Health Care Medical Devices Pvt ... vs Madhya Pradesh Public Health ...
2021 Latest Caselaw 741 MP

1                                      W.P. No.2281/2021

HIGH COURT OF MADHYA PRADESH, BENCH AT INDORE

Case No.                         WP No.2281/2021
Parties Name            Health Care Medical Devices Pvt.
                                     Ltd.
                                      Vs.
                        MP Public Health Services Corp.
                               Ltd., & Anr.
Date of Order          16/03/2021
Bench Constituted      Division Bench:
                       Justice Sujoy Paul
                       Justice Shailendra Shukla
Order passed by        Justice Sujoy Paul
Whether approved for   Yes
reporting
Name of counsels for   Shri Vijay Kumar Assudani, Advocate
parties                for the petitioner.
                       Shri Aditya Khandekar, Advocate for
                       the respondents.
Law laid down          *Blacklisting and debarment-it has
                       drastic impact on the contractor-
                       Thus, such a drastic action can be
                       taken by following "due process".
                       Issuance of a notice by which
                       contractor can gather the nature of
                       allegations and intended action to be
                       taken is must. The order of
                       blacklisting/debarment cannot be
                       passed unless such an action is
                       proposed in the show cause notice or
                       it can be clearly inferred by reading of
                       notice that such an action was
                       proposed.
                       *The parameters for taking
                       decision of blacklisting/debarment-
                       The actual or potential harm, impact
                       and result of non-supply, duration of
                       wrong doing and cooperation of
                       contractor with Department are
                       relevant factors.
                       *Clause-10 of NIT- It's plain reading
                       makes it clear that it can not been read
                       in isolation because it enables the
                       authority to take into account and take
 2                                               W.P. No.2281/2021

                               action as per prevailing provisions of
                               tender documents/NIT. Thus, a
                               conjoint reading of Clause-12 (d), (k)
                               and Section 10 is permissible and
                               action based there upon cannot be
                               faulted with.
                               *Clause-12 (explanation) a vis-
                               majure- The petitioner in his reply to
                               show cause notice did not take
                               defence regarding any night curfew in
                               the area where manufacturing plant is
                               situated. Rest of the reasons are not
                               covered by vis-majure.
                               *No prejudice is shown- The
                               petitioner understood the specific
                               allegation and intended punishments
                               flowing from show cause notice and
                               filed his detailed reply. Hence, no
                               prejudice is caused to him. Even if
                               show cause notice is not happily
                               worded, it does not require any
                               interference by this Court.
Significant paragraph          16, 19, 20, 22, 25
numbers
                            ORDER

(Passed on this 16th day of March, 2021)

Per: Sujoy Paul, J. :

In this petition filed under Article 226 of the Constitution, the

challenge is mounted to the order dated 22/01/2021 (Annexure P/14)

whereby the respondents have blacklisted the petitioner and further

debarred him to participate in any tender process initiated by

respondent-corporation for further period of two years.

2) Briefly stated, the relevant facts, are that a notice inviting

tender (NIT) was issued by respondent No.1 on 05/09/2020 for

supply of various types of gloves to deal with Covid-19 pandemic.

The gloves were required to be supplied to various government

hospitals in the State of Madhya Pradesh. The petitioner submitted his

bid along with manufacturer's authorization in prescribed form

(Annexure P/4) in September 2020. On 01/10/2020, a Notification of

award was issued in favour of petitioner requiring him to supply

5,70,000 pairs of gloves of 5.5 inch and 6,20,000 pairs of gloves of 7

inches. On 15/10/2020, petitioner submitted bank guarantee for

performance security of Rs.96,26,800/- (Annexure P/7).

