Prakash Atlanta Jv & Ors. vs National Highways Authority Of ...
2010 Latest Caselaw 652 Del

        IN THE HIGH COURT OF DELHI AT NEW DELHI

                           W.P.(C) 7443 of 2009 & CM 3400/2009

                                           Reserved on: 20th January, 2010
                                           Decision on: 5th February, 2010

        PRAKASH ATLANTA JV & ORS.                ..... Petitioners
                    Through Mr. Rajiv Nayyar, Senior Advocate with
                    Mr. Sandeep Sharma, Advocate.

                           versus


        NATIONAL HIGHWAYS AUTHORITY OF INDIDA
        & ORS.                                    ..... Respondents
                     Through Mr. Sandeep Sethi, Senior Advocate with
                     Ms. Padma Priya, Ms. Sindhu Sinha and Mr. Sumit
                     Gahlawat, Advocates.

        CORAM:
        HON'BLE DR. JUSTICE S. MURALIDHAR

        1. Whether reporters of local paper may be allowed
           to see the judgment?                                    No

        2. To be referred to the report or not?                    Yes

        3. Whether the judgment should be referred in the digest? Yes


                                    JUDGMENT

S. Muralidhar, J.

1. The challenge in this petition by Prakash Atlanta JV (PAJV) and its group

companies is to the validity of a show cause notice dated 27th June 2008 and

the consequent decision communicated by a letter dated 24th February 2009

issued by Respondent No. 1 the National Highways Authority of India

(„NHAI‟) barring the Petitioners from "short-listing, participating or bidding

for any future projects to be undertaken by the NHAI", either directly or

indirectly for a period of two years.

2. The work of construction of "Segment of the Lucknow Bypass"

WP (Civil) No. 7443/2009 page 1 of 26 connecting National Highway („NH‟) No. 25 and NH No. 28 via NH 56

passing through Lucknow city in the State of Uttar Pradesh (known as

Package No. E.W.-15/UP) was awarded to the Petitioners by the NHAI. On

10th August 2001 an agreement was entered into between the parties. The

length of the road to be constructed was 22.66 Km and included construction

of road works and bridges in accordance with drawings and the provisions of

the contract. The value of the project was Rs.158,80,42,423/- and the start

date of the work was to be reckoned with effect from 30th August 2001. The

work was to be completed on or before 29th August 2004 i.e. within a period

of 36 months.

3. The case of the Petitioners is that during the course of the execution of the

work they were called upon to execute a new and major structure called via-

duct for a length of 1.5 Km which was not envisaged under the original

scope of work. This led to procuring additional plant and machinery. The

Petitioners state that on account of variations made by the NHAI and for

other reasons attributable to the NHAI, the work order extended to a period

of 40 months beyond the original stipulated time period. According to the

Petitioners nearly 106 variation orders were issued by the NHAI till April

2008 and as many as 58 variation orders were issued beyond the original

time limit. No additional time was assigned for carrying out the variation

items.

4. There was a dispute between the parties as regards the rates for the work

covered by the variation orders. In terms of the contract this dispute was

WP (Civil) No. 7443/2009 page 2 of 26 referred to the Dispute Review Expert who on 9th July 2005 directed making

all payments to the Petitioners at market rates. Twenty-seven months

thereafter, on 4th October 2007 the NHAI invoked the arbitration clause.

According to the Petitioners even the admitted payments amounting to

Rs.1.5 crores were withheld from them and they have been further crippled

by the NHAI encashing bank guarantees to the tune of Rs.28 crores. The

Petitioners claim that against the tendered amount of Rs.158.80 crores, they

executed work worth about Rs.170 crores excluding price variation up to

14th March 2008 and yet the project was nowhere near completion.

5. The Petitioners, in terms of Clause 59 (iv) of the agreement, issued a

notice on 28th May 2004 calling upon the NHAI to make the payment as

certified by the Engineer. A meeting was called pursuant to this notice but

the NHAI did not fulfill the commitment made by it to release the withheld

payments. On 12th June 2006 the Petitioners issued a termination notice. It

is stated that they were persuaded by the NHAI to continue the work by

formally extending the time. Ultimately, on 14th March 2008 the Petitioners

wrote to the NHAI informing it that the contract stood terminated. The

Petitioners stated therein that they have suffered huge losses on account of

the omissions and commissions of the NHAI and claimed Rs.84,51,12,743/-

on various counts.

