Dismissed

B.A. Amoo v. Ministry of Micro, Small and Medium Enterprises

Kerala HC9 Oct 2023WA/1191/2023

Case brief

AI extract

What is this about?

The High Court of Kerala dismissed an appeal challenging an interim order. The Court held that Central Government Office Memorandums lack binding force on State contracts. The appellant, quoting below 10% of estimated value, must furnish Additional Performance Guarantee on a pro-rata basis, and the State is not bound to extend waivers of exemptions.

What did the court decide?

Writ appeal dismissed; appellant liable to furnish Additional Performance Guarantee at 8.30% on balance work exceeding 10-25% of TPAC.

B.A. Amoo Vs Ministry of Micro, Small and… — Contract and Commercial Disputes | Kerala HC (2023)

¶1

IN THE HIGH COURT OF KERALA AT ERNAKULAM

¶2

PRESENT

¶3

THE HONOURABLE THE CHIEF JUSTICE MR. A.J.DESAI

¶4

¶5

THE HONOURABLE MR.JUSTICE V.G.ARUN

¶6

MONDAY, THE 9TH DAY OF OCTOBER 2023 / 17TH ASWINA, 1945

¶7

WA NO. 1191 OF 2023

¶8

AGAINST THE JUDGMENT IN WP(C) 5895/2023 DATED 21.03.2023 OF HIGH

¶9

COURT OF KERALA

¶10

APPELLANT/PETITIONER:

¶11

B.A. AMOO, AGED 69 YEARS
S/O. ABDULLA KUNHI, CONTRACTOR, KALLUVALA HOUSE,
BEVINJE, CHENGALA, THEKKIL FERRY, KASARGOD DISTRICT.,
PIN - 671541
BY ADV BABU JOSEPH KURUVATHAZHA

¶12

RESPONDENTS/RESPONDENTS:

¶13

1 MINISTRY OF MICRO, SMALL AND MEDIUM ENTERPRISES GOVERNMENT OF INDIA, NIRMAN BHAVAN, 7TH FLOOR, MOULANA AZAD ROAD, NEW DELHI, REPRESENTED BY ITS ADDITIONAL DEVELOPMENT COMMISSIONER., PIN - 110108

¶14

2 NATIONAL SMALL INDUSTRIES CORPORATION LTD. S-67 GCDA COMMERCIAL COMPLEX, MARINE DRIVE, SHANMUGHAM ROAD, KOCHI, REPRESENTED BY ITS MANAGING DIRECTOR., PIN - 682031

¶15

3STATE OF KERALA
REPRESENTED BY ITS CHIEF SECRETARY, GOVERNMENT
SECRETARIAT, THIRUVANANTHAPURAM., PIN - 695001
4EXECUTIVE ENGINEER
KERALA WATER AUTHORITY (W.S) DIVISION, KANNUR., PIN -
670012
BY SPL.GP K.V.MANOJ KUMAR
SRI. V.V.JOSHI, SC,KWA
SRI. SUVIN R.MENON, CGC

¶16

THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 09.10.2023,
THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

¶17

WA NO. 1191 OF 2023

¶18

-2-

¶19

JUDGMENT

¶20

V.G.ARUN, J.

¶21

Being the successful bidder for a work contract, the appellant was issued with Ext.P1 Letter of Acceptance by the Kerala Water Authority. The conditions in the Letter of Acceptance required the appellant to furnish security/performance guarantee worth Rs.4,85,400/- and Additional Performance Guarantee worth Rs.19,82,300/-. Aggrieved by the demand for Performance Guarantee and Additional Performance Guarantee, the writ petition was filed seeking the following reliefs;

¶22

i). issue a writ of mandamus or any other appropriate

¶23

writ, order or direction commanding the respondents to permit the petitioner to execute the agreement, in pursuant to Ext.P1 selection notice, without furnishing the security deposit/performance guarantee and additional performance guarantee, forthwith.

¶24

ii). issue any appropriate writ, order or direction

¶25

WA NO. 1191 OF 2023

¶26

-3-

¶27

declaring that the respondents are bound to follow the directions issued by the Government of India in Ext.P4 Office Memorandum and Ext.P9 policy in the matter of additional performance security/guarantee, in its true letter and spirit, without dilution;

¶28

iii). issue a writ of mandamus or any other appropriate writ, order or direction commanding the 4^th respondent to consider and dispose of Ext.P11 representation, in the light of Ext.P4 OM and Ext.P9 policy, forthwith;

¶29

The learned Single Judge heard the writ petition, along with other similar matters, and disposed of the writ petitions with the following directions;

¶30

If the work in accordance with the agreement is completed by the contractors, no Additional Performance Guarantee shall be insisted upon.

