Delhi High Court
Dss Imagetech Pvt Ltd vs Indian Council Of Medical ... on 6 July, 2020
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 18.06.2020
Date of decision: 6th July, 2020
+ W.P.(C) 10740/2019 & CM Nos. 44399/2019, 47959/2019
DSS IMAGETECH PVT LTD ......Petitioner
Through: Mr.Jayant Mehta, Mr.Gagan
Kumar, Mr.Rohit Sharma,
Mr.Amit Kaushik & Ms.Payal
Chandra, Advs.
versus
INDIAN COUNCIL OF MEDICAL RESEARCH
..... Respondent
Through: Ms.Ekta Sikri, Mr.Vikalp Mudgal
& Mr.Arun Sanwal, Advs. for
ICMR.
CORAM:
HON'BLE MR. JUSTICE NAVIN CHAWLA
1. This petition has been filed by the petitioner challenging the order
dated 06.08.2019 passed by the Appellate Authority of the respondent
dismissing the Appeal filed by the petitioner challenging the order dated
18.04.2019 passed by the Director, National Institute of Nutrition, Indian
Council of Medical Research (hereinafter referred to as the „ICMR‟).
2. By the order dated 18.04.2019, the Director, National Institute of
Nutrition, Hyderabad (hereinafter referred to as the „NIN‟), has invoked
the provision and powers conferred on it by the Manual of Procurement
of Goods, 2017 (hereinafter referred to as the „Manual‟) issued by the
Department of Expenditure, Ministry of Finance, Government of India
and inflicted a penalty of placing the petitioner on the Holiday List for a
W.P.(C) 10740/2019 Page 1
period of one year from the date of the order. As noted hereinabove, by
the Impugned Order dated 06.08.2019 passed by the Director General of
the ICMR as an Appellate Authority, the Appeal filed by the petitioner
challenging the said order has been dismissed.
3. In brief, the facts of the case are that by a Purchase Order dated
13.10.2008, the NIN had placed an order for supply of „Automated
Protein Digester‟ on M/s Digilab Genomic Solutions Inc (hereinafter
referred to as „Digilab Inc‟). The petitioner had acted as an agent of the
said M/s Digilab Inc. in the transaction and the Purchase Order records
the additional warranties extended by the petitioner during the
negotiations held on 21.02.2008 as under:-
"OTHER TERMS AND CONDITIONS:
As per the negotiations held on 21-02-2008 with our
Headquarters ICMR, New Delhi the Indian Agent M/s. DSS
Imagetech Pvt. Ltd., New Delhi has agreed to provide the
following:
1. Agreed to provide Three Years comprehensive warranty and
two years non comprehensive services for equipment at free
of cost.
2. Agreed to provide non-comprehensive annual Maintenance
from 6th to 10th years @ 3% per year.
3. Agreed to provide spare parts to maintain the equipment up
to 10 years.
4. The firm agreed to give discount of 10% on the price list of
all the spare parts up to 10 years.
5. The firm agreed to provide 2 preventive maintenance visits
per year and also breakdown visits as and when required.
6. Agreed to submit Performance Bank Guarantee of 10% of
the FOB value of the order and which will be retained by the
Council till the end of the warranty period.
W.P.(C) 10740/2019 Page 2
7. Agreed that the duration of warranty period will start after
proper installation of the equipment and submitting user
satisfactory report.
8. The maximum response time of 72 hrs was accepted by the
firm.
9. Agreed to accept 0.1% of FOB as penalty per week till the
warranty period, if the instrument remains in non-working
condition for more than 18 days.
10.When the equipment is under warranty/comprehensive
maintenance, it would be the responsibility of the
manufacturer/dealer/agent to procure spare parts and the
Institute will not incur any expense on duty, octori or
handling charges.
11.The detailed circuit diagram along with trouble shooting
procedure and operational manual would be provided to the
institute along with the equipment.
12.Agreed to provide on site training with foreign trainer to the
users.
13.The firm also agreed to provide pre installation training for
two scientists free of cost.
14.The firm agreed provide consumable for 2000 reactions.
15.The firm agreed to prepare the dust free room and will
provide 2 ton AC.
16.The firm agreed to Compaq/Dell laptop with centrino Duo,
HDD 80 GB, Intel Process with Window Vista operating
software.
17.The firm agreed to give additional 5% discount.
18.The firm agreed to supply above mentioned equipment at a
cost of USD 1,71,350.55 CIF Dibrugarh inclusive of all
above mentioned items and conditions.
19.All above terms & conditions are applicable for RMRC,
Dibrugarh and NIN, Hyderabad."
4. The order dated 18.04.2019 records that the Protein Digester was
supplied on 03.04.2009 and was installed on 09.10.2009. A Technical
demonstration of the same was carried out on 15.02.2010. The order
records that the Application Demonstration, however, remained pending.
