2002 (7) TMI 823 - HC - Indian Laws

Court quashes orders, allows petition for recovery. Invalidates claims, sets aside blacklisting.

The court set aside the judgment of the learned single Judge, quashed the relevant orders, and allowed the petition, holding that the State Government ... Binding force of departmental manuals - procedure for award after default by lowest tenderer - forfeiture of earnest money - liability for breach of contract by successful tenderer - recovery of loss as arrears of revenue - remedy by suit for damages versus revenue recovery - principles of natural justiceBinding force of departmental manuals - procedure for award after default by lowest tenderer - Whether the procedure in the P.W.D. Manual (Clause 15.9.7) is binding on the State and required to be followed before assessing loss on the defaulting lowest tenderer - HELD THAT: - The Court held that, subject to any special contractual terms, the P.W.D. Manual is a set of guidelines binding on the State Government and its executive officers. Clause 15.9.7 prescribes a specific procedure - negotiation with the next two lowest tenderers who retained earnest money and, only if they do not agree to take up the work on the rates and terms of the lowest tenderer, retendering - which must be followed before concluding that the State has suffered loss due to the default of the lowest successful tenderer. The procedure is intended to protect the State from arbitrary award of work at much higher rates and to ensure that loss, if any, is occasioned by the default of the original successful tenderer alone. Because the respondents did not follow Clause 15.9.7, they could not properly attribute the subsequent higher cost to the appellant's default. [Paras 16, 17, 18, 19]Clause 15.9.7 of the P.W.D. Manual is binding and the prescribed procedure must be followed before assessing and recovering losses from the defaulting lowest tenderer.Forfeiture of earnest money - liability for breach of contract by successful tenderer - Whether forfeiture of the earnest money deposit and recovery of alleged loss by revenue recovery proceedings were justified in the facts of the case - HELD THAT: - The Court acknowledged that forfeiture of the earnest money deposit is provided for in the notice inviting tender and therefore may be justified. However, the respondents proceeded to assess and seek recovery of large losses by revenue recovery measures without following the mandatory procedure in Clause 15.9.7 and without establishing that the loss was solely attributable to the appellant's default. Awarding the contract to the second lowest tenderer who had quoted substantially above estimate, without first attempting to negotiate under Clause 15.9.7 or retender, undermined any claim that the loss flowed solely from the appellant's failure to execute the agreement. Proceedings to recover alleged losses by revenue recovery were therefore unjustified in the circumstances. [Paras 16, 19, 21, 24]Forfeiture of earnest money may stand, but the revenue recovery proceedings and quantification of loss without following the prescribed procedure and without establishing attributable loss to the appellant were unjustified and liable to be set aside.Remedy by suit for damages versus revenue recovery - Whether the State may proceed by revenue recovery for alleged losses or must seek remedy by suing for damages - HELD THAT: - The Court held that, having failed to follow the binding procedure and having acted arbitrarily in awarding the work at higher rates, the respondents could not proceed by revenue recovery to impose liability on the appellant. The Court left open the State's right to recover any loss legitimately attributable to the appellant by instituting a suit for damages in a court of law if permissible in law, thereby preserving the appellant's right to raise all available defences in ordinary civil proceedings. [Paras 21, 24]Revenue recovery in the present form is impermissible; the State may, if legally permissible, sue for damages in a court of law to recover any loss legitimately attributable to the appellant.Principles of natural justice - Whether the earlier order treated as a show cause notice (in O.P. No. 1739 of 1984) precluded the appellant from subsequently challenging quantification of liability - HELD THAT: - The Court explained that the single Judge in O.P. No. 1739 of 1984 merely treated the impugned order as a show cause notice and granted liberty to the State to make fresh appropriate orders after considering the appellant's representation. That judgment did not decide issues on merits nor did it amount to the appellant's agreement to the State's conclusions. The appellant was therefore entitled to await quantification of liability and challenge the later orders within a reasonable time; the subsequent petition was not barred by laches. [Paras 20, 21]The earlier order construed as a show cause notice did not preclude the appellant from challenging later quantification of liability; the challenge was not barred by laches.Final Conclusion: The Court set aside the orders quantifying and seeking recovery of alleged losses by revenue recovery (Ext. P-10 dated 5-1-1994 and Ext. P-13 dated 12-2-1997) on the grounds that the binding procedure in Clause 15.9.7 of the P.W.D. Manual was not followed and the State could not attribute the higher cost solely to the appellant; forfeiture of earnest money may stand but the State remains free, if legally permissible, to sue the appellant in a court of law for any loss properly shown to be attributable to him. Issues Involved:1. Whether the respondents could claim damages against the appellant for failing to execute the agreement.2. Whether the procedure prescribed in Clause 15.9.7 of the P.W.D. Manual was followed.3. Whether the revenue recovery proceedings initiated against the appellant were justified.4. The validity of the blacklisting order and the forfeiture of the earnest money deposit.Issue-wise Detailed Analysis:1. Claim of Damages Against the Appellant:The court examined whether the respondents could claim damages against the appellant for his failure to execute the agreement. Clause (3) of the notice inviting tender, incorporated into the contract, required all works to be done in conformity with the specifications and conditions of the Harbour Engineering Wing. Clause (13) stated that if the successful tenderer failed to execute the work, the earnest money deposit and security deposit would be forfeited, and fresh tenders would be called for. The court found that the respondents did not follow the prescribed procedure, as they awarded the contract to the second lowest tenderer without retendering, thus failing to justify the losses claimed.2. Procedure Prescribed in Clause 15.9.7 of the P.W.D. Manual:The court emphasized the importance of following Clause 15.9.7 of the P.W.D. Manual, which mandates negotiating with the next two lowest tenderers before awarding the contract or retendering if necessary. The court noted that the respondents did not attempt to negotiate with the next two lowest tenderers and directly awarded the contract to the second lowest tenderer at a much higher rate. This failure to follow the procedure invalidated the respondents' claim for damages against the appellant.3. Justification of Revenue Recovery Proceedings:The court analyzed whether the revenue recovery proceedings initiated against the appellant were justified. The court found that the respondents had not followed the binding procedure prescribed in Clause 15.9.7 of the P.W.D. Manual. The court held that the respondents should have either followed the procedure or sued the appellant for damages, allowing him to raise defenses. The revenue recovery proceedings were deemed unjustified.4. Validity of Blacklisting Order and Forfeiture of Earnest Money Deposit:The court examined the blacklisting order and the forfeiture of the earnest money deposit. The court acknowledged that the earnest money deposit of Rs. 50,000 could be forfeited as per the notice inviting tenders. However, the court found that the respondents' failure to follow the prescribed procedure and the arbitrary awarding of the contract to the second lowest tenderer invalidated the blacklisting order and the subsequent revenue recovery actions. The court set aside the blacklisting order and allowed the appellant to challenge the quantification of his liability.Conclusion:The court set aside the judgment of the learned single Judge in O.P. No. 1822 of 1994, quashed the order dated 5th January 1994 (Ext. P-10), and allowed O.P. No. 4921 of 1997, quashing the order dated 12th February 1997 (Ext. P-13). The court held that the State Government could recover any losses suffered by suing the appellant in a court of law, if permissible. The appeal and original petition were accordingly allowed.