Disposed

M/S. Sham Earth Movers and Construction Company v. Authorized Officer / Finance Officer

Karnataka HC7 Aug 2024WP/19131/2017

Case brief

AI extract

What is this about?

Petitioner challenged forfeiture of its EMD bank guarantee of Rs.29,71,000 after a tender authority alleged fabricated experience documents. The Court held forfeiture without hearing violated natural justice and the arbitration clause, relegating parties to arbitration with limitation exemption and directing the amount be kept intact.

What did the court decide?

Parties relegated to arbitration; limitation exemption for 30 days; forfeited bank guarantee amount kept intact till disposal of dispute; all contentions kept open.

M/S. Sham Earth Movers and Construction… — Public Procurement and Tenders | Karnataka HC (2024)

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1 - NC: 2024:KHC:31541 WP No. 19131 of 2017

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 7^TH DAY OF AUGUST, 2024

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BEFORE

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THE HON'BLE MR JUSTICE M.G.S. KAMAL WRIT PETITION NO. 19131 OF 2017 (GM-RES)

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BETWEEN:

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M/S. SHAM EARTH MOVERS AND CONSTRUCTION COMPANY, REG. OFF: PAILANDS BUILDING, DOOR NO. 13-2-146 (P-1), 2^ND FLOOR, PM ROAD, HAMPANAKATTA, MANGALORE-575 001, DAKSHINA KANNADA DISTRICT, REP. BY ITS PROPRIETOR MR. K.B. SHARIEF, S/O K..A. BAWA.

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…PETITIONER

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(BY SRI K S BHEEMAIAH, ADVOCATE)

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AND:

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Digitally signed by PRAMILA G V Location: HIGH COURT OF KARNATAKA

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AUTHORIZED OFFICER / FINANCE OFFICER, MANGALORE REFINERY AND PETROCHEMICALS LTD., POST KUTHETTUR, VIAL KATIPALL, MANGALORE-575 030.

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THE CHIEF OFFICER, BANK OF BARODA, HAMPANKATTA MAIN BRANCH, MANGALORE-575 001.

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…RESPONDENTS

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(BY SRI B K SRIDHAR, ADVOCATE FOR R1, SRI GOPALKRISHNA HEGDE, ADVOCATE FOR R2)

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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO PROHIBIT THE RESPONDENTS FROM INVOKING/ENCASHING THE EXPIRED BANK GUARANTEE BEARING NO.0525IGPER003016 DTD7.10.2016 FOR RS.29,71,000/- AT ANENXURE-A.

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NC: 2024:KHC:31541 WP No. 19131 of 2017

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THIS PETITION, COMING ON FOR ORDERS THIS DAY, ORDER WAS MADE THEREIN AS UNDER:

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CORAM: HON'BLE MR JUSTICE M.G.S. KAMAL

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ORAL ORDER

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Petitioner is before this Court with a short grievance that

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the respondents have forfeited an amount of Rs.29,71,000/which was paid by the petitioner in terms of the bank guarantee.

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Brief facts of the case are that the petitioner had participated in the tender process called upon by respondent No.1 involving certain civil works. One of the terms of the tender conditions viz., clause 2(e) is that the earnest money paid or payable by the bidder would be liable to be forfeited if the bidder had submitted false and fabricated documents.

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Apparently, the respondent had found certain information/documents furnished by the petitioner to be false and fabricated. Consequently, invoking the aforesaid clause had issued a letter seeking to invoke the bank guarantee.

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Aggrieved by the same, petitioner herein approached the I Additional District Judge, DK, Mangaluru by filing an

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3 - NC: 2024:KHC:31541 WP No. 19131 of 2017

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application under Section 9 of the Arbitration and Conciliation Act, 1996 in A.A. No.30/2017 seeking interim relief of injunction restraining the respondents from encashing the bank guarantee. By order dated 25.04.2017, the I Additional District Judge, DK, Mangaluru dismissed the said application.

