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M/s. Vardhman Industries & Another v/s State of Rajasthan Through Principal Secretary, Department of Public Health Engineering Department, Government of Rajasthan, Government Secretariat & Another


Company & Directors' Information:- RAJASTHAN INDUSTRIES LIMITED. [Active] CIN = U14219RJ1949PLC000700

Company & Directors' Information:- VARDHMAN INDUSTRIES LIMITED [Active] CIN = L74899DL1984PLC019492

Company & Directors' Information:- D P ENGINEERING INDUSTRIES LIMITED [Active] CIN = U27310DL2008PLC176856

Company & Directors' Information:- A K ENGINEERING INDUSTRIES (INDIA) PRIVATE LIMITED [Active] CIN = U25206DL1997PTC085204

Company & Directors' Information:- G L ENGINEERING INDUSTRIES PRIVATE LIMITED [Active] CIN = U28920MH1981PTC023662

Company & Directors' Information:- B V M ENGINEERING INDUSTRIES LIMITED [Active] CIN = U28111DL1972PLC005983

Company & Directors' Information:- R R R ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U74899DL1993PTC055069

Company & Directors' Information:- A. V. ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U99999DL1974PTC007360

Company & Directors' Information:- G D R ENGINEERING INDUSTRIES PVT LTD [Strike Off] CIN = U27109UP1971PTC003388

Company & Directors' Information:- L S ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U74899DL1977PTC008484

Company & Directors' Information:- I B I ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U45202PB1974PTC003422

Company & Directors' Information:- A H B ENGINEERING INDUSTRIES PVT LTD [Strike Off] CIN = U35999WB1988PTC044786

Company & Directors' Information:- O K ENGINEERING INDUSTRIES PRIVATE LTD [Active] CIN = U74899DL1987PTC027660

Company & Directors' Information:- R P ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U99999DL1973PTC006781

Company & Directors' Information:- VARDHMAN ENGINEERING PRIVATE LIMITED [Active] CIN = U51103DL2012PTC239405

Company & Directors' Information:- VARDHMAN T AND P LIMITED [Active] CIN = U74920DL2019PLC351656

Company & Directors' Information:- S V ENGINEERING INDUSTRIES PVT LTD [Under Liquidation] CIN = U74210TG1981PTC003174

    Civil Writs No. 18212 of 2016

    Decided On, 01 June 2018

    At, High Court of Rajasthan Jaipur Bench

    By, THE HONOURABLE MR. JUSTICE SANJEEV PRAKASH SHARMA

    For the Petitioners: N.K. Maloo, Senior Advocate assisted by H.V. Nandwana, Advocate. For the Respondents: J.M. Saxena, AAG with Akshit Gupta, Advocate.



Judgment Text

1. The petitioner is a micro scale manufacturing enterprise engaged in manufacturing and supply of submersible pump sets. It is registered with Government of Rajasthan (Industries Department) for supplying of submersible pump sets. It has also been registered for manufacturing of wires and cables in the year 2014.

2. The petitioner has filed this petition praying for quashing and setting-aside the order dated 28.11.2016 whereby following actions have been taken against the petitioner:-

(a) petitioner has been debarred from business with the department for two years from the date of order i.e. 28.11.2016

(b) forfeiture of security deposit of amount of Rs.10,49,700/-

(c) recovery under risk and cost purchases

(d) withholding of pending payment.

The petitioner has also prayed to direct the respondents to release the security deposit and to restrain from making coercive recovery for any risk and cost purchases.

3. At the outset, it may be noted that so far as the recovery under risk and cost purchase is concerned, the petitioners have submitted in their written submission that there has been no purchases made till today, and therefore no recovery orders have been issued in this regard and prayer regarding recovery is not pressed.

As regards the withholding of pending payments, payment of Rs.4 crores for supplies made against different work contracts for the year 2015-16 has been withheld.

