Dakshin Agro Tech Pvt. Ltd. v. Government of India and Others

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON MONDAY, THE 4TH JULY 2011 / 13TH ASHADHA 1933 **WP(C).No. 10323 of 2010(M)** **--------------------------** PETITIONER: --------------- DAKSHIN AGRO TECH PVT. LTD., VIRUTHATHU HOUSE, PANDANADU P.O., CHENGANNUR, KERALA, PIN-689 506, REPRESENTED BY ITS DIRECTOR AJAY CHANDRAN. BY ADV. SRI.S.GOPAKUMARAN NAIR, SENIOR ADVOCATE SRI.M.CHANDRA BOSE SRI.A.RAJASIMHAN RESPONDENTS: --------------- 1. GOVERNMENT OF INDIA, REPRESENTED BY SECRETARY, MINISTRY OF DEFENSE, NEW DELHI-110 001. 2. CHIEF DIRECTOR OF PURCHASE, MINISTRY OF DEFENSE, ARMY PURCHASE ORGANISATION (APO) ROOM NO. 393, KRISHI BHAVAN, NEW DELHI-110 001. 3. SECTION OFFICER (PURCHASE), MINISTRY OF DEFENSE, ARMY PURCHASE ORGANISATION (APO), ROOM NO.393, KRISHI BHAVAN, NEW DELHI-110 001. 4. SECRETARY TO GOVERNMENT, MINISTRY OF SMALL SCALE INDUSTRIES & AGRO AND RURAL INDUSTRIES, UDYOG BHAVAN, NEW DELHI-110 001. 5. THE NATIONAL SMALL INDUSTRIES CORPORATION LTD., S-67, G.C.D.A., COMMERCIAL COMPLEX, MARINE DRIVE, COCHIN-682 031, REPRESENTED BY ITS SENIOR BRANCH MANAGER. R1 to R4 BY ADV. SHRI.P.C.CHACKO, CGC R5 BY ADV. SRI.MILLU DANDAPANI THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 14/06/2011, THE COURT ON 04/07/2011 DELIVERED THE FOLLOWING: ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** EXT.P1 : BROCHURE EXT.P2 : TRUE COPY OF CERTIFICATE DTD. 31.01.2008 EXT.P3 : TRUE COPY OF INSPECTION REPORT DTD. 16.03.2008 EXT.P4 : TRUE COPY OF CERTIFICATE DTD. 9.4.2008 EXT.P5 : TRUE COPY OF LETTER OF ACCEPTANCE DTD. 17.04.2008 EXT.P6 : TRUE COPY OF LETTER OF ACCEPTANCE DTD. 11.07.2008 EXT.P7 : TRUE COPY OF ORDER OF REJECTION DTD. 1.09.2008 EXT.P8 : TRUE COPY OF PERFORMANCE NOTICE DTD.14.10.2008 EXT.P9 : TRUE COPY OF LOAN SANCTION LETTER DTD. 19.02.2009 EXT.P10 : TRUE COPY OF CANCELLATION ORDER DTD. 29.01.2009 EXT.P11 : TRUE COPY OF CANCELLATION ORDER DTD. 30.01.2009 EXT.P12 : TRUE COPY OF EMERGENCY TENDER DATED. 2.03.2009. EXT.P13 : TRUE COPY OF EMERGENCY TENDER DTD. 2.03.2009 EXT.P14 : TRUE COPY OF LETTER DTD. 2.3.2009 EXT.P15 : TRUE COPY OF LETTER DTD. 2.3.2009 EXT.P16 : TRUE COPY OF LETTER OF ACCEPTANCE DTD.17/4/2009 EXT.P17 : TRUE COPY OF LETTER OF ACCEPTANCE DTD. 17.4.2009 EXT.P18 : TRUE COPY OF LETTER DTD. 30.4.2009 EXT.P19 : TRUE COPY OF LETTER DTD. 4.5.2009 EXT.P19(a) : TRUE COPY OF LETTER DTD. 4.5.2009 EXT.P20 : TRUE COPY OF LETTER NSIC CERTIFICATED DTD. 11.5.2009 EXT.P21 : TRUE COPY OF LETTER NO.21(1)2000 EP&M DTD. 28.8.2000 EXT.P22 : TRUE COPY OF LETTER DTD. 11.5.2009 EXT.P23 : TRUE COPY OF LETTER DTD. 11.12.2009 EXT.P24 : TRUE COPY OF LETTER DTD. 11.12.2009 EXT.P25 : TRUE COPY OF REPRESENTATION DTD. 2 9.12.2009 EXT.P26 : TRUE COPY OF LETTER DTD. 11.3.2010 EXT.P27 : TRUE COPY OF LETTER DTD. 11.3.2010 ## **RESPONDENTS' EXHIBITS:** EXT.R3(a) : TRUE COPY OF THE SPECIAL TERMS AND CONDITIONS GOVERNING SUPPLIES OF COMPO PACK/SURVIVAL RATIONS/MEALS READY TO EAT (MRE) ATTACHED WITH EXT.P14 AND p15 TENDER CONDITION. EXT.R3(b) : TRUE COPY OF THE PERFORMANCE NOTICE ISSUED BY THE TYHIRD RESPONDENT DATED 3.6.2008 TO THE PETITIONER. EXT.R3(d) : TRUE COPY OF THE PERFORMANCE NOTICE DATED 11.09.2008 ISSUED BY THE 3RD RESPONDENT TO THE PETITIONER. EXT.R3(e) : TRUE COPY OF THE LETTER DATED 19.09.2008 SENT TO THE AUTHORISED REPRESENTATIVE OF THE PETITIONER. EXT.R3(f) : TRUE COPY OF PERFORMANCE NOTICE ISSUED TO THE PETITIONER ON 3.10.2008 EXT.R3(g) : TRUE COPY OF THE FINAL PERFORMANCE NOTICE ISSUED BY THE 3RD RESPONDENT DATED 21.10.2008 TO THE PETITIONER. EXT.R3(h) : TRUE COPY OF THE INTIMATION GIVEN BY THE 3RD RESPONDENT DAT ED 4.5.2009 TO THE PETITIONER. ## **P.R. RAMACHANDRA MENON, J.** .............................................................................. **W.P.(C)No. 10323 OF 2010** ......................................................................... **Dated this the 4[th] July , 2011** ## **J U D G M E N T** The petitioner is challenging Exts. P23, P24, P26 and P27 issued by the concerned respondents , whereby huge liability has been fixed allegedly in an arbitrary manner, seeking to realise the amount stated as due in respect of the re-tender proceedings pursued at the cost and risk of the petitioner, who had allegedly not supplied the items inspite of awarding the work. 2. The case of the petitioner is that, though the petitioner turned to be the lowest bidder and the tender was accepted, the petitioner was directed to effect huge security deposit, which was not liable to be satisfied by the petitioner, by virtue of Ext. P20 certificate issued by the 5[th] respondent, which was produced before the respondents within the extended period (i.e., before **15.05.2009)** despite which, coercive steps were pursued without any regard to Ext. P20 NSIC Certificate and Ext. P21 **2** ## **W.P.