Shri Barfani Security Service vs Union Of India
2021 Latest Caselaw 4725 MP

                                1
                                                   WP. No.9680/2020




HIGH COURT OF MADHYA PRADESH, PRINCIPAL SEAT
                AT JABALPUR


Case Number and                     WP No.9680/2020
Parties Name
                               Shri Barfani Security Service
                                            Vs.
                               Union of India and others

Date of Order             26/08/2021
Bench Constituted         Single Bench:
                          Justice Prakash Shrivastava
                          ________
Whether approved for      No
reporting
Name of counsels for      Shri H.S. Chhabra Advocate for
parties                   the petitioner.

                          Shri Atul Choudhari, Advocate
                          for the respondent No.2.
Law laid down                                -
Significant paragraph                        -
numbers

                            ORDER

26.08.2021

Per: Prakash Shrivastava, J.

By this petition, the petitioner has challenged the communication dated 28.02.2019 Annexure P/6 rescending the contract and debarring the petitioner from participating in the tender for executing the balance work and forfieting security deposit and further providing that performance guarantee will be encashed. The petitioner has also challenged the communication dated 06.03.2019 Annexure P/7 whereby a sum of Rs.6,68,850/- is sought to be deducted by the respondents from the running bill of the petitioner of another contract, the communication dated 05.04.2019 (Annexure P/8) whereby the petitioner has been informed by the respondents reiterating that a sum of Rs.6,68,850/- will bededucted from his bill in furture and has

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also challenged the order dated 05.04.2019 (Annexure P/9) whereby the petitioner's representation has been rejected.

2. The case of the petitioner is that the respondents had issued the NIT for outsourcing of Combined Crew Booking Lobby to work as Data Entry Operator to work in Crew Management System at Jabalpur (JBP), Katni (KTE), Satna (STA) and Beohari (BEHR) for a period of 730 days (2 years). The petitioner had submitted the bid which was found to be lowest and the Letter of Acceptance (LOA) dated 11.01.2019 was issued to the petitioner. According to the petitioner, the LOA was received on 21.01.2019 by one Mr. Abhishek Tiwari who was an employee of the petitioner firm but not an authorized signatory to accord his acceptance on the LOA. Further case of the petitioner is that the LOA was neither stamped nor signed by the authorized signatory. The petitioner had received the letter dated 28.01.2019 from the Office of the Senior DEE/TRO requiring the petitioner to commence the service within 15 days which was not done and the petitioenr was issued a notice to deploy the full quantity of skilled labour within 48 hours. The petitioner had sent the communication dated 29.01.2019 to the respondents to clarify as to what work is required by his personnel so that the work awarded under the contract can be carried out smoothly and the agreement could be executed expeditiously. The petitioner had participated in the tender as MSME, therefore, he was not required to deposit earnest money (E.M.D.). Vide letter dated 28.01.2019, the respondents had directed the petitioner to furnish performance guarantee amounting to Rs.6,58,850/-. Further case of the petitioner is that there were no clarity about the terms of the condition of the LOA, therefore, the performance guarantee was not deposited and the railway department had never supplied the

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information with regard to number of workers and the kind of expertise required, therefore, the petitioner had not entered into the contract. The petitioner had sent its staff for training as per the terms and six days training was given to staff for which the raiway was required to issue the suitability certificate. But at this stage the impugned communication dated 28.02.2019 was issued rescending the contract and forfieting the security amount and providing for encashment of performance guarantee.

3. The respondents have filed their reply taking the stand that it was a concluded contract as LOA was issued and that the LOA was acknowledged and accepted by the employee of the petitioner on behalf of the petitioner firm and that by not depositing the performance guarantee amount, the petitioner firm had violated the mandatory condition of the LOA which amounts to breach of contract. Further stand of the respondents is that it was no where mentioned in the acceptance letter that the receiving of the letter will be issued by the authorized signatory of the Company. In respect of recovery of amount from other contract, the stand of the respondents is that the respondents do not intend to forfiet or recover the amount from other contract but they are withholding the said amount as deduction is the process and method and that they will only withhold that amount as performance guarantee amount with them unless and until the dispute is resolved by the Court of law or by any other method.

