Gauhati High Court
Represented By Mr Rajat Sharma One Of The … vs Northeast Frontier Railway on 1 April, 2025
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GAHC010078842021
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THE GAUHATI HIGH COURT
(HIGH COURT OF ASSAM, NAGALAND, MIZORAM AND ARUNACHAL PRADESH)
Case No. : WP(C)/2964/2021
M/S SATYA BUILDERS
A PARTNERSHIP REGISTERED UNDER THE PARTNERSHIP ACT, 1932
HAVING ITS REGISTERED OFFICE AT 20A, NOBLE ENCLAVE, OLD DELHI-
GURGAON ROAD, HARYANA-122015 AND IN THE PRESENT PROCEEDINGS
REPRESENTED BY MR RAJAT SHARMA ONE OF THE PARTNERS OF THE
PETITIONER FIRM.
VERSUS
NORTHEAST FRONTIER RAILWAY
REP BY THE CHIEF ENGINEER/CONSTRUCTION -IV FOR AND ON BEHALF
OF THE PRESIDENT OF INDIA, NORTHEAST FRONTIER RAILWAY,
MALIGAON, GUWAHATI, ASSAM-781011
2:NORTHEAST FRONTIER RAILWAY
REPRESENTED BY THE GENERAL MANAGER FOR AND ON BEHALF OF
THE PRESIDENT OF INDIA
NF RAILWAY
MALIGAON
GUWAHATI 78101
Advocate for the Petitioner : MS. N UPADHYAY,
Advocate for the Respondent : SC, NF RLY, MR A DASGUPTA,MR G GOSWAMI
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BEFORE
HONOURABLE MR. JUSTICE KARDAK ETE
JUDGMENT
Date : 01-04-2025
Heard Mr. P. Mehta, learned counsel for the petitioner. Also heard Mr.
A. Dasgupta, learned senior counsel assisted by Mr. G. Goswami, learned
counsel for the respondent NF Railway.
2. Challenge made in this writ petition is to the termination notice dated
17.12.2020 issued by the Chief Engineer/Con-4, NF Railway, Maligaon, by which,
the contract (LOA) is terminated and forfeited the Earnest Money Deposit, Bank
Guarantee and Performance Guarantee to the tune of Rs.3,08,93,889.65
(Rupees three crores eight lakhs nine-three thousand eight hundred and eighty
nine rupees sixty-five paise) and debarring the petitioner from participation in
any and all tenders and doing business for 5 (five) years.
3. The petitioner is a registered partnership firm and claims to be involved in
the execution of government infrastructure projects for the last forty years and
is an active participants of various tenders issued by different authorities,
particularly, in the Northeastern States and also successfully executed several
government projects.
4. The case of the petitioner, in brief, is that Northeast Frontier railway issued
a tender notice on 14.11.2019 for the work of earthwork in formation for
making railway embankments, construction of minor bridges including
blanketing work, construction of RCC drain and other connected ancillary works
between the km277/0 to 298/0 between, Patiladaha (PTLD) (including)- Barpeta
Road (BPRD) (including) DL Section of New Bongaigaon (NBQ) – Agthori (AGT)
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BG doubling projects. The petitioner participated in the said Tender process.
5. On having found responsive, the petitioner was awarded the tender vide
Letter of Acceptance (LOA) dated 02.06.2020, thereby directed the petitioner to
deposit Performance Guarantee before signing of the contract agreement which
the petitioner had complied with by submission of Performance Guarantee vide
letter dated 29.07.2020 along with Bank Guarantee dated 28.07.2020 issued by
the Bank of Maharashtra in favour of the Chief Engineer/Con, Financial Advisor
& Chief Accounts Officer/Con, NF Railway, Maligaon, Guwahati to the tune of
Rs.2,76,70,989.65/- (Rupees two crore seventy six lakh seventy thousand nine
hundred and eighty nine and sixty five paisa) only. The petitioner mobilized
resources at the project site by investing an amount, which is close to Rs.1
crore, to ensure timely execution of the work awarded to him even before
signing of the contract agreement, which was inexplicably delayed by the
respondent, which now stands to be vain, because of the impugned termination
and penalty imposed upon the petitioner.
6. It is the contention of the petitioner that after months of inactivity on the
part of the respondent authorities to sign the contract and get the execution of
the work, the respondent vide show cause notice dated 01.12.2020 apprise the
petitioner that the document of credentials submitted by the petitioner has
been, upon verification, returned as not found in the office record from the
Delhi Development Authority and sought reason as to why the respondent
should not forfeit the Earnest Money Deposit, Bank Guarantee and Performance
Guarantee and debarred the petitioner for a period of five years from
participating in any tender process and carrying out any business.
