M/S Sarr Freights Corporation vs The General Manager Ap Region
2021 Latest Caselaw 1912 AP

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[ 2570]
IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI °

(Special Original Jurisdiction)

THURSDAY, THE TWENTIETH DAY OF MAY TWO THOUSAND AND TWENTY ONE

:PRESENT:
THE HONOURABLE SRI JUSTICE C.PRAVEEN KUMAR > [Of
IA No. 1 OF 2021
BO WP NO: 8410 OF 2021 ©
Between: = oo. a
M/S SARR Freights Corporation, Rep by its Authorized Signatory SubodhKumar Singh
1E/12, Sewak House, Jnandewalan Extension, New Delhi -110055
so ae -,..Petitioner(s)
(Petitioner in WP' 8410 OF 2021
on the file of High Court)

AND

The General Manager (AP Region), O/o Food Corporation Of India, D.No 74-14-2A,
Rajanarendra Building Krishna Nagar, Patamata , Yenamalakuduru Road,
Vijayawada-520007. , .
... Respondent
-(Respondent in-do-)

Counsel for the Petitioner: SRILLAKSHMIKANTH REDDY DESAI

Counsel for the Respondent: SRIMAHESWARA RAO KUNCHEM (S.C.)

Petition under Section 151 CPC praying that in the circumstances stated in the
affidavit' filed in support -of the petition, the High Court may be pleased to stay the
termination order dated 30.03.2021 issued by the Respondent, while permitting the
Petitioner to carry out the work stipulated under the contract and direct the Respondent
to collect only a total of 3% performance security deposit in terms of the Government of
India notification dated 12.11.2020, or to not take any further steps under the fresh
tender notification dated 31.03.2021,or suspend the operation of blacklisting, as
stiouiated in the termination order dated 30.03.2021, and allow the Petitioner to
participate in the tenders of the Respondent, pending disposal of W.P.No.8410 of 2021,
on the file of the High Court.

The court while directing issue of notice to the Respondents herein to shaw
cause 'as to why this application should not be complied with, made the following
order.(The receipt of this order will be deemed to be the receipt of notice in the case).
The Court made the following: --

ORDER:

Pursuant to the Order passed by the learned Judge on 07.05.2021 and having regard to the urgency expressed, the matter was directed to be listed before the vacation bench.

1) The short question that falls for consideration is, whether the petitioner/contractor can be blacklisted without giving a notice or in other words, whether in the circumstances of the case, a notice is required to be given before

a contractor is blacklisted?

2) In order to appreciate the same, it would be necessary to refer to few facts, which are as under:- |

a) The Respondent, namely, Food Corporation of India, issued a Notification, dated 02.12.2020, for Multimodal Contract for movement of food grains from the designated depots of Visakhapatnam port to Andaman and Nicobar Islands -- upto Mayabunder Port for 3 PDCs and further transportation of food grains by trucks upto FCI Port Blair depot. The tender notification issued on 02.12.2020, stipulates two rounds i i.e., technical bid and price bid.

b) The pre-bid meeting was held on 08.12.2020 and the last date for submission of tender along with earnest money deposit [EMD] of Rs.26,64,000/- and tender form and processing f fee of Rs.1, 180/- to be made through e- payment was on 23.12.2020. The bids were to be opened on 24. 42. 2020 and L1 will be 'identified on that day. The lowest successful bidder would be awarded contract by way of an acceptance letter to be issued by the Respondent. However, the date of acceptance of tender was extended by 30 days i.e., 09.03.2021, vide letter issued by Respondent on 04.02.2021.

c) The Petitioner herein is said to have complied with all the procedures prescribed in the tender and emerged as a successful bidder in both the rounds. The Petitioner was awarded the contract by way of Respondent's acceptance letter dated 04.03.2021, which was received by the Petitioner on 11.03.2021 by registered post. However, the petitioner denied receiving the said acceptance

- letter by e-mail sent on 04.03.2021.

