M/S Sainik Mining And Allied ... vs M/S Western Coalfields Ltd. Thr. ...
2022 Latest Caselaw 2601 Bom

WP 5470-21                                    1                       Judgment

          IN THE HIGH COURT OF JUDICATURE AT BOMBAY,
                    NAGPUR BENCH, NAGPUR.
                   WRIT PETITION NO. 5470/2021
M/s Sainik Mining and Allied Services Limited,
A Public Limited Company, having its registered
Office at 129, Transport Centre, Rohtak Road,
Punjabi Bagh, New Delhi - 110035 and Corporate
Office at 7th Floor, Corporate Tower, Ambience Mall,
N.H. No.48, Gurugram-122001, herein represented
by Senior General Manager Omprakash Katare,
aged about 63 years, having its office at Sainik
Mining & Allied Service Limited, Qtr. No.B-92,
WCL Colony, Near Harihar Mandir, Umrer, Nagpur
(Maharashtra), Pin Code-441204, who has been duly
authorized vide letter dated 08/12/2021 read with
Board Resolution dated 23/07/2020.                                PETITIONER
                                .....VERSUS.....
1.   M/s Western Coalfields Limited,
     through its General Manager (CMC), WCL HQ,
     Nagpur, Coal Estate, Civil Lines, Nagpur-440001.
2.   M/s Western Coalfields Limited,
     through its General Manager, Umrer Area,
     PO Project, Dist. Nagpur-441204.

3.   HDFC Bank, through Manager, having Branch
     Office at E-13/29, Second Floor, Harsha Bhawan,
     Middle Circle, Connaught Place New Delhi-110001.          RESPONDENT S

   Shri A.S. Jaiswal, Senior Advocate with Shri Gopal Sawal, counsel for the
                                   petitioner.
 Shri S.P. Dharmadhikari, Senior Advocate with Shri Kartik Shukul, counsel for
                          the respondent nos.1 and 2.

CORAM : A. S. CHANDURKAR AND SMT. M.S. JAWALKAR, JJ.

DATE ON WHICH ARGUMENTS WERE HEARD : 01ST MARCH, 2022. DATE ON WHICH JUDGMENT IS PRONOUNCED : 16TH MARCH, 2022.

JUDGMENT : (PER : A.S. CHANDURKAR, J.)

RULE. Rule made returnable forthwith and heard the learned

counsel for the parties.

WP 5470-21 2 Judgment

2. The challenge raised in this writ petition is to the order dated

08.12.2021 that has been issued by the Area General Manager, Umrer

Area of the Western Coalfields Limited by which the work order issued to

the petitioner pursuant to the tender notice dated 20.02.2016 has been

terminated and the performance security deposit furnished by the

petitioner has been forfeited. In addition, the petitioner has been

debarred from participating in future tenders of the Western Coalfields

Limited for a period of three years.

3. The facts giving rise to the present writ petition are that the

petitioner is a company incorporated under the Companies Act, 1956 and

is engaged in the business of excavation as well as mining of coal and

other allied services. On 20.02.2016, the Western Coalfields Limited

issued a tender notice inviting bids for three jobs with duration of 83

months. As per Clause 6.2 of the tender notice if there was failure on the

part of the Contractor to complete the work within the agreed time and

also to maintain the progress of that work, the Contractor was liable to

pay liquidated damages. As per Clause 6.4 there was a provision for

extending the date of completion for reasons stipulated therein including

a cause beyond the control of the Contractor. As per Clause 9, the

contract was liable to be cancelled in full or in part if the Contractor

defaulted in proceeding with the works with due diligence and the WP 5470-21 3 Judgment

Contractor continued to do so even after a notice in writing from the

Engineer In-charge. As per Clause 9(b) if there was failure to achieve

monthly agreed quantity of 75% or a period of six consecutive months or

a cumulative period of six months within a continuous period of eighteen

months then except on account of non-availability caused by a Force

Majeure event or an act of omission of company not occurring due to any

default of the Contractor, the Western Coalfields Limited was free to act

accordingly. Though there are other sub clauses to Clause 9 they are not

relevant for the present purpose. As per Clause 19 there is a provision for

payment of price variation and as per Clause 19.04.1 price variation on

account of diesel has been provided. In the formula stated in that clause

the diesel component expressed as percentage of total value of work was

0.30. The bid submitted by the petitioner was accordingly accepted by

issuing the letter of acceptance on 27.05.2016. Pursuant thereto the

petitioner was issued the work order dated 08.12.2016. In Clause 21 of

the said work order, the rate of diesel as on 15.03.2016 was indicated at

Rs.52.37 Ps. per litre. It was stated that the escalation/de-escalation

would be payable/recoverable as per the price variation clause of the

Special Terms and Conditions of the Tender Document.

