Bombay High Court
M/S. J K Surface Coatings Pvt. Ltd vs Oil And Natural Gas Corporation ... on 27 October, 2016
Bench: S.C. Dharmadhikari
wp.2752.2014 (Colabawalla)19.10.2016.doc
dik
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 2752 OF 2014
ALONG WITH
NOTICE OF MOTION 210 OF 2016
IN
WRIT PETITION NO. 2752 OF 2014
AND
NOTICE OF MOTION (L) 117 OF 2015
ig IN
WRIT PETITION NO. 2752 OF 2014
M/s J.K.Surface Coatings Pvt. Ltd. ]
A Pvt. Ltd. Co. incorporated under the ]
Companies Act, 1956, having its registered ]
office at Neelsiddhi Enclave Commercial ]
Complex Plot No.48/9, M.G.Complex, ]
Sector 14, Vashi Navi Mumbai - 400 703 ]
through its authorized Signatory Sajid ]
Ahmed Vice President ( P & A) ]...Petitioner
Versus
1 Oil and Natural Gas Corporation, A ]
Corporation registered under the ]
Companies Act, 1956 through its ]
General Manager (MM) M.H.Asset, ]
having Office at 501 Vasundhara ]
Bhavan, ONGC, Mumbai 400 051 ]
2 The General Manager (Civil) ]
ONGC Ltd, having its office at Room No. ]
404, 11 High, Bandra Sion Link Road, ]
Sion (West), Mumbai 400 017. ]
3 Executive Director, MH Asset, 801 ]
Vasundhara Bhavan, ONGC Mumbai ]
400 051 ]
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4 Shri Kalraj Mishra, Hon'ble Union ]
Cabinet Minister, Minister for Micro, ]
Small and Medium Enterprises, Room ]
No.168, Udyog Bhawan, Rafi Marg, New ]
Delhi 11001 ]
5 M/s Global Corrosion Control Office No. ]
No.301, Urmila Complex, 32 Station ]
Avenue Road, Chembur East, Mumbai ]
400 071 ]...Respondents
.....
Mr. Raju Z Moray a/w Mr. S.R.Nargolkar i/b Mr Aumkar Vijaykumar
Joshi for the Petitioner.
Mr Kevic Setalvad, Sr. Counsel a/w Ms Daisy Dubhash, Mr
J.P.Kapadia, Mr. O. Mohandas, Mr Amrit Khare i/b M/s Little & Co.
for Respondent Nos.1 to 3.
Mr. Rajiv Singh a/w Ms Astha Tamhankar i/b M/s Chitnis & Co. for
Respondent No.5.
.....
CORAM : S. C. DHARMADHIKARI &
B.P.COLABAWALLA, JJ.
RESERVED ON : 5th October, 2016
PRONOUNCED ON : 27th October, 2016.
JUDGMENT: [ Per B. P. Colabawalla J ]
1. Rule. Respondents waive service. By consent of parties,
Rule made returnable forthwith and heard finally.
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2. By this Writ Petition under Article 226 of the Constitution
of India, the Petitioner seeks a Writ of Certiorari or any other
appropriate writ, order or direction, quashing and setting aside the
office order dated 25th April, 2014 (for short "the impugned order"
or "the banning order") issued by the 1st Respondent Corporation
(Exh. "C" to the Petition). A Writ of Mandamus is also sought
directing the Respondents to permit the Petitioner Company to
obtain the documents and participate in future tenders floated by
Respondent No.1.
3. The order dated 25th April, 2014 and which is impugned
herein, is nothing but a banning order passed by the 1st Respondent
against the Petitioner. This banning order has been passed pursuant
to a Show Cause Notice ("SCN") dated 4th December, 2013 issued to
the Petitioner. The grounds on which the Petitioner is sought to be
banned are more particularly set out in the said banning order. In a
nutshell, the said order is impugned by the Petitioner on the ground
(i) that it is violative of Articles 14 & 19(1)(g) of the Constitution of
India; (ii) that the SCN dated 4th December, 2013 issued to the
Petitioner did not even indicate that the same was issued with a view
to consider banning the Petitioner from future tenders for a
particular period; (iii) that this SCN limited the scope of inquiry to
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the alleged "irregularities" and "discrepancies" which had been
committed by the Petitioner during the period of works between
February, 2009 and May, 2011 and which were in the realm of
contractual disputes which could be resolved by taking recourse to
different contractual and statutory provisions; (iv) that in these
circumstances there was absolutely no justification in passing the
banning order against the Petitioner and in any event was extremely
harsh; (iv) no inquiry report, if any, had been furnished to the
Petitioner and no opportunity of responding and/or challenging the
same had been afforded to it before the banning order was passed;
and (v) the entire action of the 1st Respondent smacks of malafides as
the Petitioner has been blacklisted / banned only to ensure that a
particular bidder is favoured and the Petitioner is ousted from the
bidding process.