¶31

If the work has progressed to a level exceeding 80%, the tendering authority is left with the liberty to take a

¶32

WA NO. 1191 OF 2023

¶33

-4-

¶34

decision as to whether any Additional Performance Guarantee is to be insisted upon, taking into account the efficiency, reputation, men and machinery engaged, and other positive factors of the respective contractors.

¶35

If the work has exceeded 30% of the total work, then the tendering authority is directed to secure Additional Performance Guarantee proportionate to the balance work.

¶36

In all other cases, the contractors/petitioners are directed to furnish an Additional Performance Guarantee to the tendering authority as specified in the tender documents within three weeks from the date of receipt of a copy fo this judgment.

¶37

In cases where a Performance guarantee is furnished by the contractors in spite of its relaxation up to 31/03/2023, the said amounts can be adjusted against the Additional Performance guarantee required in the circumstances specified above.

¶38

WA NO. 1191 OF 2023

¶39

-5-

¶40

In cases where 100% bank guarantee is furnished, instead of 50% by way of treasury fixed deposit, the same is permitted to be continued in the facts and circumstances, if the work has exceeded 30% of the total work.

¶41

If the tenders are invited on the basis of the Percentage Rate Contracts, then the contractors are liable to furnish the Additional Performance Guarantee on the basis of (X-10)% of the estimated PAC.

¶42

If the tenders are invited on the basis of Items Rates Contract, then the contractors are liable to furnish Additional Performance Guarantee for each item of work on the basis of (X-10)% of the estimated amount for each item of work.

¶43

I make it clear that the directions are issued as above taking into account the peculiar facts, features and circumstances involved in these cases consequent to the interim orders granted; and it shall not be treated as a precedent, except in regard to the writ petitions pending in

¶44

WA NO. 1191 OF 2023

¶45

-6-

¶46

the above context.

¶47

The common judgment was challenged by some of the other original petitioners in W.A. Nos. 725 of 2023 and connected cases. This Court, by judgment dated 14/08/2023, disposed of the writ appeals with the following directions;

¶48

“15. Considering the above aspects, we allow these appeals and set aside the judgment passed by the learned Single Judge. It is made clear that the appellants would not be liable to execute the Additional Performance Guarantee, if the over all rate is below 10% of TPAC. However, the appellants would be liable to furnish Additional Performance Guarantee as per the letter dated 10.01.2019, ie, x-10%. Additional Performance Guarantee should be executed for the balance amount of work where the amount of work is above 10-25% of the TPAC.”

¶49

Advocate Babu Joseph Kuruvathazha, the learned Counsel appearing for the appellant, submits that his client is not bound to furnish Performance Security at the rate demanded and is wholly exempted from furnishing Additional Performance Guarantee. To buttress this argument, the learned Counsel relied on Exts.P3 and

¶50

WA NO. 1191 OF 2023

¶51

-7-

¶52

P4 Office Memorandums dated 12.11.2020, issued by the Ministry of Finance. It is pointed out that as per Ext.P3 Office Memorandum, the Central Government had directed to reduce the percentage of Performance Security from the existing 5-10 % to 3% of the value of the contract and further stipulated that in contracts entered into with the reduced percentage of Performance Security of 3%, there shall be no subsequent increase in Performance Security even beyond 31.12.2021. As per Ext.P4 Office Memorandum, it was directed that in case of abnormally low bids, no provision should be kept in the bid documents regarding Additional Security Deposit/Bank Guarantee.

¶53

It is submitted that, pursuant to of Exts.P3 and P4, the Government of Kerala issued G.O.(P) No.7/2021/FIN.dated 07.01.2021, reducing the Performance Security from the existing 5- 10 % to 3% of the value of the contract and waiving the Additional Performance Guarantee for low quoted items, on condition of the bidder furnishing an undertaking to execute that low quoted items in

¶54

WA NO. 1191 OF 2023

¶55

-8-

¶56

full as per the contract terms. The relaxations were made applicable initially for one year. While so, by Ext.P6 Office Memorandum, the Central Government extended the validity of Ext.P3 Office Memorandum, dealing with Performance Security, till 31.03.2023. Consequently, the Government of Kerala issued Ext.P7 Government Order dated 15.03.2022, extending the benefit of reduction of Performance Security up to 31.03.2023. Learned Counsel for the appellant contends that the Central Government did not extend the time limit regarding waiver of the condition with respect to furnishing of additional performance guarantee for the reason that no time limit is stipulated in Ext.P4 Office Memorandum. Therefore, the waiver granted as per Ext.P4 would continue to be in force, even if the benefit is not extended as per Ext.P5 Government Order. Hence, the State Government’s omission to extend the period of exemption for furnishing the Additional Performance Guarantee is liable to be overlooked.

