ALSTEEL INDUSTRIALS v. KERALA STATE ELECTRICITY BOARD

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM** ## **WEDNESDAY, THE 14TH DAY OF DECEMBER 2011/23RD AGRAHAYANA 1933** ## **WP(C).No. 27787 of 2009 (P)** **---------------------------** **PETITIONER(S):** **------------------------------** **ALSTEEL INDUSTRIALS, JONAKAPURAM, KOLLAM, REPRESENTED BY THE MANAGING PARTNER A.F.HAFEEZ.** **BY ADV. SRI.GEORGE POONTHOTTAM** ## **RESPONDENT(S):** **-----------------------------** **1. KERALA STATE ELECTRICITY BOARD, VYDYUTHI BHAVAN, TRIVANDRUM, REPRESENTED BY THE SECRETARY.** **2. THE CHAIRMAN, KERALA STATE ELECTRICITY BOARD, VYDYUTHI BHAVAN, TRIVANDRUM.** **3. THE DEPUTY CHIEF ENGINEER & PRINCIPAL TEAM LEADER, CIVIL CIRCLE, PALLOM, KOTTAYAM.** **R1 TO R3 BY ADV. SRI.P.P.THAJUDEEN, SC, K.S.E.B SRI.P.SANTHALINGAM, SC FOR KSEB** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 14-12-2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **sts** ## **WP(C)NO.27787/2009** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** - **P1 COPY OF THE COMMUNICATION DATED 10/3/2006 ISSUED BY THE 3RD RESPONDENT** - **P2 COPY OF THE AGREEMENT DATED 16/3/2006** - **P3 COPY OF THE MINUTES OF THE MEETING DATED 2/5/2006** - **P4 COPY OF THE PRICE CHART FROM 1/1/2003 TO 25/12/2006 ISSUED BY THE BINANI ZINC LIMITED** - **P5 COPY OF THE REQUEST FOR GALVANIZATION OF ADDITIONAL QUANTITY ISSUED DURING THE MONTHS OF MAY AND JUNE** - **P5(A) COPY OF THE JOB BILL FOR THE GALVANIZING CHARGES FOR LINE MATERIALS** - **P6 COPY OF THE COMMUNICATION NO.DB10/16/91-92/308 DATED 7/12/2006** - **P7 COPY OF THE REPORT DATED 15/2/2007** - **P8 COPY OF THE COMMUNICATION NO.VIG/AII/6457/06/3548 DATED 19/8/2006** - **P8 COPY OF THE COMMUNICATION NO.CEC/CM/PALLOM/2006-2007 DATED 27/1/2007** - **P9 COPY OF THE ORDER NO.CE(C)S/2/90/798 DATED 23/9/2002** - **P10 COPY OF THE LETTER NO.ALS/1561/06-07 DATED 8/1/2007** - **P11 COPY OF THE LETTER NO.ALS/1568/2006-07 DATED 10/1/2007** - **P12 COPY OF THE COUNTER AFFIDAVIT FILED ON BEHALF OF THE RESPONDENTS IN WP(C)NO.15148/2007** - **P13 COPY OF THE JUDGMENT IN WP(C)NO.15148/2007 DATED 9/7/2007** - **P14 COPY OF THE ORDER IN R.P.NO.808/2007 DATED 23/8/2007** - **P15 COPY OF THE ARGUMENT NOTE GIVEN TO THE SECRETARY** - **P15(A) COPY OF THE WRITTEN SUBMISSION DATED 13/9/07 GIVEN TO THE CHAIRMAN** - **P16 COPY OF THE ORDER NO.B.O.(FB)NO.2475/2007(LA.II/6765/2007) DATED 31/10/2007** - **P17 COPY OF THE INTERIM ORDER IN WP(C)NO.35692/2007 DATED 14/3/2008** - **P18 COPY OF THE REPORT** **2/-** **-2-** ## **WP(C)NO.27787/2009** - **P19 COPY OF THE ENQUIRY REPORT NO.PSB/GEN/ENQUIRY/2006-07 DATED 4/4/2007** - **P20 COPY OF THE REPORT DATED 3/1/2007 SUBMITTED BY THE CHIEF ENGINEER (CIVIL CONSTRUCTION), SOUTH** - **P21 COPY OF THE REMARKS OF THE FINANCIAL ADVISOR DATED 31/1/2007** - **P22 COPY OF THE JUDGMENT IN WP(C)NO.35692/2007 DATED 18/3/09** - **P23 COPY OF THE WRITTEN SUBMISSION DATED 16/6/2009** - **P24 COPY OF THE B.O.(FB)NO.2127/2009(LA.II/6765/2007) DATED 13/8/2009** - **P25 COPY OF THE STATEMENT SHOWING THE RATES OF WORK ORDERS ISSUED BY THE DEPUTY CHIEF ENGINEER, CIVIL CIRCLE, PALLAM.** ## **RESPONDENT'S EXHIBITS: NIL** ## **/TRUE COPY/** ## **P.A.TO.JUDGE** **sts** ## **C.K. ABDUL REHIM,J.** --------------------------------WP(C) No.27787 OF 2009 --------------------------------Dated this the 14[th] day of December, 2011 ## **J U D G M E N T** Issue involved in this writ petition has got a chequered history. Petitioner is the successful bidder in a tender and a contract entered with the respondents, for the work of “hotdip-galvanizing” of 419 Metric Tons of materials. The work was awarded through Ext.P1 and the petitioner had executed Ext.P2 agreement. The period for completion of the work stipulated was 3 months. The rate at which the work was awarded is Rs.16,600/ -per MT. Agreed PAC of the work was Rs. 69,55,400/-. On 2/5/2006 a meeting was convened by the 3[rd] respondent wherein it was decided to continue the work at the present rates for the subsequent months, for the excess quantity of materials to be galvanized. Ext.P3, minutes of the said meeting indicate that the petitioner was directed to continue the work at the present rate, because the cost of zinc, which is the main WP(C) No.27787 OF 2009 2 consumable, has been steadily increasing in open market and a fresh tendering at that stage will fetch only higher rate than the prevailing rate. It is further evident from Ext.P3 that the petitioner had informed that specified quantities of galvanizing works alone can be undertaken on various months from May 2006 onwards. It is averred that, on the basis of Ext.P3 the work continued and a total quantity of 2987.065 Metric Tons of materials were galvanized by the petitioner . The amount due for this, as per the rate fixed, will come to Rs.4,95,84,200/-. Payment of the total amounts due was not effected and there remains balance of around Rs.2.20 Crores. The petitioner was making frequent requests for payment of this amount. 