Full Judgment Text
* IN THE HIGH COURT OF DELHI AT NEW DELHI
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Reserved on: 26 July, 2023
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Pronounced on: 11 August, 2023
+ LPA 568/2023 & CM APPLs. 37686-37687/2023
BASANT GOEL ..... Appellant
Through: Mr. Vivek Sood, Senior Advocate
with Mr. Rupesh Tyagi, Advocate.
versus
UNION OF INDIA AND ORS ..... Respondents
Through: Ms. Arunima Dwivedi, CGSC with
Ms. Pinky Panwar and Mr. Aakash
Pathak, Advocates for R-1.
CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE SANJEEV NARULA
J U D G M E N T
SANJEEV NARULA, J.
1. The Appellant is the proprietor of one M/s Goel Medicos, who
entered into a contract with Respondent No. 3 for supply of medicines to the
Sonipat Wellness Centre of Central Government Health Scheme [“CGHS”].
However, the contract was later terminated and the performance security
was forfeited on the ground of corrupt and fraudulent practices. In addition,
M/s Goel Medicos was declared ineligible for a period of two years from
participating in any tender or contract awarded by the CGHS, across India.
Dissatisfied with this decision, the Appellant filed a writ petition challenging
the termination as well as debarment. While the Appellant has achieved
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LPA 568/2023 Page 1 of 10
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By:SAPNA SETHI
Signing Date:11.08.2023
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partial success as the Learned Single Judge, by way of judgement dated 11
July, 2023 [ hereinafter, “ impugned judgement ”], has set aside the debarment
order, he remains aggrieved with rejection of his prayer against forfeiture of
Performance Bank Security [ hereinafter , “ PBS ”]. In that light, Appellant has
preferred the present appeal against the impugned judgment, assailing the
PBS forfeiture.
The facts presented by the Appellant
2. M/s Goel Medicos is a well-established and renowned entity in the
business of retail pharmacy, pharmacy distribution, and institutional supply
of medical/ pharmaceutical products. They are also empanelled with CGHS
as an authorized local chemist and are responsible for supplying allopathic
medicines to certain wellness centres situated in the Delhi-NCR region.
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3. Respondents issued a tender on 08 April, 2020 for the appointment
of an Authorized Local Chemist for eight wellness centres of CGHS. M/s
Goel Medicos, owned and controlled by the Appellant, emerged as the
successful bidder for the wellness centre at Sonipat. Amidst the tender
process, Ms. Usha Goel, who was the previous proprietor of M/s Goel
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Medicos, executed a Gift Deed on 31 July, 2020, thereby transferring the
ownership, assets, and all interests and liabilities of the establishment to the
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Appellant [Mr. Basant Goel]. Immediately thereafter, on 04 August, 2020,
the Respondents communicated their acceptance of M/s Goel Medicos’
offer, which was responded to by the Appellant on the same day.
Consequent thereto, M/s Goel Medicos proceeded to complete the
formalities under the tender, which included execution of an Agreement
with Respondent No. 3. During this process, an old employee, Mr. Akash
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Jain, unintentionally and mistakenly obtained a Power of Attorney [“PoA”]
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dated 18 August, 2020 from the previous proprietor – Ms. Usha Goel,
instead of the Appellant, which authorized him to handle the tender
formalities on behalf of M/s Goel Medicos.
4. In pursuance of the aforesaid PoA, Mr. Akash Jain signed an
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Agreement with Respondent No. 3 on 19 August, 2020 for supply of
medicines under the tender, for a period of three years [ hereinafter, “ the
Agreement ”]. A formal empanelment order was issued by Respondent No. 3
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on 26 August, 2020, which concluded the tender process. M/s Goel
Medicos then commenced supplying medicines to the Sonipat centre w.e.f.
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01 September, 2020. The business transactions between the parties
progressed smoothly and as per Respondents’ standards.