4. Learned counsel appearing for the petitioenr submits that no concluded contract exists between the parties as there is no acceptance of the LOA as per Clause 15 thereof. He further submits that a request for arbitration has already been declined and; in the alternative, he has submitted that at the most the

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respondents can forfiet the security deposit but they cannot recover the amount of performance guarantee by withholding the amount from another contract. In support of his submission, he has placed reliance upon the judgment of the Supreme Court in the matters of State of Madhya Pradesh and another vs. Firm Gobardhan Dass Kailash Nath reported in 1973 (1) SCC 668 and South Eastern Coalfields Ltd. and others vs. S. Kumar's Associates AKM(JV) reported in 2021 SCC Online SC 486.

5. The submission of learned counsel for the respondents is that in terms of Section 4 of the Contract Act, once an LOA is issued, it results into concluded contract and there was no revocation on the part of the petitioner as required by Section 5 and 6 of the Contract Act. He has further submitted that the security deposit has been forfieted in terms of the NIT and GCC and the respondents are only holding the amount of other contract but they are not making any recovery till the dispute is settled.

6. I have heard the learned counsel for the parties and perused the record.

7. The core issue in the present case is if with the issuance of LOA dated 11.01.2019 and its receipt by the employee of the petitioner, a concluded contract had come into existence ? The Clause (8) of the NIT issued by the respondents provides for execution of the contract documents and consequence of forfeiture of earnest money and recovery of damages for default in case of refusal to excute the contract documents and reads as under:

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"8. Execution of Contract Document: The Tenderer whose tender is accepted shall be required to appear in person at the office of General Manager/General Manager (Construction), Chief Administrative Officer (Construction), Divisional Railway Manager or concerned Engineer, as the case may be, or if a firm or corporation, a duly authorized representative shall so appear and execute the contract documents within 7 days after notice that the contract has been awarded to him. Failure to do so shall constitute a breach of the agreement affected by the acceptance of the tender in which case the full value of the earnest money accompanying the tender shall stand forfeited without prejudice to any other rights or remedies.

In the event of any tenderer whose tender is accepted shall refuse to execute the contract document as here in before provided, the Railway may determine that such tenderer has abandoned the contract and there upon his tender and acceptance thereof shall be treated as cancelled and the Railway shall be entitled to forfeit the full amount of the Earnest Money and to recover the damages for such default."

8. Clause 16(4) of the Standard General Condition of Contract provides for the submission of performance guarantee within stipulated time from the date of issue of LOA to the successful bidder and termination of contract and forfeiture of E.M.D. and other dues, in case of failure to do so. Sub-clause

(a) of Clause 16(4) provides as under:

(a) The successful bidder shall have to submit a Performance Guarantee (PG) within 30 (thirty) days from the date of issue of Letter of Acceptance (LOA). Extension of time for submission of PG beyond 30 (thirty) days and upto the date of submission of PG from the date of issue of LOA may be given by the Authority who is competent to sign the contract agreement. However, a penal interest of 15% per annum shall be charged for the delay beyond 30 (thirty) days, i.e. from 31 st Day after the date of issue of LOA. In case the contractor fails to submit the requisite PG after 60 days from the date of issue of LOA, a notice shall be served to the contractor to deposit the PG immediately (however not exceeding 90 days from the date of issue of LOA). In case the contractor fails to submit the requisite PG even after 90 days from the date of issue of LOA, the contract shall be terminated duly forfeiting EMD and other dues, if any payable against that contract. The failed contractor shall be debarred from participating in re-consider for that work."

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Clause 52 of the Standard General Condition of Contract provides for withholding and lien in respect of sums claimed and Clause 52A provides for lien in respect of claims in other contracts and reads as under:

52. Withholding and Lien in respect of sums claimed: Whenever any claim or claims for payment of a sum of money arises out of or under the contract against the contractor, the Railway shall be entitled to withhold and also have a lien to retain such sum or sums in whole or in part from the security, if any, deposited by the contractor and for the purpose aforesaid, the Railway shall be entitled to withhold the said cash Security Deposit or the Security if any, furnished as the case may be and also have a lien over the same pending finalization or adjudication of any such claim. In the event of the security being insufficient to cover the claimed amount or amounts or if no security has been taken from the contractor, the Railway shall be entitled to withhold and have a lien to the extent of the such claimed amount or amounts referred to supra, from any sum or sums found payable or which at any time thereafter may become payable to the contractor under the same contract or any other contract with this or any other Railway or any Department of the Central Government pending finalization or adjudication of any such claim.