2. From Ext.P6 it is evident that during December 2006, a fresh work was awarded to the petitioner on the basis of fresh tenders invited, at the rate of Rs.18,360/- per MT. In spite of the repeated requests the amounts due to the petitioner for the excess work done on the basis of Ext.P3 was not paid. In the meanwhile, a departmental WP(C) No.27787 OF 2009 3 enquiry was initiated against the 3[rd] respondent on the allegation of irregularities in awarding certain other works, as is evident from Ext.P8. But the work in question, which is subject matter of this writ petition, was not an issue in any such enquiry. Ext.P8(a) letter will reveal the above facts. 3. In January 2007 the petitioner submitted Exts.P10 and P11 requests to the 3[rd] respondent for settlement of payment with respect to the excess work done based on the pending bills, to the tune of Rs.2,64,69,004/- . Since such requests was not acceded to, the petitioner had approached this court in O.P.No.15148/07. Ext.P12 is copy of the counter affidavit filed in the said writ petition. It is admitted that the petitioner had executed galvanising works of 2975.840 MT., even though the original agreement was only for 419 MTs. It is further stated that the work was completed including the excess quantity of 2556.840 Mts., as on 24/2/2007. A further admission in the counter affidavit is that, even as on the date of completion the work WP(C) No.27787 OF 2009 4 it had exceeded the agreed quantity. It is further stated that, the additional work was required only because various schemes were targeted during the relevant time. It is conceded that the 3[rd] respondent had permitted for continuation of the work at the same rate at the same terms and conditions only due to such urgency. It is also mentioned that the total amount due for the works done was Rs.4,92,80,654/- and out of which payment was effected only to the extent of Rs.2,81,52,571/-. It was conceded that the remaining amounts will be paid after processing sanction for the excess quantity of work . It is further admitted that the materials galvanized were fully utilised by the respondents for various schemes. In the said counter affidavit it is mentioned that the enquiry initiated is not in relation to the work executed by the petitioner. It is also pointed out that the further tender was awarded to the petitioner at the rate of Rs.18,360/- per MT. In Ext.P13 judgment the above said writ petition was disposed of directing the Secretary of the first respondent Board to WP(C) No.27787 OF 2009 5 place the matter for issuing clearance for effecting payment and the first respondent was directed to release payment due to the petitioner within 3 weeks. 4. The respondents filed a review petition and through Ext.P14 order the judgment was modified. The first respondent Board was directed to hear the petitioner on his claims and to pass proceedings releasing eligible payments . It is specifically mentioned that if any part of the claim is declined, the first respondent should give reasons for the same. Final order was directed to be passed within one month from the date of the judgment. 5. Pursuant to Exts.P13 and P14 a personal hearing was conducted and the petitioner had submitted detailed written submissions and Notes of Arguments, as per Exts.P15 and P15(a). Ext.P16 is the consequential order issued by the first respondent Board . It was found therein that the repeated orders for excess works issued by the 3[rd] respondent were irregular and ultravires and that such orders were not covered by any agreement specifying the WP(C) No.27787 OF 2009 6 quantity, schedule of supply, rate, payment terms, liquidated damages etc. It was also pointed out that no security deposit or performance warranty was insisted for such excess works. Therefore, the Board refused to authorize payment for the excess works executed. It is further observed that an enquiry regarding the irregularities is being conducted by the District Judge and Legal Adviser. 6. Ext.P16 order was challenged by the petitioner in W.P.(C) No.35692/2007 filed before this court. On 14/3/2008 Ext.P17 interim order was issued by this court directing the payment of an amount of Rs.1 Crore. In the meanwhile, the first respondent Board constituted a committee for verification of the alleged irregularities with respect to awarding of contract for “hot-dip-galvanizing” of line materials, and also to examine the request of the petitioner for release of payment. Ext.P18 is the report of the committee. The committee found that with respect to the excess works done payment could not be made at the WP(C) No.27787 OF 2009 7 rate of Rs.16,600/-per MT. Instead they recommended for payment at the rate of Rs.15,730/- per MT., adopting methods based on the percentage of increase in the price of zinc from time to time. The committee also found that the rate at which the original work was awarded was not competitive and the same was excessive. 