3) Shri Vijay Assudani, learned counsel for the petitioner submits

that between 31/10/2020 to 20/01/2021, petitioner supplied 65% of

said goods against the said order. The petitioner made various

correspondences with respondent No.2 (manufacturer) requesting him

to supply the gloves in order to enable the petitioner to supply the

same to the respondent/corporation. In turn, respondent No.2

informed the petitioner that he could not supply the goods in time

because of plant break down and night curfew imposed in his area

due to second wave of Covid-19 pandemic in the State of Gujarat. By

another communication dated 22/01/2021 (Annexure P/11), the

respondent No.2 reiterated his stand and assigned same reason of

inability to supply goods.

4) The show cause notice dated 08/12/2020 is served upon the

petitioner relying upon Clause-10 of the 'procedure for blacklisting'

which in the opinion of Shri Assudani categorically provided that if

recovery could not be affected from the security deposit then only

petitioner can be blacklisted.

5) Further more, it is urged that show-cause notice was issued in a

casual and cavalier manner, without due application of mind. The

show-cause notice was issued based upon Clause-10, whereas final

order dated 22/01/2021 was passed for yet another reason which was

not subject matter of show cause notice.

6) To elaborate, Shri Assudani submits that show cause notice

cannot be an empty formality. The notice must specifically disclose as

to what are the specific allegations which are required to be met by

the petitioner. In addition, there must be clear indication regarding

proposed action to be taken by the Department. The impugned show

cause notice is a bald notice submits Shri Assudani which shows that

Department was inclined to take disciplinary action without

specifying as to which action was intended to be taken namely action

regarding (i) levy of liquidated damages, (ii) purchase of goods at the

risk and cost of petitioner, or (iii) blacklisting. The show cause notice

is based on Clause-10 of the procedure whereas final order is passed

relying upon Clause-12 of the procedure.

7) The order dated 22/01/2021 does not contain reasons and on

this ground alone, the said order may be axed. These contentions are

founded upon the judgment of the Supreme Court reported in 2010

(9) SCC 496 - Kranti Associates Private Ltd. & Anr. vs. Masood

Ahmed Khan & Ors, 2014(9) SCC 105 - Gorkha Security Services

vs. Government (NCT of Delhi) & Ors. and a Division Bench

judgment of this Court in the case of Aicon Enginnering Pvt. Ltd. vs.

State of M.P., decided on 05/11/2019.

8) The broad parameters laid down by the Supreme Court in

2014(14) SCC 731 - Kulja Industries Ltd. vs. Chief General

manager, Western Telecom Project Bharat Sanchar Nigam Ltd. &

Ors. were also referred to submit that impugned order does not reflect

that any such relevant parameter was taken into account while passing

a drastic order of "blacklisting".

9) Shri Assudani fairly submits that in view of judgment of

Supreme Court in Gorkha Security Services (supra), he is not

pressing the ground regarding grant of personal hearing. Lastly, it is

submitted that great prejudice is caused to the petitioner because

respondents have failed to consider (i) issues urged and raised by the

petitioner, (ii) being an authorized distributor, non-supply could not

have been held him liable (iii) show cause notice was not clear

regarding specification of penalty etc. (iv) the department has not

passed order on merits and further failed to examine the parameters

laid down by Supreme Court in Kulja Industries Ltd. (supra).

10) In support of aforesaid contentions, reliance is placed on

Clause-2(i), 2(iv) and 12(e) of the NIT. Apart from this, reference is

made to Condition No.10 & 12 of NIT. In support of aforesaid oral

arguments, petitioner filed List of Dates and brief synopsis.

11) Per Contra, Shri Aditya Khandekar, learned counsel for the

Corporation supported the impugned order. It is argued that the

averment made in para-5.10 of petition leaves no room for any doubt

that there had been a plant break down in the manufacturing plant of

respondent No.2 because of said reason and imposition of night

curfew, the plant was non-operational between 15/10/2020 to

22/01/2021. Thus, admittedly the requisite supply of gloves was

hampered and petitioner has failed to supply the requisite number of

gloves. In this pandemic era, the gloves were required for the safety

of front line Covid workers, para-medical staff and treating doctors.

The non-supply had serious consequences on the entire system.

