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M/s. P & C. Projects Pvt. Ltd., Erode, Represented by Its General Manager & Authorized Signatory T. Viswanathan v/s State of Kerala, Represented by The Principal Secretary, Department of Health & Family Welfare, Government Secretariat, Thiruvananthapuram & Others

    WP(C). No. 2200 of 2021 (Y)
    Decided On, 26 April 2021
    At, High Court of Kerala
    For the Petitioner: K.P. Dandapani, Sr. Millu Dandapani, Rameez Nooyh, Meera Ramesh, S.N. Bhairavi, K. Fathima, Advocates. For the Respondents: R1, P. Narayanan, Sr. Government Pleader, R2, V.G. Arun (K/795/2004), R3, P.U. Shailajan, Advocates.

Judgment Text
1. The petitioner, a registered Private Limited Company which has entered into Ext.P3 Bilateral Agreement and Ext.P6 Supplemental Agreement with the 3rd respondent, is aggrieved by the termination of those agreements by the 3rd respondent.

2. The petitioner states that the petitioner-Company entered into Ext.P3 agreement with the 3rd respondent for construction of the flagship project of “Cochin Cancer Research Centre, Ernakulam”. The project is funded by the 2nd respondent-Kerala State Infrastructural Investment Fund Board (KIIFB). The 3rd respondent is a Special Purpose Vehicle (SPV) for the Cochin Cancer Center Project, acting on behalf of the 1st respondent-State of Kerala.

3. The petitioner was the successful bidder. The work was awarded for Rs. 87,14,32,492/- on 13.06.2018. Ext.P3 agreement with the SPV was signed on 06.08.2018. The work was to be completed within 730 days. The petitioner started the work on 25.07.2018 and had to complete the work by 23.07.2020. The unprecedented floods in the years 2018 and 2019 and the Covid-19 pandemic of 2020 caused hindrance. These coupled with non-payment of pending bills, labour problems and delay in approval of drawings, made it impossible to complete the work in time.

4. The petitioner has been communicating to the respondents regarding delays occurring at various stages of the work due to unforeseen events as well as for reasons attributable to the 3rd respondent. The petitioner requested for extension of time to complete the work. Thereupon, Ext.P6 Supplemental Agreement was executed on 24.09.2020 extending the completion date upto 28.02.2021, though the petitioner had opposed the time frame.

5. In spite of extension of time, the 3rd respondent did not release pending bills and showed lethargy in approval of designs and drawings. The continuing threat of Covid-19 pandemic added to the hardships. In spite of all these, the petitioner proceeded with the work. However, on 26.12.2020, the 3rd respondent issued Ext.P8 show-cause notice alleging that the progress of work is slow. The petitioner submitted Ext.P9 reply. The petitioner also issued Ext.P10 letter dated 06.01.2021 to the 3rd respondent raising a dispute and requesting to constitute a Dispute Redressal Committee invoking Clause No.25 of Ext.P4 General Conditions of Contract. Without considering the representation of the petitioner, the 3rd respondent issued Ext.P13 on 18.01.2021 terminating Exts.P3 and P6 Agreements. The petitioner challenges Ext.P13 order of termination.

6. The 3rd respondent contested the writ petition. The 3 rd respondent stated that the delay caused is not due to non-payment of part bills, labour disputes or delay in providing drawings, etc. The petitioner has been delaying the work from the very beginning. The agreement provided 10 milestones of work. It was a condition that if any milestone is not achieved on the stipulated day, bill amounts will be withheld and paid only after reaching and completing the subsequent milestone within the respective time limit.

7. As the petitioner failed to complete the work as agreed in Ext.P3, Ext.P6 Supplemental Agreement was signed extending the period up to 28.02.2021, taking into account Covid-19 pandemic. The petitioner cannot rely on floods for failure to complete work, after signing Ext.P6 Supplemental Agreement. The petitioner was paid Rs. 4.36 Crores as mobilisation advance. The petitioner did not renew bank guarantees executed to secure the mobilisation advance, after 30.11.2020. The petitioner was given secured advance of Rs. 2,09,42,271/-. The delay or withholding of payments is due to non-completion of milestones. An amount of Rs. 6,47,049/- was paid to the petitioner towards RAB 06 after adjusting the amount to be recovered from the petitioner. RAB 07 is under process.

8. Due to poor progress of work, Ext.P8 show-cause notice was issued to the petitioner. As per Clause III of the General Conditions of Contract, the contract can be terminated if the contractor fails to complete the work or a part of the work within the respective dates of completion or before the stipulated or extended dates. The petitioner completed only 35% of their work. The progress of work was poor. The quality of the work was also found wanting. Therefore, after considering the explanation given by the petitioner, the contract was terminated as per Ext.P13. Ext.P13 cannot be set aside on all or any of the grounds urged by the petitioner, contended the 3rd respondent.

