Moonline Express Cargo Pvt. Ltd vs Union Of India Through Divisional ...
2022 Latest Caselaw 942 Bom

                                                  1                            1-arbpl 1665-22.odt

Prajakta Vartak
                       IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                           ORDINARY ORIGINAL CIVIL JURISDICTION
                          ARBITRATION PETITION (L.) NO.1665 OF 2022
         M/s. Moonline Express Cargo Pvt. Ltd.                     ..Petitioner
                     Vs.
         Union of India through Divisional
         Railway Manager (Commercial)                              ..Respondent
                                           -----
         Mr. Mutahhar Khan i/b. Mr. Rajesh Gupta for Petitioner.
         Mr. T. J. Pandian with Mr. T. C. Subramanian and Mr. Dheer Sampat for
         Respondent.
                                            -----

                                        CORAM :       G.S. KULKARNI, J.

                                        DATE :        JANUARY 27, 2022.

         P.C.:

1. This is a petition filed under Section 9 of the Arbitration and

Conciliation Act, 1996 (for short, "the Act") whereby the petitioner has

prayed for interim reliefs pending the arbitral proceedings. The disputes

between the parties have arisen under a contract entered by the

respondent -Railways with the petitioner, awarded in pursuance of a

tender floated by it on 03 March, 2021, for grant of leasing rights in

respect of a "3.9 Ton parcel space in Train No. 03202 (FL WLRRM) LTT-

PNBE Spl Ex. Operating between Lokmanya Tilak Terminus and Patna"

for a period of five years.

2. It is also necessary to note the date on which petitioner,

participated in such tender which was on 26 March, 2021. The dates of

issuance of the tender and the date on which the petitioner submitted its

bid, according to the petitioner are indicative of quite a normal period

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after the first wave of the Covid 19 pandemic. The petitioner has

contended that in April 2021 the second wave of Covid-19 had

commenced, consequent to which lockdown restrictions were imposed

in Mumbai as also in Patna.

3. On 17 May 2021, the respondent having accepted the petitioner's

bid, issued a 'Letter of Allotment' in favour of the petitioner. This was

during the time when the lockdown restrictions were imposed. As per

the letter of allotment the respondent called upon the petitioner to

commence loading within 15 days of issuance of the letter of allotment.

4. It is the petitioner's case that due to the circumstances created by

the lock down , it was not possible for the petitioner to comply with the

requirement of immediate loading as contained in the letter of

allotment. On the issue of commencement of the loading there was

correspondence between the parties. By its letters dated 31 May, 2021,

29 June, 2021 and 19 July, 2021 the petitioner informed the respondent

about the lockdown restrictions in Mumbai as also in Patna and due to

which it had become difficult for the petitioner to comply with such

conditions as contained in the letter of allotment.

5. The petitioner's request however was not accepted by the

respondent and a show cause notice dated 26 July, 2021 came to be

issued to the petitioner calling upon the petitioner to start loading with

effect from 01 August, 2021, failing which the petitioner was put to a

notice that its allotment would stand terminated. It is the petitioner's

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case that the show cause notice did not refer and /or contain any

intimation or a threat that the petitioner would be debarred or

blacklisted from submitting its bid in future tenders.

6. The petitioner responded to the show cause notice of the

respondent by its letter dated 28 July, 2021 interalia setting out the

circumstances which were prevailing. The petitioner categorically

pointed out that when the tender in question was floated by the

respondent as also when the petitioner submitted its bid, the

circumstances of a lockdown were not existing, that is in March 2021.

The petitioner has contended that the respondent although considered

the petitioner's reply to the show cause notice, however, the reasons as

pointed out by the petitioner were not accepted by the respondent,

inasmuch as the respondent on 8 September, 2021 issued a termination

letter to the petitioner, terminating the award of the said contract and

forfeiting the earnest money deposit of Rs.1 Lakh, as also, debarring the

petitioner from participating in the future tenders of the respondent for

a period of two years. Such termination letter dated 8 September, 2021

was received by the petitioner on 16 October, 2021.

7. The petitioner being aggrieved by such action of the respondent to

debar the petitioner from participating in future tenders, approached

this Court by filing Writ Petition No.3581 of 2021, which came to be

filed on 28 October, 2021. However, as an alternate remedy was

available to the petitioner including resorting to arbitration, a Division

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Bench of this Court by an order dated 17 January, 2022 permitted the

petitioner to withdraw such petition, with liberty to pursue the available

alternate remedy including arbitration keeping open all contentions.

Accordingly, the petitioner has filed this petition on 19 January, 2022.

8. Mr. Khan, learned counsel for the petitioner at the outset would

submit that the grievance of the petitioner in the present proceedings is

on the action of the respondent to debar the petitioner from

participating in any tender of the respondent for two years. Mr. Khan,

would submit that the relief in regard to such a condition has become

necessary, in as much as, the respondent has floated tender for leasing

rights in respect of certain trains. Such tenders would be opened on 28

January, 2022. It is submitted that the petitioner, who is desirous to

participate in such tender, would lose an opportunity of participating in

such tender in view of the arbitrary condition of debarment imposed by

the respondent in the termination letter dated 8 September, 2021.