12) Shri Khandekar placed reliance on Clause-12(d) and urged that

supply was required to be completed within 30 days from the date of

purchase order. Clause (k) enables the Corporation to levy penalties

including the penalty of blacklisting. Clause-10 must be read with

Clause-12(k) which enables the Corporation to inflict the punishment

of blacklisting. In this case, the ordering authority has not procured

the gloves from the market and has not made any payment in this

regard. Therefore, the question of adjustment of said amount from

security deposit of petitioner did not arise. The blacklisting order was

rightly passed as per Clause-12(k) and Clause-10 (Annexure-V) of

NIT. Shri Khandekar also placed reliance on the judgment of

Supreme Court in Gurkha Security Services' case (supra) and urged

that it is discernible from the show cause notice about the penalties

which could have been imposed. Hence, no fault can be found in the

impugned action. Sufficient reasons have been assigned in the final

order. As per petitioner's own case, admittedly he could not supply the

entire material/gloves and hence no prejudice is caused to him. The

blacklisting order is in-consonance with law and does not require any

interference by this Court.

13) Parties confined their arguments to the extent indicated above.

14) We have heard the parties at length and perused the record.

15) Clause 2(I) and (IV) of "Conditions of Tender" deals with

qualification criteria/requirement. In absence of any dispute between

the parties regarding eligibility/qualification of petitioner, these

clauses pointed out by Shri Assudani are of no significance.

16) The Courts have consistently taken the view that blacklisting

has a drastic impact on the contractor. Hence, such an action can be

taken by following "due process". Issuance of a specific notice by

which contractor can gather the nature of allegations and intended

action to be taken is must. The contractor cannot be subjected to

blacklisting or debarment if such an action is not proposed in the

show cause notice or it cannot be clearly inferred by reading of notice

that such an action was proposed. This is clearly laid down by Apex

Court in the case reported in 1975 (1) SCC 70 (Erusian Equipment

& Chemicals Ltd. vs. State of West Bengal and Anr.). This view is

consistently followed by Supreme Court in catena of judgments

including in Gorkha Security Services (supra). Recently in 2021(1)

SCC 804 Vetindia Pharmaceuticals Limited vs. State of Uttar

Pradesh & Anr.), the ratio decindendi of said cases was again

followed by Supreme Court.

17) The show cause notice issued in the instant case and the final

order of blacklisting and debarment needs to be tested on the anvil of

enabling provisions and principles laid down by Supreme Court in

aforesaid cases.

18) Before dealing with the aforesaid aspect, it is apposite to quote

the relevant provisions of the NIT on which heavy reliance is placed

by the parties. Clause-12(d) & (k) reads as under:-

d) The supply should be completed within 30 days from the date of purchase order.

k) The order may stand cancelled at the end of 45th day from the issue of the purchase order after levying penalty on the value of the unexecuted order. Further, the Bidder shall also be liable to pay other penalties as specified Security Deposit of such suppliers shall also be forfeited besides taking other penal action like blacklisting/debarring from participating in present and future tenders of the tender inviting authority etc.

Blacklisting for non-supply:-

Clause 10 & 12 reads as under:-

10. The supplier should supply 100% of the ordered quantity at the designated places as per the schedule 30 days from the date of purchase order otherwise relevant provisions of tender document (of non supply) shall be applied. Period of 30 days will be counted from the date of placement of online order. If the supplier fails to supply the ordered quantity after elapse of 45 days, then the risk and differential cost will be passed on to the original supplier as per conditions of the tender document. If payment for, any extra cost incurred by ordering authority on any procurement done against risk & cost after lapse of said period of 45 days from the date of issue of order, is not made by the concerned supplier within 15 days of issue of notice, then the extra payment done will be deducted from the security deposit of the concerned supplier. If recovery could not be effected from its security deposit due to the reason of its security deposit

getting exhausted, then concerned supplier will be liable for blacklisting apart from any other penal actions and recovery proceedings that may be taken against it as per law.

