Partly allowed

Intimate Machines Pvt. Ltd. v. Kerala State Women'S Development Corporation Ltd.

Kerala HC1 Mar 2017WP(C)/2493/2017

Case brief

AI extract

What is this about?

The Court granted interim stay on the tender process and executed applications, directed the corporation to issue a notice to the petitioner specifying alleged lapses and providing documents, and mandated a hearing before deciding on termination, leaving broader legal questions open.

What did the court decide?

Stay on Ext.P6 and P7. Direct respondents to issue a formal notice to the petitioner detailing lapses with supporting documents within 15 days, provide an opportunity of hearing, and consider the peti

Intimate Machines Pvt. Ltd. Vs Kerala State… — Contract and Commercial Disputes | Kerala HC (2017)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT:

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THE HONOURABLE MR. JUSTICE SHAJI P.CHALY

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WEDNESDAY, THE 1ST DAY OF MARCH 2017/10TH PHALGUNA, 1938

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WP(C).No. 2493 of 2017 (J)

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PETITIONER:

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INTIMATE MACHINES PVT. LTD, PLOT NO.39, INDUSTRIAL DEVELOPMENT PLOT, MONVILA, KULATHOOR P.O., THIRUVANANTHAPURAM 695 583 REPRESENTED BY ITS DIRECTOR, KISHORE KUMAR K.

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BY ADVS.SRI.P.K.SURESH KUMAR (SR.) SRI.D.AJITHKUMAR

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RESPONDENT(S):

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1. KERALA STATE WOMEN'S DEVELOPMENT CORPORATION LTD, BASANT, TC 20/2170, OPP. MANMOHAN BUNGALOW, KOWDIAR, THIRUVANANTHAPURAM 695003 REPRESENTED BY ITS MANAGING DIRECTOR.

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2. MANAGING DIRECTOR, KERALA STATE WOMEN'S DEVELOPMENT CORPORATION LTD., BASANT, TC 20/2170, OPP. MANMOHAN BUNGALOW, KOWDIAR, THIRUVANANTHAPURAM-695003.

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BY ADV. SRI.MOHAMMED SHAH, SC

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THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 22-02-2017, THE COURT ON 01.03.2017 DELIVERED THE FOLLOWING:

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K.V.

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WP(C).No. 2493 of 2017 (J)

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APPENDIX

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PETITION --------	ER(S)' ------	EXHIBITS ---------
EXHIBIT	P1:	TRUE COPY OF THE PROJECT REPORT SUBMITTED BY PETITIONER TO THE IST RESPONDENT CORPORATION.
EXHIBIT	P2:	TRUE COPY OF THE AGREEMENT DATED 19.1.2015 EXECUTED BETWEEN THE PETITIONER AND THE 2ND RESPONDENT.
EXHIBIT	P3:	TRUE COPY OF THE AGREEMENT DATED 21.1.2015 ENTERED INTO BETWEEN PETITIONER AND 2ND RESPONDENT.
EXHIBIT	P4:	TRUE COPY OF THE AGREEMENT EXECUTED ON 23.12.2015 BETWEEN THE PETITIONER COMPANY AND THE 2ND RESPONDENT.
EXHIBIT	P5:	TRUE COPY OF THE AGREEMENT ENTERED INTO WITH THE 2ND RESPONDENT ON 9.3.2016.
EXHIBIT	P6:	TRUE COPY OF THE ORDER DATED 25.1.2016 ISSUED BY GOVERNMENT OF KERALA.
EXHIBIT	P7:	TRUE COPY OF THE NOTIFICATION AS PER VIDE ORDER NO.KSWDC/PO2/SHE-PAD/LSGD/2015-16 DATED 20.1.2017.
EXHIBIT	P8	COPY OF THE ONE OF THE CERTIFICATES ISSUED BY THE HEADMISTRESS OF ONE OF THE GOVERNMENT HIGHER SECONDARY SCHOOLS NO KSWDC/P5/EO1/IM/2014-15( AAYIROORPPARA GOVT HSS)
EXHIBIT	P9:	COPY OF THE CERTIFICATE ISSUED BY THE HEADMISTRESS OF COTTON HILL GOVERNMENT SCHOOL.
EXHIBIT	P10:	COPY OF THE COMMUNICATION OF THE CORPORATION VIDE NO KSWDC/P5/EO1/IM/2014-2015 DATED 22.12.2015.
RESPONDE --------	NT(S)' ------	EXHIBITS ---------
R1(A)		COPY OF THE RELEVANT PORTION OF THE REPORT ON LOCAL AUDIT OF O/O PRINCIPAL ACCOUNT GENERAL.
R1(B)		COPY OF THE AGENDA DATED 3.1.2017.
R1(C)		COPY OF THE ORDER ISSUED BY THE GOVERNMENT DATED 19.1.2017. /TRUE COPY/
K.V.		P.A.TO JUDGE

