Mekaster Trading Corporation vs Union Of India (Uoi) And Ors.
2003 Latest Caselaw 919 Del

JUDGMENT

A.K. Sikri, J.

1. Vide order dated 19th March, 2002 petitioner has been black-listed. Order has been passed by the Government of India, Ministry of Commerce and Industry, Department of Commerce to the effect that all departments/Ministries/offices of the Government of India are forbidden to have commercial/business dealings with the petitioner and its subsidiaries, if any, for a period of five years with effect from the date of the order, i.e. 19th March, 2002. Petitioner has impugned this order in the present writ petition and the prayer is for issuance of writ of certiorari and any other writ quashing the said order.

2. The factual matrix of the matter may be summarised first, before taking note of the legal challenge to the impugned order:-Department of Commerce in the Ministry of Commerce and Industry, Supply Division (respondent No. 2) sent an indent to Director General of Supply and Disposal (DGS&D) (respondent No. 3) vide memorandum dated 16.8.1993 for procurement of four numbers of Mobile Bridge Inspection Units (in short 'MBIU'). It was under the World Bank assisted State Road Project for four States of Maharashtra, Rajasthan, Bihar and Uttar Pradesh. Bids were invited for procurement of MBIU. Two parties submitted their bids-M/s. Barin Spa, Italy (hereinafter referred to as M/s. Barin) and M/s. Moog, Germany. Petitioner was Indian representative of M/s. Barin. After undergoing the necessary process of scrutinising these bids, bid of M/s. Barin was accepted and the contract was awarded to it vide award dated 11.7.1995. It was followed by signing of formal contract dated 20.9.1995. Petitioner, as an agent of M/s. Barin, was to act for the purpose of liaisoning and coordination between M/s. Barin and the respondent No. 2 for which M/s. Barin was to pay the petitioner agency commission. The MBIU were to be supplied by M/s. Barin to respondents as per specifications contained in the contract. The contract consisted of the "other terms", "special conditions of contract" and the "general conditions". We are not concerned with all these conditions. Those conditions of the contract, which may be relevant for our purposes may only need to be pointed out which are as follows:-

i)The MBIU were subject to pre-dispatch inspection at the works of M/s. Barin SPA in Italy and the nominated Inspection Authority is the Additional Director General (Quality Assurance) DGS&D and the Inspecting Officer is Director (Quality Assurance), Delhi Circle.

ii)The payment in respect of the four MBIU was to be made against a Letter of Credit which was to be opened by the Chief Controller of Accounts, Department of Supply, New Delhi with the State Bank of India, London Branch.

iii)Further, as per Clause 7, Section III-Special Conditions of Contract, one of the essential document required to be submitted for claiming 90% payment was the inspection certificate.

iv)Technical specification with respect to pressure of bridge deck was as under:-

"...the maximum pressure on the bridge deck under any tyre of the MBIU, both translating and stabilizing in severe conditions of operation shall not exceed 5 kg/sq. Cm"

v)In the contract there was provision for payment of agency commission to the petitioner as per which, commission was to be paid to the petitioner in Indian rupees at TT buying rate of exchange in a particular manner.

3. Vide letter dated 19.2.1996 M/s. Barin advised DGS&D to arrange for inspection of equipment stating that it would be ready for inspection by 1.4.1996. Letter of credit was accordingly opened on 1.3.1996 SBI informed DGS&D in this behalf. Thereafter inspection team of the respondent No. 3 carried out inspection at works of M/s. Barin, Italy from 17.6.1996 to 21.6.1996 and issued Inspection Advise dated 20.6.1996, inter alia, observing as follows:-

"the equipment are technically acceptable from TE parameters and performance/working point of view. It is confirmed that stabilizers being supplied are similar to the illustrations except for increasing area, which provides increased stability..."

4. An inspection report was also jointly signed by the inspection team and the President of M/s. Barin on 21.6.1996 reporting that:-

"In light of the inspection and test results obtained, it is observed that units are complete in all respects, working well, all safety features have been provided and meeting the M.V. Act/Rules, Ground Pressure not exceeding 5 Kg/sq.cm and other end-use requirements as per T.E. Specifications..."

As per Drg. No. 1379 referred to against cl.2.9 in Clause-by-Clause commentary the ground contract area of each stabilizer is 700 sq.cm. Actual contact area of stabilizers supplied is 1811 sq.cm. Each. With this area, the max. Observed ground pressure under stabilizers is 3.1 kg/sq.cm. which is within the stipulated max. Ground pressure of 5 kg./sq.cm.

REMARKS: Equipment are technically acceptable as they are meeting T.E. parameters and end user requirements."

5. However, thereafter certain quarries were sent by inspection team through fax to the respondent No. 3 which in turn advised the team to return to India after completion of inspection of machines and making reports. This resulted in adding following proviso to the inspection report:-

"Inspection certificate will be issued from Delhi after clearance from DGS&D, New Delhi".

6. On 24.6.1996 the respondent No. 3, i.e. DGS&D issued the Rejection Inspection Certificate observing, inter alia, that:-

"t he stabilizers provided are of crawler belt type design with total contact area of 1811.25 sq.cm. On the basis of 7 rubber coated steel strips in contact with the ground as against the declared contact area of 700 sq.cm. in drawing No. 1379. The ground pressure in this stabilizer in critical condition, will be more than 5 kg. Per sq. meter when the calculation is made on the basis of declared ground contact area of 700 sq.cm."

