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

Seguro Foundations & Structures Pvt. Ltd., Represented by its Authorised Signatory M. Afsal v/s Kerala Road Fund Board- Project Management Unit, Represented by its Project Director, Thiruvananthapuram & Others

    WP(C). No. 2374 of 2020(V)

    Decided On, 22 December 2020

    At, High Court of Kerala


    For the Petitioner: P.U. Shailajan, Advocate. For the Respondents: R1, K.V. Manoj Kumar, SC, R3, Government Pleader, R5, P. Shanes Methar, Advocate.

Judgment Text

1. During the financial year 2016-17, Government of Kerala formulated the project for construction of Padaharam Bridge across Pampa river in Alappuzha District. The Kerala Road Fund Board (KRFB) was designated as the Special Purpose Vehicle (SPV) for executing the project. The project was funded by the Kerala Infrastructure Investment Fund Board (KIIFB). The work was tendered and the petitioner Company was awarded the contract for construction of the Bridge at a contract price of Rs.55,43,32,619.27/-. As per Ext.P1 letter of acceptance dated 07.01.2019, the petitioner was required to furnish performance guarantee for an amount equivalent to Rs.2,77,16,700/- and to execute the agreement within 14 days from the date of registration of the letter of acceptance. Among the conditions in Ext.P1, condition No.3 required the petitioner to commence work within ten days of issue of notice to proceed with the work. As per condition No.4, the work was to be completed in 24 months of receipt of the letter to proceed or the date of actual commencement, whichever is earlier. Petitioner furnished the performance security and executed Ext.P2 agreement on 02.03.2019. The work site was handed over to the petitioner under Ext.P3 communication dated 08.03.2019. As per the note to Ext.P3, handing over of site implies making available the site to the contractor and his agents, workmen etc to enter the site and carry on the entrusted work. Thereafter, Ext.P4 letter dated 25.03.2019 was issued by the Superintending Engineer (PWD), informing the petitioner that, during the site inspection conducted on 27.04.2019, it was noticed that preliminary work on the subject work had not started. The petitioner was hence directed to mobilise the required men and machinery and to commence the work immediately. Ext.P5 dated 12.04.2019, is a similar letter issued by the Project Director of the Kerala Road Fund Road, noting that the petitioner had not even turned up to commence the work. As per Ext.P7 dated 07.05.2019, the petitioner informed the Project Director of KRFB of its intention to engage a sub-contractor for execution of the work. No reply or intimation, granting permission for appointment of sub-contractor, was issued by the KRFB. According to the petitioner, men and machinery were mobilised and site office established on 15.05.2019. The piling works commenced from 31.05.2019 onwards. In the meanwhile, Ext.P9 letter dated 27.05.2019 was issued by the Executive Engineer, PWD, observing that progress of the work was very poor and the required key person was not deployed and no arrangements were made for setting up an office and quality control laboratory at the site. The petitioner was directed to submit a detailed programme schedule showing general methods, arrangements, order and timing for all activities related to the work urgently and to increase the manpower and machinery for completing the project on time. This was followed by Ext.P10 communication dated 30.05.2019 of the Chief Engineer, PWD, referring to the report from the Superintending Engineer that, progress of the work is very poor and that the petitioner had sublet the work to some other agency. It was also noticed that officials from the petitioner's side were not present at the site for supervising the work. The petitioner submitted Ext.P11 reply and also issued Exts.P12 and P13 letters containing construction programme and status of project mobilisation and details of the preliminary activities carried out at the site. Thereafter, by Ext.P14 letter dated 25.06.2019, the Executive Engineer, PWD was informed about obstructions at the site, which was hampering the progress of the work considerably. Ext.P15 dated 29.06.2019 is yet another letter regarding obstruction by an adjacent landowner. Exts.P17 to P20 and P23 are communications issued by the petitioner requesting to obtain clearance from the statutory authorities and for removing hindrance at the site. On 31.08.2019, a progress review meeting was conducted by the Chief Engineer, PWD Bridges Division and Ext.P24 instruction was issued, pointing out the actions to be taken for smooth progress of the work. According to the petitioner, the instruction was complied with and the actions taken intimated under Exts.P25 and P26. Ext.P30 dated 31.10.2019 is yet another communication sent by the petitioner pointing out that, unless the existing canal is diverted, the piling work cannot be continued. According to the petitioner, inspite of various hindrances pointed out in its communications, the work was continued and 5 numbers of piles made at site. But, without considering progress of the work and without clearing the hindrances, Ext.P31 notice, dated 30.10.2019 was issued by the project Director, KRFB threatening to terminate the contract, if urgent action is not taken to speed up the work. The petitioner sent Ext.P32 reply detailing the reasons for slow progress of the work, most of which was due to the failure of the Departmental officials to get the hindrances pointed out by the petitioner cleared. The petitioner therefore requested to accept his explanation and promised to complete the works in quickly and promptly and also requested to revoke Ext.P31 notice. Without accepting the petitioner's explanation and heeding to the request for cancellation of the termination letter, Ext.P33 dated 04.11.2019 was issued intimating the petitioner about the decision to terminate the work of Padaharam Bridge at the risk and cost of the contractor. Under Ext.P33, the Executive Engineer, PWD, directed the petitioner to stop all works at the site with effect from 5.00 p.m of 04.11.2019. In Ext.P34, which is yet another stop memo, slow progress in the work, failure to appoint qualified technical staff and to set up site laboratory, appointment of a person without Civil Engineering Degree as Project Director and sub-letting of the work to another agency, were cited to be the reasons. Once again the petitioner submitted its explanation vide Ext.P35 letter dated 12.11.2019. Later, as per Ext.P36 dated 06.12.2019, petitioner requested for permission to resume the work. On 06.12.2019, a meeting was conducted at the instance of the Project Director, KRFB to assess the progress of the work and to decide the further course of action. While the petitioner was awaiting a positive outcome, it was served with Ext.P40 letter dated 03.01.2020 terminating the contract at the risk and cost of the petitioner and forfeiting the security deposit. It was also informed that risk and cost will be calculated after the work is re-tendered. Aggrieved, the writ petition is filed seeking to quash Ext.P40 and to direct the respondents to withdraw the stop memos and permit the petitioner to continue the works, with due compensation for cost escalation and compensation for the damage sustained due to idling of resources, wastage of material etc.

