M/s Acoustic Arts Pvt. Ltd. Vs Indian Institute of Technology, Roorkee and others

Hon''ble Tarun Agarwala, J.@mdashBy means of this petition the petitioner has prayed for the quashing of the notification issued by the Central Purchase Officer, Indian Institute of Technology, Roorkee, dated 26th June, 2009, by which a new purchase committee has been appointed for the procurement and installation of the PA. system and consequently, canceling the purchase process initiated pursuant to the tender notice dated 18th October, 2007. The petitioner has also prayed for a writ of mandamus commanding the respondents to enforce the purchase order given to the petitioner pursuant to the aforesaid tender notice.

2. The facts leading to the filing the writ petition is, that the respondents issued a tender notice dated 15th June, 2007, in various newspapers and also in the institute''s website. It transpires that three bids were received, which were opened and a comparative statement was made. It was found that only one firm was technically qualified. The committee felt that in the absence of competition, fair price could not be achieved and accordingly, decided to float a fresh tender. The committee reframed the technical specifications and a fresh tender notice was published on 18th October, 2007 on the institute''s website and a newspaper. It transpires that six bids were received.

3. The petitioner is the appointed authorized distributor for business in India of M/s Tannoy Ltd., United Kingdom, dealing in all kinds of sound equipments and being eligible, submitted its bid on 16"'' November, 2007 pursuant to the tender notice dated 18th October, 2007. The technical bids were opened on 19th November, 2007. In the process of the preparation of the technical comparative statement, necessary clarifications from the petitioner and from other bidders were sought by the respondents and obtained. Eventually, the committee found that three firms including the petitioner were qualified technically and were called to participate in the opening of the commercial bid. The three firms, which had qualified technically, were the petitioner, M/s AV Science & Technologies Pvt. Ltd. and M/s Bose Corporation India Pvt. Ltd. On 23-11 -2007, the respondents sought certain clarifications from the petitioner with regard to specifications of various parts of the P.A. system. The petitioner provided all the clarifications and subsequently, the respondents by a letter dated 14-12-2007 again made certain queries, which was duly replied. By another letter dated 15th January, 2008, the respondents asked the petitioner to include a five year standard warranty on the equipments which were to be supplied by them, which the petitioner readily agreed.

4. Eventually, on 17th January, 2008, the committee declared the petitioner as the lowest bidder and on 12th May, 2008, the respondents placed a purchase order with the petitioner for the supply and installation on turn-key basis of P.A. system in the Convocation Hall of the Indian Institute of Technology, Roorkee. This purchase order was to the tune of Rs. 14,45,000/ -. Pursuant to the purchase order given to the petitioner, a proforma invoice dated 5th June, 2008 was issued by M/s Tannoy Ltd. as per the requirement of the respondents and the specifications provided by them. On 6th June, 2008, M/s Tannoy Ltd. issued a letter of acceptance of the purchase order.

5. Based on the said purchase order, it is alleged that the petitioner purchased various equipments, but could not progress further since a letter of credit was not opened by the respondents in favour of the petitioner. Eventually, on 8th December, 2008, a letter was sent by the petitioner to the respondents praying that a letter of credit be opened. Since the petitioner did not receive any reply, the petitioner wrote another letter dated 27th February, 2009 requesting the respondents to expedite the process of the opening of the letter of credit to enable the petitioner to execute the order. Another reminder was sent by a letter dated 25th March, 2009.

6. It transpires that the respondents issued a notification dated 26th June, 2009 directing the constitution of a new purchase committee for the procurement and installation of the P.A. system and canceling the earlier tender notice. When the petitioner came to know, the petitioner applied for various informations under the Right to Information Act and came to know that the constitution of a new purchase committee by a notification dated 26th June, 2009 and the cancellation of the petitioner''s purchase order, was based on the recommendation of the committee dated 22nd October, 2008. The committee gave the following recommendations for annulling the purchase order, namely,

1. It was reported in first meeting held on 23-3-07 that four companies were invited for technical discussion, but only one company reported for discussion. There is no proof of inviting different companies for discussion in the file.

2. The tender was invited twice for the purchase of PA system. In first tender the vendors were required to have the executed similar type of projects of at least 20 lacs as mentioned at point no. 18 of tender. However, in the second tender it was changed to 25 lacs without approval of competent authority.

3. In the meeting held on 11 -04-2007 the committee instructed one of the companies to do the wiring of the hanger before placing the formal order to the company and even before finalizing the specifications of the PA system.

4. It is also observed that good numbers of correspondences were made by one of the committee member on his personal pad.