12. (a) If the suppliers/s fail/s to execute the Purchase order and inform/s ordering authority about their inability to execute the order and in compliance of the Purchase order due to act of vis-majure, then the ordering authority may pass appropriate order on merits of case. Explanation:

(a) Increase in the cost of raw materials, Power failure, Labor strike, lay off; Closure of the factory would not be considered as act of vis-majure.

19) A careful reading of show cause notice dated 08/12/2020 makes

it clear that contractor was put to notice by giving him following

informations - (i) he has not supplied the complete material despite

repeated communications. (ii) The department intends to invoke

Clause-10 which provides penalty of "blacklisting and other penal

action" for non-supply. In our view, the singular and basic reason for

issuance of show cause notice was clearly spelled out i.e. non-supply

of entire material for which contract was granted. The reply of

petitioner dated 10/12/2020 (Annexure P/13) shows that petitioner

could clearly understand regarding the allegation mentioned in the

show cause notice. He furnished explanation for non-supply in his

aforesaid reply dated 10/12/2020. Thus, we are unable to hold that

show cause notice falls short the requirement of principles of natural

justice. In other words, the factual foundation of intended action by

the Department was communicated to the contractor and understood

by him. To this extent, no fault can be found in the show cause notice.

20) The Apex Court in Gurkha Security Services (supra) and in

Vetindia Pharmaceuticals Limited (supra) clearly held that

Department needs to state in show cause notice that Competent

Authority intended to impose a penalty of blacklisting so as to

provide adequate and meaningful opportunity to the contractor to

show cause against the same. It was poignantly made clear that if

proposed punishment is not mentioned specifically but from reading

of show cause notice, it can be clearly inferred and gathered that such

an action could be taken that would fulfill the requirement. In the

show cause notice dated 08/12/2020, the respondents have quoted

Clause-10 aforesaid which makes it clear that blacklisting could be a

punishment imposed pursuant to the said show cause notice. We are

unable to hold that order of blacklisting came as a bolt from blue to

the petitioner.

21) In Kulja Industries Ltd. (supra), the Apex Court has referred to

certain broad guidelines for the purpose of taking decision regarding

blacklisting/debarment. In para-21 of this judgment, it is noted that in

USA, instead of using the expression "blacklisting", the term

"debarring" is being used by statues and the courts. The Federal

Government considers "suspension and debarment" as a powerful

tool for protecting taxpayer's resources and maintaining integrity of

the processes for federal acquisitions. The comprehensive guidelines

issued in this regard are reproduced in the judgment on which

reliance was placed by Shri Assudani during his submissions. As per

these Guidelines, the actual or potential harm or impact that results or

may result from wrong doing, duration of wrong doing and whether

contractor has cooperated with the govt. etc. are relevant factors. In

the show cause notice of instant case, it was made clear that petitioner

has not supplied the entire quantity of gloves as per the contract. In

the punishment order dated 22/01/2021, it was reiterated that because

of non-supply of gloves (incorrectly mentioned as important

medicine) within time limit, the supply procedure was adversely

affected. The interruption in important supply of gloves had an

adverse impact in combating Covid-19 in State of Madhya Pradesh.

The repeated directions issued to petitioner to supply material could

not fetch any result. Thus, department has taken into account relevant

factors in the present case.

22) Clause-12(d) makes it clear that entire supply was required to

be completed within 30 days from the date of purchase order. Clause

(k) provides that order may stand cancelled at the end of 45 th day

from the issue of purchase order after levying penalty on the value of

unexecuted order. In addition, the bidder shall also be liable to pay

other penalties as specified. This Clause, in no uncertain terms, makes

it clear that other penal action like blacklisting/debarring from

participating in present and future tenders of tender inviting authority

etc. can be taken.

