Andhra Pradesh High Court - Amravati
M/S. Century Pharmalabs India ... vs The State Of Andhra Pradesh, on 2 November, 2021
Bench: R Raghunandan Rao
IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI
***
W.P.No.7729 of 2019
Between:
# M/s. Century Pharmalabs India Pvt. Litd.,
Rep. by its Director, Mr. V.v.S. Suresh,
S/o. V. Rama Rao, R/o. 704, Turguoise Block,
My Home Jewel, Miyapur, Madinaguda, Hyderabad.
... Petitioner
AND
$ 1. The State of Andhra Pradesh, rep. by its Principal Secretary,
Health, Medical and Family Welfare Department, Secretariat,
Velagapudi, Amaravathi.
2. A.P. Medical Services Infrastructure and Development Corporation, 2nd
Floor, Sy.No.9, Plot No.49, IT Park, Mangalagiri, Guntur District.
Rep. by its Managing Director.
... Respondents
Date of Judgment pronounced on : 02-11-2021
HON'BLE SRI JUSTICE R. RAGHUNANDAN RAO
1. Whether Reporters of Local newspapers : Yes/No
May be allowed to see the judgments?
2. Whether the copies of judgment may be marked : Yes/No
to Law Reporters/Journals:
3. Whether the Lordship wishes to see the fair copy : Yes/No
Of the Judgment?
2 RRR,J.
W.P.No.7729 of 2019
*IN THE HIGH COURT OF ANDHRA PRADESH AT
AMARAVATI
* HON'BLE SRI JUSTICE R. RAGHUNANDAN RAO
+ W.P.No.7729 of 2019
Date:02-11-2021
Between:
# M/s. Century Pharmalabs India Pvt. Litd.,
Rep. by its Director, Mr. V.v.S. Suresh,
S/o. V. Rama Rao, R/o. 704, Turguoise Block,
My Home Jewel, Miyapur, Madinaguda, Hyderabad.
... Petitioner
AND
$ 1. The State of Andhra Pradesh, rep. by its Principal Secretary,
Health, Medical and Family Welfare Department, Secretariat,
Velagapudi, Amaravathi.
2. A.P. Medical Services Infrastructure and Development Corporation, 2nd
Floor, Sy.No.9, Plot No.49, IT Park, Mangalagiri, Guntur District.
Rep. by its Managing Director.
... Respondents
! Counsel for petitioner : Sri P. Roy Reddy
^Counsel for Respondent No.1 : G.P. for Medical Health &
Family Welfare
Addl. Advocate General
<GIST :
>HEAD NOTE:
? Cases referred:
1. 1986 (3) SCC 156
2. (2020) 4 SCC 621
3. 1997 (4) ALD 489
4. AIR 1962 SC 145
5. AIR 1963 SC 1405
6. (2003) 5 SCC 705
3 RRR,J.
W.P.No.7729 of 2019
HON'BLE SRI JUSTICE R. RAGHUNANDAN RAO
W.P.No.7729 of 2019
ORDER:
The petitioner is a small scale industry and MSME Unit, engaged in
manufacturing, export and supply of pharmaceutical products. The
Petitioner was one of the successful tenderers in the tender issued by the
2nd Respondent, as the implementing agency of the 1st Respondent, vide
„E‟ tender notification vide tender notice No.2/APMSIDC/Medicines/2015-
17, dated 12.10.2015 for supply of general medicines to its 13 central
Medicines Stores. Consequently, an agreement dated 16.04.2016 was
executed between the petitioner and the 2nd Respondent. The provisions
of the Tender and the consequent agreement, relevant to the present
case, are clause 21 of the tender and Clause 3 of the agreement which
read as under:
Clause 21 of the Tender
"The supply should be started within 45 days and
should be completed within 75 days from the date of
receipt of purchase order in phased manner. If no supply
is received even after 75 days of receipt of the purchase
orders from the supplier, the MD, APMSIDC is authorised
to impose a penalty at the rate of 0.5% of the value of
goods not supplied will be levied for each day delayed up
to a maximum period of 15 days."
Clause 3 of the Agreement
Penalty charges for delayed supply of drugs:
1. 75 days from the date of issue of PO. - No penalty.
2. For the next 15 days i.e. 76th day to 90th day - 0.5% per day
of the value of drugs received during this period.
3. The Managing Director, APMSIDC at his discretion may extend
the time period 90 days on the request of the firm in writing at
a penalty of 1% of the value of the drugs supplied beyond 90
days for each day of delay or part there of up to 120 days."