The present case came up before the Court as the petitioner was not being allowed to participate in any tenders which have been floated during the period of pendency of this writ petition, and therefore, request was made to hear the case finally on 23.03.2018. This Court had refused to grant stay or direct the respondents to allow the petitioner to participate till the black list order is in force as it would have amounted to allowing the writ petition.

In the circumstances, the arguments were heard and concluded finally on 16.05.2018. During pendency of the writ petition, additional documents, counter affidavits, rejoinder, reply to the additional affidavits have been filed from both the sides.

4. The subject matter of the writ petition is with regard to the rate contract of the year 2013 issued vide order dated 18.08.2013. It is stated that after the said order, further work orders were also awarded in favour of the petitioner-company for the year 2015-16.

A show cause notice was issued to the petitioners on 19.08.2016. A committee was constituted under the nodal officer who had visited the sites and stores of PHED Rajasthan to asses the quality of pump sets procured under the various rate contract executed under NIT dated 04.02.2013. It was stated that during the inspection the cable supplied alongwith submersible pump sets was not found in accordance with the specification of the rate contract and the size and length of the submersible cable supplied alongwith the pump sets was less than the prescribed value. The cross sectional area of cable was observed as 1.787 Sqmm (Red), 1.954 Sqmm (Yellow) and 1.995 Sqmm (Blue) whereas the cross sectional area of cable should be 2.5 Sqmm and the length of the cable was found 109.5 meter whereas the prescribed length was 120 meters. The inspection was conducted at the site Kishangarh of pump set No.7256. As per the show cause notice, it was stated that non receipt of satisfactory reply, the petitioner company would be liable for punitive action under Clause 7.6, 12, 13, 16 and 20 of the rate contract for having failed to fulfilling the obligations including forfeiture of proportionate security deposit alongwith imposition of holding product at the risk and cost of the firm, black listing and banning of business.

5. The respondents have also thereafter issued another show cause notice on 14.09.2016 enclosing the copies of inspection report as demanded by the petitioner and it was pointing out that the size and length of submersible cable supplied alongwith pump sets, was less than the prescribed value. The inspection report with regard to the submersible pump 7256 at Kishangarh unit has been placed on record along with reply.

6. After the show cause notice was issued as above, the respondents examined the reply sent by the petitioners on 27.09.2016 and order was passed on 28.11.2016 as noted above. The respondents have also stated that they have also registered a case with the Anti Corruption Bureau on 15.11.2016 in relation to the said inspection. Inspections were also conducted on 16.06.2016 and at different places on 29.06.2016, 30.06.2016, 04.07.2016, 20.07.2016, 28.07.2016, 03.08.2016, 04.08.2016, 09.08.2016 and 29.08.2016 and the summarized inspection report was also placed for perusal of the Court and at all the places the cable was found short in length as jointing of different makings of cable. In all 11 places where the inspection was conducted has been placed on record.

7. The case of the petitioners is that inspection which has been conducted against them is behind their back and without conducting inspection in their presence. It is their case that they had requested department to conduct a re-inspection. It is submitted that the date of inspection conveyed to the petitioners when the inspection was being conducted at a different site while the information given to the petitioner at Jaipur, inspection was conducted at Kishangarh unit.

8. It is further case of the petitioners that the notice was sent on 02.08.2016 at 05:40 P.M. after closing of office by email and therefore such an inspection could not have been relied upon as there was no reasonable notice to the petitioners. Further it is the case of the petitioners that they have as per rate contract of the year 2013, supplied 1704 pumps along with cable and since 2007 the petitioners have supplied more than 10,000/- pump sets. So far as the specification of PVC submersible cables is concerned, the specification and result test is a resistance test and the measurement test which has been adopted by the inspecting team was erroneous. The petitioners have placed on record documents including the method of testing as per Indian Standards for conducting of test of quality of cables to submit that the diameter measuring test of the various wires of the cable is not correct test for assessing suitability and quality of the cable. It is further submitted that as per the Indian standards the only method which is required to be adopted for quality conducting test shall be the resistance test. The nominal cross sectional area needs value that identifies a particular size of conductor however the direct measurement system is a faulty method to reach a conclusion regarding the quality of the cable. The petitioner has also placed on record ERDA (Electrical Research And Development Association) report to submit that in case of a flexible manufacturing conductor the diameter of individual strand cannot be measured because during process of manufacturing, the physical shape of individual strand changes and cannot be exactly circular. It is the resistance method alone which is correct to uses the suitability.