6. The Petitioners filed a statement of claims dated 28th February 2008

before the Arbitral Tribunal. Thereafter by a letter dated 27th June 2008 the

NHAI asked the Petitioners to show cause why they should not be debarred

WP (Civil) No. 7443/2009 page 3 of 26 from pre-qualification, participating and bidding in future events. The

Petitioners received the aforementioned notice on 3rd July 2008 and sent a

detailed reply dated 12th July 2008. In the reply a reference was made to an

interim order dated 16th June 2008 passed by the Arbitral Tribunal in which

the Tribunal did not accept the contention of the NHAI that it was the NHAI

which had terminated the contract. It was observed that once the contract

had been terminated by the Petitioners (claimant) "there was no question of

termination of contract by the NHAI." The Arbitral Tribunal observed that it

was merely to resort to Clause 51(i) "that the NHAI decided to terminate an

already terminated contract".

7. On 5th September 2008 a letter was received from the General Manager

(DK-I) Mr. K.V.Sharma of the NHAI granting personal hearing to the

Petitioners. They were asked to appear before Mr. Nirmal Jit Singh, Member

(Technical) on 16th September 2008. The Petitioners appeared for the

personal hearing and also handed in their written submissions on 22nd

September 2008. In the written submissions a request was made for copies

of the documents and materials in support of the allegations made in the

show cause since these had not been supplied to the Petitioners.

8. Mr. Nirmal Jit Singh, Member (Technical) who gave the Petitioners a

personal hearing was transferred on 18th October 2008. Thereafter the

impugned order came to be passed by Mr. K.V. Sharma, General Manager,

DK-I on 24th February 2009 barring the Petitioners from short-listing,

participating or bidding for any future projects undertaken by the NHAI.

WP (Civil) No. 7443/2009 page 4 of 26 The Petitioners state that copies of the impugned order dated 24th February

2009 were maliciously endorsed by the NHAI to various central and state

government organisations by a circular dated 24th February 2009. This had

the effect of severely damaging the reputation of the Petitioners. The

Petitioners had been pre-qualified by the various organisations for awarding

of works but as a result of the circular dated 24th February 2009 issued by

the NHAI, they were not awarded contracts even by other government

organisations.

9. The challenge to the impugned show cause notice dated 27th June 2008

and the consequential impugned order dated 24 th February 2009 in

principally on the grounds of violation of the principles of natural justice and

malafides.

10. A very detailed counter affidavit has been filed by the NHAI in which it

has pointed out that it is a body constituted under the National Highways

Authority of India Act, 1988 and has been entrusted with the responsibilities

of development, maintenance and management of national highways vested

in or entrusted to it by the Central Government. It is pointed out that with a

view to give a major thrust to the economic development of the country, the

Central Government took a policy decision leading to the announcement by

the Prime Minister in October 1998 of the work of 4/6 laning of national

highways linking the four major metros as the Golden Quadrilateral Project,

The North-South Corridor is from Kashmir to Kanyakumari and East-West

Corridor from Silchar to Porbandar. This includes the development of some

WP (Civil) No. 7443/2009 page 5 of 26 other stretches of roads including roads connecting some of the major ports

in the country. It is stated that the NHAI is mandated to implement the

National Highways Development Project („NHDP‟) in various phases.

11. It is pointed out by the NHAI that the Petitioner No.1 PAJV is a joint

venture consisting of Petitioner No.1 and Petitioner No.2 Prakash Building

Association Ltd. who jointly submitted a bid in the name of Petitioner No.1

pursuant to which the contract was awarded to them as indicated

hereinbefore. According to the NHAI, the performance of the Petitioners

was found to be way below the requirements as envisaged under the

contract. The Petitioners failed to execute the work in a timely manner.

They failed to deploy the requisite plant and machinery, manpower and

financial resources into the project as was warranted and were unable,

therefore, to complete the project by the scheduled completion date i.e. 29 th

August 2004. This caused grave inconvenience to the general public apart

from causing huge revenue losses to the Government inasmuch as it is

proposed to levy toll on vehicles using the completed stretch. Therefore,

with each passing day there were losses to the public exchequer.

12. It is stated that due to the persistent defaults and negligence of the

petitioners, repeated warnings were issued to them by the Engineer, i.e. the

representative of the Supervision Consultant as envisaged under the contract,

asking them to comply with the terms of the contract and remedy the

defaults. These defaults as pointed out by the Supervision Consultant varied

from non-deployment of manpower and resources, extremely slow progress

WP (Civil) No. 7443/2009 page 6 of 26 of work and other defaults. The NHAI states that on its part it extended all

possible help to the Petitioners. They were given interest-free mobilisation

advance of Rs.15.88 crores, advance of Rs.7.93 crores against the

equipments brought at the site, advance of Rs.73.44 crore against material

brought at site as secured advance and additional mobilization advance of

Rs.5.10 crores against the increase in cost of contract due to variation. It is

stated that to solve the Petitioners‟ cash flow problem they were given a

discretionary advance to the tune of Rs.15 crores. It is pointed out that

despite this, the physical progress at the site of the project for a period of 12

months between January 2007 to December 2007) was abysmally low at

3.882%. It is stated that despite several extensions of time having been

granted for completion of the project, the last one having been granted on

15th November 2006, the Petitioners were able to achieve physical progress

of only 78.36% of the work. In the previous 12 months ending in the month

of February 2008 the physical progress of work was only 2.6% which came

to a negligible 0.225% per month. This had to, therefore, be construed as a

virtual stoppage of the work.