7. A copy of this rejection certificate was also sent to the respondent No. 2, viz. Joint Secretary & Chief Vigilance Officer, Department of Commerce, Ministry of Commerce & Industry (Supply Division) vide letter dated 28.6.1996. Respondent No. 2, however, disputed the said rejection by stating that on a closer examination of inspection report and the Rejection Inspection Certificate contradictions had been observed which were also spelled out in the said letter and request was made that the reports be examined and reconciled afresh by DGS&D and suitable further action taken at the earliest. In reply, DGS&D addressed letter dated 26.6.1996 to the respondent No. 2 pointing out that in their earlier letter dated 25.6.1996 they had stated three deviations which had occurred in the four numbers mobile bridge inspection and repair units which had already been dispatched by M/s. Barin to Bombay and Calcutta ports. Respondent No. 2 was, however, requested to convey its specific comments/views regarding the acceptability of the equipment with reference to those deviations. On 2nd August, 1996 respondent No. 2 replied to the aforesaid letter by furnishing point-wise comments on the deviations stated by DGS&D and affirmed that from the working point of view the equipment was capable of carrying out detailed inspection and repair of bridges in respect of ground pressure of stabilizers. This letter further clarified as under:-

"The units comply with technical specifications, since the ground pressure as per inspection report of DGS&D, is 3.1 kg. Per sq. cm., which is within the permissible limits of 5 kg. Per sq. com. Stipulated in the technical specifications."

8. It may be mentioned at this stage that as M/s. Barin had dispatched the equipments, by virtue of clause relating to payment under the contract, on 12.7.1996, 90% of the contractual amount was obtained by M/s. Barin from SBI, London, against letter of credit opened by SBI. It may also be relevant to mention at this stage that the action of respondents in awarding the contract to M/s. Barin was challenged by other bidder, namely, M/s. Moog GMBH who had filed a CM 3509/96 supported by an affidavit. In this application aforesaid communication between Ministry of Industry, respondent No. 2 and DGS&D was referred to and quoted in detail including the stand of the Ministry of Industry that equipment was capable of carrying out detailed inspection and repair of bridges and that the units complied with technical specifications since the ground pressure was within permissible limits. It was also stated that M/s. Barin had already dispatched the four machines and received 90% of contractual amount from SBI. After stating these facts the DGS&D further averred as under:-

"The applicants (Respondent No. 1), however, have not taken delivery of the equipment in view of the pendency of the matter in the Hon'ble High Court and other related developments. The applicants (Respondent No. 1) were constrained to seek elucidations from M/s. Barin, Respondent No. 2, about the reasons for the dispatch of the rejected stores to which M/s. Barin (Respondent No. 2) have also replied presenting their own side of the matter. Now, the applicants (Respondent No. 1) and the Indentor (Ministry of Surface Transport) are faced with a situation where the supplier (Respondent No. 2), have already drawn 90% of the contractual payment and the goods which have already arrived/likely to arrive in respective Ports, are yet to be taken delivery of.

That the Union of India have separately initiated steps to go into the question of administrative lapses, if any, at appropriate levels. In the aforesaid premises, it is respectfully prayed that the Hon'ble Court may be pleased to give appropriate directions or permission to the Applicant Union of India for taking delivery of the equipment dispatched by Respondent No. 2 and which has arrived/is likely to arrive at the concerned Indian Ports."

9. On this application this Court passed order dated 22.8.1996 relevant portion whereof is as under:-

"The present application is moved by respondent No. 1 for appropriate directions for taking delivery of equipment dispatched by respondent No. 2. The ld. counsel for respondent No. 1 has fairly conceded that though the equipment does not confirm to the original specification, same is of better quality and therefore necessary directions may be given for taking delivery of the same. The petitioner moved an application earlier being CM 1180/96 in which the prayer was made for a restraint order against the respondent from proceeding any further in the matter pursuance to the contract issued by respondent No. 1 in favor of respondent No. 2 till the disposal of the writ petition. Application was heard by the learned Vacations Judge on 27th May, 1996 in which a detailed order has already been passed. The application after hearing both the parties was dismissed with the remarks that "this was on prima facie view of the matter and would not affect the ultimate decision in the writ petition." In view of this order, no directions are called for in the present application as moved by respondent No. 1. The act on, if any, taken by respondent No. 1 will, however, be at their own risks and responsibility and subject to the ultimate decision in the petition. This application is dismissed."