9. The petitioners have submitted that the material was supplied relating to pump set No.7256 on 11.11.2014 and the pre delivery inspection report pointed out that the cable was OK, post delivery inspection conducted by the department also given the certificate of pump and cable is OK. The inspection was conducted in 2016 behind back of petitioner and the cable was not sent to the ERDA for test. So far as the pump set No.7256 is concerned it was found to be as per specification thus the petitioner cannot be branded on the basis of such faulty inspection and black listed on basis of a single inspection.

10. The petitioner has also pointed out that in the impugned order another pump set No.6674 has been mentioned, although it was not part of the show cause notice. In this regard, it has been submitted that pump was supplied on 16.06.2014 alongwith the cable which was found OK at pre delivery inspection report and post delivery inspection was also found as OK. The cable size was found to be OK and after inspection when the cable and pumps were sent to the ERDA for test, the ERDA report also declares the cable to be OK and quality wise as per in accordance with specifications. In the circumstances, the petitioners submit that the inspection was wrongfully done with a view to oust the petitioners who have been regularly supplying the goods without any fault for years together and it appears that the entire inspection was motivated and at the behest of another competitor.

The submission is that once it is found that the test carried out was not a prescribed test as per ISI standards the petitioner could not be blacklisted. Further it is submitted that the material was lying with the department for more than two years and since the inspection conducted behind the petitioners back therefore there were all possibilities that the cable which was measured, were not the total original length, supplied by the petitioner. It is further submitted that as per the rate contract, on the cable itself there is a mark fixed as PHED Rajasthan at every meter of the length of the cable as required under the terms of contract. An inspection which was conducted at that time of delivery is in accordance General Finance and Administrative Rules (GFAR) wherein detailed procedure is prescribed and hence the alleged inspection is liable to be rejected and ignored.

11. It is further submitted that even in the show cause notice there was no mention of withholding of outstanding payments in relation to the other works done by the petitioners. It is submitted that merely at the askance of the respondents, the petitioners cannot be branded as a company not supplying genuine goods. Moreover, the submersible pump supplied by the petitioner has not been found to be below standard or as far as cable is concerned it also cannot be said to be below standard only the length of the cable is found to be short. So far as the measurement on the basis of the cross sectional dia meter is concerned, the submissions of the petitioner is that such a measurement for the size or quality of cables is wholly misconceived and misdirected. The same is not in accordance with the standards laid down and therefore the said measurements cannot be made a basis to hold that the cable is of sub standard material. Moreover, the cable which was sent for test to IRDA related to pump No.6674 was found to be as per their prescribed standards, and it is therefore submitted that such a faulty inspection could not be made a basis to pass the impugned order.

The petitioners have also pointed out that after the supply of items on 12.11.2014, the cable has remained in exclusive possession of the respondent and it is not known as to whether the said wires were kept in secured condition on the date when the inspection was conducted i.e. on 03.08.2016, whether yellow paint with seal put up by CEIL was present or not at the time of inspection is not known nor it is mentioned in the inspection report. As regards the dia meter, it has been pointed out that the specifications requires of .26 mm as maximum while the dia meter measured at the time of inspection were .22 mm (red) and .23 mm (yellow) and .23 mm (blue) which confirmed to be within the specifications.

The petitioners have submitted that if at all the cable for any of the function would have been found to be less in length, the same could not be a basis to blacklist and the petitioners could have been asked to replace the cable with full length.

12. The respondents have also filed an additional affidavit stating that show cause notice was also issued to the Executive Engineers who have however supported the petitioners and thus a presumption has to be drawn that the Executive Engineers were hand in gloves with the petitioners. An additional affidavit has also been filed by the petitioner stating that in relation to the other manufacturers where the inspections were conducted, the length of the cable was found to be short however no action with regard to the short cable has been taken against any other manufacturers.

