Uralungal Labour Contract Co-operative Society Ltd. v. State of Kerala & Others

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE S.SIRI JAGAN** ## **MONDAY, THE 21ST DAY OF MAY 2012/31ST VAISAKHA 1934** ## **WP(C).No. 13449 of 2004 (A)** **---------------------------------------** ## **PETITIONER(S):** **----------------------** **1. THE URALUNGAL LABOUR CONTRACT CO-OP. SOCIETY LTD.NO.10957, REPRESENTED BY ITS PRESIDENT, MADAPPALLY COLLEGE P.O., VADAKARA,KOZHIKODE DIST.** **2. THE KERALA STATE LABOUR CONTRACT SOCIETIES ASSOCIATION, REG.NO.516/00, REP. BY ITS PRESIDENT, 17/183, PAVAMANI ROAD, KOZHIKODE.** **BY ADVS.SRI.T.P.KELU NAMBIAR (SR.) SRI.M.K.DAMODARAN (SR.) SRI.M.SASINDRAN SRI.TOJAN J. VATHIKULAM SRI.P.B.SURESH KUMAR** **RESPONDENT(S): -------------------------** **1. STATE OF KERALA, REPRESENTED BY ITS CHIEF SECRETARY, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM.** **2. THE SECRETARY TO GOVERNMENT, DEPARTMENT OF CO-OPERATION, SECRETARIAT THIRUVANANTHAPURAM.** **3. THE SECRETARY, PUBLIC WORKS (H) DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM.** **4. THE SECRETARY, LOCAL SELF GOVERNMENT DEPARTMENT, SECRETARIAT THIRUVANANTHAPURAM.** ## **@ ADDL.R5 IMPLEADED** - **@ADDL.R5. ALL KERALA GOVERNMENT CONTRACTORS ASSOCIATION, PULIMOOD JUNCTION, THIRUVANANTHAPURAM, REPRESENTED BY ITS SECRETARY.** **CONT...** ## **WP(C).No. 13449 of 2004 (A)** ## **@ ADDL.R5 IS IMPLEADED AS PER ORDER DATED 4/5/04 IN IA 5427/04.** **@ADDL.R6 & R7 IMPLEADED** - **@ADDL.R6. C.KAREEM, S/O.MOIDEENKUTTY,PRESIDENT, KERALA GOVERNMENT CONTRACTOR'S FEDERATION STATE COMMITTEE, SREE VIHAR, H.O.KOZHIKODE.** - **@ADDL.R7. M.A.HABEEBULLAH,S/O.P.M.ABDULLA, H/NO.V/242, BAKKALAM, KANOOL.P.O., KANNUR DISTRICT.** **@ADDL.R6&R7 IS IMPLEADED AS PER ORDER DATED 24/8/04 IN I.A. 10607/04.** ## **@ADDL.R8 TO R10 IMPLEADED** - **@ADDL.R8: KERALA GOVERNMENT BUILDING CONTRACTORS ASSOCIATION (CHERUKIDA KARARUKAR), REG.NO.01/04/2001, KALLUVILA VEEDU, THIRUVANANTHAPURAM. REPRESENTED BY ITS SECRETARY A.SASI KUMAR.** ## **@ IMPLEADED AS ADDL.R8 AS PER IA.656/07 ALLOWED BY TBR(J) ON 2/3/07.** - **@ADDL.R9: V.M.JOSE, SON OF V.F.MATHEW, AGED 49 YEARS, RESIDING AT VEMBANATTU HOUSE, PUTHIYAKAVU, TRIPUNITHURA.P.O.** **@ IMPLEADED AS ADDL.R9 AS PER IA 5418/07 ALLOWED ON 20/6/2007.** - **@ADDL.R10: G.SUNDARESAN, MANAGING PARTNER,TRIO BUILDERS, MUNCIPAL BUILDINGS,KOLLAM.** **@IMPLEADED AS ADDL.R10 AS PER IA 10839/07 ALLOWED IN ORDER DATED 9/8/07.** ## **@ADDL.R11 TO R16 IMPLEADED** - **@ADDL.R11: CALICUT CONSTRUCTION LABOUR CONTRACT CO-OP. SOCIETY LTD. D2286, PAVAMANI ROAD, CALICUT-1, REPRESENTED BY ITS PRESIDENT.** **ADDL.R12: KERALA LABOUR CONTRACT CO-OP. SOCIETY LTD.D2798, KOZHIKODE, REP. BY ITS PRESIDENT.** **ADDL.R13: KOONATHUR LBOUR CONTRACT CO-OP. SOCIETY LTD.NO.2269, KODUVALLY POST, KOZHIKODE, REP. BY ITS PRESIDENT.** **CONT...** ## **WP(C).No. 13449 of 2004 (A)** **ADDL.R14: KOZHIKODE LBOUR CONTRACT CO-OP. SOCIETY LTD.NO.D 2007, JANATHA HOSTEL,KOTTAPPARAMBA,CALICUT, REP. BY ITS PRESIDENT.** **ADDL.R15: INDIRAJI LBOUR CONTRACT CO-OP. SOCIETY LTD.NO.D 2580, MEDICAL COLLEGE POST, REP.BY ITS PRESIDENT.** **ADDLR16: UDAYAPURAM LBOUR CONTRACT CO-OP. SOCIETY PADIMARUTHU POST, KASARGOD DISTRICT, REP. BY ITS SECRETARY.** **@IMPLEADED AS ADDL.R11 TO R16 AS PER ORDER IN IA 1010/2008, DATED 25/1/08.** **BY ADV. SRI.K.L.VARGHESE (SR.) BY ADV. SMT.SANTHA VARGHESE BY ADV. SRI.A.K.ABDUL AZEEZ BY ADV. SRI.D.KISHORE BY ADV. SRI.JOSEPH GEORGE, GOVERNMENT PLEADER BY ADV. SRI.S.RAMESH BABU BY ADV. SRI.P.N.RAVINDRAN BY ADV. SMT.PREETHY KARUNAKARAN BY ADV. SRI.K.P.HARISH BY ADV. SRI.MURALI PURUSHOTHAMAN BY ADV. SRI.DEEPU LAL MOHAN BY ADV. SMT.LEENA MURALI** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 29/3/2012 ALONG WITH WPC. 23683/2006 AND CONNECTED CASES , THE COURT ON 21-05-2012 DELIVERED THE FOLLOWING:** **AS** ## **WP(C).No. 13449 of 2004 (A)** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** **EXT.P1: COPY OF THE GOVERNMENT ORDER DATED 13/11/1987. EXT.P2: COPY OF THE JUDGMENT IN O.P.26380/98.