R.K. Machine Tools Ltd. & Anr. vs Union Of India
2011 Latest Caselaw 3349 Del

            *IN THE HIGH COURT OF DELHI AT NEW DELHI

                                              Date of decision: 15th July, 2011

+                              W.P.(C) 4946/2011

         R.K. MACHINE TOOLS LTD. & ANR.            ..... Petitioners
                      Through: Mr. V.N. Koura with Mr. Rakesh &
                               Mr. Sumit S. Benipal, Adv.

                                     Versus

         UNION OF INDIA                                    ..... Respondent
                      Through:            Mr. Sachin Datta & Mr. Abhimanyu
                                          Kumar, Adv.
CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1.       Whether reporters of Local papers may
         be allowed to see the judgment?               Not necessary.

2.       To be referred to the reporter or not?        Not necessary.

3.       Whether the judgment should be reported
         in the Digest?                                Not necessary.

RAJIV SAHAI ENDLAW, J.

1. The petitioner no.1 Company of which petitioner no.2 is the

Chairman-cum-Managing Director claims to be engaged since the year

1962 in the business predominantly of manufacture of defence equipment;

it also claims to have researched and developed capability to manufacture

critical parts for the Indian Defence Industry, so that dependence on

foreign supplies could be reduced; it claims to be supplying Mortar Bomb

Bodies used in Ordnance Factories for manufacture of ammunition for the

Armed Forces, critical parts for the tanks and other heavy vehicles of the

respondent. It is claimed that as on 3 rd June, 2009 the petitioner Company

had outstanding contracts of value of `64,36,40,099/- from various

units/factories of the respondent, out of which supplies of `61,34,33,838/-

were outstanding. It is further pleaded that all the said contracts were on

the same Terms & Conditions and incorporated by reference the General

Conditions of the Contract of the DGS&D in Form 68; that neither the

General Terms & Conditions of DGS&D incorporated in Form 68 nor the

Terms & Conditions of any relevant contract contain any provision for

putting on "suspension" or "hold" any contract or the performance of any

obligation of the parties.

2. It is the case of the petitioner Company that notwithstanding the

aforesaid, the Ordnance Factory, Chanda of the respondent, vide letter

dated 3rd June, 2009 with reference to two Purchase Orders placed on the

petitioner, intimated the petitioner of the said Purchase Orders having been

"put on hold till further orders". Similar letters are stated to have been

received from the Heavy Vehicles Factory and other Ordnance Factories. It

is pleaded that in pursuance thereto neither any supplies are being received

from the petitioner Company nor any payments are being released, neither

of pending nor of completed contracts. It is yet further pleaded that even

the Bank Guarantees of the closed contracts are not being released.

3. It is yet further the plea of the petitioner Company that it is not being

considered for the award of any further contracts inspite of being the

lowest bidder.

4. The petitioner earlier filed W.P.(C) 13457/2009 in this Court

challenging the aforesaid action of the respondent. The petitioner claims

that during the pendency of the said petition it was furnished copy of FIR

and proceedings initiated by the CBI before the Court at Kolkata and in

which two of the employees of the petitioner are accused.

5. The writ petition aforesaid preferred by the petitioner was disposed

of vide judgment dated 11th February, 2010. The contention of the

petitioner Company that the orders putting on hold the contracts had been

passed in violation of the principles of natural justice was accepted and the

order putting on hold the contracts with the petitioner set aside, however

leaving it open to the respondent to proceed in a time bound manner and in

accordance with law i.e. not to take any decision without complying with

the principles of natural justice.

6. The petitioner no.1 Company admits that post the aforesaid

judgment, a notice dated 22 nd December, 2010 to show cause was received

by it. It is however the case of the petitioner no.1 Company that since the

said notice did not disclose the basis thereof, the petitioner no.1 Company

gave only an interim reply dated 12th January, 2011 thereto inter alia

demanding various particulars/documents from the respondent. It is further

stated that the said show cause notice dated 22 nd December, 2010 was

replaced by another show cause notice dated 25 th February, 2011 and to

which again an interim reply as aforesaid was given by the petitioner no.1

Company again seeking basis/particulars of the show cause notice. Other

show cause notices with respect to other contracts were also served on the

petitioner no.1 Company. It is the case of the petitioner no.1 Company that

all of them were without any basis and vague and interim replies thereto

seeking further particulars have been given.

