Karnataka Commercial and Industrial Corporation Pvt. Ltd. v Air India Charterers Ltd (AICL) & Others

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.T.SANKARAN MONDAY, THE 21ST FEBRUARY 2011 / 2ND PHALGUNA 1932 ## **WP(C).No. 16045 of 2010(E)** PETITIONER: --------------- KARNATAKA COMMERCIAL AND INDUSTRIAL CORPORATION PVT.LTD,NO.10 CHURCH ROAD, BASAVANAGUDI,BANGALORE-5600O4, REPRESENTED BY ITS MANAGING DIRECTOR.I.A.SIDDQUI. BY SENIOR ADVOCATE SRI.ABRAHAM VAKKANAL SRI.PAUL ABRAHAM VAKKANAL SRI.DIJO SEBASTIAN SMT.VINEETHA SUSAN THOMAS RESPONDENTS: --------------- 1. AIR INDIA CHARTERERS LTD.(AICL), (HAVING ITS REGISTERED OFFICE AT AIR INDIA BUILDINGS), 21ST FLOOR,NARIMAN POINT,MUMBAI-400 021. REPRESENTED BY MR.MIKE JOSEPH, EXECUTIVE HEAD,AICL, COCHIN INTERNATIONAL AIRPORT, NEDUMBASSERY, COCHIN-683111. 2. AIR INDIA CHARTERERS LTD, COCHIN INTERNATIONAL AIRPORT,NEDUMBASSERY, COCHIN-683111,REPRESENTED BY ITS AUTHORISED SIGNATORY-MR.M.V.JOSEPH. 3. THE AIRPORT MANAGER,AIR INDIA-NATIONAL AVIATION COMPANY OF INDIA LTD(NACIL), COCHIN INTERNATIONAL AIRPORT, NEDUMBASSERY,COCHIN-683111. BY ADV. SRI.E.K.NANDAKUMAR SRI.JAYASANKAR A.K. SRI.JOHN MATHAI.K. SRI.BENNY P.THOMAS SRI.P.GOPINATH MENON THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 10/2/2011, THE COURT ON 21/02/2011,DELIVERED THE FOLLOWING: ## **APPENDIX** ## **' PETITIONER S EXHIBITS** : - EXT.P1 TRUE COPY OF THE LETTER BY THE THIRD RESPONDENT TO THE PETITIONER, DATED 31.3.2010. EXT.P2 TRUE COPY OF THE LETTER BY THE PETITIONER DATED 9.4.2010. - EXT.P3 TRUE COPY OF THE LETTER SENT BY PETITIONER AS NO.KCICPL/BLR-01/10 TO THE RESPONDENTS DATED 1.3.2010. - EXT.P4 TRUE COPY OF THE E-MAIL RECEIVED BY PETITIONER FROM RESPONDENTS DATED 4.3.2010. - EXT.P5 TRUE COPY OF THE REPLY BY PETITIONER TO RESPONDENTS DATED 5.3.2010. - EXT.P6 TRUE COPY OF THE E-MAIL RECEIVED BY PETITIONER FROM RESPONDENTS DATED 8.3.2010. - EXT.P7 TRUE COPY OF THE E-MAIL SENT BY PETITIONER TO RESPONDENTS DATED 9.3.2010. - EXT.P8 TRUE COPY OF THE LIO.NO.19-06/1022 ISSUED BY THE RESPONDENTS TO THE PETITIONER, DATED 12.4.2010. - EXT.P9 TRUE COPY OF THE LETTER SENT BY PETITIONER NO.KCICPL/BLR-490/2010 TO THE RESPONDENTS DATED 14.4.2010. - EXT.P10 TRUE COPY OF THE RECORD NOTE OF THE MEETING HELD IN MUMBAI BETWEEN PETITIONER & RESPONDENTS DATED 6.5.2010. - EXT.P11 TRUE COPY OF THE LETTER SENT BY THE RESPONDENTS AS NO.COK/AICL/19-05/A/072 TO THE PETITIONER DATED 12.5.2010. - EXT.P12 TRUE COPY OF THE TENDER DOCUMENT SUBMITTED BY THE PETITIONER FOR PROVIDING CABIN CLEANING SERVICES AT THE COCHIN INTERNATIONAL AIRPORT LTD. FOR FLIGHTS OF NACIL AND ITS CUSTOMER AIRLINES, WITHOUT ANNEXURES, DATED 6.4.2010. - EXT.P13 TRUE COPY OF THE NEW TENDER: TENDER NO.COCH/AICL-004/1011, DATED 19.5.2010. ## **' RESPONDENTS EXHIBITS** : EXT.R1(a) TRUE COPY OF THE TENDER DOCUMENT DATED 8.1.2010. EXT.R1(b) TRUE COPY OF THE E-MAIL DATED 20.4.2010 SENT BY THE ACCOUNTS MANAGER IN REPLY TO EXT.P LETTER. EXT.R1(c) TRUE COPY OF THE SAID COMMUNICATION DATED 23.4.2010 ADDRESSED TO THE MANAGING DIRECTOR OF THE PETITIONER COMPANY. //TRUE COPY// AHZ/ ## **K.T.SANKARAN, J.** ## **-----------------------------------------------------W.P.(C). NO.16045 OF 2010 E -----------------------------------------------------Dated this the 21[st] day of February, 2011** ## **JUDGMENT** The question involved in the Writ Petition is whether the order issued by Air India Charterers Ltd. (AICL) debarring the petitioner from participating in any of the tenders floated at Cochin for a period of three years, in conformity with the Central Vigilance Commission guidelines which provide for blacklisting the contractors, without affording an opportunity of being heard to the petitioner is legal and proper. 2. The petitioner, Karnataka Commercial and Industrial Corporation Pvt. Ltd. submitted tender for the award of contract for providing dedicated teams for enhanced passenger handling including their baggage at the Cochin International Airport, pursuant to the tender notification dated 8.1.2010. The technical bid was opened on 1.2.2010. On evaluation of the technical bids, it was found that the petitioner and seven others were qualified. The commercial bids were opened on 18.2.2010. The petitioner's bid ## W.P.