Gujarat High Court
Ratnam Energy Private Limited ... vs Oil And Natural Gas Corporation ... on 16 March, 2021
Bench: Sonia Gokani, Sangeeta K. Vishen
C/SCA/1235/2021 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 1235 of 2021
FOR APPROVAL AND SIGNATURE:
HONOURABLE MS. JUSTICE SONIA GOKANI
and
HONOURABLE MS. JUSTICE SANGEETA K. VISHEN
==========================================================
1 Whether Reporters of Local Papers may be allowed to
see the judgment ? YES
2 To be referred to the Reporter or not ?
YES
3 Whether their Lordships wish to see the fair copy of the
judgment ? NO
4 Whether this case involves a substantial question of law
as to the interpretation of the Constitution of India or any
NO
order made thereunder ?
==========================================================
RATNAM ENERGY PRIVATE LIMITED THROUGH DHARMESH SUDANI
Versus
OIL AND NATURAL GAS CORPORATION LIMITED
==========================================================
Appearance:
M R BHATT & CO.(5953) for the Petitioner(s) No. 1
MUNJAAL M BHATT(8283) for the Petitioner(s) No. 1
MR AJAY R MEHTA(453) for the Respondent(s) No. 1
==========================================================
CORAM: HONOURABLE MS. JUSTICE SONIA GOKANI
and
HONOURABLE MS. JUSTICE SANGEETA K. VISHEN
Date : 16/03/2021
ORAL JUDGMENT
(PER : HONOURABLE MS. JUSTICE SONIA GOKANI)
1. This is a petition under Article 226 of the Constitution of
India challenging the banning order dated 14.12.2020 issued by
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the respondent Oil and Natural Gas Corporation ('ONGC' for
short).
2. At the joint request of the parties, we have taken up this
matter for final hearing.
Factual Matrix:
3. The facts shorn off all the details are as follow: -
3.1. The petitioner is an Oil field Service Company engaged in
the field of Exploration and Production of Oil and Gas, Minerals,
Water, etc. The founder of the company is in the business since
the year 1985 and the petitioner has service clients and it also
provides service to the respondent. It is averred that till date,
there had been no litigation faced by the petitioner, let alone
facing a banning order from the clients.
3.2. The respondent is a Maharatna Central Public Sector
Undertaking and the largest crude oil and natural gas company
in India. The Government of India under the Administrative
Control of the Ministry of Petroleum and Natural Gas, owns it. It
produces the largest quantity of oil and gas i.e. around 70% of
India's crude oil and around 84% of its natural gas.
3.3. The respondent floated a tender for Charter Hiring of 06
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Nos. of Work Over Rigs for various Assets of ONGC for a period
of three years for Cat-1, 2 and 3 and five years for Cat-4 on
28.08.2019. The petitioner was desirous of bidding for Cat-1 and
2 and therefore was required to submit Bid Security as per
Clause-11 of the Invitation of Bid. However, Clause-17 of the
Instructions to Bidders ('ITB' for short) particularly Clause-17.2
provided that Micro and Small Enterprises ('MSEs' for short)
registered with District Industry Centers or any other body
specified by Ministry of Micro, Small and Medium Enterprise
('MSME' for short) or Udhyog Aadhar Memorandum are
exempted from payment of Bid Security.
3.4. The petitioners are already registered with the District
Industries Center, Rajkot as well as having Udhyog Aadhar
Certificate certifying them as 'Small Enterprise'. The petitioner
vide its communication dated 25.09.2019 requested the
respondent for exemption from payment of Bid Security while
annexing the relevant certificates. After seeking exemption of
payment of Earnest Money Deposit (EMD for short)/ Bid
Security, the petitioner submitted its bid on 21.10.2019 for Cat-
1 and 2 and also furnished the Integrity Pact.
3.5. On 21.05.2020, the respondent communicated vide e-mail
to the petitioner stating therein that in the post opening of the
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price bids of tender, the ONGC received a complaint that the
petitioner furnished forged documents as in fact, the petitioner is
a medium enterprise and not the small enterprise.
3.6. It was replied to by the petitioner on 27.05.2020 clarifying
the position and assuring the respondent that there was no
fraud perpetrated. The petitioner went to an extent of pointing
out the method of calculation adopted by the respondent and
urged that it was incorrect and hence, the request for
reconsideration was made.
3.7. The petitioner clarified on 22.06.2020 that it continued to
be a small enterprise and even as per the relevant certificates, no
adverse action should be initiated against the petitioner. The
petitioner also addressed a communication on 26.08.2020
requesting the Grievance Officer of MSME Council to intervene
and resolve the issue. However, the officer concerned in the
Grievance Cell did not take any actions but, simply referred the
matter to the respondent on 27.08.2020.
3.8. A show cause notice was issued to the petitioner by the
respondent on 31.08.2020 for showing cause as to why the
actions for banning the petitioner be not taken on account of the
forged documents tendered by the petitioner at the time of
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bidding for Cat-1 and 2 so as not to pay the Bid Security as per
Clause-11 of the Invitation to Bid. The said notice also
communicated that the Inquiry Officer had been appointed to
investigate into the matter.
3.9. A detailed reply was filed by the petitioner on 21.09.2020.
One of the main contentions raised by the petitioner was to an
effect that all the certificates issued by the relevant authorities
categorized the petitioner as a small enterprise and even the
latest certificate issued by MSME on 21.08.2020 categories the
petitioner as a small enterprise. It was contended before the
respondent that the data once submitted on portal, the same
cannot be corrected as update of data is not permissible and
secondly, there is no provision of editing the data. It is also the
say of the petitioner that banning per se is not an action which
is permissible under the tender conditions since, the respondent
is permitted either to award the contract or rescind the contract
however, it has no authority to ban the petitioner.
3.10. It is the grievance on the part of the petitioner that no
copy of inquiry report is given by the respondent. The entire
investigation was based on some complaint received after
opening the price bids. The complaint also has never been
shared with the petitioner till date, therefore, its veracity also is
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questionable and the order, according to the petitioner, is wholly
nonspeaking and passed without due application of mind.
3.11. According to the petitioner, the documents could not have
been forged as they are the certificates issued by the
Government Authorities. The petitioner also has submitted that
it is a small enterprise and therefore, the decision of the
respondent is without any valid or legal basis and warrants
indulgence. Moreover, the reliance placed by the respondent on
Section 3 of the Integrity Pact is misplaced and misconceived as
it does not apply to the petitioner. The respondent, in the instant
case, according to the petitioner, has not only rejected its bid but
also has banned the petitioner which is wholly arbitrary action.
3.12. It is also the say of the petitioner that as per the new
Circular No. 56 of 2020 dated 26.11.2020, for all tenders to be
opened till 31.12.2021, furnishing of Bid Security itself is done
away with and therefore also, this action looses its effect.
Prayers:
4. Therefore, the petitioner is before this Court seeking
following reliefs: -
"(a) That this Hon'ble Court may be pleased to issue
a writ of mandamus and/or any other appropriate
writ, order or direction to quash and set aside the
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impugned Banning Order dated 14.12.2020 issued
by the Respondent, marked as Annexure-A to this
petition;
(b) That pending admission, hearing and final
disposal of the present petition, this Hon'ble Court be
pleased to stay the operation and implementation of
the impugned Banning Order dated 14.12.2020
issued by the Respondent, marked as Anenxure-A to
this petition;
(c) That pending admission, hearing and final
disposal of the present petition, this Hon'ble Court be
pleased to direct the Respondent to consider the
Petitioner's bid submitted for the subject Tender,
annexed at Annexure-B;
(d) That pending admission, hearing and final
disposal of the present petition, this Hon'ble Court be
pleased to direct the Respondent to consider the
Petitioner's bid submitted for Tender No.
D16GC20004;
(e) That this Hon'ble Court may be pleased to
grant ex-parte ad-interim relief in terms of Prayer (b),
(c) or (d) hereinabove;
(f) That this Hon'ble Court be pleased to award
cost of the present petition to the Petitioner;
(g) Pass such other order(s) as this Hon'ble Court
deems fit in the facts and circumstances of the case."
5. This Court (Coram:- Mr. R.M.Chhaya and Mr.
R.P.Dholaria, JJ.) issued notice in this matter on 25.01.2021
making it returnable on 02.02.2021.
Reply of the Respondents:
6. The affidavit-in-reply has been filed by the respondent
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through its General Manager. According to the respondent, the
tender which was issued in respect of which the grievance is
raised by the petitioner is not a statutory contract. Therefore, the
cause is not justiciable under Article 226 of the Constitution of
India. The respondent does not dispute that the tender No.
ZNSAC19009 for charter hiring of 06 nos. of Work Over Rigs was
floated by the respondent's Corporate Material Management
Office at New Delhi. According to the respondent, the petitioner's
bid dated 21.10.2019 and all correspondence as well as the
order of banning dated 14.12.2020 have been issued and
responded to by the Respondent's Corporate Material
Management Office at New Delhi. The cause of action has arisen
at Delhi only and therefore, the jurisdiction of this Court is
seriously questioned. Moreover, the petitioner is a limited
company and though limited company is a juristic person, it is
not entitled to invoke extraordinary jurisdiction of this Court
under Article 226 of the Constitution of India for infringement of
any fundamental right whatsoever and therefore, the petition is
untenable.
6.1. On factual matrix, it has responded that the petitioner
submitted its bid for the tender on 22.10.2019 without payment
of any Bid Security/ Earnest Money Deposit for Categories-1 and
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2 i.e. one rig in Ahmedabad and three rigs in Mehsana. The
petitioner also annexed a communication dated 25.09.2019
requesting for exemption from payment of Bid Security/EMD
relying on Clause-17.2 of the Instructions to Bidders claiming
that it was a small enterprise as contemplated by the Micro,
Small and Medium Enterprises Development Act, 2006. On the
basis of certificate dated 13.05.2015 which was 4 years and 5
months old and another dated 04.08.2017 which was 2 years
and 2 months old, such exemption was sought. It also submitted
the certificate of genuineness of documents and it also permitted
the respondent to initiate the action as deemed fit, in case, the
documents/ certificates/ information submitted by the petitioner
in the tender are found to be forged or false. It also submitted
along with the bid, an Integrity Pact as well as the letter dated
10.10.2019 confirming the Purchases Preference Policies of MSE
and the Public Procurement Policy for MSEs order 2012.
