IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 25th DAY OF FEBRUARY 2019 BEFORE THE HON’BLE MR. JUSTICE ALOK ARADHE WRIT PETITION NO.38613 OF 2018 (GM-RES) BETWEEN:
JAMPANA CONSTRUCTION PVT LTD A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 HAVING ITS OFFICE AT #54, ANANTHAPURA ROAD BEHIND RAMANASHREE CALIFORNIA RESORTS, OFF DODDABALLAPURA ROAD, YELAHANKA NEW TOWN BANGALORE-560064 REPRESENTED BY ITS AUTHORISED REPRESENTATIVE MR J SRINIVASA RAJU IS THE DIRECTOR.
(By Mr. DHYAN CHINNAPPA SR. ADV., A/W Mr. MANU K, ADV. FOR Mr. AJAY J NANDALIKE, ADV.) AND:
1. STATE OF KARNATAKA DEPARTMENT OF PRIMARY AND SECONDARY EDUCATION MS BUILDING, R NO.641 KGS 6TH FLOOR BANGALORE-560001 REPESENTED BY THE PRINCIPAL SECRETARY.
2. STATE PROJECT DIRECTOR RASHTRIYA MADHYAMIK SHIKSHANA ABHIYAN … PETITIONER HAVING OFFICE AT N T ROAD K R CIRCLE BANGALORE-560001. … RESPONDENTS (By Mr. Y D HARSHA AGA FOR R1, R2 SERVED) - - -
This Writ Petition is filed under Articles 226 and 227 of the Constitution of India, praying to quash the government order dated 16.11.2016 Annexure-A in so far as it pertains to appointing Karnataka institute of public auditors and the committee to enquire into and decide on the aspects of price adjustment, extension of time and liquidated damages and etc.
This Petition coming on for Preliminary Hearing in ‘B’ group this day, the Court made the following:-
ORDER Sri.Dhyan Chinnappa, learned Senior counsel along with Sri.Manu K, learned counsel for Sri.Ajay J.Nandalike, learned counsel for the petitioner.
Sri.Y.D.Harsha, learned Additional Government Advocate for the respondent No.1.
2. The petition is admitted for hearing. With consent of the learned counsel for the parties, the same is heard finally.
3. In this petition under Articles 226 and 227 of the Constitution of India, the petitioner inter alia seeks a writ of certiorari for quashment of Government Order dated 16.11.2016 insofar as it pertains to appointment of Karnataka Institute of Public Auditors and the Committee to enquire into and decide the issue of price adjustment, extension of time and liquidated damages. The petitioner also seeks quashment of letter dated 17.07.2018 as well as 09.08.2018 and a writ of mandamus directing the respondents to adhere to the terms of the contract entered into between the parties for various packages and not to consider reports / suggestions / decisions of Karnataka Institute of Public Auditors and the Committee. The petitioner has also sought for a writ of mandamus directing the respondents to consider and approve the petitioner’s request for unconditional grant of extension of time in terms of Clause 25 of the contract. In order to appreciate the petitioner’s grievance, few facts need mention which are stated hereinafter.
4. The State Government invited tenders on 24.09.2012 for construction of model schools and girls schools and for upgradation and strengthening of existing Government High Schools in 30 districts of the State of Karnataka. The value of the contract was `1,620 crores. The petitioner submitted its bid on 23.11.2012. In response to the pre-bid queries, the respondent No.2 by a communication dated 26.10.2012 and 12.11.2012 informed the contractors that their request for incorporating price adjustment clause will be considered at the stage of negotiations, once the commercial bids are opened. The petitioner was declared lowest bidder on 28.11.2012 as it has quoted a total price of `160.70 crores in respect of 7 packages comprising 303 schools situate in 6 districts in the State of Karnataka. Between 20.12.2012 and 13.02.2013, three rounds of negotiations were held wherein respondent No.2 asked the petitioner to reduce the quoted price on the ground that respondent No.2 has already incorporated the price adjustment clause in the contract. After the negotiations, on 14.02.2013, the petitioner by a communication reduced the quoted price by over Rs.22.19 crores in view of representation of the respondents that they have provided price adjustment clause in the contract.
