Srei Infrastructure Finance ... vs Union Of India & Ors
2021 Latest Caselaw 3995 Cal

                                       1

                       W.P.A. No. 2833 OF 2020
                                 With
                            CAN 4 of 2021
                  IN THE HIGH COURT AT CALCUTTA
                    Constitutional Writ Jurisdiction
                            Appellate Side

               Srei Infrastructure Finance Limited & Anr.
                                   Vs.
                          Union of India & Ors.

For the Petitioners   : Mr. S.N. Mookerji, Senior Advocate
                        Mr. Soumabho Ghosh, Advocate
                        Mr. Deepan Kr. Sarkar, Advocate
                        Ms. Ashika Daga, Advocate
                        Ms. A. Bhattacharya, Advocate


For the NHAI          :   Mr. Siddhartha Mitra, Senior Advocate
                      :   Mr. Shamit Sanyal, Advocate
                      :   Mr. S. Chowdhury, Advocate
                      :   Ms. Monika Roy, Advocate


Hearing concluded on : July 13, 2021

Judgment on           : July 29, 2021

DEBANGSU BASAK, J.:-


     1.

The petitioners have assailed an order dated January 28,

2020 issued by the National Highway Authority (NHAI) blacklisting the

petitioner No. 1 from participating in any ongoing or future tender of

the NHAI for a period of three years.

2. Learned Senior Advocate appearing for the petitioners has

referred to the Memorandum of Understanding dated January 28,

2006. He has submitted that, the petitioner No. 1 had entered into

Memorandum of Understanding with Madhucon Projects Limited

(MPL) and Madhucon Granites Limited (MGL) to form a consortium for

the purpose of bidding for a project of NHAI to construct, operate and

maintain the Madurai-Tuticorin section of National Highway 45B from

Kochi Km 138.800 to Km 254.500 in the State of Tamil Nadu for a

concession period of twenty years including construction period. The

parties had formed a Special Purpose Vehicle (SPV) in terms of the

Memorandum of Understanding. Such SPV had entered into a

concession agreement with NHAI. He has submitted that, MPL was the

lead member and that the petitioner No. 1 was the financial member

holding only equity stake of 10 per cent of the share holding of the

SPV. According to him, the role of the petitioner No. 1 had been

restricted to being a financial member. He has submitted that, the

SPV being Madurai - Tuticorin Expressways Limited (MTEL) was

incorporated on May 11, 2006 with the petitioner No. 1 having 10 per

cent stake therein.

3. Learned Senior Advocate appearing for the petitioners has

submitted that, MGL, MPL and the petitioner No. 1 had entered into a

shareholders' agreement on December 12, 2006 after emerging as the

successful bidders in respect of the project of NHAI. He has referred to

various clauses of the shareholders' agreement particularly Clause 3

and 5 thereof. He has contended that, the responsibility for execution

of the project was with MPL and that the responsibility of the

petitioner No. 1 was restricted to the extent stated in Clause 3 of the

agreement. He has submitted that, the NHAI authorities had

knowledge of such shareholders' agreement.

4. Learned Senior Advocate appearing for the petitioners has

submitted that, NHAI entered into a concession agreement with the

SPV on July 24, 2006. He has pointed out that, NHAI did not entered

into any agreement with the petitioner No. 1. The concession

agreement had defined the expression "concessionaire" to mean MTEL

exclusively. He has referred to the various recitals in concession

agreement and submitted that, the same recites that the petitioner No.

1 holds only 10 per cent of the shares in the consortium with MPL as

the lead member. He has pointed out that, the performance security

under the contract was given by the concessionaire alone. He has

contended that, all obligations under the concession agreement vested

with the SPV and all liability in the event of default was also to be

borne by the SPV. The responsibilities for operation and maintenance

of the project have been vested with the SPV. The right of termination

of NHAI had also been only in respect of SPV. In the event of material

breach of contract the SPV had retained opportunity to rectify and

cure such defect before NHAI took the decision to terminate or

suspended the SPV.

5. Learned Senior Advocate appearing for the petitioners has

contended that, disputes and differences had arisen between the SPV

and NHAI in respect of the contract. Such disputes had been referred

to arbitration and that such arbitration proceedings are pending.

6. Referring to Show Cause Notice issued on behalf of NHAI,

learned Senior Advocate appearing for the petitioners has submitted

that, the same was replied to by the petitioners on September 7, 2019.