4. Brief facts give rise to the present controversy are as
follows:-
(a) The Petitioner specializes in corrosion resistant coating
application in India and is the only Indian Company to
offer vessel based blasting and painting services for off-
shore industries. The Petitioner also offers under-water
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painting. It is the case of the Petitioner that it has carried
out business of painting works with several leading
companies including a company in Saudi Arabia and has
been awarded good quality and safety certificate in
respect of their work. The Petitioner in the past has been
awarded contracts by the 1st Respondent Corporation
(ONGC) for off-shore maintenance painting as well as for
painting of new off-shore platforms etc.
ig The first
Respondent is ONGC and is a "State" within the meaning
of Article 12 of the Constitution of India. Respondent
Nos.2 and 3, are the officers/employees of ONGC and who
have played a role in issuance of the impugned order
dated 25th April, 2014, by virtue of which the Petitioner
Company has been banned from participating in any
tender floated by Respondent No.1 for a period of three
years.
(b) In the year 2008, Respondent No.1 invited bids for
maintenance painting of its platforms of Mumbai off-
shore (Mumbai High, Neelam, Heera, Bassein and
Satellite) for which the Petitioner had put in its bid. The
bid of the Petitioner was accepted by Respondent No.1
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and pursuant to a Notification of Award dated 2nd
February, 2009, a contract dated 8th May, 2009 was
executed between the Petitioner and Respondent No.1.
The said contract set out scope of work including the total
area which was proposed to be painted, as well as
different paint coating systems that were to be employed
in respect thereof. It is not in dispute that the said
contract was for a period of three years and was
completed on 31st May, 2011.
(c) It is the case of the Petitioner that it successfully
completed the work under this contract and under clause
18.1 thereof, the contract was successfully terminated on
expiry of the contract period. There was no delay in
performance of the said contract and the same was
completed in time. In fact, a Completion Certificate was
also issued by the 1st Respondent on 19th September,
2011. Thereafter, final payments towards performance
of the said contract were also received by the Petitioner
on 18th October, 2011.
(d) It is the case of the Petitioner that after completion of the
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contract, a survey was carried out in respect thereof and
the work completed by the Petitioner was found to be
satisfactory. After that a second survey was carried out
in terms of the contract and a Joint Survey Report was
signed on 6th October, 2012 in respect of one of the
facilities (Neelam) and on 7th October, 2012 in respect of
other facility (Heera). Since, there was no dispute about
the work completed by the Petitioner, there was no
deduction made in the R.A. bill submitted by the
Petitioner.
(e) Thereafter, a fresh tender No. Y-15 MC 11001 for
maintenance painting for another off-shore platform was
issued by Respondent No.1. The Petitioner even
participated in this tender. The technical bids for this
fresh tender were opened on 11th October, 2012 and the
price bids were opened on 29th May, 2013. Out of five
bidders that participated in the said bidding process,
three bidders qualified in the technical bid including the
Petitioner. Accordingly, the price bid of all these bidders
were opened and the Petitioner was the lowest bidder (L-
1) and Saraf Hospitality Services Pvt. Ltd. (another
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bidder) was the second lowest (L-2) and its bid was 63%
higher than that of the Petitioner.
(f) In the interregnum, the Petitioner was served with the
letter dated 16th May, 2012, alleging "discrepancies" and
"inconsistencies" in the area painted and the quality of
paint used in respect of the earlier contract, that was duly
completed on 31st May, 2011. The said letter claimed a
refund of an amount of approx Rs.57 Lacs on account of
invoice Nos.34 and 43. Despite the fact that both these
invoices were earlier certified by Respondent No.1 as well
as a Third Party Inspection Agency ("TPI"), the
Petitioner offered its co-operation and requested for
resolving of the issue and submitted a clarification/
explanation in the prescribed format on 9th August, 2012.
(g) It is the case of the Petitioner that thereafter a Committee
was constituted to inquire into whether there was any
excess payment in respect of said two invoices (Nos.34
and 43) and whether any claim was maintainable against
the Petitioner Company. This Committee, (which
comprised of the representatives of Respondent No.1, the
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Petitioner as well as the TPI), after reconciliation of the
said invoices, gave a report dated 13th March, 2013 which
was in favour of the Petitioner. This report inter alia
concluded that the said invoice Nos.34 and 43 were
different and some work under these invoices had been
carried out by the Petitioner simultaneously. The report,
therefore, concluded that the Petitioner was eligible for
payment in respect of the work done for both these
invoices. It is the Petitioner's case that despite this, the
Respondents, unilaterally and without any justification
invoked two Bank Guarantees amounting to Rs.29.86
Lacs and Rs.25.56 Lacs (aggregating to Rs.55.42 Lacs)
and appropriated the said amount towards their alleged
claims. This invocation was done on 30th September,
2013. In view of this wrongful invocation, the Petitioner
from time to time issued letters seeking refund of the
said amounts, but without any success.