4 RRR,J.
W.P.No.7729 of 2019
2. The Petitioner used to supply the pharmaceutical products
as per the indent and demand of the second respondent. But, according
to the petitioner, due to the placement of orders by the 2nd respondent
over and above the quantities mentioned in the tender notification to the
tune of 200% to 400%, there were delays in the supply of medicines.
For the delayed supplies, the 2nd respondent imposed penalty at the rate
of 0.5% of the value of the goods not supplied, for each delay up to a
maximum period of 15 days, and 1% per day thereafter and deducted the
penalties from the running bills of the petitioner. Being a small scale
industry and MSME Unit, the petitioner submitted its representation on
02.08.2017 to the 2nd respondent for waiver of all the penalties and
refund of the forfeited amounts.
3. In a related development, various pulverising barytes units
had sought waiver of certain liquidated damages from M/s. A.P. Mineral
Development Corporation Limited. This request had been forwarded to the
Government, which had issued G.O.Ms.No.169 dated 02.12.2016. In this
G.O. the Government had accorded approval to the proposal of M/s. A.P.
Mineral Development Corporation Limited, to cap levy of liquidated
damages to 5% of the shortfall of quantity supplied to the Corporation.
Subsequently, two companies, which are similarly situated to the
petitioner, had submitted representations to the 2nd respondent, who
forwarded the said representations to the Government along with the
recommendation made by the Managing Committee of the 2nd respondent
in its 77th meeting held on 11.04.2018 resolving to restrict the total
deduction towards liquidated damages to 5% of the contract value, of the
delayed supplies, in line with the concessions given under G.O.Ms.No.169
dated 02.12.2016, to support SSI Units, which are facing difficulties. This
5 RRR,J.
W.P.No.7729 of 2019
recommendation was accepted by the Government which issued Memo
No.42/H2/2018-1, dated 04.05.2018 according permission to the
Managing Director of the 2nd respondent to restrict the total deduction of
liquidated damages to 5% of the contract value. In view of this Memo,
units such as the petitioner were entitled to seek refund of all those
amounts which had been deducted in excess of 5% of the contract value.
On that basis, the petitioner has approached this Court claiming that its
representation dated 02.08.2017 should be considered by the respondents
in the light of G.O.Ms.No.169, dated 02.12.2016 and Memo
No.42/H2/2018-1, dated 04.05.2018.
4. As no action was being taken on the said representation, the
petitioner had filed the present writ petition seeking a direction to the
respondents to extend the benefit of G.O.Ms.No.169 dated 02.12.2016 in
accordance with Memo No.42/H2/2018-1, dated 04.05.2018. This Court
by an interim order dated 21.06.2019 had directed the respondents to
consider the representation of the petitioner dated 02.08.2017 taking into
consideration G.O.Ms.No.169, dated 02.12.2016 and Memo dated
04.05.2018.
5. While the present writ petition was pending, the managing
committee of the 2nd respondent had issued a letter dated 05.01.2021
stating that the 2nd respondent had initiated steps within four weeks from
the date of receipt of interim direction of this Court, in accordance with
the Government Memo dated 04.05.2018 and another Memo dated
06.11.2018.
6. Thereafter, it appears that the Managing Committee of the
2nd respondent, in its meeting held on 20.01.2021, had decided to restrict
liquidated damages to 5% only for purchase orders, which were issued
6 RRR,J.
W.P.No.7729 of 2019
from 05.04.2017 onwards and required the petitioner to give an
undertaking accepting that the liquidated damages would be restricted to
5% only in relation to those purchase orders which were issued from
05.04.2017 onwards. The petitioner had accordingly submitted such an
undertaking on 02.03.2021. Thereupon, the 2nd respondent had refunded
the excess amount to the petitioner in relation to all supplies made
against the purchase orders issued from 05.04.2017 onwards.
7. In the circumstances, the issue that remains before this
Court is whether the petitioner would be entitled for refund of any amount
deducted over and above 5% of the contract value in relation to the
purchase orders, which had been issued even before 05.04.2017.
8. The petitioner had filed a reply affidavit in which it is stated
that the Managing Director of the 2nd respondent had informed the
Managing Director of the petitioner that no money would be paid out
unless the petitioner gave an undertaking accepting the condition of the
2nd Respondent that the refund would relate only to those purchase orders
which are from 05.4.2017 onwards. It was further stated that the
Managing Director was also informed that unless the undertaking was
given, the petitioner would not be given any further business by the 2 nd
Respondent. Sri P. Roy Reddy, learned counsel for the petitioner would
submit that the petitioner, which was in a financial crisis, had no option
except to accept the condition of the 2nd respondent, for waiver of refund
of money due to the petitioner, in relation to purchase orders which had
been placed before 05.04.2017.