The petitioners had contended that, since the petitioners were not

parties to the concession agreement, the petitioner No. 1 requested

time to confer the lead partner before submitting further response.

The petitioners had discussed the matter with the other members of

the consortium. Since MPL being the lead member of the SPV had

given a detailed response, the petitioners chose not to give any further

response to NHAI.

7. Referring to impugned decision of NHAI dated January 28,

2020, learned Senior Advocate appearing for the petitioners has

submitted that, the petitioners responded thereto by a letter dated

January 29, 2020. He has contended that, there was no privity of

contract between the petitioner No. 1 and NHAI for the NHAI to impose

the order of blacklisting as done. He has contended that the

concession agreement was entered into between the SPV and NHAI.

The SPV was an independent juristic entity with the petitioner No. 1

being a minor 10 per cent stakeholder in the SPV. He has contended

that, the petitioner No. 1 does not have a nominee in the Board of

SPV. According to him, the petitioner No. 1 could not have been

punished for the alleged defaults of the concession agreement as the

petitioner No. 1 was not a party thereto.

8. Learned Senior Advocate appearing for the petitioners has

contended that, the disputes relating to the Concession Agreement are

already pending adjudication in the arbitration proceedings between

the SPV and NHAI. Till such time such disputes attend finality, it

cannot be said that, the petitioners are guilty of violating any

provisions of the Concession Agreement. He has contended that all

obligations under the concession agreement were to be performed by

the SPV. The petitioner No. 1 not being obliged under the concession

agreement and not being party to the agreement, no steps could have

been taken by NHAI against the petitioner No. 1 for violation of the

concession agreement.

9. Learned Senior Advocate appearing for the petitioners has

submitted that, letters relied upon by NHAI in the Show Cause Notice

and the impugned order were not addressed to or shared with the

petitioner No. 1. He has submitted that the petitioner No. 1 was never

asked to cure any alleged breach by NHAI. In any event, the

obligations under the concession agreement of the provisions thereof

whose breach has been alleged by the NHAI are not applicable to the

petitioner No. 1.

10. Learned Senior Advocate appearing for the petitioners has

submitted that, the blacklisting of MPL by NHAI on the self same

cause of action was stayed by the Hon'ble Delhi High Court. He has

referred to the order dated March 16, 2020 passed by the Hon'ble

Delhi High Court. He has submitted that, the claim of NHAI for the

impugned decision does not tantamount to blacklisting is misplaced.

He has submitted that, the reliance of NHAI on the Memorandum of

Understanding to the contend that the petitioner No. 1 was

responsible to carrying out the project is misconceived, perverse and

demonstrate non-application of mind.

11. Learned Senior Advocate appearing for the petitioners has

relied upon 1975 Volume 1 Supreme Court Cases Page 70 (M/S

Erusian Equipment & Chemicals Ltd. Vs. State of West Bengal &

Anr.) and contended that, the decision of NHAI is discriminatory,

arbitrary, illegal and unfair. He has referred to 2014 Volume 14

Supreme Court Cases 731 (M/S Kulja Industries LTD. Vs. Chief

General Manager Western Telecom Project Bharat Sanchar

Nigam Limited & Ors.) and submitted that the punishment imposed

by NHAI against the petitioner No. 1 is disproportionate.

12. Learned Senior Advocate appearing for NHAI has referred to

the facts of the case. He has submitted that, a Memorandum of

Understanding dated January 28, 2006 was entered into between the

petitioner No. 1 and MPL and MGL. He has referred to Clause 1 of the

Memorandum of Understanding which contemplates formation of the

SPV. He has contended that, on the basis of the Memorandum of

Understanding dated January 28, 2006, the petitioner No. 1 and MPL

and MGL had formed a consortium for the purpose of bidding in the

project of NHAI. He has referred to Clauses 9 and 10 of the

Memorandum of Understanding.

13. Learned Senior Advocate appearing for the NHAI had

submitted that, the SPV of the petitioner No. 1, MPL and MGL became

successful in the tender process. NHAI had issued a letter of award

dated February 23, 2006 for the project with the commencement date

as January 20, 2007. The petitioner No. 1, MPL and MGL had

incorporated the SPV on May 11, 2006 for the purpose of entering into

the concession agreement with NHAI. NHAI had entered into a

concession agreement of July 24, 2000. He has referred to the

shareholders agreement dated December 30, 2006 defining the

shareholders pattern of the SPV.

