Kavery Infrastructure Pvt. Ltd. vs The Delhi Jal Borad And Anr.
2007 Latest Caselaw 1736 Del

JUDGMENT

S. Ravindra Bhat, J.

1. The writ jurisdiction of this Court is invoked and a mandatory order to the Respondents to consider the petitioner for a fresh tender, has been claimed.

2. The brief facts necessary to decide this petition are that the Petitioner Company was working for the Delhi Jal Board (hereafter DJB) since 1993 as a technical know how provider. It was granted registration by DJB in the 2001. It also claims to have worked for other civic agencies and that its performance was rated as good.

3. The DJB published a Notice Inviting Tender (NIT) being number 13(2007- 2008) inviting expression of interest in two works (1) Reboring of 5 Nos. T/Wells in R/s At Aya Nagar, Sultanpur, Mangalpuri, Manglapuri Pahari, Chattarpuri Pahari (A.more) under South -1 (2) Reboring of 4 Nos. T/well Devli bahndh Road, Devli bus stand, A-87 Duggal Colony, Durga Vihar under South-1. The tenders were invited and bidders were to pay non-refundable tender fee, the petitioner applied for the tender on 07.07.2007 requesting the DJB to issuance the tender.

4. The Petitioner received a circular dated 25.06.2007 from the Respondents that it was not allowed to participate in fresh tenders. The extracts of the circular are as follows:

That an FIR was registered by CBI vide No. R.C. No. 01(a)/07- AUC (IX) against Shri Rakesh Mohan, Ex. CEO, DJB and M/s. Kaveri infrastructure Pvt. Ltd., Facts incorporated in the FIR were explained to the Board briefly. the Board was also informed that the firm in question has already been awarded some works and need to complete the same as per the contractual obligations. In some other cases this firm has participated in the tendering process. Directions in the board were, therefore sought on the issue as to whether the firm should be considered for new works or in cases where it has participated in the tendering process. After detailed deliberations it was decided that in all fairness the firm continue to execute the ongoing works already warded. However this firm may not be allowed to participate in any fresh tender or may not be considered for award of any new work, which is yet to be awarded till the said CBI case is finally decided.

5. The Petitioner alleges that the criminal case registered against it came about in the following circumstances. On 09.11.2004 a NIT (notice invoicing tender) was issued by the DJB inviting expression of interest for pre-qualifying firms for renovation of old pipe line through spray epoxy resin and rapid setting polymeric lining system. The petitioner applied for the tender and was one amongst the three pre-qualifying companies issued with documents. On the basis of its bid, it was awarded the work. It alleges that its competitors registered false a complaint against it and the CBI registered a case for the commission of offences under Section 120B, 420 IPC and Sections 13(2) read with 13(1)(d) and 11 of the Prevention of Corruption Act against Mr. Vijay Kumar Kataria, Rakesh Mohan, (CEO of DJB) others.

6. It is alleged that the impugned circular, barring award of future works, is utterly unreasonable; it was made without affording reasonable opportunity, or even putting the petitioner to notice of the alleged grounds. The Petitioner was condemned unheard. The order has grave civil consequences and is of indefinite duration.

7. Leraned Counsel for the petitioner Mr. Siddhartha Dave urged that the resolution dated 12.06.2007 was passed in any arbitrary manner; the petitioner was not given an opportunity of hearing. The counsel submitted that the Respondents have discriminated the petitioners by black listing them from the fresh tenders. He submitted that other firms who have had criminal cases registered against them, (where FIR's having been registered by the respondent itself) but yet allowed to participate in bidding and have been awarded contracts. The Counsel submitted that the respondent has not blacklisted or debarred those firms.

8. The leraned Counsel contended that the circular debarring the petitioner from participating in future tenders was passed without application of mind, on whims and caprices on the basis of unproved allegations.

9. Leraned Counsel for the petitioner relied on the decisions reported in Joseph Vilangandan v. Executive Engineer (PWD) Ernakulam ; and also in Raghunath Thakur v. State of Bihar and Ors. .