7. The petitioner responded to the said show cause notice by stating that the
document was old and placed with the tender document by the petitioner’s staff
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which went unverified due to paucity of time in submission of their bid and thus
an outdated document of credentials have been placed before the respondent.
The petitioner has also offered another document of credential in the form of
Certificate of Completion issued by the National Highway Infrastructure
Development Corporation Limited ( in short NHIDCL).
8. The respondent authorities vide termination notice dated 17.12.2020,
terminated the contract on the basis of the tender document and General
Condition of Contract (GCC in short) stating that the petitioner has admitted the
previous documents of credential to be false, thereby, terminating the contract
vide LOA and forfeited the earnest Earnest Money Deposit, Performance
Guarantee and Bank Guarantee cumulatively amounting to Rs.3,08,93,889.65/-
and debarring the petitioner for five years from participating in any tender
process and carrying out business.
9. It is the contention of the petitioner that the respondent authorities without
considering the completion certificate issued by NHIDCL and on the basis of
wrong interpretation of the tender document and provision of the GCC, thereby
illegally stating that the petitioner has admitted the previous document of
credential to be false has resorted to above actions by terminating the contract
with a consequential forfeiture of Earnest Money Deposit, Performance
Guarantee and Bank Guarantee cumulatively and also debarred the petitioner
for five years from participating in any tender process and carrying out business.
The petitioner contends that a representation dated 29.01.2021 has been
submitted before the respondent authorities seeking release of the Earnest
Money Deposit, Performance Guarantee and Bank Guarantee cumulatively
amounting to Rs.3,08,93,889.65/- which has been duly received by the
respondent authorities. However, they chose to feign ignorance and to not
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respond to the same.
10. Mr. P. Mehta, learned counsel for the petitioner, submits that the
respondent authorities have failed to verify the authenticity of the tender
documents submitted by the petitioner at the stage of document review and
issued the Letter of Acceptance dated 02.06.2020 in favor of the petitioner. The
undue delay by the respondent authority in verifying the completion certificate
is evidently arbitrary and prejudicial to the petitioner’s interest. Timely
verification would have allowed the petitioner to promptly rectify any errors
made. The petitioner has been deprived of this opportunity due to the lack of
timely validation of the documents. The respondent authorities have issued the
Letter of Acceptance to the petitioner dated 02.06.2020. But they have failed to
sign the Contract with the petitioner for many days. The said practice highlights
the arbitrary action of the respondents, which warrants proper judicial review by
this Hon’ble Court. It is evident that that the respondents harbored an intention
to deliberately harass the petitioner from the outset. Despite the absence of a
signed Contract between the parties, the Respondent, in adherence to the
Letter of Acceptance (LOA), initiated the works at the site and issued the
Performance guarantee as per the terms outlined in the LOA itself. Such action
by the respondents stand as clear violation of natural justice and are deemed
arbitrary in their nature.
11. He submits that the respondents have cited Clause 62 (1) (xiv) (B) (f) of
the General Conditions of Contract as grounds for terminating the contract. As
per the mentioned clause, if a tenderer submits a false document or certificate
regarding their credentials, the tenderer should rectify the error promptly if it is
amendable. In the instant case, the petitioner submitted a bid accompanied by
a contested completion certificate. The respondents verified the document only
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after issuing the Letter of Acceptance to the petitioner. Upon verification, it was
discovered that the ompletion certificate was not genuine, as the issuing
authority had no record. Subsequently, the respondent issued a show cause
notice to the petitioner. The petitioner acknowledged the mistake made during
the bid submission and provided an alternate completion certificate issued by
NHIDCL. He submits that the respondent authorities did not incur any losses
due to the discrepancy caused by the petitioner. Hence, the forfeiture of the
Earnest Money Deposit, Performance Guarantee, and Security Deposit is
arbitrary, irrational, unfair, unjust, unreasonable and not in consonance with the
principles of natural justice.
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12. Mr. P. Mehta, learned counsel submits that the respondent authorities
ought not to have blacklisted the petitioner merely on the ground of a mere
clerical error. The mistake committed by the workers of the petitioner is a mere
clerical error and a bona fide attempt has been made by the petitioner by
providing the respondent with another work completion certificate as issued by
the NHIDCL. The said Completion Certificate was submitted by the petitioner
before the respondent authorities along with the Reply to the Show Cause
Notice. The Respondents have failed to take into consideration the justification
provided by the Petitioner in the Reply to the Show Cause Notice. Even though
the Petitioner accepted the clerical mistake committed at the time of submission
of bid and rectified the same by providing another competition certificate of
similar nature, still the Authority issued the Termination Notice in a mechanical
nature. The respondents failed to consider the response provided by the
Petitioner to the show cause notice. Consequently, it appears that the show
cause notice was merely a procedural formality, and the termination notice was
issued in a mechanistic fashion without due consideration of the petitioner’s
response. Hence, the forfeiture of the Earnest Money Deposit, Performance
Guarantee, and Security Deposit is inconsistent with the principles of natural
justice.
