M/S Gail India Limited vs M/S Avinash Em Projects Pvt. Ltd
2015 Latest Caselaw 3542 Del

            *IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                 Date of decision: 1st May, 2015

+                              LPA No.242/2015

       M/S GAIL INDIA LIMITED                         .... Appellant
                     Through: Mr. Parag P. Tripathi, Sr. Adv. with
                              Mr. Pragyan Sharma, Ms. Kanika
                              Tandon & Mr. Gaurav Chaudhary,
                              Advs.

                                  Versus

    M/S AVINASH EM PROJECTS PVT. LTD.        .....Respondent

Through: Mr. Sanjeev Kakra with Mr. Bheem Sen Jain, Advs.

CORAM:-

HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

RAJIV SAHAI ENDLAW, J

1. This intra-court appeal impugns the judgment dated 6th February,

2015 of the learned Single Judge of this Court in W.P.(C) No.2041/2014

preferred by the respondent. The counsel for the respondent appeared on

advance notice when the appeal came up before us on 24 th April, 2015 and

with the consent of the counsels, the appeal was heard finally and judgment

reserved.

2. The respondent filed the writ petition from which this appeal arises

impugning the order dated 18th March, 2014 of the appellant whereby the

respondent was banned for an indefinite period from doing any further

projects with the appellant or from participating in the bidding process for

any of the tenders floated by the appellant in future (however the said

decision was / is subject to review after a period of ten years).

3. Considering the aspect, to which the arguments before us were

confined, we do not feel the need to elaborate the case with which the

respondent filed the writ petition and the present purpose would be served

merely by culling out the judgment of the learned Single Judge. In the said

judgment:

A. It has been found / recorded,

(a) that the appellant had invited a tender for laying pipelines

of spurlines to Bhilwara and Chittorgarh and for

augmentation of the existing Vijaipur Kota pipeline;

(b) the Invitation for Bids (IFB) stipulated that only those

Indian companies having minimum working capital of

Rs.4.85 crores as per their immediate preceding year‟s

audited financial results were eligible to bid;

(c) the respondent submitted its bid along with audited

financial statement dated 21st August, 2010 which

reflected its working capital as on 31st March, 2010 to be

Rs.6.96 crores approximately;

(d) the respondent was awarded the contract;

(e) the appellant, upon subsequently discovering that the

respondent had forged and manipulated its audited

financial statement, showing working capital as on 31st

March, 2010 to be Rs.6.96 crores, when in fact in the

balance sheet submitted to the Registrar of Companies

for the year 2010-11, its working capital as on 31st

March, 2010 was shown as Rs.3.01 crores approximately,

issued a show cause notice to the respondent;

(f) the explanation offered by the respondent was not

accepted by the appellant and the appellant passed an

order dated 16th January, 2014 blacklisting the

respondent from doing any future business with the

appellant;

(g) the respondent filed W.P.(C) No.465/2014 and by order

dated 21st January, 2014 wherein, finding that the order

dated 16th January, 2014 was not a reasoned one, the

order dated 16th January, 2014 was set aside and the

appellant was directed to pass a fresh reasoned order after

considering all the documents on record and after

affording the respondent an opportunity of hearing;

(h) LPA No.167/2014 preferred by the appellant against the

said order dated 21st January, 2014 of the learned Single

Judge did not meet with any success;

(i) the appellant, after giving an opportunity of hearing to

the respondent, passed the order dated 18th March, 2014

(supra) and impugning which the writ petition from

which this appeal arises was filed.

B. It has been held,

(j) that the denial by the respondent of the signatures on

statement dated 31st August, 2010 showing working

capital as Rs.6.96 crores approximately submitted along

with the bid was unbelievable;

(k) that the appellant had rightly rejected the explanation

tendered by the respondent for showing the working

capital as Rs.6.96 crores;

(l) that the only question to be addressed was whether the

appellant could blacklist the respondent for an indefinite

period and whether the same was disproportionately

harsh and not commensurate with the misconduct of

furnishing forged / fabricated documents to secure

contract with the appellant;