14. Learned Senior Advocate appearing for the NHAI has

submitted that, NHAI in its 384th Executive Committee Meeting held

on April 10, 2019 decided to identify nonperforming contractors.

Consequent to such decision being taken, NHAI issued a Show Cause

Notice dated August 21, 2019 to the SPV and to all the promoters of

SPV which included petitioner No. 1. He has submitted that, the three

promoters of the SPV which included the petitioner No. 1 had

committed defaults and failed to meet the contractual obligations in

terms of the contract. He has referred to the defaults committed. He

has submitted that, the petitioner No. 1 had replied to such show

cause on September 7, 2019. It is after consideration such reply that,

NHAI had taken the impugned decision dated January 28, 2020.

15. Learned Senior Advocate Appearing for NHAI has submitted

that, the impugned decision dated January 28, 2020 is not an order of

permanent blacklisting. He has pointed out that the impugned order

declare the petitioner No. 1 as a non-performer and restrain the

petitioner No. 1 from participating in any ongoing and future bid of

NHAI for a period of three years. He has pointed out that, the

impugned order reserves the right of NHAI to recall the impugned

order upon the petitioner No. 1 furnishing satisfactory response along-

with the documents showing improvement in its performance and

commitments to cure the defaults within the time fixed by NHAI. He

has pointed out that, the contract is for a period of twenty years and is

still being developed and operated by the SPV of which the petitioner

No. 1 is one of the promoters. The impugned decision has not affected

the right of the petitioner No. 1 in the ongoing contract.

16. Learned Senior Advocate appearing for NHAI has relied

upon Order dated January 28, 2020 passed in the present writ

petition. He has submitted that, ad-interim relief was refused by such

order. Referring to Article 298 of the Constitution of India and the

Wednesbury Principle of Reasonableness learned Senior Advocate

appearing for the NHAI has submitted, the impugned decision cannot

be said to be unreasonable.

17. Learned Senior Advocate appearing for NHAI has relied on

2012 Volume 11, SCC 257 (M/S Patel Engineering Ltd. Vs. Union

Of India & Anr.) and submitted that, no ground exist for a judicial

review of the impugned decision. Relying upon 2001 Volume 8

Supreme Court Cases 604 (Grosons Pharmaceuticals(P) Ltd. &

Anr. Vs. State of U.P & Ors.) learned Senior Advocate appearing for

NHAI has submitted that, the petitioners are failed to established that

there was any breach of the principles of natural justice in the

impugned order. Referring to M/S Kulja Industries LTD. (supra)

learned Senior Advocate appearing for NHAI has submitted that the

impugned decision cannot be said to be disproportionate.

18. Learned Senior Advocate appearing for NHAI has submitted

that, the documents disclosed by the writ petitioners will demonstrate

and establish that the writ petitioner were aware of the steps taken by

NHAI against all the three parties forming SPV. The writ petitioner No.

1 has not been singled out arbitrarily and proceeded against as sought

to be wrongly contended by the petitioners.

19. Learned Senior Advocate appearing for the NHAI has

submitted that, the petitioner No. 1 has applied on January 13, 2021

in terms of the NHAI policy circular No. 18.63/2021 dated January

08, 2021. He has submitted that, instant writ petition should be

dismissed.

20. The petitioners have claimed that, MPL and MGL had

entered into an agreement for NHAI for the purpose of construction,

operation and maintenance of Madurai-Tuticorin section of National

Highway 45B from Kochi Km 138.800 to Km 254.500 in the State of

Tamil Nadu for a specific concession period of twenty years including

the construction period. The petitioners have claimed that, MPL and

MGL had approached the petitioner No. 1 for financing such project.

MPL, MGL and the petitioner No. 1 had entered into a Memorandum of

Understanding dated January 28, 2006 governing such project. They

had also entered into the shareholders' agreement on December 30,

2006. MPL, MGL and the petitioner No. 1 had incorporated the SPV on

May 11, 2006. The SPV had entered into a concession agreement with

NHAI on July 24, 2006.