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SHAJI P. CHALY, J.

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W.P.(C). No.2493 of 2017

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Dated this the 1^st day of March, 2017

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JUDGMENT

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This writ petition is filed by the petitioner seeking to quash Ext.P7 tender notification dated 20.1.2017 and also seeking a writ of mandamus directing respondents to strictly go by the clauses contained in Exts.P2 to P5 agreements to implement Ext.P1 project and for other consequential reliefs.

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Material facts for the disposal of the writ petition are as follows; petitioner is a company incorporated under the laws of India, which is an ISO 9001:2008 certified company and the largest manufacture of post printing equipments in India. First respondent invited expression of interest from public for novel projects, which enhances the quality of life of women in the State. In response to the expression of interest called for by the 1^st respondent, petitioner has submitted a report of a novel project supplying sanitary pads to school going children in Government schools free of cost and at concessional price to other students/women. Thereupon 1^st respondent asked the

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petitioner to submit a detailed project report. In response to which, petitioner company submitted Ext.P1 detailed project report to the Government with respect to the distribution of safe and hygienic sanitary napkins to girl students and working women in the State of Kerala in the name and style ' She Pad'. Ext.P1 project report was examined in detail by the expert committee constituted by the respondents. On recommendation of the expert committee, the 1^st respondent empanelled the project for implementation with joint co-operation and pooling and use of resources of both the parties. It is submitted that, pursuant to the said development, Ext.P2 agreement was executed by and between the petitioner and the 2^nd respondent on 19.1.2015 agreeing to take responsibility for manufacturing/supplying the sanitary pads under the label of the 1^st respondent Corporation. According to the petitioner, from clause 14 of Ext.P2 agreement, it is clear that, the project is a proprietary of the petitioner company and hence the corporation has no authority to entrust somebody for its implementation by Ext.P7 tender notification. As per clause 14 of Ext.P2 agreement, the 1^st respondent Corporation clearly agrees that, during the continuance of the said agreement and thereafter, the

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corporation will not associate with or enter a joint venture with anybody other than the petitioner company for the implementation of the 'She Pad' project of the petitioner company. If at all the same is to be done, the 1^st respondent Corporation can do the same only with the written consent of the petitioner. However, during the existence of Ext.P2 agreement, the respondent Corporation without complying with the obligations under the agreement, issued Ext.P6 order and Ext.P7 tender notification inviting tender from others for the implementation of the project, which is illegal and arbitrary. These are the background facts projected by the petitioner to secure the reliefs sought for in the writ petition.

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Respondents have filed a counter affidavit denying the allegations and claims and demands raised by the petitioner and primarily it is contended that, the writ petition is not maintainable under law since the reliefs sought for in the writ petition is for execution of clauses contained in a contract between the petitioner and the respondents. As a matter of fact, the contract between the petitioner and the respondents herein is within the realm of private law and any dispute concerning the terms of the contract and the interpretation of the clauses in the