(C)No. 10323 OF 2010** Guildelines issued by the Government of India enabling the persons like the petitioner to have the benefit flowing therefrom. For not satisfying the security deposit as above, no 'supply schedule' was actually issued to the petitioner so as to commence the supply and it is without any regard to the same that the alleged loss was fixed unilaterally seeking to recover the amount, which is sought to be intercepted by filing the above writ petition; simultaneously praying for some other incidental reliefs. 3. When the matter came up for consideration before this Court on 26.03.2010, further proceedings pursuant to Ext. P23, P24, P26 and P27 were ordered to be kept in abeyance for the time being, which was subsequently extended further on different occasions and later, until further orders, as per the order dated 06.07.2010. Respondents No.1 to 4 however sought to challenge the said interim order dated 06.07.2010 by filing W.A.No. 1719 of 2010 wherein interim stay was granted on 21.01.2011 . On filing I.A.No.2159 of 2011 by the first respondent in the appeal, i.e., the writ petitioner, to vacate the interim order, the same **3** ## **W.P.(C)No. 10323 OF 2010** was vacated and the appeal itself was disposed of as per judgment dated 05.04.2011 directing the Registry to have the writ petition listed for early hearing and thus heard today. 4. The pleadings and prayers raised in the writ petition have been sought to be rebutted by the respondents 1 to 3 who have filed a statement dated 02.07.2010 through the Counsel, producing copy of the special terms and conditions governing the supplies as Ext. R3(a). The writ petitioner has filed a reply affidavit dated 05.07.2010, when the third respondent chose to file a counter affidavit dated 23.10.2010, with copies of the documents referred to as Exts. R3(a) to R3(h). 5. The issue involved pertains to supply of _**'Meals Ready to Eat**_ ' ('MRE' in short) to be distributed to the soldiers and other similarly situated personnel of the Indian Army who are serving in the Field/ Border/Far away places, as part of ration. By virtue of the specific nature of requirement and nonavaialbility of any infrastructure for cooking in the Border /Field areas, 'MRE' is being prepared and supplied conforming to the requisite standard and meeting all the norms with a 'shelf-life' of **4** ## **W.P.(C)No. 10323 OF 2010** about one year. 6. The petitioner Company is stated as promoted by the Lt. Colonel K.C. Chandrasekharan, a retired Indian Army Officer and a 1971 war veteran, which was set up as a new 'hi-tech' food processing unit in the year 2007/2008, obtaining all the requisite licences/approvals and was registered with the 'Army Purchase Organisation' (APO) on proving the credentials as to the specially equipped infrastructure to manufacture 'long life survival meals' to the Force. It is stated that there was a 'tie-up' with the Defence Food Research Laboratory, Mysore-an organisation under the DRDO (Defence Research and Development Organisation), entering into a Technology Transfer and a Training arrangement for the Company. It was pursuant to this, that the Company was registered with the 'APO', after rigorous inspection from the various departments of the Indian Army. 7. Pursuant to the tender floated by the second respondent, who is the competent authority in this regard, the petitioner participated in the same and turned to be the **W.P.(C)No. 10323 OF 2010** **5** successful bidder in the next two tenders, after registration with the APO, as the price quoted by the petitioner was substantially low. The various particulars of schedule of supply, details of security deposit, stock inspection etc. are stipulated in Exts. P5 and P6. On receipt of the supply schedule , the petitioner supplied 25,000/- one man 'MRE' on 01.07.2008 , which however was rejected (as per Ext. P7) by the Technical Evaluation Committee, allegedly with ulterior motives, observing that the samples did not conform to the specifications. Though the Company took up the matter in appeal, it did not turn to be fruitful, thus causing a loss of nearly Rs.50 lakhs in respect of such supply alone and the stock returned was destroyed . 