w w w . L a w y e r S e r v i c e s . i n



M/s. Premier Garment Processing, Rep. by its Proprietor, Ibrahim Shah V/S The Divisional Railway Manager, Southern Railway, Salem & Another


Company & Directors' Information:- PREMIER LIMITED [Active] CIN = L34103PN1944PLC020842

Company & Directors' Information:- R J SHAH AND COMPANY LIMITED [Active] CIN = L45202MH1957PLC010986

Company & Directors' Information:- SHAH INDIA PVT LTD [Active] CIN = U51909WB1960PTC024535

Company & Directors' Information:- B. B. SHAH PRIVATE LIMITED [Active] CIN = U17117RJ1984PTC002922

Company & Directors' Information:- D M SHAH & COMPANY PVT LTD [Active] CIN = U29244WB1988PTC045183

Company & Directors' Information:- C. M. SHAH AND COMPANY PRIVATE LIMITED [Strike Off] CIN = U74140MH1971PTC015107

Company & Directors' Information:- D P S SOUTHERN PVT LTD [Strike Off] CIN = U72200KL1983PTC003788

Company & Directors' Information:- T M SHAH PRIVATE LIMITED [Strike Off] CIN = U10101UP1966PTC003139

Company & Directors' Information:- P & S PROCESSING PRIVATE LIMITED [Active] CIN = U37100DL2011PTC213392

Company & Directors' Information:- S B SHAH AND COMPANY PRIVATE LIMITED [Active] CIN = U51496DL1991PTC045040

Company & Directors' Information:- PREMIER INDIA PRIVATE LIMITED [Active] CIN = U52520TG1993PTC016684

Company & Directors' Information:- H B SHAH PRIVATE LIMITED [Active] CIN = U36100MH1947PTC005536

Company & Directors' Information:- N. M. PROCESSING PRIVATE LIMITED [Active] CIN = U17299WB2019PTC234072

Company & Directors' Information:- M M SHAH PRIVATE LIMITED [Strike Off] CIN = U51311MH1962PTC012293

Company & Directors' Information:- D J SHAH AND CO PRIVATE LIMITED [Active] CIN = U74899DL1987PTC030169

Company & Directors' Information:- C C SHAH LTD. [Strike Off] CIN = U15421WB2000PLC007659

Company & Directors' Information:- T S I GARMENT PRIVATE LIMITED [Strike Off] CIN = U74999DL2004PTC130988

Company & Directors' Information:- A H SHAH AND CO PVT LTD [Active] CIN = U51311MH1949PTC007019

Company & Directors' Information:- SHAH AND SHAH PVT LTD [Strike Off] CIN = U33112WB1980PTC032838

Company & Directors' Information:- A D SHAH PVT LTD [Strike Off] CIN = U51909MH1972PTC015715

Company & Directors' Information:- K SALEM LIMITED [Dissolved] CIN = U99999MH1947PTC005530

Company & Directors' Information:- B. SHAH AND COMPANY LIMITED [Dissolved] CIN = U99999MH1952PLC008789

    W.P. No. 14412 of 2017 & W.M.P. No. 15623 of 2017

    Decided On, 20 February 2020

    At, High Court of Judicature at Madras

    By, THE HONORABLE JUSTICE: ABDUL QUDDHOSE

    For the Petitioner: ARL. Sundaresan, Senior Counsel for M/s. AL. Ganthimathi, Advocate And For the Respondents: R1 & R2, P.T. Ramkumar, Standing Counsel



Judgment Text


1. The points for consideration in this writ petition are as follows:

(a) whether principles of natural justice have been violated by the respondents before passing the impugned order dated 22.11.2016 imposing a penalty of Rs.38,41,853.50 on account of non-washing of blankets and other deficiencies from the month of May 2015 to January 2016.

(b) whether the respondents are entitled to deduct the penalty amount from and out of the bills payable to the petitioner for the services rendered by them under the contract.