4. It is the case of the petitioner that pursuant to aforesaid work

order the work commenced and the same was being done smoothly.

WP 5470-21 4 Judgment

However on account of setting in of the Covid-19 pandemic the petitioner

started facing difficulties. On 02.04.2020 a letter was issued by the

petitioner to the Area General Manager stating therein that for aforesaid

reason which was beyond the control of the petitioner the daily targets

could not be achieved. On 12.10.2021 the petitioner called upon the

Area General Manager that the price of diesel had increased and it was

higher than the basic price of contract for which reason the petitioner was

not in a position to clear the outstanding dues of the Indian Oil

Corporation Limited. This was likely to result in interruption of the

ongoing work. By a communication dated 10.08.2021 the petitioner

informed the Chairman and the Managing Director of the Western

Coalfields Limited, Nagpur all the difficulties faced on account of increase

in the price of diesel to Rs.97.09 Ps. per litre on 30.07.2021. The rates

thereafter increased to about Rs.103/- per litre as per communication

dated 27.10.2021. Considering the joint representations made by various

contractors to the Chairman of the Coal India Limited seeking

modification of the price variation clause, the General Manager, Coal

India Limited informed the Regional Managers of its various subsidiaries

that for future tenders an amendment was being made in Chapter 6 of the

Contract Management Manual of Coal India Limited. The same was to be

made applicable for future tenders including tenders in which the bid

submission had not been completed. On 02.11.2021 a show cause notice WP 5470-21 5 Judgment

was issued by the Are General Manager to the petitioner stating therein

that the site of the work had been handed over to the petitioner on

06.10.2016 and the work had been commenced on 25.11.2016. The

scheduled completion date of the work as per the work order was

24.10.2023. It was stated that the overburden removal and coal

production performance during April-2021 to September-2021 was

extremely poor. In addition there was deployment of insufficient numbers

of machines/equipments as per the agreement thus resulting in failure to

achieve the agreed quantity of coal and OB Evacuation. Various letters

had been issued for achieving the mutually agreed targets and despite

assurances by the petitioner there was no improvement in the

performance. It was stated that about 32 letters during the period 2017

to 2021 had been issued but the petitioner had not improved its

performance for achieving the targets. Reference was made to Clause 9

sub clauses (a) to (c) of the contract and the petitioner was called upon

to show cause as to why action as stated in Clause 9 may not be taken.

The petitioner on 12.11.2021 submitted its reply stating

therein that for a period of about 58 months 80% of removal of OB and

93% of evacuation of coal had been undertaken. The targets could not be

met during April-2021 to September-2021 on account of outbreak of

Covid-19 pandemic. It was further stated that on account of increase in WP 5470-21 6 Judgment

the price of diesel the cost of mining work had increased making it

difficult for the petitioner to run the machines with full capability.

5. The Area General Manager on 08.12.2021 after consideration

of the explanation of the petitioner and after grant of personal hearing

informed the petitioner about termination of the work order that was

issued on 27.05.2016, directed forfeiture of the performance security

deposit or 20% of the value of incomplete work whichever is higher and

also debarred the petitioner from further participation in future tenders of

the Western Coalfields Limited for a period of three years. It is this order

issued by the Area General Manager of the Western Coalfields Limited

that is the subject matter of challenge in this writ petition.

6. Shri A.S. Jaiswal, learned Senior Advocate for the petitioner

submitted that on account of global increase in the price of diesel it

became financially difficult for the petitioner to meet the targets with

regard to carrying out the work order under the contract. The diesel

component that was agreed was 0.30 when the price of diesel was

Rs.52.37 Ps. per litre as stated in the work order. The price of diesel had

risen to Rs.103/- per litre and for reasons beyond the control of the

petitioner it was difficult for the petitioner to achieve the targets as fixed.