10. Learned Counsel for the respondent, Mr. Suresh Tripathi contended that the petitioner was entrusted with the responsibility of executing the contract for Trenchless Renovation of Water rising Mains through spray epoxy resin and rapid setting polymeric lining system for DJB. The petitioner and the former CEO of the DJB are facing serious allegations of criminal conspiracy, cheating, obtaining illegal gratification and criminal misconduct. Counsel for the respondent further urged that the petitioner was allowed to continue with its ongoing projects, yet was neither debarred nor back-listed and the impugned decision is temporary in nature. Counsel submitted that the petitioner is not a registered contractor with the respondents and therefore cannot claim either in law or in equity to participate in the tendering process. Counsel relied on the rules of enlistment as provided in CPWD manual, Rule 23.2 stipulates that in the event a contractor is found to be facing allegations, then the authority is empowered to suspend its business temporarily.

11. leraned Counsel relied on Achutan v. State of Kerala 1959 Supp (1) SCR 787 where the Supreme Court held that:

the gist of the present matter is breach, if any, of the contract said to have been given to the petitioner which has been canceled either for good for bad reasons. there is no discrimination because it is perfectly open to the government, even as it to a private party, to choose a person to their liking, to fulfill contracts which they wish to be performed.

Counsel further relied on Delhi Development Authority v. UEE Electricals Engg. P. Ltd., reported as , in which the Supreme Court held that:

This is not a case where the appellant authority can be said to have acted in mala fide manner or wi5th oblique motives. if the authority felt that in view of the background facts, it would be undesirable to accept the tender, the same is not open to judicial review in the absence of any proved mala fides or irrationality.

Reliance was also palced on S.L. Kapoor v. Jagmohan where the Supreme Court held that:

Linked with this question is the question whether the failure to observe natural justice does at all matter if the observance of natural justice would have made no difference, the admitted or indisputable facts speaking for themselves. where on the admitted or indisputable facts only one conclusion is possible and under the law only one penalty is permissible, the court may not issue its writ to complete the observance of natural justice, not because it approves the non-observance of natural justice but because courts do not issue futile writs.

12. Before discussing the merits, it would be relevant to extract material portions of the First Information Report (FIR) lodged against the petitioner, which are as below

It is alleged that a proposal for trenchless renovation, through spray epoxy resin and rapid setting polymeric lining system, of old main water supply pipelines having frequent leakage problems was procured by DJB during 2004 After approving the proposal DJB issued an NIT (Notice Inviting Tender) on 09.11.04 for inviting expression of interest for pre-qualifying the firms for renovation of the old main pipelines through the said technology. In response, offers were received from 6 firms out of which the following 3 firms were pre-qualified by DJB on 22.12.04:

i) Consortium of M/s. Kaveri Infrastructure Pvt. Ltd., New Delhi and M/s. Pipeway Ltd., UK

ii) M/s. C.M. Contracting Ltd., New Zealand

iii) M/s. Waterflow Group PLC, UK

3. The tender documents were issued on 28.03.05 to the aforesaid 3 pre- qualified frims for submitting their financial and technical bids.

4. Meetings of the Technical Committee of DJB were held on 04.04.05 and 05.04.05 to discuss the modalities and methodology to be adopted by the 3 pre- qualified firms. During the meetings, the representatives of the Consortium/firms mentioned at S. No. (i) and (ii) above gave presentations. The representative of M/s. Waterflow PLD Ltd., UK did not attend the said meeting. It is further alleged that the scope of work was also changed in this meeting. Initially, it was proposed to carry works on 1500 mm dia rising main from A-2 park Janakpuri to Janka Cinema and 26 dia rising m ain from Hindu Rao to Jhandewalan Reservoir. However, the committee observed that the rising main from A-2 Park Janak Puri to Janak Cinema could be closed indefinitely after commissioning of Sonia Vihar WTP beyond Janak Puri and the rising main from Hindu Rao Hospital to Jhandewalan Reservoir is structurally weak and the lining might not be very effective.

5. It is alleged that in the above-said meeting, the committee decided for renovation of the following main pipelines:

i) The reach of 3.5 Kms of 900 mm dia South Delhi Main between Haiderpur WTP up to Mangolpuri and a 0.5 km reach between Sonia Chowk and Vikas Kunj (total 4 kms).

ii) The reach of 900 mm dia CL rising main in a length of 2 kms from Pul Bangash to Idgah emanating from Chandrawal Water works.