13. The NHAI stated that on 1st October 2007 a meeting was held to discuss

the poor progress of the works. The Petitioners were also present at the

meeting. A commitment was made by PAJV to complete 1500 sq.m. and

2500 sq.m. of Reinforced Earth Structure (RES)/ works in October and

November 2007 respectively. It was further decided not to recover

additional mobilization advance more than 20% of IPC, as requested by the

Petitioner No.1 to help with its cash flow problem. The NHAI states that

despite its support, PAJV‟s average monthly output of RES work in WP (Civil) No. 7443/2009 page 7 of 26 October, November and December 2007 was only12.43 sq.m. RES was one

of the critical activities for completing the balance work. About 17000 sq.m.

RES work was pending. The average monthly Reinforced Cement Concrete

(„RCC‟) output in October, November and December 2007 was 85 cubic m.

whereas balance RCC work was 3954 cubic m. According to the NHAI

almost no work was done on the balance project and therefore there was

hardly any progress. The NHAI contends that the situation was equivalent to

permanent stoppage of work by the contractor. The defaults committed by

the Petitioners were duly recorded by the Engineer by a letter dated 16 th

January 2008 in which the default was viewed as a fundamental breach of

contract by the Petitioners in terms of Clause 59(ii) of the contract. Various

defaults were also listed in a letter dated 5th February 2008 to the Petitioners.

14. It is stated that although a meeting was convened on 7th March 2008 with

the Petitioners, they chose not to attend the said meeting. Thereafter a joint

meeting at the request of Petitioner No.1 was again convened on 13th March

2008. It is claimed that at the meeting the Chairman, NHAI conveyed to

PAJV that NHAI was willing to pay PAJV its legitimate dues expeditiously

but that no commitment could be made regarding payment against disputed

claims pending adjudication before the Arbitral Tribunal or the Court. It is

stated that the Petitioners refused to make any commitment to complete the

work. They simply stated that they would inform the Respondents of their

decision later.

15. According to the NHAI instead of giving the any commitment, the

WP (Civil) No. 7443/2009 page 8 of 26 Petitioners abruptly wrote a letter dated 14th March 2008 terminating the

contract. On 26th March 2008 the Engineer on behalf of the NHAI wrote to

the Petitioners pointing out that the pre-mature termination of the contract

was wrongful. As such the termination was itself a fundamental breach of

contract on the part of the Petitioners.

16. At this stage, it is necessary to record that the notice was issued in the

writ petition by a learned Single Judge of this Court on 13 th March 2009

which was made returnable on 30th April 2009. No interim was passed in

favour of the Petitioners at that stage. PAJV then filed an appeal being LPA

No.120 of 2009 which was disposed of by an order dated 30th March 2009

by a Division Bench. It was directed that pending the disposal of the writ

petition, PAJV should be permitted to submit their tenders/bids individually

or with others notwithstanding the order dated 24th February 2009 as

otherwise they would lose right to participate and submit bids for tenders

worth Rs.36,000 crores till 30th April 2009. It was further clarified by the

Division Bench that the submission of bids by the Petitioner would not

create any special equities and will also be subject to the outcome of the writ

petition. It was further clarified that the Clause 2.2.8 and the Office

Memorandum dated 5th December 2007 were not the subject matter of the

present dispute and that the NHAI would be entitled to rely upon the said

clause and office memorandum while considering the request for

qualification. The appellants were also permitted to put forth their case

before the Respondents in respect of the above clause.

17. Aggrieved by the aforementioned order dated 30th March 2009 of the WP (Civil) No. 7443/2009 page 9 of 26 Division Bench, NHAI filed SLP (C) No. 20941 of 2009 in the Supreme

Court. By an order dated 7th January 2010, the Supreme Court while

directing notice to issue in the SLP stayed the order dated 30 th March 2009

passed by the Division Bench of this Court. However, this Court was

requested to dispose of the writ petition "under any circumstance before the

1st week of February, 2010". Further the order was confined "only to the

contract in NHAI". When the case was next listed before this Court on 18th

January 2010, it was with the consent of the parties taken up for final

hearing. The hearing concluded on 20th January 2010.

18. The submissions on behalf of the Petitioners PAJV were advanced by

Mr. Rajiv Nayyar, the learned Senior counsel and on behalf of the

Respondents NHAI by Mr. Sandeep Sethi, learned Senior counsel.