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contract cannot be agitated in a writ petition. The submission made by the petitioner with respect to Exts.P1 to P5 agreements are all admitted by the respondents. However, it is contended that, supply of product free of cost or on a concessional price is not in fact on the basis of the financial inputs of the petitioner. But the expenditure incurred consequent to the supply of product, free of cost or at a concessional price shall be borne by the 1^st respondent from the State fund. Therefore, the expenditure caused by the supply is the anxiety of the 1^st respondent and not the petitioner. The respondents are duty bound to make sure that the products supplied is having sufficient quality and the supply is carried out at a minimum price, since the amount is paid from the public exchequer. Moreover, it is submitted that inviting expression of interest is only the first step of implementation of an innovative project. Next step should be submission of formal bid proposal, which is to be assessed for technical and financial viability and feasibility in detail before finalizing the contract, which is now initiated. According to the respondents, any terms of contract which opposes the public policy become unlawful and void which cannot be enforced even by invoking the remedy of approaching

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the civil court as per Section 23 of the Indian Contract Act, 1872. If the terms of the contract is taken to mean or interpreted to be the proprietary right of any person under any contract then such an analysis amounts to an opposition to the public policy since the duty and the obligation of the State towards the necessity of the people is interdicted by a phrase of contract. Therefore, it is contended that, the contract Ext.P1 is not legally sustainable and therefore, unlawful and void. It is also contended that, the brand name of 'She Pad' is not a trade mark of the petitioner and not a concept created by the petitioner. The respondents are duty bound to make sure that quality products are supplied at lesser cost. Clause 14 of Ext.P2 agreement therefore provides any exclusivity to the petitioner with respect to the authority of the respondents to purchase product at the lowest cost in public interest. It is also submitted that Exts.P3 and P4 agreements are for specified periods, which have all expired. Provisions in Ext.P2 deemed to form part of Exts.P3 and P4 agreements as per clause 3 of the said agreements. As far as Ext.P5 agreement is concerned, it is independent from Exts.P2 to P4 agreements and no clauses in Exts.P2 to P4 agreements are adopted as part of Ext.P5 agreement.

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It is also submitted, after implementation of Exts.P2 to P4 agreements, 1^st respondent conducted an impact study on the implementation through two agencies viz., M/s.Kerala Working Woman's Association, Thiruvananthapuram and M/s.Sakhi, a non-Governmental organization and they submitted an impact study report on 31.12.2015. The report indicates several serious lapses in the implementation of the project. It was reported that, the quality of the pad supplied is not satisfactory and adequate training was not given to the teachers/co-ordinators/students. It is reported that, the vending machines and incinerators were not installed by the petitioner in several schools. It is further reported that, 93.6% of the vending machines installed are not working. There are other serious lapses pointed out in the above reports. Later the office of the Principal Accountant General has reported that serious irregularities have happened in the implementation and management of the project by the petitioner on the basis of the agreement executed by the 1^st respondent. Other contentions are raised in respect of Ext.R1(a) report. It is found to be a failure as serious lapses are pointed out in Ext.R1(a). Respondents are implementing the scheme after obtaining funds from various government departments. First

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respondent is only an implementing agency and therefore, the decision of the Government on the subject matter is included as 'force majeure event' in Ext.P5 agreement. The board has taken a decision passed through circulation based on the impact study report and audit reports and the circulated resolution is produced as Ext.R1(b). Moreover, in the light of the laches occurred on the part of the petitioner, Government directed the 2^nd respondent to take a decision to implement the scheme on the basis of the legal opinion and board decision, evident from Ext.R1(c). Accordingly the Board decided to identify competent persons at competitive rate in public interest to meet the situation. It was thereupon that Ext.P7 tender was issued with immediate effect on the basis of the above direction issued by the Government and board decision of the 1^st respondent company. It is also stated that since the project is being paid for by the local self Government Institutions from their plan funds for the year 2016-2017, it is highly imperative to complete the project before 31.3.2017 in a cost effective manner. That apart it is contended that, the price quoted by the petitioner for incinerator is exorbitantly high and there is a difference of Rs.14,000/- per machine in the market. If the contract is

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continuing with the petitioner, a loss of Rs.56 lakhs will be the consequent result. Respondent proceeded with the tendering process to ensure transparency in procedure and to make sure that the public money is being utilized in a prudent manner. Other contentions and allegations raised in the writ petition are denied by the respondents.