21. The Memorandum of Understanding dated January 28,

2006 has specified that the parties therein shall be jointly and

severally liable for the execution of the project in accordance with the

terms of the concession agreement. The minimum shareholding of

each party to the Memorandum of Understanding has also been

defined. The Memorandum of Understanding has specified that the

minimum shareholding of the petitioner No. 1 and MGL shall be 10

per cent. However, the Memorandum of Understanding as noted above

stated that, all the parties to the Memorandum of Understanding shall

be jointly and severally liable for the execution of the project in

accordance with the terms of the concession agreement. The parties to

the Memorandum of Understanding which includes the petitioner No.

1 had contemplated that, the SPV shall be formed. The Memorandum

of Understanding has defined the relationship between the three

parties in the execution of the project. It had contemplated entering

into a concession agreement with NHAI through a SPV to be

incorporated.

22. In terms of the Memorandum of Understanding, the SPV

was formed which ultimately had entered into the concession

agreement with NHAI.

23. NHAI had decided in its Executive Committee meeting that

there would be proceeding against contractors who were in default. In

terms of such decision, NHAI had issued a Show Cause Notice dated

August 21, 2019 to the petitioner No. 1 detailing the defaults

committed by the SPV. As has been noted above, there are three

parties to the SPV with the petitioner No. 1 being one of them.

24. NHAI had issued a Show Cause Notice dated August 21,

2019. NHAI had called upon the petitioner No. 1 to show cause as to

why the petitioner No. 1 would not be declared as nonperformer and

not allowed to participate in future bids of NHAI till the petitioner No.

1 had improved its performance and cured the defects in the contract.

The Show Cause Notice had specified the clauses of the contract

under which the defaults had occurred. The petitioner No. 1 had by a

letter dated September 7, 2019 contended that, the contract was

between NHAI and the SPV and that the petitioner No. 1 was only a

minor stakeholder to the extent of 10 per cent. The petitioner No.1 had

asked for three weeks time to enable the petitioner No. 1 to address

the issues and clarifications raised by NHAI. Apparently, MGL had

been issued a Show Cause Notice by NHAI in respect of the same

contract. MGL by its writing dated September 6, 2019 had taken the

same stand as of the petitioner No. 1 that MGL was a lesser

stakeholder in the SPV. MPL had replied to a show cause of NHAI by

its reply dated September 6, 2019. NHAI had by its letter dated

January 28, 2020 communicated its decision to the petitioner No. 1 on

the show cause. The decision of NHAI as contained in the letter dated

January 28, 2020 specified the reasons why NHAI had taken the

decision as noted therein. It had dealt with the reply given by the

petitioner No. 1 to the Show Cause Notice. It had noted that the

petitioner No. 1 did not choose to present any explanation through it's

authorised representative to NHAI. NHAI had proceeded to declare the

petitioner No. 1 as a nonperformer and restrained the petitioner No. 1

in the ongoing and future bids of NHAI for a period of three years.

NHAI had however retained its right to recall the order upon the

petitioner No. 1 furnishing satisfactory response along with

documents showing improvement in the performance and

commitments to cure the defaults within the time frame fixed by NHAI.

25. NHAI has taken a stand that the SPV of which the petitioner

No. 1 is a part had failed to cure the defects and defaults of the

existing contract. NHAI has imposed a bar on the petitioner No. 1 from

participating in the ongoing and future bids of NHAI for a period of

three years. NHAI however has given an opportunity to the petitioner

No. 1 to cure the defects in the execution of the existing contract to

the satisfaction of NHAI for NHAI to recall or revisit its decision as

contained in the letter dated August 21, 2020.

26. The petitioners have not placed any material on record to

substantiate that there was no defect in the execution of the contract

as tabulated in the Show Cause Notice of NHAI or that the petitioner

No. 1 or the SPV had cured the defects alleged to the satisfaction of

NHAI.