** **EXT.P3: COPY OF THE GOVERNMENT ORDER (RT) NO.575/99/CO-OP DATED 17/12/1999.** **EXT.P4: COPY OF THE ORDER NO.(RT) NO. 162/2001/CO-OP; DATED 22/3/2001 ISSUED BY THE 2ND RESPONDENT.** **EXT.P5: COPY OF THE ORDER G.O.(RT) NO.1011/2003/LSGD DATED 21/3/2003 ISSUED BY THE LOCAL SELF GOVERNMENT DEPARTMENT.** **EXT.P6: COPY OF THE CIRCULAR NO. 34947/DPI/03.LSGD DATED 4/8/2003.** **EXT.P7: COPY OF THE ORDER DATED 23/1/2004.** **EXT.P8: COPY OF THE GOVERNMENT ORDER DATED 19/3/2004.** **PETITIONER'S ANNEXURE:** **ANNEXURE-A: COPY OF THE GOVERNMENT ORDER G.O.(RT) NO. 454/98/CO-OP. DATED 7/12/1998.** **/TRUE COPY/** **P.A. TO JUDGE** **AS** ## S. Siri Jagan, J. =-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-= W.P(C) Nos. 13449/2004, 2230, 23683/2006, 22700/2007 and 7942/2010 **==> picture [278 x 5] intentionally omitted <==** **==> picture [254 x 14] intentionally omitted <==** **==> picture [110 x 13] intentionally omitted <==** The questions of law arising in these writ petitions being common, they have been heard together and are disposed of by this common judgment. For convenience, I shall refer to the rank of parties and Exhibits as obtaining in W.P. (C) No. 13449/2004, unless the context otherwise requires or is otherwise made clear in this judgment. These writ petitions relate to tender proceedings initiated by government departments. The Government of Kerala issued Ext. P1 Government Order dated 13-11-1997, prescribing the terms and conditions for award of Government contracts to Labour Contract Co-operative Societies (subject to monetary limits prescribed by other Government Orders referred to therein), as per clause 8(b)(i) of which, it has been stipulated that when the lowest tender is from a private contractor, a Labour Contract Co-operative Society would be awarded the work at 10% above the lowest tender, if the Society is willing to do the work and that the work awarding Authority should ascertain the willingness of the Labour Contract Society to do the work in writing. By Ext. P8 order dated 19-3-2004, the Government ordered that the said clause would not be applicable to contracts administered by the Public Works Department and that Labour Contract Co-operative Societies which participate in the tenders floated by PWD would instead be eligible for a 10% price preference in the matter of tenders issued by the PWD. By W.P(C) Nos. 13449/2004, 2230, 23683/2006, 22700/2007 and 7942/2010 -: 2 :- Ext P6 circular dated 4-8-2003, the Government clarified that the said clause will not be applicable to contract works of the Local Self Government Department. By Ext. P8 order dated 29-6-2004 in W.P. (C) No. 23683/2006, the Government ordered that the 10% price preference given to Co-operative Societies as per the order dated 19-3-2004 need not be followed for Centrally Sponsored Schemes in the Fisheries Sector, as Government of India will not admit the cost escalation due to the price preference given to Cooperative Societies and that before awarding a work to a Co-operative Society as per the preferential terms in the Government Order dated 19-3-2004, as well as on the strength of special orders of the Government, the concurrence of the Secretary (Fisheries) should be invariably be obtained, in respect of works related to Fisheries and Harbour Engineering Department. Those orders are under challenge in the above writ petitions at the instance of Labour Contract Co-operative Societies, except W.P. (C) No. 22700/2007, wherein a private contractor is challenging award of contract to a Labour Contract Cooperative Society on the basis of Ext. P1 order. But in W.P. (C) No. 22700/2007, the only interim order is that the award of contract would be subject to the result of the writ petition and therefore that writ petition has practically become infructuous, as by this time the period of the contract has long expired and therefore no useful purpose would be served by considering that writ petition on merits. W.P(C) Nos. 13449/2004, 2230, 23683/2006, 22700/2007 and 7942/2010 -: 3 :- Moreover, in that writ petition, the petitioner has not challenged the Government Order on the basis of which the contract was awarded to the Labour Contract Co-operative Society. Therefore I am considering only the other writ petitions. 