(c) whether the writ petition is maintainable when the contract provides for an appellate remedy against the imposition of penalty before the Appellate Authority under the contract.

(d) whether arbitration clause contained in the contract will preclude the respondents from deducting the penalty amount from and out of the bills payable to the petitioner.

2. The petitioner was awarded a contract for procurement, washing and distribution of bed rolls to the passengers travelling in AC two tier coaches and AC three tier coaches for specified trains under the linen management agreement entered into between the petitioner and the respondents as per standard format prescribed by the Railways.

3. The case of the respondents is that the petitioner committed breach of contract for not loading bed rolls at base stations (Coimbatore and Erode) for the period from May 2015 to January 2016 and instead loaded from Chennai. It is their case that several complaints were received from the passengers and on inspection by the respondents officials, it was found that the blankets, bed rolls, pillow covers were not properly washed and there was short supply of blankets, bed rolls, pillow covers by the petitioner to the trains which are covered under the contract. There were also other deficiencies found on inspection and therefore, a penalty of Rs.38,41,853.50 is payable by the petitioner as per the contract and deductable from and out of the bills payable to the petitioner.

4. This Court in an earlier writ petition filed by the same petitioner in W.P.No.3007 of 2016 challenging the imposition of penalty as well as the deduction of amounts from the bills towards penalty by its final order dated 11.04.2016, directed the petitioner to give a representation to the first respondent and on receipt of the same, the first respondent was directed to consider the petitioner’s representation and pass orders afresh on merits and in accordance with law after due notice to the petitioner and after affording opportunity of personal hearing to the petitioner as early as possible.

5. Pursuant to the aforesaid order, the second respondent held an enquiry and passed the impugned order dated 22.11.2016 reiterating that a sum of Rs.38,41,853.50 is due and payable by the petitioner as penalty on account of non-washing of blankets and other deficiencies from the month of May 2015 to January 2016 as detailed below:

1.Amount of penalty imposed for not washed blankets as per penalty clause 35.s:Rs.35,03,648.00
2.Amount of penalty imposed for deficiencies noticed by depot officials and public complaints as per penalty clause 35.c:Rs.90,000.00
3.Amount of penalty imposed for short supply of bed roll kits, tag not provided in blankets, short supply of pillows and other deficiencies as per clause 35.e,f,d,j:Rs.2,48,205.50
Total AmountRs.38,41,853.50


6. The case of the petitioner is that principles of natural justice have been violated by the second respondent before passing of the impugned order due to the following reasons:

(a)copies of the alleged complaints received from the passengers with regard to the deficiencies were not furnished to the petitioner in the enquiry proceedings.

(b)the petitioner was not given an opportunity to rebut the contentions of the respondents as he was not furnished with the copies of the documents based on which the respondents have come to the conclusion that the petitioner has committed deficiency in service.

(c)without suffering any loss, the respondents have imposed penalty on the petitioner under the impugned order.

(d)fair hearing was not afforded to the petitioner in the enquiry proceedings.

7. It is also the case of the petitioner that when there is an arbitration clause under the contract, the only remedy available to the respondents to recover the alleged penalty amount is only through the process of arbitration. According to the petitioner, the deduction of the penalty amount from and out of the bills payable to the petitioner under the contract is arbitrary, illegal, unjust and unsustainable in law.

8. In light of the above grounds, this writ petition has been filed challenging the order of the second respondent dated 22.11.2016 and consequently direct the second respondent to pay the petitioner a sum of Rs.38,41,853.50 which sum was adjusted by the respondents from and out of the bills payable to the petitioner under the contract.