7. Being aggrieved by the arbitrary action of the respondents, the petitioner has filed the present writ petition for a writ of certiorari for the quashing of the notification, by which the purchase order has been cancelled and has also prayed for a writ of mandamus commanding the respondents to enforce the purchase order given to the petitioner.

8. this Court by an interim order dated 5th August, 2010, restrained the respondents from finalizing any tender pursuant to the notification dated 26" June, 2009.

9. The respondents have filed a counter affidavit and have admitted the entire sequence of events and further contended that the writ petition was not maintainable at the hands of the petitioner in view of the arbitration clause contemplated in the purchase order and contended that the petitioner, if aggrieved, could apply for arbitration. The counter affidavit further suggests that certain complaints were received and, upon an inquiry, the committee made a recommendation dated 22nd October, 2008, on the basis of which, the purchase order was cancelled and a new purchase committee was constituted by a notification dated 26* June, 2009, which was neither arbitrary nor suffers from any malafide.

10. In this kind of a scenario, I have heard Sri SaurabhSharma and Sri Sudhir Singh, the Learned Counsel for the petitioner and Sri H.S. Sharma and Sri Vipul Sharma, the Learned Counsel for the respondents.

11. The Learned Counsel for the petitioner submitted that the respondent is a State as contemplated under Article 12 of the Constitution of India and is required to act fairly, which has not been done. The Learned Counsel submitted that the petitioner''s bid, being the lowest, was accepted after it met all the parameters asked by the respondents and after being satisfied fully upon making queries from the petitioner, the purchase order was issued. The Learned Counsel submitted that the respondents could not backtrack and cancel the purchase order on flimsy ad frivolous grounds. The Learned Counsel, consequently, submitted that the action of the respondents in canceling the purchase order was not only arbitrary, in violation of Article 14 of the Constitution but also affected the fundamental rights of the petitioner to do business with the State as provided under Article 19 of the Constitution.

12. On the other hand, the Learned Counsel for the respondents submitted that the petitioner is in fact, seeking the enforcement of a contract, which cannot be done and that the petitioner has to be relegated to the process of a civil suit. The Learned Counsel submitted that if there was any dispute with the respondents, it was open to the petitioner to invoke the arbitration clause contemplated in the purchase order. In support of his submission, the Learned Counsel placed reliance upon the decision in Pimpri Chinchwad Municipal Corporation and Others Vs. Gayatri Construction Company and Another, , Magma Leasing & Finance Ltd. and another vs. Potluri Madhavilata and another, 2010 (2) AWC 1315 (SC) and Acurtie Contractors and Engineers Vs. State of U.P. and Others, .

13. In rejoinder, the Learned Counsel for the petitioner submitted that it was not possible for the State to act in an arbitrary or partisan or illegal manner merely because its activities fell in the realm of a contract and that in the present facts and circumstances, the writ was maintainable and the petitioner could apply for the enforcement of contractual obligations against the respondents as per the purchase order. The Learned Counsel submitted that the petitioner was not claiming compensation for the loss, which the petitioner would suffer, but was claiming the quashing of the notification, by which it had cancelled the purchase order The Learned Counsel submitted that the writ court has the power to issue prerogative writs under Article 226 of the Constitution, which is plenary in nature and is not limited by the provisions of the Arbitration Act or by an arbitration clause in the contract and that the alternative remedy is only a rule of discretion and not one of compulsion. The Learned Counsel submitted that in an appropriate case, in spite of the availability of an alternative remedy, the High Court could still exercise its writ jurisdiction. In support of his submission, the Learned Counsel placed reliance upon the decision in Ashish Gupta Vs. IBP Co. Ltd. and Another, , ABL International Ltd. and another vs. Export Credit Guarantee Corporation of India Ltd. and others, 109 (2004) DLT 415 (SC) and Noble Resources Ltd. Vs. State of Orissa and Another, .

14. In order to appreciate the submissions of the Learned Counsel for the parties, it would be appropriate to consider the arbitration clause provided in the purchase order. Clause 14 of the purchase order provides for an arbitration clause as per Annexure-A, which provides as under:

ARBITRATION CLAUSE : In the event of any difference or dispute arising out this purchase, all efforts shall be made by both the parties to settle the same amicably. Failing an amicable settlement, the dispute shall be finally settled through arbitration conducted under the Arbitration and Conciliation Act, 1996 by three arbitrators appointed in accordance with the said Act. The arbitrators shall give reasoned and speaking award.

15. In the light of the aforesaid arbitration clause, the Learned Counsel for the respondents submitted that the writ petition is not maintainable and that the petitioner should invoke the arbitration clause, if he is aggrieved by the action of the respondents and if there exists a dispute, he could claim damages.