2. The petitioners contend that the decision of the Government to withdraw the benefit granted to them by Ext. P1 order is arbitrary and discriminatory. They would contend that the Government cannot withdraw such benefit in respect of public works department alone. According to them, it is the constitutional mandate for the State to promote co-operative societies in furtherance of which only Ext. P1 has been issued and by Ext. P8 order withdrawing the benefit conferred by Ext. P1, the State has violated that constitutional obligation. They refer to the Constitution (Ninety-Seventh Amendment) Act, 2011, whereby the Constitution of India has been amended to provide for State action to promote co-operative societies and Part IX-B has been introduced in the Constitution. They point out that by Ext. P2 judgment, a learned Judge of this court had upheld the validity of clause 8(b)(i) of Ext. P1 and therefore it is arbitrary and unreasonable for the Government to withdraw the benefit conferred on co-operative societies by the said clause. They would rely on the following decisions in support of their contentions: **Federation of Railway Officers Association and others v. Union of India,** (2003) 4 SCC 289, **Ram Singh Vijay** W.P(C) Nos. 13449/2004, 2230, 23683/2006, 22700/2007 and 7942/2010 -: 4 :- **Pal Singh and others v. State of U.P. and others** , (2007) 6 SCC 44, **APM Terminals B.V., v. Union of India and another,** (2011) 6 SCC 756 and **State of Madhya Pradesh v. Narmada Bachao Andolan and another** , (2011) 7 SCC 639. They would therefore seek quashing of Exts. P6 and P8 and restoration of the benefits conferred by clause 8(b)(i) of Ext. P1. 3. Both the State and the other respondents oppose the prayers. They would contend that Ext.P1 is not a right conferred on co-operative societies, but only a concession extended by the Government to co-operative societies in order to promote co-operative societies and on finding from experience that it works to the prejudice of the State, it has been decided to withdraw the same, which cannot be held to be arbitrary or discriminatory in any manner. They would contend that the 10% price preference to co-operative societies has been retained by the impugned orders and the present orders are more in consonance with the basic principles of tender proceedings. 4. The contractor-respondents would contend that clause 8(b)(i) of Ext.P1 is against all principles of tender proceedings and in fact would create a monopoly in Labour Contract Co-operative Societies in such tenders, which is what is arbitrary and discriminatory. According to them, by the impugned orders, the Government has only rectified W.P(C) Nos. 13449/2004, 2230, 23683/2006, 22700/2007 and 7942/2010 -: 5 :- that anomaly in such tender proceedings and made the proceedings more transparent and just. They point out that after knowing the lowest quotation, if one of the tenderers is given an absolute right for the contract if he is willing to do the work at 10% above the lowest tender, the same would cease to be tender proceedings and would be a merely an exercise to know the lowest price for which a contractor would be willing to do the work, for the purpose of fixing the price for which the work is to be awarded to the co-operative society willing to do the work for 10% above the lowest rate for which a competitive contractor would do the work. According to them, it is necessary that in any tender proceedings there should be a level playing field for all intending tenderers and there should be a reasonable chance for everybody to secure the contract by offering the lowest rate. Here by clause 8(b)(i) of Ext. P1, the chance of the other contractors has been made illusory and whatever they quote, the contract would be given to the co-operative society willing to do the work at the rate of 10% above the lowest rate of the private contractor, which would violate the fundamental right of the private contractors under Article 14 and 16 of the Constitution of India. 