5. The respondent No.2 issued letter of acceptance on 18.03.2013 to the petitioner in respect of the civil works. Thereafter, on 15.05.2013, 7 separate agreements in respect of 7 packages for 6 districts in the State of Karnataka were executed between the parties. The agreements executed in favour of the petitioner which was signed by the competent authority on behalf of the respondent, contained price adjustment clause namely Clause 39. The Government of Karnataka on 16.11.2016 appointed a private organization namely, Karnataka Institute of Public Auditors to look into the issue of price adjustment and extension of time and liquidated damages. On 29.05.2018, a meeting was convened by the Committee under the Chairmanship of Additional Chief Secretary and Development Commissioner and the contractors in order to discuss the contractors’ claim for price adjustment and for extension of time on account of compensation events. The respondent No.2 by a communication dated 17.07.2018 informed the petitioner that in view of the report submitted by Karnataka Institute of Public Auditors, the respondent No.2 has decided not to give price adjustment to the contractors and to consider the contractors’ request for extension of time only if the contractors furnish written commitment to give up their contractual claims for price adjustment. The petitioner, by a communication dated 18.07.2018, disputed the report submitted by the Karnataka Institute of Public Auditors and requested for grant of extension of time without penalty and price adjustment payments. However, no action in the matter was taken. In the aforesaid background, the petitioner has approached this Court seeking the reliefs as stated supra.
6. Learned Senior counsel for the petitioner submitted that in response to the pre-bid query, the petitioner was informed by respondent No.2 that their request for incorporating the price adjustment clause in the contract will be considered at the stage of negotiations. It is further submitted that acting on the representation made by the respondent No.2, the petitioner after negotiations, reduced the quoted price by around `22.19 crores. It is further submitted that the agreement executed between the parties contains price adjustment clause namely Clause 39 which is duly signed by the parties. It is also submitted that a meeting of the Committee was convened and the minutes of the meeting were duly approved by the State Government by an order dated 18.03.2013, in pursuance of which, the agreements were executed in favour of the petitioner on 15.05.2013 in which the price adjustment clauses were incorporated. It is argued that the respondents are bound by the doctrine of estoppel and cannot be permitted to alter the terms and conditions of the contract between the parties.
7. On the other hand, learned Additional Government Advocate submitted that in the notice inviting tender, the price adjustment clause was deleted. It is pointed out that even the letter awarding the contract in favour of the petitioner does not reflect that price adjustment clause has been incorporated in the contract. It is further submitted that the State Project Director, without any authority has incorporated Clause 39 in the agreement and the State Government has initiated an action against the State Project Director. It is further submitted that in the Government Order dated 18.03.2013, the issue with regard to incorporation of price adjustment clause was not approved. It is further submitted that the agreement contains an arbitration clause and the petitioner should be relegated to avail of the remedy of arbitration. In support of aforesaid submission reliance has been placed on the decision of the Hon’ble Supreme Court in the case of ‘MICHIGAN RUBBER (INDIA) LIMITED Vs. STATE OF KARNATAKA AND OTHERS’ (2012) 8 SCC 216.
8. I have considered the submissions made by the learned counsel for the parties and have perused the record. It is well settled in law that discretion to grant largesse including award of jobs, contracts, quotas, license and so on must be structured by rational, relevant and non-discretionary standard or norms. If the Government departs from such standard or norms, its action would be liable to be struck down unless the Government can establish that departure was not arbitrary, but was based on some valid principles which in itself was not irrational, irrelevant, unreasonable or discriminatory (See: NARENDRA KUMAR MAHESHWARI VS. UNION OF INDIA, 1990 (SUPP) SCC 440): (AIR 1989 SC 2138). It is equally well settled legal proposition that it is open to the State to prescribe conditions in the tender, prescribing the eligibility criteria and if the State can justify the tender conditions in the context of particular contract, the Courts will not interfere and whenever there are different alternatives, it is not for the courts to suggest that a particular alternative is justified. In awarding contract, the public interest is of paramount consideration and there should be no arbitrariness in awarding the contract and all participants in the tender process must be treated alike. In the celebrated case of ‘TATA CELLULAR VS. UNION OF INDIA (1994) 6 SCC 651: (AIR 1996 SC 11), the Supreme Court while dealing with the scope of judicial power of review held that it would apply to exercise of contractual powers by Government bodies in order to prevent arbitrariness or favoritism. It has been held that the ground upon which the administrative action is subject to control by judicial review is on the grounds of illegality, irrationality and procedural impropriety. It has further been held that terms of the invitation to tender are not open to judicial scrutiny because invitation to tender is in the realm of contract and more often than not, such decisions are made qualitatively by experts. It has further been held that the Government must have freedom of contract. In other words, a fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere. However, the decision must not only be tested by the application of wednesbury principle of reasonableness but must be free from arbitrariness not affected by bias or actuated by mala fides.