6.2. The requirement of Bid Security/ EMD amount for Cat-1
was Rs.28,03,500/- and for Cat-2 Rs.68,56,800/- thus,
exemption was sought for the sum of Rs.96,60,300/-. Two
communications were received by the respondent on 14.02.2020
and 25.02.2020 against the petitioner raising the clear red flag
on the status of the petitioner as a small enterprise as per the
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MSME Act and therefore, on 21.05.2020, the petitioner was
called to give its explanation and justify as to how it could claim
exemption under Clause 17.2 of the ITB from payment of Bid
Security/EMD.
6.3. The petitioner vide its communication dated 27.05.2020, in
response to the said letter, stated that as per the definition, the
companies engaged in providing services and having gross
investment in equipment above Rs. 2 crores and up to Rs. 5
crores are treated as medium enterprise and covered under
MSME. Their investment in equipment which are used in service
is less than Rs. 5 crores and hence, they are medium
enterprises. It is, therefore, contended by the respondent that
when the petitioner was neither micro nor small enterprise, it
was not entitled to any sort of exemption available to the small
enterprises. The false and forged documents are violative of
Clause-40.1 of the ITB and also Section 2(1) read with Section
3(1) of the Integrity Pact. Clause-40.1 provides that any bidder if
submits any false or forged certificate or information, it will be
for the ONGC to initiate action against such person or a
company.
6.4. It is the say of the respondent that after admitting on
27.05.2020 that it was a medium enterprise, two e-mails dated
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22.06.2020 and 26.08.2020 have been addressed by the
petitioner for correcting its stand that it was a small enterprise.
These two communications, according to the respondent, are
attempts and efforts to cover up and avoid inquiry process.
Subsequently, the office of Development Commissioner of Micro,
Small and Medium Enterprise vide its communication dated
29.08.2020 addressed to the respondent unequivocally stated
that respondent should take appropriate action against the
petitioner.
6.5. Therefore, a show cause notice was issued on 31.08.2020
as to why the business be not banned on account of such action
for claiming MSE benefits. The reply was tendered on
21.09.2020 which requested for virtual meeting to be arranged
due to pandemic on account of COVID-19 virus and on
05.10.2020, the chance of oral hearing was given. Mr. Dharmesh
Sudani and Mr. Kirti Marviya attended the online hearing. Based
on all the evidences, the Inquiry Officer passed the banning
order on 14.12.2020 and blacklisted the petitioner for the period
of two years from the date of the order.
6.6. Thus, according to the respondent - ONGC, on its own
admission, when the petitioner is a medium enterprise and it
clearly avoided to pay EMD worth Rs. 96.60 lakhs (round of), the
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respondent is entitled to initiate the action after affording the
opportunity to the parties and accordingly, the action of banning
has been taken.
Rejoinder Affidavit:
7. The affidavit-in-rejoinder has been filed by the petitioner
denying all the contents of the reply. The main grievance on the
part of the petitioner is that the respondent did not serve the
copy of inquiry report and thereby violated the principle of
natural justice and hence, the Court was needed to be
approached. The issue of lack of territorial jurisdiction of the
Court, according to the petitioner, is unwarranted since it has
not approached this Court because it is located in Rajkot,
however, as per Section 20 of the Code of Civil Procedure, the
petition can be filed either as per the place of business or as per
the cause of action, in whole or part, arisen. Though the tender
has been floated by the respondent at New Delhi, the petitioner
had preferred bid for Cat-1 and 2 which located at Ahmedabad
and Mehsana respectively and therefore, the impugned order
banning and restricting the petitioner to perform work at
Ahmedabad and Mehsana which fall within the territory of the
Court, can be challenged before this Court. The petition is filed
on behalf of the Private Limited Company through its authorized
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signatory and who admittedly is granted fundamental right
under the Constitution of India including the right to approach
this Court under Article 226 of the Constitution of India.
7.1. The total amount of EMD was Rs.50,89,100/- being small
enterprise. It is incorrect to say that the falsehood has been
pleaded by the respondent for an amount of Rs. 1 crore. The
petitioner has also not been provided a copy of the letters dated
14.02.2020 and 25.02.2020 raising red flags. It is also the say of
the petitioner that relying on Clause-52 of ITB, the petitioner
was called upon to provide the justification, in fact, there is no
clause provided under the tender document such as Clause-52.
7.2. Heavy reliance is placed on the inquiry report which has
not been supplied to the petitioner. The petitioner, therefore, has
heavily relied on the decision rendered by the Apex Court in case
of UMC Technologies Pvt. Ltd. vs Food Corporation of India and
Another [ 2020 SCC OnLine SC 934].
7.3. It is also the grievance of the petitioner that the respondent
has not given any reasons before banning the petitioner and for
the first time, they replied to the petitioner and came out with a
new ground for banning that the petitioner has submitted old,
outdated un-updated certificates obtained from the authorities
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in the years 2015 and 2017.
8. The sur-rejoinder is also filed, the details of which may not
be necessary to be reproduced. In gist, it is contended that the
decision of UMC Technologies (supra) would have no
applicability considering the factual matrix of the instant case.
Oral Submissions:
9. The Court has extensively heard learned senior advocate
Mr. Manish Bhatt assisted by learned advocate Mr. Munjal Bhatt
for the petitioners who along the line of the memo of petition,
made out essentially three grounds, (i) the absence of any right
of the respondent to initiate the actions of banning the
petitioner, (ii) serious breach of principle of natural justice, and
(iii) complete misinterpretation of the entire material, leading to
the serious consequences of blacklisting the petitioner.
9.1. He emphasized reiteratively that in absence of any
challenge to the certificate issued by MSME, the petitioner
continued to be a small enterprise till today. On the strength of
such vital, relevant and robust material, no adverse action could
have been taken against the petitioner.
10. The crux of the submissions of learned advocate Mr. Ajay
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Mehta appearing for the respondent - ONGC is three folds, (i)
lack of jurisdiction of this Court under Article 226 of the
Constitution of India for no cause of action having arisen within
its jurisdiction, (ii) the petitioner being a limited company cannot
come before this Court invoking the plea of infringement of
fundamental rights for approaching this Court under Article 226
of the Constitution of India, and (iii) the serious questions of
forgery and the falsehood for seeking exemption from payment of
EMD would entitle the respondent to initiate the actions under
Clause-40.1 of the ITB read with Section 2(1) and Section 3(1) of
the Integrity Pact.
10.1. He also has denied of not having availed the opportunity
of hearing, on the contrary, he emphasized that after availing
sufficient opportunities to the parties, the decision is taken, no
interference is desirable under Article 226 of the Constitution of
India.
Findings:
11. Having thus heard both the sides extensively and also
having closely perused the material on record, for the reasons to
be followed hereinafter, the petition deserves to be allowed.
12. We shall be focusing in this endeavour essentially on the
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four issues which have been raised by the parties (i)
maintainability of the petition under Article 226 of the
Constitution of India, (ii) the jurisdictional issue, (iii) the
violation of principle of natural justice, and (iv) the merit of the
matter.
Maintainability:
13. Taking firstly the aspect of maintainability of the petition
under Article 226 of the Constitution, the contention is raised by
the respondent that no right much less the fundamental right of
the petitioner under Articles 14 and 19(1)(g) of the constitution of
India is violated. There is no question of invocation of
extraordinary jurisdiction, according to the respondent, under
Article 226 of the Constitution of India and therefore, the
petition for the issues raised squarely fall under the realm of law
of contract and not in the realm of public dispute or the public
law. The dispute is with regard to the tender issued by the
respondent. There is no statutory contract nor the contract
entered into by and between the parties and therefore also, the
invocation of extraordinary powers is undesirable. It is also
contended further that the petitioner - Ratna Energy Private
Limited is a limited company and which is though a juristic
person, it cannot invoke extraordinary jurisdiction since there
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would be no infringement of any fundamental right of such
company.
13.1. Taking firstly the issue of limited company being a
juristic person and yet, having no right to approach this Court
under Article 226 of the Constitution of India, we could notice
that by way of draft amendment, the petitioner no.2 who is the
Managing Director of the petitioner no.1 - Company, is already
impleaded as a party petitioner. It has also been pleaded rightly
that he is a citizen of India, guaranteed fundamental rights
enshrined under Part III of the Constitution of India and the
petitioner no.1 company being a private limited company, any
loss of business caused to the same would be naturally
prejudicial to all its shareholders, thus, the petitioner no.2
having been joined as the party, this ground of the respondent
that the petition cannot be sustainable since the petitioner is a
limited company and is before this Court under Article 226 of
the Constitution of India, will hold no ground. According to the
respondent, no copy has been served upon the respondent of a
draft amendment filed and therefore, the incorporated company
is not standing on its own to maintain the writ petition for which
he has relied on the decision of the Apex Court rendered in case
of Divisional Forest Officer vs. Bishwanath Tea Co. Ltd,
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reported in AIR 1981 SC 1368 wherein it is observed as under:
"Art. 226 confers extraordinary jurisdiction on the
High Court to issue high prerogative writs for
enforcement of the fundamental rights or for any
other purpose. Undoubtedly, the respondent
contended that its fundamental right under Art. 19(1)
(g) to carry on trade has been violated. The High
Court overlooked the well-settled legal position that a
juristic person such as a Corporation is not entitled
to any of the freedoms guaranteed by Art. 19. The
respondent was the sole petitioner in the High Court.
It is a company incorporated under the Companies
Act. The fundamental right claimed under Art. 19 (1)
(g) is to practise any profession or carry on any
occupation, trade or business. The respondent
(company) contended that it had a right to carry on
its trade or business of cultivating and raising a tea
garden and as part of it to cut timber and remove the
same from the leased area without the payment of
royalty and that insistence upon payment of royalty
unsupported by law is an unreasonable restriction
denying the fundamental right guaranteed to the
respondent. Art. 19 (1) (g) guarantees the
fundamental freedom to a citizen. The respondent not
being a citizen was not entitled to complain of breach
or violation of fundamental right under Art. 19 (1) (g).
[See State Trading Corporation of India Ltd. v. The
Commercial Tax Officer, Vishakhapatnam and Tata
Engineering and Locomotive Co. v. State of Bihar .]
However, the shareholders of a company can
complain of infringement of their fundamental rights
[See Bennett Coleman & Co. and others v. Union of
India and others]. Such is not the case pleaded.
Therefore the writ petition on the allegation of
infringement of fundamental right under Art. 19 (1)
(g) at the instance of respondent company alone was
not maintainable."
13.2. This decision for the ratio would be binding this
court, however, it would have no applicability in the present
case, as mentioned above, due to impleadment of petitioner no.2.