W.P.(C) 10740/2019 Page 3
5. Relying upon the additional warranty extended by the petitioner of
three years comprehensive warranty and two years of non-comprehensive
services for equipment free of cost, the respondent asserted that the
failure on part of the petitioner to carry out the application demonstration
amounted to a failure to fulfill its contractual obligations of installing the
equipment thereby extending the period of warranty. The order further
records that in terms of the additional conditions agreed to by the
petitioner, the petitioner was to provide a Performance Bank Guarantee
of 10% of the FOB value of the order to be retained by the Council till
the end of the warranty period. The Performance Bank Guarantee
submitted by the petitioner was valid only upto 20.10.2012 and was not
extended thereafter in spite of repeated request. This also according to the
respondent, constituted a default on part of the petitioner.
6. The respondent, before passing the Impugned Order, had issued a
Show Cause Notice dated 15/18.03.2019. The said notice was addressed
to M/s Digilab Inc., the foreign principal of the petitioner. A copy of the
notice was, however, marked to the petitioner as well. The petitioner
replied to the same by its letter dated 05.04.2019. In the reply it was inter
alia asserted that the petitioner was responsible only for the installation
of the aforesaid equipment and not for the application demonstration of
the same. As the warranty was to commence from the proper installation
of the equipment, which was installed on 09.10.2009, it expired on
10.10.2012. The non-comprehensive services also expired on 10.10.2014.
It was only as a gesture of goodwill that the petitioner had offered to
show the functionality and operation of the equipment subsequent/subject
W.P.(C) 10740/2019 Page 4
to the availability of reagents in the Institute by sending various
reminders on 15.12.2016, 22.03.2017 and 20.06.2017, but there was no
response from the respondent with regard to the same. It was only on
08.06.2018 that the respondent finally approached the petitioner asking
for application demonstration, however, by then the petitioner was no
longer the distributor/agent of M/s Digilab Inc. It was further asserted
that as the equipment had remained unused for a long time, it was likely
to malfunction and required spare parts. The petitioner no longer had any
access to these spare parts. The petitioner further stated that it was still
ready to show the working of the machinery, however, the same not be
treated as an admission of the petitioner that the machinery/equipment
had not been properly installed till date or that the warranty period is yet
to commence.
7. The reply submitted by the petitioner was considered by the
Committee appointed in terms of Clause 3.5.5 of the Manual and the
Committee recommended as under:-
"(a) The firm may be put on a holiday list for a period of one
year from the date of order.
(b) No purchase or any agreement with M/s DSS may be
entered into by NIN with the above firm during the period of
holiday list.
(c) The information about placing the firm on holiday list may
be displayed on the website of NIN, Hyderabad.
(d) Caution all other ICMR Institutes/Centres about the incident
and advise them to act prudently while dealing with the
firm."
W.P.(C) 10740/2019 Page 5
8. Based on the above recommendation, the Impugned Order dated
18.04.2019 was passed by the Director, NIN.
9. The petitioner filed an appeal against the said order, which was
also dismissed by a cryptic order dated 06.08.2019, reproduced
hereunder:
"With reference to the subject mentioned above, I am directed
to inform you that your appeal has been considered but not
found justified. Hence, Director NIN, Hyderabad orders vide
letter NIN/ST/12.Aut.Prot.Digester/2019 dated 18.4.2019
stand valid, putting your firm on Holiday List or Temporary
Debarment for a period of one year."
10. The learned counsel for the petitioner submits that the Impugned
Orders dated 18.04.2019 and 06.08.2019 are liable to be set aside for
having been passed in violation of Principles of Natural Justice. He
submits that the Show Cause Notice dated 15/18.03.2019 was issued only
to M/s Digilab Inc., the foreign vendor/principal of the petitioner and not
to the petitioner itself. Though the petitioner replied to the same as a copy
thereof was marked to the petitioner, this cannot be considered as a
compliance with the Principles of Natural Justice and the law laid down
by the Supreme Court mandating the issuance of a Show Cause Notice
before an action of debarment/placing of a Firm on Holiday List is taken
by an authority.
11. The learned counsel for the petitioner further submits that the
violation of Principles of Nature Justice also occurred as no opportunity
W.P.(C) 10740/2019 Page 6
of hearing was granted to the petitioner by the Committee appointed
under Clause 3.5.5 of the Manual; by the Director of the respondent
before passing the order dated 18.04.2019; and/or by the Director
General, as an Appellate Authority, before passing the Impugned Order
dated 06.08.2019. In the absence of such hearing, the Impugned Orders
are liable to be set aside.
12. The learned counsel for the petitioner further submits that the
Impugned Orders, even otherwise do not reflect any application of mind
to the reply submitted by the petitioner to the Show Cause Notice. He
submits that the Committee proceeded on the assumption that the
petitioner was to arrange for the application demonstration. The
Impugned Order dated 18.04.2019 after recording the history of the case,
gives only the following reasons for its decisions:-
"AND WHEREAS, after careful examination of all the relevant
paper including purchase order, show cause notice dated
15/18.03.2019, reply of the firm dated 05.04.2019 and
recommendations of the Supplier Discipline Committee, the
undersigned has come to the conclusion that the charges leveled
against M/s DSS Imagetech Pvt Ltd are proved."
13. Similar is the position with respect to the Impugned Order dated
06.08.2019, which has been reproduced hereinabove.