16. It is settled law that disputes relating to contracts cannot be agitated under Article 226 of the Constitution of India as held in Kerala State Electricity Board and Another Vs. Kurien E. Kalathil and Others, , State of U.P. and others Vs. Bridge and Roof Co. (India) Ltd., and Bareilly Development Authority and Another Vs. Ajay Pal Singh and Others, . It was held that a writ court was not the proper forum for adjudication of contractual disputes. The Supreme Court in Kerala State Electricity Board (supra) held that if a term of a contract was violated, ordinarily the remedy was not a writ petition under Article 226 of the Constitution and that a contract would not become statutory simply because it is awarded by a statutory body. The mere fact that an obligation was imposed under the contract on the contracting parties would not make the contract statutory. A dispute arising out of the terms of such contracts or alleged breaches have to be settled by the ordinary principles of law of contract. The fact that one of the parties to the agreement is a statutory or public body will not by itself affect the principles to be applied. The Supreme Court further held that if the contract between the parties is in the realm of a private law, it is not a statutory contract. The disputes relating to interpretation of the terms and conditions of such a contract could not have been agitated in a petition under Article 226 of the Constitution of India and that it was a matter for adjudication by a civil court or in an arbitration, if provided for in the contract. Similar view was reiterated by the Supreme Court in Pimpri Chinchwad Municipal Corporation''s case (supra). The decisions of the Supreme Court was reiterated by the Allahabad High Court in Acurtie Constructions and Engineers'' case (supra).

17. On the other hand, the ratio enunciated by the Supreme Court in Mahabir Auto Stores and others Vs. Indian Oil Corporation and others, is that the State or its instrumentality when engaged in commercial transactions must act reasonably, and should inform and take into confidence the adverse party against whom adverse action is contemplated. Any contractual dealings between the State and a citizen can never attract jural investigation under Article 226 of the Constitution. If there is a breach of contract, the same should be determined by the civil court and where a breach of contract is complained of, a party complaining of such breach may sue for specific performance of the contract, if the contract is capable of being specifically performed, or may sue for damages. In Gujarat State Financial Corporation Vs. Lotus Hotels Pvt. Ltd., , it was held that the State cannot commit breach of a solemn undertaking on which the other side has acted and then contend that the party suffering by a breach of contract may sue for damages but cannot compel specific performance of the contract. In Smt. Nilabati Behera alieas Lalita Behera Vs. State of Orissa and others, , the Supreme Court held that it is not always enough to relegate a party to the ordinary remedy of a civil suit to claim damages for the tortuous act of the State as that remedy in private law is available to the aggrieved party. The Supreme Court held that the citizen complaining of the infringement of the indefeasible right under Article 21 of the Constitution cannot be told that for the established violation of the fundamental right of life, he cannot get any relief under the public law by the courts exercising writ jurisdiction.

18. Prerogative writs, therefore, have to evolve new tools to give relief in public law by moulding it according to the situation which it demands with a view to preserve and protect the rule of law.

19. In ABL International Ltd. and Another Vs. Export Credit Guarantee Corporation of India Ltd. and Others, , the Supreme Court culled out the following principles:

(a) In an appropriate case, a writ petition as against a State or an instrumentality of a State arising out of a contractual obligation is maintainable.

(b) Merely because some disputed questions of facts arise for consideration, same cannot be a ground to refuse to entertain a writ petition in all cases as a matter of rule.

(c) A writ petition involving a consequential relief of monetary claim is also maintainable.

20. In the light of a aforesaid, while entertaining an objection as to the maintainability of a writ petition under Article 226 of the Constitution of India, the court should bear in mind that the power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by the provisions of other Acts and statutes, namely, the Arbitration Act. Normally, a prerogative writ will not be exercised by the High Courts when other remedies are available, but where the action of the State or its instrumentality is arbitrary and unreasonable and violative of the mandate provided under Article 14 of the Constitution, the court would and should exercise its plenary powers. In appropriate case, in spite of availability of an alternative remedy, the High Court should exercise its writ jurisdiction where the petitioner seeks enforcement of any fundamental rights or where there is a failure of principles of natural justice or where the orders or proceedings are wholly without jurisdiction or where the vires of the Act is under challenge.

21. In the light of the aforesaid, the admitted facts as culled out from the writ petition and the counter affidavit is, that the petitioner''s bid was the lowest which was accepted by the respondents after examining all parameters and after obtaining various clarifications. The respondents, being satisfied, issued a purchase order to the petitioner and, based on the purchase order, the petitioner performed his part of the agreement and purchased the equipments required for the execution of the purchase order. The purchase order could not be implemented as the letter of credit was not opened by the respondents. Repeated reminders were given but the respondents remained silent and did not bother to reply to the said letters. In fact, when the contract was cancelled, the respondents chose not to inform the petitioner and remained silent and left the petitioner to find out the action taken by the respondents through the process of obtaining information under the Right to Information Act.