19. It is first submitted by Mr.Nayyar that the impugned order is without

reasons and neither refers to or deals with various contentions and issues

raised by the Petitioners in reply to the show cause notice issued to them by

the NHAI. Reliance is placed on the decisions of the Supreme Court in S.N.

Mukherjee v. Union of India AIR 1990 SC 1984 and of this Court in

Mekaster Trading Corp. v. Union of India 106 (2003) DLT 573; G.D.

Tewari & Co. v. DDA 2005 (1) CTLJ 267 (Delhi).

20. In reply it is submitted by Mr.Sethi that the impugned order does reflect

the reasons for the decision to blacklist the petitioners. It is submitted that

elaborate reasons are not required to be given. In terms of the settled WP (Civil) No. 7443/2009 page 10 of 26 principles of law, it is sufficient that the order, which is at best a quasi-

judicial one, should reflect the application of mind by the decision-making

authority. According to the Respondents, the impugned order refers to the

recommendations of the Engineer regarding the commission of defaults by

the Petitioner. It also records a finding that the Petitioner is not trustworthy

and reliable for future works. Reliance is placed on the judgment of the

Supreme Court in Madhya Pradesh Industries Ltd. v. Union of India AIR

1966 SC 671. It is pointed out that the notices issued by the NHAI to the

Petitioner PAJV from time to time and the correspondence between the

parties, which are referred to in the show cause notice that preceded the

impugned blacklisting order, indicate that the work was far behind schedule.

These therefore constituted the reasons. It is not, therefore, as if the

impugned order, which was passed after considering the reply of the

petitioners, is without reasons.

21. The first issue that arises for consideration is whether the impugned

order dated 24th February 2009 which bars PAJV from short-listing,

participating or bidding for any future projects undertaken by the NHAI

either directly in its name or indirectly in any other name or in association

with any other person or entity with which it may use to carry on its business

for a period of two years, is rendered illegal for failure to furnish reasons for

such decision. The impugned order itself does uses the word „blacklisting‟

but the circular dated 24th February 2009 issued by the NHAI leaves no

manner of doubt that it was indeed a `blacklisting‟ order. The said circular

reads as under:

"NHAI/Arbitration/DW-15/2002-Tech./5807 Dated:24/02/2009

CIRCULAR WP (Civil) No. 7443/2009 page 11 of 26 Sub.: Debarring/Blacklisting of M/s. Prakash-Atlanta Joint Venture from short-listing participating or bidding for projects of/or to be undertaken by NHAI.

The National Highways Authority of India (NHAI) had entered into a Contract Agreement dated 10.08.2001 with M/s. Prakash- Atlanta(JV) for the project of Construction of Segment of Lucknow Bypass Connecting NH-25 & NH-28 Via NH-56 passing through Lucknow City in the State of Uttar Pradesh (Contract Package No.EW-15/UP).

NHAI has decided without prejudice to any other rights available to the NHAI in terms of the Contract and/or the applicable law to ban/blacklist M/s. Prakash-Atlanta(JV) who are hereby barred from short-listing; participating or bidding for any future projects to be undertaken by NHAI either directly in their name or indirectly in any other name or in association with any other person or entity in which they may choose to carry on their business for a period of two years.

The detailed banning/blacklisting Order No. NHAI/Arbitration/ EW-15/2002-Tech/5805 dated 24/02/2009 is enclosed. This is for information and records of all concerned.

(K.V.Sharma) General Manager (DK-I) Copy to :

1) Director General (RD) & SS, Ministry of Shipping, Road Transport & Highways.

2) Chief Secretaries/Secretaries (PWD/Roads) of all State Governments/UTs dealing with National Highways and Centrally Sponsored Schemes.

3) Chief Engineers of all States/UTs dealing with National Highways and Centrally Sponsored Schemes.

4) Director General (Border Roads), Seema Sadak Bhawan, Ring Road, Naraina, New Delhi - 110010.

5) All Officers of NHAI, HQ/PIUs/CMUs.

6) Media Relation/IT Divisio of NHAI with a request to get it hoisted on NHAI website.