23) A careful reading of Clause-10 leaves no room for any doubt

that supplier was required to supply the desire quantity within

stipulated time otherwise relevant provision of tender document

regarding non-supply shall be applied. (Emphasis added) This

expression is couched in a mandatory language by using the word

"shall". Clause-10 cannot be read in isolation because it enables the

authority to take into account and take action as per relevant

provisions of tender document. Thus, we find force in the argument of

Shri Khandekar that Clause-10 aforesaid covers other clauses of

tender document including Clause 12(d) and (k).

24) The argument of Shri Assudani that blacklisting order could

have been passed only when recovery could not be affected from

petitioner's security deposit because of paucity of security deposit on

the first blush appears to be attractive but pales into insignificance in

the factual matrix of the present case. The simple reason is based on

an undisputed fact of non supply by petitioner and clear provision of

Clause-10. Clause-10 envisages that if contractor fails to supply the

ordered quantity within stipulated time, then the risk and differential

costs will be passed on to original supplier as per conditions of tender

document, if payment for, any extra cost incurred by ordering

authority on any procurement done against risk and cost after lapse of

said period of 45 days from the date of issue of order is not made by

concern supplier within stipulated time. The question of recovery

from security deposit of petitioner does not arise in the instant case

because admittedly no procurement has been made by the department

for the material/gloves which has fallen short because of insufficient

supply by the petitioner. The use of word "if" in Clause-10 makes it

clear that it is an enabling provision which can be pressed into service

in cases where any procurement is done by Department against non-

supply or inadequate supply of material by original

contractor/supplier. Thus, we are not impressed with the argument of

Shri Assudani in this regard.

25) As noticed above, the petitioner clearly understood the nature

of fault/deficiency pointed out in the show cause notice. Interestingly

in the reply to show cause notice dated 10/12/2020 (Annexure P/13),

the petitioner assigned following reasons for his inability to supply

the gloves.

"5. Disposable sterile Gloves 6.5 and 7 are lying pending for supply against your PO no.10282055844 and 10282055851, which will be supplied to consignee sites as soon as possible. Delayed supply due to breakdown in company's machines, engineers are putting their best efforts to start machine as immediate as possible. Not withstanding the above problem, it is our sincere intention to execute both the above orders by putting in our all out efforts and mobilising the resources on war footing basis. It is requested that the delivery period of these order extended without imposing L/D and any other penalties, due to late supply. Letter of Company Vijay Latex Products Pvt. Ltd. attached herewith for your kind perusal and consideration."

(Emphasis supplied) It is evident that no defence regarding imposition of "night

curfew" was taken in this reply. A careful reading of explanation to

Clause-12 aforesaid makes it clear that the reasons assigned in para-5

aforesaid does not fall within the ambit of vis-majure. The highlighted

portion of reply further shows that petitioner clearly understood that

any other penalty due to late supply could also be imposed on him.

Thus, even assuming that it is not very elaborate notice or could have

been drafted in a much better way, we are not inclined to interfere on

the notice and ultimate punishment because no prejudice is caused to

the petitioner.

26) So far argument of Shri Assudani that petitioner was served

with show cause notice regarding Clause-10 whereas while imposing

punishment, Clause-12 was also taken into account which is bad-in-

law is concerned, suffice it to say that Clause-10 itself permits the

Department to take action as per relevant provisions of tender

document which includes Clause-12. Clause-10 was reproduced in

show cause notice dated 08/12/2020. Hence, it cannot be said that

reliance on Clause-12 in the final order vitiates the decision making

process or the decision.

27) In view of foregoing analysis, we do not find any serious

procedural impropriety in the decision making process which requires

interference by this Court. Non-supply of gloves during pandemic era

is a serious matter. Thus, the impugned decision dated 22/01/2021

(Annexure P/14) taken on merits warrants no interference by this

Court.

28) Resultantly, petition fails and is hereby dismissed. No costs.

           (SUJOY PAUL)                             (SHAILENDRA SHUKLA)
              JUDGE                                        JUDGE
soumya
         Digitally signed by
         Soumya Ranjan Dalai
         Date: 2021.03.16
         16:44:28 +05'30'