K.M. Musthafa v. Southern Railway & Divisional Railway Manager, Commercial, Trivandrum Division

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR. JUSTICE SHAJI P.CHALY** **FRIDAY, THE 11TH DAY OF NOVEMBER 2016/20TH KARTHIKA, 1938** **WP(C).No. 29492 of 2016 (J) ----------------------------** **PETITIONER(S): --------------------------** **K.M. MUSTHAFA, AGED 39, S/O. MUTHU, 676/1, PATHAMPADAM, EDATHARA P.O., PALAGHATT DISTRICT.** **BY SRI.S.SREEKUMAR, SENIOR ADVOCATE. ADVS. SRI.P.MARTIN JOSE, SRI.K.SANEESH KUMAR, SRI.P.PRIJITH, SRI.THOMAS P.KURUVILLA. RESPONDENT(S): -----------------------1. SOUTHERN RAILWAY, REPRESENTED BY ITS CHIEF COMMERCIAL MANAGER, SOUTHERN RAILWAY, HEAD QUARTERS OFFICE, COMMERCIAL BRANCH, CHENNAI-600 003. 2. DIVISIONAL RAILWAY MANAGER, COMMERCIAL, TRIVANDRUM DIVISION, SOUTHERN RAILWAY, THIRUVANANTHAPURAM-695 001. BY ADV. SRI.C.S.DIAS, SC.** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 27/10/2016, THE COURT ON 11/11/2016 DELIVERED THE FOLLOWING:** rs. ## **WP(C).No. 29492 of 2016 (J)** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:-** - **EXHIBIT P1 TRUE COPY OF THE TENDER DOCUMENT ISSUED BY THE 1ST RESPONDENT.** - **EXHIBIT P2 TRUE COPY OF REQUEST LETTER DATED 31-12-2015 ISSUED BY THE 1ST RESPONDENT.** - **EXHIBIT P3 TRUE COPY OF REQUEST LETTER DATED 04-04-2016 ISSUED BY THE 2ND RESPONDENT.** - **EXHIBIT P4 TRUE COPY OF EXTENSION LETTER DATED 20-04-2016 SUBMITTED BY THE PETITIONER IN REPLY TO EXHIBIT P3.** - **EXHIBIT P5 TRUE COPY OF THE LETTER ISSUED BY THE 1ST RESPONDENT DATED 04-07-2015.** - **EXHIBIT P6 TRUE COPY OF EXTENSION LETTER ISSUED BY THE PETITIONER DATED 11-07-2016.** - **EXHIBIT P7 TRUE COPY OF LETTER OF AWARD ISSUED BY THE 1ST RESPONDENT DATED 22-07-2016.** - **EXHIBIT P8 TRUE COPY OF THE LETTER ISSUED BY THE PETITIONER TO THE 1ST RESPONDENT DATED 26-07-2016.** - **EXHIBIT P9 TRUE COPY OF REPLY TO EXHIBIT P8 ISSUED BY THE 1ST RESPONDENT ON 22-08-2016.** - **EXHIBIT P10 TRUE COPY OF THE REPRESENTATION DATED 27-08-2016 SUBMITTED TO THE 1ST RESPONDENT.** - **EXHIBIT P11 TRUE COPY OF THE LETTER ISSUED BY THE 1ST RESPONDENT DATED 31-08-2016.** ## **RESPONDENT'S EXHIBITS:-** **NIL.** **//TRUE COPY//** ## **P.S. TO JUDGE** rs. ## **SHAJI P. CHALY, J.** ## **------------------------------W.P.(C)No.29492 of 2016** **------------------------------Dated this the 11[th] day of November, 2016** ## **J U D G M E N T** **-------------------** This writ petition is filed seeking to quash Exts.P9 and P11 orders passed by the respondents dated 22.08.2016 and 31.08.2016, whereby petitioner was directed to remit the licence fee and furnish security deposits as per the time provided in the letter of award (L.O.A.) and terminating the licence awarded to the petitioner and further debarring from participating in the bidding process for similar nature of licence/contract of railway for a period of one year as per the tender condition respectively, and for other related reliefs. 2. Material facts for the disposal of the writ petition are as follows:- Petitioner is a successful bidder for conducting catering services in Trivandrum Central-Shoranur 'Venad Express' with No.16301. The bid was conducted on 7.10.2014 as per Ext.P1 which was being extended from W.P.(C)No.29492 of 2016 2 time to time at the instance of the 1[st] respondent and the final extension ended on 04.10.2016, evident from Exts.P2,P3 and P5. At this juncture petitioner was served with letter of award dated 22.07.2016 as per Ext.P7 and petitioner was directed to remit the licence fee for the two years Rs.73,02,800/-. A further direction is made to remit the security amount of Rs.18,25,700/- within 15 days from the date of receipt of the letter of award. According to the petitioner, as per the letter of award the period of licence is for five years. 3. It is also stated, during the periods petitioner was awarded with other contracts by the railway, and had to secure large amounts for complying with the terms of the respective licence, which persuaded the petitioner to seek further time to remit the licence fees and security. Therefore, petitioner submitted a letter dated 26.07.2016 seeking time till 15.10.2016 for remittance of the licence and security amount along with the acceptance of letter of award, which was rejected by the 1[st] respondent without any consideration and issued Ext.P9, whereby, petitioner W.P.(C)No.29492 of 2016 3 was directed to remit the licence fee and security immediately and commence service on 1.9.2016. Anyhow, in Ext.P9 petitioner submitted Ext.P10 representation and sought time till 25.09.2016 for remittance of the licence fee and security amount. 