13. In support of his submissions, Mr.P. Mehta, learned counsel, has placed
reliance on the following judgments:-
i. M/S S & P Infrastructure v. National Highways & Infrastructure
Development Corporation Limited reported in 2019 DHC 3097,ii. Isolators and Isolators v. Madhya Pradesh Madhya Kshetra Vidyut Vitran
Company Limited & Anr. reported in (2023) 8 SCC 607,
Page No.# 8/22iii.M/s Avinash EM Projects Private Limited v. M/S Gail India Limited reported
in 2015 DHC 1205,iv.Arvind Kumar Singh v. The State of Bihar & Ors. [MANU/BH/0342/2023],
v. Assam Air Products Private Limited & Ors. V. Oil India Limited & Ors.
reported in 2023 (3) GLT 97,vi.Sushil Kumar Thard v. National Jute Manufacturers Corporation Limited,
reported in 2023 SCC Online Cal 3157,vii.Atibir Industries Company Limited v. Central Coalfields Limited & Ors.
reported in 2023 (3) J.L.J.R. 698.
14. On the other hand, Mr A. Dasgupta, learned senior counsel for the
respondents, submits that the petitioner has secured the contract by fraud.
Fraud has been defined under section 17 of the Indian contract act 1872. It
means and includes any of the acts as contained in clause 1 to 5. Clause 1
states that the suggestion, as a fact, of that which not true, by one who does
not believe it to be true. Clause 2 says that the active concealment of a fact by
one having knowledge or believe of that fact.
15. In the instant case, the petitioner while submitting the document of his
credentials stated that they had executed some contract of Delhi Development
Authority(DDA). A document in this regard was furnished. If they had not
executed any such work, how such document come into their possession so it is
evident beyond any doubt that the document submitted by them to prove their
due credential is a manufactured document which has been used by the
petitioner. It is stated by the petitioner that submission of these documents was
an inadvertent mistake committed by their employee. Even if we assume that
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this is a mistake done by their employee but the fact remains the same that
they had annexed a document for performance of contract which was not
performed by them. So, by any stretch of imagination it cannot be said that the
contract was not procured by fraud.
16. He referred to the case of Avijantrik Infratech Pvt. Ltd. Vs. The Union of
India and Ors. reported in 2024 (1) GLT 275, wherein the writ
petitioner/contractor submitted wrong credential which they do not possess and
on consequent detection of the same the Railway Authority Blacklisted the
petitioner.
17. Learned senior counsel, Mr. Dasgupta submits that pursuant to the above
tender process initiated by the respondent railway dated 14.11.2019 the
petitioner participated for the work for Earthwork in formation for making
Railway embankment, construction of minor bridges, blanketing work,
construction of RCC drain and all other connected ancillary works, construction
of RCC drain and all other connected ancillary works between Km 298.00 to
317.73 between Barpeta Road(BPRD) (excluding) Pathsala(PBL) (including) DL
section of New Bongaigaon (NBQ) Agthori(AGT) BG doubling project. The
petitioner found to be L1 in the said tender process and accordingly Letter of
Acceptance (L.O.A) vide letter dated 02.06.2020 was issued to the petitioner.
However, before entering into a contract agreement with petitioner the
Railway authority found that petitioner in order to fulfill the eligibility criteria for
participating in the instant tender process initiated by the Railways has
submitted work order certificate in the pad of Delhi Development
Authority(DDA), which was found to be false on re-verification. The petitioner in
order to fulfill the technical eligibility criteria as per the tender document/ NIT at
Appendix-1, Clause -2, has submitted an experience Certificate issued by Delhi
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Development Authority(DDA) dated 20.04.2015 for certain work done for the
said authority. The Delhi Development Authority(DDA) in response to a query
made by the Railway authority for the purpose of verification of genuineness of
the credential certificate submitted by the petitioner has vide its letter No. letter
dated 27.11.2020 has confirmed that no such letter was issued by Delhi
Development Authority(DDA).
18. He submits that thereafter the Railway authority wrote a letter dated
01.12.2020 to the petitioner asking them to show cause as to why appropriate
action shall not be taken against the petitioner a per relevant provision and in
accordance with provisions laid down in the Tender Document.