_d) It is averred in the affidavit that due to pandemic, the Government of India vide Office Memorandum, dated 12.11.2020, modified Rule 171 of the General Finance Rules (GFR 2017), whereby, performance security from successful bidders was reduced to 3% from the existing 5~ 10% for all bids. The same was

made applicable to all existing contracts and tenders fcontracts issued or

concluded till 31.12.2021.

e) Similar notification came to be issued by the Ministry of Heavy Industries and Public Enterprises, Government of India, on 19.11.2020, and the same was

communicated to all concerned.

el. hi be

f) It is said that, correspondence ensued between the Petitioner and Respondent on implementation of the OM's and circular mentioned above from 04.03.2021 to 18.03.2021, relating to reduction in performance security from 15% 'to 3% of the contract amount, but the Respondent informed the Petitioner that performance 'security will not be reduced as no such communication was received from its higher offices. |

g) Having regard to the above, apprehending the deadline for depositing the security, amount within 15 working days, as per the contract terms, the petitioner issued a letter dated 27.03. 2021 to the Respondent along with a cheque for: a sum of Rs.13,32,000/-. It is said that the EMD amount to a tune of Rs. 26,64, o00!- was already deposited with the Respondent and, as such, total amount of Rs. 39, 96,000/- was deposited, which according to the Petitioner constitute 3% of the contract amount, complying with the circular issued by the Government.

n) However, a letter, dated 30.03:2021, was issued by the Respondent terminating the contract on the ground that the security deposit of Rs. 66,60,000/- | i.e., 5% was not paid by the Petitioner within 15 working days of acceptance, as stipulated in the tender.

3) After termination of the contract with the Petitioner on 30.03.2021, the Respondent instantly issued a new tender on 31.03.2021 for subject matter work. At that stage, the present writ petition came to be filed, wherein, this court by an order, dated 20.04.2021, permitted the Petitioner to participate in the tender notification, dated 31.03.2021, without reference to the impugned order, provided © the bid is submitted within the stipulated time mentioned in the tender notification. But, however, listed the matter in the vacation court, for adjudication of the other issue namely as to whether the authorities were justified in blacklisting the Petitioner/Contractor.

4) This court is now concerned only with the blacklisting of the Petitioner/Contractor.

5) Before dealing with the same, few more sentences on facts would be of

some importance.

8) The Invitation to Tender and Instructions to Tenderers for movement /

transportation of food grains is dated 02.12.2020, Clause 10 (v) of the invitation

states as under:

"(v) In the event of the bidder's failure, after the communication of acceptance of the tender by FCI, to furnish the requisite Security Deposit by the due date including extension period, his Contract shall be summarily terminated besides forfeiture of the Earnest Money and FCI shall proceed for appointment of another contractor. Any losses or damages arising out of and incurred by FCI by such conduct of the Bidder will be recovered from the bidder, without prejudice to any other rights and remedies of FCI under the Contract and Law. The bidder will also be debarred from participating in any future tenders of FCI for a period of five years. After the completion of prescribed period of five years, the party may be allowed to participate in the future tenders of FCI provided ail the recoveries / dues have been effected by FCi and there is no dispute pending with the Bidder / party."

7) After acceptance of tender, following the circulars issued by the

Government of India, the petitioner claims to have deposited 3% of the amount as

security deposit, but, however, the Respondent passed termination order, on

. 30.03.2021. The relevant portion of the order is as under:

'Further, M/s. SARR FREIGHTS CORPORATION is hereby debarred from participating in any future tenders of the corporation for a period of 05 (five) years from the date of issue of this order. Any losses or damages arising out of and incurred by the corporation due to the conduct of the contractor will be recovered from the contractor, without prejudice to any other rights and remedies of the corporation under the contract and law."

8) The admitted fact being that, before passing the order of termination of

contract, which also speaks about blacklisting of the Petitioner for a period of 5

years, no notice was given to the Petitioner.