14. The learned counsel for the petitioner further submits that even
otherwise, the constitution of the Committee to examine the Show Cause
Notice and the reply submitted by the petitioner was invalid. He submits
that the Director, NIN was the Chairperson of the Committee. In terms
W.P.(C) 10740/2019 Page 7
of Clause 3.5.5 of the Manual, the Report of the Committee was to be
considered by the Director independently. As the Director was the
Chairperson of the Committee, there could not have been an independent
application of mind to the Report of the Committee by the "Competent
Authority", which in this case was the Director of the respondent itself.
15. The learned counsel for the petitioner further submits that in terms
of Clause 3.5.5 of the Manual, the Show Cause Notice has to be issued by
the Committee, however, in the present case the Show Cause Notice was
not issued by the Committee but under the instructions of the Director,
NIN. The proceedings therefore were vitiated at the inception itself.
16. The learned counsel for the petitioner further submits that in terms
of Clause 3.5.1(i) of the Manual the period of debarment is "upto 12
(twelve) months". Twelve months being the maximum period, the
Impugned Orders, even assuming that the allegation against the petitioner
stand proved, do not reflect any application of mind on the period of
debarment of the petitioner.
17. On merits, the learned counsel for the petitioner submits that
equipment in question is only one of the part of a set of four separate
machines that are required for carrying out Genomics and Proteomics
analysis. He submits that as the other equipments were not available with
the respondent, even otherwise, the petitioner was in no position to give
the application demonstration at the time of supply of equipment. This
aspect is explained in the petition as under:
W.P.(C) 10740/2019 Page 8
"6. That at this stage it is pertinent to understand the underlying
technology for carrying out Genomics and Proteomics analysis
using the advanced technology. Pursuant to the recent technology,
it is possible to identify large number of proteins in complex
mixtures, to map their cellular and sub-cellular interactions and to
investigate their biological activities. Broadly this is referred as
proteomics technique. This entire exercise goes through four broad
steps (collectively referred as Application), in the sequence
mentioned, which can be generally classified as follows:
a. Aligning proteins of interest in a reference sample
using a 2 Dimensional Gel by applying varying
amounts of current. The proteins of interest are
identified by a Staining procedure to generate
comparative images.
b. Analysis of stained images, selection of spots and
cutting them out from Gel.
c. Cutout parts are digested with Protease(s) to produce
Peptides.
d. Peptides are desalted and analysed by Mass
Spectrometers.
Separate machines are used to perform each of these functions. It
is pertinent here to mention here that the output of a process
carried out in 1 instrument becomes the starting input for the next
instrument.
A copy of a technical paper explaining the aforesaid process is
attached and marked as Annexure-P/3.
7. That the Petitioner supplied Automatic Protein Digester
which is used to perform function mentioned at (c) above only."
18. He submits that there is no denial to this assertion in the counter
affidavit filed by the respondent and therefore, it is evident that the fault
W.P.(C) 10740/2019 Page 9
lay at the end of the respondent itself. The respondent could not have
extended the warranty endlessly by its own default.
19. As far as the extension of the Performance Bank Guarantee is
concerned, he submits that as the warranty period had expired there is no
obligation on the part of the petitioner to extend the Bank Guarantee.
Infact, it was for this reason alone that from 2012 to 2018, the respondent
never sought the extension of the Bank Guarantee from the petitioner.
20. The learned counsel for the petitioner lastly submits that in the
facts of the present case, even otherwise, the order of debarment could
not have been passed by the respondent and the same would be liable to
be set aside on the ground of being an unreasonable exercise of powers
by the respondent. He submits that in terms of Clause 3.5.2 of the
Manual, it is only where the supplier is found lacking in performance,
which necessarily has to be of a grave nature, that an order of debarment
can be passed. Debarment/blacklisting cannot be justified by every
breach of contract. He submits that as the defence set up by the petitioner
clearly requires an interpretation of the terms of the contract, the
respondent could not have become a judge in its own cause to determine
such dispute and thereafter visit the petitioner with the penalty as has
been done by the Impugned Orders. The respondent cannot circumvent
the ordinary process of the law by becoming a judge in its own cause.
21. In support of his submission, he places reliance on the following
judgments:
W.P.(C) 10740/2019 Page 10
"1. Ace Integrated Solution Ltd. v. Food Corporation of India
and Ors. 2019 SCC OnLine Del 8422 (Delhi);
2. Aneuser Busch Inbev India Limited v. Commissioner
(Excise, Entertainment and Luxury Tax) and Ors. WP (C)
9602/2019 (Delhi) [MANU/DE/4352/2019];
3. Coastal Marine Construction and Engineering Limited
and Ors. v. Indian Oil Corporation Ltd. and Ors. 2019 SCC
OnLine Del 6542 (Delhi);
4. Jay Autocomponents Limited v. Energy Efficiency Services
Limitted and Ors. 2019 SCC OnLine Del 7216 (Delhi);