5. I have considered the rival contentions in detail. Clause 8(b) reads thus: W.P(C) Nos. 13449/2004, 2230, 23683/2006, 22700/2007 and 7942/2010 -: 6 :- ## **“Procedure for and conditions of award of contract.** 8. (a) xx xx xx (b) In cases where a private contractor has quoted the lowest rate, the Labour Contract Co-operative society which has quoted for the work will be given preference in awarding contracts as follows. (i) When the lowest tender is from a private contractor, Labour Contract Co-operative Society will be awarded the work at 10% above the lowest tender, if the Society is willing to do the work. The work awarding Authority should ascertain the willingness of the Labour Contract Society in writing. (ii) Where the quotation of a Labour Contract Cooperative Society is below the rate quoted by a private contractor, the work will be awarded to the Labour Contract Co-operative society at the rate quoted by it. (iii) Where two Societies quote the same rate, negotiations will be held and the Contract awarded to the Society which is willing to do the work at the lowest rate, failing which lots will be taken in the presence of the representatives of the concerned Societies and the work will be awarded at the rates arrived as above. (iv) In cases where societies are unwilling to take up the work at the rates arrived at as above, the contract will be awarded to the lowest tenderor at the quoted rate.” No provision of the Constitution of India or any law lay down that as of right co-operative societies are entitled to such preference in the award of contract through competitive tender proceedings. Article 43-B of the Constitution of India, introduced by the Constitution (Ninety-Seventh Amendment) Act, 2011, referred to by the W.P(C) Nos. 13449/2004, 2230, 23683/2006, 22700/2007 and 7942/2010 -: 7 :- petitioners only stipulate that the State shall endeavour to promote voluntary formation, autonomous functioning, democratic control and professional management of societies. The same or any other provision of law does not mandate that co-operative societies are entitled to special privileges in the matter of award of contracts. Of course, without infringing the rights of other private contractors, the State is competent to give price preference to cooperative societies in tender proceedings. That is a concession given to co-operative societies and not a right conferred on them. Such preference being only a concession, the State is equally competent to withdraw such concession in the larger interests of the State. Therefore, when the State decided to modify clause 8(b), in consonance with the basic principles of tender proceedings, that is only withdrawal of a concession granted to co-operative societies and the societies cannot challenge the same as if a right conferred on them has been arbitrarily taken away. As such, I am not satisfied that the petitioner can validly challenge the impugned orders. 6. It is not as if the Government has done the same without any reasons arbitrarily. Reasons are stated in Ext. P8 itself. In paragraph 4 of Ext. P8, the Government has explained the reasons for their decision thus: “4. The orders issued in the Government Orders read as 1[st] and 3[rd] papers above confer a pre-ordained right to a Society to be awarded a work on the strength of its mere W.P(C) Nos. 13449/2004, 2230, 23683/2006, 22700/2007 and 7942/2010 -: 8 :- participation in a tender and if after opening of tender it makes a post-tender offer of 10% above that of the lowest tender. This provision is against the basic terms of tendering process and is against natural justice. The PWD Manual clearly prohibits a procedure of negotiating with anybody other than the lowest tenderer. The only concession that can be given in terms of the provisions of the Manuel is that if a tender offer of a Society is not more than 10% over that of the lowest tenderer, such tender could