8. In the meanwhile, Ext. P8 performance notice was issued by APO on 14.10.2008, to supply 15999 'MRE' kits within 33 days, which could not be fulfilled by the petitioner for various reasons. However, the petitioner made arrangements to have further funds to be pumped in, by procuring working capital loan of Rs.90 lakhs for supplying the orders as borne by Ext. P9. But by this time, the APO had cancelled the tenders as per Exts. P10 **W.P.(C)No. 10323 OF 2010** **6** and P11, at the risk and cost of the petitioner. The attempt made by the Chairman of the petitioner Company to appraise the position to the second and third respondents was not successful. This was followed by two emergency tenders by way of 'risk purchase' dated 02.03.2009 for the same quantity of the earlier tenders as borne by Exts. P12 and P13. By virtue of the relevant norms of 'risk purchase tender', one set of tender was sent to the petitioner free of cost, being the 'previous tenderer/defaulter' and to give a fair chance to fulfil the said tender(Exts.P14 and P15). The petitioner availed the opportunity and remitted the 'EMD' of Rs.1,50,000/- and 35,000/respectively. As per the conditions in the 'risk purchase', if the defaulter fails again to supply and if the 'APO' happens to purchase the materials for higher price from the next lowest bidder, the differential portion (loss in the risk purchase) is to be satisfied by the original defaulting party. The petitioner turned to be the lowest bidder in the second round as well and being the lowest bidder, the petitioner had to satisfy the security deposit in any form other than Bank Guarantee as per para 8.2 of the **7** ## **W.P.(C)No. 10323 OF 2010** tender to proceed further. 9. As a matter of fact, the petitioner quoted the same rate and price in the second round as well, whereas the rates quoted by others were 30 to 40% above such rate and hence the tenders of the petitioner were accepted as per Ext.P16 and P17. But before the placement of the supply order, the petitioner was required to furnish the security deposit in any form other than Bank Guarantee for a sum of Rs.68,63,250/- and Rs.14,03,913/(total of Rs.82,67,163/-) within 15 days, which was sought to be extended by the petitioner, in view of the ongoing steps to have the petitioner Company registered under the Single Point Registration Scheme', which was about to be finalised by the fifth respondent. 10. In fact, the registration as aforesaid, was to extend many benefits to the petitioner including Exemption from payment of 'EMD', Waiver of Security Deposit in participating in the tenders floated by the Central/State Government departments/public sector undertakings etc., upto a monetory limit prescribed in the certificate of registration, which in the case **8** ## **W.P.(C)No. 10323 OF 2010** of the petitioner was Rs.272 lakhs. The petitioner requested for further extension of time by filing Ext. P8 , pursuant to which, the time was extended by the concerned respondent till 15.05.2009 as borne by Exts. P19 and P19(a). The 5[th] respondent completed the process and granted Ext. P20 registration certificate as per the Scheme, a copy of which was produced before the concerned respondent along with Ext. P22 dated 13.05.2009 claiming the 'waiver of security deposit' and for such other reliefs.. However, nothing transpired in the positive for more than seven months and while so, the petitioner was informed as per letter dated 11.12.2009 by the third respondent, that the APO had already encashed the EMD paid by the petitioner also effecting encashment of the Bank Guarantee, thus realising a total sum of Rs.10,87,300/-. The petitioner was asked to pay the balance amount of Rs.71,79,862/- as outstanding under the two 'risk tenders', vide Ext. P23 and P24. Met with the situation, the petitioner alerted the concerned respondents as to the sequence of events and sought for re-consideration of the decision as per Ext. P25. However, without any regard to the same Ext. P26 **9** ## **W.P.