M/S GAIL INDIA LIMITED vs. M/S AVINASH EM PROJECTS PVT. LTD

Case Type: Letters Patent Appeal

Date of Judgment: 05-01-2015

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Full Judgment Text

*IN THE HIGH COURT OF DELHI AT NEW DELHI

st
% Date of decision: 1 May, 2015

+ LPA No.242/2015

M/S GAIL INDIA LIMITED .... Appellant
Through: Mr. Parag P. Tripathi, Sr. Adv. with
Mr. Pragyan Sharma, Ms. Kanika
Tandon & Mr. Gaurav Chaudhary,
Advs.

Versus

M/S AVINASH EM PROJECTS PVT. LTD. .....Respondent
Through: Mr. Sanjeev Kakra with Mr. Bheem
Sen Jain, Advs.
CORAM:-
HON’BLE THE CHIEF JUSTICE
HON’BLE MR. JUSTICE RAJIV SAHAI ENDLAW

RAJIV SAHAI ENDLAW, J
th
1. This intra-court appeal impugns the judgment dated 6 February,
2015 of the learned Single Judge of this Court in W.P.(C) No.2041/2014
preferred by the respondent. The counsel for the respondent appeared on
th
advance notice when the appeal came up before us on 24 April, 2015 and
with the consent of the counsels, the appeal was heard finally and judgment
reserved.
LPA No.242/2015 Page 1 of 14


2. The respondent filed the writ petition from which this appeal arises
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impugning the order dated 18 March, 2014 of the appellant whereby the
respondent was banned for an indefinite period from doing any further
projects with the appellant or from participating in the bidding process for
any of the tenders floated by the appellant in future (however the said
decision was / is subject to review after a period of ten years).
3. Considering the aspect, to which the arguments before us were
confined, we do not feel the need to elaborate the case with which the
respondent filed the writ petition and the present purpose would be served
merely by culling out the judgment of the learned Single Judge. In the said
judgment:
A. It has been found / recorded,
(a) that the appellant had invited a tender for laying pipelines
of spurlines to Bhilwara and Chittorgarh and for
augmentation of the existing Vijaipur Kota pipeline;
(b) the Invitation for Bids (IFB) stipulated that only those
Indian companies having minimum working capital of
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Rs.4.85 crores as per their immediate preceding year‟s
audited financial results were eligible to bid;
(c) the respondent submitted its bid along with audited
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financial statement dated 21 August, 2010 which
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reflected its working capital as on 31 March, 2010 to be
Rs.6.96 crores approximately;
(d) the respondent was awarded the contract;
(e) the appellant, upon subsequently discovering that the
respondent had forged and manipulated its audited
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financial statement, showing working capital as on 31
March, 2010 to be Rs.6.96 crores, when in fact in the
balance sheet submitted to the Registrar of Companies
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for the year 2010-11, its working capital as on 31
March, 2010 was shown as Rs.3.01 crores approximately,
issued a show cause notice to the respondent;
(f) the explanation offered by the respondent was not
accepted by the appellant and the appellant passed an
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th
order dated 16 January, 2014 blacklisting the
respondent from doing any future business with the
appellant;
(g) the respondent filed W.P.(C) No.465/2014 and by order
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dated 21 January, 2014 wherein, finding that the order
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dated 16 January, 2014 was not a reasoned one, the
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order dated 16 January, 2014 was set aside and the
appellant was directed to pass a fresh reasoned order after
considering all the documents on record and after
affording the respondent an opportunity of hearing;
(h) LPA No.167/2014 preferred by the appellant against the
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said order dated 21 January, 2014 of the learned Single
Judge did not meet with any success;
(i) the appellant, after giving an opportunity of hearing to
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the respondent, passed the order dated 18 March, 2014
(supra) and impugning which the writ petition from
which this appeal arises was filed.
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B. It has been held,
(j) that the denial by the respondent of the signatures on
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statement dated 31 August, 2010 showing working
capital as Rs.6.96 crores approximately submitted along
with the bid was unbelievable;
(k) that the appellant had rightly rejected the explanation
tendered by the respondent for showing the working
capital as Rs.6.96 crores;
(l) that the only question to be addressed was whether the
appellant could blacklist the respondent for an indefinite
period and whether the same was disproportionately
harsh and not commensurate with the misconduct of
furnishing forged / fabricated documents to secure
contract with the appellant;
(m) that the nature of the respondent‟s work involves
executing contract with PSUs and most of the work for
which the respondent could bid involved participation of
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the appellant, either as sole employer or as part of a
consortium with other entities − thus, blacklisting of the
respondent for an indefinite period albeit to be reviewed
after 10 years would effectively exclude the respondent
from participating in any contract with any PSU(s) and
thus inevitably destroy the substratum of the respondent
company;
(n) that the issue, whether such blacklisting for indefinite
period was excessive, must be viewed in the context of
other Clauses of the contract;
(o) that the „integrity pact‟ furnished by the respondent in
terms of sub-Article 35.4 of the Invitation for Bids inter
alia provided for punishment of exclusion from
participating in any of the tenders floated by appellant for
a minimum period of six months and a maximum period
of three years only;
(p) that the reliance in this context by the appellant on
Clause 1.5 of Form 13 was not apposite;
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(q) that the Supreme Court in Kulja Industries Ltd. Vs.
Chief General Manager, BSNL AIR 2014 SC 9 has held
that debarment is never permanent and the period of
debarment would invariably depend upon the nature of
the offence committed by the erring contractor;
(r) that since the impugned decision of debarring the
respondent was reviewable after expiry of 10 years even
according to the appellant, the decision of banning the
respondent from participating in the contracts with the
appellant would not necessarily continue for all times;
(s) that the order for exclusion of the respondent from
participating in any tender of appellant must pass the test
of Article 14 of the Constitution of India and where there
is little possibility for the respondent to carry on business
after being blacklisted by appellant, the order of
blacklisting must also be viewed in the context of Article
19(1)(g) and 19(6) of the Constitution of India;