It is an agreed term of the contract that the sum of money or moneys so withheld or retained under the lien referred to above, by the Railway will be kept withheld or retained as such by the Railways till the claim arising out of or under the contract is determined by the arbitrator (if the contract governed by the Arbitration Clause) or by the competent court as the case may be and that the contractor will have no claim for interest or damages whatsoever on any account in respect of such withholding or retention under the lien referred to supra and duly notified as such to the contractor. For the purpose of this clause, where the contractor is a partnership firm or a limited company, the Railway shall be entitled to withhold and also have a lien to retain towards such claimed amount or amounts in whole or in part from any sum found payable to any partner/limited company, as the case may be whether in his individual capacity or otherwise.

52-A Lien in respect of claims in other contracts:

(i) Any sum of money due and payable to the contractor (including the Security Deposit returnable to him) under the contract may be withheld or retained by way of lien by the Railway, against any claim of this or any other Railway or any other Department of the Central Government in respect of payment of a sum of money arising out of or under any other contract made by the contractor with this or any other Department of the Central Government.

(ii) However, recovery of claims of Railway in regard to terminated contracts may be made from the Final Bills,

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Security Deposits and Performance Guarantees of other contract or contracts, executed by the contractor. The Performance Guarantees submitted by the Contractor against other contracts, if required, may be withheld and encashed. In addition, 10% of each subsequent 'on-account bill' may be withheld, if required, for recovery of Railway's dues against the terminated contract."

9. Undisputedly, the petitioner was the lowest bidder and the bid of the petitioner was accepted and LOA dated 11.01.2019 was issued enclosing therewith schedule of rate and quantity for execution of the work and requiring the petitioner to deposit the performance guarantee of Rs.6,68,850/- within 30 days and mentioning consequence of not furnishing the performance guarantee even after 90 days from the date of issue of LOA and also mentioning for completion period, the conditions of the contract, provision relating to power of attorney requirement of executing the agreement. Clause 12 of this LOA reads as under:

"12. This acceptance letter forms a part of an agreement and all the terms and conditions of this letter alongwith all conditions, specifications and scope of work mentioned in the tender shall be binding on the contractor till a formal agreement is drawn or executed. This acceptance letter constitutes legal and enforceable contract for the above named work."

Clause 15 of the LOA further provides that -

"15. Please return one copy of this acceptance letter duly signed by you on each page, in token of acceptance of all the terms and conditions as given above."

Undisputedly, this LOA was received by Mr. Abhishek Tiwari, an employee of the petitioner firm.

10. Section 4 of the Contract Act provides as to when the communication can be complete and in terms thereof a communication of acceptance is complete as against the accepter when it comes to the knowledge of the proposer. Section 4 of the Contract Act reads as under:

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"4. Communication when complete.--The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.

The communication of an acceptance is complete,--

as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor;

as against the acceptor, when it comes to the knowledge of the proposer.

The communication of a revocation is complete,--

as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it;

as against the person to whom it is made, when it comes to his knowledge."

Section 8 of the Contract Act provides that :-

"8. Acceptance by performing conditions, or receiving consideration.--Performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal."

In terms of Section 8, the acceptance can be by performing the condition of a proposal.

11. In the present case, the stand of the petitioner is that Mr. Ritesh Tandon was the authorized representative of the petitioner firm being its proprietor. In the subsequent communication dated 29.01.2019 (Annexure P/4), Mr. Ritesh Tandon had clearly conveyed to the respondents that:-

^^i= Ø[email protected],lch,[email protected]@2018&19 fnukad 29-01-2019 izfr] ,MhbZbZ ¼Vhvkjvks½@tcyiqj dk;kZy; ofj-ea-fo- [email protected]] tcyiqj