6. The pre qualified consortium/firms were asked to submit revised price bids for the above renovation work which were received on 02.05.2005. In its meeting held on 13.05.05, the Technical committee found that the rates of Rs. 75,400/- per meter for 1500 mm dia and Rs. 66,500/- per meter for 900 mm dia quoted by the consortium of M/s. KIPL and M/s. Pipeway Ltd., were lowest. The Committee observed that the exact departmental justification could not be worked out as the above technology was going to be used for the first time but the rate received for similar nature of works executed overseas were available as base rate.

7. As per the source information in its meeting held on 25.05.05, the Technical Committee asked the representative of the Consortium to reduce their quoted rates. the firm agreed to reduce the rate to Rs. 63,150/- per meter for 1500 mm dia pipe and Rs. 52900/- per meter for 900 mm dia pipe. The firm also requested for mobilization advance of 10% of the contract value. The Technical Committee recommended the ward of work to be consortium of M/s. KIPL and M/.s. Pipe way Ltd., at a total cost of Rs. 35.84 Crores with mobilization advance of 10% of the contract value against bank guarantee through there was no provision for mobilization advance in the NIT or int he tender document submitted by the consortium. the minutes of the meeting indicate that the estimated cost of the said job was worked out @ Rs. 53,902/- for 1500 mm dia rising main and Rs. 42,589/- for 900 mm dia rising main based on similar nature of works executed in UK and New Zealand. It has been alleged that the estimate was unrealistic and was on a very high side in view of the fact that the labour cost in above countries was much higher than in India.

8. The work was awarded to the consortium of M/s. KIPL and M/s. Pipe Way Ltd., after obtaining approval of Delhi Jal Board.

9. It is also alleged that other two firms pre qualified for the tender bid namely M/s. Water flow Group INC. UK had earlier merged with M/s. On Site, an associate of M/s. KIPL and had reverted to its original name in August 2004 Further bothy M/s. Water Flow and M/s. C.M. Contracting Ltd., New Zealand are clients of M/s. Wink Consultancy, a sister concern of M/s. Wink Exim Pvt., Ltd., 24 Green Avenue, Vasant Kunj, New Delhi. Mr. Vernon Downes, Director of M/s. Wink Exim Pvt. Ltd. is also Executive Director with M/s. KIPL This prima facie shows that the bidding by these two non serious firms were only for fulfillling the requirements of the tender rules and these biddings were managed and manipulated.

10. It is further alleged that the NIT was issued for trenchless renovation of water rising mains only through ``Spray epoxy resin and rapid setting polymeric lining system'` as a result of which the responses to the NIT was limited. It is also alleged that said technology is actually used for rehabilitation of the pipe line for improving its inner surface to increase the water carrying capacity of the pipes and not fro preventing leakages. It is also alleged that inspsite of the fact that, there are other technologies in vogue world over for renovation of old pipe lines but this particular technology was selected without any study deliberately to formulate tender specifications which were tailor made to suit M/s. KIPL.

11. It is further alleged that the contract was awarded to the consortium of M/s. KPIL and M/s. Pipeway Ltd., at a exorbitant value of Rs. 35.84 crores which is evident from the fact that the contract for designing, providing, laying clear water rising mains from Sonia Vihar plant to different areas of Delhi was awarded to M/s. Larsen and Toubro Ltd., on 05.11.2002 and the rate approved therein for laying of underground 1500 mm dia main was Rs. 27,614 per meter (opentrench) whereas the contract to the consortium for renovation of 1500 Mm dia main was awarded at the rate of Rs. 63,150/- per meter. As such, it is clear that the DJB instead of renovating the above old pipelines, could have laid new pipe lines at a much lower cost.

12. It is also alleged that, according to the instructions issued by the Govt. of NCT of Delhi, at the proposals costing more than Rs. 10 Crores are required to be put up for approval before the Expenditure Finance Committee but no such approval was taken by DJB in respect of the instant work.