9) In view of the above, Sri. Avinash Desai, learned Counsel for the Petitioner

submits that, any action taken by the Respondent in blacklisting the

Petitioner/Contractor without giving notice is bad in law. He refers to the

judgments of the Hon'ble Apex Court in support of his plea.

10) On the other hand, Sri. Vijay Raghavan, Advocate, representing Sri. , Maheswara Rao Kuncheam, Standing Counsel for FCI, submits that the question "of issuing a notice would not arise, since, the Petitioner violated Clause 10 (v) of

the tender conditions. He placed reliance on the letter, dated 17.03.2021, which

refers to sending of the acceptance letter on 04.03.2021 and also sending the

acceptance by way of registered post on 09.03.2021, which cannot be delivered

= se e

as the 'door was locked' and that the sarne was re- delivered on 11. 93.2 2021. Insofar as s request for reduction of security deposit to 3% is. concerned, it 'is stated in 'the said letter that the Respondent office cannot accept the ne requost because an any such order i is yet t to be received from higher offices.

) In substance, though, the Petitioner was a successful bidder in. both 'the rounds, but, however, his contract was terminated for | non- "payment of security deposit, as per the tender conditions. The rejection i termination of the tender of the Petitioner require adjudication in the main writ petition. But, at this stage, can it be said that blacklisting of a contractor was in accordance with law?

12) | Blacklisting is a phenomenon by which the tendering authority intends not to' enter into a contractual relationship with a party. It is a business decision. As an order of blacklisting results | in civil consequences, it is held to be a settled principle of law that a contractor cannot be blacklisted for having breached the terms and conditions of the contract unless a fair hearing is accorded to the party being blacklisted in due adherence to the principles of natural justice. (Erusian Equipment and Chemicals Ltd. Vs. State of West Bengal. sy (1978) 1 SCC 70; Southern Painters Vs. Fertilisers and Chemicals Travancore Lid, (1994) 'Suppl (2) SCC 699, and Gorkha Security Services. Vs. Government (NCT of Delhi) & Ors., (2014) 9 SCC 105); Joseph Vilangandan vs. The Executive Engineer, (PW) Ernakulam and others, (1978) 3 SCC 36)). Thus, blacklisting operates qua a | particular party against whom a decision is taken by a tendering authority to blacklist such party, by following a due procedure in law. (BVG India Ltd vs. State of Maharashtra & others, Writ Petition (Stamp) No. 4046 of 2020 -- High Court of Judicature at Bombay). |

4 3) = In a recent judgment reported in Vetindia Pharmaceuticals Vs. State of U.P. (2021) 1 SCC 804, the Hon'ble Apex Court after referring to the judgments in Mis. Erusian Equipment & Chemicals Ltd. vs. State of West Bengal and another, and Gorkha Security Services v. State (NCT of Delhi), held in paragraph 12 as under:

"In view of the aforesaid conclusion, there may have been no need to. go into the question of the duration of the blacklisting,

but for the arguments addressed before us. An order of blacklisting operates to the prejudice of a commercial person not only in praesenti but also puts a taint which attaches far beyond and may ~ well spell the death knell of the organization /institution for all times to come described as a civil death. The repercussions on the appellant were clearly spelt out by it in the representations as also in the writ petition, including the consequences under the Rajasthan tender, where it stood debarred expressly because. of the present impugned order. The possibility always remains that if a proper show cause notice had been given and the reply furnished would have been considered in accordance with law, even if the respondents decided to blacklist the appellant, entirely different considerations may have prevailed in their minds especially with regard to the duration." .

