Allowed

M/S South India Surgical Co. Ltd. v. State of Haryana & Ors.

Punjab & Haryana HC13 Sept 2012CWP/1387/2012

Case brief

AI extract

What is this about?

This Writ Petition challenged a debarment order of three years for non-supply of medical equipment, passed seven years after the original show cause notice. The Court quashed the order citing violation of audi alteram partem and held that the arbitration clause did not bar writ jurisdiction.

What did the court decide?

The order dated 15.07.2011 debarring the petitioner was set aside with costs of Rs 25,000.

M/S South India Surgical Co. Ltd… — Pension and Retirement Benefits | Punjab & Haryana HC (2012)

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CWP No.1387 of 2012

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IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH

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CWP No.1387 of 2012 Date of decision:13.09.2012

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M/s South India Surgical Company Limited

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.....Petitioner

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Versus

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State of Haryana & others

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.....Respondents

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CORAM : HON'BLE MR.JUSTICE AJAY KUMAR MITTAL HON'BLE MR.JUSTICE G.S.SANDHAWALIA

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Present: Mr.Aman Kashyap, Advocate, for the petitioner,

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Mr.Gagandeep Wasu, Addl.A.G., Haryana, for respondents No.1 & 2,

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Mr.Robin Hood, Advocate, for respondent No.3.

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G.S.Sandhawalia J.

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The present writ petition has been filed under Articles 226/227 of the Constitution of India for issuance of writ in the nature of certiorari for quashing the order dated 15.07.2011 (Annexure P-8) whereby the petitioner has been debarred for a period of 3 years from doing business with the Haryana Government.

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The necessary facts enumerated in the writ petition are that the petitioner-company is an ISO 9001:2000 ISO 13485:2003 registered and the products are CE certified. The petitioner-company supplies medical equipments to the reputed hospital/medical institutes of India. Vide advertisement, respondent No.2 invited tenders for supply of 2 electro surgical unit (cautery machine) and one skull clamp/head rest system. The advertisement was as per the requirement of the PGIMS, Rohtak, respondent No.3. The petitioner had submitted its tender on 14.01.1999 and the dispute pertains only to the supply of skull clamp/head rest. The

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said product was not being manufactured by any Indian company and was to be imported from United States of America from principal manufacturer namely M/s Omi Surgical Products, 3924 Virginia Avenue, Cincinnati, OHIO 45227 and was to be supplied to respondent No.3. The bids were examined by the technical committee and the high powered purchase committee and a supply order dated 26.03.1999 for supply of the skull clamp at the rate of US dollars 11142 was placed. The payment was to be made against letter of credit in favour of the principal manufacturer/supplier. The performa invoice dated 22.04.1999 was submitted by the principal supplier so that the letter of credit could be opened by respondent No.2 on the basis of which the material was to be supplied by the principal manufacturer in USA. Since the payment was to be made to the principal manufacturer directly in US dollars, respondent No.2 did not open the letter of credit for about two years from the submission of the performa invoice and ultimately opened the letter of credit on 01.02.2001. In the meantime, the principal manufacturer was bought over by M/s Schaerer Mayfield Schweiz A G, Switzerland and due to the change in management, the concerned company took certain policy decisions pretaining to supply of products in India that they would not supply their products directly to the end user and would supply the products only to their authorised distributors. Since the supply order was pursued by the petitioner-company, it issued letter dated 22.10.2003 to respondent No.3 intimating that the principal supplier had been bought over and the alternative letter of credit could be amended in the new name of the company. The petitioner even offered that supply could be effected if the equivalent value in Indian Rupees is paid to it so that it can import the