(m) that the nature of the respondent‟s work involves

executing contract with PSUs and most of the work for

which the respondent could bid involved participation of

the appellant, either as sole employer or as part of a

consortium with other entities − thus, blacklisting of the

respondent for an indefinite period albeit to be reviewed

after 10 years would effectively exclude the respondent

from participating in any contract with any PSU(s) and

thus inevitably destroy the substratum of the respondent

company;

(n) that the issue, whether such blacklisting for indefinite

period was excessive, must be viewed in the context of

other Clauses of the contract;

(o) that the „integrity pact‟ furnished by the respondent in

terms of sub-Article 35.4 of the Invitation for Bids inter

alia provided for punishment of exclusion from

participating in any of the tenders floated by appellant for

a minimum period of six months and a maximum period

of three years only;

(p) that the reliance in this context by the appellant on

Clause 1.5 of Form 13 was not apposite;

(q) that the Supreme Court in Kulja Industries Ltd. Vs.

Chief General Manager, BSNL AIR 2014 SC 9 has held

that debarment is never permanent and the period of

debarment would invariably depend upon the nature of

the offence committed by the erring contractor;

(r) that since the impugned decision of debarring the

respondent was reviewable after expiry of 10 years even

according to the appellant, the decision of banning the

respondent from participating in the contracts with the

appellant would not necessarily continue for all times;

(s) that the order for exclusion of the respondent from

participating in any tender of appellant must pass the test

of Article 14 of the Constitution of India and where there

is little possibility for the respondent to carry on business

after being blacklisted by appellant, the order of

blacklisting must also be viewed in the context of Article

19(1)(g) and 19(6) of the Constitution of India;

(t) that the respondent had already been visited with

significant adverse consequences following the

blacklisting order; that juxtaposing the same with the

consequences of fraudulent and corrupt practice as

provided in Article 35 of the IFB and the „integrity pact‟,

the measure of blacklisting for an indefinite period

appeared to be relatively harsh and disproportionate to

the alleged misconduct;

(u) that the question whether a punitive measure is

disproportionate must be viewed in the context of

standards set by appellant itself - the appellant had

provided a maximum penalty of banning for three years

in the event of contractor bribing the officials of the

appellant in securing the contract; applying this standard,

the punishment of blacklisting for an indefinite period

appeared to be clearly disproportionate and arbitrary; and

(v) that thus, though no interference was called for insofar as

blacklisting of the respondent was concerned but the

blacklisting order to the extent it debarred the respondent

from all future business with the appellant was set aside

and the matter was remanded to the appellant:

"to consider the period of blacklisting afresh in view of the aforesaid observations and in the context of the period as specified in the integrity pact (i.e. minimum of six months to maximum of three years)".

4. The senior counsel for the appellant informed that the appellant before

the learned Single Judge had made a statement that in the light of the dicta of

the Supreme Court in Kulja Industries Ltd. (supra), the order of blacklisting

of the respondent be not treated as one for indefinite period reviewable after

10 years but of blacklisting for 10 years. He contended that the learned

Single Judge has erred in, while remanding the matter to the appellant for

consideration afresh, directing the appellant to decide the matter in the

context of the „integrity pact‟. It was further contended that the appellant in

this regard had relied upon several other clauses of the contract also which

would also be applicable and the learned Single Judge erred in rejecting the

applicability thereof. It was argued that since the learned Single Judge had

drawn parity with the „integrity pact‟ though admittedly not applicable, the

rejection of the other clauses providing for longer periods of blacklisting, is

erroneous.

5. However we, on a reading of the judgment of the learned Single

Judge, were of the opinion that the learned Single Judge had not bound the

appellant in any manner whatsoever or bound the appellant to blacklist the

respondent for a maximum period of three years only. To us, it appeared

that all that the learned Single Judge has directed is for the appellant to

consider the observations made in the judgment while determining the

period of blacklisting of the respondent. We accordingly put so to the senior

counsel for the appellant.

6. The senior counsel for the appellant responded that we may clarify so

and the appellant would be satisfied therewith.

7. However the counsel for the respondent contended that the purport of

the judgment of the learned Single Judge is that the period of blacklisting, to

be determined by the appellant shall not be for exceeding three years. It was

further the contention of the counsel for the respondent that unless the

judgment of the learned Single Judge is so interpreted and read, in the event

of the appellant blacklisting the respondent for a period longer than three

years, will keep the respondent embroiled in litigation. It was highlighted

that this is already the second round of litigation and this Court should

ensure finality thereto.