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(t) that the respondent had already been visited with
significant adverse consequences following the
blacklisting order; that juxtaposing the same with the
consequences of fraudulent and corrupt practice as
provided in Article 35 of the IFB and the „integrity pact‟,
the measure of blacklisting for an indefinite period
appeared to be relatively harsh and disproportionate to
the alleged misconduct;
(u) that the question whether a punitive measure is
disproportionate must be viewed in the context of
standards set by appellant itself – the appellant had
provided a maximum penalty of banning for three years
in the event of contractor bribing the officials of the
appellant in securing the contract; applying this standard,
the punishment of blacklisting for an indefinite period
appeared to be clearly disproportionate and arbitrary; and
(v) that thus, though no interference was called for insofar as
blacklisting of the respondent was concerned but the
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blacklisting order to the extent it debarred the respondent
from all future business with the appellant was set aside
and the matter was remanded to the appellant:
“to consider the period of blacklisting
afresh in view of the aforesaid observations
and in the context of the period as specified
in the integrity pact (i.e. minimum of six
months to maximum of three years)”.
4. The senior counsel for the appellant informed that the appellant before
the learned Single Judge had made a statement that in the light of the dicta of
the Supreme Court in Kulja Industries Ltd. (supra), the order of blacklisting
of the respondent be not treated as one for indefinite period reviewable after
10 years but of blacklisting for 10 years. He contended that the learned
Single Judge has erred in, while remanding the matter to the appellant for
consideration afresh, directing the appellant to decide the matter in the
context of the „integrity pact‟. It was further contended that the appellant in
this regard had relied upon several other clauses of the contract also which
would also be applicable and the learned Single Judge erred in rejecting the
applicability thereof. It was argued that since the learned Single Judge had
drawn parity with the „integrity pact‟ though admittedly not applicable, the
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rejection of the other clauses providing for longer periods of blacklisting, is
erroneous.
5. However we, on a reading of the judgment of the learned Single
Judge, were of the opinion that the learned Single Judge had not bound the
appellant in any manner whatsoever or bound the appellant to blacklist the
respondent for a maximum period of three years only. To us, it appeared
that all that the learned Single Judge has directed is for the appellant to
consider the observations made in the judgment while determining the
period of blacklisting of the respondent. We accordingly put so to the senior
counsel for the appellant.
6. The senior counsel for the appellant responded that we may clarify so
and the appellant would be satisfied therewith.
7. However the counsel for the respondent contended that the purport of
the judgment of the learned Single Judge is that the period of blacklisting, to
be determined by the appellant shall not be for exceeding three years. It was
further the contention of the counsel for the respondent that unless the
judgment of the learned Single Judge is so interpreted and read, in the event
of the appellant blacklisting the respondent for a period longer than three
LPA No.242/2015 Page 10 of 14