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13.3. So far as the objection raising the question of dispute
being contract and therefore, in the realm of the private dispute
and not the public law, this Court is of the opinion that it is not
the question of the controversy of the non-grant of the contract
which is sought to be raised before this Court. The Court
essentially is addressing the issue of banning the petitioner
company from participating into any of the bids on the basis of
the company having been blacklisted by the order of the
respondent authority.
13.4. This issue will be further elaborated at the time of
discussing the issue of breach of principle of natural justice
while passing the order. Suffice to say that had it been a
question of specific performance of contract or breach thereof
with disputed question of facts, the writ petition may not have
been entertained, however, that not being the issue and
essentially, the question concerns banning of the petitioner, this
contention of maintainability of the respondent merits no
acceptance.
Issue of Jurisdiction:
14. This takes us to the second and vital ground raised of
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jurisdiction of this Court. It is strenuously urged for and on
behalf of the respondent that no cause of action has arisen
wholly or in part within the territorial jurisdiction of this Court,
therefore, this Court cannot entertain this. Learned Counsel Mr.
Mehta has sought to rely on the decision of Oil and Natural Gas
Commission vs. Utpal Kumar Basu, reported in 1994 (4) SCC
711 and that of M/s. Kusum Ingots and Alloys Ltd. vs. Union of
India and Another reported in 2004 (6) SCC 254.
14.1. Before adverting to the facts in the instant case, the
law on the subject deserves close examination. In case of Utpal
Kumar (supra), the questions which the Hon'ble Supreme
Court addressed was of the jurisdiction of the High Court to
entertain, hear and decide the petition where in case of ONGC
itself, the advertisement was issued in all leading newspapers of
the Country including in West Bengal calling for tenders for
setting up of a Kerosene Recovery Processing Unit at the Hazira
Complex in Gujarat. The tender notice was issued from New
Delhi and were to be communicated at New Delhi. The NICCO
having its registered office in Calcutta became aware of the
tender notice printed in the 'Times of India' newspaper circulated
within the jurisdiction of the Calcutta High Court, it offered its
bid and respond to the tender notice which were scrutinized at
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Delhi. Its bid was rejected on the ground that it did not fulfill the
requisite criteria stipulated in the tender. The recommendations
made by EIL were considered by the tender committee which was
satisfied by NICCO's criteria, therefore, the meeting was held at
New Delhi by the EIL with various bidders including NICCO.
After the said meeting, EIL once again reiterated its earlier view
that NICCO lacked the experience criteria. The Tender
Committee re-examined the view of EIL and agreed with the
same and thus, NICCO was not shortlisted by the Tender
Committee. The NICCO represented the Tender Committee as
well as the EIL however, they saw no reason to depart from their
earlier view and thereafter the final decision was taken by
Steering Committee at New Delhi and pursuant to the same, the
contract was awarded to another company M/s CIMMCO Ltd.
14.2. The NICCO filed writ petition in the High Court of
Calcutta where the M/s CIMMCO Ltd. was not made a party and
NICCO prayed that ONGC be restrained from awarding the
contract to any other party and if awarded, to cancel the same.
The High Court had intervened and gave certain directions to the
respondents to consider the offer of the petitioner along with the
others and disposed of the same.
14.3. The ONGC moved under Article 136 of the
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Constitution of India where at the hearing of the appeal, the
Court confined itself to the preliminary objection of ONGC that
the High Court of Calcutta had no jurisdiction to entertain, hear
and dispose of the writ petition in the manner it did as the
averments in the writ petition, even if assumed to be correct, did
not disclose that even a part of the cause of action for institution
of the said writ petition, had not arisen within the jurisdiction of
the Calcutta High Court.
14.4. The Apex Court held that if the part of cause of action
has arisen within the territorial jurisdiction of the Court, it can
confer the jurisdiction on the High Court and the cause of action
means the bundle of facts which the petitioner needs to prove, if
traversed, to entitle it to a judgment in its favour by the Court
and therefore, in determining the objection of lack of territorial
jurisdiction, the Court must take all the facts pleaded in support
of the cause of action into consideration albeit without
embarking upon an enquiry as to the correctness or otherwise of
the said facts. In other words, the question whether the High
Court had territorial jurisdiction to entertain the writ petition
requires to be addressed in the writ petition, the truth or
otherwise whereof being immaterial. Thus, the question of
territorial jurisdiction must be decided on the facts pleaded in
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the petition and averments in the petition should be sufficient in
law to establish part of cause of action.
14.5. The Apex Court held that merely because the
petitioner had read the advertisement at Calcutta and submitted
its offer from Calcutta and made representation from Calcutta
would not constitute facts forming an integral part of the cause
of action. The Court, therefore, held that, the part of cause of
action did not arise within the jurisdiction of Calcutta High
Court.
"5.Clause (1) of Article 226 begins with a non
obstante clause notwithstanding anything in Article
32 - and provides that every High Court shall have
power "throughout the territories in relation to which
it exercises jurisdiction", to issue to any person or
authority, including in appropriate cases, any
Government, "within those territories" directions,
orders or writs, for the enforcement of any of the
rights conferred by Part III or for any other purpose.
Under clause (2) of Article 226 the High Court may
717 exercise its power conferred by clause (1) if the
cause of action, wholly or in part, had arisen within
the territory over which it exercises Jurisdiction,
notwithstanding that the seat of such Government or
authority or the residence of such person is not
within those territories. On a plain reading of the
aforesaid two clauses of Article 226 of the
Constitution it becomes clear that a High Court can
exercise the power to issue directions, orders or writs
for the enforcement of any of the fundamental rights
conferred by Part III of the Constitution or for any
other purpose if the cause of action, wholly or impart,
had arisen within the territories in relation to which
it exercises jurisdiction, notwithstanding that the
seat of the Government or authority or the residence
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of the person against whom the direction, order or
writ 'is issued is not within the said territories. In
order to confer jurisdiction on the High Court of
Calcutta, NICCO must show that at least a part of the
cause of action had arisen within the territorial
jurisdiction of that Court, That is at best its case in
the writ petition.
6. It is well settled that the expression "cause of
action" means that bundle of facts which the
petitioner must prove, if traversed, to entitle him to a
judgment in his favour by the Court. In Chand Kour
v. Partab Singh' Lord Watson said:
"... the cause of action has no relation whatever to
the defence which may be set up by the defendant,
nor does it depend upon the character of the relief
prayed for by the plaintiff. It refers entirely to the
ground set forth in the plaint as the cause of action,
or, in other words, to the media upon which the
plaintiff asks the Court to arrive at a conclusion in
his favour."
Therefore, in determining the objection of lack of
territorial jurisdiction the court must take all the
facts pleaded in support of the cause of action into
consideration albeit without embarking upon an
enquiry as to the correctness or otherwise of the said
facts. In other words the question whether a High
Court has territorial jurisdiction to entertain a writ
petition must be answered on the basis of the
averments made in the petition, the truth or
otherwise whereof being immaterial. To put it
differently, the question of territorial jurisdiction
must be decided on the facts pleaded in the petition.
Therefore, the question whether in the instant case
the Calcutta High Court had jurisdiction to entertain
and decide the writ petition in question even on the
facts alleged must depend upon whether the
averments made in paragraphs 5, 7, 18, 22, 26 and
43 are sufficient in law to establish that a part of the
cause of action had arisen within the jurisdiction of
the Calcutta High Court.
7. The learned counsel for ONGC contended that
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on these averments no part of the cause of action had
arisen within the jurisdiction of the Calcutta High
Court and hence the writ petition filed by NICCO and
another was not entertainable by that High Court. He
submitted that ONGC had decided to set up a
Kerosene Recovery Processing Unit at Hazira in
Gujarat. EIL was appointed by ONGC as its
consultant. In that capacity, EIL issued the
advertisement from New Delhi calling for tenders and
this advertisement was 1 ILR (1889) 16 Cal 98,102:
15 IA 156 718 printed and published in all the
leading newspapers of the country including the
Times of India in circulation in West Bengal. The
tenders or bids were to be forwarded to EIL at New
Delhi. EIL was expected to scrutinise the tenders and
make its recommendations to the Tender Committee
constituted by ONGC. The final decision was,
however, to be taken by the Steering Committee at
New Delhi presided over by the Chairman, ONGC.
Accordingly, the tender of NICCO was examined by
EIL at New Delhi and it recommended its rejection on
the ground that NICCO did not satisfy the experience
criteria requisite for the grant of contract. On the first
occasion, the Tender Committee did not agree with
the said recommendation and directed the EIL to call
NICCO at the clarificatory meeting proposed to be
held in New Delhi. In obedience to the said direction,
EIL invited NICCO along with the other bidders, but
once again recommended its rejection on the ground
that it did not satisfy the experience criteria. The
Tender Committee which met in New Delhi reviewed
its earlier decision and accepted the recommendation
of EIL which was also accepted by the Steering
Committee at New Delhi on 27-1-1993. It was at this
point of time that the decision to award the contract
to CIMMCO was taken at New Delhi. Counsel for
ONGC, therefore, contended that all these events
took place outside the jurisdiction of the Calcutta
High Court and merely because NICCO had read the
advertisement in the Times of India in circulation in
West Bengal and had forwarded its tender from its
registered office in Calcutta and followed it up by a
revised offer, it cannot be said that any part of the
cause of action had arisen within the jurisdiction of
the Calcutta High Court for the simple reason that if
C/SCA/1235/2021 JUDGMENT
these facts were to give a cause of action, every
tenderer would sue ONGC in the local court from
where he forwarded the tender and that would make
ONGC run about from court to court all over the
country. Counsel further submitted that nor can the
fact that NLCCO sent representations including fax
messages from its registered office to ONGC at
Calcutta to which ONGC showed the courtesy of
replying confer jurisdiction. In support of this
contention, he placed strong reliance on the decision
in State of Rajasthan v. Swaika Properties2. Learned
counsel for CIMMCO buttressed these submissions
by inviting our attention to certain other decisions of
this Court, namely, Election Commission v. Saka
Venkata Subba Rao3, R. Bejal v. Triveni Structurals
Ltd .4, Subodh Kumar Gupta v. Shrikant Gupta' and
certain decisions of different High Courts. On the
other hand, counsel for NICCO, while reiterating that
the averments made in paragraphs 5, 7, 18, 22 and
26 constituted an integral part of the cause of action,
submitted that by the introduction of clause (2) in
Article 226 of the Constitution, the Legislature
intended,to widen the High Court's Jurisdiction and
thereby extend its beneficent reach even to cases
where a part of the cause of action arose within its
territorial Jurisdiction. In the alternative, he
submitted that even if this Court comes to the
conclusion that the High Court 2 (1985) 3 SCC 217 3
1953 SCR 1144: AIR 1953 SC 210 4 1987 Supp SCC
279 5 (1993) 4 SCC 1 719 of Calcutta lacked
jurisdiction, this Court sitting in appeal should not
interfere with the verdict of the High Court as ONGC
had neither alleged nor showed that there had been a
failure of justice. In this connection, he placed
reliance on the spirit of Section 21 of the Code of Civil
Procedure. He, therefore, contended that this Court
should examine the appeal on merits and not confine
itself to the question of territorial jurisdiction. Lastly,
he submitted that on merits NICCO had made out a
good case for the grant of relief sought by it.