9. A counter affidavit has been filed by the second respondent stating that the petitioner has committed breach of contract as he did not load bed rolls at the base stations i.e. Coimbatore and Erode and instead loaded bed rolls at Chennai. According to the respondents, as per clause 35A to 35G of the agreement dated 08.07.2005 entered into between the petitioner and the respondent, the railway administration is entitled to impose penalty on the petitioner for shortage of service, non performance or bad performance of the contract for supplying used/dirty bed rolls to the passengers and for other deficiencies as mentioned in clause 35 of the contract. According to them, only based on the complaints received from the passengers and after receiving the report from the committee of higher officials consisting of Sr.DME/SA, Sr.DFM/SA, DCM/Co-ord/SA nominated by the first respondent, the penalty has been imposed on the petitioner for the deficiencies committed by him under the contract.

10. It is their case that the Competent Authority after scrutinizing the report submitted by the committee approved the findings and only thereafter rejected the contractor’s claim. It is also their case that under clause 36 of the contract, there is an appellate remedy available to the petitioner as against the impugned order to the Senior Divisional Mechanical Engineer, Southern Railway, Salem. According to the respondents, without exercising the appellate remedy, the petitioner has filed this writ petition which is not maintainable under law.

11. It is also the case of the respondents that as per clause 35 of the contract, the petitioner has to invoke arbitration clause for settlement of any dispute and cannot file a writ petition before this Court seeking to settle his bills. It is also their case that fair hearing and personal hearing was afforded to the petitioner in the enquiry proceedings and therefore, there is no violation of principles of natural justice committed by the second respondent before passing of the impugned order.

12. Heard Mr.ARL.Sundaresan, learned Senior Counsel for the petitioner and Mr.P.T.Ramkumar, learned standing counsel for the respondents.

13. The learned Senior Counsel for the petitioner drew the attention of this Court to the impugned order and submitted that:

(a)the committee report referred to in the impugned order based on which the respondents have come to the conclusion that the petitioner has committed deficiencies in service was not furnished to the petitioner in the enquiry proceedings.

(b)the work diary which records the quantity and quality of bed rolls/blankets loaded in the respective trains reflected in the impugned order was also not furnished to the petitioner in the enquiry proceedings which culminated in passing of the impugned order.

(c)copies of the passenger complaints against the poor quantity of the bed rolls, pillow covers, blankets, pillows and other items supplied by the petitioner were not furnished to the petitioner in the enquiry proceedings.

(d)fair hearing was not afforded to the petitioner in the enquiry proceedings.

According to him, in view of the above, principles of natural justice have been violated by the respondents and the order dated 05.05.2016 passed by this Court in W.P.No.3007 of 2016 has not been complied with by the respondents by affording a fair hearing.

14. The learned Senior Counsel also drew the attention of this Court to the arbitration clause contained under the contract and submitted that the only remedy available for the respondents to claim the penalty is through arbitration as per the arbitration clause, but instead they have arbitrarily and illegally deducted the penalty amount from and out of the bills payable to the petitioner under the contract.

15. Per contra, the learned standing counsel for the respondents would submit that fair hearing was afforded to the petitioner in the enquiry proceedings and personal hearing was also granted in compliance with the order dated 05.05.2016 passed in W.P.No.3007 of 2016. During the course of the hearing, the learned standing counsel for the respondents has filed an additional typed set of papers and also filed certain documents which included alleged complaints received from the passengers as well as the work diaries maintained by the Railways. According to him, a staff of the petitioner as seen from the work diary has acknowledged the poor quality of the items supplied by them to the respective trains and therefore, the petitioner does not have the right to now challenge the imposition of penalty as he himself has admitted the deficiencies in service committed by him under the contract. Further, he would point out that under clause 36 of the contract, the only remedy available to the petitioner if aggrieved by the impugned order is to file an appeal before the Appellate Authority namely, Senior Divisional Mechanical Engineer, Southern Railway, Salem and hence a writ petition is not maintainable.

16. It is further submitted by the learned standing counsel for the respondents that arbitration clause will not preclude the respondents to deduct the penalty amount from and out of the bill amounts payable to the petitioner. According to him, clause 35J of the contract permits the respondents to deduct the penalty amounts from and out of the bills payable to the petitioner.