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Petitioner instead of seeking remedy as provided under the Arbitration and Conciliation Act, 1996 against the order of dismissal of an application under Section 9 or instead of invoking arbitration clause seeking resolution of dispute through arbitration, has approached this Court by filing writ petition.

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Counsel for the petitioner reiterating the grounds urged in the petition submits that since the petitioner had merely participated in the tender process and was unsuccessful, there was no question of respondent/authorities forfeiting the EMD. He further submits that no work order having been issued in favour of the petitioner, respondent could not have alleged breach of the terms of either of the tender or of the work contract. Further, it is his submission that the respondent/authority without issuing any notice or conducting

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NC: 2024:KHC:31541 WP No. 19131 of 2017

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any enquiry with regard to the alleged fabrication and falsification of the records, have unilaterally and arbitrarily forfeited the bank guarantee which is illegal, requires to be setaside.

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In response, learned counsel appearing for the 1^st respondent justifying the action of the respondent in forfeiting the EMD and referring to the reasons assigned by the District Judge in its order passed on application under Section 9 submit that the issue involved is one vexed with facts and law, requires to be adjudicated before a properly constituted forum and since, the petitioner had submitted the tender documents completely being aware of the clause 2(e) provided for forfeiture of the EMD amount. Should there be any falsification of the documents, unless and until the same is adjudicated in the manner known to law, relief as sought for cannot be granted under Article 226.

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As regards non-issuance of the notice and enquiry is concerned, he relies upon the communication at Annexure - R1-A produced, which is a communication issued by the 1^st respondent seeking information from the KIADB with regard to

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5 - NC: 2024:KHC:31541 WP No. 19131 of 2017

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the claim made by the petitioner of he having had the experience of rendering similar work and in response to which the communication/reply in the form of R1-B was issued by the KIADB confirming that no such work had been executed by the petitioner. He submits that based on this information, the respondent had proceeded to forfeit the EMD which was submitted by way of bank guarantee, invoking Clause 2(e) of the general conditions of the tender document. Hence, he submits that there is no illegality in the action taken by the respondent and seeks for dismissal of the petition.

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Heard and perused the records.

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Admittedly, petitioner being aware of the terms of

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the tender documents had participated in the process. It cannot be said that the respondent had no right to forfeit the amount under the circumstances as contemplated under clause 2(c)(e) of the tender document. However, the fact remains whether the petitioner had indeed made false submissions or submitted false documents, is a question to be determined in an enquiry providing an opportunity to the petitioner in the manner known to law. The submission to the extent that the

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NC: 2024:KHC:31541 WP No. 19131 of 2017

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petitioner is not entitled to such opportunity cannot be accepted as such an action has far reaching consequences.

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In the instant case, the EMD worth Rs.29,71,000/has been forfeited without petitioner being afforded with any opportunity of being heard. Said aspect of the matter apart from contrary to the principles of natural justice, is also in violation of the terms of the tender document which admittedly provides for resolution of the dispute through arbitration.

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Since the issue raised in this petition involves mixed question of fact and law, more particularly with regard to allegation of petitioner submitting false and fabricated documents along with tender document, as lightly contended by the counsel for the respondent, this Court is of the considered view that parties be relegated to resolve their dispute through arbitration and conciliation as provided under the tender document.

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Needless to state the time consumed by the petitioner before this Court be exempted for the purpose of limitation, if such, process is initiated within 30 days from the date of receipt of the certified copy of the order.

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NC: 2024:KHC:31541 WP No. 19131 of 2017

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All contentions are kept open to be urged before the forum to be choosen by the parties. Bank guarantee/amount which has been deposited by the petitioner now stated to have

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been forfeited by the respondent shall be kept intact till the disposal of the dispute.

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With the above observations, writ petition is disposed of.

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Sd/(M.G.S. KAMAL) JUDGE

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BRN List No.: 1 Sl No.: 2

M/S. Sham Earth Movers and Construction Company v. Authorized Officer / Finance Officer

Case brief

What is this about?

What did the court decide?

M/S. Sham Earth Movers and Construction Company v. Authorized Officer / Finance Officer

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Statutes considered

Parties & counsel

Coram

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