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Petitioner has filed a reply affidavit reiterating the stand adopted in the writ petition and also producing Exts.P8 to P10 documents in respect of the appreciation received by the petitioner while carrying out the project etc. etc. Therefore, it is the contention of the petitioner that, petitioner is entitled to succeed in the writ petition.

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Heard learned Senior Counsel for petitioner Sri.P.K.Suresh Kumar, learned Standing Counsel Sri.P.A. Muhammed Shah and perused the documents on record and the pleadings put forth by the petitioner.

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The question to be considered is, what is the nature of the right conferred on the petitioner as per Ext.P2 agreement. On a perusal of Ext.P2 agreement, it is evident that, the project was to be implemented by the petitioner in three phases. Clause

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11 states that on successful completion of 1^st phase, first party (1^st respondent) may implement 2^nd phase and 3^rd phase and if it implements, it shall be in association with the 2^nd party as the project has been conceived by the 2^nd party . If the 1^st party declines to implement the project further, the 2^nd party is free to implement the project solely or in association with any other person and in such eventuality the 2^nd party may use the brand so developed in the project under its name or in any other joint venture. Relying on the said provision, it is the contention of the learned Senior Counsel for petitioner that, respondents are entitled to proceed with the 2^nd and 3^rd phases of the project only if, the petitioner was not interested in implementing the project. Such an eventuality has not taken place at all. In the 3^rd phase, the required manufacturing set up will be constructed or installed under the special purpose vehicle company as provided under clause 12 of Ext.P2 agreement. Clause 14 of Ext.P2 agreement states, the 1^st party, acknowledges that, the project has been evolved by the 2^nd party, and is a proprietary of the 2^nd party and the 1^st party undertakes that during the continuance of this agreement or thereafter, the 1^st party shall not associate with or enter a joint venture with anybody for the same project

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with or without modification unless with the written consent from the 2^nd party. Relying upon the said provision, learned Senior Counsel contended that, the action initiated by the respondents by issuing Exts.P6 and P7 notification of tender cannot be sustained under law.

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While deliberating on clause 14 a query was put, is not the said clause against the public policy, as contemplated under Section 23 of the Indian Contract Act 1872. Learned Senior Counsel for petitioner fairly submitted that, the 2^nd part of the said clause may be hit by Section 23 of the Indian Contract Act, however, delineating the 2^nd part, 1^st part can achieve a meaning, even assuming that the latter part of clause 14 is against public policy as contemplated under Section 23 of the Indian Contract Act. So far as the proprietary of the project is concerned, petitioner has got every right to continue with the project. Learned counsel has also invited my attention to clause 18 of Ext.P2 agreement which deals with the right of parties to terminate/cancel the agreement upon occurrence of any of the events recited thereunder, which read thus:

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a) Breach by either party of any of the terms of this Agreement in such case, the

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affected party shall notify the party in breach of any alleged breach(s) and the said party shall have a period of thirty (30() days to correct the breach(s).

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b) If either party is declared bankrupt or insolvent, or makes an assignment for the benefit of creditors, or if a receiver is appointed or any proceedings are commenced by or against the either party under the applicable laws of the territory.

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c) Besides all the above events, either party may terminate the agreement by giving 180 days notice to the other party after settling the dues, if any.”