7. The petitioner claims that without furnishing the

particulars/clarifications sought, the petitioner Company was called for a

personal hearing, first on 16 th May, 2011 thereafter on 16th July, 2011 but

on each of which occasion the petitioner Company sought adjournment

owing to the non-availability of its Advocate.

8. The petitioner Company claims to have on 30th May, 2011/2nd July,

2011/8th July, 2011 also invoked the arbitration clause in each of the

contracts and now contends that arbitration having been invoked, the

occasion for the respondent issuing show cause notice or passing any order

in pursuance thereto does not arise since the grounds on which show cause

notices have been issued are disputed and as per the agreement are to be

adjudicated by arbitration. This writ petition has been filed to restrain the

respondent from proceeding with the show cause notices issued aforesaid

without (i) furnishing the clarification/documents sought by the petitioner

Company; (ii) giving fair and reasonable opportunity of representation to

the petitioner Company; (iii) the decision of the arbitration proceedings

initiated by the petitioner Company; (iv) decision of the criminal

proceedings pending before the Court at Kolkata. The petitioner Company

has also claimed the relief of mandamus to the respondents to not withhold

or suspend deliveries or payments under the pending contract (s) and to

consider the petitioner Company in accordance with law and without

discrimination for the award of future contracts.

9. The counsel for the petitioner Company has vehemently argued that

the respondent in the manner aforesaid has put the petitioner Company out

of business resulting in immense loss to the petitioner Company, its

employees, its plant & machinery and equipment etc. It is urged that all

this has been done at the behest of the foreign suppliers of defence

equipment. It is contended that the petitioner Company has been supplying

defence equipment at a fraction of the cost demanded by the foreign

suppliers.

10. The counsel for the respondent appearing on advance notice states

that the decision pursuant to the show cause notices issued would have

already been taken had the petitioner Company availed of the hearing

granted by the respondent and the petitioner Company itself has been

seeking time and cannot blame the respondent therefor.

11. The counsel for the petitioner Company has argued under three

heads. Firstly, it is contended that non-supply of documents amounts to

violation of fair and reasonable opportunity to show cause against the

proposed action. Reliance in this regard is placed on State of Punjab v.

Bhagat Ram AIR 1974 SC 2335, Kashinath Dikshita v. Union of India

AIR 1986 SC 2118, Kumaon Mandal Vikas Nigam Ltd. v. Girja Shankar

Pant (2001) 1 SCC 182 and State of U.P. v. Saroj Kumar Sinha

MANU/SC/0082/2010.

12. Secondly, it is contended that the departmental proceedings as in

pursuance to the show cause notices issued cannot proceed simultaneously

with criminal proceedings. Reliance in this regard is placed on Delhi Cloth

& General Mills Ltd. v. Kushal Bhan AIR 1960 SC 806, Tata Oil Mills

Co. Ltd. v. The Workmen AIR 1965 SC 155, Kusheshwar Dubey v. M/s

Bharat Coking Coal Ltd. AIR 1988 SC 2118, G.M. Tank v. State of

Gujarat (2006) 5 SCC 446 and on Hoshiar Singh v. The State of Haryana

MANU/PH/0052/1970.

13. It is lastly contended that no order of black listing can be made while

arbitration regarding the same subject matter is pending. Reliance in this

regard is placed on Indian Oil Corporation Ltd. v. SPS Engineering Ltd.

128 (2006) DLT 417 (DB), National Building Construction Corporation

Ltd. v. NDMC 138(2007) DLT 414 and on Prakash Atlanta JV v.

National Highways Authority of India 169 (2010) DLT 664.