7) M/s Prakash-Atlanta (JV)"

(emphasis supplied)

WP (Civil) No. 7443/2009 page 12 of 26

22. There are at least three things which are significant from the above

circular. One is that the subject matter clearly says "debarred/blacklisting of

M/s Prakash Atlanta Joint Venture.......". The body of the circular refers to

the impugned order dated 24th February 2009 as a "banning/blacklisting"

order. Secondly, the circular was issued Mr. K.V. Sharma, General Manager

(DK-I), by the same person who issued the blacklisting order. Third and

most important is that the circular is sent to the "Chief

Secretaries/Secretaries (PWD/Roads) of all State Governments/UTs dealing

with National Highways and Centrally Sponsored Schemes; Chief Engineers

of all States/UTs dealing with National Highways and Centrally Sponsored

Schemes; Director General (Border Roads), Media Relation/IT Division of

NHAI with a request to get it hoisted on NHAI website". In other words, the

blacklisting of the Petitioner was instantaneously given extensive publicity

by the NHAI by hoisting it on a website while simultaneously transmitting it

all over the country to several states and organisations. The circular

underscores the extent of the adverse impact on the Petitioners as a result of

the impugned blacklisting order. This has to be kept in the background while

examining if the impugned blacklisting order satisfies the legal requirement

of compliance with the principles of natural justice.

23. The requirement of an administrative authority to record reasons for its

decisions was considered by the Constitution Bench of the Supreme Court in

S.N. Mukherjee v. Union of India (supra). In para 9 of the said judgment

(AIR @ p. 1988) one of the first questions formulated was "is there any

general principle of law which requires an administrative authority to record

the reasons for its decisions". It was noticed that there was a divergence of WP (Civil) No. 7443/2009 page 13 of 26 opinion on the issue in common law countries. While in the United States of

America, the Federal Administrative Procedure Act, 1946 required

administrative decisions to indicate a statement of findings and conclusions

as well as reasons or basis therefor, in England there was no such

requirement. A reference was then made to the recommendations of the

Donoughmore Committee and the Franks Committee which led to the

enactment in the United Kingdom (U.K.) of the Tribunals and Enquiries Act,

1958 which mandated the tribunal or Minister to furnish a statement, either

written or oral, and the reasons for the decision, if requested, on or before

the giving of notification of the decision to support the decision. The

Tribunals and Enquiries Act, 1971 also contained a similar provision. As far

as India was concerned, the 14th Report of the Law Commission of India

relating to reforms in judicial administration, recommended that

administrative decisions should be accompanied by reasons. A reference was

made to the decision of the Supreme Court in Madhya Pradesh Industries

Ltd. v. Union of India (supra) and Bhagat Raja v. Union of India AIR 1967

SC 1606. Reference was also made to the decisions in Travancore Rayon

Ltd. v. Union of India AIR 1971 SC 862; Mahabir Prasad Santosh Kumar

v. State of U.P. AIR 1970 SC 1302 and Raipur Development Authority v.

M/s Chokhamal Contractors AIR 1990 SC 1426. Thereafter in paras 34 and

35, the Supreme Court observed as under (AIR @ p. 1995):

"34. The decisions of this Court referred to above indicate that with regard to the requirement to record reasons the approach of this Court is more in line with that of the American Courts. An important consideration which has weighed with the Court for holding that an administrative authority exercising quasi-

judicial functions must record the reasons for its decision, is

WP (Civil) No. 7443/2009 page 14 of 26 that such a decision is subject to the appellate jurisdiction of this Court under Article 136 of the Constitution as well as the supervisory jurisdiction of the High Courts under Article 227 of the Constitution and that the reasons, if recorded, would enable this Court or the High Courts to effectively exercise the appellate or supervisory power. But this is not the sole consideration. The other considerations which have also weighed with the Court in taking this view are that the requirement of recording reasons would (i) guarantee consideration by the authority; (ii) introduce clarity in the decisions; and (iii) minimise chances of arbitrariness in decision-making. In this regard a distinction has been drawn between ordinary Courts of law and tribunals and authorities exercising judicial functions on the ground that a Judge is trained to look at things objectively uninfluenced by considerations of policy or expediency whereas an executive officer generally looks at things from the standpoint of policy and expediency.

35. Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this Court in holding that an administrative authority must record reasons for its decision, are of no less significance. These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances of arbitrariness and ensures a degree of fairness in the process of decision-making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact

WP (Civil) No. 7443/2009 page 15 of 26 whether the decision is subject to appeal, revision or judicial review. It may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a Court of law. The extent and nature of the reasons would depend on particular facts and circumstances. 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 the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge."

24. Thereafter in para 38, the Supreme Court observed "keeping in view the

expanding horizon of the principles of natural justice, we are of the opinion,

that the requirement to record reason can be regarded as one of the

principles of natural justice which govern exercise of power by

administrative authorities". (emphasis supplied) The decision in S.N.

Mukherjee v. Union of India by Constitution Bench of the Supreme Court,

rendered in the context of court martial proceedings under the Army Act

1950, has been consistently followed by the courts in other contexts as well

and in particular in the context of orders blacklisting contractors. The

decision of the Supreme Court in Madhya Pradesh Industries Ltd., to which

a reference is made by the learned Senior counsel for the NHAI, was

considered by the Constitution Bench of the Supreme Court in S.N.