¶57

Adv. K.V.Manoj Kumar, Special Government Pleader

¶58

WA NO. 1191 OF 2023

¶59

-9-

¶60

appearing for the State, contended that the appellant has no vested right to claim the benefits granted under Government Orders, they being only concessions extended during pandemic situation. Even otherwise, Office Memorandum issued by the Central Government have no binding force and the relaxation was granted acceding to the request of the contractors and their association. Attention is drawn to Ext.P6 Office Memorandum issued by the Central Government to point out that the Central Government also had extended the benefit with respect to Performance Security alone.

¶61

Learned Standing Counsel for the Water Authority submitted that the Orders of the State Government are binding on the Water Authority and the Government not having extended the exemption with respect to Additional Performance Guarantee, the Water Authority has every right to demand Additional Performance Guarantee for low quoted items.

¶62

Learned Central Government Counsel, Sri. Suvin R.Menon, appearing for the first respondent, on being asked to address the

¶63

WA NO. 1191 OF 2023

¶64

 -10-

¶65

Court with respect to the binding nature of Exts.P3, P4 and P6 Office Memorandums issued by the Central Government, submitted that the directions in those Office Memorandums are addressed to the Secretaries and Financial Advisories to the Government of India and that, at best, they can only be treated as advisories as far as the State Governments are concerned.

¶66

Having heard the learned Counsel and having scrutinized the Office Memorandums and the Government Orders, we are of the definite opinion that the Memorandums issued by the Central Government have no binding force, as far as the contracts awarded by the State Government are concerned. This is evident from the first paragraph of Ext.P3 Office Memorandum, extracted hereunder for easy reference;

¶67

“As per Rule 171 of General Financial Rules (GFRs) 2017, Performance Security is to be obtained from the successful bidder awarded the contract for an amount of five to ten percent of the value of the contract to ensure due performance

¶68

WA NO. 1191 OF 2023

¶69

 -11-

¶70

of the contract. Similar provisions also exist in the Manual for Procurement of Works 2019 and Manual for Procurement of Consultancy & other Services 2017 issued by this Department.

¶71

10 . We do not find any substance in the contention that, no

¶72

outer time limit having been prescribed in Ext.P4 Office Memorandum, the relaxation with respect to Additional Performance Guarantee will continue to be in force. On the contrary, there is merit in the submission of the respondents that, while issuing Ext.P6 Office Memorandum, the Central Government had consciously limited the extension of relaxation only to Performance Security. Even otherwise, discretion is vested with the State Government to decide whether to extend the benefit of waiver of Additional Performance Guarantee or not. The State Government having chosen not to extend the benefit of waiver as part of its policy, this Court cannot intervene in exercise of the power under Article 226 of the Constitution of India.

¶73

On facts, we find that the bidder had quoted at 18.30 %

¶74

WA NO. 1191 OF 2023

¶75

 -12-

¶76

below the tendered Probable Amount of Contract. As per the judgment in W.A.No.725/2023 and connected cases, it is held that in cases where the over all rate is below 10% of TPAC, the contractor has to furnish Additional Performance Guarantee calculated as per the forumula x-10%, which in this case is 8.30% (18.30-10).

¶77

The writ appeal is dismissed with the above observation.

¶78

Sd/-

¶79

 A.J.DESAI

¶80

 CHIEF JUSTICE

¶81

Sd/-

¶82

 V.G.ARUN

¶83

 JUDGE

¶84

¶85

09.10.2023

¶86

WA NO. 1191 OF 2023

¶87

 -13-

¶88

APPENDIX OF WA 1191/2023

¶89

PETITIONER ANNEXURES
Annexure A1TRUE COPY OF THE INTERIM ORDER OF THIS
HON'BLE COURT DATED 27.2.2023 IN W.P.
(C) NO.5895/2023.
Annexure A2TRUE COPY OF THE LETTER DATED 25.5.2023
ISSUED BY THE 4TH RESPONDENT.
Annexure A3TRUE COPY OF THE PROCEEDING DATED
4.5.2023 ISSUED BY THE GOVERNMENT OF
INDIA, REPRESENTED BY ITS SECRETARY,
MINISTRY OF ROAD TRANSPORT & HIGHWAYS.
Annexure A4TRUE COPY OF G.O.(P) NO.95/2023/FIN
DATED 7.9.2023 ISSUED BY THE GOVERNMENT
OF KERALA.

B.A. Amoo v. Ministry of Micro, Small and Medium Enterprises

Case brief

What is this about?

What did the court decide?

B.A. Amoo v. Ministry of Micro, Small and Medium Enterprises

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

Case details

Similar cases

Green Vistas Infrastructure Projects Vs Union of India

State of Kerala Vs Lissy Sunny S.

State of Kerala, Represented by Secretary to Government, Revenue Department Vs Stephen

T.P.Stanly Vs State of Kerala

M/S. Strefa Projects Private Ltd. Vs Kerala Water Authority

Soni Varghese Vs the South Indian Bank Ltd.