10. It is thus clear that the stand of DGS&D in the aforesaid writ petition was that though the equipment supplied by M/s. Barin does not conform to the original specification, the same was of better quality. At the same time it was also stated that respondent had initiated steps to go into the administrative lapses, if any and since 90% payment had already been made in that view of the matter it wanted permission of the High Court to take delivery of the equipment. Without granting specific permission this Court stated that respondent No. 1 could take such a step of its own at its risk and responsibility and subject to ultimate decision in the writ petition. The DGS&D, after the aforesaid order, addressed communication dated 29.11.1996 stating that it was taking delivery of the equipment without prejudice and without formal acceptance, in public interest. It was also mentioned that the clearance of the equipment would be subject to inspection by the concerned Director (Quality Assurance) at respective consignee's premises in his presence followed by acceptance certificate issued by the respective consignee as per the due procedure and the final decision of the competent authority in the matter. M/s. Barin sent their reply dated 8.12.1996 stating that although as per DGS&D's own observation in the writ petition pending in the High Court, the equipment supplied was of better quality, the inspection as envisaged in their letter dated 29.11.1996 was acceptable to M/s. Barin. However, it was subject to the condition that balance 10% payment and the Indian agent's commission thereon shall be paid on commissioning of the equipment and for this purpose DGS&D should instruct its banker to extend the validity of letter of credit up to 31.3.1997. DGS&D refuted stand contained in the aforesaid letter of M/s. Barin by giving reply dated 18.12.1996 with reference to certain contractual conditions and also stating that the equipment dispatched by M/s. Barin was lying at the Indian ports. Indian agent of M/s. Barin, i.e. the petitioner was supposed to assist the consignee in clearing the shipment by identifying the goods. M/s. Barin was also supposed to install, commission and do trial runs at the consignee's site (sic.). But because of non-compliance of contractual specification the respondents were dragged unnecessarily for facing litigation. It was also pointed out that M/s. Barin had failed to train Indian engineers at its works site and were dilly dallying and failing to depute its engineers to India to impart training to Indian engineers/technical staff which could make entire equipment nothing but a junk and scrap for Government of India. M/s. Barin replied vide letter dated 20.12.1996 refuting the aforesaid allegation and pointing out that it stood fully committed for commissioning of the equipment at the earliest and also for providing requisite training to their engineers at Barin's site on similar equipment on sending prior intimation. Request for extending the validity of the letter of credit was reiterated. Such requests for extension of validity of letter of credit were reiterated vide letters dated 17.2.1997, 5.31997, 7.4.1997, 30.4.1997 either by M/s. Barin or by the petitioner. There is protracted communication in this respect even thereafter and it is not necessary to refer to the same. However, it is necessary to point out that validity of letter of credit was not extended. Request was made by the petitioner to M/s. Barin also for commissioning of the equipments and also sending their engineers. Thereafter Mumbai unit undertook testing and final inspection of the equipment by a team of DGS&D Inspectors, representatives from M/s. Barin and the petitioner. After this inspection DGS&D reported that test equipment was not suitable since it could not make load measurements under each stabilizer pad. Vide letter dated 29.12.1997 M/s. Barin clarified that load cells as approved by DGS&D were used for testing and it is not possible to measure the load under each strip of stabilizers. Trials were once again conducted at Mumbai on 19th and 20th November, 1998 which were objected to by M/s. Barin on the ground that both nationally and internationally such tests had never been conducted nor had any device been developed for such test. However, DGS&D vide its letter dated 12.5.1999 rejected the equipment by quoting these tests which were carried out by using the equipments fabricated by one M/s. Mega Electronics Scales Limited with whom the order was placed by DGS&D in September, 1998. After this rejection, M/s. Barin apprehending that respondents may not invoke performance guarantee filed proceedings in Italian Court seeking restraint on invocation of performance guarantee.

11. More than two years thereafter DGS&D issued show cause notice dated 26.7.2001 to M/s. Barin and the petitioner asking them to show cause as to why they should not be black-listed as they had violated the terms of the aforesaid contract. M/s. Barin replied. Petitioner also submitted preliminary reply dated 18.8.2001 followed by detailed reply 6.2.2002 where after impugned order was passed.

12. Mr. Sachin Dutta, learned counsel appearing for the petitioner, submitted, in the first place, that it was a completely non-speaking, cryptic order of black-listing rejecting the petitioner's detailed written objections without considering and/or adverting to the same in the impugned order. Such an order, in his submission, was an illegal order and deserved to be set aside. In support, the learned counsel relied upon following observation of the Constitution Bench of the Supreme Court in the case of S.N. Mukherjee v. Union of India :-

" ... Except in cases where the requirement has been dispensed with expressly or by necessary implications, an administrative authority exercising judicial or quasi-judicial functions must record the reasons for its decision. Such a decision is subject to the appellate jurisdiction of the Supreme Court under Article 136 as well as the supervisory jurisdiction of the High Courts under Article 227 and the reasons, if recorded, would enable the Supreme Court or the High Courts to effectively exercise the appellate or supervisory power. But this is not the sole consideration. The other consideration are the requirement of the recording reasons would (i) guarantee consideration by the authority; (ii) introduce clarity in the decisions; (iii) minimize chances of arbitrariness in decision-making... what is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at original stage... the requirement to record reason can be regarded as one of the principles of natural justice which govern exercise of power by administrative authorities." .

13. He also referred to the celebrated judgment of the Supreme Court in the case of M/s. Erusian Equipment and Chemicals Ltd. v. State of West Bengal and another ), the relevant portion of which reads as under:-

"... Blacklisting has effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction. The order of blacklisting has the effect of depriving a person of equality of opportunity in the matter of public contract. A person who has been dealing with the Government in the matter of sale and purchase of materials has a legitimate interest or expectation."

14. He insisted that recording of reasons even by the administrative authority in support of its decision which had adverse effect on the petitioner was a necessity and concomitant of good administration as held by the Supreme Court in the case of M/s. Star Enterprises and others v. City and Industrial Development Corporation of Maharashtra Ltd. and Ors. in following words:-

" ... As the state has descended into commercial field and giant public sector undertaking have grown up, the stake of public exchequer is also large justifying large social audit, judicial control and review by opening of the public gaze; these necessitate recording of reasons for executive actions.... availability of reasons for actions on the records assures credibility. Looking for reasons in support of such action provides an opportunity for an objective review in appropriate cases both by the administrative superior and by judicial process."

15. He further submitted that that in a recent case in Grosons Pharmaceuticals (P) Ltd. v. State of UP and others , the Supreme Court has affirmed the position that the principles of natural justice are squarely applicable to blacklisting. In that case, the Supreme Court sustained the order of blacklisting only after noting that the impugned order had been passed "after recording elaborate reasons and summary of which is contained in the impugned order." Mr. Dutta argued that in the instant case the impugned order is completely silent as to the aforementioned facts and circumstances pointed out by the petitioner. A perusal of the record would also reconfirm the position regard complete non-consideration/non-application of mind to the vital aspects.