5. Jayant Kumar Gosh Outdoor Catering Private Limited v.
IRCTC WP (C) 36/2020 (Delhi);
6. Kulja Industries Ltd. v. Western Telecom Project BSNL
(2014) 14 SCC 731;
7. Gorkha Security Services v. Government (NCT of Delhi)
and Ors. (2014) 9 SCC 105:
8. Kranti Associates Private Limited and Ors. v. Masood
Ahmed Khan and Ors. (2010) 9 SCC 496 (SC);
9. Narayani Nirmani v. State of Bihar and Ors. 2012 (4)
PLJR 129;
10. Roshan Lal Vohra and Ors. v. MCD and Ors. 2013 SCC
OnLine Del 3105 (Delhi);
11. Banwari and Ors. v. Income Tax Officer and Ors. 1993
Supp (1) SCC 619;"
22. On the other hand, the learned counsel for the respondent submits
that the petitioner was under an obligation to provide the application
demonstration of the machinery in question. Until the same was
provided, the installation as required in the Purchase Order, could not
have been stated to have been completed by the petitioner. In this regard,
W.P.(C) 10740/2019 Page 11
she places reliance on the Installation Report dated 09.10.2009 to submit
that in the „REMARKS‟ column of the said document, it is clearly
recorded that the application demonstration is still pending. She further
places reliance on the email dated 10.09.2013 to contend that by the said
email, the petitioner was clearly warned that the warranty period shall
commence only after proper installation of the equipment and submission
of a „Users Satisfactory Report‟. The petitioner, however, by its e-mail
dated 18.09.2013, informed the respondent that as its Principle, that is
Digilab Inc, was facing financial problems, many of its trained personnel
had left leaving behind no person to train the personnel of the petitioner.
The petitioner undertook to finish the pending installation at its own cost.
She submits that therefore, the petitioner cannot be heard to say that the
installation was already complete on 09.10.2009 or that it was under no
obligation to give the application demonstration.
23. She further places reliance on an email dated 28.04.2014;
Service/Complaint Call Report dated 23.05.2014; letter dated
08/13.10.2014; Service/Complaint Call Report dated 09.03.2015,
01.06.2015 and 05.07.2015; letter dated 29.06.2016; and Service Report
dated 24.11.2016, to contend that till 2016 there was no dispute between
the parties that the warranty period stood extended due to pendency of
the application demonstration of the said equipment at the end of the
petitioner. It was for this reason that the petitioner was replacing the
faulty parts of the equipment without any demure or protest. In fact, by
its letters dated 15.12.2016 and 20.06.2017, the petitioner itself
volunteered to carry out the application demonstration of the said
W.P.(C) 10740/2019 Page 12
equipment. She submits that the denial of the responsibility to carry out
the technical demonstration in the reply to the Show Cause Notice and in
the present petition is therefore, an afterthought and clearly mala fide.
24. On compliance with the Principles of Natural Justice, she submits
that before issuing the Show Cause Notice dated 15/18.03.2019 to the
petitioner, a letter dated 14.09.2018 was issued to the petitioner
informing it of the default in carrying out the application demonstration
as also in extending the Performance Bank Guarantee. As the petitioner
failed to respond to the same, the Show Cause Notice was issued to the
petitioner. She submits that the reply received from the petitioner to the
Show Cause Notice was duly placed before the Committee appointed in
compliance with the Manual. The Committee duly considered the reply
of the petitioner and gave a detailed Report rejecting the explanation of
the petitioner. The same was thereafter considered by the Competent
Authority as also by the Appellate Authority and again, no merit was
found in the explanation given by the petitioner. She submits that in fact,
the petitioner has been visited with the minimum penalty as provided in
Clause 3.5.1 and 3.5.2 (ii) of the Manual, thereby warranting no
interference from this Court.
25. On the question of grant of oral hearing to the petitioner, she
places reliance on the decisions of the Supreme Court in State Bank of
India vs. Jah Developers Private Limited And Others, (2019) 6 SCC
787; Gorkha Security Services vs. Government (NCT of Delhi) And
Others, (2014) 9 SCC 105; and Patel Engineering Limited vs. Union of
India & Anr., (2012) 11 SCC 257, to contend that in a blacklisting case,
W.P.(C) 10740/2019 Page 13
once a Show Cause Notice is issued and opportunity to reply is afforded,
natural justice is satisfied and it is not necessary to give oral hearing in
such cases.
26. Further, placing reliance on the Judgment of the Supreme Court in
Commissioner of Central Excise, New Delhi vs. Hari Chand Shri Gopal
& Ors., (2011) 1 SCC 236, she submits that in any case, there has been a
substantial compliance by the respondent with the principles of natural
justice and this Court would not interfere with the impugned decision
merely because some facet of natural justice was not followed by the
respondent.
27. As far as the reliance of the petitioner on Clause 3.5.5 of the
Manual to contend that the same makes it mandatory for the Competent
Authority to grant an oral hearing before passing the order of
blacklisting, she submits that as the same has been put in a bracket
following the words "adequate opportunity", they have to be read as
mandating only an adequate opportunity to the petitioner to make its
representation against the proposed action of blacklisting. In her
submission, these words do not, in any manner, modify or extend the said
Clause so as to make it mandatory for the Competent Authority to grant
an opportunity of oral hearing to the Contractor or to result in vitiation of
the order passed without affording such opportunity of oral hearing. In
this regard, she places reliance on the judgment of the Supreme Court in
Dozco India Private Limited v Doosan Infracore Company Limited,
(2011) 6 SCC 179 and of this Court in N.G. Sheth vs. CBI & Ors., 2008
SCC OnLine Del 798.