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According to the learned Senior Counsel, if at all there

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was any breach on the part of the petitioner, 1^st respondent ought to have notified the petitioner with respect to the same. There is no such notification issued to the petitioner, which thus means, there was no breach of contract on the part of the petitioner. That apart it is contended that, if at all agreement is to be terminated sub-clause (c) of clause 18 stipulates a notice of 180 days. No such notice is issued to the petitioner. According to the learned Senior Counsel, the petitioner has completed 1^st and 2^nd phases and the 3^rd phase implementation as

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provided under Ext.P5 agreement is under process. However, at that point of time, abruptly and without any notice to the petitioner, it was decided to implement the project as per Ext.P6 communication through the 1^st respondent, which according to the learned Senior Counsel is illegal and bad, since as per Ext.P5 agreement petitioner is entitled to supply the products on and w.e.f. 9.3.2016 to 9.3.2019. As a consequential act, Ext.P7 is issued by which tenders are invited from the public to implement the “She Pad” project conceived by the petitioner. Therefore, according to the learned Senior Counsel, the entire action on the part of the respondents issuing Exts.P6 and P7 cannot be sustained under law. It is also stated that, petitioner is not served with any copy of enquiry or any report submitted by any agency as is stated in Exts.R1(a) and (b) filed along with counter affidavit filed by the respondents.

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Per contra learned Standing Counsel appearing for respondents submitted that, Ext.P5 agreement has no manner of connection with Exts.P2 to P4. It is also submitted that, in Exts.P3 and P4, it is clearly stated that, the agreement executed by and between the parties is part of Exts.P3 and P4. However, in Ext.P5, there is no such recital, which thus means, Ext.P5 is

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an independent agreement executed by and between the parties without the juncture of Exts.P2 to P4. Therefore, counsel contends that, when it was found that petitioner has implemented the project in utter violation of the covenants contained under the agreement, the respondents are vested with every power to ensure that the project is implemented properly through other methods. It was thereupon that, it was decided to implement the project by inviting public tender. It is also contended by learned Standing Counsel that, by issuing Ext.P7 public tender, petitioner is not eliminated from the picture. Petitioner is one of the contractors to implement the project by supplying the product and petitioner is vested with every right to participate in the public tender. It is also submitted that from Exts.R1(a) and (b), it is clear that, the petitioner has not complied with the terms and conditions of the agreement and the quality of the products supplied was not in accordance with the undertaking made by the petitioner in Ext.P5 agreement. It was in larger public interest that the respondents have decided to go for public tender and by that action of the respondents, petitioner is no way affected. Nowhere from Ext.P7 it is discernible that the agreement executed by and between the

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petitioner and the 1^st respondent is terminated. The contention of the learned counsel is that Ext.P5 agreement and the tender floated as per Ext.P7 notification will remain simultaneously without any conflict between them. Therefore, learned Standing Counsel submitted that petitioner has not made out a case warranting interference of this court by invoking the writ jurisdiction.

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Taking note of the respective submissions made across the Bar, I am of the considered opinion that, the conceiving of the project by the petitioner as per Ext.P1 is admitted by the respondents. Execution of Exts.P2, P3 and P4 agreements are also admitted by the respondents. The issue with respect to the decision taken to invite public tender is based on Ext.P5 agreement entered into by and between the petitioner and the 1^st respondent, which is dated 9.3.2016. According to the respondents, the said decision was taken on the basis of Ext.R2 (b) report submitted by the Chairman of the 1^st respondent Corporation. It is also submitted that, evident from Ext.R1(a), there are several discrepancies occurred in implementing the project by the petitioner.

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From the contentions raised by the rival parties, one thing is clear, petitioner is not served with any notice in respect of any short comings on the part of the petitioner in implementing the project and no opportunity was provided to respond to any enquiry or report drawn allegedly through two agencies. Even though reports were drawn by the 1^st respondent Corporation, petitioner is never notified with respect to any such lapses or laches on the part of the petitioner. Even in Ext.P6 Government Order dated 25.1.2016, there is no such allegation made against the petitioner. It is also to be noted in Ext.P7 tender notification, nothing is spelt out about the lapses or laches on the part of the petitioner. It is also the contention of the 1^st respondent that the project is proposed to be implemented simultaneously receiving products from the petitioner as well as other tenderers, which thus means, the respondents are also intending to implement the terms and conditions of Ext.P5 agreement. Moreover, the said agreement is not terminated. These things will go a long way to prime facie show that there are no serious issues raised against the petitioner. Even though learned Standing Counsel for