(h) However, it did not stop here. It is the case of the
Petitioner that thereafter a SCN was issued by the
Investigation Officer (Respondent No.2) dated 4th
December, 2013. This SCN called upon the Petitioner to
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submit an explanation / clarification no later than 11th
December, 2013. This SCN called upon the Petitioner to
explain the alleged "irregularities" and "discrepencies"
that were committed by the Petitioner in respect of the
contract dated 8th May, 2009. The SCN alleged basically
three irregularities against the Petitioner. The first
alleged irregularity was that the required quantity of
paint, corresponding to the area of painting claimed for
payment, was not supplied by the Petitioner. The second
was that the Petitioner Company had submitted
documents containing incorrect information with respect
to the required manpower deployment. The third alleged
irreularity was that the Petitioner had failed to maintain
and furnish to the 1st Respondent, the necessary
documents / record books / registers pertaining to quality
of work and measurement, for payment.
(i) The Petitioner replied to the said SCN and gave its
explanations/ clarifications by its letter dated 16th
December, 2013. To put it in a nutshell, it was pointed out
that the contract was in respect of painting a particular
area and hence the total quantity of paint applied was
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immaterial. It was stated that the total quantity of paint
mentioned in the invoices was solely indicative and the
total quantity against each group could vary. However,
payment was made by the 1st Respondent for the actual
quantity of job done and not related to the quantity of
paint supplied. This is, according to the Petitioner, was in
accordance with what was stipulated in the contract. It
was further stated that the contract was for a lump-sum
based on the actual application of paint and the quality
was verified by the DFT check. In respect of the
discrepancies regarding Manpower Deployment, it was
stated that the manpower was shifted and painting was
done as per the directives of the 1st Respondent and as
per their specifications. The 1st Respondent as well as the
TPI representatives were also well aware about utilization
of the manpower at different locations resulting into
observations as regards reporting of manpower test due
to clubbing of areas in respect of two platforms (Heera
and Neelam) and shifting manpower from one location to
the other as per the instructions of the 1st Respondent. It
was also pointed out that Respondent No.1 followed the
practice of engaging the TPI for inspection of works and
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that the representatives of the TPI were in fact deputed at
platforms for complete supervision of painting jobs who
had thereafter certified the same. Based on this
certification, cross-checking and monitoring the activities
were also supervised by construction manager/OIM
nominated by Respondent No.1, and who had certified the
measurement accordingly. Thus the reports were
verified by TPI and certified by the 1st Respondent before
releasing payment. For all the foregoing reasons, the
alleged irregularities regarding Manpower Deployment,
as claimed in the SCN, according to the Petitioner, was
explained appropriately. With regard to the third
irregularity, namely, that the Petitioner had failed to
maintain and furnish to the 1st Respondent the necessary
documents / record books / registers pertaining to
quantity of work etc., it was pointed out that in terms of
the contract there was no contractual obligation to
maintain records indefinitely after successful completion
of the contract. Despite this, the appropriate record in
terms of the actual measurement of area painted,
manpower deployment, daily progress reports and all
other relevant certificates and inspection reports were
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submitted to the 1st Respondent along with the invoices.
The Petitioner also offered to submit the work completion
certificate, all details of measurement sheets and
inspection reports etc.
(j) After this reply was sent by the Petitioner, the 1st
Respondent issued the banning order dated 25th April,
2014 inter alia banning the Petitioner from paticipating
in any futute tenders floated by Respondent No.1 (ONGC)
for a period of 3 years from the date of the order. The
relevant part of the banning order reads thus:
"AND WHEREAS, on inquiry and examination of the
case including the reply of the contractor dated
16.12.2013, and having given an impartial, prudent
and careful consideration to the facts, ONGC has come
to the following conclusion that:
(i) Contractor has failed to provide satisfactory
and logical explanation to the issues of
incorrect DPR, high productivity of manpower,
required quantity of paint against surface area
claimed for payment, deficiency in records
documents, non availability of required records/
documents for scrutiny.
(ii) Contractor has failed to support their stand by
furnishing relevant documents w.r.t. high
productivity, mismatch of manpower
deployment, quantity of paint and quality of
work etc.
(iii) Contractor tried to bank their clarification and
arguments more on those documents, which are
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not available. At the same time, no explanations
have been offered for the issues raised in the
document, which are available.
(iv) Contractor has manipulated manpower
deployment's details and submitted improper
and erroneous documents alongwith their
invoices for purpose of inflated measurement/
payment of painting work.
(v) Contractor has compromised the quality of
work by not using required quantity of paint for
the painting area billed for payment.
ig (vi) Contractor has failed to maintain contractually
required documents and records pertaining to
the work. There has been an attempt on the part
of Contractor to circumvent the documentation
process, required under the contract.
(vii) Contractor has, by and large, taken a plea that
ONGC / TPI had checked and scrutinised all the
required documents at the time of verification
certification of payment and hence, everything
was in order. Contractor cannot shed their
contractual obligation like this and justify their
misdeeds.
(viii) The lapses as brought out above on the part of
Contractor are not only gross violation of
contractual obligations in terms of
specifications and quality of work but also put a
question mark on their intention, in the light of
spirit of the contract.