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product at their own level and a fresh performa invoice dated 15.09.2003 was furnished. However, the petitioner-company received show cause notice dated 14.05.2004 as to why it should not be debarred for a period of 3 years from doing business with the Haryana Government. The petitionercompany submitted its reply dated 26.05.2004 wherein it was mentioned that the letter of credit had been opened by respondent No.3 on 01.02.2001 in the name of the principal company and by that time, the top management level of the principal company had undergone a change. The petitionercompany was prepared to supply the items even if the supply order was issued in its name in equivalent rupee value by authorizing it to import the equipment. The company had expressed the desire to supply the material in the year 2004 at the rates quoted in the year 1999 without raising any issue on the rates due to delay. No further action was taken on the show cause notice and the petitioner, thereafter, did not receive any notice from the respondents and the security amount of `22,000/- stood forfeited and the petitioner-company did not even agitate against the forfeiture considering it to be the ultimate decision of respondents in the show cause notice since the petitioner-company was supplying various surgical items from time to time. Suddenly, respondent No.1 passed the impugned order dated 15.07.2011 without affording any opportunity of personal hearing to the petitionercompany and debarred it for a period of 3 years. The petitioner-company had been participating in the tenders issued by the respondents and even supplying equipments from time to time and details of various supplies made to the respondents were given. Accordingly, the said order dated 15.07.2011 was challenged that the same was passed after a period of more than 7 years from the date of issuance of the show cause notice.

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In the written statement filed by respondents No.1 & 2, it is pleaded that the company was to complete the supply by 19.06.1999 and the letter of credit was opened on 01.02.2001 but the petitioner-company had failed to execute the supply against the said order and an opportunity had been given to the petitioner-company to confirm within 15 days of the issuance of the letter dated 06.07.2001 that they were ready to supply goods against the order directly from the principal firm through letter of credit or not. Since the petitioner-company failed to make the supply of the skull clamp/head rest, a letter dated 14.08.2003 was issued that necessary action may be taken against the company as per rules and the aforesaid letter may be cancelled and accordingly, the supply order was cancelled and security amount was forfeited on 07.11.2003. The case was sent to the State Government, Haryana, Industries Department to debar the petitionercompany. A show cause notice was issued to the petitioners and reply dated 26.05.2004 was received. The petitioner had offered to arrange the supply after a period of 3 years but the reply was not accepted on the ground that the execution of the order was the responsibility of the bidder company and not of the principal supplier and that the petitioner had accepted the default in supply and had not requested for grant of any opportunity of personal hearing and the belated offer to supply the equipments after a period of more than 3 years was not acceptable in view of technology obsolescence. The Government of Haryana, thereafter, decided the matter by passing order dated 15.07.2011. The plea of alternate remedy regarding the issue being referred to arbitration was also raised. Accordingly, the impugned order was defended by respondents No.1 & 2.

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Similarly, in the written statement filed by respondent No.3, it

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was pleaded that the petitioner was to supply the performa invoice against the supply order and in response to letter dated 15.04.1999, the performa invoice of the principal firm was supplied vide letter dated 10.05.1999 and the performa invoice had to be communicated in favour of the Director, Pt. B.D.Sharma, PGIMS, Rohtak and not in favour of the Director, Supplies and Disposal, Haryana. A letter was written to the petitioner-company to send the performa invoice of the principal firm in the name of the answering respondent. The performa invoice was sent but condition No.4 was not acceptable wherein the shipment was to be made via Kintetsu World Express inc., 2900 Earhart Ct. #260 Hebron Kentucky, 41048 U.S.A. and that against condition No.7, it was mentioned that 90% payment would be released against the despatch of goods and 10% would be released to the Indian agent after satisfactory installation and demonstration of equipments. Letter dated 10.07.2000 was issued to the petitioner that if these conditions were accepted by the petitioner then only the letter of credit could be opened. The petitioner gave reply on 28.08.2000 but it was not the complete answer to all the queries made in the letter dated 10.07.2000 and another letter was issued on 18.10.2000 and the letter of credit was opened and amount of `5,28,000/- was deposited in the State Bank of India and inspite of the opening of the letter of credit dated 01.02.2001, the goods were not supplied wherein reply was received that there was some restructuring in the principal company which had delayed the shipment. Accordingly, the supply order had been cancelled on 07.11.2003 and the amount forfeited.

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As there is no dispute regarding the fact that there was delay in the execution of opening of the letter of credit which was done on