2. A counter affidavit has been filed by the Executive Engineer, PWD, raising the following contentions:

Pursuant to Ext.P2 agreement, the work site was handed over on 08.3.2019 and hence, time for completion of work was up to 07.03.2021. Due to slow progress, the work of only 8 out of 84 piles was completed during the initial seven months. The averment in the writ petition that the site office was established on 15.05.2019 is incorrect. The site lab and office was mobilised by the petitioner only on 04.11.2019. Sub-contracting of the work will be permitted only if qualification of the sub-contractor was evaluated during the process of bid evaluation. In the tender documents the petitioner had stated that the work will not be given on subcontract and hence, the petitioner's request for sub-contracting was not entertained. Even without obtaining approval from the Department, the petitioner gave the work on sub-contract, which amounted to violation of the agreement. The key personnel at the site did not have the requisite qualification and inspite of this defect being pointed out, petitioner did not take requisite corrective measures. Timely interventions were made whenever hindrances were pointed out. None of the so-called hindrances justify construction of only 8 out of 84 piles. On 04.11.2019, a meeting was conducted in the chamber of the Minister for Public Works and after taking stock of the situation, it was decided to stop the work and terminate the petitioner's contract. Another meeting was chaired by the Minister on 18.11.2019 and after detailed discussion, the petitioner expressed its willingness to withdraw from the contract and it was decided to initiate the termination process, on receipt of termination request from the petitioner. Thereafter, a hearing was conducted on 06.12.2019 and the petitioner provided opportunity to submit its explanation and present its views. Taking into account the explanation offered by the petitioner and all other relevant aspects, decision was taken to terminate the contract on risk and cost basis. Ext.P40 termination order was issued thereafter.

3. Heard Sri.P.U.Shailajan, learned Counsel for the petitioner and Sri.K.V.Manoj Kumar, learned Senior Government Pleader.

4. Learned Counsel for the petitioner put forth elaborate submissions regarding the reasons for the slow progress of the work, which according to the learned Counsel, were not attributable to the petitioner. Referring to various communications issued by the petitioner, it was submitted that, had the authorities cleared the hindrances pointed out by the petitioner in a timely manner, the work would have progressed as per schedule. It was submitted that the allegation regarding failure to construct site office and depute qualified key personnel at the site are without basis. It was contended that as per Clause 7.1 of the agreement, the contractor is entitled to sub-contract any portion of the work, up to a limit specified in the contract data, with the approval of the Engineer. According to the learned Counsel, failure of the Engineer to give a reply, in spite of intimation regarding appointment of sub-contractor, was taken as deemed approval. The learned Counsel contended that in any view of the matter, invocation of bank guarantee furnished towards performance security, is patently illegal. Referring to Clause 54 of the agreement, it was submitted that the employer can terminate the contract only on other party causing a fundamental breach and that, even the respondents do not have a case that the petitioner would fall within any of the fundamental breaches enumerated under Clause 54.2. It was submitted that, going by the terms of the agreement, all Clauses and conditions stipulated in the revised PWD manual are made applicable and that, as per Clause 2116.1 of the PWD Manual, the agreement authority has to follow the procedure outlined in the general conditions of the contract, in the matter of damages and penalties. Finally, it was contended that Ext.P40 is bad for violation of the fundamental principles of natural justice and fair play, inasmuch as reasonable opportunity of hearing was not afforded to the petitioner before termination. Reliance is placed on the decision of the Honourable Supreme Court in ABL International Ltd and another v. Export Credit Guarantee Corporation of India Ltd [(2004) 3 SCC 553] to contend that a writ petition under Article 226 is maintainable, even if disputed questions of facts are involved.