7. In view of Ext.P18 report, WP(C) 35692/2007 was disposed of by this court through Ext.P22 judgment. It was held that, in view of Ext.P14 judgment the right of the Board to decline payment of any portion of the amount was upheld, if it is found not actually payable, subject to offering specific reasons. This court observed that the petitioner has not challenged the report of the Committee, in spite of the fact that freedom was granted to the Board in Ext.P14 judgment to decline any portion of the claim. But it is observed that, it is not discernible from the report as to whether the petitioner has given any opportunity to take part in the proceedings of the committee. At the same time this court expressed doubt as on what basis the committee WP(C) No.27787 OF 2009 8 had reduced the rate to 15,730/-per MT when it is admitted that the original rate was Rs.16,600/-MT and the rate fixed in the subsequent tender was Rs.18,360/-MT, and when there was steady increase in the cost of zinc. However, in view of the report of the committee conceding payment @ 15,730/MT, Ext.P16 order of the Board which was impugned in that writ petition was held as not in existence. The Board was directed to release the admitted extent of liability @ Rs.15,730/MT, within two weeks. The writ petition was disposed of with the following further directions; “The first respondent shall reconsider the claim of the petitioner to have the payment effected at the rate of Rs.16,600/- metric ton for the entire excess quantity in the light of the report of the expert committee and also in the light of Ext.P19 recommendations submitted by the Chief Engineer (second respondent) . The decision as above shall be taken by the Board after giving an opportunity of hearing to the petitioner as expeditiously as possible, at any WP(C) No.27787 OF 2009 9 rate, within the period of 3 months from the date of receipt of the copy of this judgment.” 8. In compliance of the directions contained in Ext.P22 judgment, the petitioner again approached the first respondent Board with Ext.P23 written submissions. But the Board has taken a decision as per Ext.P24 only confirming conclusions in Ext.P18 report of the committee, stating that it is well founded. It was decided to decline the request of the petitioner for payment at the rate of Rs.16,600/MT. For arriving at such conclusions, the Board had considered the proportionate rate of increase in the price of zinc during various years. It was also found that the rate at which the work was awarded during February 2006 was excessive. The petitioner is challenging Ext.P24 in this writ petition. 9. Heard Sri.George Poonthottam, learned counsel appearing for the petitioner. He contented that the respondents went highly erred in arriving at a conclusion that the rate at which the work was originally awarded is WP(C) No.27787 OF 2009 10 excessive. There was no irregularities with respect to tendering and awarding of the work and that no proceedings was initiated at any point of time for cancellation of the tender. The excess quantity of work was done only at the specific request of the 3[rd] respondent, on the basis of a decision arrived at the meeting of the team of officials with the petitioner. The order for excess work was placed after finding that fresh tender will fetch only higher rates, in view of the hike in the price of the raw materials. It is evident from Ext.P9 proceedings of the Chief Engineer that the 3[rd] respondent was authorised to place orders for excess work with any of the existing contracts. Learned counsel placed much emphasis on the factual aspects conceded by the respondent through Ext.P12 counter affidavit. The respondents had admitted liability for payment of the amounts calculated on the basis of the excess work done. It is further admitted that the subsequent tender was finalized for a considerably higher amount and therefore there is no loss caused to the respondent Board WP(C) No.27787 OF 2009 11 in any manner. Attention of this court was drawn specifically to 3 documents produced, Exts. P19, 20 and 21. Ext.P19 is a note submitted to the first respondent Board by the Chief Engineer (TC and M). It is evident that the Chief Engineer had conducted an enquiry with respect to the work in question and with respect to execution of the excess quantities. The recommendations contained therein is to the effect that the rate of Rs.16,600/- fixed for the excess work was the agreed tender rate and that the cost of zinc during the period of the excess work was higher than the rate prevailing at the time of awarding of the work . It is also mentioned that as per clause 14 of the agreement there is liability for payment of amounts to the contractor on a monthly basis considering the extent of work completed after testing of the materials. It is