9. Sri P. Roy Reddy, would submit that due to the economic
duress and unequal bargaining power between the petitioner and the 2nd
respondent, the petitioner was forced to accept the condition of the 2nd
7 RRR,J.
W.P.No.7729 of 2019
respondent and give the said irrevocable undertaking dated 02.03.2021.
He submits that such an undertaking is not binding on the petitioner and
relies upon the judgments of the Hon‟ble Supreme Court in Central
Inland Water Transport Corporation Limited and anr., v. Brojo
Nath Ganguly and anr.,1; Oriental Insurance Company Limited
and anr., v. Dicitex Furnishing Limited2 and also on a judgment of
the erstwhile High Court of Andhra Pradesh in Superintending
Engineer, Irrigation Department, Nizamabad and Anr., v.
Progressive Engineering Company, Hyderabad and ors.,3.
10. The learned Additional Advocate General appearing for the
respondents would submit that the Memo dated 04.05.2018 had been
obtained by certain other companies on the basis of political pressure
exerted on the Government at that point of time and steps are being
taken to recover the excess amounts which have been paid out. He
submits that the said Memo cannot be the basis for any concession to be
given to the petitioner. He also submits that this Memo is silent on the
question whether it is prospective or retrospective and in the absence of
any specifics in the Memo, it would have to be held to be prospective
only. He submits that the memo was given effect from 05.04.2017 only on
the basis of the resolution of the managing committee, dated 20.01.2021,
and as such, the petitioner would not be entitled to refund of any
amounts in relation to the purchase orders issued prior to 05.04.2017. He
would further submit that the basis for the case of the petitioner is the
resolution passed by the Managing Committee of the 2nd respondent in its
1986 (3) SCC 156
(2020) 4 SCC 621
1997 (4) ALD 489
8 RRR,J.
W.P.No.7729 of 2019
77th meeting. Going by the same standard, the petitioner would also have
to accept the resolution passed by the Managing Committee of the 2nd
respondent in its meeting held on 20.01.2021 where the decision was
taken to restrict the benefit to the purchase orders given from 05.04.2017
only.
11. The learned Additional Advocate General while addressing
the question of economic duress would submit that there were about 10
suppliers, including the petitioner, who had given the said undertakings
and except the petitioner none of the other suppliers had raised any
objection to the restriction placed on the refund of excess deductions. He
would further submit that the petitioner, before raising this issue in its
reply filed by the petitioner in this writ petition, had not raised this issue
of economic duress or compulsion before any authority at any stage. In
the circumstances, he would submit that the petitioner, had executed the
undertaking with the full knowledge of consequences and without being
under any duress. He submits that the present contention, of economic
duress and unequal bargaining power, is only for the purpose of avoiding
the consequences of such an undertaking
Consideration of Court:
12. The contract between the 1st/2nd respondents and the
petitioner was for supply of medicines to 13 central medicine stores in the
State of Andhra Pradesh. The method of supply set out under the tender
document and the agreement dated 16.04.2016 was that purchase orders
would be issued to the petitioner from time to time and the petitioner was
to supply the medicines/pharmaceutical products to all or any of the 13
central medicine stores, in accordance with the terms of the purchase
order. The time given for making such supply was fixed at 75 days from
9 RRR,J.
W.P.No.7729 of 2019
the date the purchase order is given to the petitioner. Clause-21 of the
tender document, set out above, and Clause-3 of the agreement dated
16.04.2016 stipulated that if the supply of medicines/pharmaceutical
products is not completed within 75 days from the date of receipt of the
purchase order, the petitioner could still deliver the medicines on levy of
liquidated damages to the extent of 0.5% per day of delay on the value of
the drugs received between the 76th day to the 90th day. Thereafter,
liquidated damages would be levied at the rate of 1% for every day of
delay beyond the 90th day up to the 120th day.
13. Section 73 of the Indian Contract Act provides for levy of
liquidated damages. It was commonly understood that the Hon‟ble
Supreme court in State of Vindhya Pradesh (Now The State of
Madhya Pradesh) v. Shri Moula Bux and ors.,4 and Fateh Chand v.
Balkishan Dass5 had interpreted Section 73 of the Indian Contract Act to
mean that liquidated damages stipulated under the contract could be
collected only upon actual loss being demonstrated by the affected party
and the said loss/compensation being restricted to the upper limit fixed as
liquidated damages in the contract. This notion was dispelled by the
Hon‟ble Supreme Court in Oil and Natural Gas Corporation Limited v.
