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

Surya Alloy Industries Ltd v/s Union of India & Others

Company & Directors' Information:- SURYA ALLOY INDUSTRIES LIMITED [Active] CIN = U27104WB1990PLC050102

Company & Directors' Information:- SURYA INDIA LIMITED [Active] CIN = L74899DL1985PLC019991

Company & Directors' Information:- SURYA INDUSTRIES PRIVATE LIMITED [Active] CIN = U17120GJ2008PTC053221

Company & Directors' Information:- THE INDIA COMPANY PRIVATE LIMITED [Active] CIN = U74999TN1919PTC000911

Company & Directors' Information:- SURYA T V LIMITED [Strike Off] CIN = U74899DL2000PLC104798

Company & Directors' Information:- M. P. ALLOY PRIVATE LIMITED [Strike Off] CIN = U28111UP1995PTC018405

Company & Directors' Information:- INDIA CORPORATION PRIVATE LIMITED [Active] CIN = U65990MH1941PTC003461

Company & Directors' Information:- B D K ALLOY PRIVATE LIMITED [Amalgamated] CIN = U27106KA1973PTC002355

Company & Directors' Information:- ALLOY INDUSTRIES PVT LTD [Strike Off] CIN = U51420WB1957PTC023457

    GA No. 16 of 2013 & CS No. 417 of 2012

    Decided On, 15 November 2016

    At, High Court of Judicature at Calcutta


    For the Appearing Parties: Jishnu Saha, L.K. Chatterjee Sr. Advocates, Raja Basu Chowdhury, Goutam Shroff, Aparna Banerjee, Advocates.

Judgment Text

The Court : - The plaintiff seeks the continuation and confirmation of what appears to be a cyclostyled order based on a different set of facts with only the operative part made applicable to the present case. The ad interim order is of December 20, 2012. The facts pertaining to this matter are not indicated in the order except that the facts were perceived to have been comparable to the facts in another matter in which a similar order was passed.

The plaintiff is on the approved list of suppliers of goods to the railways. There are certain privileges of being on such list as approved by the Research Designs and Standards Organization (RDSO) of the railways, the second defendant herein. For a start, it entitles any party whose name is included in the approved list to participate in the tenders floated by the railways for supply of goods and, in several cases as in the case of the plaintiff herein, exempts the supplier from putting in the earnest deposit or the full complement of the earnest deposit for effecting the supply. Just as sometimes the good comes with the bad and privileges with onerous obligations, the benefits of entitlement require the enlisted suppliers to be subject to the rules under the vendor guidelines of the RDSO. The vendor guidelines which were in place in 2012, when this suit was instituted, permitted RDSO to draw samples of goods from the stores of the various railway units for testing and checking whether the supplied goods adhered to the required specifications. The scheme for such purpose is clearly laid down in the vendor guidelines and several of the clauses beginning clause 20 of the vendor guidelines effective from September 5, 2011 provide for the methodology and the consequences.

Under the relevant clauses, RDSO can draw samples in two sets (for metal liners, eight samples had to be picked up from one lot in the first set and another eight for the second set) and conduct a test on the first set of samples. If the goods pass muster, no one need be informed in such regard and the manufacturer and supplier would not even know that its goods were inspected or tested post-supply. It is only if the goods do not adhere to the specifications (generally the IRS specifications) and the first set of samples throws up results at variance with the desired specifications (which are incorporated as part of the individual contracts that railway units enter into with the suppliers), that the RDSO is required to inform the supplier of the failure of its first sample of supplied goods to meet the test. This intimation is coupled with a corresponding advise to the supplier to not manufacture any further goods of similar description or supply the same or have the goods inspected by the inspecting agency indicated in the relevant contract pertaining to the goods under manufacture.

The procedure under the vendor guidelines then requires the second sample to be taken up for examination. Since the relevant manufacturer, by then, has been put on notice that his first lot of samples failed the test, a representative of the manufacturer is invited for the opening of the second lot of samples. However, the vendor guidelines do not speak of the manufacturer being otherwise involved in the testing of the second sample, except for being entitled to depute a representative at the time that the second lot of samples is opened for testing.

To carry on with the procedure under the vendor guidelines, if the second lot of samples fails the test, the previous advice of RDSO upon the failure of the first lot would govern the manufacturer or supplier and further steps may be taken against the recalcitrant manufacturer by the RDSO or the railways. Such steps include the suspension or de-listing of the manufacturer.

The process has been lucidly explained in the affidavit used on behalf of RDSO and the reasons for conducting such tests explained. It has been candidly stated in the affidavit that the pre-supply inspections may not always be of the highest standards, whether by design or otherwise and since the engineering goods, particularly metal liners as in the present case, involve the safety of the railways and the trains and passengers that they carry, regular tests have to be undertaken to maintain the quality of the products procured by the railways.

