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2016 Supreme(Bom) 955
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
S.C. DHARMADHIKARI, SHALINI PHANSALKAR JOSHI, JJ.
Sarku Engineering Services SDN BHD – Appellant
Versus
Union of India – Respondent
WRIT PETITION NO.913 OF 2016
Decided On : 08-08-2016
For the Appellant : Mr. Pravin Samdani, Senior Counsel, a/w. Ms. Sowmya Shrikrishna,
Mr. Amit Dingra, Mr. Vikas Kuma and Mr. Omkar Kelkar, i/by Mr. Anil T. Agarwal
For the Respondent: Mr. Pradeep Sancheti, Senior Counsel, a/w. Mr. Pulkit Sharma and Ms. Amrita Joshi
The power to blacklist a contractor is inherent in the party allotting the contract, but such decision is open to scrutiny on the touchstone of the principles of natural justice, including a fair hearing to the party being blacklisted, and the Doctrine of Proportionality.
Headnote:
BLACKLISTING - PENDENCY OF ARBITRATION PROCEEDINGS - POWER OF BLACKLISTING - INTEGRITY PACT - DOCTRINE OF PROPORTIONALITY - [KEYWORD] - [SUBJECT] - [ACT SECTION LIST] - [SUMMARY]
Fact of the Case:
Petitioner, a part of Sapura Kencana Group, was awarded a contract by Respondent No.2 for revamp of 26 Well Platforms. The work was completed after abnormal delay of 1459 days against the contract work completion date. A Committee was constituted to examine the extent of responsibility of the Petitioner in the delay of the contract completion and concluded that the delay was attributable to the contractor. Based on the Committee's report, an Enquiry Officer submitted a report concluding that it was a case of unsatisfactory performance and recommended banning future business dealings with the Petitioner. Consequently, Respondent No.2 issued an order banning the Petitioner from its business dealings with immediate effect.
Finding of the Court:
1. Pendency of arbitration proceedings on the same issue, on which ban order is issued, does not act as a bar to the passing of the ban order. However, it can vitiate the impugned order if it is passed with an intention to scuttle and prejudge arbitration proceedings. 2. The power to blacklist a contractor is inherent in the party allotting the contract, but such decision is open to scrutiny on the touchstone of the principles of natural justice, including a fair hearing to the party being blacklisted, and the Doctrine of Proportionality. 3. The order of blacklisting must be reasonable, fair, and proportionate to the gravity of the offence. 4. The Integrity Pact in the bid document lays down the conditions under which the successful bidder may be disqualified or debarred from future contracts. The power of blacklisting the contractor is not flowing from the contract but from the inherent power of the State or its instrumentalities to enter into the contract with particular person or class of persons. 5. The exercise of the power of blacklisting must be justified in the facts and circumstances of the case. Mere existence of power cannot be a justification for its exercise. The State is to act fairly and rationally, without in any way being arbitrary and taking such decision for legitimate purpose. 6. The Doctrine of Proportionality requires the court to consider whether the penalty imposed or the action taken by the State instrumentality is in proportion to the alleged misconduct on the part of the contractor.
Issues: 1. Whether the pendency of arbitration proceedings can act as a bar to the passing of the ban order and if not a bar, whether it can vitiate the impugned order? 2. Whether the power to blacklist a contractor is inherent in the party allotting the contract, and if so, whether such decision is open to scrutiny on the touchstone of the principles of natural justice and the Doctrine of Proportionality? 3. Whether the order of blacklisting must be reasonable, fair, and proportionate to the gravity of the offence? 4. Whether the Integrity Pact in the bid document lays down the conditions under which the successful bidder may be disqualified or debarred from future contracts, and whether the power of blacklisting the contractor is flowing from the contract or from the inherent power of the State or its instrumentalities to enter into the contract with particular person or class of persons? 5. Whether the exercise of the power of blacklisting must be justified in the facts and circumstances of the case, and whether mere existence of power can be a justification for its exercise? 6. Whether the Doctrine of Proportionality requires the court to consider whether the penalty imposed or the action taken by the State instrumentality is in proportion to the alleged misconduct on the part of the contractor?