be treated as the lowest for award of contract. In other words, if Co-operative societies are participating in a tender, then if the tender amount is not more than 10% of the lowest tender then, the society will get a price preference and quality itself to be the lowest tenderer.” ## This has been elaborated upon in paragraphs 2 and 5 of the counter affidavit of the State, which read as follows: “2. It is submitted that the petitioner is a Labour Contract Co-operative Society. As per Ext.P1 G.O. issued by Government in the Co-operation Department, preferential terms and conditions were granted for entrustment of works to Labour Contract Co-operative Societies. As per Clause 8(b)(i) of Ext.P1, when the lowest tender is from a private contractor, the labour contract Cooperative Society will be awarded the work at 10% above the lowest tender if the society is willing to do the work. The works administered by PWD is in accordance with the provisions of PWD Code and Manual. The tender procedure laid down in PWD Manual does not generally permit negotiation after tenders are opened. Para 4.7.29 of the PWD Manual reads that as a rule, no negotiation shall be carried out which will be contrary to the tendering system. But as per the orders in Ext.P1, it confer a pre-ordained right to a society in awarding work on the strength of its mere participation in a tender and if after opening of tender it makes a post tender offer of 10% above that of the lowest tender. This clause is against the provisions of Manual regarding tendering system. Government in the Public Works Department found that Para 8(b)(i) of the above Government Order defeats the very purpose of inviting sealed and secret tenders under the tendering system and hence many contractors do not participate in tenders by depositing Earnest Money Deposit and W.P(C) Nos. 13449/2004, 2230, 23683/2006, 22700/2007 and 7942/2010 -: 9 :- purchasing tender schedule, and decided to modify the clause making the clause inapplicable to works administered by PWD; instead, the labour contract cooperative society participating in the tender floated by PWD will be eligible for a 10% price preference in the matter of tenders issued by PWD. Hence as alleged by the petitioner the privileges granted to the Labour Contract Co-operative Societies (LCCS) have not been taken away by Ext.P8. Ext.P8 was issued in order that the tendering process does not get vitiated, while at the same time there is need to provide some concession to Labour Contract Cooperative Societies. Hence the action of the 1[st] respondent is not illegal, arbitrary, mala fide and not vitiated by extraneous considerations as alleged by the petitioner.” “5. It is submitted that several petitions were received by Government from various Associations of contractors complaining that Ext.P1 issued confer a preordained right on a Co-operative society in awarding work on the strength of its mere participation in a tender and if after opening of tender it makes a post tender offer of 10% above that of the lowest tender. Government examined these complaints in consultation with Chief Engineers and also placing the matter before an Empowered Committee under the Chairmanship of Additional Chief Secretary, which met on 09/06/2003. The Empowered Committee took the view that though Labour Contract Co-operative Societies should be made eligible to receive the concessions in the matter of awarding works, a modification is essential in the best interests of cooperation, Government as well as the competitive tender system, since the existing provisions have the effect of a veto on the competitive tender system. Hence the contention of the petitioner society that Ext.P8 was issued without proper application of mind, in total negation of the principles of natural justice etc. etc. are not true.” I am unable to find any infirmity in such reasoning. On the other hand, I am of opinion that it is Clause 8(b)(i), which offends Articles 14 and 16 of the Constitution of India. When the Government invites tenders for execution of