8.From the facts pleaded in the writ petition, it is
clear that NICCO invoked the jurisdiction of the
Calcutta High Court on the plea that a part of the
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cause of action had arisen within its territorial
jurisdiction. According to NICCO, it became aware of
the contract proposed to be given by ONGC on
reading the advertisement which appeared in the
Times of India at Calcutta. In response thereto, it
submitted its bid or tender from its Calcutta office
and revised the rates subsequently. When it learnt
that it was considered ineligible it sent
representations, including fax messages, to EIL,
ONGC, etc., at New Delhi, demanding justice. As
stated earlier, the Steering Committee finally rejected
the offer of NICCO and awarded the contract to
CIMMCO at New Delhi on 27-1-1993. Therefore,
broadly speaking, NICCO claims that a part of the
cause of action arose within the jurisdiction of the
Calcutta High Court because it became aware of the
advertisement in Calcutta, it submitted its bid or
tender from Calcutta and made representations
demanding justice from Calcutta on learning about
the rejection of its offer. The advertisement itself
mentioned that the tenders should be submitted to
EIL at New Delhi; that those would be scrutinised at
New Delhi and that a final decision whether or not to
award the contract to the tenderer would be taken at
New Delhi. Of course, the execution of the contract
work was to be carried out at Hazira in Gujarat.
Therefore, merely because it read the advertisement
at Calcutta and submitted the offer from Calcutta
and made representations from Calcutta would not,
in our opinion, constitute facts forming an integral
part of the cause of action. So also the mere fact that
it sent fax messages from Calcutta and received a
reply thereto at Calcutta would not constitute an
integral part of the cause of action. Besides the fax
message of 15-1-1993, cannot be construed as
conveying rejection of the offer as that fact occurred
on 27-1-1993. We are, therefore, of the opinion that
even if the averments in the writ petition are taken as
true, it cannot be said that a part of the cause of
action arose within the jurisdiction of the Calcutta
High Court. "
14.6. In yet another decision in case of M/s. Kusum
C/SCA/1235/2021 JUDGMENT
Ingots (supra) the Apex Court was considering whether the
seat of the Parliament or the Legislature of a State would be a
relevant factor for determining the territorial jurisdiction of a
High Court to entertain a writ petition under Article 226 of the
Constitution of India.
14.7. The appellant was a company registered under the
Indian Companies Act having its registered office at Mumbai
which obtained a loan from the Bhopal Branch of State Bank of
India. A notice was issued for repayment of the said loan from
Bhopal in terms of the provisions of Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002. Questioning the vires of the said Act, the writ
petition was filed before Delhi High Court by the appellant which
was dismissed on the ground of lack of territorial jurisdiction.
14.8. It was urged before the Apex Court on behalf of the
appellant that as the constitutionality of a parliamentary act was
questioned, the High Court of Delhi had the requisite jurisdiction
to entertain the writ petition. According to the respondent, no
cause of action since arose within the territorial jurisdiction of
the Delhi High Court and therefore, the petition would not be
maintainable.
C/SCA/1235/2021 JUDGMENT
14.9. The Apex Court considering various judgments on
this subject held that the facts pleaded in the writ petition must
have nexus on the basis whereof the prayer can be granted.
Those facts which have nothing to do with the prayers cannot be
said to give rise to a cause of action which would confer the
jurisdiction on the Court. The Court held that even if a small
part of cause of action would arise within the territorial
jurisdiction of the High Court, the same by itself, may not be
considered to be determinative factor for compelling the High
Court to decide the matter on merit. In appropriate cases, the
Court may refuse to exercise its discretionary jurisdiction by
invoking the doctrine of forum conveniens.
"Cause of Action:
Cause of action implies a right to sue. The material
facts which are imperative for the suitor to allege and
prove constitutes the cause of action. Cause of action
is not defined in any statute. It has, however, been
judicially interpreted inter alia to mean that every
fact which would be necessary for the plaintiff to
prove, if traversed, in order to support his right to the
judgment of the Court. Negatively put, it would mean
that everything which, if not proved, gives the
defendant an immediate right to judgment, would be
part of cause of action. Its importance is beyond any
doubt. For every action, there has to be a cause of
action, if not, the plaint or the writ petition, as the
case may be, shall be rejected summarily.
Clause (2) of Article 226 of the Constitution of India
reads thus:
C/SCA/1235/2021 JUDGMENT
"(2) The power conferred by clause (1) to issue
directions, orders or writs to any Government,
authority or person may also be exercised by any
High Court exercising jurisdiction in relation to the
territories within which the cause of action, wholly or
in part, arises for the exercise of such power,
notwithstanding that the seat of such Government or
authority or the residence of such person is not
within those territories."
Section 20(c) of the Code of Civil Procedure reads as
under:
"20 OTHER SUITS TO BE INSTITUTED WHERE
DEFENDANT RESIDE OR CAUSE OF ACTION
ARISES.
Subject to the limitation aforesaid, every suit shall be
instituted in a court within the local limits of whose
jurisdiction -
(c) the cause of action, wholly or in part, arises."
Although in view of Section 141 of the Code of Civil
Procedure the provisions thereof would not apply to a
writ proceedings, the phraseology used in Section
20(c) of the Code of Civil Procedure and Clause (2) of
Article 226, being in pari materia, the decisions of
this Court rendered on interpretation of Section 20(c)
of CPC shall apply to the writ proceedings also.
Before proceeding to discuss the matter further it
may be pointed out that the entire bundle of facts
pleaded need not constitute a cause of action as what
is necessary to be proved before the petitioner can
obtain a decree is the material facts. The expression
material facts is also known as integral facts.
Keeping in view the expressions used is Clause (2) of
Article 226 of the Constitution of India, indisputably
even if a small fraction of cause of action accrues
within the jurisdiction of the Court, the Court will
have jurisdiction in the matter.
In Mussummat Chand Kour v. Partap Singh (15 IA
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156), it was held:
"... the cause of action has no relation whatever to
the defence which may be set up by the defendant,
nor does it depend upon the character of the relief
prayed for by the plaintiff. It refers entirely to the
ground set forth in the plaint as the cause of action,
or, in other words, to the media upon which the
plaintiff asks the court to arrive at a conclusion in his
favour."
This Court in Oil & Natural Gas Commission v. Utpal
Kumar Basu and Ors. (1994 (4) SCC 711) held that
the question as to whether the court has a territorial
jurisdiction to entertain a writ petition, must be
arrived at on the basis of averments made in the
petition, the truth or otherwise thereof being
immaterial.
This Court in Oil and Natural Gas Commission's case
(supra) held that all necessary facts must form an
integral part of the cause of action. It was observed:
"So also the mere fact that it sent fax messages from
Calcutta and received a reply thereto at Calcutta
would not constitute an integral part of the cause of
action..."
In State of Rajasthan and Ors. v. M/s. Swaika
Properties and Anr. [1985 (3) SCC 217], this Court
opined that mere service of a notice would not give
rise to any cause of action unless service of notice
was integral part of the cause of action. The said
decision has also been noticed in Oil and Natural Gas
Commission (supra). This Court held:
"The answer to the question whether service of notice
is an integral part of the cause of action within the
meaning of Art. 226(2) of the Constitution must
depend upon the nature of the impugned order giving
rise to a cause of action."
In Aligarh Muslim University and Another Vs. Vinay
Engineering Enterprises (P) Ltd. and Another [(1994)
4 SCC 710] this Court lamented:
C/SCA/1235/2021 JUDGMENT
"2. We are surprised, not a little, that the High Court
of Calcutta should have exercised jurisdiction in a
case where it had absolutely no jurisdiction. The
contracts in question were executed at Aligarh, the
construction work was to be carried out at Aligarh,
even the contracts provided that in the event of
dispute the Aligarh Court alone will have jurisdiction.
The arbitrator was from Aligarh and was to function
there. Merely because the respondent was a Calcutta-
based firm, the High Court of Calcutta seems to have
exercised jurisdiction where it had none by adopting
a queer line of reasoning. We are constrained to say
that this is case of abuse of jurisdiction and we feel
that the respondent deliberately moved the Calcutta
High Court ignoring the fact that no part of the cause
of action had arisen within the jurisdiction of that
Court. It clearly shows that the litigation filed in the
Calcutta High Court was thoroughly unsustainable."
In Union of India and Others Vs. Adani Exports Ltd.
and Another [(2002) 1 SCC 567] it was held that in
order to confer jurisdiction on a High Court to
entertain a writ petition it must disclose that the
integral facts pleaded in support of the cause of
action do constitute a cause so as to empower the
court to decide the dispute and the entire or a part of
it arose within its jurisdiction. Recently, in National
Textile Corpn. Ltd. and Ors. vs. M/s Haribox
Swalram and Ors. [JT 2004 (4) SC 508], a Division
Bench of this Court held :
"As discussed earlier, the mere fact that the writ
petitioner carries on business at Calcutta or that the
reply to the correspondence made by it was received
at Calcutta is not an integral part of the cause of
action and, therefore, the Calcutta High Court had no
jurisdiction to entertain the writ petitioner and the
view to the contrary taken by the Division Bench
cannot be sustained. In view of the above finding, the
writ petition is liable to be dismissed..."
The facts pleaded in the writ petition must have a
nexus on the basis whereof a prayer can be granted.
Those facts which have nothing to do with the prayer
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made therein cannot be said to give rise to a cause of
action which would confer jurisdiction on the court.
Passing of a legislation by itself in our opinion do not
confer any such right to file a writ petition unless a
cause of action arises therefor.
A distinction between a legislation and executive
action should be borne in mind while determining the
said question.