5. Later, M/s Goel Medicos submitted their bids for the tenders floated
by Respondent No. 3 for wellness centres in the South, North, and East
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Zones of Delhi-NCR on 04 January, 2023, and emerged as the successful
bidder for 38 such centres. During the scrutiny of the bid documents
submitted in furtherance of the aforesaid tenders, Respondent No. 3 issued
two show-cause notices to M/s Goel Medicos in respect of Dilshad Garden,
Ghaziabad and Sonipat wellness centres, where M/s Goel Medicos had
already been appointed as an Authorized Local Chemist under previous
tenders. As per these notices, M/s Goel Medicos failed to bring the Gift
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Deed dated 31 July, 2020 to the Respondents’ notice, which amounted to
misrepresentation of facts and indulgence in corrupt or fraudulent practice
under the tender.
6. The Appellant responded to the aforesaid show-cause notices,
explaining how the error crept in unknowingly and due to inadvertent
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mistake of his employee (Mr. Akash Jain). However, this reply was not
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found satisfactory by the Respondents and on 31 May, 2023, the contract
for supply of medicines to Sonipat wellness centre was terminated, forfeiting
the PBS of Rs. 12,10,000/- submitted by M/s Goel Medicos [ hereinafter,
“ Termination Letter ”]. Additionally, M/s Goel Medicos was declared
ineligible, thus, precluding their participation in any tender or award of a
contract by the CGHS in the country for a period of two years.
7. Aggrieved with the Termination Letter, the Appellant filed W.P.(C)
No. 8491/2023 before this Court, which was disposed of through the
impugned judgment, wherein the Learned Single Judge partly allowed the
writ petition by setting aside the debarment order, but refrained from
interfering with the Respondents’ decision insofar as it pertained to
termination of contract and forfeiture of PBS. The relevant portion of the
order rejecting the above-mentioned relief reads as follows:
“8. The undisputed facts of the case are that the Petitioner is the Sole
Proprietor of the Proprietorship concern, namely, M/s Goel Medicos, which was
gifted to him by his mother – Mrs. Usha Goel, by way of a Gift Deed dated
31.07.2020. In the Gift Deed dated 31.07.2020 it is specifically mentioned that
Mrs. Usha Goel has not been able to run the business due to lack of time and in
consideration of her natural love and affection for her son, i.e. the Petitioner
herein. It is stated that she gifted her proprietorship business, i.e. M/s Goel
Medicos, to the Petitioner herein along with all its assets, liabilities, statutory
registrations, goodwill, agencies and all other movable assets including transfer of
all the personnel as a going concern. The Gift Deed also mentions that the business
will be operated in the same manner and with the same name except that from the
date of the gift deed, the Proprietorship concern will become the Proprietorship
concern of the Petitioner herein. After execution of the gift deed, Mrs. Usha Goel
ceased to be the sole Proprietor of M/s Goel Medicos. Despite executing a Gift
Deed in favour of her son on 31.07.2020, Mrs. Usha Goel executed a Power of
Attorney dated 18.08.2020 in favour of Mr. Akash Jain authorizing him to sign
documents in relation to different tenders as an authorized signatory in the absence
of Mrs. Usha Goel, who has been shown as the Sole Proprietor of M/s Goel
Medicos. On the basis of the said Power of Attorney, Mr. Akash Jain signed and
submitted the tender documents with the Respondents. At the relevant point of time
Mrs. Usha Goel was not the Sole Proprietor of M/s Goel Medicos and, therefore,
she could not have authorized Mr. Akash Jain to sign the tender documents on
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behalf of M/s Goel Medicos. Therefore, the tender documents, which have been
signed by a person who was authorised to sign them by a person who ceased to be
the Sole Proprietor of M/s Goel Medicos, should not have been considered by the
CGHS for the tender process.
9. Viewed in this light, this Court does not find any reason to interfere with
the portion of the Order dated 31.05.2023, passed by the Respondent No.3 herein,
terminating the Contract Agreement dated 19.08.2020 entered into between the
Additional Director, CGHS (HQ) and M/s Goel Medicos against Tender ID No.
2020_DGHS_555011_1 for supply of indented medicines to the CGHS Wellness
Centres at Sonipat, and forfeiting the Performance Bank Security of Rs.12,10,000/-
which was submitted by M/s Goel Medicos at the time of entering into the contract.
However, this Court finds merit in the submission of Mr. Vivek Sood, learned
Senior Counsel appearing for the Petitioner, that the Petitioner could not have
been debarred from participating in any tender or award of contract in any tender
published by the CGHS pan India or continuation of contract with CGHS for a
period of two years from the date of the Order of termination of contract.”