a work, all the tenderers participating in the tenders are W.P(C) Nos. 13449/2004, 2230, 23683/2006, 22700/2007 and 7942/2010 -: 10 :- entitled to be considered for the award of the work in tune with basic principles of tender proceedings and all of them should have a reasonable chance to secure the contract by quoting the most competitive rate. Of course, it is competent for the Government of give price preference to co-operative societies in its attempt to promote co-operative societies. But that cannot result in total exclusion of other private contractors from the field altogether. The situation that however low a price a private contractor may quote, he would not get the contract, if a co-operative society is willing to do the work at the rate of 10% above the lowest price quoted by him, would certainly offend his fundamental rights under Articles 14 and 16 of the Constitution of India and would be against all accepted principles of tender proceedings. By that process, other private tenderers are relegated to the state of mere furnishers of information regarding the lowest price for which the work can be profitably executed and the work would be awarded to the society by virtue of their mere participation in the tender proceedings, which cannot be countenanced. They do not have any reasonable chance of getting the contract notwithstanding quoting of the lowest price. None of the decisions relied on by the petitioners lay down any different law and therefore it is not necessary to examine those decisions in detail. Therefore the State was perfectly justified in modifying clause 8(b)(i) of Ext.P1 appropriately, but retaining the 10% price preference to co-operative W.P(C) Nos. 13449/2004, 2230, 23683/2006, 22700/2007 and 7942/2010 -: 11 :- societies, which is perfectly in tune with constitutional principles and accepted principles of award of tenders by inviting competitive quotations. In this connection, it must be noted that co-operative societies still enjoy other concessions as well which are not available to other contractors, apart from the 10% price preference. In paragraph 7 of the counter affidavit of the State, those concessions are enumerated thus: “7. It is submitted that several concessions are allowed to LCCS by Ext.P1, such as advance up to 20% of the cost of works, exemption from payment of security deposit and Earnest Money Deposit etc. etc. Ext.P8 order only modified clause 8(b)(i) of Ext.P1 and 10% price preference is still given to Co-operative Societies. Thus it can be seen that the advantages that the LCCS were enjoying was not taken away fully and all participants were not placed at par. Therefore, there is no violation of Article 14 of the Constitution of India by issuing Ext.P8 order by the respondent.” 7. Of course, in Ext. P2 judgment, a learned Judge of this court has upheld the validity of clause 8(b)(i) of Ext. P1. But, I do not find therein, any discussion of the issues involved based on constitutional principles and principles of award of competitive tenders. Even otherwise, the fact that the validity of the clause was upheld by this court, does not in any way curtail the power of the Government to modify the terms of a concession extended by the Government to co-operative societies, which does not in any way affect any legal right conferred on the co-operative societies. In any event, I am not in agreement with the said decision for the reasons stated hereinabove. Now that the Government W.P(C) Nos. 13449/2004, 2230, 23683/2006, 22700/2007 and 7942/2010 -: 12 :- themselves have remedied the situation by amending the said clause appropriately, it is not necessary for me to refer the matter to a division bench for consideration in view of my disagreement. 8. As such I have no doubt in my mind that the impugned modification of clause 8(b)(i) of Ext. P1 is perfectly valid and proper and is not liable to be interfered with by this court. Accordingly, W.P. (C) No. 22700/2007 is closed as infructuous and the other writ petitions are dismissed. S. Siri Jagan, Judge. Tds/