(C) NO.16045 OF 2010 :: 2 :: was the lowest one. AICL (first respondent) decided to award the Letter Of Intent (LOI) to the petitioner. 3. According to the petitioner, he was invited for tender negotiation meeting on 23.2.2010 at Cochin. According to the respondents, that was not a negotiation meeting, but it was a meeting for a briefing on the activities to be carried out by the petitioner. The petitioner sought clarifications on nine items as per Ext.P3 communication dated 1.3.2010. One of the items on which clarification sought for was regarding gross salary of the personnel to be deputed by the petitioner. According to the tender document, the salary payable to the personnel have been indicated. The petitioner contended that the gross salary means the total costs incurred by the service provider (petitioner) and the gross salary would include all employee related expenses, namely, salary, house rent allowance, transport allowance, overtime allowance, leave salary, statutory bonus payable under the Payment of Bonus Act and gratuity payable under the Payment of Gratuity Act, 1972. 4. It would appear that the main dispute between the parties was regarding the interpretation of gross salary payable to the W.P.(C) NO.16045 OF 2010 :: 3 :: personnel to be employed by the petitioner. As per Ext.P4 communication dated 4.3.2010 issued to the petitioner, it was suggested by the respondents that a meeting be held to finalize the matters. The petitioner, as per Ext.P5 communication dated 5.3.2010, replied that no further meeting was required and the petitioner had already stated their views in the earlier communication. The petitioner requested to incorporate the clarifications in the Letter Of Intent. As per Ext.P6, the respondents again invited the petitioner for a discussion, to which, the petitioner sent Ext.P7 reply. Thereafter on 12.4.2010, Ext.P8 Letter Of Intent was issued to the petitioner. Even after the issue of the Letter Of Intent, a meeting between the parties took place at Mumbai on 6.5.2010, evidenced by Ext.P10 minutes, wherein it is recorded thus: “During the meeting, M/s.KCIC (P) Ltd. have informed that based on the terms of the LOI, they would not be able to provide the required manpower as they misunderstood the requirement of AICL.” Thereafter on 12.5.2010, AICL issued Ext.P11 communication to the petitioner stating thus: “In view of the above, we have no other option but to rescind the Letter of Intent (LOI) and further debar W.P.(C) NO.16045 OF 2010 :: 4 :: your organization from participating in any of the tender floated at Cochin for a period of three years from 06 May 2010 to 05 May 2013, as per the existing policy of the company, which is in conformity with the CVC guidelines.” Ext.P11, to the extent to which it debars the petitioner from participating in the tender for a period of three years, is challenged in this Writ Petition. In other words, the rescission of the Letter Of Intent made as per Ext.P11 is not challenged by the petitioner. 5. In the counter affidavit filed on behalf of respondents 1 to 3, the issue of Ext.P11 was justified. According to the respondents, there was no negotiation meeting as claimed by the petitioner and the various meetings were held since the petitioner raised several objections and sought clarifications. Ext.P3 communication was issued by the petitioner as if the claims were mutually agreed upon. The claims regarding salary, overtime etc. were not agreed upon and therefore, the request in Ext.P3 could not be accepted. The petitioner reiterated his contentions in the later communications as well. In the meeting held on 6.5.2010, in which the representative of the petitioner also participated, it was confirmed that clause 6 of the W.P.