Upon the first lot of samples failing the test, RDSO issued a notice of December 5, 2012 to the plaintiff herein referring to the vendor guidelines and, in particular, to clause 20 thereof. The letter conveyed to the plaintiff that the 'first set of sample was tested in RDSO and found not conforming to the norms of IRS Specifications for Metal liners (provisional 1995).' The letter advised the plaintiff to suspend its manufacture and supply of metal liners 'as precautionary measure to avoid production and supply of potentially inferior product with immediate effect.' It also directed that no further inspection of similar goods which may have already been produced and may have 5 been ready to be supplied to the railways could be conducted. Such part of the direction implied that the inspecting agency named in any on-going contract for supply of metal liners to any unit of the railways would not carry out the routine inspection in terms of the contract since similar goods of the plaintiff’s manufacture had been found to be defective.

As in several cases of this kind in which stereotyped orders had been passed in 2012, the plaintiff did not care to ask the RDSO as to how or in what respect the metal liners of the plaintiff’s manufacture did not adhere to the contractual specifications or requisite quality. The RDSO did not indicate in its letter of December 5, 2012 as to the nature of the defect and, quite surprisingly, the plaintiff was not even interested in finding it out. By December, 2012, several of the orders as passed at the ad interim stage of the present petition had been passed by this Court; such that the orders in the later matters only reflect the previous orders without the slightest mention of the facts pertaining to the immediate matter. The effective order that was passed qua the present matter was as follows :

'The facts of this case are similar. The notice is dated 5th December, 2012. I pass an identical order as in the application quoted above, made on 14th August, 2012, but on the prayer of Mr. Chatterjee limited till 31st March, 2013.'

The two pages preceding the above lines quoted the entirety of the order dated August 14, 2012 and the operative part of such order is found from the following paragraph:

'In that view of the matter, I direct the railways not to give effect to that part of the above notice advising the plaintiff to stop production of their product. I also make it clear that the railways can take steps with regard to a particular contract by invoking the arbitration clause or by filing a civil suit and not otherwise. If the railways wish to proceed with delisting of the plaintiff or not buying their goods it has to follow the proper procedure by giving an opportunity to the plaintiff to counter the test report, to make written and/or the representatives and so on.'

There is no dispute that the order was subsequently extended beyond March 31, 2013.

Thus, by the second sentence of the operative part of the order, the defendants were restrained from taking any further steps under the vendor guidelines since, in terms of the order of December 20, 2012, in respect of the supply effected by the plaintiff and found to be defective, no steps could be taken by the railways other than by way of invoking the arbitration clause, if any, or by filing a civil suit.

The railways now claim that the second set of samples was tested and the results came out negative in more than one aspect. However, no cognizance can be taken of such submission since the results of the second set of samples have been, quite astoundingly, not appended to the affidavit used by RDSO. The excuse proffered in Court is that the Court may not have taken kindly to such report being appended to the affidavit when the Court, in effect, did not require any further steps to be taken. However, it does not appear on a reading of the order dated August 14, 2012 quoted in the ad interim order of this Court of December 20, 2012 that even if the RDSO or the railways had been restrained from taking any steps, the second set of samples could not be tested or the report in respect thereof could not have been appended to the affidavit used by RDSO in the present proceedings. There may be more to RDSO’s shielding the plaintiff herein than meets the eye.

The plaint case is that the plaintiff had entered into an agreement with the West Central Railway for supply of metal liners; that the goods were inspected by Rites Limited in accordance with the terms of the relevant contract; that the entirety of the goods have been supplied to the West Central Railway; that due payment therefor has been received; and, that the bank guarantee in lieu of performance furnished in connection with such contract has also been discharged. On such facts pertaining to the relevant contract, the plaintiff claims that it was illegal on the part of the RDSO to conduct the post-supply tests and, that too, without reference to the plaintiff.

Elsewhere in the plaint, including at paragraphs 24 and 25 thereof, the plaintiff accepts that the plaintiff is governed by the vendor guidelines. Apart from irrationally labelling the procedure adopted under the vendor guidelines of RDSO as illegal – without caring to justify why it was claimed to be illegal – the vendor guidelines have not been called into question and neither the constitutionality nor the legal validity thereof otherwise has been assailed in the plaint. It is not even the plaintiff’s case that the test results are erroneous. No final relief has been sought for the second set of samples to be tested immediately to ascertain whether the goods supplied under the relevant contract adhered to the contractual specifications.

The plaintiff has not made out any prima facie case, particularly, in the absence of the test results being challenged or the procedure envisaged under the vendor guidelines being questioned. In any event, the plaintiff had due opportunity under the vendor guidelines to question the test reports at the appropriate stage and even carry an appeal to a designated officer of RDSO. The plaintiff completely by-passed the procedure envisaged under the vendor guidelines to rush to Court and give an impression to the Court that its entire business had been stopped, which was contrary to the initial paragraphs of the plaint where the plaintiff has claimed that the plaintiff effects supply of various goods to the railways. The RDSO order in this case only prohibited the further production and supply of metal liners and of no further kind of goods that may have been supplied by the plaintiff to the railways.