Mukherjee which then explained the law as noted hereinbefore. Therefore

the decision of the larger Bench in S.N. Mukherjee, which has been

consistently followed by this Court in the decisions noted hereinafter, holds

the field.

WP (Civil) No. 7443/2009 page 16 of 26

25. In Mekaster Trading Corp. v. Union of India (supra), a learned Single

Judge of this Court was considering the validity of an order issued by the

Government of India, Ministry of Commerce and Industry, blacklisting the

Petitioner, a contractor, for a period of five years with effect from 19th

March 2002. The Petitioner was the Indian representative of M/s Barin Spa,

Italy which had submitted a bid for procurement of Mobile Bridge

Inspection Units (MBIU). The other bidder was a German company. The bid

of M/s Barin was accepted and a formal contract was entered into. The

Petitioner as agent of M/s Barin Spa was to act for the purpose of liaisoning

and coordination for which M/s Barin was to pay agency commission. On

24th June 1996 the Director General of Supply and Disposal (DGS&D)

issued Rejection Inspection Certificate in respect of the equipment supplied

by M/s Barin. Thereafter a lot of correspondence was exchanged between

the parties. The equipments were again tested and rejected by the DGS&D

by its letter dated 12th May 1999. After about two years on 26th July 2001 the

DGS&D issued a notice to M/s Barin asking them to show cause why they

should not be blacklisted for having violated the terms of the contract. It was

noticed by this Court in the said judgment that one common show cause

notice was issued to both M/s Barin as well as the Petitioner M/s Mekaster

Trading Corporation in which the purported lapses of both M/s Barin as well

as M/s Mekaster were listed. Both M/s Barin as well as M/s.Mekaster

submitted replies after which the blacklisting order was passed. It was

noticed by this Court that in the blacklisting order the contentions of the two

parties were brushed aside by stating "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

WP (Civil) No. 7443/2009 page 17 of 26 available evidence does not reveal that the firm has fulfilled its contractual

obligations".

26. After discussing the relevant case law concerning the duty to give

reasons, including the decision in S.N. Mukherjee v. Union of India, this

Court in Mekaster Trading Corp quashed the blacklisting order by

observing that "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 an act of good administration". It observed 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". This Court pointed out that the

link between the material on which conclusions are based and the actual

conclusion had to be 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". Further it was

emphasized that the reasons for arriving at the conclusions "should be

discernible from the 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 therefor when the

validity of the order is challenged".

27. The above dictum in Mekaster Trading Corp has been followed by this

Court in G.D. Tewari & Co. v. DDA, Indian Oil Corporation v. SPS

Engineering Ltd. 128 (2006) DLT 417 (DB) and National Building

WP (Civil) No. 7443/2009 page 18 of 26 Construction Corp. Ltd. v. NDMC 138 (2007) DLT 414.

28. Keeping the above settled position of law in view, this Court proceeds to

examine the reasons contained in the impugned order. The impugned order

is of 3½ pages. After narrating the contents of the circumstances that led to

the issuance of the show cause notice and the case of the Respondents as set

out therein, the order proceeds to recall and reject one of the contentions of

the Petitioner as under:-

"It is noted that the Joint Venture and its Partners have reiterated the stand taken by them earlier i.e. that they have fulfilled their obligations under the Contract. This submission of there is found to be without merit and is contrary to the facts and circumstances of the case and the material on record including the recommendations of the Engineer/the various notices issued by him to the Contractor, establishes fundamental defaults on the part of the Contractor."

29. The impugned order then notes and rejects the next contention of

the petitioners as under:

"It is also noted that a contention has been raised by the Contractor and its Partner that the General Manager is not authorised to issue the Show Cause Notice. This contention is also found to be without any basis as the proposed action of debarment of the Contractor and its Partners has been approved by the Competent Authority of the NHAI, who has authorised the General Manager to issue the said Show Cause Notice."

30. From a reading of the above portions of the impugned order it would

appear that the petitioners did not advance any other contention. However,

the petitioners‟ reply dated 12th July 2008 to the show cause notice issued by WP (Civil) No. 7443/2009 page 19 of 26 the NHAI lists out several other contentions which have not even been

referred to in the impugned order, much less dealt with. The petitioners in

their reply offered an explanation for the delays in completion of the project.

In fact, the learned Senior counsel for the NHAI took this Court through

several pages of the record which contains the correspondence between the

parties concerning the delays in completion of the project. This was sought

to be explained by the Petitioners in its reply to the show cause notice. For

example, in paras 5.0 to 5.2, the following explanation was offered:-

"5.0 The slow rate of progress of work was due to total throttling of the cash flow and want of administrative approval to extract soil for embankment/RES work. The physical progress achieved was 78.36% and financial progress was more than 100% cost wise.