The Western Coalfields Limited on realizing this material aspect had on its WP 5470-21 7 Judgment

own increased the diesel component from 0.30 to 0.56 on 17.11.2021.

However this variation was made applicable only to future contracts

without making the same applicable to existing and unfinished contracts

such as the present one. There was no valid reason on the part of the

Western Coalfields Limited to exclude the existing contracts like the one

in hand and the lower component of 0.30 was liable to be modified to the

component that was to operate for future contracts. Since the increase in

the price of diesel was for reasons beyond the control of the petitioner, it

was clear that the present situation was covered by the exception to

Clause 9(b) being a Force Majeure event. The Western Coalfields Limited

therefore was not justified in terminating the work order and further

forfeiting the performance security deposit and debarring the petitioner.

The learned Senior Advocate referred to the judgment of the Division

Bench in AG Enviro Infra Projects Private Limited Versus State of

Maharashtra & Others [2018(6) AIR BomR 698] and submitted that the

escalation in the price of diesel globally was a factor which required

alteration of the diesel component from 0.30. He also referred to another

judgment of the Division Bench in A2Z Infraservices Limited Versus

Union of India & Others [2018 (3) LLJ 363] and submitted that the ratio

thereof was clearly applicable to the case in hand. Therein the business

efficacy test was applied and it was submitted that on similar lines the

work order of the petitioner was liable to be restored. It was thus prayed WP 5470-21 8 Judgment

that the impugned action taken by the Western Coalfields Limited being

arbitrary in nature and violative of Article 14 of the Constitution of India

was liable to be set aside.

7. Per contra, Shri S.P. Dharmadhikari, learned Senior Advocate

for the respondent nos.1 and 2 opposed the aforesaid submissions.

According to him, the work order issued to the petitioner was terminated

in accordance with Clause 9 of the contract for bona fide reasons. The

order dated 08.12.2021 had clearly referred to Clauses 9(a) to 9(c) of the

contract. Contention urged by the petitioner could at the most relate to

Clause 9(b) of the contract but there was no escape from the fact that

there was a breach committed also with regard to Clause 9 (a) and 9(c)

thereof. On 17.11.2021, the Western Coalfields Limited had taken a

policy decision in the matter of consideration of joint representations of

various contractors and had amended Chapter 6 of the Contract

Management Manual which was to be made applicable for future tenders

including the tenders in which bid submission had not been completed.

The decision not to apply such amendment to existing contracts could not

be said to be arbitrary as the same would have resulted in the material

altering the contracts already entered. The decision to alter the

escalation clause was a matter of policy having financial implications and

hence the Coal India Limited did not act arbitrarily in making amendment WP 5470-21 9 Judgment

to operate prospectively. There was an escalation clause in the contract

entered into with the petitioner and the parties were bound by the same.

The petitioner was infact attempting to seek substitution of the escalation

clause in the contract but such prayer was not liable to be granted in

exercise of jurisdiction under Article 226 of the Constitution of India. It

was submitted that the period of the contract was 83 months and it was

for the petitioner as a prudent business firm to have considered future

possibilities while submitting its offer. The offer made by the petitioner

was to do business on the terms set out by the Western Coalfields Limited

and it was not permissible mid-way to seek alteration in the terms of the

contract. He submitted that in accordance with the escalation clause the

increase in the price of diesel was being paid to the petitioner but it was

only the petitioner who had defaulted in meeting the timeline for

completion of the work. The escalation clause in the contract was to

operate for the Contractor as well as the Principal and the same could not

be viewed only from the perspective of the Contractor. The rise in price of

diesel was hardly related to Article 14 of the Constitution of India. In the

writ petition there was no foundational pleadings as to the effect of the

pandemic situation on the petitioner. Further the petitioner did not

dispute the reasons contained while applying Clause 9(a) and 9(c) and

had only sought to rely upon Clause 9(b). The rise in global prices of

diesel could not be said to be a Force Majeure event as such rise was not WP 5470-21 10 Judgment

the act of God. Since there was no omission on the part of the Western

Coalfields Limited it was only the petitioner who was to blame for not

achieving the given targets.