8. Hence, the present appeal.
Appellant’s contentions
9. Mr. Vivek Sood, Senior Counsel for the Appellant, put forth the
following contentions:
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9.1. The execution of PoA on 18 August, 2020 by Ms. Usha Goel
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(erstwhile proprietor) and the Agreement dated 19 August, 2020 by Mr.
Akash Jain (the authorized signatory) on the strength of the PoA, was an
inadvertent oversight and there was no element of malice or malafide
involved in these actions. The proximity between the date of change in
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proprietorship (31 July, 2020) and the execution of the documents (18 and
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19 August, 2020) lends credibility to the claim that these were genuine and
unintentional errors.
9.2. The learned Single Judge overlooked the fact that officials of the
Respondents were aware of the change in ownership of M/s Goel Medicos.
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Right from the beginning i.e. , 16 September 2020, all the invoices raised
by M/s Goel Medicos bore the amended Goods and Services Tax [“GST”]
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number and Drug License details of M/s Goel Medicos. That apart,
Respondent No. 3 consistently deducted and deposited 02% GST Tax
Deducted at Source on payments made to M/s Goel Medicos, as per the
amended GST and Drug License numbers. This indicates Respondents’
acknowledgment of the change in proprietorship of M/s Goel Medicos and
their satisfaction with services rendered by them.
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9.3. Respondents’ interpretation of the Agreement dated 19 August, 2020
as a “sham” due to bonafide mistake in the PoA, is flawed and
misconceived. Prior to the execution of the Agreement, Appellant himself
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signed the letter dated 04 August, 2020, accepting the terms of the tender.
Nonetheless, the Agreement was executed by an authorized signatory on
behalf of M/s Goel Medicos, without mentioning the name of the proprietor.
Thus, any perceived irregularity in authority to sign the Agreement was
remedied as Appellant impliedly consented to/ ratified Mr. Akash Jain’s
authority, in accordance with Sections 186 and 197 of the Indian Contract
Act, 1872.
9.4. Definition of a fraudulent practice contained in Section I Clause
15(ii)(b) of the Tender Document, which has been relied on by Respondent
No. 3 to terminate the Agreement, is inapplicable to the present case.
Neither the show-cause notice, nor the Termination Letter discloses how
Appellant’s inadvertent mistake influenced the tender process or the
execution of the contract was to the detriment of CGHS.
9.5. The decision to terminate the Agreement and forfeit PBS is unduly
harsh and has far-reaching consequences for the Appellant as, on the basis of
the impugned termination, M/s Goel Medicos is being disqualified from
subsequent tenders. The penalty faced by Appellant is disproportionate to
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the nature of mistake committed and thus, Respondent No. 3 has violated the
well-recognised doctrine of proportionality.
9.6. There is no record of any complaint against M/s Goel Medicos
regarding their performance or quality of medicines supplied to the wellness
centres. There is thus, no justification to resort to such severe actions against
Appellant. The Termination Letter reflects Respondent No. 3’s pre-
determined and mechanical approach, wherein it failed to appreciate the
explanations furnished by the Appellant. This displays a lack of proper
consideration and a pre-conceived decision on the part of Respondent No. 3.
9.7. Learned Single Judge’s observation suggesting that the Senior
Counsel for the Appellant had only assailed the debarment portion of the
Termination Letter, is erroneous and not supported by the record. It is
crucial to note that the petition was filed during the summer vacations but
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was effectively taken up for hearing on 03 July, 2023. Initially, arguments
on behalf of the Appellant were primarily focused on seeking interim relief;
however, as the case progressed, both parties presented arguments on all
pertinent points. This was because the Learned Single Judge indicated an
inclination to dispose of the writ petition without calling for formal replies
or counter-affidavits from the Respondents.
Analysis
10. Upon careful analysis of the contentions raised by the Appellant, this
Court finds no merit in the same. The key issue in this case revolves around
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the termination of the Agreement dated 19 August, 2020 and forfeiture of
the PBS by Respondent No. 3 due to the alleged misrepresentation of facts
by Appellant/ M/s Goel Medicos in the tender process.