further stated that the galvanised materials were fully utilised by the respondent Board and therefore it was recommended for approval of the rate and for payment of the balance amount due. Ext.P20 is a note submitted by the Chief Engineer, (civil WP(C) No.27787 OF 2009 12 construction) to the Chief of Generation, Kerala State Electricity Board. There also requests was made to accord sanction for the excess quantity of work executed by the petitioner and for affecting payment. By the said letter, request was made to ratify the exceeded quantity, for which work was arranged by the 3[rd] respondent. Ext.P21 is yet another recommendation made by the Financial Adviser of the first respondent Board, wherein it is stated that since the contractor had actually executed the works the Board is bound to pay the amount based on conditions of the agreement. Therefore, it was recommended for ratifying the excess quantity and for settlement of the claim. 10. Contentions raised on behalf of the petitioner is that even though this court in Ext.P14 judgment had permitted the first respondent to consider the claim of the petitioner and to issue proceedings fixing eligible payment, that by itself will not permit the respondents to decline any legitimate claims of the petitioner. It is contented that there is absolutely no rationale behind Ext.P18 report of the WP(C) No.27787 OF 2009 13 committee in making reduction in the rate payable with respect to the excess works, on a unilateral basis. The reasonings mentioned in Ext.P18 for arriving at a conclusion for payment of a lesser amount is totally erroneous and unsustainable. There is absolutely no basis or materials available for the expert committee to arrive at any finding that the rate at which the original tender awarded was excessive. In fact, there was absolutely no irregularity alleged with respect to finalisation of the tender. So also, the method adopted by the expert committee in evaluating the rate of increase in the price of the raw materials for fixing the rate payable for the excess work, is totally unrealistic and baseless. When it is evident that the excess work was executed on the basis of specific directions, at the rate agreed upon in the contract , there is absolutely no reason for reducing the rate with respect to the excess work alone. Learned counsel further pointed out that in Ext.P22 judgment, this Court observed that it is not discernible as to what is the basis upon which the WP(C) No.27787 OF 2009 14 committee had arrived at a conclusion for payment of a lesser rate. The reasoning mentioned in Ext.P24 with respect to approval of the recommendations of the committee, is totally baseless and are irrelevant. On the facts and circumstances, the proportionate percentage of increase in the price of the raw materials, which is adopted as basis for fixing the amount payable to the petitioner, cannot be accepted. Therefore it is contended that the conclusions are totally irrational and it is beyond any reasonableness which the first respondent Board is expected to adopt in a given circumstances. Hence the petitioner seeking directions for payment of the balance amount due for the excess works, calculated @ Rs.16,600/per MT. 11. Contention in the counter affidavit is that the respondents are justified in declining the claim because the excess work was done in an irregular manner without following proper procedure and the orders were placed without proper authority or ratification from the Board. It WP(C) No.27787 OF 2009 15 is contended that the rates at which the tender was finalised itself was excessive and considering the percentage of increase in the price of raw materials, recommendations made by the committee for payment of a lesser amount is justified. Inter alia it is contended that the writ petition is unsustainable because the issue was already considered by this court on earlier occasions, and the respondent Board was given freedom to finalize the matter with respect to the claims of the petitioner, taking into consideration of all factual aspects. According to the respondents, it is after considering various facts and circumstances that the Board has agreed to pay the amount at the rate of Rs.15,730/- per MT. Any further adjudication on the issue may require scrutiny of facts and appraisal of the evidence. Therefore ppropriate forum to adjudicate upon such claim is not this court, is the contention. 