The learned Senior Advocate sought to distinguish the

judgments relied upon by the learned Senior Advocate for the petitioner

by submitting that therein the Contractor as an agent of the Principal was

required to comply with statutory obligations under the Minimum Wages

Act, 1948. It was in that context that the price variation clause was

directed to be modified. In the case in hand there was no such statutory

obligation to be met either by the Western Coalfields Limited or by the

petitioner. Hence the business efficacy test was not applicable and the

price escalation clause was already provided. Moreover the policy

decision dated 17.11.2021 was not under challenge by the petitioner so

as to pray for that policy decision to be modified for being made

applicable even to existing contracts. It was then submitted that this

Court while issuing notice had directed that the bank guarantee furnished

by the petitioner was not to be encashed if the same had not been

encashed on the date of the order. Relying upon the decision in U.P.

Cooperative Federation Ltd. Versus Singh Consultants and Engineers (P)

Ltd. [(1988) 1 SCC 174] it was submitted that only if there was an

element of fraud on the part of the beneficiary that the encashment of the

bank guarantee could be refused by the bank. There was no such case WP 5470-21 11 Judgment

pleaded by the petitioner. It was thus submitted that no interference was

called for in the writ petition and the same was liable to be dismissed.

8. We have heard the learned counsel for the parties at length

and we have perused the documents placed on record. After giving due

consideration to the rival submissions, in our view the petitioner has not

made out any case for grant of relief under Article 226 of the Constitution

of India. In matters arising out of contractual disputes it is well settled

that the Court in exercise of jurisdiction under Article 226 of the

Constitution of India is merely concerned with the decision making

process rather than the decision itself. If the decision making process is

found to be fair and the decision has been taken after following all

procedural requirements and by granting due opportunity to the

concerned party the scope to interfere with the decision taken thereafter

would be limited. In the present case we find that the petitioner has not

raised a serious challenge to the decision making process of the Western

Coalfields Limited in terminating the work issued to the petitioner. The

challenge is principally to the decision of the Western Coalfields Limited

of terminating the work order issued to the petitioner. In other words,

the challenge is to the decision itself and not to the decision making

process. The issuance of show cause notice dated 02.11.2021 and the

fact of the petitioner giving reply thereto on 12.11.2021 is not in dispute.

WP 5470-21 12 Judgment

The termination of the work order on 08.12.2021 is in view of Clauses

9(a) to 9(c) of the Conditions of Contract. We may note that there was

also no serious challenge to the factual data mentioned in the show cause

notice that has been made the basis for termination of the work order.

The grievance of the petitioner is that on account of the global increase in

the prices of diesel, the diesel component in the work order which was

prescribed at 0.30% became financially non-viable. The Coal India

Limited on noticing such global increase in the prices of diesel unilaterally

on 17.11.2021 amended Chapter 6 of the Contract Management Manual

and revised the rates of diesel component. Such revision however was

made applicable only to future tenders and the tenders in which the bid

submission had not been completed. The petitioner contends that in the

light of the difficulties faced and with the onset of the pandemic such

amendment in the rate of diesel component ought to have been applied

even to the work orders in hand.

9. We find that the decision taken by the Coal India Limited

on 17.11.2021 of amending the Contract Management Manual is in

the nature of a policy decision which is not under challenge in the

writ petition. This policy decision has financial implications and it is

perhaps with said aspect in mind that it has been made applicable to

future tenders. It is however not necessary to go into the justification WP 5470-21 13 Judgment

on the part of Coal India Limited for not applying the revision in the

rate of diesel component to existing contracts. It is also not the case

of the petitioner that the benefit of such amendment was granted to a

work order already issued and that such benefit was denied to the

petitioner. The learned Senior Advocate for the respondents is justified

in submitting that in effect the petitioner seeks substitution of the price

escalation clause in the contract from what was agreed by the

petitioner. It would not be a sound exercise of discretion if the Court

were to alter certain terms of the contract as the parties would be

governed by the contract entered into between them. We also note that it

is the stand of the respondents that amongst various work orders in

operation it was only the petitioner who had defaulted in completion of

the work allotted to it and other contractors had continued with the

completion of contracts awarded to them. We therefore do not find

anything arbitrary on the part of the respondents in not applying the

amendments made to the Contract Management Manual to the contract

that was awarded to the petitioner on 08.12.2016. On perusal of the

show cause notice and the reply submitted by the petitioner we are

satisfied that the contract of the petitioner has been terminated in

accordance with the terms of the tender document itself by relying upon

Clauses 9(a) to 9(c) thereof.