W.P.(C) 10740/2019 Page 14
28. She submits that in view of the above facts, no interference is
called for from this Court with the Impugned Orders.
29. I have considered the submissions made by the learned counsels
for the parties. It is a trite law that blacklisting of a Contractor visits the
Contractor with civil consequences inasmuch as it casts a slur, attaches a
stigma and creates a barrier between the blacklisted person and the State
entities in matters of commercial transactions. It has serious adverse
consequences for the person/entity blacklisted. In today‟s world, an order
of blacklisting does not confine itself only to the Authority who has
blacklisted the Contractor, but has an all-pervasive effect on the
Contractor in its dealings with other Government agencies as well. In
most tenders, the Contractor has to disclose if it has been blacklisted by
any agency and the eligibility criteria excludes persons who have been so
blacklisted. As repeatedly held, it in fact amounts to "civil death" of the
Contractor.
30. In Kulja Industries Ltd. (supra), the Supreme Court held that the
power to blacklist the Contractor, whether it be a contract for supply of
equipment or for execution of any work whatsoever, is inherent in the
party allotting the Contract. There is no need for any such power being
specifically conferred by statute or reserved by Contract. But, any such
decision is subject to judicial review when the same is taken by the State
or any of its instrumentalities. This implies that any such decision will be
open to scrutiny not only on the touchstone of the Principles of Natural
Justice, but also on the doctrine of proportionality. A fair hearing to the
party being blacklisted, thus becomes an essential precondition for a
W.P.(C) 10740/2019 Page 15
proper exercise of the power and a valid order of blacklisting made
pursuant thereto. The order must be reasonable, fair and proportionate to
the gravity of the offence and is subject to scrutiny by a Writ Court. The
Supreme Court further observed as under:-
"20. It is also well settled that even though the right of the writ
petitioner is in the nature of a contractual right, the manner, the
method and the motive behind the decision of the authority whether
or not to enter into a contract is subject to judicial review on the
touchstone of fairness, relevance, natural justice, non-
discrimination, equality and proportionality. All these
considerations that go to determine whether the action is
sustainable in law have been sanctified by judicial
pronouncements of this Court and are of seminal importance in a
system that is committed to the rule of law......"
31. In Gorkha Security Services (supra), the Supreme Court reiterated
the requirement of serving the Show Cause Notice before taking any
action of blacklisting the Contractor. It further held as under:-
"29. No doubt, rules of natural justice are not embodied rules nor
can they be lifted to the position of fundamental rights. However,
their aim is to secure justice and to prevent miscarriage of justice.
It is now well established proposition of law that unless a statutory
provision either specifically or by necessary implication excludes
the application of any rules of natural justice, in exercise of power
pre-judicially affecting another must be in conformity with the
rules of natural justice.
xxxxx
31. When it comes to the action of blacklisting which is termed as
"Civil Death" it would be difficult to accept the proposition that
without even putting the noticee to such a contemplated action and
giving him a chance to show cause as to why such an action be not
taken, final order can be passed blacklisting such a person only on
W.P.(C) 10740/2019 Page 16
the premise that this is one of the actions so stated in the
provisions of NIT.
xxxxxx
33. When we apply the ratio of the aforesaid judgment to the facts
of the present case, it becomes difficult to accept the argument of
the learned Additional Solicitor General. In the first instance, we
may point out that no such case was set up by the respondents that
by omitting to state the proposed action of blacklisting, the
appellant in the show -cause notice has not caused any prejudice
to the appellant. Moreover, had the action of black listing being
specifically proposed in the show -cause notice, the appellant
could have mentioned as to why such extreme penalty is not
justified. It could have come out with extenuating circumstances
defending such an action even if the defaults were there and the
Department was not satisfied with the explanation qua the defaults.
It could have even pleaded with the Department not to blacklist the
appellant or do it for a lesser period in case the Department still
wanted to black list the appellant. Therefore, it is not at all
acceptable that non-mentioning of proposed blacklisting in the
show-cause notice has not caused any prejudice to the appellant.
This apart, the extreme nature of such a harsh penalty like
blacklisting with severe consequences, would itself amount to
causing prejudice to the appellant."
32. In Patel Engineering Ltd (supra), while reiterating that the
authority of the State to blacklist a person is a necessary concomitant to
the executive power of the State to carry on the trade or the business and
making of contracts for any purpose, etc., and that there need not be any
statutory grant of such power, the Supreme Court held that the only legal
limitation upon the exercise of such an authority is that that State is to act
fairly and rationally, without being arbitrary in any way. Such exercise of
power has to be examined on the touchstone of; (1) the purpose sought to
W.P.(C) 10740/2019 Page 17
be achieved by the impugned decision to blacklist the Contractor; and (2)
the adverse effects, the impugned action may have on the rights of the
Contractor.
33. In the present case, the issue of blacklisting a Contractor and the
procedure to be followed by the respondent is spelled out in its Manual.