27. The petitioners have contended that, the petitioner No. 1

cannot be proceeded against on the basis of a contract between NHAI

and SPV. In the facts of the present case, such a contention of the

petitioners cannot be accepted. The SPV had been incorporated on the

basis of the principles of partnership with the petitioner No. 1 having a

stake therein and has to be considered as a partner thereof. On the

principles of partnership, and as a partner of the SPV, the petitioner

No. 1 cannot absolve itself of any or all of the responsibilities to

execute the contract entered into between NHAI and SPV. The

Memorandum of Understanding which has resulted in the

incorporation of the SPV which in turn had persuaded NHAI to award

the contract clearly specifies that, the parties to the Memorandum of

Understanding shall be jointly and severally liable for the execution of

the project in terms of the concession agreement. Consequently, in my

view, the petitioner No. 1 having made a representation as to its extent

of liability and responsibility in the execution of the contract that

NHAI would be entering into with the SPV, the petitioner No. 1 cannot

now be heard to resile from its declared position as contained in the

Memorandum of Understanding. The Memorandum of Understanding

had led to the incorporation of the SPV which had been granted the

contract. The Memorandum of Understanding is an integral part of the

claim leading up to the contract. The Memorandum of Understanding

now cannot be overlooked as it has become inconvenient for the

petitioners. Apart therefrom on the principles of partnership forming

the SPV also, the petitioner No. 1 cannot be heard to contend that it

has no liability in respect of the contract between NHAI and the SPV.

28. The impugned decision of NHAI as contained in the writing

dated January 28, 2020 cannot be said to have been passed in breach

of principles of natural justice. The impugned decision has been

arrived at after issuance of a Show Cause Notice and after affording

the petitioners opportunity to correct the defects and defaults. The

petitioners had been afforded opportunity to reply to the Show Cause

Notice. The impugned decision has noted the choice of the petitioner

No. 1 not to ask for presenting any explanation through its authorised

representative before NHAI. The impugned decision has specified the

reasons why NHAI took the impugned decision. It cannot be said that

the impugned decision has been passed in excess jurisdiction.

29. Patel Engineering Ltd. (supra) has noted Erusian

Equipment & Chemicals Ltd. (supra). It has considered the doctrine

of proportionality. It has noted that, under the doctrine of

proportionality, a Court has to examine the purpose sought to be

achieved by the impugned decision and the adverse effects the

impugned decision may have on the rights of the petitioner. In the

facts of that case, the Supreme Court had held that, there was no

legality or irrationality in the conclusion reached by the authority in

taking the impugned decision.

30. In the facts of the present case, the petitioner has not

established that, the decision taken by NHAI suffers from breach of

principles of natural justice or was vitiated by mala fides or was

beyond jurisdiction or perverse. The petitioners have not substantiated

that, the defects and defaults under the contract as enumerated in the

Show Cause Notice did not occur or that the same were cured.

31. Erusian Equipment & Chemicals Ltd. (supra)) has held

that equality of opportunity applies to matters of public contract. The

Government cannot choose to exclude by discrimination. The order of

blacklisting has the effect of depriving a person of equality of

opportunity in the matter of public contract. It has held that,

fundamentals of fair play require that the person concerned should be

given an opportunity to represent his case before the decision on the

blacklisting is taken. Kulja Industries LTD. (supra) has dealt with

the issue of judicial review of a decision of blacklisting. It has held

that, if the State or its instrumentalities takes a decision on

blacklisting then such decision is subject to judicial review on the

grounds of principles of natural justice, doctrine of proportionality,

arbitrariness and discrimination.

32. Grosons Pharmaceuticals(P) Ltd. (supra) has held that,

issuance of a Show Cause Notice with the opportunity to reply thereto

is sufficient compliance of the principles of audi alteram partem.

33. In the facts of the present case, it cannot be said that NHAI

has not discriminated between the three partners forming the SPV. It

has proceeded against all three of them. So far as the doctrine of

proportionality is concerned, although the petitioner No. 1 has the

least of the financial stakes of the three partners in the SPV, the

petitioners cannot be allowed to contend that, as a partner of the SPV,

it will not bear the responsibilities and liabilities of the SPV. The

financial arrangements amongst the three partners of the SPV is an

affair between the partners of such SPV. However, in the facts of the

present case, all the three partners of the SPV had made a

representation through the Memorandum of Understanding that, they

would be jointly and severally liable to NHAI under the contract

between NHAI and SPV. Viewed from such perspective, it cannot be

said that, NHAI has discriminated against the petitioners. Moreover,

the decision of blacklisting is for a limited period and is subject to

review of such decision should the partners of the SPV including the

petitioner No. 1 substantiate that they cured the defects under the

contract within the time period stipulated.

34. In such circumstances, none of the ground for sustaining a

challenge to a decision of blacklisting as enumerated in Kulja

Industries LTD. (supra) have been substantiated by the petitioners.

35. W.P.A. No. 2833 of 2020 along with the connected

application being CAN 4 of 2021 therefore fails and are dismissed

however without any order as to costs.

[DEBANGSU BASAK, J.]