12. Learned counsel for the petitioner had placed the following decisions of the Honourable Supreme Court for consideration . In **ABL International Ltd. and Another** WP(C) No.27787 OF 2009 16 **vs. Export Credit Guarantee Corporation of India Ltd. and Others, (2004 (3) SCC 553)** , it is held that in an appropriate case writ petition against the State or an instrumentality of the State arising out of contractual obligation is maintainable. Merely because some disputed questions fact arises for consideration, the court cannot refuse to entertain the writ petition in all cases as matter of rule. A writ petition involving consequential relief of monitory claim is also maintainable in appropriate cases. In the decision in **Karnataka State Forest Industries Corporation vs. Indian Rocks (2009 (1) SCC 150)** it is held by the Hon'ble Supreme Court that when the action of the state is so arbitrary and unreasonable, a writ petition will be maintainable, even though exercise of jurisdiction could not enforce terms of a contract. It is trite law that when an action of the State is arbitrary or discriminatory and thus violative of Article 14 of the constitution of India, a writ petition would be maintainable. If any action is wholly unfair and arbitrary the superior courts are not powerless, WP(C) No.27787 OF 2009 17 is the dictum laid. The Hon'ble Apex Court in **Union Of India vs. Tantia Constructions Pvt. Ltd. ,2011 (5) SCC** **697)** held that, even an arbitration clause in an agreement cannot be considered as an absolute bar as an alternative remedy for invocation of writ jurisdiction of the High Courts or the Supreme Court. 13. When evaluated the rival contentions on the basis of the facts and circumstances, and on the basis of settled precedents, I am inclined to entertain this writ petition. It is evident that the contract was finalised in favour of the petitioner at the rate of Rs.16,600/- per MT. Admittedly there was no irregularity alleged with respect to awarding of such work and there was no revocation of the contract at any point of time. The petitioner was required to execute the excess quantity of work, on the basis of specific requests made by the competent authority. The execution of excess quantity is admitted and the amount due on such quantity was also admitted, as evident from the counter affidavit filed before this court, as well as from Ext.P19 to WP(C) No.27787 OF 2009 18 P21 documents. It is also admitted that the materials galvanized under the excess work has been fully utilized by the respondents. There is absolutely no allegation of any defect in the work or with respect to the quality of the work done. It is also admitted fact that after a few months of expiry of the contract and after execution of the additional work, the same work was awarded for a considerably higher amount. This indicate the fact that, the reason adopted by the 3[rd] respondent at the time when the excess work was ordered is perfectly justified. Whether the respondent can be permitted to turn back from the admitted factual position conceded by various authorities of the first respondent Board at various levels, is the question. The only reason pointed out by the Board is that all procedural formalities were not fully complied with respect to placing of orders for the excess quantity. Whether such procedural irregularity, if any, had caused any prejudice to the respondents is the relevant aspect to be considered. Even though the Board was given liberty to take a decision on the claims of the WP(C) No.27787 OF 2009 19 petitioner, it cannot be presumed that the Board is at liberty to take any decisions which are totally unreasonable and irrational. Considering the reasoning adopted in Exts.P18 and P24, it is mainly on the basis of a finding that the tender accepted during Feb 2006 was for an excessive rate which was not competitive. I find no reasonable basis for arriving at any such conclusion. Even assuming, without admitting, that any basis is available for such a conclusion, the respondents are not entitled to decline claims of the petitioner, as long as the tender in question remained valid. Further, the method adopted relying on the percentage in the rate of increase in the price of the raw material, cannot be held as a valid basis for effecting reduction in the rate at which the work was executed. Since I am of the considered opinion that there is no rationale behind the impugned decision and the conclusions are totally beyond reasonableness. I hold that it is a fit case where the writ jurisdiction can be invoked, inspite of availability of any alternative remedies. WP(C) No.27787 OF 2009 20 14. Under the above mentioned circumstances, I am inclined to hold that the petitioner is successful in his challenges against Ext.P18 report of the expert committee as well as against Ext.24 decision arrived by the first respondent Board. Hence I allow this writ petition and quash Exts.P18 and Ext.P24. The respondents are directed to make payment of balance amounts due to the petitioner with respect to the excess work executed by them calculated at the rate of Rs.16,600/- per MT. The needful steps in this regard shall be done without any further delay and at any rate payment shall be effected within a period of 6 weeks from the date of receipt of copy of this judgment. ## **C.K. ABDUL REHIM** **JUDGE** **smm** WP(C) No.27787 OF 2009 21 WP(C) No.27787 OF 2009 22