Clause 3.5.1 gives the grades of debarment; Clause 3.5.2 spells out the
performance issues which may justify putting the Contractor on the
Holiday list; while Clause 3.5.5 gives the procedure for such debarment.
These Clauses are reproduced hereinunder:-
"3.5 Grades of Debarment of Suppliers
3.5.1 Registration of suppliers and their eligibility to participate
in Procurement Entity's procurement is subject to compliance with
Code of Integrity for Public Procurement and good performance in
contracts. Following grades of debarment from registration and
participation in Procuring Entity's can be considered against
delinquent bidders/suppliers:
(i) Holiday listing (Temporary debarment or
suspension): In less serious cases, a supplier [including their
related entities] may be temporary debarred from the Procuring
Entity's procurements for short periods upto 12 (twelve) months,
without the firm's name being removed from the list of registered
vendors;
(ii) Removal from list of registered vendor: Debarment
of a delinquent supplier [including their related entities] for a
period of time (one to two years) from the Procuring Entity's
procurements with the removal of name from the list of registered
vendors, due to severe deficiencies in performance or other serious
transgressions; and
W.P.(C) 10740/2019 Page 18
(iii) If the firm ceases to exist or is acquired by or merged with
another firm, or ceases to operate in the category of requirements
for which it is registered;
(iv) Bankruptcy or insolvency on the part of the supplier
as declared by a court of law; or
(v) Banning by Ministry/Department or any other
Government agency;
(vi) Other than in situations of force majeure, after
opening of financial bids, the supplier withdraws from the
procurement process or after being declared as successful bidder;
(i) withdraws from the process; (ii) fails to enter into a
procurement contract; or (iii) fails to provide performance security
or any other document or security required in terms of the bidding
documents;
(vii) If the Central Bureau of Investigation/CVC/C&AG or
Vigilance Department of Procuring Entity or any other
investigating agency recommends such a course in respect of a
case under investigation;
(viii) Employs a Government servant within two years of
his retirement, who has had business dealing with him in an
official capacity before retirement; or
(viii) any other ground, based on which the registering
authority consider that continuation of registration is not in public
interest.
3.5.2 Holiday Listing {Temporary Debarment - suspension}
Whenever a supplier is found lacking in performance, in case of
less frequent and less serious misdemeanors, the suppliers may be
put on a holiday listing {temporary debarment} for a period upto
12 (twelve) months after following the debarment procedures
mentioned in para 3.5.5 below....
xxxxxx
3.5.5 Debarment Procedure
W.P.(C) 10740/2019 Page 19
Punitive actions of various grades of debarment against the
suppliers should be approved by a Committee and approved by
competent authority at the level of the Deputy HOD in case of
holiday listing; HOD in case of removal; and nominated
Additional Secretary of the Department (Department of Commerce
in case of Country wide debarment) in case of banning. Due to
principles of natural justice, it should be treated as a quasi judicial
function following principles of natural justice, on lines akin to
disciplinary proceedings. The Departments will furnish list of such
suppliers who have committed misdemeanors listed in paras above
to the Supplier Discipline Committee for considering various
grades of debarment. On receipt of information from Departments
or suo moto, the Committee should take action to issue a show
cause notice to such firms. The Committee may also order an
interim debarment (Holiday Listing) during the process
considering the severity of demeanour. The supplier should be
given adequate opportunity (including an oral hearing by the
competent authority) to make representation. If the response to the
show cause notice is not satisfactory or not acceptable, such firms
should be put on suitable grade of debarment, depending on the
severity of the misdemeanor. Appeals would lie at a level higher
than the competent authority (Secretary, Ministry of Commerce, in
case of Country-wide banning). In case of Debarment from
concerned Procuring Entity, the concerned Ministry/Department
will maintain such list which will also be displayed on their
website. In case of country-wise banning, all
Ministries/Department of Government of India must be informed
and DGS&D will maintain such list which will also be displayed
on the website of DGS&D as well as Central Public Procurement
Portal."
34. A reading of the above Clauses would clearly show that in less
serious cases, which are cases where the supplier is found lacking in
performance, incase of less frequent and less serious misdemeanors, the
supplier may be put on the Holiday list (temporary debarment) for a
period of 12 months. The proposal for placing the supplier on Holiday list
W.P.(C) 10740/2019 Page 20
is to be examined by a Committee and approved by the Competent
Authority. Clause 3.5.5 of the Manual itself states that such proceedings
are to be treated as quasi-judicial and principles of natural justice "on
lines akin to disciplinary proceedings" are to be followed. The supplier
has to be given an adequate opportunity, including an oral hearing, by the
Competent Authority to make representations. A right to file an appeal is
also provided to the supplier.
35. In the present case, the primary dispute on facts between the
parties is on whether the petitioner was under an obligation to provide
application demonstration of the equipment to the respondent and on its
failure to do so, did the period of warranty extend till the impugned
decision. Consequent thereto is the issue whether the petitioner has
committed a breach of the contract by not extending the Performance
Bank Guarantee.