years, will keep the respondent embroiled in litigation. It was highlighted
that this is already the second round of litigation and this Court should
ensure finality thereto.
8. To hold that the impugned judgment limits the power of the appellant,
while determining afresh the period of blacklisting pursuant to remand, to
blacklisting for a maximum period of three years would in our view amount
to this Court itself determining the maximum period for which the
respondent should be blacklisted and which has not found favour with the
Supreme Court in Kulja Industries Ltd. (supra). Para 26 of the said
judgment is as under:
“26. The next question then is whether this Court ought to
itself determine the time period for which the appellant should be
blacklisted or remit the matter back to the authority to do so
having regard to the attendant facts and circumstances. A
remand back to the competent authority has appealed to us to be
a more appropriate option than an order by which we may
ourselves determine the period for which the appellant would
remain blacklisted. We say so for two precise reasons. Firstly,
because blacklisting is in the nature of penalty the quantum
whereof is a matter that rests primarily with the authority
competent to impose the same. In the realm of service
jurisprudence this Court has no doubt cut short the agony of a
delinquent employee in exceptional circumstances to prevent
delay and further litigation by modifying the quantum of
punishment but such considerations do not apply to a company
engaged in a lucrative business like supply of optical fibre /
HDPE pipes to BSNL. Secondly, because while determining the
period for which the blacklisting should be effective the
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respondent – Corporation may for the sake of objectivity and
transparency formulate broad guidelines to be followed in such
cases. Different periods of debarment depending upon the
gravity of the offences, violations and breaches may be prescribed
by such guidelines. While, it may not be possible to exhaustively
enumerate all types of offences and acts of misdemeanor, or
violations of contractual obligations by a contractor, the
respondent-Corporation may do so as far as possible to reduce if
not totally eliminate arbitrariness in the exercise of the power
vested in it and inspire confidence in the fairness of the order
which the competent authority may pass against a defaulting
contractor.”
The aforesaid dicta of the Supreme Court having been expressly
referred to in the impugned judgment, it cannot be said that the learned
Single Judge held contrary thereto.
9. As far as the contention of the counsel for the respondent, of the
respondent remaining embroiled in litigation, is concerned, we need only to
observe that the finding of the respondent having indulged in forgery and
fabrication with the intent to secure a contract with the appellant having
attained finality (the respondent has not challenged the same), the
respondent has no equities in its favour and is not entitled to raise such an
argument. A person who has indulged in such actions is deemed to have
known that the same may entail him in litigation and cannot be allowed to
cry wolf.
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10. The counsel for the respondent then contended that even as per the
new policy of the appellant itself, the blacklisting in such circumstances
cannot be for more than three years. Clause 1 titled “Instructions to
Bidders” of Section II of the prevalent General Conditions of Contract of the
appellant was handed over and reference was drawn to sub-Clauses B.1, B.2
and B.2.2 of Clause 38 thereof.
11. The senior counsel for the appellant states that the determination
afresh pursuant to remand by the learned Single Judge would be after
considering any applicable prevalent policy and the observations of the
learned Single Judge but without treating the said observations as binding.
12. The Supreme Court having held that blacklisting is in the nature of
penalty, the quantum whereof is a matter that rests primarily with the
authority competent to impose the same, we are of the opinion that this
appeal be disposed of merely with the clarification that though the appellant
while deciding the matter afresh pursuant to the remand by the learned
Single Judge shall consider the observations made by the learned Single
Judge but the said observations shall not be binding on the concerned
authority of the appellant which may for reasons to be recorded disagree
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therewith. We are however confident that due weightage and regard shall be
given to the observations made in the judgment.
13. Since this appeal is being disposed of by us on this very point only,
without going into the challenge otherwise made in the appeal to the
observations of the learned Single Judge with respect to the quantum of
punishment / period of blacklisting and further since the possibility of the
respondent remaining aggrieved from such fresh determination by the
appellant cannot be ruled out, we further clarify that the disposal of this
appeal would not amount to this Bench having put its imprimatur on the
judgment of the learned Single Judge insofar as challenged by the appellant
and it will remain open to the appellant in any fresh round of litigation to
challenge the observations / findings if any against it in the impugned
judgment.
No costs.
RAJIV SAHAI ENDLAW, J

CHIEF JUSTICE
MAY 1, 2015
„gsr‟
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