Saw Pipes Limited6 which went on to hold that in cases where it is not
possible to ascertain the quantum of loss, the liquidated damages fixed
under the contract shall be treated as a genuine pre-estimate made by
both parties to the contract and the same can be collected by the affected
party without having to prove or demonstrate actual loss. In the present
case, the same conditions prevail and as such fixation of liquidated
AIR 1962 SC 145
AIR 1963 SC 1405
(2003) 5 SCC 705
10 RRR,J.
W.P.No.7729 of 2019
damages cannot be faulted. It may also be noted that while liquidated
damages are levied on the length of the delay in execution of a contract,
a cap is generally placed on the total amount of liquidated damages that
can be levied under a contract. There is no cap in the present case and as
such Liquidated damages up to 7.5% can be levied for the delay up to 15
days and another 30% if the delay was a further period of 30 days
beyond the original period of delay of 15 days.
14. To sum up, the initial deduction of the liquidated damages
was done in accordance with the terms of the tender and agreement.
After deducting the said amounts, the 2nd respondent took a decision to
cap the liquidated damages to 5%. This decision was sent for the
approval of the 1st respondent as the 1st respondent is the primary party,
who would be affected by any such decision and as the 2nd respondent
was only acting as the implementing agency for the 1st respondent. The
1st respondent by the Memo dated 04.05.2018 had approved this decision.
Subsequently, the 2nd respondent took a further decision in its meeting
held on 20.01.2021 to extend the benefit of cap of 5% only to purchase
orders which have been issued from 05.04.2017. The 2nd respondent
instead of obtaining necessary approval from the 1st respondent had
required the petitioner to give an undertaking that the petitioner would
not insist for refund of amounts relating to purchase orders placed before
05.04.2017. The petitioner had given such an undertaking and repudiated
the same now on the ground of financial duress and unequal bargaining
power.
15. A contention was raised by the Learned Additional Advocate
General that the said Memo was silent as to the date from which it would
be brought into effect. In the course of hearing, the learned Additional
11 RRR,J.
W.P.No.7729 of 2019
Advocate General had passed on a communication of the 2nd Respondent
dated 28.07.2021 sent to two suppliers seeking to recover the amounts
paid on account of the Memo dated 04.05.2018. This communication
clearly demonstrates that the memo was understood by all concerned that
it would entitle the suppliers for recovery of the entire amount of
liquidated damages beyond 5% from the inception of all supplies made
under the tender dated 12.10.2015. This Memo would also indicate that
the final decision as to whether there can be a cap on the levy of
liquidated damages is to be taken by the 1st respondent-Government and
not the 2nd respondent. The Memo dated 04.05.2018 continues to remain
in force since this Memo has not been altered or recalled. The subsequent
decision of the 2nd respondent, in the meeting of the Managing Committee
of the 2nd respondent on 20.01.2021, cannot override the Memo of
04.05.2018, and cannot be given effect to as long as the Memo dated
04.05.2018 remains undisturbed. The contention of the learned Additional
Advocate General that the subsequent decision of the 1st respondent to
restrict the cap of 5% of liquidated damages only to purchase orders
placed after 05.04.2017 cannot be accepted. The benefit of capping
liquidated damages at 5% would continue to be available to the
petitioner.
16. The effect of the undertaking given by the petitioner on
02.03.2021 remains to be considered. The said undertaking given by the
Petitioner and its acceptance by the 2nd Respondent would result in a
contract. The question that would arise is whether such a contract could
be repudiated by the petitioner on the ground that it is vitiated by undue
influence in the form of economic duress, unequal bargaining power and
the asymmetry in the strength of the parties.
12 RRR,J.
W.P.No.7729 of 2019
17. The Hon‟ble Supreme Court in Central Inland Water
Transport Corpn. v. Brojo Nath Ganguly case at (paragraph 89) had
considered the issue of the effect of undue influence including economic
duress and unequal bargaining power and after an extensive review had
held as follows:
89. Should then our courts not advance with the times?
Should they still continue to cling to outmoded concepts
and outworn ideologies? Should we not adjust our thinking
caps to match the fashion of the day? Should all
jurisprudential development pass us by, leaving us
floundering in the sloughs of 19th century theories? Should
the strong be permitted to push the weak to the wall?
Should they be allowed to ride roughshod over the weak?