19. He submits that submission of a fake document has a bearing on the
contract as indicated in para 62(1)(xiv), (B) (f) of GCC. Accordingly, a note of
caution was indicated in the show cause notice itself to the effect that the
conduct of the contractor may led to termination of contract. However, when the
show cause notice was issued no contract was signed so the question of taking
action on the basis of the para 62(1)(xiv), (B) (f) of GCC does not arise and it is
only a note of caution. No action under this para was taken. It could not have
been taken also because no contract came in force. Further action of blacklisting
was taken in terms of tender clause. Forfeiture of Earnest Money Deposit
(EMD), Performance Guarantee (PG) and Security Deposit (SD) were also taken
in terms of tender clause and as is evident before taking any action against the
petitioner show cause notice also been issued for violation of the tender
condition. In the show cause notice it was also indicated that contractors action
may entail him termination of contract as indicated in para 62(1)(xiv), (B)(f) of
GCC. The Railway authority has not invoked this clause. The Railway authority
only invoked the tender clause mentioned in the show cause notice dated
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01.12.2020. As the clause 62(1)(xiv), (B) (f) of General Condition of
Contract(GCC) is not invoked question of compliance of it does not arise.
20. Mr. Dasgupta, learned Senior counsel submits that the gravity of the
offence committed by the petitioner in order to fulfill the eligibility criteria for
participating in the instant tender process initiated by the Railways by
submission of work order certificate in the pad of Delhi Development Authority
(DDA), which was found to be false on re-verification is a grave misconduct and
the action taken by the Railway Authority is proportionate to the gravity of the
misconduct. Therefore, the writ petition is liable to be dismissed with cost.
21. Mr. Dasgupta, learned Senior counsel, has relied upon the judgment of
this Court in the case of Avijantrik Infratech Pvt. Ltd. (Supra) wherein this
court has observed which are reproduced herein under:-
“26. What transpires from the above is that the allegation of use of
forged documents as such, has not been denied. What is required to
be seen at this stage is the nature of the documents which were
forged. The documents pertain to a third party, namely, M/s
Singhania Associates which were utilized for submitting the bid by
the petitioner. In such a situation, the explanation given that the
petitioner was unaware that the documents were forged and fake
becomes absolutely difficult to be accepted.
28. From a reading of the various case laws placed on record and
relied upon by the parties, it emerges that since blacklisting is an
action which has adverse civil consequences, the same cannot be
issued unilaterally and has to be preceded by an opportunity to be
given to the affected party. The only requirement is that the
opportunity should be an effective one wherein the party in question
does not suffer any legal prejudice. The requirement of affording a
personal hearing after issuing a show-cause notice, would entirely
depend on the facts and circumstances of the case. As laid down by
the Hon’ble Supreme Court in the landmark case of Erusian
Equipment & Chemicals Ltd. (supra) what is sine qua non before
imposing the penalty of blacklisting is a reasonable opportunity.
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29. In the instant case, however, it appears that a proper
opportunity was given by issuing the show-cause notice dated
11.08.2021 where a specific allegation was leveled. The said
allegation was not denied in its entirety and rather use of
forged/fake documents was admitted. In that view of the matter,
this Court is of the view that demanding for a further personal
hearing would be an useless formality, an expression which was
used by the Hon’ble Supreme Court in the case of Aligarh Muslim
University Vs. Mansoor Ali Khan reported in MANU/SC/0533/2000:
2000: INSC:416: (2000); SCC 529″.
22. Due consideration has been extended to submissions advanced by the
learned counsel for the parties and also perused the materials available on
record.
23. Pursuant to the Tender process initiated by the respondent railway
dated 14.11.2019 the petitioner participated for the execution work for
Earthwork in formation for making Railway embankment, construction of minor
bridges, blanketing work, construction of RCC drain and all other connected
ancillary works, construction of RCC drain and all other connected ancillary
works between Km 298.00 to 317.73 between Barpeta Road(BPRD) (excluding)
Pathsala(PBL) (including) DL section of New Bongaigaon (NBQ) Agthori(AGT)
BG doubling project. The petitioner found to be L1 in the said tender process
and accordingly Letter of Acceptance (L.O.A) vide letter dated 02.06.2020 was
issued to the petitioner.
24. Before signing the contract agreement the respondent authorities have
found that petitioner in order to fulfill the eligibility criteria for participating in
the tender process, has submitted work order certificate issued by the Delhi
Development Authority, which has been found to be false on re-verification.