36. As noted hereinabove, the case of the petitioner is that the
petitioner was under no obligation to provide application demonstration
of the equipment to the respondent and in any case, the failure to do so
would not extend the period of warranty. It is further contended that the
application demonstration is part of a four-step process/equipments
wherein petitioner was to supply only one of these equipments and the
remaining equipments were to be acquired by NIN, therefore, in absence
of the availability of the other three equipments with the NIN, in any
case, demand of application demonstration from the petitioner was
unwarranted and should not have been made a ground to place the
petitioner on the Holiday list.
W.P.(C) 10740/2019 Page 21
37. The Purchase Order dated 13.10.2008 in Clause 7 of the
Obligations relatable to the petitioner clearly provides that the duration of
warranty period was to start "after proper installation of the equipment
and submitting user satisfactory report". A perusal of the above Clause
would clearly show that the petitioner was not only to simply supply the
equipment but also properly install the same, and a satisfactory report of
its installation was to be given by the respondent. The Installation report
dated 09.10.2009 records that though the technical demonstration of the
equipment has been given, the application demonstration is pending.
Other documents including the service/complaint call report generated till
as late as June 2015, and petitioner‟s own offer emails dated 15.12.2016
and 20.06.2017, belie the submission of the petitioner that it was under
no obligation to provide the application demonstration of the equipment.
38. At the same time, as noted hereinabove, the decision to blacklist a
Contractor has a more far-reaching effect and adverse consequence on
the Contractor than a mere exercise of a contractual power to claim
damages or terminate the Contract. Its effect is all-pervasive and in fact
amounts to „civil death‟ of the Contractor. This Court, in its judgment in
Coastal Marine Construction and Engineering Limited and Anr. vs.
Indian Oil Corporation Ltd. & Ors.,(2019) SCC OnLine Del 6542, has
held that it would be unreasonable and arbitrary to visit every contractor
who is in breach of its contractual obligations with a blacklisting order. If
a contractor is to be visited with the punitive measure of blacklisting on
account of an allegation that he has committed a breach of a Contract, the
nature of its conduct must be so deviant or aberrant so as to warrant such
W.P.(C) 10740/2019 Page 22
a punitive measure. The conduct must be so reprehensible so as to invite
a punitive measure and cannot be resorted to merely on account of bona
fide controversies relating to contractual matters.
39. Tested on the above touchstone, a few facts in the present case
become relevant. As noted hereinabove, the petitioner has acted in the
Purchase Order as an agent of Digilab Inc., which is a foreign entity. The
Purchase Order is dated 13.10.2008. The equipment was admittedly
supplied on 03.04.2009 and installed on 09.10.2009. The technical
demonstration of the machine was also carried out by the petitioner on
15.02.2010. It is also not disputed that the equipment in question is part
of a process involving four components, wherein the output of one
becomes the input of the other. In that four-legged process, the
equipment, which has been provided by the petitioner to the respondent,
is third in number. Admittedly, the respondent at the time of supply of the
above equipment was not in possession of the other three remaining
equipments. In fact, one of the other three equipments was purchased by
the respondent through M/s Digilab Inc., with the petitioner as its agent,
under Purchase Order dated 29.03.2011. It seems that it was for this
reason alone that the application demonstration of the machinery
remained pending and the respondent, in spite of pendency of the same,
did not take any action against the petitioner and in fact, allowed even the
Performance Bank Guarantee submitted by the petitioner to lapse on
20.10.2012 and did not demand its renewal till 2018. There is also no
explanation regarding why the application demonstration was not
demanded from the petitioner when it had made such an offer by its email
W.P.(C) 10740/2019 Page 23
dated 15.12.2016 and 20.06.2017. It is evident from the documents
placed on record, that it is only by the letter dated 14/17.09.2018 that the
respondent for the first time proposed punitive action against the
petitioner for its failure to complete the application demonstration and
installation of the equipment. This letter is admittedly more than nine
years after the supply of the equipment.
40. Tested on the above facts, the decision of the respondent to put the
petitioner on Holiday list is clearly unjustified, unreasonable and
arbitrary. There is much to be explained by the respondent of its own
inaction in the entire transaction. At the end, the dispute between the
parties would be one of interpretation of the Contract; default to be
attributed to either of the parties; and the consequence thereof, however,
by no stretch can it amount to a wanton and deviant breach of the
Contract by the petitioner warranting the punitive measure of
blacklisting. The exercise of power by the respondent in the present case
is, therefore, arbitrary, disproportionate and hence, cannot be sustained.
41. In addition to the above, admittedly, neither the Committee which
examined the reply submitted by the petitioner to the Show Cause Notice,
nor the Competent Authority and nor the Appellate Authority, gave an
opportunity of an oral hearing to the petitioner before taking the
impugned action and dismissing the appeal there against. Clause 3.5.5 of
the Manual clearly requires the Competent Authority to grant an
opportunity of oral hearing to the supplier before taking action of
blacklisting such supplier.