9. The 2nd respondent-KIIFB also contested the writ petition. The 2nd respondent pointed out that the Technical Inspection Wing of the 2nd respondent conducted a site inspection and found serious lapses on the part of the petitioner in the progress of the work as well as in the design adopted by the petitioner. A project oriented meeting was convened and in the meeting, the progress of construction work was reviewed. Specific instructions were given to explore the possibility of termination of contract due to continuous non-performance and lethargic attitude of the petitioner in executing the work.

10. On 25.11.2019, Porsche slab of the construction collapsed during concreting. The collapse caused major structural damage to the existing structure. Workmen were injured and had to be hospitalised. Preliminary investigation conducted by the Chief Executive Officer of the 2nd respondent noticed that there were serious lapses on the part of the 3rd respondent and the petitioner. The quality of the work of the petitioner was found very low. The site was maintained by the petitioner in a careless manner.

11. The 2nd respondent stated that the project is an important one for the State of Kerala and if commissioned in time, it will be a solace to large number of cancer patients in the State. The respondents are in the process of entrusting the work to another contractor. If the termination order is cancelled permitting the petitioner to carry out further work, the project will not be completed in the near future, contended the 2nd respondent.

12. The learned counsel for the petitioner argued that Clause 25 of Ext.P4 Conditions of Contract provides for a multilevel dispute resolution mechanism. In the event of a dispute, the same has to be raised by the aggrieved party along with a list of disputes and claims. Though the petitioner raised a dispute as per Ext.P10, the respondents did not refer the same to the Disputes Redressal Committee. Issuance of Ext.P13 termination order when a dispute is raised, is highly arbitrary and offends Article 14 of the Constitution of India.

13. The learned counsel for the petitioner further argued that the petitioner had preferred Exts.P11 and P12 representations before the 1st and 2nd respondents. The 1st respondent being the owner of the project and the 2nd respondent being its funding agency, are duty-bound to consider the petitioner's representations. However, no action was taken on the representations. The learned counsel for the petitioner further argued that the petitioner has taken all efforts to complete the work within the time frame. Delay was caused due to floods, Covid-19 pandemic, etc. The respondents have ignored those facts. Respondents 2 and 3 are acting arbitrarily.

14. The learned counsel for the petitioner pointed out that in issuing Ext.P8 show-cause notice under Clause III of the Agreement, the 3rd respondent had relied on twelve documents. However, in Ext.P13 termination order, the 3rd respondent took into account an inspection report of the 2nd respondent which was not mentioned in Ext.P8. A copy of the said inspection report was not made available to the petitioner. The learned counsel for the petitioner submitted that in Sahi Ram v. Avtar Singh and others [(1999) 4 SCC 511], the Ho'ble Apex Court has held that once the documents relied on by the Government were not put to the party seeking his explanation, the issue is to be remitted back to the Government for reconsideration.

15. Relying on the judgment of the Apex Court in Gorkha Security Services v. Government (NCT of Delhi) and others [(2014) 9 SCC 105], the Apex Court has held that the fundamental purpose behind the serving of a show-cause notice is to make the noticee understand the precise case against him which he has to meet and a show-cause notice should contain the material grounds which necessitated an action. In the case of the petitioner, the show-cause notice is defective as the inspection report of the 2nd respondent was not referred to in the said show-cause notice. Therefore, termination based on the said show-cause notice is unsustainable as the notice is defective, contended the learned counsel for the petitioner.

16. The learned counsel for the petitioner further relied on the judgments of the Apex Court in Union of India and others v. Tantia Construction Private Limited [(2011)5 SCC 697], Joshi Technologies International Inc. v. Union of India and others [(2015) 7 SCC 728] and Unitech Limited and others v. Telangana State Industrial Infrastructure Corporation (TSIIC) and others [2021 SCC OnLine SC 99] to urge that the writ petition is maintainable since overwhelming materials available on record would warrant setting aside of Ext.P13 order.

17. The learned counsel for the 2nd respondent, on the other hand, relied on the judgment of the Apex Court in State of Kerala and others v. M.K. Jose [2015 (9) SCC 433] to contend that writ jurisdiction cannot be extended to cause a roving enquiry in a dispute falling within the realm of contract. The learned counsel also relied on the judgment of the Apex Court in State of U.P. v. Sudhir Kumar Singh and others [AIR 2020 SC 5215] to argue that a breach of procedure cannot give rise to a remedy in the courts, unless behind it there is something of substance which has been lost by the failure. The Court should not act in vain, contended the learned counsel for the 2nd respondent.

18. Heard learned counsel for the petitioner, learned Government Pleader for the 1st respondent, learned Standing Counsel for the 2nd respondent-KIIFB and learned Standing Counsel for the 3rd respondent-SPV.