Thereafter, the respondent authorities issued show cause vide dated
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01.12.2020 to the petitioner asking as to why appropriate action shall not be
taken against the petitioner as per relevant provision. The petitioner submitted
the reply by stating that the document was old and placed with the tender
document by the petitioner’s staff which went unverified due to paucity of time
in submission of their bid and thus an outdated document of credentials have
been placed before the respondent. Thereafter, the petitioner has offered
another document of credential in the form of Certificate of Completion issued
by the NHIDCL.
25. Admittedly, the petitioner has not denied the submission of false
documents of credential in the tender process pursuant to the tender dated
14.111.2019 based on which the petitioner was found to be responsive and
issued letter of acceptance. The only justification provided by the petitioner is to
the effect that the said document was old which was placed with the tender
documents by the petitioner’s staff, which went unverified due to paucity of time
in submission of bid and thus an outdated document of credentials have been
placed before the respondent authorities and thereafter the petitioner had
offered document of credentials in the form of certificate of completion issued
by NHIDCL.
26. Having considered the admission of submission of false credential
documents submitted by the petitioner, the issues required to be determined in
this present proceedings are as to whether the action of the respondent
authorities in resorting to forfeiture of Earnest Money Deposit, Bank Guarantee
and Performance Guarantee to the tune of Rs.3,08,93,889.65 (Rupees three
crores eight lakhs ninety-three thousand eight hundred and eighty nine rupees
sixty-five paise) and debarring the petitioner for a period of five years is in
accordance with the terms of the tender or GCC. And/or as to whether the
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action of the respondent in forfeiture of Earnest Money Deposit, Bank Guarantee
and Performance Guarantee to the tune of Rs.3,08,93,889.65 (Rupees three
crores eight lakhs ninety-three thousand eight hundred and eighty nine rupees
sixty-five paise) and debarring the petitioner for a period of five years from any
and all tenders is proportionate or not.
27. To appreciate the issues, I would refer to the relevant terms and conditions
of the tender, which has been provided by way of additional special condition of
contract and the GCC.
28. Appendix III to the instruction to the tender provides as follows:-
“A.(v) If any one or more of the detailed information furnished in the tenderer’s
documents is proved to be false at any stage, the contractor/firm will be
debarred then and there, from all the commitments connected with the tender
and his/their tender/contract will be rejected/terminated and further action will
be taken as per extant rules.
(vii) The tenderers shall submit a notarized affidavit on a non-judicial stamp
paper stating that they are not liable to be disqualified and all their
statements/documents submitted along with bid are true, and factual.
Standard format of the affidavit to be submitted by the bidder is enclosed as
Annexure-V. Non submission of an affidavit by the bidder shall result in
summary rejection of his/their bid. And it shall be mandatorily incumbent upon
the tenderer to identify, state and submit the supporting documents duly self-
attested by which they/he is qualifying the Qualifying Criteria mentioned in the
Tender Document. It will not be obligatory on the part of Tender Committee to
scrutinize beyond the submitted document of tenderer as far as his qualification
for the tender is concerned.
B. (a) The Railway reserves the right to verify all statements, information and
documents submitted by the bidder in his tender offer, and the bidder shall,
when so required by the Railway, make available all such information, evidence
and documents as may be necessary for such verification. Any such verification
or lack of such verification, by the railway shall not relieve the bidder of its
obligations or liabilities hereunder nor will it affect any rights of the railway
thereunder.
(b) In case of any wrong information submitted by tenderer, the contract shall
be terminated, Earnest Money Deposit (EMD), Performance Guarantee (PG) and
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Security Deposit (SD) of contract forfeited and agency barred for doing business
for a period of upto 5 (five) years.”
29. Clause 62(1)(A) of GCC provides as follows:-
“62(1) (A) At any time after the tender relating to the contract, has been signed and
submitted by the Contractor, being a partnership firm admit as one of its partners or
employee under it or being an Incorporated company elect or nominate or allow to act as
one of its directors or employee under it in any capacity whatsoever any retired Engineer of
the Gazetted rank or any other retired Gazetted Officer working before his retirement,
whether in the executive or administrative capacity, or whether holding any pensionable post
or not, in the Railways for the time being owned and administered by the President of India
before the expiry of one year from the date of retirement from the said service of such
Engineer or Officer unless such Engineer or Officer has obtained permission from the
President of India or any officer duly authorized by him in this behalf to become a partner or
a director or to take employment under the contract as the case may be, or
Page No.# 16/22(B) Fail to give at the time of submitting the said tender:
(a) The correct information as to the date of retirement of such retired Engineer
or retired officer from the said service, or as to whether any such retired
Engineer or retired officer was under the employment of the Contractor at the
time of submitting the said tender, or
(b) The correct information as to such Engineers or officers obtaining
permission to take employment under the Contractor, or
(c) Being a partnership firm, the correct information as to, whether any of its
partners was such a retired Engineer or a retired officer, or
(d) Being in incorporated company, correct information as to whether any of its
directors was such a retired Engineer or a retired officer, or
(e) Being such a retired Engineer or retired officer suppress and not disclose at
the time of submitting the said tender the fact of his being such a retired
Engineer or a retired officer or make at the time of submitting the said tender a
wrong statement in relation to his obtaining permission to take the contract or if
the contractor be a partnership firm or an incorporated company to be a
partner or director of such firm or company as the case may be or to seek
employment under the Contractor.