16. On merits, learned counsel, extensively quoting from the communications between the parties and the pleadings of DGS&D in CW 3509/98 submitted that as per the stand of the purchasers/consignee, i.e. Ministry of Commerce, contained in various communications it was clear that they had confirmed that the equipment supplied by M/s. Barin, capable of carrying out detailed inspection and repair of bridges and units, complied with technical specifications since the ground pressure as per inspection report of the DGS&D was within the permissible limits. He further submitted that even as per DGS&D's stand in CW 3509/98 even if the equipment was not strictly in accordance with technical specifications. In fact, it was of better quality and therefore, no grouse could be made by the respondents. He also submitted that it was the respondents who were in breach of the contract by not extending the validity of the letter of credit. His further submissions were that:-

1. The allegation that the Petitioner has not attended to removing the alleged deficiencies is unfounded not only because there is no deficiency as alleged but also for a second reason. DGS&D even after obtaining the aforesaid order dated 22.08.1996 on its own application to clear the landed consignment unilaterally and unjustifiably, neither extended the L/C for the balance 10% payment to Barin, SPA, nor paid due from 7.2.1997 the pro-rata share of the Petitioner's Agency Commission. It was DGS&D's non-performance of these contractual obligations that took place prior in point of time to the subsequent occasion (only after Bombay MBUI was landed) for petitioner performance of any of its reciprocal obligation i.e. before Petitioner could be called upon to commission and install the landed consignment. Both prior contractual violations of DGS&D continue to subsist.

2. The allegation of Barin taking 90% payment under L/C unauthorisedly is contrary not only to the terms of the L/C issued by the S.B.I. but also to the "Other Terms of Contract" . There are no specific particulars of Petitioner's alleged collusion.

3. The question whether the technical deviations are indeed material and amount to a deficiency and flaw instead of being an improvement, is a fit matter for arbitration under the "Special Conditions of Contract" which neither DGS&D nor Barin are unjustifiably invoking to the detriment of the petitioner who is not a party to the arbitration clause.

4. In a situation of stand off between DGS&D and Barin, the petitioner was helpless and unable to perform its residual obligations but its bona fide is borne on the face of the correspondence of that time. Which shows that not only did Barin refuse to provide technical assistance for the machines but even warned the petitioner not on its own to attempt to install the other machines until the dispute over the Mumbai Machine's acceptance was resolved."

17. Learned Additional Solicitor General and Mr. Maninder Singh, on the other hand, submitted that the role of the petitioner as Indian agent of principal, namely, M/s. Barin was specifically prescribed in the contract entered into between the parties and as the petitioner had failed in discharging its obligation as per the said terms, action could be taken against the petitioner as well. They submitted that vide letter dated 12.5.1999 defects were pointed out in the equipment supplied by M/s. Barin and M/s. Barin and the petitioner were asked to remove those defects. Referring to the show cause notice dated 26.7.2001 it was argued that attitude and conduct of the petitioner in proper execution of the contract being equally unhelpful and uncooperative was also spelled out in detail. Attempt was made to clarify the circumstances in which the statement was made before the High Court in CW 3509/98 submitting that it was clearly pointed out in the application itself that as 90% amount had already been released in larger public interest respondents wanted to take delivery of the equipments without prejudice to their rights to take appropriate action in the matter. In fact, urged the counsel, the Government made its stand clear in its letter dated 29.11.1996 before taking delivery of the equipments and therefore, the petitioner could not take any assistance and/or advantage from the statement made in the High Court in this behalf. They submitted that repeated letters were written to M/s. Barin as well as the petitioner for joint inspection and letters dated 27.3.1997, 7.4.1997, 28.4.1997 were pointed out for this purpose. Submission was also made that M/s. Barin as well as the petitioner were again repeatedly asked to rectify the defects pointed out to them and referred to letters dated 18.12.1996, 2.4.1997 and 29.8.1999. Referring to the letter dated 8.12.1997 of the petitioner, they argued that the petitioner, in fact, admitted the defects, which however were not rectified. In these circumstances, when the aforesaid conduct of the petitioner and M/s. Barin depicted breach of contract which led to loss of public money, show cause notice was issued and action taken which accordingly to the respondent was fully justified. It was also argued that proper procedure in conformity with the principles of natural justice was followed and impugned order was passed after taking into consideration entire relevant material and order was speaking order. Placing reliance upon certain observations of the judgment of the Supreme Court in cases of M/s. Erusian Equipment and Chemicals Ltd. v. State of West Bengal (supra) and Shiv Sagar Tiwari v. Union of India and others it was submitted that scope of judicial review in such matters was limited as this Court was not to go into the merits of the decision but was only concerned with the decision making process. It was further submitted that the show cause notice was based on abundant incriminating material including correspondence and the agreement. Moreover, the noticee had taken an immoral, illegal and wrong position to exonerate it and had taken an untenable stand throughout, which on the face of the record had been taken into consideration and all that material was germane to the decision and the same were the reasons for banning order and had to be read in it. It was also submitted that the order of ban was not appeal able and no statute prescribed the manner of writing or what it ought to contain. What had to be seen is only whether there was relevant and germane material for arriving at the satisfaction for making an order of ban and the same was sufficiently present in the instance case. The respondents, therefore, urged that petition filed by the petitioner was totally misconceived and should be dismissed with costs.