(C) NO.16045 OF 2010 :: 5 :: LOI relating to payment of salary is not acceptable to the petitioner and they also confirmed that they would not be able to provide the required manpower. It is further stated in the counter affidavit thus: “It is submitted that the respondents are governed by the Manual of the company, which was drawn up after the merger of Air India Limited and Indian Airlines Limited. The Manual incorporates the latest guidelines issued by the Central Vigilance Commission as well as notifications issued by the various regulatory authorities. Clause 13.9 of the Manual reads as follows: “13.9In case the LI vendor backs out, either before issue of Purchase Order/Letter Of Intent (LOI) or subsequent to its issue, the LI vendor should be black listed for a minimum period of three years. This would, however, be subject to the Purchase Order/LOI having been issued within the period of validity of the quotation. In addition, the EMD/SD of the vendor would also be forfeited.”” 6. In the reply affidavit filed by the petitioner, it is stated that in the tender document, terms were incorporated without clarity and certainty. The tender conditions were vague, which necessitated W.P.(C) NO.16045 OF 2010 :: 6 :: further discussion in several meetings. That there was uncertainty in the terms relating to certain important aspects in the original tender is clear from the re-tender issued for the same work by the respondents, in which, matters have been clarified. It is also stated that the tender in question was the first of its kind issued by the respondents. Earlier, the respondents were inviting tenders quoting rates per flight for rendering comprehensive ground handling service. For the first time, the respondents invited tenders on “manpower basis”. When a new system was introduced, naturally there was some confusion, uncertainty and vagueness. The difference of opinion regarding “gross salary” arose in the first meeting held on 23.2.2010 itself. Subsequently, prolonged discussions took place in respect of these matters. Several other clarifications sought for by the petitioner were accepted by the respondents. In these circumstances, the petitioner had no other alternative but to withdraw from the contract. Debarring the petitioner from participating in tenders floated at Cochin for a period of three years really amounts to blacklisting even according to the respondents. Such blacklisting was made without affording an opportunity of being heard to the petitioner. W.P.(C) NO.16045 OF 2010 :: 7 :: 7. Sri.Abraham Vakkanal, learned senior counsel appearing for the petitioner, submitted that blacklisting, that too without affording an opportunity of being heard to the petitioner, really affects the constitutional and civil rights of the petitioner. It is submitted that Ext.P11, to the extent to which it is challenged in the Writ Petition, is violative of Article 19(1)(g) and Article 21 of the Constitution of India. 8. In Black's Law Dictionary, the meaning of the term “blacklist” is given as follows: “ **Blacklist** : A list of persons marked out for special avoidance, antagonism, or enmity on the part of those who prepare the list or those among whom it is intended to circulate; as where a trades-union “blacklists” workmen who refuse to conform to its rules, or where a list of insolvent or untrustworthy persons is published by a commercial agency or mercantile association. Such practices are prohibited by statute in most states.” 9. In **Punnen Thomas** v. **State of Kerala** (1968 KLT 800(FB) = AIR 1969 Kerala 1968), the majority of the Full Bench held that the order blacklisting the contractor does not involve civil consequences ## W.P.(C) NO.16045 OF 2010 :: 8 :: in so far as he is concerned. It poses no threat to any of his legal rights, fundamental or otherwise. It was also held by the majority that “a mere refusal to afford a man the prospect of doing profitable or unprofitable business with the Government, of entering into advantageous relationships with the Government as it has been put, entails no civil consequences however serious a blow that might be to the person concerned. The principle of natural justice cannot be invoked in such a case unless article 14 is attracted. And article 14 cannot be attracted, and no complaint by a person provoke judicial interference, unless some legal rights of his is affected.” 10. In **Punnen Thomas** v. **State of Kerala** (1968 KLT 800 (FB), Justice K.K.Mathew (as His Lordship then was), in the dissenting judgment, held thus: “3. Government has right like any private citizen to enter into contracts with any person it chooses and no person has a right fundamental or otherwise to insist that Government must enter into a contractual relation with him. ........ 