WP 5470-21 14 Judgment

10. In support of the contention that the Western Coalfields

Limited ought to have applied the amendments made in Chapter 6 of

the Contract Management Manual even to tenders wherein the work

order was issued by taking a note of the increase in the price of diesel,

the learned Senior Advocate for the petitioner sought to rely upon the

decision in AG Enviro Infra Projects Private Limited (supra). The facts

of the aforesaid case indicate that one of the conditions of the tender

was to apply the notification issued by the State Government in the

matter of payment of minimum wages. During the period when the

contract was being worked out a notification increasing the minimum

wages was issued by the State Government. The Contractor by relying

upon such increase had sought the benefit of resolutions passed by

the General Body of the Municipal Corporation by which the Municipal

Corporation agreed to provide minimum wages to the contract labourers.

In that context it was held that it was the statutory obligation firstly of

the Municipal Corporation to implement the notification modifying the

rates of minimum wages. The Municipal Corporation as principal was

bound by such notification and therefore it was its duty to see that

the Contractor who was its agent was not put to any financial distress

while complying with such statutory obligation. The Court further found

that the benefit of the resolutions passed by the Municipal

Corporations was extended to similarly situated contractors and on WP 5470-21 15 Judgment

the basis of parity such benefit was liable to be extended to the

petitioner.

In A2Z Infraservices Limited (supra) there was an increase in

the rates of minimum wages with effect from 19.01.2017 when the

contract was being worked out. The Court again noticed that there was a

statutory obligation on the part of the Railway Department which was the

principal to comply with the notification increasing the rates of minimum

wages. The Contractor sought compensation for the increase in the cost

of labour pursuant to the notification dated 19.01.2017. It was held that

though the Railways applied the price variation clause till 18.01.2017 it

had not done so after issuance of the notification dated 19.01.2017. The

Court held that the Railways ought to neutralize the cost of labour by

acting under the price variation clause and further referred to the

principle of "business efficacy".

11. The facts of the aforesaid decisions clearly indicate that the

Contractor therein was obliged to comply with prescribed statutory

obligations under the Minimum Wages Act, 1948. Since it was the duty

of the principal to ensure such compliance and the work was being done

by its agent, the Court found it appropriate to direct the principal to

ensure that the Contractor was not put at a loss while complying with

such statutory obligations. However, we find that the facts of the case in

hand are distinct and the ratio of the aforesaid decisions cannot be made WP 5470-21 16 Judgment

applicable to the present case. The Coal India Limited took a policy

decision of amending the Contract Management Manual by increasing the

rate of diesel component and making it applicable to future tenders as

well as the tenders in which the bid submission had not been completed.

This policy decision amending Chapter 6 of the Manual has not been

challenged by the petitioner and it is also not the case of the petitioner

that the amendment as made have been applied either by Coal India

Limited or by Western Coalfields Limited to a work order that was already

issued and the work was in progress. Moreover, there is no statutory

obligation involved mandating the principal to abide by any variation in

the diesel component. It is merely a factor that is provided for under the

price variation clause and is in the mature of a business risk. Hence, the

ratio of the said judgments do not apply to the case in hand.

12. Another aspect that cannot be lost sight of is that the show

cause notice issued to the petitioner on 02.11.2021 has specifically

referred to Clause 9(a) to 9(c) of the conditions of contract while seeking

to terminate the contract. Clause 9(a) to 9(c) reads as under:

"Termination, Suspension, Cancellation & Foreclosure of Contract:

The company shall, in addition to other remedial steps to be taken as provided in the conditions of contract, be entitled to cancel the contract in full or in part, if the contractor, WP 5470-21 17 Judgment

a. makes default in proceeding with the works with due diligence and continues to do so even after a notice in writing from the Engineer-in-charge, then on the expiry of the period as specified in the notice Or b. fails to achieve a monthly agreed quantity of 75% (Seventy Five percent) for a period of 6(Six) consecutive months or for cumulative period of six months within any continuous period of 18(eighteen) months, save and except to the extent of non-availability caused by I) a Force Majeure event or ii) an act of omission of company, not occurring due to any default of the contractor.