Hence, ONGC has decided to ban all business dealings
with the Contractor, i.e., M/s J. K. Surface Coatings
Pvt. Ltd., Navi Mumbai, India alongwith its allied
concern(s), Partner(s) or Associate(s) or Director(s) or
Proprietor involved in any capacity, for participation
in future tenders of ONGC, whatsoever, for a period of
3 (three) years from the date of issue of this letter for
gross violation of contractual obligations in terms of
specifications and quality of work but also put a
question mark on their intentions, in the light of spirit
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of the contract no. MR/MM/MH/SCON/ PAINT-
PLAT/88/OT/07-08/ Y 15 KC08002/ 90300003047.
Neither any tender enquiry shall be issued nor offer(s)
of the Contractor or its allied concern(s), Partner(s) or
Associate(s) or Director(s) or Proprietor as aforesaid
shall be considered in any of the ongoing tenders
during the period the banning order is in force.
(Dr.R.V.Marathe)
Executive Director - MH Asset."
(k) It is in these circumstances that the Petitioner is before
us challenging the validity and legality of the banning
order dated 25th April, 2014.
5. In this factual background Mr Moray, learned counsel
appearing on behalf of the Petitioner, submitted that the issuance of
SCN as well as banning order, was calculated to eliminating the
Petitioner from the bidding process in order to favour a particular
agency of choice. Mr. Moray submitted this entire exercise of issuing
the SCN and that had culminated in the banning order, was done to
ensure that another tender bearing No.Y 16 MC 12003 would not be
awarded to the Petitioner despite the fact that it is price bid was the
lowest and could not have been awarded to anyone else but the
Petitioner, without proper justification. Therefore, to oust the
Petitioner from any bidding process as well as to ensure that this
subsequent tender is not awarded to the Petitioner, but to a tenderer
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of their choice, that this entire exercise of issuing the SCN and which
culminated in the banning order, has been undertaken by the 1st
Respondent and its representatives. In this regard, Mr Moray
brought to our attention the averments at paragraphs 11 to 13 of the
Petition.
6. Mr. Moray additionally submitted that the entire tenor of
the SCN would indicate that the same was based on some alleged
"irregularities" and which at best, could have resulted in a money
claim against the Petitioner company. In fact in furtherance thereof,
the 1st Respondent had also unilaterally invoked the bank guarantees
and appropriated the amounts towards their alleged claim. It was,
therefore, not at all necessary to issue the banning order and
particularly when the alleged irregularities were was satisfactorily
explained.
7. Apart from this, Mr Moray submitted that the SCN did
not even indicate, let alone mention, that the same was issued with a
view to consider whether to ban/blacklist the Petitioner company. In
other words, Mr Moray submitted that the Petitioner was not called
upon to show cause as to why they should not be blacklisted and/or
banned from dealing with the 1st Respondent. He submitted that on
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this count alone the banning order could not be sustained and ought
to be set aside.
8. Mr Moray further submitted that the Inquiry Officer
appointed to conduct the proceedings in the investigation, had issued
the SCN limiting the scope of the inquiry only to alleged
"irregularities" which had been committed by the Petitioner during
the period February, 2009 to May, 2011. He submitted that even
though the inquiry was conducted by the General Manager, the
banning order has been issued by the Executive Director. Further,
no inquiry report, if any, submitted by the General Manager, has
been furnished to the Petitioner Company and no opportunity of
responding/challenging the same has been afforded to them. He
submitted that even the banning order records that "impartial,
prudent and careful consideration of the facts" had led the 1st
Respondent to come to the conclusions which have been enumerated
in the banning order (and reproduced earlier). As to which Officer
had given this so called "impartial, prudent and careful
consideration" is not mentioned in the banning order and the same is
totally silent on this aspect. What is important to note, according to
Mr Moray, was that there were no allegations of fraud or improper
business practice even alleged against the Petitioner company to lead
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to such an drastic step of banning the Petitioner Company from
dealing with the 1st Respondent for the period of three years. He
submitted that it now becomes clear from the affidavit in reply filed
on behalf of Respondent Nos.1 to 3 that the action against the
Petitioner was initiated on the basis of some complaint received from
Respondent No.4 (who was an Ex-Rajyasabha Member at the
relevant time) and it was as a result of this interference that the
decision to award a fresh tender was to be on hold, and on which the
Petitioner emerged as the lowest bidder. Mr Moray submitted that
distancing himself from the present controversy, Respondent No.4
has now addressed a letter dated 19th February, 2015 to the 1st
Respondent stating therein that he has never complained about the
Petitioner or asking that it be banned. He, therefore, stated that no
cognizance of such complaint / letter ought to be taken.
9. Looking to all these facts, Mr Moray submitted that the
banning order was one that smacks of malafides, was wholly
unreasonable, arbitrary and violative of the Petitioner's fundamental
rights enshrined under Articles 14 and 19(1)(g) of the Constitution
of India. He submitted that the facts of this case would clearly
indicate that the banning order is calculated to oust the Petitioner
company from any future tender process and to ensure that a
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particular bidder is favoured. For all the aforesaid reasons, he
submitted that the banning order dated 25th April, 2014, is wholly
unsustainable in law and ought to be set aside by us in our equitable,
extraordinary and discretionary jurisdiction under Article 226 of the
Constitution of India.