A parliamentary legislation when receives the assent
of the President of India and published in an Official
Gazette, unless specifically excluded, will apply to the
entire territory of India. If passing of a legislation
gives rise to a cause of action, a writ petition
questioning the constitutionality thereof can be filed
in any High Court of the country. It is not so done
because a cause of action will arise only when the
provisions of the Act or some of them which were
implemented shall give rise to civil or evil
consequences to the petitioner. A writ court, it is well
settled would not determine a constitutional question
in vacuum.
The court must have the requisite territorial
jurisdiction. An order passed on writ petition
questioning the constitutionality of a Parliamentary
Act whether interim or final keeping in view the
provisions contained in Clause (2) of Article 226 of
the Constitution of India, will have effect throughout
the territory of India subject of course to the
applicability of the Act.
Situs of office of the Respondents - whether relevant?
A writ petition, however, questioning the
constitutionality of a Parliamentary Act shall not be
maintainable in the High Court of Delhi only because
the seat of the Union of India is in Delhi. (See Abdul
Kafi Khan Vs. Union of India and Others, AIR 1979
Cal 354) Learned counsel for the appellant in support
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of his argument would contend that situs of framing
law or rule would give jurisdiction to Delhi High
Court and in support of the said contention relied
upon the decisions of this Court in Nasiruddin vs.
State Transport Appellate Tribunal (AIR 1976 SC 331)
and U.P. Rashtriya Chini Mill Adhikari Parishad,
Lucknow vs. State of U.P. and others (1995) 4 SCC
738. So far as the decision of this Court in
Nasiruddin vs. State Transport Appellate Tribunal
(supra) is concerned it is not an authority for the
proposition that the situs of legislature of a State or
the authority in power to make subordinate
legislation or issue a notification would confer power
or jurisdiction on the High Court or a bench of the
High Court to entertain petition under Article 226 of
the Constitution. In fact this Court while construing
the provisions of United Provinces High Courts
(Amalgamation) Order, 1948 stated the law thus:
"The conclusion as well as the reasoning of the High
Court is incorrect. It is unsound because the
expression "cause of action" in an application under
Article 226 would be as the expression is understood
and if the cause of action arose because of the
appellate order or the revisional order which came to
be passed at Lucknow then Lucknow would have
jurisdiction though the original order was passed at a
place outside the areas in Oudh. It may be that the
original order was in favour of the person applying for
a writ. In such case an adverse appellate order might
be the cause of action. The expression "cause of
action" is well-known. If the cause of action arises
wholly or in part at a place within the specified Oudh
areas, the Lucknow Bench will have jurisdiction. If
the cause of action arises wholly within the specified
Oudh areas, it is indisputable that the Lucknow
Bench would have exclusive jurisdiction in such a
matter. If the cause of action arises in part within the
specified areas in Oudh it would be open to the
litigant who is the dominus litis to have his forum
conveniens. The litigant has the right to go to a Court
where part of his cause of action arises. In such
cases, it is incorrect to say that the litigant chooses
any particular Court. The choice is by reason of the
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jurisdiction of the Court being attracted by part of
cause of action arising within the jurisdiction of the
Court. Similarly, if the cause of action can be said to
have arisen partly within specified areas in arisen in
Oudh and partly outside the specified Oudh areas,
the litigant will have the choice to institute
proceedings either at Allahabad or Lucknow. The
Court will find out in each case whether the
jurisdiction of the Court is rightly attracted by the
alleged cause of action".
The said decision is an authority for the proposition
that the place from where an appellate order or a
revisional order is passed may give rise to a part of
cause of action although the original order was at a
place outside the said area. When a part of the cause
of action arises within one or the other High Court, it
will be for the petitioner to choose his forum.
The view taken by this Court in U.P. Rashtriya Chini
Mill Adhikari Parishad, Lucknow (supra) that situs of
issue of an order or notification by the Government
would come within the meaning of expression 'cases
arising' in clause 14 of the (Amalgamation) Order is
not a correct view of law for the reason hereafter
stated and to that extent the said decision is
overruled. In fact, a legislation, it is trite, is not
confined to a statute enacted by the Parliament or
Legislature of a State, which would include delegated
legislation and subordinate legislation or an executive
order made by the Union of India, State or any other
statutory authority. In a case where the field is not
covered by any statutory rule, executive instruction
issued in this behalf shall also come with within the
purview thereof. situs of office of the Parliament,
Legislature of a State or authorities empowered to
make subordinate legislation would not by itself
constitute any cause of action or cases arising. In
other words, framing of a statute, statutory rule or
issue of an executive order or instruction would not
confer jurisdiction upon a court only because of the
situs of the office of the maker thereof.
C/SCA/1235/2021 JUDGMENT
When an order, however, is passed by a Court or
Tribunal or an executive authority whether under
provisions of a statute or otherwise, a part of cause of
action arises at that place. Even in a given case,
when the original authority is constituted at one
place and the appellate authority is constituted at
another, a writ petition would be maintainable at
both the places. In other words as order of the
appellate authority constitutes a part of cause of
action, a writ petition would be maintainable in the
High Court within whose jurisdiction it is situate
having regard to the fact that the order of the
appellate authority is also required to be set aside
and as the order of the original authority merges with
that of the appellate authority.
Lt. Col. Khajoor Singh Vs. The Union of India and
Another [(1961) 2 SCR 828] whereupon the learned
counsel appearing on behalf of the appellant placed
strong reliance was rendered at a point of time when
clause (2) of Article 226 had not been inserted. In
that case the Court held that the jurisdiction of the
High Court under Article 226 of the Constitution of
India, properly construed, depends not on the
residence or location of the person affected by the
order but of the person or authority passing the order
and the place where the order has effect. In the latter
sense, namely, the office of the authority who is to
implement the order would attract the territorial
jurisdiction of the Court was considered having
regard to Section 20(c) of the Code of Civil Procedure
as Article 226 of the Constitution thence stood
stating :
"...The concept of cause of action cannot in our
opinion be introduced in Art. 226, for by doing so we
shall be doing away with the express provision
contained therein which requires that the person or
authority to whom the writ is to be issued should be
resident in or located within the territories over which
the High Court has jurisdiction. It is true that this
may result in some inconvenience to person residing
far away from New Delhi who are aggrieved by some
order of the Government of India as such, and that
may be a reason for making a suitable constitutional
C/SCA/1235/2021 JUDGMENT
amendment in Art. 226. But the argument of
inconvenience, in our opinion, cannot affect the plain
language of Art. 226, nor can the concept of the place
of cause of action be introduced into it for that would
do away with the two limitations on the powers of the
High Court contained in it."
In view of clause 2 of Article 226 of the Constitution
of India now if a part of cause of action arises outside
the jurisdiction of the High Court, it would have
jurisdiction to issue a writ. The decision in Khajoor
Singh (supra) has, thus, no application.
Forum Conveniens We must, however, remind
ourselves that even if a small part of cause of action
arises within the territorial jurisdiction of the High
Court, the same by itself may not be considered to be
a determinative factor compelling the High Court to
decide the matter on merit. In appropriate cases, the
Court may refuse to exercise its discretionary
jurisdiction by invoking the doctrine of forum
conveniens. (See Bhagar Singh Bagga v. Dewan
Jagbir Sawhany, AIR 1941 Cal; Mandal Jalan v.
Madanlal, (1945) 49 CWN 357; Bharat Coking Coal
Limited v. M/s Jharia Talkies & Cold Storage Pvt.
Ltd. (1997) CWN 122; S.S.Jain & Co. & Anr. v. Union
of India & Ors. (1994) CHN 445; M/s. New Horizon
Ltd. v. Union of India, AIR 1994 Delhi 126)
Conclusion For the aforementioned reasons, there is
no merit in this appeal which is dismissed
accordingly. No costs. "
14.10. It was noticed that in the above decision, the
emphasis is on Clause-2 of the Article 226 of the Constitution of
India which specifies that the power conferred by clause (1) to
issue directions, orders or writs to any Government, authority or
person may also be exercised by any High Court exercising
jurisdiction in relation to the territories within which the cause
C/SCA/1235/2021 JUDGMENT
of action, wholly or in part, arises for the exercise of such power,
notwithstanding that the seat of such Government or authority
or the residence of such person is not within those territories.
The Court has clearly held that in view of Clause-2 of Article 226
of the Constitution of India, even if the small part of cause of
action arises within the jurisdiction of High Court, it would have
a jurisdiction to issue a writ. The Apex Court however added that
when a small part of cause of action arises within the territorial
jurisdiction of the High Court, the High Court may not be
compelled to decide the matter on merits. In appropriate case the
Court may refuse to exercise discretionary jurisdiction.
14.11. While considering the merits along with the issue of
breach of principles of natural justice, further amplification of
issue as to how the cause of action has arisen within the
territorial jurisdiction of this Court would be feasible. It is not a
small part of cause of action which has arisen which may be the
reason for the Court to refuse to exercise the discretionary
jurisdiction for invoking extraordinary powers. The present case
in no manner can be equated with the case of Utpal Kumar
(supra) where the advertisement was in all leading English
newspapers and since the NICO, based at West Bengal had
applied for contract and the challenge raised in writ petition
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before Calcutta High Court was of awarding the contract to the
third party, which in the instant case is not the case. Here are
robust facts which clearly lead to grant jurisdiction to this Court
and therefore, this decision shall not help the case of the
respondent. Once the cause of action arises in part within the
specified areas in the State of Gujarat, litigant being the
dominus litis can choose its forum convenience.
15. We notice that in the matter on hand, a tender was floated
by the respondent for Charter Higher of 06 nos. of Work Over
Rigs for various assets of the ONGC for a period of three years
for Cat-1, 2 and 3 and five years for Cat-4 on 28.08.2019. The
bid on the part of the petitioner was for categories 1 and 2 where
one Rig was in the Ahmedabad and three Rigs were in the
Mehsana. The petitioner submitted his bid for tender on
21.10.2019 without any payment of EMD and requested for the
payment of EMD relying on Clause 17.2 of the Instructions of
Bidders (ITB) claiming to be a small enterprise as contemplated
by Mirco, Small and Medium Enterprises Development Act, 2006
(MSME Act) as the exemption from payment of bid security is
available to micro and small enterprise and not to medium
enterprise. The EMD of Rs. 96,60,300/- has not been paid to the
respondent as per the tender document at the time of
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submission of the bid on 10.10.2019. It also confirmed the
genuineness of the document, certificates and information
supplied to the respondent.