As to the balance of convenience, the less said the better. When the plaintiff has not made out any prima facie case, balance of convenience is not a relevant consideration. However, even if the balance of convenience is assessed, when the safety of the trains and of passengers is in issue, the convenience of an individual businessman or a solitary manufacturing unit is of no relevance. Indeed, if some fish-plate to which metal clips are fastened with the metal liners at either end had slipped, the RDSO would have been well within its rights to lay the blame on this Court if such metal liners were of the plaintiff’s manufacture.

The real purpose of the suit was to obtain the snap order on the basis of the previous orders that had been passed in the somewhat similar situations and to ensure that the supply of goods in respect of possible on-going contracts for supply of metal liners was not disrupted by the precautionary order of prohibition of December 5, 2012 challenged in the present suit. Towards such end, on the basis of the ad interim order of December 20, 2012, the plaintiff has enjoyed a veritable decree by completing the supplies before this petition ripened for final hearing nearly four years later.

Even at this stage, it is not the plaintiff’s case that the tests conducted by RDSO were erroneous or were not in accordance with the vendor guidelines or that the vendor guidelines are of no effect. The plaint was crafted with considerable design to speak of the contract with West Central Railway and the working out thereof and refer to the RDSO action only in the later part thereof to confuse the issue between the work done under the contract and the responsibility of RDSO to maintain the standards of the goods procured by the railways for the safety of the system. The RDSO’s precautionary order of prohibition was neither final nor did it penalise the plaintiff in any manner other than temporarily suspending the supply. If the plaintiff was confident that its goods supplied to West Central Railway adhered to the contractual specifications, the plaintiff may have challenged the results of the tests conducted on the first set of samples or even have requested the RDSO or obtained a direction from this Court for the second set of samples to be immediately tested. It may have even been understandable if the plaintiff had requested this Court for experts of the plaintiff’s choice to be present while the second set of samples were tested by RDSO. The plaintiff took no steps of such kind. The plaintiff rested content that it had obtain a cyclostyled order without reference to the facts pertaining to the matter and, thereby, enjoyed a veritable decree to complete the pending supplies. And that is exactly what may have happened.

For the gross abuse of the process of this Court and this extremely mischievous petition on which the plaintiff obtained undeserving benefits, the plaintiff must be put on terms apart from the costs that may be imposed on it. In somewhat similar circumstances an order was passed by this Court last week vacating the blanket injunction that the plaintiff in such other matter enjoyed against a similar order of the RDSO pertaining to metal liners. As in that previous case, the plaintiff here is required to deposit a sum of Rs.1 crore with the RDSO before the plaintiff can supply any further goods of its manufacture to any unit of the railways, whether under any existing contract or otherwise. In other words, prior to such deposit of Rs.1 crore being made by the plaintiff with the RDSO, no nut or bolt of the plaintiff’s manufacture should reach any railway yard or store or unit in any manner whatsoever. Upon such deposit being made, the plaintiff may resume its supplies to the railways, save as prohibited by the advice of December 5, 2012 issued by RDSO in the impugned letter. The plaintiff will not be entitled to supply any metal liners or have any manufactured metal liners inspected by any inspecting agency before the quality of the plaintiff’s metal liners is certified to be as per the IRS specifications by RDSO and before the results on the second set of samples conducted by RDSO are

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released. The consequence of the failure of the second set of samples to meet the required specifications will be in accordance with the vendor guidelines in force at the time that the samples were drawn. If the deposit in terms of this order is made by the plaintiff to RDSO, the same will be invested in such manner as RDSO may deem proper. If, for a period of five years from the date of such deposit, there is any complaint against the plaintiff in respect of any goods supplied to the railways not adhering to the specifications and such complaint is upheld, the money will stand forfeited. However, if the plaintiff is entitled to the refund upon there being no such complaint or such complaint not being found to be justified, RDSO will return the sum of Rs.1 crore together after five years of the deposit being made with interest at the simple rate of 4 per cent per annum, irrespective of whatever interest RDSO may have earned on such deposit. GA No. 16 of 2013 (which is what the petition was ultimately numbered as, since it was moved with a tender number on December 20, 2012) is dismissed with costs assessed at Rs.5 lakh to be paid by the plaintiff to RDSO immediately. The prohibition contained in the RDSO letter of December 5, 2012 revives and will remain in force, as aforesaid, unless the plaintiff is entitled to have it vacated in accordance with law and as per the provisions of the vendor guidelines effective in 2012. The plaintiff seeks a stay of the operation of this order which is unhesitatingly declined. Urgent certified website copies of this order, ifapplied for, be supplied to the parties subject to compliance with all requisite formalities.