18. The first and foremost question which arises for consideration is as to whether the impugned order dated 9th March, 2002 is a reasoned order and the submission of the petitioner and the reply to show cause notice were duly deliberated and dealt with in the said order? It would be seen that one common show cause notice was directed to both alleged defaulting parties, namely, M/s. Barin as well as the petitioner. It is for this reason this detailed show cause notice dated 26th July, 2001 points out the purported lapses on the part of M/s. Barin as well as the petitioner. The show cause notice starts by pointing out certain general and special conditions (GCC and SCC) of the contract and thereafter it lists the breaches on the part of M/s. Barin. These include the allegations that the four MBIUs were found having deviations from the contract specifications by the team during inspection and still these rejected MBIUs were dispatched to the respondents on the basis of which M/s. Barin claimed and received 90% payment. Thereafter the supplier (i.e. M/s. Barin) failed to fulfilll its obligation in the testing of these equipments, correcting the defects which were observed in trail runs. M/s. Barin also did not take necessary steps for extension of the performance guarantee, misrepresented the facts of the case to Italian Court. It also failed to perform its role in the area of commissioning of MBIUs, training of staff both in Italy and at the consignee's premises. After enumerating the aforesaid lapses in the detail, the show cause notice on the part of M/s. Barin proceeds to implicate the petitioner, an Indian agent of M/s. Barin, by alleging that its conduct in the proper execution of the contract was equally unhelpful in all stages of the contract, namely, initial stages of tendering by supplier, at all stages of contract execution after the award of the contract, the aborted trials at Mumbai on Unit No. 66/96 on 12th and 13th December, 1997, the subsequent trials on the said units conducted on 19th November, 1998 and 20th November, 1998 with new test equipments procured by DGS&D. Thereafter also the petitioner did not cooperate in the commissioning and maintenance of the remaining three MBIUs at Mumbai, Lucknow and Patna and did not attend to the defective MBIUs or could prevail upon the supplier to abide by his contractual obligation, the show cause notice alleges. After spelling out these deficiencies the show cause notice blames both M/s. Barin and the petitioner by stating "whereas the conduct of both the supplier and the Indian agent in this collective manner indicates abundantly that the Indian agent was fully aware of the intentions and actions of the supplier as described above, and by not alerting the purchaser of these in advance has exhibited his full collusion in the wrongful actions with the supplier."

19. The petitioner responded by initially submitting a preliminary reply dated 18th August, 2001 which was followed by detailed reply on 6th February, 2002. In these replies the petitioner has, inter alia, raised following defenses:-

i) The Inspection (Rejection) Report dated 24.06.1996 and reiterated by the final Testing (Rejection) Report dated 12.05.1999 issued by DGS&D is completely contrary to the preliminary advise (Acceptance) Report dated 20/21.06.1996 issued by the DGS&D. Inspection Team at the Works of M/s. Barin as well as the communications dated 28.06.1996 and 2.08.1996 issued by the Ministry of Surface Transport, Government of India, the actual indenter. Each of the three alleged discrepancies between the technical specifications and the actual consignments had been expressly considered and validated either as non-material deviations or actually amounting to an improvement. In actual sequence, the preliminary inspection report dated 20/21.6.1996 carried out on site was overridden unjustifiably on 24.06.1996 by DGS&D from Delhi. DGS&D then itself had to accept the views of the Ministry of Surface Transport, the actual indentor, issued by communications dated 28.06.1996 and 02.08.1996 which endorsed DGS&D own earlier view of 20/21.06.1996. DGS&D had to discard its stand of 24.06.1996. Yet, DGS&D eventually carried out testing in a manner again as per its rejected and discarded stand of 24.06.1996 and issued final report dated 12.05.1999. The basis on which this report is issued, is contrary to and against not only DGS&D's own earlier view and the view of the Ministry of Surface Transport but even to the stand taken by DGS&D before the High Court in another proceedings instituted by a rival.

" ... Now the Respondents have received back a communications from the Ministry of Surface Transport, wherein it gives a clear impression that they are satisfied with the equipment having minor deviations they have observed as under:-

(i) Loads on various Axles-are within the permissible limits as per Indian Motor Vehicles Act.

(ii) Platform width-It is, however, observed that from working point of view, the equipment is capable of carrying out detailed inspection and repair of bridges.

(iii) Ground pressure of Stabilizers-The units comply with technical specifications, since the ground pressures per inspection report of DGS&D is 3.1 Kg Per sq. cm. which is within the permissible units of 5 Kg. Per sq. cm. Stipulated in technical specifications...."

Learned counsel for Respondent No. 1 has clearly conceded that though the equipment does not conform to the original specifications the same is of better quality, and therefore, necessary directions may be given for taking delivery of the same."

ii) The allegation that the petitioner has not attended to removing the alleged deficiencies is unfounded not only because there is deficiency as alleged but also for a second reason. DGS&D even after obtaining the aforesaid order dated 22.08.1996 on its own application to clear the landed consignment unilaterally and unjustifiably neither extended the L/C for the balance 10% payment to Barin SPA, nor paid due from 7.2.1997 the pro-rata share of the Petitioner's Agency Commission. It was DGS&D's non-performance of these contractual obligations that took place prior in point of time to the subsequent occasion (only after Bombay MBUI was landed) for petitioner performance of any of its reciprocal obligation i.e. before Petitioner could be called upon to commission and install the landed consignment. Both prior contractual violations of DGS&D continue to subsist.

iii) The allegations of Barin taking 90% payment under L/C unauthorisedly is contrary not only to the terms of the L/C issued by the S.B.I. but also to the "Other Terms of Contract" . There are no specific particulars of Petitioner's alleged collusion.

iv) The question whether the technical deviations are indeed material and amount to a deficiency and flaw instead of being an improvement, is a fit matter for arbitration under the "Special Conditions of Contract" which neither DGS&D nor Barin are unjustifiably invoking to the detriment of the Petitioner who is not a party to the arbitration clause.