W.P.(C) 10740/2019 Page 24
42. The reliance of the respondent on the judgment of the Supreme
Court in Jah Developers (supra) to contend that denial of oral hearing
would not vitiate the impugned order, cannot be accepted. In the said
judgment, the Court was considering the Revised Circular dated
01.07.2015 issued by the Reserve Bank of India on instructions on how
the Scheduled Commercial Banks and notified Financial Institutions are
to deal with wilful defaulters. Para 3(b) of the Circular provided that the
Committee examining the evidence of wilful default should give an
opportunity of personal hearing to the borrower, if the Committee feels
such an opportunity is necessary. It was in this background the Supreme
Court held as under:
"15. The next question that arises is whether an oral hearing is
required under the Revised Circular dated 01-07-2015. We have
already seen that the said Circular makes a departure from the
earlier Master Circular in that an oral hearing may only be given
by the First Committee at the first stage if it is so found necessary.
Given the scheme of the Revised Circular, it is difficult to state
that oral hearing is mandatory. It is even more difficult to state
that in all cases oral hearings must be given, or else the
principles of natural justice are breached. A number of judgments
have held that natural justice is a flexible tool that is used in order
that a person or authority arrives at a just result. Such result can
be arrived at in many cases without oral hearing but on written
representations given by parties, after considering which, a
decision is then arrived at. Indeed, in a recent judgment in Gorkha
Security Services v. Govt. (NCT of Delhi) and Ors., (2014) 9 SCC
105, this Court has held, in a blacklisting case, that where serious
consequences ensue, once a show-cause notice is issued and
opportunity to reply is afforded, natural justice is satisfied and it is
not necessary to give oral hearing in such cases [see paragraph
20]." (Emphasis supplied)
W.P.(C) 10740/2019 Page 25
43. In Gorkha Security Services (supra) and Patel Engineering Ltd.
(supra), though the Supreme Court has held that there is no inviolable
rule that a personal hearing to the affected party must precede the
decision of blacklisting, in the facts of the present case where the period
of dispute extends to more than nine years and the procedure stipulated
by the respondent itself provides for an oral hearing to be granted and
equally there being no reason given by the respondent for not granting
such an opportunity of oral hearing to the petitioner, in my opinion, there
has been a violation of the principles of natural justice vitiating the entire
decision making process.
44. Though the learned counsel for the respondent has vehemently
submitted that in the present case the explanation given by the petitioner
was, on the face of it, unacceptable and therefore, the grant of
opportunity of oral hearing to the petitioner would have been a futile
exercise, I do not find any merit in the said contention. The Committee in
its Report has relied upon various other documents, which did not find
mention in the Show Cause Notice, to arrive at its decision. No
opportunity of rendering an explanation to the said documents was
granted to the petitioner by the Committee. Therefore, in my view, the
violation of principles of natural justice is writ large in the present case.
45. Equally, the failure to supply the Committee Report to the
petitioner before the decision taken by the Competent Authority; failure
to grant an opportunity of hearing by the Competent Authority before
taking a decision on the Committee Report; and failure to grant an
opportunity of hearing to the petitioner at the appellate stage, would, in
W.P.(C) 10740/2019 Page 26
my opinion, again vitiate the Impugned Order on account of failure of the
respondent to comply with the principles of natural justice.
46. At the same time, however, I do not agree with the contention of
the learned counsel for the petitioner that the impugned decision is also
liable to be set aside on ground of there being no proper Show Cause
Notice issued to the petitioner. The Show Cause Notice dated
15/18.03.2019, though addressed to M/s Digilab Inc., a copy thereof was
marked to the petitioner as well. The notice clearly warned the petitioner
that action of putting the petitioner on the Holiday list was also
contemplated. Paragraph 8 of the Show Cause Notice in this regard is
reproduced hereinbelow:
"8. In view of the above, you are hereby informed that you have
failed to fulfil your contractual obligations as purchase order
ST/12/AUT.Prot.Digester/Repeat-Order/2008-09, dated
13/15.10.2008 and caused huge loss and inconvenience to ICMR-
NIN, Hyderabad. Hence, it is proposed to put your firm and your
erstwhile Indian agent on "Holiday" for a period of one year as
per the provisions of Manual for Procurement of Goods 2017.
Hence, you are directed to submit a reply to the notice explaining
reasons as to why you should not be placed on "Holiday" as per
the provisions indicated above."
47. The same, in my opinion, fully complies with the requirement of
the Show Cause Notice as stipulated by the Supreme Court in Gorkha
Security Services (supra). The petitioner, in fact, replied to the same and
therefore, cannot now plead lack of Show Cause Notice.
48. In view of the findings given herein above, this Court need not go
into the other issues raised by the petitioner.
W.P.(C) 10740/2019 Page 27
49. In view of the above, the Impugned Orders dated 18.04.2019 and
06.08.2019 are set aside. This order shall not, however, be read as a
conclusive expression of opinion on the question whether the petitioner
has, in fact, failed to perform its obligations under the Purchase Order
and if so, the consequences thereof. This order is confined only to
considering whether in the facts of the case, the decision to put the
petitioner on Holiday list was justified or not.
50. The petition is allowed in the above terms. The respondent shall
pay a cost of Rs.25,000/- to the petitioner.
NAVIN CHAWLA, J
July 06, 2020
W.P.(C) 10740/2019 Page 28