17. The learned standing Counsel for the respondents also drew the attention of this Court to the following authorities:

(i)a Division Bench judgment of this Court in the case of The Superintending Engineer (Highways) and others vs East Coast Constructions and Industries Ltd. reported in 2017 (4) CTC 644

(ii)a single bench judgment of this Court in the case of S.Girija vs. Chairman cum Managing Director, Tamil Nadu Civil Supplies Corporation Ltd., Chennai and Others reported in (2009) 1 MLJ 356

(iii)a single bench judgment of this Court in the case of Transstroy North Cargo Berth III Port Private Limited vs. The Board of Trustees, V.O. Chidambaranar Port Trust, Tuticorin reported in 2017 (1) CWC 434

(iv)a single bench judgment of this Court in the case of M/s.Zee Laboratories vs. Tamil Nadu Medical Services Corporation Ltd., reported in 2019-1-Writ L.R.425

Referring to the above authorities, the learned standing counsel for the respondents would submit that when both the parties have agreed to resolve the dispute through arbitration, a writ petition is not maintainable.

Discussion:

18. The impugned order dated 22.11.2016 has been passed determining that a sum of Rs.38,41,853.50 is due and payable by the petitioner towards penalty for the alleged breach of contract committed by the petitioner for not loading bed rolls at base stations (Coimbatore and Erode) for the period from May 2015 to January 2016. According to the respondents, the bed rolls were loaded by the petitioner at Chennai instead of the base stations i.e., Coimbatore and Erode. It is also the case of the respondents that several complaints were received from the passengers and on inspection by their officials, it was found that the blankets, bed rolls, pillow covers supplied by the petitioner were not properly washed and there was also short supply of blankets, bed rolls and pillow covers. Exercising the penalty clause contained in the contract, the respondents have imposed penalty of Rs.38,41,853.50 for the alleged breach of contract as detailed below:

1.Amount of penalty imposed for not washed blankets as per penalty clause 35.s:Rs.35,03,648.00
2.Amount of penalty imposed for deficiencies noticed by depot officials and public complaints as per penalty clause 35.c:Rs.90,000.00
3.Amount of penalty imposed for short supply of bed roll kits, tag not provided in blankets, short supply of pillows and other deficiencies as per clause 35.e,f,d,j:Rs.2,48,205.50
Total AmountRs.38,41,853.50


19. The case of the petitioner is that the principles of natural justice have been violated by the second respondent before passing the impugned order.

20. This Court has perused and examined the impugned order. As seen from the impugned order, it refers to alleged complaints received from the passengers with regard to the poor quality of blankets, bed rolls, pillow covers and its dirty condition. Admittedly, the copies of the alleged complaints received from the passengers were not furnished to the petitioner by the second respondent in the enquiry proceedings. The impugned order also refers to the constitution of a committee to look into the deficiencies allegedly committed by the petitioner and also refers to a committee report jointly signed by the respondents officials and representatives of the petitioner which indicate deficiencies committed by the petitioner. However, admittedly, the second respondent has not furnished a copy of the alleged committee report to the petitioner in the enquiry proceedings. In the impugned order, there is also a reference to a joint meeting held between the petitioner and the respondents officials on 17.02.2016 wherein the petitioner was instructed to improve the quality of linen, especially blankets and directed the petitioner to provide linen in eco-friendly covers to avoid public complaints. In the impugned order, it is also observed that the contractor has assured to improve the quality of blankets supply to the passengers and remedy other deficiencies.

21. The minutes of the alleged meeting dated 17.02.2016 has also not been furnished to the petitioner by the second respondent in the enquiry proceedings. It is not in dispute that in case of breach of contract, the respondents are entitled to levy penalty on the petitioner under clause 35A to 35G of the contract dated 08.07.2005, but the same has to be determined only after adhering to the principles of natural justice.