4. A contractual relationship presupposes a consensus of two minds. If Government is not willing to ## W.P.(C) NO.16045 OF 2010 :: 9 :: enter into contract with a person, I do not think that government can be forced to do so. It is one thing to say that government, like any other private citizen, can enter into contract with any person it pleases, but a totally different thing to say that government can unreasonably put a person's name in a blacklist and debar him from entering into any contractual relationship with the government for years to come. In the former case, it might be said that Government is exercising its right like any other private citizen but no democratic government should with impunity pass a proceeding which will have civil consequences to a citizen without notice and an opportunity of being heard.” It was also held by Justice K.K.Mathew that blacklisting and debarring the contractor from taking any government work for ten years by way of punishment is against all notions of fairness in a democratic country. 11. In **M/s.Erusian Equipment and Chemicals Ltd.** v. **State** **of West Bengal and another** (AIR 1975 SC 266), a three Judges Bench of the Supreme Court (including Justice K.K.Mathew) considered the question of blacklisting of a contractor and held: W.P.(C) NO.16045 OF 2010 :: 10 :: “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.” ## In **M/s.Southern Painters** v. **Fertilizers & Chemicals Travancore** **Ltd. and another** (AIR 1994 SC 1277), the Supreme Court held that the minority view of Justice K.K.Mathew in Punnen Thomas's case is the correct law. Regarding the majority view in Punnen Thomas's case, the Supreme Court held: “The majority judgment of the Kerala High Court, inasmuch as it holds that a person is not entitled to a hearing, before he is blacklisted, must be deemed to have been overruled by the decision of this Court in Erusian Equipment & Chemicals Ltd. v. State of West Bengal (AIR 1975 SC 266).” ## 12. In **Yakoob** v. **Kerala State Civil Supplies Corporation** ((2003(3) KLT 535), the Division Bench held that blacklisting of a W.P.(C) NO.16045 OF 2010 :: 11 :: contractor without affording an opportunity of being heard to him is illegal as it amounts to violation of the principles of natural justice. It was held that blacklisting a contractor entails a civil consequence. It is punitive. The dissenting judgment of Justice K.K.Mathew in Punnen Thomas's case was followed by the Division Bench. In **Raghunath Thakur** v. **State of Bihar** (AIR 1989 SC 620), the Supreme Court held that blacklisting any person in respect of business ventures has civil consequence for the future business of the person concerned. Even if the rules do not expressly provide, it is an elementary principle of natural justice that the parties affected by any order should have the right of being heard and making representations against the order. ## 13. In **Reliance Energy Ltd. and another** v. **Maharashtra State Road Development Corporation Ltd. and others** ((2007) 8 SCC 1), it was held thus: “Standards applied by courts in judicial review must be justified by constitutional principles which govern the proper exercise of public power in a democracy. Article 14 of the Constitution embodies the principle of “non-discrimination”. However, it is not a W.P.(C) NO.16045 OF 2010 :: 12 :: free-standing provision. It has to be read in conjunction with rights conferred by other articles like Article 21 of the Constitution. The said Article 21 refers to “right to life”. It includes “opportunity”. In our view, as held in the latest judgment of the Constitution Bench of nine Judges in _I.R.Coelho v. State of T.N. ((2007) 2 SCC 1)_ , Articles 21/14 are the heart of the chapter on fundamental rights. ........ Time has come, therefore, to say that Article 14 which refers to the principle of “equality” should not be read as a stand alone item but it should be read in conjunction with Article 21 which embodies several aspects of life.” 14. Learned counsel for the respondents relied on the decision of the Supreme Court in **M.C.Mehta** v. **Union of India & Others** ((1999) 6 SCC 237) and after referring to paragraphs 12 and 15 to 21, submitted that if it is clear on the admitted or indisputable factual position that only one conclusion is possible and permissible, the Court need not issue a writ merely because there is violation of the principles of natural justice. The Division Bench of the Kerala High Court in **Yakoob** v. **Kerala State Civil Supplies Corporation** ((2003(3) KLT 535) took note of the principles laid down in _**M.C.Mehta's case**_ and held that the Supreme Court did not make W.P.(C) NO.16045 OF 2010 :: 13 :: any final pronouncement on the applicability of the “useless formality theory” either in M.C.Mehta's case or in Aligarh Muslim University and another v. Mansoor Alikhan ((2000) 7 SCC 529). The Division Bench also relied on the decision in **S.L.Kapoor** v. **Jagmohan** ((1980) 4 SCC 379) and **A.K.Kraipak** v. **Union of India** (AIR 1970 SC 150). 15. In the present case, it cannot be said that on the admitted or indisputable factual position, only one conclusion is possible. As stated earlier, the contract of the type in question was introduced for the first time. Even after acceptance of the technical bid and commercial bid, discussions were held and many of the clarifications sought for by the petitioner were approved. The clarification sought for by the petitioner in respect of “gross salary” was not accepted by the respondents. However, it is to be noted that the term “gross salary” was explained and defined in the subsequent tender issued by the respondents. Therefore, I do not think that blacklisting the petitioner and debarring him from participating in any tender floated at Cochin for a period of three years was not justified, particularly as it was made without affording an opportunity of being heard to the petitioner. W.P.(C) NO.16045 OF 2010 :: 14 :: 16. The “Central Vigilance Commission guidelines” contained in the Manual which provides for blacklisting should not be applied mechanically. Clause 13.9 of the Manual which provides for blacklisting on the mere ground of the vendor backing out, does not apply to each and every case in which a contractor could not comply with the terms of the agreement. There may be circumstances in which a contractor may be justified in backing out. There may be unforeseen circumstances which may justify the contractor in backing out. There may be supervening circumstances which may justify backing out. There may be several other situations which the contracting parties could not comprehend, and the ground realities may be found otherwise than what was meant and understood by the contracting parties. There may be mutual mistake or mistake on the side of one party on the basis of wrong understanding of the ground realities. It cannot be said that in all cases where a contractor backs out, his acts are contumacious, deliberate, wilful or in defiance of the terms agreed upon. Each case depends on the facts obtaining in that case. A unilateral decision by one of the contracting parties, who is in a dominating position, to blacklist a contractor on the mere ground that he backed out, unmindful of the consequences and ## W.P.(C) NO.16045 OF 2010 :: 15 :: without reference to the circumstances under which he backed out, is wrong and illegal. If the decision to blacklist is taken without affording an opportunity of being heard to the affected party, it adds to the illegality and the order blacklisting the contractor is liable to be struck down. “Debarring” as mentioned in Ext.P11 was admittedly on the basis of the Central Vigilance Commission guidelines which speak of blacklisting. Though the word “blacklisted” is not used in Ext.P11, it really amounts to blacklisting. Ext.P11 is violative of the fundamental rights of the petitioner enshrined in Articles 14, 19(1)(g) and 21 of the Constitution of India. For the aforesaid reasons, the Writ Petition is allowed and Ext.P11, to the extent to which it debars the petitioner from participating in any tender floated at Cochin by the respondent for a period of three years, is quashed. No order as to costs. ## **(K.T.SANKARAN) Judge** ahz/