13. Having taken note of the submissions of both the parties, I find that the law with regard to blacklisting of contractors on account of inspections has been a subject matter of discussion by the Apex Court in several cases.

14. In the case of Maula Bux Versus Union of India, 1969 (2) Supreme Court Cases 554, it has been held as under:-

"4. Under the terms of the agreements the amounts deposited by the plaintiff as security for due performance of the contracts were to stand forfeited in case the plaintiff neglected to perform his part of the contract. The High Court observed that the deposits so made may be regarded as earnest money. But that view cannot be accepted. According to Earl Jowitt in "The Dictionary of English Law" at p. 689 : "Giving an earnest or earnest-money is a mode of signifying assent to a contract of sale or the like, by giving to the vendor a nominal sum (e.g. a shilling) as a token that the parties are in earnest or have made up their minds." As observed by the Judicial Committee in Kunwar Chiranjit Singh v. Har Swarup "Earnest money is part of the purchase price when the transaction goes forward : it is forfeited when the transaction falls through, by reason of the fault or failure of the vendee."

In the present case the deposit was made not of a sum of money by the purchaser to be applied towards part payment of the price when the contract was completed and till then as evidencing an intention on the part of the purchaser to buy property or goods. Here the plaintiff had deposited the amounts claimed as security for guaranteeing due performance of the contracts. Such deposits cannot be regarded as earnest money.

Section 74 of the Contract Act provides :

"When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for."

x x x x x"

There is authority, no doubt coloured by the view which was taken in English cases, that Section 74 of the Contract Act has no application to cases of deposit for due performance of a contract which is stipulated to be forfeited for breach : Natesa Aiyar v. Appavu Padayachi; Singer Manufacturing Company v. Raja Prosad; Manian Patter v. The Madras Railway Company, But this view is no longer good law in view of the judgment of this Court in Fateh Chand's case (supaa). This Court observed at p. 526 :

"Section 74 of the Indian Contract Act deals with the measure of damages in two classes of cases : (i) where the contract names a sum to be paid in case of breach, and (ii) where the contract contains any other stipulation by way of penalty...." "The measure of damages in the case of breach of a stipulation by way of penalty is by Section 74, reasonable compensation not exceeding the penalty stipulated for."

The Court also observed :

"It was urged that the section deals in terms with the right to receive from the party who has broken the contract reasonable compensation and not the right to forfeit what has already been received by the party aggrieved. There is however no warrant for the assumption made by some of the High Courts in India, that Section 74 applies only to cases where the aggrieved party is seeking to receive some amount on breach of contract and not to cases whereupon breach of contract an amount received under the contract is sought to be forfeited. In our judgment the expression "the contract contains any other stipulation by way of penalty" comprehensively applies to every covenant involving a penalty whether it is for payment on breach of contract of money or delivery of property in future, or for forfeiture of right to money or other property already delivered. Duty not to enforce the penalty clause but only to award reasonable compensation is statutorily imposed upon courts by Section 74. In all cases, therefore, where there is a stipulation in the nature of penalty for forfeiture of an amount deposited pursuant to the terms of contract which expressly provides for forfeiture, the court has jurisdiction to award such sum only as it considers reasonable, but not exceeding the amount specified in the contract as liable to forfeiture.", and that,

"There is no ground for holding that the expression "contract contains any other stipulation by way of penalty" is limited to cases of stipulation in the nature of an agreement to pay money or deliver property on breach and does not comprehend covenants under which amounts paid or property delivered under the contract, which by the terms of the contract expressly or by clear implication are liable to be forfeited."