(f) Submits copy of fake documents/certificates in support of credentials,
submitted by the tenderer
Then and in any of the said Clause, the Engineer on behalf of the Railway may
serve the Contractor with a notice in writing to that effect and if the Contractor
does not within seven days after the delivery to him of such notice proceed to
make good his default in so far as the same is capable of being made good and
carry on the work or comply with such directions as aforesaid of the entire
satisfaction of the Engineer, the Railway shall be entitled after giving 48 hours’
notice in writing under the hand of the Engineer to rescind the contract as a
whole or in part or parts and after expiry of 48 hours’ notice, a final termination
notice should be issued.”
30. Bare perusal of the above clauses of terms and conditions shows that if
any one or more of the detailed information furnished in the tenderer’s
documents is proved to be false at any stage, the contractor/firm will be
debarred then and there, from all the commitments connected with the tender
and his/ their tender/ contract will be rejected/terminated and further action will
be taken as per extant rules. It will not be obligatory on the part of Tender
Committee to scrutinize beyond the submitted document of tenderer as far as
his qualification for the tender is concerned. It provides the Railway reserves the
right to verify all statements, information and documents submitted by the
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bidder in his tender offer, and the bidder shall, when so required by the Railway,
make available all such information, evidence and documents as may be
necessary for such verification. Any such verification or lack of such verification,
by the railway shall not relieve the bidder of its obligations or liabilities
hereunder nor will it affect any rights of the railway thereunder. It further
provides that in case of any wrong information submitted by tenderer, the
contract shall be terminated, Earnest Money Deposit (EMD), Performance
Guarantee (PG) and Security Deposit (SD) of contract forfeited and agency
barred for doing business for a period of 5 (five) years.
31. Clause 62(1)(A) of GCC, would be applicable after the contract is
completed i.e. by signing of the contract agreement. In the present case,
undisputedly no contract agreement has been signed, only the Letter of
Acceptance (LOA) was issued and therefore, the contract was yet to be
concluded. Thus, in my view, above clause of GCC would not be applicable and
as such the reliance on the said clause by the learned counsel for the petitioner
is misconceived.
32. The terms and conditions of the tender clearly provides that in case of any
wrong information submitted by tenderer, the contract shall be terminated,
Earnest Money Deposit (EMD), Performance Guarantee (PG) and Security
Deposit (SD) of contract forfeited and agency barred for doing business for a
period of upto 5 (five) years. Admittedly, the petitioner appears to have
submitted false documents of credential and thereby had offered to submit
another document from NHIDCL having been found that the credential
documents submitted in support of the bid of the petitioner was false.
Therefore, the action of the respondent authorities in terminating the contract
and imposing the penalty forfeited the Earnest Money Deposit, Bank Guarantee
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and Performance Guarantee to the tune of Rs.3,08,93,889.65/- (Rupees three
crores eight lakhs ninety-three thousand eight hundred and eighty nine rupees
sixty-five paise) and debarring the petitioner for a period of five years from any
and all tenders cannot be termed arbitrary and illegal, rather in my view
appears to be in accordance with the conditions of tender.
33. Now, this court would refer to the case laws relied on by the learned
counsel for the petitioner.
34. In the case M/S S & P Infrastructure (Supra), Honb’le Supreme court
has held that it is well settled that blacklisting a contractor has serious adverse
consequences. It is common for the Government and Public Sector Undertakings
to stipulate that a contractor who is blacklisted by another entity would also be
ineligible to participate in the tenders invited by such entities. Blacklisting a
contractor adversely affects his reputation. The Supreme Court in the case of
Gorkha Security Services v. Government (NCT of Delhi) & Ors. reported in
(2014) 9 SCC 105 has described the blacklisting a contractor as “Civil Death”. It
is, thus, necessary to ensure that such punitive measures are taken only where
the conduct of the contractor warrants such punition. Plainly, the conduct should
be such that ought to render such contractor unworthy of being accepted as a
contracting party. Thus, the respondent would have the right not to enter into
contracts with the petitioner (that is blacklist it) provided that such decision is
for cogent reasons and is not capricious, mala fide or unreasonable.