9. Mr. Khan submits that to debar the petitioner for any period, was

not the case of the respondent, in the show cause notice issued to the

petitioner. It is submitted that an action of debarring the petitioner was

certainly an action involving civil consequences and if such action was to

be taken against the petitioner, in that event, the respondent ought to

have followed the due procedure, as known to law and a specific show

cause notice ought to have been issued to the petitioner, and thereafter

following the principles of natural justice, by granting the petitioner an

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opportunity of being heard on such show cause notice, an appropriate

order could have been passed by the respondent. It is submitted by Mr.

Khan that such lawful procedure has been given a complete go-bye by

the respondent in imposing on the petitioner, a drastic consequence of

debarment for a period of two years. Mr. Khan has submitted that the

action to debar is an action of blacklisting the petitioner for a period of

two years and in a manner completely unknown to law. To support such

contentions, Mr. Khan placed reliance on the decisions of the Supreme

Court in Erusian Equipment & Chemicals Ltd. v. State of West Bengal 1,

Gorkha Security Services v. Government (NCT of Delhi) and Ors. 2,

Southern Painters versus Fertilizers & Chemicals Travancore Ltd. & Anr. 3

and in a recent judgment of Supreme Court in UMC Technologies Private

Limited Versus Food Corporation of India and Another 4 to submit that

this is a clear case where the lawful procedure of adherence to the

principles of natural justice in blacklisting a contractor has not been

followed by the respondent which would render the respondent's action,

as assailed, totally non est in law. In these circumstances, it is his

submission that the petitioner has become entitled to the reliefs as

prayed for in prayer clause (c), wherein the petitioner has prayed for

stay to the effect and operation of the condition as contained in the

termination letter dated 8 September, 2021, to the extent it seeks to

1 . (1975) 1 SCC 70.

2.    (2014) 9 SCC 105
3    1994 Supp (2) Supreme Court Cases 699
4    (2021) 2 Supreme Court Cases 551



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debar the petitioner from participating in any tenders floated by the

respondent for a period of two years.

10. On the other hand, Mr. Pandian, learned counsel for the

respondent in opposing the reliefs as prayed by the petitioner, has placed

reliance on the reply affidavit of Mr. Dhirendra Singh, Divisional

Commercial Manager, Central Railway, Mumbai CSMT. In the

arguments as advanced by Mr. Pandian, his principal contention is that

the petitioner would not be entitled to any reliefs, as in the tender

documents under which the petitioner was issued an allotment letter, a

provision for an appeal has been made in clause 1.6 interalia against

cancellation of registration or termination of lease contracts, which

would lie with the Chief Commercial Manager of Zonal Railways. It is

his submission that in view of such condition, it was not correct for the

petitioner to invoke the jurisdiction under Section 9 of the Act. Mr.

Pandian however does not dispute that clause 1.5 of the tender

condition which also forms part of the contract confers an authority on

the respondent , in a manner as specifically set out in the said condition

to debar the contractor from fresh registration for a period of five years,

which was not invoked by the respondent against the petitioner. Mr.

Pandian is not in a position to support the action of the respondent to

debar the petitioner on the basis of the show cause notice which was

issued to the petitioner. Thus, the only contention of Mr. Pandian is that

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the petitioner ought to have availed the remedy of appeal as set out in

clause 1.6 of the tender.

11. Having heard Mr. Khan and Mr. Pandian, learned counsel for the

parties, in my opinion, there is much substance in the contention as

urged by Mr. Khan, that an action to debar the petitioner for any period,

was certainly not in contemplation of the respondent, when the

respondent issued to the petitioner, the show cause notice dated 26 July,

2021. Such show cause notice was conspicuously silent on any action of

a debarment/blacklisting to be taken against the petitioner. Thus, no

opportunity was available to the petitioner to defend an action of

debarment being resorted by the respondent against the petitioner. The

petitioner could not have been taken by a surprise by the respondent. If

the respondent wanted to initiate any action against the petitioner by

invoking clause 1.5 of the tender condition which according to Mr.

Pandian would confer a contractual authority on the respondent to

debar the petitioner, then necessarily the law would require issuance of

a specific show cause notice on debarment, when such cause to debar

stems under the contract between the parties, as in the present case.

12. Adherence to the principles of natural justice which would include

issuance of a show cause notice and an effective hearing to be given to

the person against whom a debarment action is proposed are a sine qua

non, as clear from decisions of the Supreme Court which hold the field

for more than last 46 years (see: Erusian Equipment & Chemicals Ltd.