5. Forfeiture of earnest money under a contract for sale of property-movable or immovable-if the amount is reasonable, does not fall within Section 74. That has been decided in several cases : Kunwar Chiranjit Singh v. Har Swarup (Supra); RoshanLal v. The Delhi Cloth and General Mills Company Ltd., Delhi; Muhammad Habibullah v. Muhammad Shafi; Bishan Chand v. Radha Kishan Das. These cases are easily explained, for forfeiture of a reasonable amount paid as earnest money does not amount to imposing a penalty. But if forfeiture is of the nature of penalty, Section 74 applies. Where under the terms of the contract the party in breach has undertaken to pay a sum of money or to forfeit a sum of money which he has already paid to the party complaining of a breach of contract, the undertaking is of the nature of a penalty."

15. In the case of M/s Erusian Equipment & Chemicals Ltd. Versus State of West Bengal And Another, 1975 (1) SCC 70, it has been held as under:-

"17. The Government is a government of laws and not of men. It is true that neither the petitioner nor the respondent has any right to enter into a contract but they are entitled to equal treatment with others who offer tender or quotations for the purchase of the goods. This privilege arises because it is the Government which is trading with the public and the democratic form of Government demands equality and absence of arbitrariness and discrimination in such transactions. Hohfeld treats privileges as a form of liberty as opposed to a duty. The activities of the Government have a public element and, therefore, there should be fairness and equality. The State need not enter into any contract with any one but if it does so, it must do as fairly without discrimination and without unfair procedure. Reputation is a part of person's character and personality. Blacklisting tarnishes one's reputation

18. Exclusion of a member of the public from dealing with a State in sales transactions has the effect of preventing him from purchasing and doing a lawful trade in the goods by discriminating against him in favour of other people. The State can impose reasonable conditions regarding rejection and acceptance of bids or qualifications of bidders. Just as exclusion of the lowest tender will be arbitrary. similarly exclusion of a person who offers the highest price from participating at a public auction would also have the same aspect of arbitrariness.

19. Where the State is dealing with individuals in transactions of sales and purchase of goods, the two important factors are that an individual is entitled to trade with the Government and an individual is entitled to a fair and equal treatment with others. A duty to act fairly can be interpreted as meaning a duty to observe certain aspects of rules of natural justice. A body may be under a duty to give fair consideration to the facts and to consider the representations but not to disclose to those persons details of information in its possession. Sometimes duty to act fairly can also be sustained without providing opportunity for an oral hearing. It will depend upon the nature of the interest to be affected, the circumstances in which a power is exercised and the nature of sanctions involved therein.

20. Blacklisting has the effect of preventing a person from the privilege and advantage of entering into lawful relationship with the Government for purposes of gains. The fact that a disability is created by the order of blacklisting indicates that the relevant authority is to have an objective satisfaction. Fundamentals of fair play require that the person concerned should be given an opportunity to represent his case before he is put on the blacklist."

16. In the case of Ramana Dayaram Shetty Versus International Airport Authority of India And Others, (1979) 3 Supreme Court Cases 489, it has been held as under:-

"10. Now, there can be no doubt that what paragraph (1) of the notice prescribed was a condition of eligibility which was required to be satisfied by every person submitting a tender. The condition of eligibility was that the person submitting a tender must be conducting or running a registered 2nd class hotel or restaurant and he must have at least 5 years' experience as such and if he did not satisfy this condition of eligibility, his tender would not be eligible for consideration. This was the standard or norm of eligibility laid down by the 1st respondent and since the 4th respondents did not satisfy this standard or norm, it was not competent to the 1st respondent to entertain the tender of the 4th respondents. It is a well settled rule of administrative law that an executive authority must be rigorously held to the standards by which it professes its actions to be judged and it must scrupulously observe those standards on pain of invalidation of an act in violation of them. This rule was enunciated by Mr. Justice Frankfurter in Viteralli v. Saton, 359 U.S. 535: where the learned Judge said:

"An executive agency must be rigorously held to the standards by which it professes its action to be judged.... Accordingly, if dismissal from employment is based on a defined procedure, even though generous beyond the requirements that bind such agency, that procedure must be scrupulously observed........ This judicially evolved rule of administrative law is now firmly established and, if I may add, rightly so. He that takes the procedural sword shall perish with the sword."