9. In the instant case, the respondents have unilaterally appointed Karnataka Institute of Public Auditors and Committee to enquire into and decide into the aspects of price adjustment, extension of time and liquidated damages. The respondents who are parties to the agreements cannot be permitted to be a Judge in their own cause and unilaterally modify the terms and conditions of the agreements which are binding between the parties. Therefore, the respondents cannot be permitted to take an action against the petitioner on the basis of the report submitted by the Karnataka Institute of Public Auditors as the same would tantamount to acting in derogation of the binding contract between the parties. Such an action on the part of the respondents undoubtedly suffers from arbitrariness as well as in violation of principles of wednesbury reasonableness. Therefore, the orders impugned in this petition contained in Annexures-A, B and C cannot be sustained in the eye of law. Accordingly, the impugned orders are quashed. The respondents are further restrained from not acting upon the reports / suggestions of the Karnataka Institute of Public Auditors.
10. Now, the issue which arises for consideration in this petition is whether Clause 39 of the contract has been incorporated after obtaining approval of the State Government or the same has been done in an unauthorized manner by the State Project Director.
From the close scrutiny of Clause 39.2 of the NIT, it is evident that price adjustment clause has been deleted. Even in the letter of acceptance dated 18.03.2013, there is no mention with regard to price adjustment clause. In the meeting of the Committee held on 29.05.2018, the Additional Chief Secretary and Development Commissioner has held as follows:
“While conducting the re-negotiations with the bidders there is unanimity that the below mentioned points must from the main basis:
… In the tenders conditions a provision has been made for cost escalation and hence there is no necessity of for quoting premium.”
9. Thereafter, the Committee decided to bring the aforesaid matter to the notice of the State Government for further orders. The relevant extract of the order dated 18.03.2013 reads as under:
“Approval is hereby accorded for undertaking the construction of Adarsha Vidyala, new government high school buildings, strengthening and upgradation of existing government high schools under the Rashtriya Madhyamika Sikshana Abhiyana project for the year 2009-10 and 2010-11, sponsored by the central government, at a total cost of Rs.1637.73. The State Project Director of RMSA is hereby authorized to execute the contract with eligible bidders.
In connection with construction of buildings, it is directed to strictly comply with the K.T.T.P. Act, the rules made thereunder and guidelines of the Central Government. Immediate steps to be taken to avail the grant from the Central Government.
This order is passed under Rule 17 clause (2) of Karnataka Transaction of Business Rules, 1977.”
10. Thus, from perusal of the minutes of meeting dated 29.05.2018 as well as the Government Order, it is not clearly discernable whether the condition of incorporation of price adjustment has been permitted to be incorporated in the agreements which has been executed with the petitioner, by the State Government. The State Government has taken a specific stand that the aforesaid clause has been inserted by the State Project Director unauthorisedly in the agreements executed in favour of the petitioner. Thus, the aforesaid position is a disputed question of fact which cannot be adjudicated in a summary proceeding under Article 226 of the Constitution of India. Admittedly, the agreement executed between the parties contains an arbitration clause.
11. The Hon’ble Supreme Court in the case of ‘STATE OF U.P. AND OTHERS VS. BRIDGE AND ROOF COMPANY (INDIA) LIMITED’ (1996) 6 SCC 22 has held that where a contract contains a clause providing for settlement of dispute by reference to arbitration, there is no reason why the parties should not follow and adopt the remedy and invoke the extra ordinary jurisdiction of the High Court under Article 226 of the Constitution of India. It is further held that the arbitrators can determine the questions of fact and questions of law. Similar view has been taken in ‘JOSHI TECHNOLOGIES INTERNATIONAL INC. Vs. UNION OF INDIA AND OTHERS’ (2015) 7 SCC 728.
12. In view of aforesaid enunciation of law and in view of the fact that the issue involved in this petition involves factual adjudication, and the agreements executed between the parties contains an arbitration clause, I deem it appropriate to grant liberty to the petitioner to take recourse to the remedy provided under the agreement.
Accordingly, the petition is disposed of.
Sd/- JUDGE RV