15.1. Had it ended at that stage, then also, possibly the
respondent could not have questioned since the bid is in relation
to the contract work at Ahmedabad and Mehsana, where one Rig
is in Ahmedabad and three Rigs in Mehsana. Assuming that this
entire aspect is in the realm of contract and place of work would
have no relevance till the completion of process and,
correspondence was at Delhi, the respondent could have raised
this dispute till that stage. However, what happened
subsequently would allow this Court to exercise territorial
jurisdiction. On 14.02.2020 and 25.02.2020, the respondent
received letters against the petitioner raising a clear red flag by
raising the question against the petitioner's status of being a
small enterprise as per the MSME Act and the respondent
addressed a communication on 21.05.2020 to the petitioner
seeking explanation and justification as to how it claimed
exemption under Clause 17.2 of the ITB. The petitioner admitted
on 27.05.2020 in its reply that its investment and equipment
used in service is less than 5 crores and hence, it is a medium
enterprise company, however, quickly thereafter, the petitioner
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vide its emailS dated 22.06.2020 and 26.08.2020 sought to
change its stand by claiming that it was a small enterprise and
by then, the respondent decided to issue the show cause notice
on 31.08.2020, proposing banning of the business on account of
the submission of false information and 'forged' documents
claiming MES benefits. Eventually, by order dated 14.12.2020,
the respondent banned the petitioner and blacklisted it for the
period of two years from the date of order. All subsequent events
happened, once the respondents received two complaints, where
part of cause of action surely is within the jurisdiction of this
Court.
16. This decision obviously and invariably would have a lasting
effect on the business and this banning order and blacklisting
also would have its echo in the business conducted anywhere in
the entire country, so far as the ONGC is concerned. Moreover,
the petitioner is operating from District Rajkot, in the State of
Gujarat. Not only the correspondence of show cause notice and
its reply is within the jurisdiction of this Court, the office of
petitioner is at Rajkot and it conducts for all its business
purpose from Rajkot Office. This order of banning served upon
the petitioner company at Rajkot would have material bearing on
its future business. Not a small part but a substantial part of
C/SCA/1235/2021 JUDGMENT
cause of action has arisen within the jurisdiction of this Court.
Therefore, the contention on the part of the respondent of this
Court having no jurisdiction to entertain this petition would, in
no manner, merit acceptance and such contention, in fact,
deserves rejection. Respondents have sought to draw from the
ratio laid down in case of Utpal Kumar (supra) which for the
reasons stated hereinabove will not be applicable.
Issue of breach of principles of natural justice:
17. It leads this Court to the vital question of violation of
principles of natural justice while passing the order of banning.
18. The genesis of the dispute is the communication from
ONGC to the petitioner dated 21.05.2020. The e-mail indicates
that against the tender no. ZNSAC19009 for charter hiring of 06
nos. of Work Over Rigs, the two complaints/representations have
been received by the ONGC against the petitioner alleging that
the petitioner has submitted fraudulent documents for claiming
MSME benefits. The gist of the representations has been given
which is as follows: -
"(1) As per Government Directives in services
sector, there are three Categories of as per follow:
Service sector:
C/SCA/1235/2021 JUDGMENT
Manufacturing Sector
Enterprises Investment in plant and
machinery
Micro Does not exceed 25 lakh rupees
Enterprises
Small More than 25 lakh rupees but does
Enterprises not exceed 5 crore rupees
Medium More than 5 crore rupees but does
Enterprises not exceed 10 crore rupees
Service Sector
Enterprise Investment in plant and
machinery
Micro Does not exceed 10 lakh rupees
Enterprises
Small More than 10 lakh rupees but does
Enterprises not exceed 2 crore rupees
Medium More than 2 crore rupees but does
Enterprises not exceed 5 crore rupees
(2) In the balance sheet as of M/s REPL the total
investment in last two years is as under:
Particulars 31.03.2019 31.03.2018
Non-current Rs. Rs.
Assets: 7,85,40,434.00 8,29,89,896.00
Fixed Assets:
(3) M/s. Ratnam has obtained MSME registration
through fraud documents."
18.1. It is alleged that since the petitioner is having
investment exceeding Rs. 26.95 crores as per the balance sheet
of the year 2018-19 and it being medium enterprise, it is not
eligible for MSME benefits as per rules. It is also further alleged
C/SCA/1235/2021 JUDGMENT
that the petitioner has obtained MSME registration through
fraudulent documents. Hence, the petitioner has been asked to
clarify the stand along with the documentary evidences to
substantiate the claim of MSME benefit. The reply was to be
tendered by 27.05.2020.
18.2. The reply dated 27.05.2020 conveys clearly and
unequivocally that the company has been engaged in providing
services and having gross investment in equipment used directly
for service contract above Rs. 2 crores and up to Rs. 5 crores are
treated as medium enterprise and covered under the MSME. It
further reveals that the investment of the petitioner in
equipment which are used in services are of less than Rs. 5
corres and hence, the petitioner is medium sized enterprise. It
further says that the respondent has considered the wrong figure
of the entire fixed asset investment, while deciding MSME status.
The figure may also include many assets like land and building,
furniture and fixture, vehicles etc. It clarified further that the
total investment of Rs. 26.95 crores which covers all assets
including debtors, cash balance, bank balances and advances
along with the fixed assets. Therefore, emphasis was that there
is no fraudulent manner of obtaining MSME registration and
further request was made to evaluate the matter positively and
C/SCA/1235/2021 JUDGMENT
grant a clean chit.
18.3. It is apparently clear from these correspondences
that the letters/representations received by the ONGC in the
form of the complaint have not been shared with the petitioner.
It is also not in dispute that the reply to the same on 27.05.2020
speaks of the petitioner having called its company as a medium
enterprise. It is explained that there was a misunderstanding of
the investment required for the small enterprise in
manufacturing sector and therefore, erroneously, the petitioner
called itself as a medium enterprise. It was clarified
subsequently that value of various assets was not to be taken
into consideration for calculating investment and request was
also made for referring to the schedules and fixed assets in the
audit account.
18.4. The respondent stuck to the said communication of
27.05.2020 by emphasizing that the petitioner itself has
admitted the unit to be medium enterprise and not small
enterprise. One can notice that on 22.06.2020, it has been
emphasized that the category is of a small enterprise under the
MSME Act of the petitioner and there is a valid Udhyog Aadhar
Certificate having small unit category issued by MSME
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department. With the further emphasis that there has been
never any fraudulent practice adopted by the petitioner, request
was made to also grant an opportunity of personal hearing
before any decision is taken. In subsequent communication
dated 26.08.2020 also, it further reiterates that the petitioner is
a small enterprise with MSME. It is a service provider in the field
of Oil and Gas exploration and production as well as other
exploration industry and it is serving ONGC, Vedanta Limited,
EOGEPL, Singareni Collieries Company Ltd. etc and they have
the history of honest business with many government enterprise.
It refuted once again of having been involved in any fraudulent
activities.
18.5. The office of Development Commission (Micro, Small
and Medium Enterprise) addressed a letter to ONGC on
27.08.2020. This is a monitoring authority under the MSME Act.
It has not questioned the registration nor has it taken any action
for recalling or canceling the registration issued to the petitioner
as small enterprise. This communication deserves reproduction
which is thus: "I have been directed to inform that you are
requested to kindly look into the matter and redress the
grievance of the MSE as deemed appropriate under the purview
of Public Procurement Policy. Action taken in this regard may
C/SCA/1235/2021 JUDGMENT
directly communicated to the unit with a copy to this office."
After receipt of this communication from the office of
Development Commission, the Ministry of Micro, Small and
Medium Enterprise, Government of India, a show cause notice
came to be issued on 31.08.2020 by the respondent where the
reference is made of the non-payment of EMD and the
correspondence that had been entered into, to allege that ONGC
verified the authenticity of all documents, certificates and
information submitted by the bidder against the tender and it
has the power, at any stage of tendering process of contract/ PO
execution to reject the bid of the bidder or to cancel or terminate
the contract and forfeit the EMD if it is established that the
bidder has submitted the forged documents or certificates or
information. The bidder is also required to give an undertaking
on its company's letter head duly signed by the signatory of the
bid that all information, certificates and the documents against
the tender are genuine and in case of any false or forged
document, the action can be initiated by the ONGC. It further
reminded the petitioner that the Integrity Pact as per ONGC
Tender Formate is signed by the petitioner and it appears that
the firm has submitted the false information/ document against
the said tender in violation of Clause-52 of ITB of tender
documents and this action on the part of the petitioner has also
C/SCA/1235/2021 JUDGMENT
put the reliability and creditability of it into question and thereby
committed transgression of provision of Integrity Pact. In the
above background, the petitioner has been issued the notice to
show cause as to why the ONGC should not ban the business
dealing with the firm on account of such submission of the false
information/ documents. The reply was to be tendered within 15
days.
18.6. It appears that the only clause which has been
referred to is Clause No. 52 which is non-existent in the ITB.
18.7. The petitioner responded that there is no ITB Clause-
52 and there is no provision on the UM Portal to update the
data. It also emphasized that there is a difference between a
forged document and unacceptable document by relying on the
FAQs issued by the Ministry. It also enclosed the
acknowledgment issued by the District Industries Centre,
Government of Gujarat categorizing the petitioner enterprise a
small enterprise. It also tendered the certificate issued by the
Chartered Accountant certifying the investment of the petitioner
below Rs. 2 crores.The notification issued by the Ministry of
Small Scale Industries as to how the investment in plant and
machinery is to be calculated, is also relied on. Notification
C/SCA/1235/2021 JUDGMENT
issued subsequently on 26.06.2020 by the Ministry of Micro,
Small and Medium Enterprise retrospectively revising the
investment to Rs. 10 crores also is heavily depended upon.
19. It is thus quite clear from the entire gamut of facts that the
petitioner is though expected to meet with the allegations of
having tendered the forged documents and yet, the very edifice
on which this inquiry was initiated, being the complaints have
not been furnished to the Petitioners. It is an irony that the basis
for issuance of show cause notice which eventually culminated
into passing of banning order, has not been provided to the
petitioner. The very representations/complaints which are the
genesis of the proceedings were neither shown nor furnished nor
shared during the entire proceedings with the petitioner. It is
insufficient to make a reference of the same in the first
communication in which the reply of the petitioner has been
sought. So much so that the copy of inquiry report also has not
been supplied to the petitioner and for the first time, at the time
of filing the sur-rejoinder before this Court, the same has been
placed on record. The inquiry report which is otherwise a
conclusive base for banning the order ought to have been
provided to the petitioner before any further action was taken on
strength thereof. This undoubtedly and unfailingly can be
C/SCA/1235/2021 JUDGMENT
termed as the action wholly in breach of principles of natural
justice. The person cannot be condemned unheard and any
insufficient supply of the material or non-supply of the material
surely and undoubtedly and seriously would jeopardize the right
of the person to defend himself. Therefore, to say that the entire
procedure in no manner has prejudiced the petitioner, is an
unsustainable proposition.