5. The learned Senior Government Pleader countered the contentions by submitting that, laxity on the part of the petitioner and violation of the agreement conditions had compelled the respondents to terminate the contract. It is submitted that delay in progress and completion of the work was affecting the public at large and therefore, respondents had to take stringent and timely action. According to the learned Senior Government Pleader, the incompetence and inexperience of the petitioner in executing works of this magnitude is evident from the fact that all three works, ie, the work for construction of Padaharam bridge, the Thottappally- Naluchira Bridge and the Perumbalam bridge had to be cancelled due to slow progress of work and violation of agreement conditions. It was contended that most of the hindrances pointed out by the petitioner were trivial and that, timely action was taken by the respondents for clearing the major hindrances. Further, hindrance at some point do not justify stoppage of the entire construction work. As regards engagement of sub-contractor, it was contended that the petitioner was bound to express its intention to sub-contract the work in the bid itself. Instead, in its tender, the petitioner had specifically stated that it had no intention of giving the work on sub-contract. The action of the petitioner amounts to violation of the agreement conditions, justifying termination of the contract. In answer to the contention regarding violation of the principles of natural justice, it was submitted that enough and more opportunity was granted to the petitioner. It was pointed out that notices proposing to terminate the contract was issued and the petitioner heard and its explanation considered. Again meetings were held and the situation assessed in the presence of petitioner's representatives. Ext.R3(c) is relied on to point out that in the meeting chaired by the Minster for Public Works on 06.12.2019, petitioner had expressed its intention to withdraw from the contract. Even thereafter, the petitioner was provided with opportunity of hearing and the decision to terminate the contract was taken only thereafter. On the challenge against invocation of the bank guarantee, it was contended that the PWD manual, which is indisputably applicable, provides for invocation of bank guarantee in order to realise the loss sustained on account of the termination. Reference was made to Clause 2116.2.1 in support of the said contention. It is argued that Clause 54.2 of the agreement is not exhaustive and that even going by that clause, the termination cannot be faulted as the petitioner had failed to commence the work within 28 days of handing over of the site.

6. On a consideration of the factual submissions urged by the learned Counsel, it emerges that the respondents were finding fault with the petitioner for the slow progress of the work, whereas the petitioner's stand is that the delay was for reasons beyond its control and due to the failure of the authorities to clear the hindrances. This definitely is a factual dispute which cannot be sorted out in exercise of jurisdiction under Article 226.

7. As regards the issue as to whether the agreement condition was violated by the petitioner sub-contracting the work, it would be apposite to refer Clause 7.1 of the agreement, which is extracted hereunder:

"The contractor may sub-contract any portion of the work, up to a limit specified in contract data, with the approval of the Engineer, but may not assign the contract without the approval of the employer in writing. Sub-contracting does not alter the contractor's obligations."

It is clear from a reading of the clause that sub- contracting is permissible only when it is specified in the contract data. In Ext.R3(a), under the heading 'proposed sub-contracts and firms involved', the entry made by the petitioner is "NIL". Hence, the petitioner could not have appointed a sub-contractor. Such appointment, especially when it is without approval from the authority concerned, amounts to violation of the agreement condition.

8. As rightly contended by the learned Senior Government Pleader, Clause 54.2 specifies that the fundamental breaches are not limited to those enumerated under the clause. Therefore, appointment of sub-contractor in violation of the terms of the agreement and stoppage of work without authorisation, could also be brought within the purview of fundam

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ental breaches. If so, the decision to terminate the contract cannot be termed illegal. 9. As far as the contention based on invocation of bank guarantee and realisation of risk and cost is concerned, Clause 2116.2 and 2116.2.1 provides for such action under certain specified circumstances. One such circumstance is the contractor failing to turn up for starting the work within the specified period. Yet another circumstance is abandonment of work by the contractor. According to the respondents, failure to commence the work after handing over the site would fall within the first circumstance and stoppage of the work citing trivial reasons amounts to abandonment. I have no doubt that these are factual disputes which cannot be decided in this writ petition. The decision in ABL International Ltd was rendered under entirely different circumstances and cannot be made applicable to the facts of the instant case. 10. In the face of the series of communications, notices issued to the petitioner and meetings convened by different authorities including the Minister for Public Works and the opportunity granted to the petitioner to offer its explanation, the contention of the action being vitiated due to violation of the principles of natural justice is only to be rejected. It is pertinent to note that from the decision in Tata Cellular v. Union of India [(1994) 6 SCC 651] onwards, law is well settled that the State's decision pertaining to contract shall be subjected to judicial review only when the decision/action is vitiated by arbitrariness, unfairness, irrationality or 'Wednesbury unreasonableness'. For the reasons mentioned above, I find no ground to interfere with Ext.P40 and consequently, the writ petition is dismissed.