19. The Hon’ble Apex Court has laid down the scope of interference in contractual matters, under writ jurisdiction. In Rishi Kiran Logistics Private Limited v. Board of Trustees of Kandla Port Trust and others [(2015) 13 SCC 233], distinguishing between a remedy sought under the Contract Act, by means of damages for specific performance under the specified Act and invoking writ jurisdiction, the Apex Court held that ordinarily, the remedy available for a party complaining of breach of contract lies for seeking damages. He would be entitled to the relief of specific performance, if the contract was capable of being specifically enforced in law. The remedies for a breach of contract being purely in the realm of contract are dealt with by civil courts. The public law remedy, by way of a writ petition under Article 226 of the Constitution, is not available to seek damages for breach of contract or specific performance of contract. However, where the contractual dispute has a public law element, the power of judicial review under Article 226 may be invoked.

20. In Noble Resources Ltd. v. State of Orissa and another [(2006) 10 SCC 236], while answering whether a writ petition was maintainable in contractual matters and if so, what is the scope of jurisdiction of the Court in such matters, the Apex Court held that “It is trite that if an action on the part of the State is violative of the equality clause contained in Article 14 of the Constitution of India, a writ petition would be maintainable even in the contractual field. A distinction indisputably must be made between a matter which is at the threshold of a contract and a breach of contract; whereas in the former the court’s scrutiny would be more intrusive, in the latter the court may not ordinarily exercise its discretionary jurisdiction of judicial review, unless it is found to be violative of Article 14 of the Constitution.”

21. In the case on hand, the petitioner entered into Ext.P3 Agreement with the 3rd respondent and commenced the work on 25.07.2018. Admittedly, as per the terms of the contract, the work had to be completed within 730 days from the date of handing over of the project site. In view of the said provision, the petitioner had to complete the work by 23.07.2020. True, Kerala State witnessed flood situation in the years 2018 and 2019. The respondents would contend that the floods have not affected the project area and the petitioner cannot take umbrage under the floods for failure to perform his part of the contract. The learned counsel for the petitioner, on the other hand, would argue that the unprecedented floods which inundated most part of the State, created substantial difficulties in mobilising men and material for execution of the work.

22. But, it may be noted that the respondents considered the situation and permitted the petitioner to enter into Ext.P6 Supplemental Agreement on 24.09.2020. By Ext.P6, the period of completion of work under the principle agreement was enhanced from 730 days to 949 days. Under the Supplemental Agreement, the petitioner was bound to complete the project work by 28.02.2021. The petitioner could not complete the work by the said date. Therefore, the petitioner cannot be heard to contend that it was the floods occurred in the years 2018 and 2019 that prevented the petitioner from completing the work as per agreement.

23. The petitioner would contend that part bills raised by the petitioner in respect of completed works were not honoured by the 3rd respondent, which caused difficulties to the petitioner in executing the work with required expediency. The learned Standing Counsel for the 3rd respondent would point out that there were specific conditions in the agreement which provided that if any of the stipulated milestone was not achieved by the prescribed date, the amounts due for that work will be withheld till the petitioner completes the next milestone within the date prescribed for the same. When the petitioner has agreed to such a term of contract, the petitioner will not be justified in blaming the delay in execution of the work on non-payment of part-bills raised.

24. The further case of the petitioner is that principles of natural justice are violated in terminating the contract. The argument is that the Ext.P8 show-cause notice though referred to as many as 12 documents in support of

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termination, the 3rd respondent relied on, in Ext.P13 termination order, an Inspection Report of the 2nd respondent about which the petitioner was not put to notice in Ext.P8 show cause notice, nor was the petitioner was provided with a copy of that report. 25. The 3rd respondent has terminated the contract on two counts, namely slow progress of the work and quality of work. The fact of extension of time limit for completion of work and failure to complete the work even in the extended period is admitted by the petitioner, though the petitioner would contend that the delay is due to reasons attributable to the respondents. 26. The inferior quality of work executed by the petitioner is reflected in Ext.R3(d) letter of undertaking signed by the petitioner. Therefore, the failure of the 3rd respondent to note the inspection report of the 2nd respondent in Ext.P8 show cause notice by itself cannot be said to have caused substantial prejudice to the petitioner. The degree of compliance of the principles of natural justice applicable to administrative actions of State cannot be made applicable with the same force, to the 3rd respondent in a contractual matter. 27. The further argument of the petitioner is that there were labour disputes and unwarranted delay on the part of the 3rd respondent in providing drawings which also has contributed to delay in execution of work within the stipulated time. These are disputed questions of fact which this Court cannot adjudicate in writ jurisdiction. In the result, the writ petition is found to be lacking in merits and is hence dismissed.