                                           Or
              c.          commits default/breach in complying with

any of the terms and conditions of the contract and does not remedy it or fails to take effective steps for the remedy to the satisfaction of the Engineer-in-charge, then on the expiry of the period as may be specified by the Engineer-in-charge in a notice in writing."

The impugned order dated 08.12.2021 has proceeded to terminate the

contract by relying upon Clause 9(a) to 9(c). Prior to issuance of

the show cause notice it has been stated that there were various

notices issued to the petitioner in which it was stated that the

monthly targets were not being achieved. It is not the case of the

petitioner that such notices were not issued to it. It is on that basis

that the Area General Manager has invoked Clause 9(a) to 9(c) thereof.

The thrust of the petitioner is on the global increase in the price of

diesel thereby rendering the diesel component of 0.30 to be financially

non-viable. The petitioner has sought to rely upon such increase to WP 5470-21 18 Judgment

be a Force Majeure event. Such contingency finds place in Clause 9(b)

of the conditions of contract. Before adverting to the same suffice it to

observe that there is no specific challenge raised to termination of

the contract under Clause 9(a) to 9(c) of the conditions of contract.

The show cause notice dated 02.11.2021 refers to the performance of

the petitioner in detail and further states that about 32 letters were

issued to the petitioner between 2017 to 2021. Despite that the

performance of the petitioner for achieving the daily minimum quantity

of OB removal and coal evacuation by deploying equipments as

per the terms and conditions of the contract had not improved.

Reply of the petitioner does not counter the aforesaid. We therefore

find that invocation of Clause 9(a) and 9(c) of the Conditions of

Contract for terminating the contract is supported by material that finds

place in the show cause notice as well as the order terminating the

contract.

13. Coming to the termination of the contract by relying upon

Clause 9(b) of the Conditions of Contract we find that if there is failure

to achieve monthly agreed quantity of 75% for a period of six

consecutive months or for a cumulative period of six months within

any any continuous period of eighteen months, the contract is liable

to be terminated. This contingency is saved only to the extent of WP 5470-21 19 Judgment

non-availability caused by a Force Majeure event. Increase in the

price of diesel cannot qualify as a Force Majeure event. Such increase

in the price of diesel would be in the nature of an expected or foreseen

phenomenon keeping in mind the duration of the contract which was

for a period of about seven years or 83 months to be precise. The

price escalation clause in the Conditions of Contract and especially

Clause 19.04.1 refers to such price variation on account of diesel.

The diesel component is provided at 0.30 as percentage of total value of

work. The petitioner having accepted the terms of the contract while

submitting its bid, the parties would be governed by this price

variation clause. That clause generally would operate to the benefit of

either party depending upon the increase/decrease in the price of

diesel. That would be a factor to be considered by a bidder while

submitting his bid. Seeking modification of the diesel component on the

basis of the amendment of those rates in the Contract Management

Manual would result in substituting one of the terms of the contract

with another which in our view would not be permissible since there is

no such scope provided for in the conditions of contract. The parties

would be governed by Clause 19.04.1. It would therefore not be

permissible for the petitioner to invoke the Force Majeure clause which is

not attracted at all.

WP 5470-21 20 Judgment

14. For aforesaid reasons therefore we do not find any case made

out to interfere in exercise of writ jurisdiction under Article 226 of the

Constitution of India. The writ petition therefore stands dismissed with

no order as to costs. Rule stands discharged.

        (SMT. M.S. JAWALKAR, J.)             (A.S. CHANDURKAR, J.)
APTE

At this stage, the learned counsel for the petitioner seeks stay

of the judgment. He submits that the interim order operating be

continued for a period of four weeks. This request is opposed by the

learned counsel for the respondents.

We do not find any case made out to stay the encashment

of the bank guarantee. The respondents are free to encash the same.

The interim order making the work order subject to the outcome of the

writ petition shall continue to operate for a period of four weeks and shall

cease to operate automatically after that period.

        (SMT. M.S. JAWALKAR, J.)             (A.S. CHANDURKAR, J.)

APTE




                                                         Signed By: Digitally signed
                                                         byROHIT DATTATRAYA
                                                         APTE
                                                         Signing Date:16.03.2022 11:33