(C)No. 10323 OF 2010** and P27 were issued alerting the petitioner to pay the damages forthwith, which are under challenge. 11. In the statement filed by the respondents 1 to 3 and so also in the counter affidavit that followed, the primary contention is that, as per the special terms and conditions of the contract governing the supply of 'MRE', any dispute or doubt arising in connection with the conditions of contract is liable to be referred to Arbitration as specified under Clause 25 of Ext. R3 (a), to be considered by the Sole Arbitrator to be appointed by the Addl. Secretary of the Government of India. As stipulated in the said clause, Arbitration is to be sought for in writing, within one year. By virtue of the said clause, the maintainability of the writ petition is seriously disputed, also placing a reference to Section 8 of the Arbitration and Conciliation Act 1996 and the law laid down by the Supreme court in _**P. Anand Gajapathi Raju vs. P.V.G. Raju**_ ( **2000(4) SCC 539).** In the counter affidavit filed subsequently, besides reiterating the reliance placed on the arbitration clause, the sequence of events issuing various performance notices to the petitioner including the last **10** ## **W.P.(C)No. 10323 OF 2010** one dated 21.10.2008 (Ext.R3(g) ) and the failure in effecting the supply, has been explained, finally leading to cancellation of the contract and encashment of the Bank Guarantee amounting to Rs.7,37,830 and Rs.1,67,300/- in both the contracts, cancelling the contract at the risk and cost of the petitioner firm as per the letter dated 29.01.2009. It was pursuant to further steps in connection with the consequential tender, that the petitioner participated again and turned to be the lowest; upon which the petitioner was required to effect security deposit and the time was admittedly extended till 15.05.2009 as per R3(h) letter dated 04.05.2009 (as admitted in para 10 of the counter affidavit). 12. It is contended that, it was only to avoid the payment of security deposit, that the petitioner approached the 5[th] respondent and sought for registration with 'NSIC' (as granted vide Ext.P20 dated 11.05.2009); while the deposit was to be effected by 02.05.2009. This however does not appear to be a reasonable explanation, in view of the admitted fact that, as per Ext.R3(h), the time to satisfy the Security Deposit was extended ## **W.P.(C)No. 10323 OF 2010** ## **11** till 15.05.2009. As such, the petitioner was at liberty to have it satisfied on or or before 15.05.2009. It is corollary to contend that the petitioner was also eligible to satisfy the authorities as to the right to participate and proceed, even without effecting the deposit, if the petitioner was not actually liable to effect the deposit. In other words, whether the petitioner was eligible to have the benefit of Ext. P20 was never properly considered by the concerned authorities. 13. There is a contention for the respondents in the counter affidavit (paragraphs 10 and 11) that the contract with the Army Purchase Organisation is not covered by the National Small Industries Corporation or in other words, Ext. P20 Certificate issued by the 5[th] respondent is not relevant or significant as far as the said respondents are concerned. But for the bald statement as above, no document in support has been produced along with the counter affidavit in this regard. The specific case of the petitioner is that Ext. P20 Registration with the 5[th] respondent has been issued pursuant to Ext. P21 Guidelines issued by the Govt. of India, formulated as a 'matter **12** ## **W.P.(C)No. 10323 OF 2010** of Policy' of the Government, with intend to promote the small scale industries. The benefits for the units registered with the NSIC are clearly stated in Ext. P20, specifying in crystal-clear terms, that the unit is eligible to avail certain benefits while participating in the tender floated by the Central/State Government Departments/Public Sector undertakings etc., as given below: _“1. Obtain the tender sets free of cost_ _2. Exemption from payment of Earnest Money Deposit_ _3. Waiver of Security Deposit upto the Monetary limit for which the unit is registered”_ The monetary limit, for which the petitioner's Unit is registered, being Rs.272 lakhs, the case of the petitioner is that the petitioner is entitled for 'Waiver of Security Deposit', upto the said limit and that Ext.P20 Certificate was produced before the concerned respondent along with Ext.P22 on 11.05.2009 itself, seeking for the benefit thereunder. 