Ratio Decidendi: 1. Pendency of arbitration proceedings on the same issue, on which ban order is issued, does not act as a bar to the passing of the ban order. However, it can vitiate the impugned order if it is passed with an intention to scuttle and prejudge arbitration proceedings. 2. The power to blacklist a contractor is inherent in the party allotting the contract, but such decision is open to scrutiny on the touchstone of the principles of natural justice, including a fair hearing to the party being blacklisted, and the Doctrine of Proportionality. 3. The order of blacklisting must be reasonable, fair, and proportionate to the gravity of the offence. 4. The Integrity Pact in the bid document lays down the conditions under which the successful bidder may be disqualified or debarred from future contracts. The power of blacklisting the contractor is not flowing from the contract but from the inherent power of the State or its instrumentalities to enter into the contract with particular person or class of persons. 5. The exercise of the power of blacklisting must be justified in the facts and circumstances of the case. Mere existence of power cannot be a justification for its exercise. The State is to act fairly and rationally, without in any way being arbitrary and taking such decision for legitimate purpose. 6. The Doctrine of Proportionality requires the court to consider whether the penalty imposed or the action taken by the State instrumentality is in proportion to the alleged misconduct on the part of the contractor.
Final Decision: The impugned order of banning the Petitioner from future business dealings with the second Respondent is quashed and set aside.
Shalini Phansalkar-Joshi, J.
1. Rule. Rule made returnable forthwith. Respondents waive service. Heard finally by consent of the parties.
2. By this Petition, filed under Article 226 of the Constitution of India, the Petitioner is invoking extra-ordinary jurisdiction of this Court for issuance of writ of certiorari or writ in the nature of certiorari for quashing the order dated 4th January 2016 issued by Respondent No.2, banning the Petitioner from all future business dealings with Respondent No.2 on the ground that the Enquiry Officer, internally appointed by Respondent No.2, has come to the conclusion that the Petitioner was responsible for the delayed completion of the project for revamp of 26 Well Platforms.
3. Facts relevant for deciding this Writ Petition can be stated as follows:-
Petitioner is a part of the Sapura Kencana Group, which is a Limited Company and is listed on the Stock Exchange of Malaysia. According to the Petitioner, it is the world's largest integrated providers of engineering, procurement, construction, installation and commissioning services to the Oil and Gas Industry. First Respondent is a Union of India, through the Secretary, Ministry of Petroleum and Natural Gas, and exercises administrative control and supervision. Second Respondent is a Public Sector Undertaking and contributes the overwhelming majority of the India's crude oil and natural gas production.
4. In July 2005, Respondent No.2 invited bids for the work of revamping 26 existing, unmanned, well-head platforms at Mumbai Offshore. Petitioner submitted its bid in October 2005 and was awarded the work by Respondent No.2 on 30th December 2005. A contract to that effect was executed on 20th February 2016. The contract provided the Scheduled Completion Date of the entire works as “30th April 2007 or the date as may be extended from time to time”.
5. It is the case of the Petitioner that, though the Petitioner diligently performed the contract work, on account of the delay and defaults committed by Respondent No.2 in performance of its contractual obligations, the planned sequence of the work was disrupted and thereby the work was delayed beyond the schedule. Another reason for the delay was that, the Petitioner was directed to perform additional and changed work, which was neither contemplated by the contract nor included in the contract. As a result, the off-shore work could not be completed before the on-set of 2007 monsoon season. The work continued into the years 2008-09, 2009-10 and 2010-11. From time to time, the extension of time was sought and it was granted by Respondent No.2. The last extension was up to 15th May 2011 and the work was completed before that, on 28th April 2011.
6. As per the case of the Petitioner, despite the delay in execution of the work, the contract was neither abandoned by the Petitioner nor terminated by Respondent No.2. The work was completed as per the best industry standards and Respondent No.2 had no complaints about the quality of the works done by the Petitioner. During the course of the work, the Petitioner raised claims for stand-by and extra work. Amongst other claims, the Petitioner also asked for the cost for prolongation of the project on account of delays caused by Respondent No.2. However, Respondent No.2 wrongly levied liquidated damages on the Petitioner up to 10% of the contract price. Despite several written and oral communications and requests in meetings between the representatives of the parties, Petitioner did not receive payments due, and hence by the notice dated 28th May 2012, the Petitioner invoked the Arbitration Agreement containing in the contract. In response thereto, by its letter dated 21st June 2012, Respondent No.2 appointed its Arbitrator and agreed to the Arbitration Reference. The first meeting of the Arbitration Tribunal was held on 23rd July 2012 and the schedule for the arbitration work was prepared. Now the said arbitration work is in progress and a specific issue is