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11. Mr. Sood strongly asserted that Appellant never intended to commit
any fraud or misrepresent his authority to the Respondents. The PoA and the
Agreement were inadvertently obtained by Mr. Akash Jain, Appellant’s
employee, under an honest belief of authority. The Court however remains
unconvinced that the Termination Letter is arbitrary or unreasonable. With
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the execution of Gift Deed dated 31 July, 2020, the proprietorship of M/s
Goel Medicos was effectively transferred from Ms. Usha Goel to Mr. Basant
Goel. Hence, any action undertaken by Ms. Usha Goel after this date, such
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as issuing the PoA on 18 August, 2020, had no legal validity as she was no
longer the owner of the pharmacy. Consequently, Mr. Akash Jain, acting as
the alleged attorney, lacked the authority to sign the Agreement on behalf of
M/s Goel Medicos, binding them to the terms and conditions of the contract/
tender. It is well-established in contract law that parties are bound by a duty
of honest performance. This duty requires parties to act in good faith and not
mislead or deceive the other party. In the present case, M/s Goel Medicos, as
a bidder in the tender process, had a duty to provide accurate and truthful
information, including the details of the current proprietorship, which it
failed to do.
12. In light of the above, we agree with Learned Single Judge’s finding
that the Appellant had misrepresented the facts to the Respondents. This
misrepresentation falsely implied a continuing association of M/s Goel
Medicos with Ms. Usha Goel, who no longer remained the proprietor. By
creating such an impression, the Appellant not only impacted the tender
process, but also raised questions about the reliability and credibility of M/s
Goel Medicos as a potential contractor. We must also note that the
inadvertent and bonafide mistake in the PoA may not have been intended to
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deceive or influence the tender process, but it still constitutes a
misrepresentation of facts that could have had a detrimental impact on
CGHS’ interests. Appellant’s misrepresentation serves as a fundamental
flaw in the formation of the Agreement, making the entire transaction
voidable at the instance of the Respondents. Therefore, Respondent No. 3’s
decision to terminate the contract and forfeit the PBS cannot be deemed
unlawful.
13. Mr. Sood also contended that the execution of the Agreement dated
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19 August, 2020 was not affected by the issuance of PoA as the
Respondents continued to deal with M/s Goel Medicos, without raising any
objections. This, however, is also not a ground sufficient to set aside the
Termination Letter. In light of the suppression of such crucial facts,
Respondent No. 3 was entitled to invoke Section I clause 16 and Section II
clause 10 of the Tender Document and terminate the Agreement and forfeit
the performance security. PBS is provided as security to ensure the
satisfactory performance of the contract and to protect the interests of the
Respondents. The stipulation of forfeiture of PBS acts as a safeguard against
non-compliance with the contractual obligations. Respondents were justified
in forfeiting the PBS due to the misrepresentation of facts, as it indicated a
breach of trust and could have led to potential financial losses for the
Respondents.
14. Regarding the principle of ‘doctrine of proportionality’, the Court is
of the opinion that penalty of termination and forfeiture imposed on the
Appellant may appear harsh, but is proportionate to the seriousness of the
misrepresentation committed. The contractual obligations are to be adhered
strictly, and violations, even if inadvertent, are to be addressed appropriately
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to maintain the integrity of the tendering process. The Tender Document
envisages the consequences of engaging in a fraudulent practice, which
includes misrepresentation of facts, and the Court does not find any ground
to intervene on this count. Decisions concerning government contracts and
public procurement involve significant public interest considerations, which
are crucial and the Court cannot sit in appeal over the same.
15. In conclusion, the Court finds no infirmity in the view taken by the
Learned Single Judge, who correctly held that the termination of the contract
and forfeiture of PBS were warranted due to the misrepresentation of facts.
The Appellant’s argument that the misrepresentation was a bona fide
mistake does not absolve them of the consequences of violating the tender
terms and conditions. Therefore, the present appeal is dismissed along with
other pending applications.
SANJEEV NARULA, J
SATISH CHANDRA SHARMA, CJ
AUGUST 11, 2023/ d.negi
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By:SAPNA SETHI
Signing Date:11.08.2023
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