19.1. We failed to grasp as continually the documents were
termed and labelled as forged. We had pertinently queried to the
learned empaneled counsel Mr. Ajay Mehta of ONGC as to in
what manner the documents are labelled to be forged
documents. At the best, they can be said to be incorrect
presentation of the documents. They, by no stretch of
imagination, can be said to be the forged documents. Even if the
respondent - ONGC has any objection to the manner in which
the Ministry of Micro, Small and Medium Enterprise issues such
certificate, it has no independent powers to adjudge any limit
and label any enterprise as small or medium. Mr. Mehta had
fairly submitted in an answer to our query that ONGC has no
power to issue any such certificate or evaluate the certificate
once the certificate is issued by the Ministry of MSME or on the
basis of the documents, independently arrive at any decision for
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terming the enterprise as micro, small or medium. This would
mean that it needs to accept the decision of MSME in respect of
labelling any enterprise in any of these three categories and if
anything objectionable in that regard is noticed by it, it can bring
to its attention. Here, it did that and then, relying on the
communication of MSME, it has termed it as fraudulent action
without cancelling or questioning the certification of the
enterprise issued by MSME.
19.2. Moreover, non-existence of Clause-52 of ITB also
would make it extremely difficult for the party who is expected to
reply diligently and sparingly. This also is another facet of
breach of principle of natural justice. The MSME department
which is issuing and monitoring this very subject, till date, when
has not canceled the registration of the petitioner, by no stretch
of imagination, it can be said that the documents which have
been produced for terming the enterprise as a small enterprise
are forged documents. What possibly the respondent meant was
although in its reply on 27.05.2020, the petitioner admitted of it
being a medium sized industry and yet, it has chosen not to
produce the correct documentation before the MSME and that
led the MSME to issue a certificate to the petitioner being small
scale industry, whereas, in fact, it is a medium sized industry.
C/SCA/1235/2021 JUDGMENT
This appears to be on the strength of the communication on
27.05.2020 which has been explained in the quick succession of
two e-mails by the petitioner and also followed by the certificate
of Chartered Accountant of the petitioner who has certified that
the investment of the petitioner is below 2 crores, this stringent
stand of the respondents has emerged .
19.3. The notification issued by the Ministry of MSME also
says as to how the investment in the plant and machinery is to
be calculated i.e. by returning of value and original tax. In the
first response given to the Respondents, according to the
petitioner, there was a misunderstanding on the part of the
petitioner with regard to the investment required for small
enterprise in manufacturing sector and therefore, it called itself
as a medium enterprise, however, the petitioner clarified soon
thereafter that the value of various assets were not to be taken
into consideration for calculating the investment. It also made a
request to refer to the schedule and fixed assets in his audit
account.
20. This issue of admission of the Petitioner and change of
stand soon thereafter, can be also looked at from another angle.
Had the petitioner called itself a small enterprise by disclosing in
C/SCA/1235/2021 JUDGMENT
its e-mail or through its own audit and the certificate of its
Chartered Accountant on its own, without any valid Udhyog
Aadhar Certificate issued by MSME depicting the petitioner as
the small unit category, would the respondent - ONGC accept
the same without a murmur! The answer obviously shall be in
negation, it could not have accepted it by any angles. Such self
declaration has no basis and this by no stretch can be termed as
the authentic declaration for the purpose of final certification.
We, in fact, also have pertinently questioned the respondent's
side in this regard and learned counsel had agreed that apart
from not having any authority to evaluate the certification issued
by the MSME, it has no independent authority or set-up to
evaluate the petitioner's enterprise either as micro, small or
medium. It has to essentially depend on the MSME. At the best,
it could have referred the entire matter to MSME for it to inquire
into the same and re-look at it afresh.
20.1. Even if, as mentioned hereinabove, there is a
communication from the officer of the Development
Commissioner addressing to the respondent - ONGC to address
the grievance of the petitioner and to look into the matter and
redress the grievance of the MSE as deemed proper under the
purview of Public Procurement Policy and to intimate the action
C/SCA/1235/2021 JUDGMENT
that may be taken in this regard directly to the office of the
Development Commissioner,that by itself would not in any
manner authorize the respondent - ONGC to adjudicate this
matter independently as it has no authority to delegate powers
as such powers are required to be exercised statutorily by the
Ministry of Micro, Small and Medium Enterprise for adjudging
any enterprise under the banner of Micro, Small or Medium
Enterprise. The Joint Officer of Development Commissioner also
could not have delegated such powers in absence of any such
express authority under the statute or the rules.
20.2. The reference to the notification issued by the
Ministry of Small Scale Industries as to how the investment in
plant and machinery for the purpose of classification as a micro,
small and medium enterprise is to be calculated, requires a little
detailed discussion. Paragraph-2 of the said notification clarifies
that for ascertaining the investment in plant and machinery for
classification of enterprise, the documents which are to be relied
upon are as follows: (i) copy of invoice of the purchase of plant
and machinery, or (ii) gross block for investment in the plant and
machinery as reflected in the audited accounts, or (iii) the
certificate issued by the Chartered Accountant regarding the
purchase price of plant and machinery. The Ministry has further
C/SCA/1235/2021 JUDGMENT
clarified that for investments in plant and machinery, the
purchase value of the plant and machinery is to be reckoned and
not the book value (purchase value - depreciation). From this
notification also, neither MSME nor the respondent is in any
manner able to point out as to how the petitioner does not fit
into the certification of small enterprise.
21. Subsequent notification on 26.06.2020 issued by the very
ministry retrospectively revised the investment to Rs. 10 crores.
This notification has been issued in exercise of powers conferred
by sub-section (1) read with sub-section (9) of Section 7 and sub-
section (2) read with sub-section (3) of Section 8 of the MSME(D)
Act, 2006. This was issued in supersession of the notifications of
Government of India and the Ministry of Micro, Small and
Medium Enterprise dated 01.06.2020, 30.06.2017, 01.11.2013
and 05.10.2006. This retrospectively revised the investment to
Rs. 10 crores. Moreover, for facilitation and grievance redressal
of enterprise, MSME including the Development Institute is
specified to act as a Single Window System. For facilitating the
registration process and further handholding of the enterprise in
all possible manner, the District Industries Centre is also to act
as a Single Window System. In case of any discrepancy or
complaint, the General Manager of District Industries Centre of
C/SCA/1235/2021 JUDGMENT
the concerned district is empowered to undertake an inquiry for
verification of details of the Udhyog Registration submitted by
the enterprise and thereafter, forward the matter with necessary
remarks to the Director or Commissioner or Industry Secretary
of the concerned State who after issuing notice and giving the
opportunity to present the case, based on the findings, may
amend the details or recommend to the Ministry for cancellation
of Udhyog Registration Certificate.
21.1. There appears to be a complete and total absence of
any such move on the part of the ONGC to approach any such
Single Window Grievance Redressal Forum. There does not
appear to be any testimonial indicating anything contrary to
question the certification of the petitioner being a small
enterprise. Respondent therefore lacks legal authority to adjudge
the petitioner as medium enterprise in the manner it has done in
the instant case.
22. Adverting to the facts elaborately once again, the
petitioner, in the instant case, bid for Rig Cat-1 and 2 who was
to deposit, the total EMD amounting to Rs. 50,89,100/- (round
of). The amount of the EMD varies as, according to the
respondent, it is Rs. 1 crore whereas version put forth by the
C/SCA/1235/2021 JUDGMENT
petitioner states Rs.50.89 lakhs.
22.1. Be that as it may, the respondent had alleged the forgery
to have been played by the petitioner. Reference in the show
cause notice is of Clause-52 of the ITB which is not existing. In
the banning order passed by the respondent, the reference is of
Clause-40 of the ITB and Section 3 of the Integrity Pact. This
change on the part of the respondent without intimating the
petitioner, also is impermissible and is clearly violative of the
principles of natural justice. Inadvert reference of another clause
which may not need an over emphasis however, considering a
peculiar circumstance where the clause referred for initiating the
proceedings when has no existence, the capability of a party to
meet with the challenge surely would materially get
compromised and thus, such wrong quoting simply cannot be
disregarded. Ambiguity of provision and absence of adequate
material in the notice would surely affect right of reasonable
opportunity. Proceeding initiated culminated into serious
consequences and hence, strict adherence to the principles of
natural justice was inevitable.
23. Reference shall be made, at this stage, of the decision
rendered in case of UMC Technologies Private Limited vs.
C/SCA/1235/2021 JUDGMENT
Food Corporation of India and Another [2020 SCC OnLine
SC 934], where the Food Corporation of India terminated the
contract of service and blacklisted the appellant from
participating in any future tenders of the corporation for the
period of five years. The corporation had issued a bid document
inviting the bid of appointing recruitment agency to conduct the
process of hiring the watchmen for the corporation office. The
appellant submitted its bid and was declared as successful
bidder and after competing the formalities, it was appointed for a
period of two years. There were certain handwritten documents
found by the Special Task Force of Bhopal Police which appeared
to be the question papers related to the examination conducted
by the appellant for eligible aspirants for the post of watchman.
23.1. The charge-sheet came to be filed by the police against
certain persons after having found prima facie that the
examination conducted was in complete violation of the protocols
to be observed on the ground that it was a sole responsibility of
the appellant to prepare and distribute the question papers as
well as conduct the examination in a highly confidential manner.
23.2. The corporation alleged the abject failure and clear
negligence in ensuring smooth conduct of the examination and
C/SCA/1235/2021 JUDGMENT
issued a notice of show cause. This was replied to denying any
negligence or leak of question papers from its end, however, the
appellant submitted an observation report-cum-reply which
compared the seized documents with the original question
papers and contended that there were many dissimilarities
between the two.
23.3. The corporation concluded that the shortcomings and
negligence on the part of the appellant stood established beyond
reasonable doubt and proceeded to terminate the contract
entered into with the appellant and also blacklisted the
appellant. This was challenged before the High Court which
dismissed the petition and therefore, the challenge was made
before the Apex Court.