v) In a situation of stand off between DGS&D and Barin, the Petitioner was helpless and unable to perform its residual obligations but its bona fide is borne on the face of the correspondence of that time. (P.116, P.118, P.119, P.126). which shows that not only did Barin refuse to provide technical assistance for the machines but even warned the Petitioner not on its own to attempt to install the other machines until the dispute over the Mumbai Machine's acceptance was resolved.

vi) As far as the Petitioner is concerned, it has been penalized without the designated authority reaching an objective satisfaction as to any of the following aspects that is indeed a case of bad delivery; that this is a case of bad faith; or that the Petitioner has acted in collusion to these ends.

vii) In the written reply filed on behalf of the Petitioner before the Designated Authority, the various facts and circumstances, which completely exonerate the Petitioner has been set out in detail. These include:-

(i) DGSS&D's own version of events in its Affidavit filed on 8.8.1996 in support of CM 3509/96 before the Hon'ble High Court of Delhi

(ii) The fact that DGSS&D itself committed breach by not renewing L/C for the outstanding 10% payment

(iii) The fact that 90% payment was claimed by Barin strictly in accordance with the terms of the contract.

(iv) The fact that the objection regarding "distribution of load under each strip of the stabilizer", taken vide rejection Inspection Certificate dated 24.6.1996 was specifically discarded pursuant to MOST letter dated 2.8.1996 and an affidavit also filed before this Hon'ble Court affirming this position.

(v) That 50% agency commission payable to the petitioner was wrongfully withheld

(vi) That DGSS&D's objection regarding the test equipment being inadequate and their insistence on engaging M/s Omega Electronics Scale Company (a third party) developing the test equipment was unjustified and in violation of the contract

(vii) That no bad faith whatsoever can be alleged against the petitioner

20. After considering the matter the Joint Secretary and Chief Vigilance Officer in the Ministry of Commerce and Industry, Department of Commerce (Supply Division) passed impugned order dated 19.3.2002 black-listing the petitioner and banning commercial/business dealing with the petitioner for a period of five years. In this order it is noted that on 26.7.2001 a show cause notice was issued to which reply dated 18.8.2001 was filed by the petitioner denying the allegations and stating that petitioner had all along been cooperated and never worked in collusion with M/s. Barin and therefore, requested to withdraw the show cause notice in so far as it pertain to the petitioner. It is further noted that on 23.1.2001 an opportunity of personal hearing was extended to the petitioner. The petitioner had requested a copy of the reply filed by M/s. Barin which request was considered and rejected vide order dated 28.1.2002 on the ground that reply furnished by M/s. Barin with reference to show cause notice was privileged communication between M/s. Barin and competent authority and another opportunity was given to the petitioner to furnish any other facts or arguments. Whether petitioner could be denied copy of reply filed by M/s. Barin on this ground may be doubtful. However, this aspect is not dealt with as this contention was not taken or argued. By filing written statement the petitioner had given reply dated 6.2.2002 explaining its role and responsibility as an Indian agent and requested for personal hearing which was given on 4.3.2002 on which dated representative of the petitioner attended the hearing and argued the case explaining at length their role and responsibility. The representative of DGS&D presented the facts of the case on the basis of available evidence and stated that the petitioner was contractually responsible for installation, commissioning, testing and after sales support for the equipment ordered and it did not discharge its responsibility sincerely and in full measure. After making recital of the aforesaid events in the order, thereafter order proceeds to record as under:-

"I have examined the case and heard the presentation made by the DGS&D representatives and submissions made by M/S Mekaster Trading Corporation, New Delhi in their letters dated 18.8.2001 and 6.2.2002 and oral presentations on 4.3.2002. The sum and substance of the allegations against the firm is that M/s Mekaster Trading Corporation, New Delhi could not fulfilll their contractual obligations as an Indian agent of foreign supplier M/s Barin SPA, Italy. The reply submitted by them vide their letter dated 18.8.2001 and 6.2.2002 and oral presentations made by them during hearing of the case on 4.3.2002 have not been found convincing. The available evidence does not reveal that the firm has fulfillled its contractual obligations.

Keeping the above facts in view, I hereby order that all Departments/Ministries/Offices of the Government of India are forbidden to have commercial/business dealings with the firm and its subsidiaries, if any. The ban of commercial/business dealings with the firm by the Government in the non-statutory sphere will be operative for a period of five years commencing from the date of this order i.e. 19th March, 2002."

21. There is no denying the well settled proposition of law that this Court is not sitting as appellate authority over the decision dated 19th March, 2002 passed by the competent authority and is, therefore, not testing the merit of the decision. The Court is required to judicially review the said decision on the well established principles available for such judicial review. It is the decision making process which can be examined by the Court. It is in this context one has to see whether the impugned order is speaking one giving sufficient reasons in support of the conclusion arrived at in the impugned order.

DUTY TO GIVE REASONS:

22. It is now well settled proposition of law, laid down by series of judgments, that even an administrative authority is required to support its decision by reasons. Lord Denning in Breen Amalgamated Engineering Union, (1971) 2 QB 175 (CA) observed that "giving of reasons is one of the fundamentals of good administration". Fairness founded on reasons is the essence of guarantee epitomised in Article 14 of the Constitution. The requirement of giving reason is a shackle on acting arbitrarily and whimsically. It is for this reason that the rule requiring reasons to be given in support of an order is now accepted as a basic principle of natural justice.