14. Obviously, Ext.P20 Certificate has been issued pursuant **13** ## **W.P.(C)No. 10323 OF 2010** to Ext. P21 Guidelines dated 28.08.2000 issued by the Government of India and in particular, the 4[th] respondent . Copy of the said Guidelines is seen forwarded to all the Ministries/Departments of the Govt. of India with a request to give instructions to all concerned for strict compliance. Nowhere has it been stated in Ext. P21, that the benefit thereunder will not be applicable to the 'Ministry of Defence' and for that matter, the APO which comes under the Ministry of Defence as well. No document has been produced before this Court by the concerned respondent to suggest that any order of exemption has been granted to deny the benefit of Ext. P21 Guidelines to the concerned SSI units registered with the 5[th] respondent, in considering the tenders submitted by such Units which are also separately registered under the APO. The benefits sought to be extended as per Ext. P21 Guidelines being a matter of 'Policy' of the Government, forwarding copies to all the Ministries of the Government (including the Defence Ministry), the question of exclusion, if any, can be considered only if a specific order or other enabling provision in this regard is pointed **14** ## **W.P.(C)No. 10323 OF 2010** out/established. As mentioned already, the respondents have miserably failed to point out any such provision /order in this regard enabling the second respondent to proceed with the tender, ignoring Ext, P21 Guidelines and the registration issued thereunder. In the said circumstance, this Court finds that the respondents were bound to consider and extend the benefit of Ext.P20 registration to the petitioner before the last date stipulated for furnishing the Security Deposit, which was 15.05.2009, as communicated vide Ext.R3(h). The failure on the part of the respondents in this regard and consequential nonissuance of the supply schedules, but for pointing out the nonremittance of the Security Deposit and further in seeking to realise the alleged loss, is not correct or sustainable. This Court finds that Exts. P23, P24, P26 and 27 do not stand the test of law and are liable to be set aside. It is ordered accordingly. 15. With regard to cancellation of the initial tender and the failure to effect prompt supply is not under challenge. The petitioner has not chosen to challenge rejection of the initial quantity of 25000 packets of 'MRE' for not conforming to the **15** ## **W.P.(C)No. 10323 OF 2010** specified standards. The only case of the petitioner is with regard to the allegation raised against the alleged extraneous consideration and malafide intent of the officers concerned, which does not weigh with the mind of this Court, as the plea of 'malafides' has not been satisfactorily established; nor has anybody been impleaded in the 'personal capacity' to consider or arrive at an inference as to the plea of malafides. The said plea is rejected. Since the initial tender is admittedly rejected and since there is no challenge, this Court cannot grant any positive relief with regard to encashment of EMD and the Bank Guarantee in respect of the said transaction. So also, since the supply of 'MRE' is in view of the prime requirement for providing food to the soldiers in the field/far away areas and to be met with in a 'timebound' manner and further since quite a long time has already elapsed, there cannot be any positive direction to reconsider the case of the petitioner in respect of the tender in question. The only relief now extended to the petitioner is that, the petitioner will stand absolved from any further liability for having not considered the credentials under Ext. P20. The respondents shall **16** ## **W.P.(C)No. 10323 OF 2010** consider the credentials of the petitioner, if the petitioner participates in any further tender on the basis of Ext.P20 and the same shall be considered and the benefits shall be extended to the extent as flowing therefrom, unless the APO under the Ministry of Defence is specifically excluded from the purview of Ext.P21 Guidelines and Ext.P20 Registration Certificate issued thereunder. The Writ Petition is allowed in part. No cost. **P.R. RAMACHANDRA MENON, JUDGE.** lk