23.4. The Apex Court held and observed that the first
principle of civilised jurisprudence is that a person against
whom any action is sought to be taken or whose right or
interests are being affected should be given a reasonable
opportunity to defend, the notice of the case against him be
served so that he can defend himself. Such notice should be
adequate and the grounds necessitating action and the
penalty/action proposed should be mentioned specifically and
C/SCA/1235/2021 JUDGMENT
unambiguously. An order travelling beyond the bounds of notice
is impermissible and without jurisdiction to that extent. In the
context of blacklisting of a person or an entity by the State or a
State Corporation, the Court held that blacklisting has the effect
of denying a person or an entity the privileged opportunity of
entering into government contracts. Since it has an effect of
depriving the person of equality and opportunity in the matter of
public contract and it involves serious other consequences, the
basic rule is that there has to be a strict adherence to the
principle of natural justice.
"13. At the outset, it must be noted that it is
the first principle of civilised jurisprudence that a
person against whom any action is sought to be
taken or whose right or interests are being affected
should be given a reasonable opportunity to defend
himself. The basic principle of natural justice is that
before adjudication starts, the authority concerned
should give to the affected party a notice of the case
against him so that he can defend himself. Such
notice should be adequate and the grounds
necessitating action and the penalty/action proposed
should be mentioned specifically and
unambiguously. An order travelling beyond the
bounds of notice is impermissible and without
jurisdiction to that extent. This Court in Nasir
Ahmad v. Assistant Custodian General, Evacuee
Property, Lucknow and Anr.,1 has held that it is
essential for the notice to specify the particular
grounds on the basis of which an action is proposed
to be taken so as to enable the noticee to answer the
case against him. If these conditions are not
satisfied, the person cannot be said to have been
granted any reasonable opportunity of being heard.
C/SCA/1235/2021 JUDGMENT
14. Specifically, in the context of blacklisting of a
person or an entity by the state or a state
corporation, the requirement of a valid, particularized
and unambiguous show cause notice is particularly
crucial due to the severe consequences of blacklisting
and the stigmatization that accrues to the
person/entity being blacklisted. Here, it may be
gainful to describe the concept of blacklisting and the
graveness of the consequences occasioned by it.
Blacklisting has the effect of denying a person or an
entity the privileged opportunity of entering into
government contracts. This privilege arises because it
is the State who is the counter-party in government
contracts and as such, every eligible person is to be
afforded an equal opportunity to participate in such
contracts, without arbitrariness and discrimination.
Not only does blacklisting takes away this privilege, it
also tarnishes the blacklisted person's reputation
and brings the person's character into question.
Blacklisting also has long-lasting civil consequences
for the future business prospects of the blacklisted
person.
15. In the present case as well, the appellant has
submitted that serious prejudice has been caused to
it due to the Corporation's order of blacklisting as
several other government corporations have now
terminated their contracts with the appellant and/or
prevented the appellant from participating in future
tenders even though the impugned blacklisting order
was, in fact, limited to the Corporation's Madhya
Pradesh regional office. This domino effect, which
can effectively lead to the civil death of a person,
shows that the consequences of blacklisting travel far
beyond the dealings of the blacklisted person with
one particular government corporation and in view
thereof, this Court has consistently prescribed strict
adherence to principles of natural justice whenever
an entity is sought to be blacklisted.
16. The severity of the effects of blacklisting
and the resultant need for strict observance of the
principles of natural justice before passing an order
of blacklisting were highlighted by this Court in
C/SCA/1235/2021 JUDGMENT
Erusian Equipment & Chemicals Ltd. v. State of
West Bengal2 in the following terms:
"12. ... The order of blacklisting has the effect of
depriving a person of equality of opportunity in
the matter of public contract. A person who is
on the approved list is unable to enter into
advantageous relations with the Government
because of the order of blacklisting. A person
who has been dealing with the Government in
the matter of sale and purchase of materials
has a legitimate interest or expectation. When
the State acts to the prejudice of a person it has
to be supported by legality.
XXX XXX XXX
15. ... The blacklisting order involves civil
consequences. It casts a slur. It creates a
barrier between the persons blacklisted and the
Government in the matter of transactions. The
black lists are instruments of coercion.
XXX XXX XXX
20. Blacklisting has the effect of preventing a
person from the privilege and advantage of
entering into lawful relationship with the
Government for purposes of gains. The fact that
a disability is created by the order of
blacklisting indicates that the relevant
authority is to have an objective satisfaction.
Fundamentals of fair play require that the
person concerned should be given an
opportunity to represent his case before he is
put on the blacklist."
17. Similarly, this Court in Raghunath
Thakur v. State of Bihar, struck down an order of
blacklisting for future contracts on the ground of
non-observance of the principles of natural justice.
The relevant extract of the judgment in that case is
as follows:
"4. ... [I]t is an implied principle of the rule of
law that any order having civil consequences
should be passed only after following the
principles of natural justice. It has to be
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realised that blacklisting any person in respect
of business ventures has civil consequence for
the future business of the person concerned in
any event. Even if the rules do not express so, it
is an elementary principle of natural justice
that parties affected by any order should have
right of being heard and making
representations against the order."
18. This Court in Gorkha Security Services v.
Government (NCT of Delhi) and Ors.4 has described
blacklisting as being equivalent to the civil death of a
person because blacklisting is stigmatic in nature
and debars a person from participating in
government tenders thereby precluding him from the
award of government contracts. It has been held
thus:
"16. It is a common case of the parties that the
blacklisting has to be preceded by a show-
cause notice. Law in this regard is firmly
grounded and does not even demand much
amplification. The necessity of compliance with
the principles of natural justice by giving the
opportunity to the person against whom action
of blacklisting is sought to be taken has a valid
and solid rationale behind it. With blacklisting,
many civil and/or evil consequences follow. It
is described as "civil death" of a person who is
foisted with the order of blacklisting. Such an
order is stigmatic in nature and debars such a
person from participating in government
tenders which means precluding him from the
award of government contracts."
19. In light of the above decisions, it is clear that a
prior show cause notice granting a reasonable
opportunity of being heard is an essential element of
all administrative decision-making and particularly
so in decisions pertaining to blacklisting which entail
grave consequences for the entity being blacklisted.
In these cases, furnishing of a valid show cause
notice is critical and a failure to do so would be fatal
to any order of blacklisting pursuant thereto.
C/SCA/1235/2021 JUDGMENT
24. A plain reading of the notice makes it clear that
the action of blacklisting was neither expressly
proposed nor could it have been inferred from the
language employed by the Corporation in its show
cause notice. After listing 12 clauses of the
"Instruction to Bidders", which were part of the
Corporation's Bid Document dated 25.11.2016, the
notice merely contains a vague statement that in
light of the alleged leakage of question papers by the
appellant, an appropriate decision will be taken by
the Corporation. In fact, Clause 10 of the same
Instruction to Bidders section of the Bid Document,
which the Corporation has argued to be the source of
its power to blacklist the appellant, is not even
mentioned in the show cause notice. While the notice
clarified that the 12 clauses specified in the notice
were only indicative and not exhaustive, there was
nothing in the notice which could have given the
appellant the impression that the action of
blacklisting was being proposed. This is especially
true since the appellant was under the belief that the
Corporation was not even empowered to take such
an action against it and since the only clause which
mentioned blacklisting was not referred to by the
Corporation in its show cause notice. While the
following paragraphs deal with whether or not the
appellant's said belief was well-founded, there can be
no question that it was incumbent on the part of the
Corporation to clarify in the show cause notice that it
intended to blacklist the appellant, so as to provide
adequate and meaningful opportunity to the
appellant to show cause against the same.
25. The mere existence of a clause in the Bid
Document, which mentions blacklisting as a bar
against eligibility, cannot satisfy the mandatory
requirement of a clear mention of the proposed
action in the show cause notice. The Corporation's
notice is completely silent about blacklisting and as
such, it could not have led the appellant to infer that
such an action could be taken by the Corporation in
pursuance of this notice. Had the Corporation
expressed its mind in the show cause notice to black
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list, the appellant could have filed a suitable reply for
the same. Therefore, we are of the opinion that the
show cause notice dated 10.04.2018 does not fulfil
the requirements of a valid show cause notice for
blacklisting. In our view, the order of blacklisting the
appellant clearly traversed beyond the bounds of the
show cause notice which is impermissible in law. As
a result, the consequent blacklisting order dated
09.01.2019 cannot be sustained."
24. In the matter on hand, the reading of the show cause
notice makes it abundantly clear that the only reference which
has been made is of Clause-52 of the ITB. As discussed above,
Clause-52 does not exist and clearly the reference in the banning
order is of Clause-40.
24.1. The notice contains the reply of the respondent where it
has termed itself as medium sized enterprise without making the
reference of subsequent e-mails. It also refers to the documents
as the forged documents. All in all, there is of course a reference
of banning of the business but, this is all based on account of
the alleged false information/documents in the bid, the order is
clearly traveling beyond the bounds of the notice which is
impermissible and is also therefore without jurisdiction. Under
the tender, one does not find any power given to the ONGC to
issue banning order and it has the power to reject the bid. Of
course, under the Integrity Pact, it has power to initiate
appropriate actions. Even the fresh registration of 26.06.2020
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categorizes the petitioner as a small enterprise. Assuming that it
has the power to ban the enterprise and blacklist the same for a
restricted period, it has no business to keep the cards close to its
heart and in absolute violation of principles of natural justice,
adjudge the issue. Respondent would be surely obligated to
follow the principles of natural justice by providing the material
which it seeks to rely upon before such a harsh action is
contemplated. As noted above, neither the communications
which are believed by the respondents for issuing show cause
notice nor the copy of any other material is furnished to the
petitioner for it to meet with the action of the respondent.
Severity of banning order when demands strict observance of
principles of natural justice, the least the respondent could have
done was to share the base documents and subsequently, the
banning order.
25. Resultantly, the petition deserves to be allowed for having
made serious breach of the principles of natural justice. The
impugned banning order dated 14.12.2020 issued by the
respondent consequently is quashed and set aside. So far as the
request to consider the bid submitted for the subject tender by
the petitioner, consequently, the same would need to be regarded
if the banning order dated 14.12.2020 was the only ground of
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rejection and if the process is not already over. Rights of the
parties to initiate consequent proceedings of damage etc. in
relation to the said tender would also be open, as provided under
the law, if the process is already completed.
26. This may not also preclude the respondent - ONGC in
taking recourse to paragraph-9 of the notification dated
26.06.2020 issued by MSME of making a request to the Ministry
of Micro, Small and Medium Enterprise of scrutinizing
documentary evidence adduced by the petitioner, at the time of
registration and decide in accordance with law.
27. Petition is accordingly disposed of.
(SONIA GOKANI, J)
(SANGEETA K. VISHEN,J)
Bhoomi