4. According to the petitioner, 1[st] respondent without assigning any reasons and in absolute violation of principles of natural justice issued Ext.P11 and debarred the petitioner from participating in similar tenders and further forfeited the earnest money of Rs.2,65,250/-. It is the contention of the petitioner, the said action of the 1[st] respondent is nothing but colourable exercise of the jurisdiction conferred upon him and it is thus seeking to quash Exts.P9 and P11 petitioner has filed this writ petition. 5. Respondents have filed counter affidavit refuting the allegations and claims and demands made by the petitioner in the writ petition. It is also stated that, as per clause 2.6.1 of Ext.P1, railway was at liberty to request the bidders to extent the validity of their bids W.P.(C)No.29492 of 2016 4 from time to time till finalisation. As per Ext.P1 open tender issued on 15.09.2014, petitioner and few others participated in the bid, the validity of the bid was fixed for a period of 180 days from the last date of submission of bids and by virtue of the aforequoted clause the tender was being extended periodically as per Exts.P2, P3 and P5. In response to the letters, petitioner submitted Exts.P4 and P6 expressing his willingness to extent the validity of the tender along with all the other participants. It was after finalisation of the biding process, petitioner was issued with Ext.P7 letter of award informing that the contract was awarded in his favour for a period of five years on condition that he pays licence fee and security within a period of 15 days from the date of receipt of the letter. It is also stated petitioner was instructed to commence service with effect from 01.09.2016 or earlier and execute the agreement within 15 days from the date of receipt of the draft agreement and till such time the terms and conditions stipulated in the bid document would be binding between the parties. W.P.(C)No.29492 of 2016 5 6. As per clause 14 of the covering letter in Ext.P1 bid document, petitioner had undertaken that, if he does not fulfill the conditions of the bid document or does not set up base kitchen as agreed, he shall be debarred by the railway from participation in similar future contracts/licences of railway for a period of one year. That apart, petitioner has undertaken as per clause 16 of the said letter that he would not seek any changes in the draft licence agreement. In the draft agreement subscribed by the petitioner, and in clause 4.2 of Ext.P1, petitioner had agreed to pay licence fee, 15 days in advance of the commencement of the licence. However, contrary to the said assurance and undertaking in Ext.P1, in response to Ext.P7 letter of award, submitted Ext.P8 reply dated 26.07.2016 conditionally accepting Ext.P7 letter of award seeking for additional three months time period to remit the licence fee and security deposit in violation of the concluded terms of the tender. 7. According to the respondents Ext.P1 open tender was published and definite terms and conditions W.P.(C)No.29492 of 2016 6 were accepted by the petitioner. Numerous persons participated in the tender. Since, petitioner quoted the highest price and got other participants eliminated, thereafter petitioner has sought to alter the finalised tender conditions by making conditional acceptance of Ext.P7, seeking extension of time for making the payment of licence fee as well as the security amount. That apart it is submitted, petitioner was operating the catering service in the trains in question on adhoc basis, granted to him by the Indian Railway Catering and Tourism Corporation by making conditional acceptance and petitioner attempts to prolong the payments with the malafide intention to continue to operate the catering service in the train on adhoc basis, which cannot be permitted. It is also stated, any dilution of the tender conditions would crumple the concept of openness and transparency of public tender. It was under such circumstances by Ext.P9, the request made by the petitioner was refused to be accepted and instructed him to pay the licence fee and security deposit as mentioned W.P.(C)No.29492 of 2016 7 in Ext.P7 and commence service from 01.09.2016. 