10. On the other hand, Mr Setalvad, learned Senior Counsel
appearing on behalf of the 1st Respondent, submitted that the present
Writ Petition involves disputed questions of fact which ought not to
be gone into by this Court in its writ jurisdiction. Further, Mr
Setalvad submitted that the order impugned in the present Writ
Petition was passed on 25th April, 2014. Thereafter a fresh tender
was issued on 1st August, 2014 and was at an advance stage. The
challenge to the order dated 25th April, 2014 was filed only on 25th
September, 2014 and no explanation for this delay has been given in
the Petition. He therefore submitted that the Petition suffers from
delay and laches and is liable to be dismissed in limine on this ground
alone.
11. Mr Setalvad submitted that Respondent No.1's offshore
operations pertain to oil and gas production and are carried out inter
alia in the Arabian Sea off the coast of the city of Mumbai. The
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offshore platforms require protection from corrosion in the marine
environment, and therefore, maintenance painting to prevent
corrosion, is one of the important and essential non-core activities
carried out on offshore platforms to prevent marine corrosion. For
this purpose, maintenance painting of offshore platforms is
outsourced by Respondent No.1 to painting contractors. Since this
activity is a non-core activity, Respondent No.1 does not have the
manpower resources to continuously check the quality and quantity
of the painting work being carried out. For this purpose, therefore,
Respondent No.1 engages an independent TPI for verifying the
quality and quantity of painting work carried out and for the
purposes of certifying documents for the work done by the successful
contractor/s. He submitted that one such contract that was entered
into for carrying out maintenance painting was dated 8th May, 2009
executed between the Petitioner and Respondent No.1. This contract
was valid till approximately 15th May, 2011. International
Certification Services Pvt. Ltd. was engaged by Respondent No.1 as
the TPI. This contract was completed by the Petitioner on or about
25th May, 2011. Mr Setalvad submitted that after completion of the
work under the said contract dated 8th May, 2009, Respondent No.1
received a vigilance complaint with regard to the work carried out by
the Petitioner and payments made in respect thereof. The Vigilance
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Section of Respondent No.1, by an inter office memo dated 2nd April,
2012, called upon the Executive Director - Asset Manager, N &
Asset to provide various office records pertaining to the paintaining
work carried out at Heera platform. Thereafter, by office order dated
24th April, 2012, it was communicated that certain discrepancies had
occurred in the execution of said contract with the Petitioner.
Therefore, an Inquiry Committee was constituted by the Competent
Authority to re-examine the documents, payment of invoices and all
other relevant records in respect of the work carried out on Heera
Platform under the contract dated 8th May, 2009. This Inquiry
Committee, by its report dated 8th May, 2012, observed that in
respect of the work carried out by the Petitioner, the area painted
during 1st March, 2011 to 18th April, 2011 was billed twice vide bill
Nos.34 and 43 which was needed to be recovered from the Petitioner
in the first instance. Thereafter, the said Committee also
recommended steps for ascertaining the measurement discrepancies,
duplication of measurement, on the basis of the additional documents
/ information set out in the said Inquiry Report. This Inquiry Report
was thereafter considered by the 1st Respondent and it was inter alia
decided to call upon the Petitioner to refund the excess amount paid
under the said contract dated 8th May, 2009. It is, in these
circumstances, that the Petitioner was called upon to refund a sum of
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approximately Rs.57.41 Lacs, which according to the 1st Respondent,
was overpaid and that is how Respondent No.1 has invoked the two
Bank Guarantees and recovered the said amount.
12. Mr Setalvad has referred to voluminous correspondence
that has been annexed to the affidavit-in-reply to justify passing of
the impugned order dated 25th April, 2014. He submitted that as
there were discrepancies, a meeting was held between the
representatives of the Petitioner, the TPI and Respondent No.1, and it
was decided that a team comprising of these people would visit the
Heera Platform inter alia for re-measurement of areas covering
invoice Nos.34 and 43. This team visited the spot and submitted its
Joint Inspection Report dated 13th March, 2013. When this
inspection was carried out, several discrepancies were noticed as
more particularly set out in paragraph 33 of the affidavit in reply. He
thereafter took us through the affidavit-in-reply filed by the 1st
Respondent to show the alleged glaring laches on the part of the
Petitioner in carry out its contractual obligations in relation to the
contract dated 8th May, 2009.
13. Looking to all these facts, Mr Setalvad submitted that the
Petitioner was given enough time and several opportunities between
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May 2012 till April 2014 to represent its case and explain the
discrepancies, but the Petitioner failed to do so. This being the
position, and the principles of natural justice and fair play being duly
complied with, Respondent No.1 after following due procedure has
issued the order dated 25th April, 2014 banning further business
dealings with the Petitioner for the period of three years. He,
therefore, submitted that the banning order passed against the
Petitioner was fully justified and in any event could not be termed as
perverse or suffering from any error apparent on the face of the
record requiring our interference under Article 226 of the
Constitution of India. Consequently, he submitted that the Writ
Petition is devoid of any merit and ought to be dismissed with costs.