13. It is also alleged that the period when the award of the above contract by DJB was being manipulated in favor of the consortium, Shri Vijay Kumar Kataria of M/s. KPIL purchased a House No. 13685, Laurelhurst Rd., Moorpart CA 93021 (USA) on 22.04.05 from one Mr. Rutan Daniel for US $ 6,59,000 equivalent to Rs. 3 crores (approx)

13. The above narrative displays few zones of conflict on the facts. The petitioner was permitted to bid at the relevant time; it was successful. It started to perform the contract. During this period, a first information report (FIR) was lodged against it, and officials of DJB. Briefly put, the allegations were that the petitioner concern had manipulated and secured the contract; it had contrived a situation whereby two other firms had ostensibly bid for the contract though in reality, its competitors were dummy concerns, having close relationship with it. It was further alleged that there were glaring irregularities in regard to the award of contract and that decision-making in the DJB was tainted; the prices quoted (and accepted) were exorbitant. The contract was not preceded by proper financial evaluation and clearance, according to norms applicable to the DJB. Lastly, misfeasance on the part of DJB's Chief Executive Officer was alleged. According to the complaint, his son- in-law was beneficiary of favors for which the petitioner was allegedly responsible.

14. It is not in dispute that till date no further headway has been made; the investigations are as yet, incomplete. The impugned order does not cancel the petitioner's existing contract; it has the effect of suspending future contractual relationships of DJB with the petitioner, till it is exonerated in the criminal proceedings. The petitioner alleges that it could not have been excluded from tendering, or entering into future contractual relationship with the DJB, without being afforded an opportunity of hearing, after issuance of notice to it, since a blacklisting order, even for a temporary period results in civil and adverse consequences to it. Fairness dictated that it should not have been issued an order behind its back. The DBJ'S defense is that this is not a case where hearing was required, because there is no inherent right in that regard; even if hearing were granted, the result or conclusion would have been the same.

15. It has been held that the State, in any facet of its personality, acting in the performance of its normal duties as a State or through its agencies, set up for specific objectives, should to act reasonably, in a non- discriminatory and non-arbitrary manner. Therefore, when a State or its agencies deal with public property or enter into contractual relationships, their decisions cannot be based on whims, caprice, personal likes or prejudices but have to be informed with reason. Those similarly circumstanced and possessed of the ability to engage the State in such relationships should be exposed to similar opportunities to negotiate and attempt successfully to enter into such relationships. It has, been held that disposal of property and award of contract should be ordinarily proceeded by some kind of publicity, calling upon tenders or applications from those interested in it. (R.D. Shetty v. International Airports Authority of India , Kasturi Lal v. Lakshmi Reddy , Kumari Shrilekha Vidyarthi , Mahabir Auto Store v. Indian Oil Corporation ).

16. In one of the first cases dealing with the question of blacklisting, (Erusian Equipment (supra)) the Supreme Court held as follows:

20. Blacklisting has the 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. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist.

The above view was endorsed in In Raghunath Thakur (supra) where the Supreme Court held that:

4. Indisputably, no notice had been given to appellant of the proposal of blacklisting the appellant. It was contended on behalf of the State Government that there was no requirement in the rule of giving any prior notice before blacklisting any person. Insofar as the contention that there is no requirement specifically of giving any notice is concerned, the respondent is right. But it is an implied principle of the rule of law that any order having civil consequence should be passed only after following the principles of natural justice. It has to be realised that blacklisting any person in respect of business ventures has civil consequence for the future business of the person concerned in any event. Even if the rules do not express so, it is an elementary principle of natural justice that parties affected by any order should have right of being heard and making representations against the order.

17. Later decisions have again reiterated the view in Erusian Equipment. Thus, in Southern Painters v. Fertilizers and Chemicals Travancore Ltd. 1994 Supp (2) SCC 699, it was held that:

The deletion of the appellant's name from the list of approved contractors on the ground that there were some vigilance report against it, could only be done consistent with and after due compliance with the principles of natural justice. That not having been done, it requires to be held that withholding of the tender form from the appellant was not justified. In our opinion, the High Court was not justified in dismissing the writ petition.

In Grosons Pharmaceuticals (P) Ltd. v. State of U.P. it we held that:

It is true that an order blacklisting an approved contractor results in civil consequences and in such a situation in the absence of statutory rules, the only requirement of law while passing such an order was to observe the principle of audi alteram partem which is one of the facets of the principles of natural justice.

This view was again reiterated in B.S.N. Joshi and Sons Ltd. v. Nair Coal Services Ltd. .