8. It is also submitted instead of adhering to the time frame fixed in Ext.P7, reiterated in Ext.P9, petitioner made Ext.P10 representation stating that, consequent to his busy engagement as a railway contractor, is in financial constraints which persuades him to seek extension of time for payment of required fees. It was thereupon, in adherence to the conditions stipulated in Ext.P1 rejected the request made by the petitioner in Exts.P8 and P10 and forfeited the earnest money deposit and debarred from participating in the bidding process as per clause 14 of Ext.P1. Therefore, according to the respondents the actions initiated are in accordance with law and petitioner has not made out any ground enabling this Court to exercise power under Article 226 of the Constitution of India. That apart the allegations that, petitioner approached the 1[st] respondent to remit the licence fee and the 1[st] respondent orally instructed him to wait, stating, there was some litigation, and that he would be given ample time to remit the licence fee and security W.P.(C)No.29492 of 2016 8 deposit etc., are false and incorrect. The currency of the tender was extended on three occasions as invoking clause 2.6.1 of Ext.P1 in order to keep the tender valid till its finalisation and the petitioner who voluntarily agreed to the same cannot now turn around and complain such a course. All other allegations and contentions raised by the petitioner against the respondents are also denied. It is also stated, seeking to remit the licence fee for a period of two years cannot be termed to be illegal in any manner much less under Section 23 of the Indian Contract Act. Therefore, it is contended, the writ petition is to be dismissed. 9. Heard learned Senior Counsel for the petitioner and Standing Counsel appearing for the respondents and perused the documents on record and the pleadings put forth by the respective parties. 10. The question to be decided is whether any manner of interference is required in Exts.P9 and P11 communications issued by the respondents to the petitioner. The prime contention advanced by the learned W.P.(C)No.29492 of 2016 9 Senior Counsel for the petitioner is that, the action pursuant to Ext.P11, debarring the petitioner from participating in the railway contracts for a period of one year amounts to blacklisting. According to the learned Senior Counsel, no opportunity was provided to the petitioner to explain the circumstances and therefore the blacklisting so done is bad. It is also contended, since request made by the petitioner in Exts.P8 and P10 are only reasonable, it was illegal on the part of the respondents to terminate the award as per Ext.P11 and that too in violation of the principles of natural justice. On the other hand learned Standing Counsel for the railway submitted that, there is no question of any blacklisting arisen in this case since, the entire actions were in accordance with the terms of Ext.P1 licence conditions. Learned Standing Counsel has taken me through clauses 14 and 16 which read as follows:- '' _14. I/We understand that on account of nonacceptance of LOA or on account of not fulfilling the conditions of the Bid Document and non setting up of the base kitchen as per annexure A/1(a) or, as the case may_ W.P.(C)No.29492 of 2016 10 _be, the licence agreement within the prescribed time, I/We shall be debarred by Railway for further participation in the similar future contracts/licences of Railway for a period of one (1) years._ _xxxxx_ _16. In the event of my/our being declared as the Selected Bidder, I/We agree to enter into a Licence Agreement in accordance with the draft that has been provided to me/us prior to the Bid Due Date. We agree not to seek any changes in the aforesaid draft and agree to abide by the same.''_ 11. On a reading of clause 14, it is unequivocally undertaken by the petitioner that, if the time stipulation is not adhered to by the petitioner, petitioner shall be debarred by the railway for further participation in the similar future contract or licences of railway for a period of one year. It is also as per clause 16, petitioner has agreed to enter into licence agreement in accordance with the draft that is provided to the petitioner prior to the bid due date and that the petitioner will not seek any changes in the aforesaid draft, and agreed to abide by the same. Laying thrust on the said provisions of the contract learned Standing Counsel submitted, petitioner was W.P.