This Court accepted the rule as valid and applicable in India in A.S. Ahluwalia v. Punjab, (1975) 3 SCR 82 and in subsequent decision given in Sukhdev v. Bhagatram Mathew, J., quoted the above-referred observations of Mr. Justice Frankfurter with approval. It may be noted that this rule, though supportable also as an emanation from Article 14, does not rest merely on that article. It has an independent existence apart from Article 14. It is a rule of dministrative law which has been judicially evolved as a check against exercise of arbitrary power by the executive authority. If we turn to the judgment of Mr. Justice Frankfurter and examine it, we find that he has not sought to draw support for the rule from the equality clause of the United States Constitution, but evolved it purely as a rule of administrative law. Even in England, the recent trend in administrative law is in that direction as is evident from what is stated at pages 540- 41 in Prof. Waders "Administrative Law", 4th edition. There is no reason why we should hesitate to adopt this rule as a part of our continually expanding administrative law. Today with tremendous expansion of welfare and social service functions, increasing control of material and economic resources and large scale assumption of industrial and commercial activities by the State, the power of the executive Government to affect the lives of the people is steadily growing. The attainment of socio-economic justice being a conscious end of State policy, there is a vast and inevitable increase in the frequency with which ordinary citizens come into relationship of direct encounter with State power- holders. This renders it necessary to structure and restrict the power of the executive Government so as to prevent its arbitrary application or exercise. Whatever be the concept of the rule of law, whether it be the meaning given by Dicey in his "The Law of the Constitution" or the definition given by Hayek in his "Road to Serfdom" and "Constitution of liberty" or the exposition set-forth by Harry Jones in his "The Rule of Law and the Welfare State", there is, as pointed out by Mathew, J., in his article on "The Welfare State, Rule of Law and Natural Justice" in "Democracy, Equality and Freedom," "substantial agreement is in juristic thought that the great purpose of the rule of law notion is the protection of the individual against arbitrary exercise of power, wherever it is found". It is indeed unthinkable that in a democracy governed by the rule of law the executive Government or any of its officers should possess arbitrary power over the interests of the individual. Every action of the executive Government must be informed with reason and should be free from arbitrariness. That is the very essence of the rule of law and its bare minimal requirement. And to the application of this principle it makes not difference whether the exercise of the power involves affectation of some right or denial of some privilege."

17. In the case of V.K. Ashokan Versus Assistant Excise Commissioner And Others , (2009) 14 Supreme Court Cases 85, it has been held as under:-

"66. There is another aspect of the matter which cannot be lost sight of. If damages cannot be calculated and the terms of the contract provide therefore only for penalty by way of liquidated damages, having regard to the provisions contained in Section 74 of the Indian Contract Act a reasonable sum only could be recovered which need not in all situations even be the sum specified in the contract. {See Maula Bux v. Union of India, (1969) 2 SCC 554 and Shree Hanuman Cotton Mills and Anr. v. Tata Air Craft Ltd., (1969) 3 SCC 522}."

18. The scope of judicial review requires this Court to limit itself to the reports of the experts. Once test reports of IRDA are on record to show that the quality of the cable is as per the prescribed standards, and the respondents have not made any attempt to challenge the said report, this Court would accept such a report as it is and would not attempt to examine it at its own level. Neither the Court has expertise nor the necessary infrastructure to venture in giving a finding relating to a quality of the product. Suffice it to note that the respondents have not examined the issue in the said light.

19. It is settled law that the Court has a limited scope in interference relating to contractual matters, however the scope has been clearly defined by the Apex Court in the case of Tata Cellular Vs. Union of India: 1994(6) SCC 651, wherein the Apex Court has held as under:-

"77. The duty of the court is to confine itself to the question of legality. Its concern should be:

1. Whether a decision-making authority exceeded its powers?

2. committed an error of law

3. committed a breach of the rules of natural justice

4. reached a decision which no reasonable tribunal would have reached or

5. abused its powers.