14. I may notice that the counsel for the petitioners has confined the

arguments to the show cause notice in so far as for blacklisting only and

the thrust of the argument is that till the decision of the criminal

prosecution and till the conclusion of the arbitration proceedings, no order

of blacklisting can be made. It is urged that as per the arbitration

agreement, the arbitrator is to be of the respondent only and the respondent

can appoint the arbitrator and conclude the arbitration proceedings

expeditiously and before that cannot blacklist the petitioner Company. It is

contended that the respondent should not jump the gun to blacklist the

petitioner Company even before the dispute resolution mechanism agreed

to between the parties has found the petitioner Company guilty of any

breach or violation of the agreement.

15. The petitioner Company was blacklisted as aforesaid in the year

2009, of course without any show cause notice, as found in the order in the

earlier writ petition. The said order of blacklisting was set aside vide order

in the earlier writ petition with liberty to the respondent to black list the

petitioner Company after following the procedure in law. The said

procedure is admittedly underway and is held up for reasons attributable to

the petitioners. No order of blacklisting has been made as yet. The question

which arises is, whether this Court should interfere at this stage or allow

the procedure directed by this Court in the judgment in the earlier writ

petition to be followed and completed.

16. Of the three grounds urged, the grounds of deficiency in the show

cause notice and of arbitration were not available to the petitioner

Company at the time of earlier writ petition. However the prosecution, till

the decision of which it is now argued that no black listing can be done,

had admittedly commenced during the pendency of the earlier writ

petition. The petitioner Company does not appear to have contended in the

first writ petition as is being contended now, that there can be no black

listing till the decision in the prosecution. The order in the first writ

petition has attained finality. In my opinion, it is now not permissible to the

petitioner Company to urge at least the said ground. Moreover, the Courts

have always shown reluctance to interfere at the intermediary stage of a

proceeding. If such interference is entertained, the same would result not

only into proceedings impugned being indefinitely delayed but would also

result in multiplicity of litigation with challenge being first made to the

procedure and thereafter to the final order passed. If at all there are any

deficiencies and vagueness in the show cause notices and if the respondent

inspite of demand by the petitioner Company fails to make up the said

deficiencies and proceeds to pass the order, it will be always open to the

petitioner Company to challenge the final order if made against the

petitioner Company on such grounds. In fact today it is not even known

whether the petitioner Company will be black listed or not. The respondent

is still to take a decision in this regard. It is well nigh possible (though the

counsel for the petitioner Company contends that the order of black listing

the petitioner is a foregone conclusion) that the respondent may be

satisfied with the response/defence of the petitioner Company as to the

vagueness/deficiencies in the show cause notice and/or as to no case for

black listing having been made out. In fact it is the petitioner Company

who is found to be jumping the gun and not otherwise as contended.

17. The Supreme Court in State of Punjab v. V.K. Khanna (2001) 2

SCC 330 has held that challenge at the intermediary stage can be

entertained only on the ground of bias. No bias of the decision making

authority of the respondent against the petitioner Company is pleaded in

accordance with law.

18. As far as the contention of the petitioner Company of black listing

being not permissible till the decision on the prosecution and till the

decision in the arbitration invoked by the petitioner Company is concerned,

I have enquired from the counsel for the petitioner Company as to whether,

if the said arguments were to be accepted, black listing would not become

illusory. This Court cannot gloss over the hard reality of the long time

taken in prosecution and arbitration; if it were to be held that till then no

black listing could be done, it would tantamount to a person/contractor

against whom there may be serious charges/allegations being required to

be considered for all future contracts also simply because he had invoked

arbitration proceedings or was being prosecuted or for that matter had filed

a Civil Suit. The Government as a purchaser of goods/equipments/services

cannot be put in such a situation. It is possible that if the Court is of the

view that the grounds for black listing are such which require adjudication,

the Court may in a given case observe that the order of black listing should

be deferred till the adjudication of disputes or finding of guilt. However the

general proposition as made cannot be accepted.

19. If that be the position, then without the order of black listing which

in terms of the directions in the earlier writ petition is to contain the

reasons/grounds, being before this Court, the Court is unable to apply its

mind whether the grounds of black listing are such which allow black

listing even during the pendency of adjudication before other Fora or

otherwise. Thus this petition is found to be pre-mature.