(C)No.29492 of 2016 11 bound to start the operation after paying the licence fee and security deposit as agreed upon, on and with effect from 01.09.2016. Since, the petitioner has failed to implement the undertakings made by him, only Ext.P9 letter was issued, providing opportunity to correct himself and comply the stipulations contained under the agreement. However, in spite of the earnest efforts of the respondents, petitioner again sought time which according to the respondents could not be granted, and if granted it would violate the terms and conditions of the tender notification itself. Learned counsel also submitted there were other competitive bids and the bid submitted by the petitioner was the highest and acceptable to the railways and therefore if the terms and conditions are violated by the petitioner it amounts to dilution of the invitation made by the respondents. 12. Learned Senior Counsel for the petitioner has invited my attention to the judgment of the Apex Court in _**Gorkha Security Services v. Government (NCT of Delhi) and Others (2014) 9 SCC 105**_ to canvass the W.P.(C)No.29492 of 2016 12 preposition that, blacklisting can be done only after providing sufficient reasons for blacklisting a person, and after providing opportunity of hearing to such person. In this regard learned counsel also invited my attention to the judgment of the Punjab and Haryana High Court in _**Merittrac Services Private Limited v. Post Graduate Institute of Medical Education and Research 2015 KHC 3776.**_ 13. Learned Senior Counsel invited my attention to paragraph 16 of the judgment of the Apex Court in Gorkha Security Services (supra) and canvass the proposition that blacklisting has to be proceeded by a show cause notice. It is also pointed out, the order of the blacklisting has the effect of depriving a person of equality of opportunity in the matter of public contract. A person who is on the approved list is unable to enter into advantageous relations with the Government because of the order of blacklisting. A person who has been dealing with the Government in the matter of sale and purchase of materials has a legitimate interest or expectation. It is W.P.(C)No.29492 of 2016 13 further held that, when the state acts to the prejudice of a person it has to be supported by legality. 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. Learned counsel also invited my attention to the paragraph 28 of the judgment which read as follows:- “ _28. In the instant case, no doubt the show-cause notice dated 6.02.2013 was served upon the appellant. Relevant portion thereof has already been extracted above (see para 5). This show-cause notice is conspicuously silent about the blacklisting action. On the contrary, after stating in detail the nature of alleged defaults and breaches of the agreement committed by the appellant the notice specifically mentions that because of the said defaults the appellant was “ as such liable to be levied the cost accordingly.” It further says “why the action as mentioned above may not be taken against the firm, besides other action as deemed fit by the competent authority.” It follows from the above that main action which the respondents wanted to take was to levy the cost. No doubt, the notice further mentions that the competent authority could take other actions as deemed fit. However, that may not fulfill the requirement of putting the defaulter to the notice that action of blacklisting was also in the mind of the competent authority. Mere existence of Clause 27 in the_ W.P.(C)No.29492 of 2016 14 _agreement entered into between the parties, would not suffice the aforesaid mandatory requirement by vaguely mentioning other “actions as deemed fit”. As already pointed out above insofar as penalty of blacklisting and forfeiture of earnest money/security deposit is concerned it can be imposed only, “if so warranted”. Therefore, without any specific stipulation in this behalf, the respondent could not have imposed the penalty of blacklisting.”_ 14. Therefore, it is the contention of the learned Senior Counsel, no sufficient opportunity of hearing was provided to the petitioner after serving a proper show cause notice, thus enabling the petitioner to defend himself before blacklisting. 15. On the other hand, learned Standing Counsel submitted that, the respondents have not blacklisted the petitioner, but only implemented the provisions of Ext.P1 undertaken by the petitioner with respect to the award of tender in question. 16. Taking note of the respective submissions, I am of the considered opinion that, the question revolves around clauses 14 and 16 of Annexure A/1 to Ext.P1. Ext.P1 is the bid document for provision of catering W.P.