Should the courts sit back and watch supinely while the
strong trample underfoot the rights of the weak? We have
a Constitution for our country. Our judges are bound by
their oath to "uphold the Constitution and the laws". The
Constitution was enacted to secure to all the citizens of
this country social and economic justice. Article 14 of the
Constitution guarantees to all persons equality before the
law and the equal protection of the laws. The principle
deducible from the above discussions on this part of the
case is in consonance with right and reason, intended to
secure social and economic justice and conforms to the
mandate of the great equality clause in Article 14. This
principle is that the courts will not enforce and will, when
called upon to do so, strike down an unfair and
unreasonable contract, or an unfair and unreasonable
clause in a contract, entered into between parties who are
not equal in bargaining power. It is difficult to give an
exhaustive list of all bargains of this type. No court can
visualize the different situations which can arise in the
affairs of men. One can only attempt to give some
illustrations. For instance, the above principle will apply
where the inequality of bargaining power is the result of
the great disparity in the economic strength of the
contracting parties. It will apply where the inequality is the
13 RRR,J.
W.P.No.7729 of 2019
result of circumstances, whether of the creation of the
parties or not. It will apply to situations in which the
weaker party is in a position in which he can obtain goods
or services or means of livelihood only upon the terms
imposed by the stronger party or go without them. It will
also apply where a man has no choice, or rather no
meaningful choice, but to give his assent to a contract or
to sign on the dotted line in a prescribed or standard form
or to accept a set of rules as part of the contract, however
unfair, unreasonable and unconscionable a clause in that
contract or form or rules may be. This principle, however,
will not apply where the bargaining power of the
contracting parties is equal or almost equal. This principle
may not apply where both parties are businessmen and
the contract is a commercial transaction. In today's
complex world of giant corporations with their vast
infrastructural organizations and with the State through its
instrumentalities and agencies entering into almost every
branch of industry and commerce, there can be myriad
situations which result in unfair and unreasonable bargains
between parties possessing wholly disproportionate and
unequal bargaining power. These cases can neither be
enumerated nor fully illustrated. The court must judge
each case on its own facts and circumstances.
18. In Oriental Insurance Company Limited and anr., v.
Dicitex Furnishing Limited case, the Hon‟ble Supreme Court, while
upholding the above principle, though there is no reference to the above
case, had held, on the facts of the case that a case of economic duress
was made out and disregarded the voucher of final settlement given by
the private party therein.
19. Similarly, the erstwhile High Court of Andhra Pradesh in
Superintending Engineer, Irrigation Department, Nizamabad and
Anr., v. Progressive Engineering Company, Hyderabad and ors.,
case on the facts of the case, had held that a letter accepting certain rates
14 RRR,J.
W.P.No.7729 of 2019
of work was given under economic duress and cannot bind the contractor
therein. These judgements reiterate the principle that if there is a case of
economic duress made out against a contract or undertaking given by the
weaker party, such an agreement or undertaking can be disregarded.
20. The counter affidavit filed by the 2nd Respondent states that
the suppliers were called upon to give their consent to the decision taken
by the managing committee of the 2nd respondent, dated 20.01.2021. The
facts show that, the only way the petitioner would be given any refund is
upon an irrevocable undertaking being given by the petitioner that it
would be satisfied with whatever is given by the 2nd respondent. The
petitioner, which is a small scale unit, cannot obviously take on the 2 nd
Respondent which is one of the primary sources of business and income
to the Petitioner. The only option available to the petitioner is to sign on
the dotted line failing which it was in danger of losing desperately needed
funds and also all future business from one of it‟s main sources of
business. This contract is obviously not a contract freely arrived at
between two equal parties exercising free will. A case of economic duress
is made out and the undertaking given by the Petitioner, on 02.03.2021,
requires to be disregarded.
21. To sum up, the Petitioner is entitled to recover the excess
liquidated damages levied on the Petitioner, as long as the Memo dated
04.05.2018 remains undisturbed and in view of the said memo, the 2nd
Respondent cannot rely on the decision of the Managing committee of the
2nd Respondent held on 20.01.2021 to reject the claim of the Petitioner.
22. Accordingly, this writ petition is disposed of with a direction
to the 2nd respondent to consider the request of the petitioner for refund
of excess liquidated damages strictly in accordance with the approval
15 RRR,J.
W.P.No.7729 of 2019
granted by the 1st Respondent in Memo No.42/H2/2018-1, dated
04.05.2018 as long as it remains. The said exercise of considering and
passing orders on the request of the petitioner for refund of the excess
liquidated damages shall be done, by the 2nd Respondent, within three
weeks from the date of receipt of this order. There shall be no order as to
costs.
As a sequel, pending miscellaneous petitions, if any, shall stand
closed.
________________________
R. RAGHUNANDAN RAO, J
2nd November, 2021
Js
16 RRR,J.
W.P.No.7729 of 2019
HON'BLE SRI JUSTICE R. RAGHUNANDAN RAO
W.P.No.7729 of 2019
2nd November, 2021
Js