- 14) In UMC Technologies Private Limited v. Food Corporation of India and Another (2021) 2 SCC 551, similar issue came up for consideration. The terms of tender conditions were identical to the conditions in the instant case. In the said case also the Appellant was declared as a successful bidder and was appointed as a contractor for a period of two years for undertaking the tender work of conducting recruitment of watchman for the Corporation. On 01.04.2018, the appellant conducted a written exam for 'eligible aspirants for the post of watchman. However, on the same day, a Special Task Force of Bhopal Police, 'arrested 50 persons in Gwalior, who were in possession iof certain handwritten documents which prima facie appeared to be the question papers related to the examination conducted by the appellant. Upon receipt of the above information, the Corporation issued a show cause notice dated 10.04.2018 to the appellant informing the appellant about the said arrest and seizure of documents which appeared to contain question papers related to the examination conducted by the appellant. The appellant was directed to furnish an explanation within 15 days, failing which an appropriate ex-parte decision would be taken by the Corporation. The appellant replied to the said notice on 12.04.2018 enclosing the necessary

" !

documents.

By an order dated 09.01.2019, the Corporation terminated his contract and also blacklisted the appellant from participating in ahy future tenders of the corporation for a period of 5 years. Aggrieved by "the same, the Appellant preferred a writ petition before the High Court, which was dismissed. Challenging

the same, the appellant preferred an appeal before the Hon'ble Supreme Court.

15) Taking a review of the authorities laying down the principles of law, on the issue of blacklisting of a contractor, the Court held that the action of FCI was in breach of Principles of natural justice, as the FCI never expressed Its mind in informing the appellant of the proposed action of blacklisting nor any 'opportunity of hearing in that regard was accorded to the appellant.

16) | It is also to be noted here that the UMC Technologies Private Limited case deals with a fact situation where a showcause notice was issued to the Petitioner. But, whether, the showcause notice satisfies the requirement for blacklisting the contractor came to be answered in paragraph no. 21 of the order, which reads as under: | - | "21. Thus, from the above discussion, a clear legal position emerges that for a show cause notice to constitute the valid basis of a blacklisting ' order, such notice must spell out clearly, or its contents be such that it can be clearly inferred therefrom, that there is intention on the part of the

- issuer of the notice to blacklist the noticee. Such'a clear notice is essential for ensuring that the person against whom the penalty of 'blacklisting is intended to be imposed, has an: adequate, informed and meaningful opportunity to show cause against his possible blacklisting, "

17) As urged by Sri. Avinash Desai, the learned counsel for the 2 Petitioner, the Petitioner st stands on a better footing, in as much as no showcause notice was issued to the Petitioner, leave alone giving reasons as to why he should not be blacklisted. | | | 18) ' It may be true that the tender conditions stipulate a condition | for blacklisting the tenderer if he violates the condition, but, that by itself prima facie, in all means does not amount to issuance of a notice for blacklisting. It is one of the 'terms in the contract and any adverse action would only be after issuing a notice, otherwise it would be in violation of principles of natural justice, as FCI never expressed its mind informing the petitioner the proposed action. In the instant case, taking action against the contractor was only after his tender is accepted i.e., due to non-fulfillment of terms of contract, which is' in dispute in this writ petition. | © 19) Hence, for the aforesaid reasons, the order of blacklisting the petitioner i is

stayed for a period of three months.

20) Accordingly, |.A. is ordered.

"

21)

To,

oN

SRL

Post the main writ petition after six [06] weeks.

SD/- U.Sri Deyi . i ASSISTANT REGIS IITTRUE COPY//

For. SECTION

. The General Manager (AP Region), O/o Food Corporation Of India, D.No 74-14-

2A, Rajanarendra Building Krishna Nagar, Patamata, Yenamalakuduru Road, Vijayawada-520007.(By RPAD) One CC to SRI.LAKSHMIKANTH REDDY DESAI Advocate [OPUC]

One CC to SRILMAHESWARA RAO KUNCHEM, STANDING COUNSEL [OPUC] oo

One spare copy

o

HIGH COURT

CPKJ

. DATED:20/05/2021

"NOTE: POST THE MAIN WRIT PETITION AFTER SIX [06] WEEKS

ORDER

1.A.NO.1 OF 2021

IN

WP.No.8410 of 2021

DIRECTION

fo yy oe in|

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