22. The contract was cancelled without a show cause notice and without giving an opportunity of hearing. By not giving such opportunity, the mandate provided under Article 14 of the Constitution was clearly violated by the respondents. The petitioner was denied the right to be given an opportunity of hearing. The action of the respondents was wholly irresponsible and arbitrary in gross violation of Article 14 of the Constitution.

23. The reason for cancellation of the contract is based on irrelevant and non-existent consideration. Reason nos. 1 and 3 are not applicable as they relate to the first tender notice and did not relate to the tender notice in question. Similarly, reason no. 2 also relates to the first tender notice except the fact that the first tender notice was of Rs. 20 lacs and the second tender notice was enhanced to Rs. 25 lacs, without approval of the competent authority. This fact appears to be patently erroneous since the respondents in paragraph 4 of the counter affidavit have clearly averred that a sum of Rs. 35 lacs was approved by the competent authority for giving the contract for purchase of the PA. system. The first tender notice was of Rs. 20 lacs and the second tender notice was enhanced to Rs. 25 lacs which was still under the budged sanctioned by the competent authority. The fourth reason could be a ground for the cancellation of a contract, namely, that a good number of correspondences were made by one of the committee member on his personal pad. But, the respondents have not indicated anything in their counter affidavit to indicate that the correspondences made by one of the committee member was made deliberately to favour a specific party or the petitioner or that the said member was acting in a partisan manner or in a malafide manner. On the other hand, the petitioner has given details of the correspondences made by the member of the committee in paragraphs 13, 14, 15, 16 and 17 of the writ petition which indicate that the respondents through a member of the committee had sought certain clarifications from the petitioner with regard to specifications of various parts of the P.A. system and for giving a five year standard warranty on all equipments provided by the petitioner. These averments made in the aforesaid paragraphs have been admitted in paragraph 15 of the counter affidavit. In fact, the respondents in paragraph Softheircounteraffidavithavestated,

In the process of preparation of the technical comparative statement, necessary clarifications from the firms were sought and obtained.

24. In the light of the aforesaid admission by the respondents, the fact that certain correspondences were made by one of the committee member would not make the acceptance of the purchase order illegal nor could it be said that some favour was given to the petitioner. Consequently, this Court is of the opinion that the recommendation given by the committee on 22n0 October, 2009 for annulling the contract, was based on irrelevant and non-existence reasons.

25. In such circumstances, the Court is of the opinion that for violation of Article 14 of the Constitution of India, the writ petition is maintainable and that the petitioner is entitled to some relief instead of relegating the petitioner to arbitration proceedings. It must be borne in mind that the principle of natural justice has been completely by passed by the respondents. No show cause notice was issued to the petitioner nor was he granted an opportunity of hearing. The petitioner is not claiming damages, but it claiming the quashing of the action taken by the respondents and for a writ of mandamus commanding the respondents to perform their part of the obligations as per the purchase order. When the petitioner has been wronged, it is incumbent for the High Court to step in and correct that wrong especially when the respondent is an instrumentality of the State. The clause relating to the invocation of the Arbitration and Conciliation Act will not in any way curtail the plenary powers under Article 226 of the Constitution. In Tata Cellular Vs. Union of India, , the Supreme Court held that the duty of the court is to confine itself to the question of legality and its concern should be to correct where a breach of principles of natural justice has been committed.

26. In the light of the aforesaid the Delhi High Court in a case of Ashish Gupta (supra), having found that while canceling the contract, the principles of natural justice was violated, interfered and directed the respondents to afford an opportunity of being heard. The principles enunciated therein are clearly applicable.

27. In the light of the aforesaid, the Court finds that the action of the respondents in quashing the purchase order by a notification dated 26th June, 2009 and appointing a new purchase committee was wholly arbitrary and based on irrelevant and non-existent reasons. Since the petitioner was not provided any show cause notice or opportunity of hearing and the respondents ignored the principles of natural justice, the Court, consequently, steps in to remedy the position.

29. In the light of the aforesaid, the notification dated 26th June, 2009 cannot be sustained and is quashed. The writ petition is partly allowed and a direction is issued to the respondents to issue a show cause notice and afford an opportunity to the petitioner of being heard and thereafter the respondents should take a decision in the matter. If a dispute still exists, then, it would be open to the parties to choose an appropriate forum for the redressal of their grievance, if any.