35. The High Court of Delhi in M/s Avinash EM Projects Private Limited
(Supra), has held which is reproduced herein under:-
“38. It is well settled that the High Court while exercising powers of judicial
review would be reluctant to substitute its own opinion on the quantum of
penalty or punishment imposed. However where the punishment imposed is
shockingly disproportionate, interference with the same would be warranted.”
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36. In the case of Assam Air Products Private Limited (Supra), it has
held which is reproduced herein under:-
“26. An order of blacklisting has a ripple effect in that once a person is
blacklisted by an instrumentality/agency of the State, he can be debarred from
participation in respect of other similar processes initiated by the State or other
instrumentalities/agencies and as a result, the blacklisted person might be
precluded from entering into any business relationship with the State or any of
its instrumentalities/agencies in the times to come, thus, virtually resulting into
his civil death. It is no longer res integra that with blacklisting many civil and/or
evil consequences follow. Blacklisting is described as ‘civil death’ of a person
who is served with an order of blacklisting. An order of blacklisting is
indubitably stigmatic in nature and debars the blacklisted person from
participating in Government tenders which prevents him from getting
Government contracts. The blacklisted person would not be treated in similar
manner with others in the field of competition, who are otherwise ought to
have treated in similar manner.
60. Thus, from the above authoritative pronouncements, it is clear that the
consequence of the impugned Order dated 31.08.2018 of banning the
petitioner company for a period of 3 [three] years has public law elements in
that the impugned decision of banning would have the effect of not only barring
the petitioner company from entering into any business relationship with the
respondent company for the said period but embedded into it also the ripple
effect of precluding the petitioner company from entering into business
relationship with the State or any other of its instrumentalities/agencies in the
times to come, thus, resulting virtually into its civil death, atleast for a period of
3 [three] years. Even after elapse of 3 [three] years it would take a long period
of time for a blacklisted entity to make a revival and thereafter, restore itself to
its original business position in terms of reputation, volume of business, etc. it
had achieved prior to being blacklisted. On many an occasion, it might not even
be possible to make a revival. The impugned action has adverse bearings on
the freedoms enshrined in Article 19 of the Constitution of India, that is,
freedom to carry on trade or business, subject to reasonable restrictions. A
decision which impairs the fundamental right without appropriate justification
can be disproportionate. It is settled that the principle of proportionality ordains
that the administrative measures should not be harsher than what is necessary
and the principle of proportionality is traceable to the principle of
reasonableness. If an action taken by an authority is found to be grossly
disproportionate in the backdrop of obtaining facts and circumstances of the
case, then such a decision is not immune from Judicial scrutiny. If an action
taken by the authority is arbitrary. irrational, unfair, unjust or unreasonable, a
court of law can interfere with such action by exercising the power of judicial
review. The principle of proportionality as a part of judicial review ensures that
a decision which is otherwise within the ambit of the administrative authority
Page No.# 20/22must not be arbitrary, irrational, unfair, unjust or unreasonable. Though in
exercising the power of judicial review, the Court is not concerned with the
correctness of the decision but while examining the decision making process, it
can very well examine whether all the relevant factors touching upon the
matter have been taken into consideration and whether the irrelevant factors
have been eschewed out of the consideration in arriving at the decision and it is
in the process of such consideration, the principle of proportionality enters in
the arena. It has been It has been observed in Kulja Industries Limited [supra]
that though the power to blacklist a contractor is inherent in the party allotting
the contract with no need for any such power being conferred by statute or
reserved by contract, but such decision of blacklisting taken by the State or any
of its instrumentalities/agencies is subject to judicial review not only on the
touchstone of the principles of natural justice but also on the principle of
proportionality.”
37. The Hon’ble High Court of Calcutta in Sushil Kumar Thard (Supra),
has held which is reproduced herein under:-
“13. Further, the right to forfeiture of earnest money cannot survive in the
absence of proof of actual loss. Forfeiture of earnest money comes within the
purview of section 73 as opposed to section 74 of the Indian Contract Act, 1872
where the factum of loss is a sine qua non; that is a seller can only forfeit a
nominal amount on the seller proving that the seller has suffered loss caused to
it on account of breach of contract by the buyer (Rajesh Gupta v. Ram Avtar,
2022 SCC OnLine Del 1482). Therefore the right to forfeit earnest money
cannot be sustained in absence of any actual proof of loss.