Therefore, it is not for the court to determine whether a particular policy or particular decision taken in the fulfillment of that policy is fair. It is only concerned with the manner in which those decisions have been taken. The extent of the duty to act fairly will vary from case to case. shortly put, the grounds upon which an administrative action is subject to control by judicial review can be classified as under :

(i) Illegality: This means the decision-maker must understand correctly the law that regulates his decision-making power and must give effect to it.

(ii) Irrationality, namely, Wednesbury unreasonableness,

(iii) Procedural impropriety.

The above are only the broad grounds but it does not rule out additional of further grounds in course of time. As a matter of fact, in R v. Secretary of State for the Home Department exparte Blind, Lord Diplock refers specifically to one development, namely, the possible recognition of the principle of proportionality. In all these cases the test to be adopted is that the court should, "consider whether something has gone wrong of nature and degree which requires its intervention".

20. This Court finds that the security deposited by the petitioner was for the entire supply which include the pump as well as the cable. A presumption on the basis of inspection of one cable of a single pump that all the cables are short cannot be drawn. At the same time, forfeiting entire security deposit on the basis of the cable length being short by some meters at one place that too after the product having remained in exclusive possession with the respondents for almost two years does not seem to be acceptable ground to suggest that the original supply of cable was of short length, moreso when it has come out that the product was lying in open and cable can easily be cut from the original supply of cable for utilization at other places. Thus, it is held that the forfeiture of security deposit is on extraneous grounds and it has not been assessed whether the loss suffered by the respondents was determined in relation to the security deposit.

21. A recent judgment passed by a Coordinate Bench of this Court in S.B.C.M.A. No.2160/2016 (Urban Improvement Trust, Kota Versus Tikamchand & Anr., decided on 18.09.2017 relying upon earlier judgments, it was held that when the loss having been assessed, amount cannot be recovered. Further judgments reported in 1994 (2) RLW 434 and 2016 (11) SCC 720 were relied upon.

22. As regards the action of blacklisting of the petitioner is concerned, the Supreme Court in (2010) 3 SCC 321 Hindustan Petroleum Corporation Limited And Others Versus Super Highway Services And Another, has held as under:-

"28. Having carefully considered the submissions made on behalf of the respective parties and also having considered the various decisions referred to by learned Counsel, we are of the view that the case made out on behalf of the Respondent No. 1 is more probable. Although, the transporter's representative was present at the terminal at the stipulated time on 29th May, 2008, that by itself cannot give rise to a presumption that service had been effected also on the Respondent No. 1, in the absence of any proof in that regard. Except for the endorsement on the hand- written notice said to have been given by Mr. Dash, there is nothing else on record to even suggest that notice had been sent to the Respondent No. 1 and that the same had been refused.

29. It is also rather difficult to accept that in respect of a test to be conducted on 29th May, 2008, at 3.00 p.m., an attempt was made to serve the said notice on the representative of the Respondent No. 1 on the date of the proposed test itself. Although, the notice is dated 28th May, 2008, the endorsement alleged to have been made by the representative of the Respondent No. 1 is dated 29th May, 2008, and we would be justified in assuming that the Respondent No. 1 could not have arranged for being represented at the laboratory in the Barauni Terminal of the petitioner Corporation on such short notice.

31. The cancellation of dealership agreement of a party is a serious business and cannot be taken lightly. In order to justify the action taken to terminate such an agreement, the authority concerned has to act fairly and in complete adherence to the rules/guidelines framed for the said purpose. The non-service of notice to the aggrieved person before termination of his dealership agreement also offends the well- established principle that no person should be condemned unheard. It was the duty of the petitioner to ensure that the Respondent No. 1 was given a hearing or at least serious attempts were made to serve him with notice of the proceedings before terminating his agreement.

