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2025 Supreme(J&K) 211
IN THE HIGH COURT OF JAMMU AND KASHMIR AND LADAKH AT JAMMU
M A Chowdhary, J.
M/S J D Enterprises and ors. - Petitioners
Versus
Union Territory of J&K, Through the Secretary Health Department and ors. - Respondents
WP(C) No. 2151 of 2021
Decided On : 16-04-2025
For the Petitioner:Mr. R.S. Thakur, Sr. Advocate with Mr. Vasharan Thakur, Advocate
For the Respondent: Mr. Raman Sharma, AAG
The imposition of penalties on contractors requires adherence to principles of natural justice, necessitating the issuance of a show cause notice before enforcement, even in commercial contracts.
Headnote:(A) Constitution of India - Article 226 - Petition for issuance of Writ of Certiorari - Imposition of penalties on the petitioner for delays in installation of air compressors during COVID-19 pandemic - Respondents failed to consider force majeure and did not issue show cause notice as required - Imposition of penalties declared arbitrary and unlawful. (Paras 1, 3, 15, 18)
(B) Principles of Natural Justice - Show cause notice mandatory before imposing penalties in contractual obligations, even in commercial matters. (Paras 16, 18)
Facts of the case:
Petitioners sought to quash penalty deductions imposed due to alleged delays in work associated with the installation of air compressors for medical air supply at hospitals, citing pandemic-related disruptions and failure to receive proper notice of penalty charges. (Paras 1, 4, 5)
Findings of Court:
The penalties imposed were arbitrary as no show cause notice was issued before their imposition, violating principles of natural justice. The court directed the respondents to reconsider the penalties after issuing a notice to the petitioners. (Paras 18, 19)
Issues: Whether penalties imposed for delays were justified and if the respondents were required to issue a show cause notice before imposing penalties. (Paras 15, 18)
Ratio Decidendi: The court found that the absence of a show cause notice prior to penalty imposition rendered the penalties arbitrary, establishing that even in commercial contracts, principles of natural justice must be observed. (Paras 16, 18)
Result: Petition allowed; penalties set aside and respondents directed to issue show cause notice.
| Table of Content |
|---|
| 1. details of the contract and imposed penalties. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7) |
| 2. arguments for and against imposed penalties. (Para 8 , 9 , 11 , 12 , 13 , 14) |
| 3. court's reasoning on procedure for penalties. (Para 15 , 16 , 17 , 18) |
| 4. conclusion to allow the petition and set aside penalties. (Para 19 , 20) |
JUDGMENT :
M A Chowdhary, J.
1. Petitioners, through the medium of this petition, filed under Article 226 of Constitution of India, seek directions from this Court for issuance of 'Writ of Certiorari’ to call for the relevant record pertaining to allotment of contract of replacement of old air compressors with new air compressors-02 Nos. (one working and one stand by) along with dryers and allied electrical works for supply of medical air at GMCH Jammu, pursuant to the notice inviting tender, No. MHDJ/e-NIT/61 of 2020-21 dated 28 October 2020, and another No. MHDJ/e-NIT/63 of 2020- 21 dated 29 October 2020 for the similar work at SSH Jammu, issued by the Executive Engineer (Mech.), Hospital and Central Heating Division, GMCH Jammu, and petitioners further seek the details of payment made thereunder along with the proceedings and material leading to imposition of penalty, and also request to quash the said penalty indicated in the communication No. MHDJ/Accts/2021-22/3800 dated 7 August 2021 and the deduction on that account in the amount of Rs. 89,790/- and Rs. 1,07,500/- respectively, as arbitrary, unreasonable, unfair, unjust and unjustified.
2. It has further been pleaded by the petitioner-Firm M/S J.D. Enterprises, in the petition that it offered its services for the replacement of old air compressors (two units: one working and one standby) along with dryers and allied electrical works each for the supply of medical air at GMCH Jammu and SSH Jammu; that pursuant to the notice inviting tenders Nos. MHDJ/e-NIT-61 of 2020-21 dated 28 October 2020 and MHDJ/e-NIT-63 of 2020-21 dated 29 October 2020, respectively, at an estimated cost of Rs. 15 lakhs each, issued by the Executive Engineer Mechanical on behalf of the President of India, and after evaluating the bids, found the petitioner-firm to be the lowest bidder with proven efficiency for the job, thus awarding the contract to it. The work was completed with reasonable dispatch despite several challenges, and no delays could be attributed to the petitioner‟s default. However, a penalty of Rs. 89,790/- and Rs. 1,07,500/- was still imposed for the works at GMCH Jammu and SSH Jammu, respectively by the respondent.
3. Petitioner-firm claimed that the work orders were issued to the petitioner for the replacement of air compressors at GMCH Jammu and SSH Jammu, however, the site was not handed over to the petitioner as per the communication from the Assistant Executive Engineer (Mech.), Hospital and Central Heating Sub-Division/IInd GMCH Jammu vide No. MHCJ/SD-II/58-60, dated 21 May 2021, which delayed the start of the work; that despite this, the petitioner proceeded with the procurement of necessary machinery and deposited the required amount with the distributor but due to the COVID-19 pandemic, supply chains were severely disrupted; that the petitioner informed the Executive Engineer vide his communication dated 26.02.2021 that the compressors had been dispatched by the company Atlas Cap Co. vide dispatch No. FK2027130754, LR No. B4001423232 on 05.02.2021 and may take 8 to 10 days to reach to the destination; that the petitioner sent several communications explaining the situation, including dispatch dates and assurances regarding the installation; that the petitioner vide his communication dated 15.04.2021 reported the Executive Engineer (Mech.) that compressors for SSH Jammu had been installed, while those for GMCH were expected by the end of April 2021.
4. It has been further pleaded that the delays were caused by factory‟s closures due to positive test of some workers in the production unit of the said factory and workforce shortages due to COVID-19; that the