18. The respondent has relied upon two facts, to deny minimum hearing. One, that the ``banning'` or ``suspension'` is temporary in character; two that in any case, granting any opportunity would be of no avail to the petitioner, since the DJB would arrive at the same conclusion. As far as the first contention is concerned, its attractiveness is in its simplicity. Yet, a more careful scrutiny would show that the ``suspension'` of business masks an open ended determination, which, can spell commercial doom for the petitioner, as far as its future relationship with the DJB and other public sector units are concerned. There is a dangerous nebulousness in the lack of a terminus quo or outer limit to the suspension order; though seemingly temporary, it has an air of permanence, of unspecific content. Linking the fate of criminal investigation or exoneration would mean that the DJB is depending upon some extraneous process for its decision, which is beyond its control. This leads to grossly disproportionate results, as the fate of the petitioner in such a case would hang in the balance and make it subject to vicissitudes.

19. As regards the second contention, some judgments of the Supreme Court have acknowledged what is known as the ``useless formality'` theory which is an exception to the rule that an adverse order should be preceded by notice and hearing. Thus, in M.C. Mehta v. Union of India , the court had held as follows:

Thus, in relation to cases other than those relating to admitted or indisputable facts, there is a considerable divergence of opinion whether the applicant can be compelled to prove that the outcome will be in his favor or he has to prove a case of substance or if he can prove a real likelihood of success or if he is entitled to relief even if there is some remote chance of success. We may, however, point out that even in cases where the facts are not all admitted or beyond dispute, there is a considerable unanimity that the courts can, in exercise of their discretion, refuse certiorari, prohibition, mandamus or injunction even though natural justice is not followed.

Later, in Aligarh Muslim University v. Mansoor Ali Khan it was observed that:

The useless formality theory, it must be noted, is an exception. Apart from the class of cases of admitted or indisputable facts leading only to one conclusion referred to above, there has been considerable debate on the application of that theory in other cases. The divergent views expressed in regard to this theory have been elaborately considered by this Court in M.C. Mehta I referred to above. This Court surveyed the views expressed in various judgments in England by Lord Reid, Lord Wilberforce, Lord Woolf, Lord Bingham, Megarry, J. and Straughton, L.J. etc. in various cases and also views expressed by leading writers like Profs. Garner, Craig, de Smith, Wade, D.H. Clark etc. Some of them have said that orders passed in violation must always be quashed for otherwise the court will be prejudging the issue. Some others have said that there is no such absolute rule and prejudice must be shown.

The view was endorsed in Rajesh Kumar v. Dy. CIT .

20. From the above discussion, what emerges is that the ``useless formality'` is an exception to the general rule that hearing should be given before an adverse order is made. The test adopted in such cases is whether having regard to the admitted and undisputed facts, the litigant would be prejudiced if the order made without a hearing is sustained.

21. There appears to be a unanimity in the reported authorities that before an order of blacklisting is issued, the private party should be put to notice and given opportunity to represent against the move. The decision in UEE Engineering marked a small divergence, inasmuch the decision of DDA not to permit the concern to tender with it, without a hearing was upheld; the court rationalized that the misbehavior of the Director of the company was sufficient reason justifying the decision. However, the legality of the decision as far as it concerned the company was consciously not adjudicated upon; the matter was remitted for decision by this Court.

22. I am not persuaded that in the facts of this case, the exception of ``useless formality'` theory ought to have been resorted to. Even while stating that the petitioner may not be allowed to participate in any fresh tender or may not be considered for award of any new work, which is yet to be awarded till the CBI case is finally decided, the DJB decided to allow pending contracts to be completed. This, and the allegation that in other cases where criminal cases were pending, other concerns or firms with such cases, were permitted to bid, exposes the DJB'S stand. As observed earlier, the unspecific time frame, i.e. till the finalization of the criminal case, would in my opinion cause immense hardship if the proceedings drag on for an unduly long period, as they are often wont to. In these circumstances, the DBJ ought to have issued some form of notice, and afforded reasonable opportunity of hearing to the petitioner, before issuing the impugned order; by not doing so, the said order is unsustianable, as being tainted by arbitrariness.

23. In the light of the above circumstances, the impugned order is quashed. However, the respondent is at liberty to issue notice, outlining allegations against the petitioner and afford it reasonable opportunity to refute them. Thereafter, it shall apply its mind to all relevant considerations; in case of its deciding to blacklist or not carry out business with the petitioner, a time frame for operation of such order shall be communicated. The entire process shall be completed within in six weeks from today.

24. The petition is allowed in the above terms; no costs.