34. In the present case, there is no admissible evidence to prove service of notice on the respondent or refusal of notice by the respondent. Further, the notice dated 28.05.2008 which was allegedly refused by respondent, did not give him adequate time to arrange for the presence of himself or his representative during the test to be conducted at 3.00 PM on 29.05.2008. It is also to be noted that the endorsement regarding the alleged refusal is dated 29.05.2008 itself. Thus, the termination of the dealership agreement of the respondent was arbitrary, illegal and in violation of the principles of natural justice."

23. In the case of Gorkha Security Services Versus Government (NCT of Delhi) And Others, (2014) 9 Supreme Court Cases 105, it has been held as under:-

"21… The Central issue, however, pertains to the requirement of stating the action which is proposed to be taken. The fundamental purpose behind the serving of Show Cause Notice is to make the noticee understand the precise case set up against him which he has to meet. This would require the statement of imputations detailing out the alleged breaches and defaults he has committed, so that he gets an opportunity to rebut the same. Another requirement, according to us, is the nature of action which is proposed to be taken for such a breach. That should also be stated so that the noticee is able to point out that proposed action is not warranted in the given case, even if the defaults/breaches complained of are not satisfactorily explained. When it comes to blacklisting, this requirement becomes all the more imperative, having regard to the fact that it is harshest possible action."

24. In the case of Patel Engineering Limited Versus Union of Indi

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a And Another, (2012) 11 SCC 257, while relying on the judgment of M/s Erusian Equipment & Chemicals Ltd. (supra), the Apex Court has held as under:- "15. It follows from the above judgment in Erusian Equipment case that the decision of State or its instrumentalities not to deal with certain persons or class of persons on account of the undesirability of entering into contractual relationship with such persons is called blacklisting. The State can decline to enter into a contractual relationship with a person or a class of persons for a legitimate purpose. The authority of State to blacklist a person is a necessary concomitant to the executive power of the State to carry on the trade or the business and making of contracts for any purpose, etc. There need not be any statutory grant of such power. The only legal limitation upon the exercise of such an authority is that the State is to act fairly and rationally without in any way being arbitrary - thereby such a decision can be taken for some legitimate purpose. What is the legitimate purpose that is sought to be achieved by the State in a given case can vary depending upon various factors." 25. In the aforesaid backdrop, the facts as noted above show that while show cause notice mentions about one pump set inspection, the order impugned mentions about two pumps and inspection conducted regarding two of them. As per reply, show cause notice was served on 19.08.2016 and again on 14.09.2016. While the petitioners have admitted with regard to the letter dated 19.08.2016, there is no proof of the second show cause notice dated 14.09.2016 having been served on the petitioners and the inspection report has also not served upon them. An additional affidavit in this regard has been filed to submit that the show cause notice was not served. 26. Be that as it may, this Court shall examine whether the decision making process was justified or not. Taking into consideration the first notice was served, the question is whether the reply filed by the petitioners was taken into consideration while passing the impugned order. Since the show cause notice never mentioned about the second pump there was no occasion for the petitioner to have submitted their reply relating to the same and thus an action taken on the basis of two inspections has to be held to be unjustified as the blacklisting is based on the allegations of there being two cables of submersible pumps found below standard of lesser length. The possibility that the length of the cables could have been tampered with while being in storage and possession of the respondents for two years cannot be ruled out. As regards the sub-standard quality; since the first cable was never sent for inspection to IRDA while the second cable has been found meeting standards by IRDA it cannot be said that the same was below standard. In view of the documents which have been placed on record including letters issued by the Chief Engineers pointing out that the quality of the cable is to be tested only by the resistance method. A firm opinion could not have been drawn on the basis of the faulty inspection. The respondents have failed to deal with the relevant aspects before imposing a harsh penalty of blacklisting and also imposing a penalty of withholding of entire security deposit as well as the forfeiture of the payments relating to other works performed by it under different rate contracts. 27. Keeping in view of the aforesaid observations, findings and conclusions, the order dated 28.11.2016 passed by the respondent is quashed and set-aside with all consequential benefits. The amount withheld by the respondents shall be released to the petitioners alongwith simple interest @ 9%. 28. The writ petition is allowed accordingly. 29. No costs.
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