23. In S.N. Mukherjee's case (supra) the Supreme Court pointed out that if reasons are recorded it would enable the Supreme Court or the High Courts to effectively exercise the appellate or the supervisory power. Such orders passed are subject to judicial review; albeit on the limited grounds on which such judicial review is available. These grounds include observance of principle of natural justice, namely, proper hearing and decision by an unbiased person, taking into consideration the relevant factors and conversely excluding all irrelevant factors in the decision making process etc. Therefore, in order to appreciate as to whether there was proper application of mind to the contention raised by the noticee and those who are duly considered, it is not necessary to give reason. It is for this reason that in S.N. Mukherjee's case (supra) the Court laid down some other considerations. In the background of the dicta laid down in the aforesaid judgment as well as other judgments and commentaries of celebrated authors on administrative law, following justifications can be enlisted in support of the proposition that there is a need to give reasons for administrative decisions:-

A) It would guarantee consideration by the authority;

B) It would introduce clarity in the decisions;

C) It would minimise chances of arbitrariness in decision making indicating that the authority has given due consideration to the points in controversy;

D) A duty to give reasons entails a duty to rationalise the decision. Reasons, therefore, help to structure the exercise of discretion, and the necessity of explaining why a decision is reached;

E) Furnishing reasons satisfies an important desire on the part of the individual to know why a decision was reached (Lawrence Baxter, Administrative Law (1991 p. 228);

F) Basic fairness requires that those in authority over others should tell them why they are subject to some liability or have been refused some benefit (De Smith, Woolf and Jowell, Judicial Review of Administrative Actions (1995 p. 459);

G) Rationale criticism of a decision may only be made when the reasons for it are known. This subjects the administration to public scrutiny and it also provides an important basis for appeal or review;

H) If reasons are assigned, they can provide guidance to others on the administrator's likely future decisions, and so deter applications which would be unsuccessful.

I) It may also protect the body from unjustified challenges, because those adversely affected are more likely to accept a decision if they know why it has been taken.

24. Thus, the most impelling consideration for insistence upon disclosure of reasons in support of an order or decision is that it ensures proper application of mind, reduces the possibility of casualness and minimises whim and caprice, and thereby serves to provide legal protection to persons against arbitrary official conduct (See Bhagat Raja v. Union of India, Travancore Rayons v. Union of India, and C.B. Gautam v. Union of India, .

25. Another judicial rationale for requirement of reasons is that a person affected by an adverse order is entitled to know why the decision has gone against him or her. 'The decision might be perfectly right, but the person against whom it was made was left with the real grievance that he was not told why the decision had been made' (See Poyser and Mills' Arbitration, [1964] 2 QB 467 at p. 467). The obligation to give reasons according to the decision of the Supreme Court in Siemens Engg. & Mfg. Co. of India Ltd. v. Union of India, stems from the mandate of natural justice. The Court held that absence of reasons leads to denial of justice because "the rule requiring reasons to be given in support of an order is, like the principle of audi alteram partem, a basic principle of natural justice which must inform every quasi-judicial process and this rule must be observed in its proper spirit and mere pretence of compliance with it would not satisfy the requirement of law". These threads were picked up and given a further boost in Organo Chemical Industries v. Union of India, AI 1979 SC 1803. There, the Court emphasised that one of the requirements of natural justice was "spelling out reasons for the order made, in other words, a speaking order. The inscrutable face of the sphinx is ordinarily incongruous with a judicial or quasi-judicial performance"..

26. The recording of such reasons is imperative not only when the administrative authority discharges quasi-judicial function but also it is a pure administrative function and the decision is visited by civil or evil consequences as far as affected party is concerned (See Ramesh B. Desai v. Union of India, AIR 1988 Delhi 288). So far as cases of blacklisting are concerned, this requirement will, all the more, be imperative having regard to the spirit of the judgments of the Supreme Court in the cases of M/s. Erusion Equipment (supra) and M/s. Star Enterprises (supra).

EXTENT OF REQUIREMENT TO GIVE REASONS:

27. Having said that it has now become an obligation to give reasons in support of an administrative order, we may hasten to add that what is needed is not a detailed or elaborate judgment, but a brief and pithy statement of reasons for the decision. The administrative authorities, after all, are not discharging the judicial function like that of a Court and, therefore, not required to write an order in the manner in which normally a judgment is written by a court of law. The reasons given by an authority need be no more than a concise statement of the way in which it arrives at the decision. Way back in the year 1996 the Supreme Court pointed out in M.P. Industries' case (supra) that "when we insisted upon reasons, we do not prescribe any particular form or scale of the reasons. The extent and the nature of the reasons depend upon each case." What is essential is that the order must be a speaking order and must state the elements which had led to the decision and tell its own story and one is able to infer as to why the order was made. De Smith, Woolf and Jowell point out that the reasons must "meet the substance of the principle arguments that the tribunal was required to consider. In short, the reasons must show that the decision maker successfully came to grips with the main contention advanced by the parties, and must tell the parties in broad terms why they lost, or as the case may be one". Reasons are links between materials on which certain conclusions are based and the actual conclusion drawn. They would disclose how the mind is applied to the subject matter; whether done relevantly or rationally. Therefore, it would be sufficient if reasons indicate application of mind is discernible and mental process leading from the dispute to its solution is found in the order.