14. We have heard the learned counsel at length and perused
the papers and proceedings in the Writ Petition along with the
annexures thereto as well as affidavit-in-reply filed on behalf of all
the Respondents. Before we deal with the rival contentions, we
would like to set out some settled principles that have been laid down
by the Supreme Court on blacklisting and/or banning a party from
dealing and/or participating in contracts/tenders floated by the
Government and or its undertakings. The power to blacklist a
contractor, whether the contract be for supply of material or
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equipment or for the execution of any other work whatsoever, is
inherent in the party allotting the contract. There is, therefore, no
need for any such power being specifically conferred by the statute or
reserved by the party awarding the contract. This is because
blacklisting/banning simply signifies a business decision by which the
party affected by the breach decides not to enter into any contractual
relationship with the party committing the breach. In the normal
course, between two private parties, the right to take any such
decision is absolute and untrammelled by any constraints
whatsoever. The freedom to contract or not to contract is unqualified
in the case of private parties. However, when such a decision is
taken by the State or any of its instrumentalities, the same would be
open to scrutiny not only on the touchstone of the principles of
natural justice but also on the doctrine of proportionality. In other
words, the Court would have the power to examine whether the
punishment meeted out is commensurate with the crime. Therefore,
a fair hearing to the party becomes an essential pre-condition for a
proper exercise of the power and to uphold the blacklisting order.
Blacklisting has the effect of preventing a person from the privilege
of entering into any contract or relationship with the Government for
the purposes of gain. The fact that a disability is created by the order
of blacklisting indicates that the relevant authority is to have an
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objective satisfaction before such an order is passed. Hence,
objective satisfaction and fair-play on the part of the authority
issuing the blacklisting order is of paramount importance. To put it
in a nutshell, merely due to some contractual disputes, a banning
order passed by the concerned authority would be too harsh. Only on
the basis of some contractual violations which have an equally
effacious remedy available for redressal of those violations, cannot be
the only ground for passing the banning order. Considering that a
blacklisting/banning order virtually leads to a civil death of the
person/party blacklisted, there has to be definitely something more
than just contractual disputes, such as frequency of incidents and/or
duration of wrong doing; whether there is a pattern or prior history
of wrong doing; whether the contractor has accepted the
responsibility for the wrong doing and recognised the seriousness of
the misconduct; etc. Suffice it to state that blacklisting/banning is
recognized and often used as an effective method for disciplining
deviant contractors who may have committed acts of fraud,
misrepresentations, falsification of records and other breaches of
regulations under which such contracts are awarded. What is
important is that blacklisting is never permanent and the period of
blacklisting would invariably depend upon the nature of the offence
committed by the Contractor. These principles are very well settled
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and have been succinctly set out by the Supreme Court in the case of
Kulja Industries Limited Vs. Chief Manager, Western Telecom
Project Bharat Sanchar Nigam Limited and Others.1
15. Having set out the general principles, we shall now turn
our attention to the facts at hand. The first thing that we noticed in
the facts of the present case is the contents of the Show Cause Notice
(SCN) dated 4th December, 2013.
ig This SCN states that some
irregularities and discrepancies have been reported during the
execution of the contract between the period February, 2009 to May,
2011. To inquire into these alleged irregularities and discrepancies,
the signatory of the said SCN (A. K. Srivastava) has been appointed
as the Inquiry Officer to conduct an investigation regarding the
irregularities / discrepancies set out in the said SCN. The alleged
irregularities mentioned in the said SCN were as follows:
(i) The Petitioner had not supplied the required quantity of
paint corresponding to the area of painting claimed for
payment in their invoices;
(ii) The Petitioner had submitted documents containing
incorrect and unrealistic information with respect to the
1 (2014) 14 SCC 731
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required manpower deployment; and
(iii) The Petitioner had failed to maintain and furnish necessary
documents/ records/ registers pertaining to the quality of
work and measurement, for payment.
16. In this regard, the Petitioner was advised to furnish its
clarification / explanation, if any. There is not a whisper in the said
SCN that any action is going to be taken against the Petitioner, let-
alone the fact that the Petitioner was being considered for being
blacklisted from dealing with the 1st Respondent Corporation. As
mentioned earlier, this SCN was replied to by the Petitioner by its
letter dated 16th December, 2013 and sought to explain all the above
alleged irregularities / discrepancies. It is in this light that, we are
surprised that the impugned order dated 25th April, 2014, bans /
blacklists the Petitioner from doing any business with the 1st
Respondent Corporation for a period of three years from the date of
the blacklisting order. We find considerable force in the argument of
Mr Moray that the SCN did not even indicate, let-alone mention, that
the same was issued with a view to consider whether to ban /
blacklist the Petitioner Company. In other words, the Petitioner was
not even called upon to show cause as to why they should not be
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blacklisted and/or banned from dealing with the 1st Respondent.