(C)No.29492 of 2016 15 services on board the train in question dated 15.09.2014. Therefore, it is specifically clear the stipulations and undertakings contained there under is in respect of the specific contract awarded to the petitioner. Petitioner who is well aware of the stipulations contained in the key information as well as in the annexures was aware of the fact that if petitioner is not adhering to the terms, conditions and stipulations and undertakings the consequences recited in clauses 14 and 16 of the annexures referred to supra will follow. Moreover, respondents have issued Ext.P9 letter to the petitioner on the basis of Ext.P8 representation submitted by the petitioner, seeking time for effecting payment. Even though, as per Ext.P9 petitioner was directed to adhere to the stipulations, petitioner has again submitted Ext.P10 representation seeking further time. It was thereupon that Ext.P11 order is issued forfeiting the earnest money and debarring the petitioner from participating in similar future licence/ contract of railway for a period of one year. In my considered opinion, the question with respect W.P.(C)No.29492 of 2016 16 to forfeit of earnest money cannot be raised as a subject matter in this writ petition, since even according to the petitioner and the Standing Counsel for the railways, the disputes are to be settled through Dispute Resolution Mechanism provided under the general conditions of contract of the railways by resorting to Arbitration and Conciliation Act, 1996. So the sole question is whether the debarring for a period of one year done by the respondents from participation in the railway contract amounts to blacklisting or not. Assimilating the fact situations, obligations and terms and conditions of Ext.P1, it is clear, petitioner was well aware of such a provision. It is also to be noted that, it was considering the representations submitted by the petitioner and taking into account the strict stipulations contained under the terms and conditions of the contract, only Ext.P11 order was passed. Petitioner is not blacklisted as such by the respondents, the term of the debarment of the petitioner from participating in the contracts of the railway is reasonable and only for a period of one year. If such a W.P.(C)No.29492 of 2016 17 stipulation was violated and the petitioner was debarred for a larger period, what the learned Senior Counsel contended would have been correct. However, there are no circumstances existing to think that, petitioner was blacklisted at all. When a specific obligation was undertaken by the petitioner as per clauses 14 and 16 of annexure to Ext.P1, petitioner was volunteering the said act. Therefore viewed in that circumstances also, it cannot be said that it was on the basis of an action of the railway that petitioner was debarred. Moreover, petitioner was very well aware of the paramount stipulations, and has received the draft agreement by which petitioner became bound by the terms and conditions of the contract. Therefore, in my considered opinion the argument put forth by learned Senior Counsel for the petitioner cannot be sustained. That apart, the preposition of law laid down by the Apex Court in Gorkha Security Services (supra) may not have much bearing since, the facts and circumstances and the stipulations contained under the contract are entirely different. As W.P.(C)No.29492 of 2016 18 discussed, rather than imposing a punishment on the petitioner, as per clauses 14 and 16 petitioner has undertaken that, if he has is not complying with the stipulations he can be debarred. What the respondents have done is only implementation of the said undertaking made by the petitioner which can never be termed as blacklisting done by the respondents. That apart, the grievance put forth by the petitioner was taken note of before passing Ext.P11. 17. Reckoning the totality of circumstances and appreciating the obligations undertaken by the petitioner in annexure A1 to Ext.P1, I am of the considered opinion, petitioner has failed to make out any case of arbitrariness or illegality in debarring the petitioner for a period of one year from participating in similar railway contracts. So also, according to me, petitioner is not totally debarred from participating in the railway contracts, since specific phraseology is employed in Ext.P11, and in clause 14 of annexure to Ext.P1. W.P.(C)No.29492 of 2016 19 Sequel to the above discussions is that, petitioner is not entitled to succeed in this writ petition. Accordingly it is dismissed. However, I make it clear, with respect to the dispute of forfeiting of earnest money petitioner is left with a remedy to invoke the arbitration clause as per Article 20 of Ext.P1 special conditions of contract-II provided by the respondents. Sd/- **SHAJI P. CHALY, JUDGE.** rmm/8/11 /2016 _[ True copy] P.A. to Judge_