5.1 A technical representative of the patentee for Reinforced Earth Structure (RES) was present at the time of erection and the same stands substantiated by Request for Approval duly signed by the Engineer‟s representative. The quantity of work executed has been duly certified by representative. The quantity of work executed has been duly certified by the Engineer‟s representative in interim payment certificates. The RES work was virtually under suspension for a few months for want of administrative approval to extract soil for RES work. We were duty bound to mitigate the losses to the extent possible and therefore technical representative of patentee was not called to remain present on the site doing no work. Since the administrative approval was beyond our control and the Project Director himself was doing the follow up, the reasons were within the knowledge of the Engineer/Employer. The issue is now being raised only with a view to support your malafide intention of debarring us.

WP (Civil) No. 7443/2009 page 20 of 26 5.2 There were no defects in the work anywhere much less in the work as alleged by the Engineer. The defect has to be based on objective criteria. We had already replied to the Engineer‟s letters dated 09.08.2007 and 04.02.2008 pointing out that the work was not defective as alleged.

31. The impugned order does not refer to the above explanation at all. Now

this Court proceeds to examine the remaining portions of the impugned

order. These are two paragraphs, preceding the final paragraph by which

NHAI has blacklisted the petitioners. These two paras read as under:

"Further, after considering the relevant record including the contractual terms, the reports of the Engineer, Show Cause Notices issued to the addresses, replies to the Show Cause notice received from them, their oral as well as written submission during the personal hearing, the facts and circumstances of the case and on analysis thereof, NHAI is of the considered view that the reply as well as written submission are wholly unsatisfactory and no justifiable grounds have been made out so as not to take the proposed action as stated in the Show Cause Notice dated June 27, 2008.

The NHAI is entrusted sovereign function of making operational highways and expressway across the country. Timely executions of said works are essential for the growth of economy and it is a national interest that there is no delay in the execution of the said work. Keeping in view the performance and conduct of the addressees, NHAI finds that they are not reliable and trustworthy for any future works."

32. The first of the above paragraphs is no different from the reasons given

by the Government of India in its blacklisting order in Mekaster Trading

Corp. It is one solitary statement which states that after considering the

WP (Civil) No. 7443/2009 page 21 of 26 relevant records, show cause notice, replies and the oral/written submissions,

the NHAI is of the view that those replies and written submissions "are

wholly unsatisfactory and no justifiable grounds have been made out." The

other again is a conclusion which simply states that "keeping in view the

performance and conduct of the addressees, NHAI finds that they are not

reliable and trustworthy for any future works".

33. At best the above statements can be termed as conclusions and not

reasons. As pointed out by this Court in Mekaster Trading Corp., the above

order does not indicate that "the decision maker successfully came to grips

with the main contention advanced by the parties". It also fails to disclose

"how the mind is applied to the subject matter; whether done relevantly or

rationally". There are no reasons to indicate the application of mind and the

mental process leading to the conclusion. Further as pointed out by the

Division Bench of this Court in Indian Oil Corporation v. SPS Engineering

Ltd. (supra) (DLT, p.425), "reasons must be contained in the order under

challenge, and mere existence of reasons in the show cause notice, or any

material referred to in the show cause notice, is not sufficient....the authority

concerned must, at least in brief, deal in the impugned order with the

explanation given in the reply, and give its reasons for holding that the

explanation is not satisfactory."

34. In the considered view of this Court, the impugned order does not satisfy

the requirement of the principles of natural justice i.e. of furnishing reasons

for the conclusions. Considering that the impugned order read with the

WP (Civil) No. 7443/2009 page 22 of 26 circular dated 24th February 2009 has adverse civil consequences for the

Petitioner, it simply cannot be sustained in law. The damage, that has

already been done in terms of the Petitioner not being awarded works by

other organizations and even by the NHAI itself in not allowing it to bid,

cannot possibly be reversed. However, on this aspect this court does not

wish to dwell, as it is best left to be determined in appropriate proceedings

in the civil court, if instituted, by the petitioners.

35. The petition should succeed on the above ground alone. However, since

other points were urged, they are also being dealt with. The next contention

of the Petitioners is that they were given a hearing by the Member

(Technical) but the impugned order was passed by the GM (DK-I) who was

not the person who heard the Petitioners. In its counter affidavit it is sought

to be explained by the NHAI that Mr. Sharma was the person who issued the

show cause notice and to whom the reply was furnished. Mr. Sharma was

physically present at the time the Member (Technical) gave a hearing to the

Petitioner and therefore Mr.Sharma was conversant with all the submissions

made in response to the show cause notice. It is accordingly submitted by

the NHAI that no illegality was committed only because the person who

heard the Petitioners was different from the person who passed the

impugned order. Reliance was placed on certain observations of the

Supreme Court in Gullapalli Nageswara Rao v. Andhra Pradesh State

Road Transport Corporation AIR 1959 SC 308 where the Supreme Court

disapproved of the procedure prescribed under the Motor Vehicle Rules

which permitted the Secretary to give a hearing and the Minister to take the

decision. It was observed that "this divided responsibility is destructive of WP (Civil) No. 7443/2009 page 23 of 26 the public concept of judicial hearing".