17. In this regard, it would be apposite to refer to a decision of
the Supreme Court in the case of Gorkha Security Services Vs Govt.
(NCT of Delhi).2 Paragraphs 21, 32 and 33 of the aforesaid decision
are very instructive and clearly lay down that mentioning or even
indicating the proposed action of blacklisting in the SCN is imperative
so as to make the noticee understand the proposed case set up
against him which he has to meet. In the absence of this, the
blacklisting/banning order would be bad in law. The relevant portion
of this Supreme Court decision reads thus:-
21. The central issue, however, pertains to the requirement of stating
the action which is proposed to be taken. The fundamental purpose
behind the serving of show-cause notice is to make the noticee
understand the precise case set up against him which he has to meet.
This would require the statement of imputations detailing out the
alleged breaches and defaults he has committed, so that he gets an
opportunity to rebut the same. Another requirement, according to us,
is the nature of action which is proposed to be taken for such a
breach. That should also be stated so that the noticee is able to point
out that proposed action is not warranted in the given case, even if
the defaults/breaches complained of are not satisfactorily explained.
When it comes to blacklisting, this requirement becomes all the more
imperative, having regard to the fact that it is harshest possible
action.
******
32. It was sought to be argued by Mr Maninder Singh, learned
Additional Solicitor General appearing for the respondent, that even
if it is accepted that the show-cause notice should have contained the
proposed action of blacklisting, no prejudice was caused to the
2 (2014) 9 SCC 105.
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appellant inasmuch as all necessary details mentioning
defaults/prejudices committed by the appellant were given in the
show-cause notice and the appellant had even given its reply thereto.
According to him, even if the action of blacklisting was not proposed
in the show-cause notice, the reply of the appellant would have
remained the same. On this premise, the learned Additional Solicitor
General has argued that there is no prejudice caused to the
appellant by non-mentioning of the proposed action of blacklisting.
He argued that unless the appellant was able to show that non-
mentioning of blacklisting as the proposed penalty has caused
prejudice and has resulted in miscarriage of justice, the impugned
action cannot be nullified. For this proposition he referred to the
judgment of this Court in Haryana Financial Corpn. v. Kailash
Chandra Ahuja [(2008) 9 SCC 31 : (2008) 2 SCC (L&S) 789] :
(SCC pp. 38, 40-41 & 44, paras 21, 31, 36 & 44)
"21. From the ratio laid down in B. Karunakar [ECIL v. B.
Karunakar, (1993) 4 SCC 727 : 1993 SCC (L&S) 1184 : (1993) 25
ATC 704] it is explicitly clear that the doctrine of natural justice
requires supply of a copy of the inquiry officer's report to the
delinquent if such inquiry officer is other than the disciplinary
authority. It is also clear that non-supply of report of the inquiry
officer is in the breach of natural justice. But it is equally clear that
failure to supply a report of the inquiry officer to the delinquent
employee would not ipso facto result in the proceedings being
declared null and void and the order of punishment non est and
ineffective. It is for the delinquent employee to plead and prove
that non-supply of such report had caused prejudice and resulted
in miscarriage of justice. If he is unable to satisfy the court on that
point, the order of punishment cannot automatically be set aside.
***
31. At the same time, however, effect of violation of the rule of audi
alteram partem has to be considered. Even if hearing is not
afforded to the person who is sought to be affected or penalised,
can it not be argued that 'notice would have served no purpose' or
'hearing could not have made difference' or 'the person could not
have offered any defence whatsoever'. In this connection, it is
interesting to note that under the English law, it was held few years
before that non-compliance with principles of natural justice would
make the order null and void and no further inquiry was necessary.
***
36. The recent trend, however, is of 'prejudice'. Even in those
cases where procedural requirements have not been complied
with, the action has not been held ipso facto illegal, unlawful or
void unless it is shown that non-observance had prejudicially
affected the applicant.
***
44. From the aforesaid decisions, it is clear that though supply of
report of the inquiry officer is part and parcel of natural justice and
must be furnished to the delinquent employee, failure to do so
would not automatically result in quashing or setting aside of the
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order or the order being declared null and void. For that, the
delinquent employee has to show 'prejudice'. Unless he is able to
show that non-supply of report of the inquiry officer has resulted in
prejudice or miscarriage of justice, an order of punishment cannot
be held to be vitiated. And whether prejudice had been caused to
the delinquent employee depends upon the facts and
circumstances of each case and no rule of universal application
can be laid down."
(emphasis in original)
33. When we apply the ratio of the aforesaid judgment to the facts of
the present case, it becomes difficult to accept the argument of the
learned Additional Solicitor General. In the first instance, we may
point out that no such case was set up by the respondents that by
omitting to state the proposed action of blacklisting the appellant in
the show-cause notice, has not caused any prejudice to the appellant.