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fo"k; %& vkids }kjk Hksts x;s i= Øekad JBP/TRO/Tender/2018-11 Date : 28/01/2019 ds laca/k esaA vknj.kh; egksn; th]

uez fuosnu gS fd] vkids }kjk tkjh LOA fnukad 11-01-2019 gesa 21-01-2019 dks 'kke 05%00 cts izkIr gqvk gSA tks fd] gekjs ,DtwD;wfVo vfHk"ksd frokjh us izkIr fd;k gSA egksn; Ñi;k gedks vkils ,oa vkids foHkkx ls lg;ksx pkfg, gS ftlesa ge foHkkx ds vkns'kkuqlkj vkWijsVj iznku dj ldsa] bl i= ds ek/;e ls eSa fjrs'k V.Mu izks0 Jh cQkZuh flD;ksfjVh lfoZl tcyiqj vkidks voxr djkuk pkgqaxk fd fujUrj esjs }kjk vkids fofHkUUk foHkkxksa esa ¼tcyiqj] dVuh] lruk] ] C;kSgkjh½ esa deZpkjh iznku fd;s x;s gSa] ftudh lwph ,oa vf/kdkj i= bl i= ds lkFk layXu gSA ftlls ;g Li"V gS fd esjh daiuh dh ea'kk vkids fofHkUu foHkkxksa esa vkWijsVj iznku djus gsrq lger gSA vr% esjh vkils fouez fourh gS fd] ÑIk;k dk;Z dk izdkj] dk;Z djus dh xfr ,oa fdl izdkj ds vkWijsVj dh vko';drk gS] eq>s voxr djk;k tk;sA rkfd eSa foHkkx lgqfyr ,oa vko';drk ds fglkc ls dk;Z djus okys dq'ky O;fDr iznku dj ldwa fdlh izdkj dh xyrh Hkwy ds fy, {kek djsaA

/kU;okn

layXu %& deZpkfj;ksa dh lwph ,oa vf/kdkj i=A }kjk

izks0 fjrs'k V.Mu Jh cQkZuh flD;ksfjVh lfoZl tcyiqj e-iz-^^ Thus, the petitioner had clearly stated that he had received the LOA dated 11.01.2019 on 21.01.2019 at 5.00 p.m. In this communication, he had also expressed his consent and willingness to supply the operator and had asked for the details of the type of operator required. In terms of the NIT, the petitioner had also sent its staff for training, therefore, now it is not open to the petitioner to contend that the concluded contract had not come into existence.

12. Counsel for the petitioner has failed to point out that the LOA dated 11.01.2019 contains any additional condition which was not mentioned in the NIT or Standard GCC, hence it cannot be held that the acceptance was not absolute. That apart, the subsequent conduct of the petitioner by admitting the receipt of the LOA vide communication dated 29.01.2019 and performing

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the condition of sending its workers for training also amounts to acceptance of LOA by the petitioner. Hence, this Court is of the view that concluded contract had come into existence.

13. Counsel for the petitioner has placed reliance upon the judgment of the Supreme Court in the matter of Firm Goverdhandas Kailashnath (supra) but in that case it was found that before coming into existence of concluded contract not only the acceptance was necessary but sanction by the Chief Conservator or and on behalf of the State was also required and that there was no proof that such a sanction infact was given and there was also not proof that the Chief Conservator had the authority to waive the condition subject to which only the tender could be validly accepted and sanctioned. It was further found that in the absence of initial deposit of 25% of the purchase price, the tender could neither be validly accepted nor sanctioned by the Chief Conservator. Similarly, counsel for the petitioner has placed reliance upon the judgment of the Supreme Court in the case of South Eastern Coalfields Ltd.(supra) but in that case it was found that the mandates of letter of award were not fulfilled. The bidder had neither submitted the performance security nor signed the Integrity Pact and the work order was also not issued and the contract was also not executed but only the equipments were mobilized at the site. In this background, the Hon'ble Supreme Court found that no concluded contract inter se party had been arrived at. The facts in the present case are entirely different, therefore, these judgments are of no help.

14. In the present case, a concluded contract had come into existence and therefore on rescinding the contract, the security amount has been forfieted and the respondents are retaining the amount of other contract waiting for settlement of the dispute.

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15. The respondents have refused the prayer for arbitration and it has been pointed out that now the petitioner has the remedy under Section 11 of the Arbitration & Conciliation Asct, 1996, therefore, it is made clear that the observations have been made in this order for the purpose of deciding the issue raised in the present writ petition only and the same will not have any effect on the petitioenr's right before the Arbitrator. If arbitration proceedings are conducted, the same will be decided in accordance with law without being any influenced by any contrary observation in this order.

16. In the aforesaid circumstances, I find no ground to interfere in the present petition which is accordingly dismissed.

(Prakash Shrivastava) Judge

YS

Digitally signed by YOGESH KUMAR SHRIVASTAVA Date: 2021.08.26 16:56:02 +05'30'