THE CASE AT HAND:

28. After elaborate statement of law on the point, let us apply the same to the facts of this case. The proposition that impugned order, which visits the petitioner with civil and/or evil consequences had to be supported by reasons, was not even contested by the respondents. The argument proceeded on the basis that such an order had to be a speaking order. While petitioner contended that the impugned order was not speaking, this was stoutly disputed by the respondents and the learned Additional Solicitor General contented that impugned order was a reasoned order. It is for this reason that to test this argument, I have stated elaborately contents of the show cause notice, the main defense of the petitioner in their twin replies and the impugned order to blacklist. No doubt, in the show cause notice detailed statement of imputation and breaches on the part of M/s. Barin as well as the petitioner are made. However, the replies of the petitioner are equally elaborate and petitioner sought to explain its version in an attempt to meet each others allegation contained in the show cause notice and thereby contending that petitioner was not at fault and proposed action was not warranted. Whether the contention raised by the petitioners in their replies are considered and addressed, is the main question? Perusal of the impugned order shows that after making recital of the events which transpired after the show cause notice, i.e. filing of replies by the petitioner, giving of hearings to both parties who explained their respective cases, the penultimate para records that case has been examined and heard and the sum and substance of the allegation made against the petitioner was that petitioner could not fulfilll its contractual obligation as Indian agent and replies submitted by the petitioner as well as oral representation made by them during hearing of the case have not been found convincing. All the arguments of the petitioners are brushed aside by the following utterances "the reply submitted by them vide their letters dated 18.8.2001 and 6.2.2002 and oral representation by them during hearing of the case on 4.3.2002 have not been found convincing. The available evidence does not reveal that the firm has fulfillled its contractual obligations."

29. Passing the order in such a slip shod manner which has the serious effect of blacklisting the petitioner for a long period of 5 years is certainly not act of good administration.

30. It is abundantly clear that the aforesaid summation cannot be called as "reasons" in support of the order. It can, at best, be termed as conclusion. Apart from this conclusion there is nothing in the order to indicate any supportive reason. Thus, there is no indication in the order as to what are the elements which persuaded the competent authority to reject the contentions of the petitioner. The requirement that the reasons must meet the substance of the principle argument that the competent authority was required to consider is clearly lacking. No link between the material on which conclusions are based and the actual conclusion drawn is based, is found. If that has remained at the back of the mind of the authority passing the order, and has not surfaced on the records of the case, the ingredients of a reasoned order are not met. Reading of such an order would naturally not satisfy the aggrieved party's desire to know as to why decision was reached and what was the justification in rejecting his point of view. It would harbour the feeling that the authority proceeded with the matter with closed mind, whatever is stated in the show cause notice is final and giving of opportunity to show cause was empty formality as the defense was rejected summarily by labelling the same as 'not convincing'. It has to be emphasised that reasons for a decision are distinct from the conclusions recorded in the order. Apart from repeating that the petitioner had not fulfillled its contractual obligation as Indian Agent which was stated in the show cause notice (may be in detail), what was required was to at least indicate in a concise manner as to why the defense of the petitioner was unconvincing.

31. The Supreme Court in State of Gujarat v. P. Raghav, quashed the order of the Municipal Commissioner, almost in identical circumstances, on the ground that he did not give any reason for his conclusion. That was a case where the Collector had passed order dated 2.7.1960 granting permission to the respondent to use some land in Survey No. 417 for non-agricultural purposes. The Municipal Committee challenged that order by approaching the Commissioner and requesting the Commissioner to exercise powers under Section 211 of the Bombay Land Revenue Code, 1879. The Commissioner noted the objections of the Municipality and after reciting the objections and the arguments of the learned counsel for the petitioner and after inspecting the site, observed:-

" From this inspection the contentions of the Municipality as to the existence of the various roads as well as the nature of the Kharaba land have been proved beyond doubt.

In the light of the above arguments as well as the site inspection and the papers of the case, I set aside the order of the Collector granting N.A. Permission. I consider, on weighing all evidence cited above, that the land does not belong to Shri Raghav Natha."

This was the order which was challenged by the respondent by filing writ petition in the High Court which was allowed and one of the grounds taken was that the order was without any reasons. State of Gujarat appealed to the Supreme Court. Dismissing the appeal the Apex Court observed as under:-

"13. We are also of the opinion that the order of the Commissioner should be quashed on the ground that he did not give any reasons for his conclusions. We have already extracted the passage above which shows that after reciting the various contentions he baldly stated his conclusions without disclosing his reasons. In a matter of this kind the Commissioner should indicate his reasons, however briefly, so that an aggrieved party may carry the matter further if so advised."

32. Although this Court not concerned with the merit of a decision, but decision-making process, what is required to be noticed is that the petitioner had, in his replies, made some significant submissions. It was pointed out that even when there was some technical deviations in the material supplied by M/s. Barin, it did not amount to a deviation and flaw but was instead an improvement and that was stated by none else but the respondents themselves in earlier proceedings when award of this contract was challenged by third party and that too by filing an affidavit. It has also been noted that initially when the inspection teem had carried out inspection at works of M/s. Barin, Italy from 17.6.1996 to 21.6.1996 it issued inspection advise date 20.6.1996, inter alia, observing that the equipment was technically acceptable from T.E. parameters and parties' working point of view. Even where it was rejected subsequently by DGS&D, the purchaser viz. respondent No. 2 was satisfied with the equipment and thus, there was difference of opinion between two authorities. What is sought to be highlighted is that defense of the petitioner was not a sham which deserved this kind of contemptuous/summary treatment. In order to show that due consideration is given to such submissions, it was incumbent upon the authority to at least indicate briefly in the order as to why these contentions of the petitioner did not cut any ice with the competent authority. It may be that there would be good reasons to reject these contentions but that should be discernible from the impugned order itself. It is trite law that when authority has omitted to give reasons in the impugned order such a deficiency cannot be supplied by the State by adducing sufficient ground therefore when the validity of the order is challenged (See Collector of Monghyr v. Keshav Prasad, ). In the instant case I am of the considered view that the competent authority has not given any reason for his conclusion, namely, as to why the reply and submissions of the petitioner were unconvincing. Such an order cannot stand judicially scrutiny. This order is accordingly set aside. Writ petition stands allowed and rule is made absolute.

33. However, it would not preclude the respondents to pass fresh order in consonance with law and after giving reasons in support of its order.

34. There shall be no orders as to costs.