36. While prima facie the above argument appears to be attractive, in the

context of the present case this Court is unable to find it to be a serious

lacuna which can by itself be stated to have caused prejudice to the

Petitioner. Factually, it is not denied by the Petitioner that Mr. K.V. Sharma

was present when the hearing of the Petitioners by the Member (Technical)

took place. Mr. Sharma was the person who issued the show cause notice.

The Petitioners submitted their replies to him. It is, therefore, not possible in

the facts of the present case to agree with the contention of the Petitioner

that the impugned order is bad in law only because it was passed by a person

different from the person who heard the Petitioners.

37. The third ground on which the impugned order is attacked is that it

concerns issues which form the subject matter of arbitration proceedings. It

is submitted that the Petitioners have in para 32 of the writ petition given

details of the various disputes between the parties which are pending by way

of arbitration before various tribunals. The learned Senior counsel for the

Respondents on the other hand submits that the defects pointed out by the

independent Engineer appointed in terms of the contract, and which were not

contested by the petitioners, formed the basis of the blacklisting order and is

therefore independent of any disputes that may be pending adjudication

before the Arbitral Tribunal. It is further pointed out that given the

importance of the projects of the NHAI and the necessity for completing

them in time, the NHAI cannot be expected to wait for the completion of

WP (Civil) No. 7443/2009 page 24 of 26 arbitration proceedings before deciding whether a contractor should be

blacklisted. In response to this argument it is pointed out by the learned

Senior counsel for the Petitioner that the Engineer under the contract in

terms of clause 4.1. is expected to decide "contractual matters between the

employer and the contractor in the role representing the employer".

Therefore, the Engineer is in fact not an independent person as is sought to

be projected by the NHAI.

38. One of the contentions raised in the show cause notice by the NHAI is

that the Petitioners have by their letter dated 14 th March 2008 issued "an

invalid notice of termination of contract" and that by so doing the petitioners

had "in no uncertain terms clearly refused to perform your obligation under

the Contract". It appears that the validity of the action of the Petitioner in

terminating the contract is indeed pending reference before an arbitral

tribunal. In National Building Construction Corp. Ltd. v. NDMC (supra), a

learned Single Judge of this Court dealt with a similar issue. In para 19 of

the said decision (DLT @ p. 420), the court noted that there was an "identity

in the subject matter of the allegations leading up to the blacklisting order

and arbitration proceedings". After referring to the judgments in Eurasian

Equipment & Chemicals Ltd. v. State of West Bengal AIR 1975 SC 266,

Raghunath Thakur v. State of Bihar AIR 1989 SC 620 as well as the

earlier decisions of this Court, the learned Single Judge held that it was clear

that the NDMC had proceeded to blacklist the contractor "even after

recession of the contract which had become the subject matter of

arbitration". In Indian Oil Corporation v. SPS Engineering Ltd., the

Division Bench of this Court agreed with the reasoning of the learned Single WP (Civil) No. 7443/2009 page 25 of 26 Judge that "when the entire matter was pending before the Arbitrator there

was no need to have proceeded with the issue of placing the petitioner on the

`holiday list‟." The Division Bench held: "when the matter was subject

matter of arbitration, the respondent should have awaited the decision of the

Arbitrator before taking such a decision in a hurry". Therefore, on this

ground also the Petitioner is entitled to succeed. There was no occasion yet

for the NHAI to have issued the impugned show cause notice dated 27th June

2008 to the petitioners.

39. Consequently the impugned show cause notice dated 27th June 2008 and

the consequential order dated 24th February 2009 passed by the NHAI

blacklisting the petitioners are hereby set aside. The NHAI will, consistent

with this order, and within a period of one week from today, issue a

corrective circular to withdraw and replace its earlier circular dated 24th

February 2009 which has been referred to hereinbefore. Simultaneously, the

NHAI will place the new circular on its website and also send copies to all

entities to whom the earlier circular was sent. It is clarified that depending

on the outcome of the proceedings before the Arbitral Tribunal, it would be

open to the NHAI to proceed thereafter in accordance with law.

40. The writ petition is allowed with costs of Rs.20,000/- which will be paid

by the Respondents to the Petitioner within four weeks from today. All

pending applications are disposed of.

                                                      S. MURALIDHAR, J
FEBRUARY 5, 2010
ak
WP (Civil) No. 7443/2009                                         page 26 of 26