8. To hold that the impugned judgment limits the power of the appellant,

while determining afresh the period of blacklisting pursuant to remand, to

blacklisting for a maximum period of three years would in our view amount

to this Court itself determining the maximum period for which the

respondent should be blacklisted and which has not found favour with the

Supreme Court in Kulja Industries Ltd. (supra). Para 26 of the said

judgment is as under:

"26. The next question then is whether this Court ought to itself determine the time period for which the appellant should be blacklisted or remit the matter back to the authority to do so having regard to the attendant facts and circumstances. A remand back to the competent authority has appealed to us to be a more appropriate option than an order by which we may ourselves determine the period for which the appellant would remain blacklisted. We say so for two precise reasons. Firstly, because blacklisting is in the nature of penalty the quantum whereof is a matter that rests primarily with the authority competent to impose the same. In the realm of service jurisprudence this Court has no doubt cut short the agony of a delinquent employee in exceptional circumstances to prevent delay and further litigation by modifying the quantum of punishment but such considerations do not apply to a company engaged in a lucrative business like supply of optical fibre / HDPE pipes to BSNL. Secondly, because while determining the period for which the blacklisting should be effective the

respondent - Corporation may for the sake of objectivity and transparency formulate broad guidelines to be followed in such cases. Different periods of debarment depending upon the gravity of the offences, violations and breaches may be prescribed by such guidelines. While, it may not be possible to exhaustively enumerate all types of offences and acts of misdemeanor, or violations of contractual obligations by a contractor, the respondent-Corporation may do so as far as possible to reduce if not totally eliminate arbitrariness in the exercise of the power vested in it and inspire confidence in the fairness of the order which the competent authority may pass against a defaulting contractor."

The aforesaid dicta of the Supreme Court having been expressly

referred to in the impugned judgment, it cannot be said that the learned

Single Judge held contrary thereto.

9. As far as the contention of the counsel for the respondent, of the

respondent remaining embroiled in litigation, is concerned, we need only to

observe that the finding of the respondent having indulged in forgery and

fabrication with the intent to secure a contract with the appellant having

attained finality (the respondent has not challenged the same), the

respondent has no equities in its favour and is not entitled to raise such an

argument. A person who has indulged in such actions is deemed to have

known that the same may entail him in litigation and cannot be allowed to

cry wolf.

10. The counsel for the respondent then contended that even as per the

new policy of the appellant itself, the blacklisting in such circumstances

cannot be for more than three years. Clause 1 titled "Instructions to

Bidders" of Section II of the prevalent General Conditions of Contract of the

appellant was handed over and reference was drawn to sub-Clauses B.1, B.2

and B.2.2 of Clause 38 thereof.

11. The senior counsel for the appellant states that the determination

afresh pursuant to remand by the learned Single Judge would be after

considering any applicable prevalent policy and the observations of the

learned Single Judge but without treating the said observations as binding.

12. The Supreme Court having held that blacklisting is in the nature of

penalty, the quantum whereof is a matter that rests primarily with the

authority competent to impose the same, we are of the opinion that this

appeal be disposed of merely with the clarification that though the appellant

while deciding the matter afresh pursuant to the remand by the learned

Single Judge shall consider the observations made by the learned Single

Judge but the said observations shall not be binding on the concerned

authority of the appellant which may for reasons to be recorded disagree

therewith. We are however confident that due weightage and regard shall be

given to the observations made in the judgment.

13. Since this appeal is being disposed of by us on this very point only,

without going into the challenge otherwise made in the appeal to the

observations of the learned Single Judge with respect to the quantum of

punishment / period of blacklisting and further since the possibility of the

respondent remaining aggrieved from such fresh determination by the

appellant cannot be ruled out, we further clarify that the disposal of this

appeal would not amount to this Bench having put its imprimatur on the

judgment of the learned Single Judge insofar as challenged by the appellant

and it will remain open to the appellant in any fresh round of litigation to

challenge the observations / findings if any against it in the impugned

judgment.

No costs.

RAJIV SAHAI ENDLAW, J

CHIEF JUSTICE

MAY 1, 2015 „gsr‟