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(supra)) and several other decisions as rendered by the Supreme Court

after such decision. Mr. Khan's reliance on a recent decision of the

Supreme Court in UMC Technologies Private Limited (supra) is well

founded. The facts of the said case are quite similar to the facts of the

case in hand. Under the bids invited by the respondent-FCI, the

appellant had submitted its bid and was declared to be a successful

bidder for undertaking the tender work of conducting recruitment of

watchman for the FCI. On certain materials gathered by the FCI against

the appellant a show cause notice was issued to the appellant which was

completely silent on any action of blacklisting to be taken against the

appellant. The proceedings of the show cause notice however resulted in

the FCI terminating the appellants contract as also blacklisting the

appellant from participating in any future tenders for a period of five

years. The appellant failed before the High Court in its writ petition

challenging such action of the FCI. Allowing the appellants appeal the

Supreme Court referring to several earlier decisions held, that it is the

first principle of civilized jurisprudence that a person against whom any

action is sought to be taken or whose right or interests are being

affected should be given a reasonable opportunity to defend himself. It

was observed that the basic principle of natural justice, is to the effect

that, before an adjudication starts, the authority concerned should isue a

notice to the affected party putting up the case against him, so that he

can defend himself. It was observed that blacklisting of a person or of

an entity by the State or a State Corporation, the requirement of a valid,

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particularized and unambiguous show cause notice was crucial due to

the severe consequences of blacklisting and the stigmatization that

accrues to the person/entity being blacklisted. It was observed that

blacklisting has the effect of denying a person or an entity the privileged

opportunity of entering into government contracts. Such privilege arises

because it is the State who is the counter party in government contracts

and as such, every eligible person is to be afforded an equal opportunity

to participate in such contracts, without arbitrariness and

discrimination. The Court held that not only does blacklisting takes

away this privilege, it also tarnishes the blacklisted person's reputation

and brings the person's character into question. It was observed that

blacklisting also has long-lasting civil consequences for the future

business prospects of the blacklisted person. The Court referring to the

decision in Erusian Equipment & Chemicals Ltd. (supra) observed that

the severity of the effects of blacklisting and the resultant need for strict

observance of the principles of natural justice before passing an order of

blacklisting, made it mandatory that the principles of natural justice are

followed as blacklisting casts a slur. It creates a barrier between the

persons blacklisted and the Government in the matter of transactions. It

was observed that black list are instruments of coercion. The Court also

referred to its decision in Gorkha Security Services (supra) wherein the

Supreme Court had observed that blacklisting was equivalent to a civil

death of a person, because blacklisting was stigmatic in nature and

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which debars a person from participating in government tenders. These

principles of law are aptly applicable in the facts of the present case.

13. Considering the aforesaid principles of law, in my clear opinion,

prima-facie the respondent appears to have acted in complete

derogation of its dominant contractual position in debarring the

petitioner for a period of two years under the termination order.

Although for justifiable reasons even assuming that such a right was

available to the respondent under the contract in question, however, it

could not have been exercised in a manner alien to the well settled

principles of law as laid down by the Supreme Court as noted above. A

party to the contract like the respondent was under a more solemn

obligation to adhere to the principles of law in imposing a debarment on

the petitioner acting under the contract. It is also significant that the

petitioner's registration has not been cancelled, a consequence of which

is that the petitioner continuous to be a panel contractor. However, by

issuing a debarment and that too illegally, the respondent has meted out

to the petition a consequence of a civil death. The action on the part of

the respondent is thus prima facie not only perverse to the contractual

conditions, but also illegal affecting the legal and constitutional rights of

the petitioner as held by the Supreme Court.

14. In the aforesaid circumstances, in my opinion a strong prima facie

case has been made out by the petitioner for grant of interim measures

pending the arbitral proceedings to the extent it debars the petitioner for

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a period of two years. It is would be the requirement of law for the

Court to stay the effect of such illegal condition being inserted in the

termination letter dated 8 September, 2021, as such condition is prima

facie void ab initio being contrary to the settled principles of law as laid

down in the decisions as discussed above.

15. In so far as the prayers as made in clauses (a) and (b) are

concerned, I am not inclined to grant any relief to the petitioner, as

prayed for in such prayers, as these reliefs are in the nature of reliefs,

which can be granted only on final adjudication of the disputes, in the

proposed arbitral proceedings. The petition is accordingly disposed of

by the following order:-

ORDER

i. The respondent is directed not to act upon the condition of

debarring the petitioner for a period of two years as contained in the

termination letter dated 8 September, 2021. Consequently, the

petitioner is permitted to participate in the tenders which may be issued

by the respondent.

ii. In the event the respondent intends to initiate any action of

blacklisting/debarring the respondent for any reason, it is open for the

respondent to follow the procedure as known to law.

iii. The petitioner is directed to invoke arbitration. As the present

proceedings are filed before invocation of the arbitral proceedings, the

provisions of sub-section (2) of Section 9 of the Act would become

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applicable making it incumbent upon the petitioner to commence the

arbitral proceedings within a period of 90 days.

iv. If the petitioner does not commence the arbitral proceedings as

provided for under sub-section (2) of section 9, it would be open for the

respondent to apply for vacating of the protection granted to the

petitioner by this order.

v. All contentions of the parties in the arbitral proceedings are

expressly kept open.

vi.     Disposed of in the above terms. No costs.




                                             [G.S. KULKARNI, J.]