Moreover, had the action of blacklisting being specifically proposed
in the show-cause notice, the appellant could have mentioned as to
why such extreme penalty is not justified. It could have come out with
extenuating circumstances defending such an action even if the
defaults were there and the Department was not satisfied with the
explanation qua the defaults. It could have even pleaded with the
Department not to blacklist the appellant or do it for a lesser period
in case the Department still wanted to blacklist the appellant.
Therefore, it is not at all acceptable that non-mentioning of proposed
blacklisting in the show-cause notice has not caused any prejudice to
the appellant. This apart, the extreme nature of such a harsh penalty
like blacklisting with severe consequences, would itself amount to
causing prejudice to the appellant."
18. In view of this authoritative pronouncement of the
Supreme Court in the case of Gorkha Security Services2, we would
be justified in setting aside the impugned banning order dated 25th
April, 2014 on this ground alone.
19. Even otherwise, on carefully going through the facts of
2 (2014) 9 SCC 105.
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the present case and more particularly the SCN and the banning
order passed pursuant thereto, what we find is that the disputes in
the present case are predominantly of a contractual nature. The SCN
does not even allege that there is any fraud or misrepresentation
done by the Petitioner or that he is a habitual offender. Furthermore,
this SCN has been issued almost 2 đ years after completion of the
contract and even though a completion certificate was issued to the
Petitioner by Respondent No.1.ig Even the operative part of the
banning order (and which is reproduced by us earlier), also clearly
indicates that the disputes between the parties was of a contractual
nature and there were no serious allegations against the Petitioner.
The only allegation made against the Petitioner was that the
Petitioner had manipulated manpower deployment details and
submitted improper and erroneous documents for the purpose of
inflating payment of the painting work. On what basis this finding
has been arrived at is completely silent in the banning order.
Further, though the banning order states that the 1st Respondent
"having given an impartial and prudent consideration to the facts",
is coming to the conclusions that it did, is completely silent as to who
was the Officer who had given this impartial, prudent and careful
consideration. It is also an admitted fact that no inquiry report was
ever served upon the Petitioner pursuant to the investigation carried
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out by the Inquiry Officer (A. K. Srivastava). What can be gathered
from the facts is that there appears to be a dispute with reference to
two invoices, namely, invoice Nos. 34 and 43. It was the case of the
1st Respondent that double payment / over payment had been made
with reference to these invoices and these monies were to be
recovered from the Petitioner. This was in fact done by the 1st
Respondent by invoking the two bank guarantees referred to earlier.
Looking to all these facts, and applying the principles on which a
blacklisting/banning order can be passed and succinctly set out by
the Supreme Court in the case of Kulja Industries Limited1, we do
not think that in the facts and circumstances of the present case, the
order of blacklisting (dated 25th April, 2014) was at all justified. In
fact, we find considerable force in the argument of Mr Moray that the
aforesaid action is taken only with a view to ensure that the
Petitioner is kept out of the bidding process and could not be awarded
the subsequent tender No. Y-15 MC 11001 for which the Petitioner
had qaulified and was the lowest tenderer (L-1).
20. Even on the principle of proportionality, we find that the
banning order cannot be continued any further. The impugned
banning order was passed on 25th April, 2014 and has continued till
1 (2014) 14 SCC 731
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date which is for a period of more than 2 đ years. Even if we were to
assume that the allegations in the blacklisting order (dated 25th
April, 2014 ) as the gospel truth, the Petitioner, having suffered the
banning order for a period of 2 đ years (out of the total period of
three years) has to go.
21. In view of the foregoing discussion, we have no hesitation
in setting aside the impugned banning order dated 25th April, 2014.
Rule is made absolute in the aforesaid terms and the Writ Petition is
allowed in terms of prayer clause (a). It is clarified that the
Petitioner shall be entitled to participate in any future tenders / bids
that may be floated by the 1st Respondent. The Writ Petition is
disposed of in the aforesaid terms. No order as to costs.
22. In view of our detailed judgement, nothing survives in the
Notices of Motion and the same are disposed of accordingly.
( B.P.COLABAWALLA J. ) ( S.C.DHARMADHIKARI J )
23. At this stage, after the judgement was pronounced, the
learned advocate appearing for the ONGC/Respondent nos. 1 to 3
seeks a stay of this order for a period of four weeks from today to
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enable the respondents to challenge this order in a higher court or
adopt appropriate proceedings. This request is opposed by Mr.
Moray, learned counsel appearing for the petitioner.
24. Having heard both sides on this point and finding that the
order of blacklisting was ex-facie erroneous and unsustainable in law
and negating the mandate of Articles 14 and 19(1)(g) of the
Constitution of India, the request is refused. This is more so in the
facts of the present case as the Petitioner has already suffered the
blacklisting order for a period of 2 đ years (out of a total of 3 years).
However, we clarify that our order and direction does not restrain
the Respondents or prohibit them in any manner from raising a
contractual dispute and adopt such proceedings as are permissible in
law to recover any sums. All contentions with regard to
maintainability of these proceedings as also the merits thereof, are
kept open.
( B.P.COLABAWALLA J. ) ( S.C.DHARMADHIKARI J )
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