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respondents has a contention that, as per Ext.P5 agreement, 1^st respondent is not bound to issue any notice to the petitioner as provided under clause 18(c) of Ext.P1 project report, on a reading of Ext.P5, it is categoric and clear, the introductory clauses deal with Ext.P2 detailed project report submitted by the petitioner. Therefore, it cannot be said that, the covenants contained under Ext.P2 general agreement, with respect to the covenants and obligations to be discharged by the parties in the subsequent agreements are not applicable to Ext.P5 agreement. Moreover, clause 33 of Ext.P5 agreement states that, none of the parties shall withdraw from the agreement during the currency of the agreement without written consent of the other.

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Therefore, taking into account clause 18(c) of Ext.P2 agreement r/w. clause 33 of Ext.P5 agreement, a duty is cast upon both the parties, not to withdraw from the contract without complying with the stipulations contained thereunder. As I have pointed out earlier, there is no case for the respondents that, the violation of any covenants, terms and conditions contained under Ext.P5 is put on notice to the petitioner. None of the copy of the reports are given to the petitioner. The said collective aspect is a clear indicator to show that, if at all any termination is to be

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made on the said ground of casting stigma, definitely a notice should have been provided to the petitioner inviting objections and providing an opportunity to contest the proceedings. Such a course is not undertaken by the respondents. In that view of the matter, there is clear violation of principles of natural justice and consequential illegality and arbitrariness, warranting interference of this court exercising the power of judicial review under Article 226 of the Constitution of India. While doing so , I bear in mind the principles of law laid down by the Apex Court in Delhi Development Authority and another v. UEE Electrical Engg. (P) Ltd. and another [(2004) 11 SCC 213], Nagarjua Construction Company Limited v. Government of Andhra Pradesh and others [(2008) 16 SCC 276] and State of Punjab and another v. Brijeshwar Singh Chahal and another [(2016) 6 SCC 1] pointed by the learned Senior Counsel for petitioner and the propositions propounded by the Apex Court, pointed out by learned counsel for respondents in Rattan Chandhirachand v. Askar Nawaz Jung [(1991)3 SCC 67], State of U.P. and others v. Bridge and Roof Co.(India) Ltd. [(1996) 6 SCC 22] and Sterling Computers Ltd. v. M/s.M. and N Publications Ltd. and Others [(1993)1 SCC 445], in respect

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of the extent of interference of the writ court in contractual matters. Therefore, in my considered opinion, leaving open the issue with respect to the proprietary rights of the petitioner, and other legal questions raised with respect to Section 23 of the Indian Contract Act, 1872, 1^st respondent can be directed to issue a notice to the petitioner pointing out the lapses if any and consider the matter on merits.

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Accordingly I direct the respondents to keep in abeyance Exts.P6 and P7 dated 25.1.2017 and issue a notice to the petitioner providing with all the documents relied on by the respondents within 15 days from the date of receipt of a copy of this judgment and on receipt of the notice, petitioner has to submit objection to the same within a further period of 15 days and a decision shall be taken by the 1^st respondent after providing an opportunity of hearing to the petitioner within another 15 days thereafter. I also make it clear that, if the petitioner expresses its willingness to participate in any tender proceedings, the same shall also be considered by the 1^st respondent.

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When the matter came up for admission on 1.2.2017, stay of further proceedings pursuant to Ext.P7 was granted for a

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period of three weeks and the same is in force. Till the directions are complied with, the said interim order will continue. I also make it clear, the questions of law raised by the parties in this writ petition are left open to be agitated at a later point of time, if situation warrants.

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Writ petition is disposed of accordingly.

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Sd/- SHAJI P. CHALY JUDGE

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smv 27.02.2017

Intimate Machines Pvt. Ltd. v. Kerala State Women'S Development Corporation Ltd.

Case brief

What is this about?

What did the court decide?

Intimate Machines Pvt. Ltd. v. Kerala State Women'S Development Corporation Ltd.

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

Issues for consideration

Cases cited

Statutes considered

Parties & counsel

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