20. It cannot also be lost sight of that the petitioner Company in the

present case has invoked the arbitration at the last minute. As aforesaid, the

disputes are pending since 2009. No arbitration was then invoked. No such

plea which was available was taken in the first round of litigation. No such

plea was taken in response to the show cause notice also or while seeking

adjournments for hearing in pursuance thereto. The impression created is

that arbitration was invoked merely to avoid participating in the hearing

before the respondent pursuant to show cause notice. Such conduct of the

petitioner Company cannot be appreciated and lends me to believe that the

present petition has been filed to avoid consideration of its case by the

respondent as directed in the earlier writ petition and which is even

otherwise a right of the respondent. I may add that though it is pleaded as

aforesaid that the terms & conditions of contract do not provide for putting

on hold contracts with the petitioner but the counsel for the petitioner

Company in response to a specific query admitted the right of the

respondent to black list.

21. At this stage the contents of the show cause notices issued to the

petitioner Company may be noticed. The petitioner Company is alleged to

have paid illegal gratification to Sh. Sudipta Ghosh, former Director

General (Ordnance Factory). Clause 22 of the Terms & Conditions of

DGS&D - 68 Manual reserves a right in the respondent to cancel the

contract and all other contracts upon finding the seller/supplier to have

paid any consideration or commission to any person in the service of the

respondent. The clause provides for the decision of the respondent or his

nominee to the effect that conditions of such clause had been satisfied to be

final and binding on the petitioner Company.

22. I am of the opinion that the breach of contract on account of which

the show cause notices have been issued, besides being a breach of

contract, even otherwise is a malady which has afflicted the fabric of the

society. The country at this stage is involved in fighting the disease of

corruption and in exploring ways to combat the same. If at all the

respondents in the order to be made by them establish the guilt of the

petitioner, the petitioner cannot be allowed to continue with its business. It

is therefore deemed appropriate to await the order in pursuance to the show

cause notice aforesaid of the decision making authority of the respondents

and to only thereafter judicially review the same.

23. As far as the judgments on the aforesaid aspect cited by the counsel

for the petitioner Company are concerned, the Division Bench of this

Court in SPS Engineering Ltd. (supra) was concerned with black listing

for the reason of delay in execution of the contract; the arbitration

proceedings had been pending for considerable time when black listing

was effected for the same reason of delay in execution of the contract. It

was in this context that the order of black listing was set aside awaiting the

decision of the arbitrator.

24. The facts before the Division Bench cannot be compared with the

facts of the present case. The delay in execution of the contract affects only

the parties to the contract and not the general public and society, as

corruption does. Moreover in that case the arbitration was already

underway. In the present case arbitration appears to have been invoked

only to ward off the hearing in terms of order in the earlier writ petition.

Had the petitioner Company desired any arbitration, it would have invoked

the arbitration clause then only.

25. The position in National Building Construction Corporation

(supra) was same; in fact in that case an interim award had also been

announced and it was in this context that the order of black listing at that

stage was held to be malafide.

26. The same was the position in Prakash Atlanta JV (supra). Thus,

neither of the three judgments vehemently relied upon by the counsel for

the petitioner Company persuade me to hold otherwise.

27. Similarly, none of the judgments cited to urge that black listing

cannot be effected till the decision of the prosecution, deal with a case of

black listing and relate to disciplinary proceedings against employee and

prosecution simultaneously. The same thus have no application. I may

however add that the Apex Court in Southern Railways Officers

Association Vs. UOI (2009) 9 SCC 24 has held that acquittal in

prosecution can be no ground for setting aside the disciplinary proceedings

on the same ground.

28. The counsel for the petitioner Company agrees that none of the other

judgments cited, deal with a case of interference at the stage of show cause

notice and were concerned with challenge to the order on the ground of

proper opportunity to show cause having not been given. The same are in

consonance with whatever is observed hereinabove about reluctance of the

Courts to interfere at intermediary stage.

29. There is thus no merit in the petition; the same is dismissed. Since

the petition has been dismissed on the very first day though after full

hearing, I refrain from imposing any costs.

RAJIV SAHAI ENDLAW (JUDGE) JULY 15, 2011 Pp (Corrected & released on 29th July, 2011).