22. The concept of fairness should be in every action whether it is judicial, quasi-judicial, administrative and or quasi-administrative work. The principles of natural justice should be free from bias and parties should be given fair opportunity to be heard and all the reasons for the decision should be informed to the respective parties. The three essential procedure related to the principles of natural justice are (a) No one should be a judge in his own matter; (b) No one can be condemned unheard; and (c) The party is entitled to know each and every reason and the decision taken by the authority.

23. In the case on hand, even though the impugned order refers to various complaints given by the passengers about the poor quality of the linen, blankets, bed rolls and pillow covers, the copies of the said complaints were admittedly not served on the petitioner in the enquiry proceedings. It is not sufficient to place the alleged complaints before this Court as it should have been placed in the enquiry proceedings and copies given to the petitioner to enable them to rebut the same. In the impugned order, there is also a reference to a committee constituted by the respondents to look into the deficiencies committed by the petitioner and the subsequent committee report based on which, the levy of penalty was imposed on the petitioner but the copy of the committee report has not been admittedly furnished to the petitioner by the second respondent. In the impugned order, there is also a reference to a joint meeting held on 17.02.2016 wherein the petitioner agreed to rectify his mistakes, but the second respondent has not furnished to the petitioner, the copy of the minutes of the meeting dated 17.02.2016 allegedly signed by the petitioner.

24. The penalty imposed under the impugned order is not a liquidated sum mentioned in the contract, but it is towards an unliquidated sum which will have to be determined only after affording sufficient opportunity to the petitioner to raise all objections available to him under law with regard to the said claim. However, as seen from the impugned order and as observed earlier, the petitioner has not been afforded a fair hearing and principles of natural justice have been violated by the second respondent.

25. Insofar as the arbitration clause is concerned, the contention of the respondents that the writ petition is not maintainable in view of the existence of arbitration clause cannot be accepted by this court, since the penalty amount has been determined as per clause 35A to 35G of the contract by not adhering to the principles of natural justice. Unless and until, a fair hearing was afforded to the petitioner, the amount determined as penalty under the impugned order cannot be sustained. The levy of penalty is not a liquidated sum of money under the contract and it depends on various factors.

26. Even in the instant case, penalty has been imposed on the petitioner for non-washing of the blankets, deficiencies noticed by the depot officials and public complaints and short supply of bed rolls and other deficiencies. The details of the number of blankets which were not washed, details of complaints received from passengers, det

Please Login To View The Full Judgment!

ails of other deficiencies and details of short supply have not been disclosed in the impugned order passed by the second respondent. Therefore, this court is of the considered view that only in case of liquidated damages, the respondents can take the plea about the existence of an arbitration clause. But in case of claim for unliquidated sum of money towards penalty, as a public authority, any sum determined by the respondents towards penalty will have to be determined only after adhering to the principles of natural justice. In view of the violation of the principles of natural justice, the judgments relied upon by the learned standing counsel for the respondents will not have any bearing to the facts of the present case. 27. For the foregoing reasons, the points for consideration listed out in the opening paragraph of this order are answered in favour of the petitioner. 28. In the result, the impugned order dated 22.11.2016 in proceedings Ref.No.SA/M 271/Linen/12674/12656 on the file of the second respondent is hereby quashed and the matter is remanded back to the second respondent for fresh consideration and the second respondent shall pass final orders after affording sufficient opportunity to the petitioner by adhering to the principles of natural justice as stated supra and pass final orders within a period of eight weeks from the date of receipt of a copy of this order. In view of the quashing of the impugned order, the respondents are directed to pay the petitioner a sum of Rs.38,41,853.30 or the actual amount deducted by them from and out of the petitioner’s bills within a period of four weeks from the date of receipt of a copy of this order. However, it is made clear that once the penalty amount is determined in accordance with this order, the respondents are granted liberty to deduct the determined penalty amount from and out of the bills payable to the petitioner in the near future. 29. With the aforesaid directions, this writ petition is disposed of. No costs. Consequently, connected miscellaneous is closed.
O R