The petitioner is a limited company and registered as ‘S’ Class Contractor with the Director General of Naval Project, Visakhapatnam, the 2nd respondent herein. On the basis of that certification, it is entitled to be awarded contracts, up to the value of Rs.7.5 crores, in the year 2005, and it is now said to have been enhanced to Rs.12 crores. The 2nd respondent issued a tender notice, for selecting the agencies, to execute certain civil works, such as, construction of accommodation at Visakhapatnam. The petitioner emerged as the lowest tenderer, and accordingly it was awarded the contract, worth Rs.1,63,51,338.25. The work was to be completed by 07-06-2007.

2. The petitioner states that the schedule of the work could not be adhered to, on account of reasons beyond its control. Correspondence ensued between the petitioner and the 2nd respondent, be it, as to the progress of the work, or quality thereof. In the meanwhile, the registration of the petitioner, as ‘S’ Class contractor, expired. Application was also made for its renewal.

3. The 2nd respondent issued a show cause notice dated 16-11-2007, directing the petitioner to explain, as to why the tenders issued to it be not withdrawn, and the future tenders be not stopped. The alleged deficiencies on the part of the petitioner were mentioned. On receipt of the same, the petitioner submitted its explanation on 27-11-2007. The 2nd respondent issued proceedings dated 11-01-2008, returning the application for renewal and demoting the classification of the petitioner from ‘S’ class to ‘A’ class. The petitioner feels aggrieved by the same.

4. The petitioner contends that the action indicated in the show cause notice has absolutely no connection, or relevance with the impugned order. According to the petitioner, the proposal to demote its classification was not put at issue, at any point of time, and the whole exercise is illegal, arbitrary and violative of principles of natural justice.

5. On behalf of the respondents, a detailed counter-affidavit is filed. It is stated that the petitioner did not maintain the progress of the work, despite repeated reminders, and that the impugned order was passed, after considering the explanation offered by the petitioner. It is urged that the petitioner has no fundamental right to seek renewal of classification, or enhancement of the value thereof.

6. Learned counsel for the petitioner submits that, on receiving the show cause notice, the petitioner submitted a detailed reply, by indicating the reasons for the delay, and the facts and figures pertaining to the work. He contends that the very fact, that the course of action indicated in the show cause notice was not resorted to; discloses that the explanation offered by the petitioner was found satisfactory, and the action of the respondents in demoting the petitioner is arbitrary, illegal and violative of principles of natural justice. He places reliance upon certain decided cases.

7. Sri A. Rajasekhar Reddy, learned Assistant Solicitor General submits that the petitioner did not maintain the pace and quality of the work, and that the same has been pointed out in the show cause notice. He contends the though a more severe punitive action was mooted by the respondents, a relatively less severe action was taken against the petitioner. He places reliance upon the judgment of the Supreme Court in New Horizons v. Union of India (1) (1995) 1 SCC 478, and certain other precedents.

8. On finding that the bid offered by the petitioner, for the work undertaken by the respondents, is more economical and the least, they awarded the contract, by proceedings dated 25-05-2006. The show cause notice dated 16-11-2007 was issued to the petitioner alleging that it did not complete the execution of the work, within the stipulated time. During the inspection of the site, on 12-11-2007, the following deficiencies are said to have been noticed:

(a) Beams alignment.

(b) Balcony on 2nd floor.

(c) Vertical alig