14. It is also important to note that where the public entity has discretion
whether to forfeit any part of the earnest money, the discretion must be
coupled with a duty to prevent exercise of absolute power by the repository of
such power. Power must necessarily be with limits and where the concerned
authority exercises power, the discretion must be exercised with a view to
promoting fairness and aiding equity; Maya Devi (Dead) Throuogh LRS. V. Raj
Kumari Batra (Dead) Through LRS., (2010) 9 SCC 486 and Jagmohan Singh v.
State of Punjab. (2008) 7 SCC 38.
21. The entire earnest deposit cannot be forfeited since damages, under section
73 of the Contract Act, 1872, is assessed on the date of the complained breach
of the contractual terms.
31. The decisions cited on behalf of the respondent distinguishable. Meerut
Development Authority v. Association of Management Studies, (2009) 6 SCC
171 cited by the petitioner, relies upon ABL International Ltd. and recognizes
that the Court can interfere in contractual matters in case of arbitrariness. State
Page No.# 21/22of Maharashtra v. A.P. Paper Mills Ltd., (2006) 4 SCC 209: AIR 2006 SC 1788
and State of Haryana v. Malik Traders, (2011) 13 SCC 200: AIR 2011 SC 3574
are factually not applicable since in the present case the petitioner was not
under any financial constraints at the relevant point of time. National Highways
Authority of India v. Ganga Enterprises, (2003) 7 SCC 410 and National Thermal
Power Corporation Limited v. Ashok Kumar Singh, (2015) 4 SCC 252 did not
deal with deposit of earnest money but with bid security where the bid security
was to be forfeited if the bidder withdraws from the bid during the period of
validity. Ashok Kumar Singh was also concerned with revocation of tender.
Infotech 2000 India Limited v. State of Punjab, AIR 2007 P&H 58 did not
discuss the question of remoteness or sufficiency of damages under section 73
of the Contract Act. The unreported judgment of the Madras High Court in
Rubina v. The Authorized Officer, Axis Bank Limited held that existence of a
forfeiture clause does not imply that the entire amount deposited has to be
forfeited and that the right to forfeit must be balanced against the rule of unjust
enrichment.”
38. The Hon’ble High Court of Jharkhand in Atibir Industries Company
Limited (Supra) has held which is reproduced herein under:-
“18. However, forfeiture is not automatic in all cases and it has to
answer the test of reasonableness and cannot be made arbitrarily.
Existence of such a Clause in notice inviting tender does not give an
unqualified right to forfeit the earnest money. It is for this reason
that Courts in appropriate cases have insisted upon actual loss
caused due to the breach. In Fateh Chand v. Balkishan Dass,
MANU/SC/0258/1963 :(1964) 1 SCR 515 forfeiture of earnest money
was struck down as there was no evidence that any loss was
suffered by the plaintiff in consequence of the default by the
defendant, save as to the loss suffered by him by being kept out of
possession of the property.”
39. Perusal of the above case laws relied upon by the learned counsel for the
petitioner, shows that same are decided on the contextual facts of each case
and are clearly distinguishable with the present case. There would not be any
quarrel to the proposition of law as enunciated. Thus, I am of the considered
view that the above case laws does not come to the aid of the petitioner.
Page No.# 22/22
40. Coming back to the present case, having been considered the facts in its
entirety, this court finds that admittedly the petitioner has submitted false
credential documents and thereby had offered to submit another document
from NHIDCL, realizing that the credential documents submitted in support of
the bid of the petitioner was false, therefore, the action of the respondent in
terminating the LOA of the contract and forfeiture of the Earnest Money
Deposit, Bank Guarantee and Performance Guarantee to the tune of
Rs.3,08,93,889.65/-(Rupees three crores eight lakhs ninety-three thousand
eight hundred and eighty nine rupees sixty-five paise) does not deserve any
interference. However, the penalty of debarring/blacklisting the petitioner from
participation in any and all tenders and doing business for 5 (five) years, in my
considered view, appears to be little harsh a penalty and therefore, is required
to be appropriately interfered with.
41. In view of the discussion and conclusion arrived at herein above, I am of
the view that no case is made out for interference with the action of the
respondent authorities in forfeiture of the Earnest Money Deposit, Bank
Guarantee and Performance Guarantee to the tune of Rs.3,08,93,889.65/-
(Rupees three crores eight lakhs ninety-three thousand eight hundred and
eighty nine rupees sixty-five paise) only. However, the penalty of
debarring/blacklisting the petitioner for five years from participating in any
tender and doing business is interfered with. Accordingly, the
debarring/blacklisting of the petitioner is set aside and quashed.
42. Writ petition partly allowed stands disposed of, accordingly. No order as to
costs. JUDGE
Comparing Assistant
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