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01.02.2001, the supply order was also cancelled by the respondents on 07.11.2003 and the security of the petitioner-company was also forfeited. The respondents, thereafter, had maintained a studious silence regarding the debarring of the petitioner-company and there is no denial to the fact that the petitioner-company had also, thereafter, been supplying medical equipments to the State and it is specifically pleaded about this fact in para No.19 which is admitted by the respondents. The State suddenly got up from slumber after a period of 7 years and has passed the impugned order which has serious civil consequences and had debarred the petitionercompany for a period of 3 years without taking into consideration the representations of the petitioner. Sufficient justification had been given by the petitioner in reply to the show cause notice but respondent No.1 has passed the said order after a period of 7 years without even adhering to the principle of audi alteram partem which have been patently violated. The petitioner-company has been supplying equipments in the State of Haryana but have been debarred for a period of 3 years on 15.07.2011 from doing business on account of non-supply of items which were to be supplied in the year 1999. Admittedly, there was a dispute regarding the conditions of delivery and some conditions were not acceptable to respondent No.3. The letter of credit was also opened on 01.02.2001 by the said respondent after a period of almost 2 years and for its slumber, the petitioner cannot be penalised. In such a background, the contract had been cancelled due to the change in management of the supplier company and the petitioner had made all efforts to even supply the equipments from the local supplier after the change of management and also at the same rate but the respondents have chosen not to go ahead with the supply of material on the ground that the

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technology has changed over the last 4 years. The orders passed by respondent No.1, thereafter, debarring the petitioner without even issuing a fresh show cause notice and without affording an opportunity of personal hearing to justify the non-supply is patently arbitrary. The Hon'ble Apex Court in Raghunath Thakur Vs. State of Bihar 1989 (1) SCC 229 has held that an order which entails serious civil consequences, cannot be passed without hearing the party concerned. Relevant portion of the judgment reads as under:

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“4. Indisputably, no notice had been given to the appellant of the proposal of black-listing 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 black-listing any person. In so far 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 civil consequence 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 in so far as it directs black-listing 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 Government is so entitled to do so in accordance with law, i.e. giving the appellant due notice and an opportunity of making representation. After hearing the appellant, the State

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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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The plea raised by the respondents that there is an arbitration clause and the matter should be referred for arbitration is of no assistance. The arbitration clause reads as under:

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“18. If any question, difference or objection whatsoever shall arise, in any way connected with or arising out of this instrument or the meaning or operation of any part thereof or the rights, duties or liabilities or either party than save in so far as the decision of any such matter is here in before provided for and has been so decided every such matter including whether its decision has been otherwise provided for and/or whether it has been finally decided accordingly in whether the contract should be terminated or has been rightly terminated in whose or part and as regards the rights and obligations of the parties as the result of such termination, shall be referred for arbitration to any Officer appointed by the Haryana Government and his decision shall be final and binding and where the matter involves a claim the amount if any awarded in such arbitration shall be recoverable in respect of the matters so referred.”

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Clause 18 provides as regards the rights and obligation of the parties resulting from any termination which the supplier could agitate. In the present case, the supplier is not agitated by the termination of the contract but is aggrieved against the order of black-listing which would not be covered under Clause 18 as referred above. Even otherwise, the Hon'ble Apex Court in Union Of India & Ors. vs Tantia Construction Private Limited (2011) 5 SCC 697 has held that arbitration clause is not the absolute bar to the extraordinary writ jurisdiction under Articles 226/227 of the Constitution of India. The relevant portion read as under:

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“27. Apart from the above, even on the question of maintainability of the writ petition on account of the Arbitration Clause included in the agreement between the parties, it is now well-established that an alternative remedy is not an absolute bar to the invocation of the writ jurisdiction of the High Court or the Supreme Court and that without exhausting such alternative remedy, a writ petition would not be maintainable. The various decisions cited by Mr. Chakraborty would clearly indicate that the constitutional powers vested in the High Court or the Supreme Court cannot be fettered by any alternative remedy available to the authorities. Injustice, whenever and wherever it takes place, has to be struck down as an anathema to the rule of law and the provisions of the Constitution. We endorse the view of the High Court that notwithstanding the provisions relating to the Arbitration Clause contained in the agreement, the High Court was fully within its competence to entertain and dispose of the Writ Petition filed on behalf of the Respondent Company.”

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In view of the facts and circumstances, the order dated 15.07.2011 is set aside with costs of `25,000/- which shall be paid to the petitioner. The Government shall be free to recover the said amount from the person responsible. Writ petition is, accordingly, allowed.

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(G.S.Sandhawalia) JUDGE 13.09.2012 (Ajay Kumar Mittal) sailesh JUDGE

M/S South India Surgical Co. Ltd. v. State of Haryana & Ors.

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M/S South India Surgical Co. Ltd. v. State of Haryana & Ors.

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