent reasons/ BHEL's obligation to its customer.

¶50

b) To terminate the contract or get any part of the work done through other agency or deploy BHEL's own/hired/otherwise arranged resources, at the risk

¶51

¶52

and cost of the contractor after due notice of a

¶53

period of two weeks by BHEL, in the event of:-

¶54

i) Contractor's continued poor progress

¶55

ii) withdrawal from or abandonment of the work before completion of the work

¶56

iii) contractor's inability to progress the work for completion as stipulated in the contract

¶57

iv) poor quality of work

¶58

v) corrupt act of the contractor

¶59

vi) insolvency of the contractor

¶60

vii) persistent disregard to the instructions of BHEL vii) Assignment, transfer, sub-letting of contract without BHEL's written permission

¶61

ix) Non fulfillment of any contractual obligations

¶62

x) In the opinion of BHEL, the contractor is overloaded and is not in a position to execute the job as per required schedule

¶63

c) To meet the expenses including BHEL overheads on the differential cost at 15%, over and above the Liquidated /penalties arising out of "Risk & Cost" as explained above under Sl.No.b BHEL shall recover the amount from any money due from contractor, or from any money due to the contractor including Security Deposit/BG, or by forfeiting any T & P or material of the contractor under this contract or any other contract of BHEL or by any other means or any combination thereof

¶64

d) To terminate the contract or to restrict the quantum of work and pay for the portion of work executed in case BHEL's contract with their customer are terminated for any reason, as per mutual agreement:

¶65

¶66

e) To effect recovery from any amounts due to the contractor under this or any other contract or in any other form, the moneys BHEL is statutorily forced to pay to anybody, due to contractor's failure to fulfill any of his obligations. BHEL shall levy overheads of 15% on all such payments along with interest.

¶67

f) While every endeavour will be made by BHEL to this end, they cannot guarantee uninterrupted work due to conditions beyond their control. The contractor will not be entitled for any compensation/extra payment on this account unless otherwise specified elsewhere in the contract.

¶68

Invoking the aforesaid clause, BHEL has

¶69

terminated the Contract and called for fresh tender. Clause 27 of the fresh Tender Notice contains two special conditions. Firstly, that L&T shall be ineligible to participate in the tender and secondly, that a bid by any other bidder in collaboration of L&T will also not be considered.

¶70

Principal contention urged by Shri. Raghavan is that breach of Contract can be decided only by the Arbitrator and not by the other party to the Contract. He placed reliance on paragraph No.7 in State of Karnataka Vs.

¶71

¶72

Shri Rameshwara Rice Mills¹ and paragraph No.11 in Union of India Vs. Raman Iron Foundary² . Both these authorities have been cited before the Commercial Court and recorded in paragraphs No.28 and 41 respectively. The learned Commercial Court has rightly held that in an application under Section 9 of the Arbitration Act, it cannot decide whether the termination of Contract is valid.

¶73

L&T has accepted the terms of Contract which includes BHEL's right to terminate the Contract and to get the work done at the risk and cost of L&T and BHEL has exercised its right. Shri. Raghavan submitted that name of learned Arbitrator suggested by BHEL has been accepted by L&T. Thus, L&T has chosen to seek redressal of dispute through Arbitrator. Therefore, the question whether termination of Contract is valid in law has to be decided by the learned Arbitrator.

¶74

1 (1987)2 SCC 160

¶75

2 (1974)2 SCC 231

¶76

¶77

In this writ petition, L&T has sought for a declaration that the Special Conditions recorded supra are unconstitutional. L&T has accepted the terms of Contract and proceeded with the work. Parties are governed by Contract Act. BHEL has exercised its right in terms of the Contract. The dispute is purely contractual in nature between two parties. In Radhakrishna Agarwal Vs. State of Bihar³ , it is held that after State or its agents have entered into the field of ordinary Contract, the relations are no longer governed by the Constitutional provisions but by the legally valid Contract which determines rights and obligations of the parties inter se . No question arises of violation of Article 14 or of any other Constitutional provision when the State or its agents perform any act. In this sphere, they can only claim rights conferred upon them by Contract and are bound by the terms of Contract only, unless some statute steps in and confers some special statutory power or obligation on the State in the contractual field which is apart from the Contract.

¶78