TaxTMI 
TaxTMI 
2015 (2) TMI 1241
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....39;) is a state-owned natural gas processing and distribution company in India. The respondent invited E-Tender no.8000002161 for laying of pipelines of spurlines to Bhilwara and Chittorgarh and augmentation of existing Vijaipur Kota pipeline (hereafter 'E-Tender 2161'). The complete scope of work of the E-Tender 2161was divided into 5 parts (Part A, B, C, D and E). 2.2 Paragraph 4.2 of the Invitation for Bids (hereafter 'IFB') stipulated that the Indian Bidders shall have minimum working capital of `30 million for Part D and `18.5 million for Part E, i.e. an aggregate of `4.85 crores, as per their immediate preceding year's audited financial results. In the event of inadequate working capital, the bidder was required to supplement the shortfall with a letter issued by the bidder's banker (having net worth not less than `1000 million) confirming availability of a line of credit to meet the specified working capital requirement. In the event, the audited financial results for the immediate preceding financial year were not available, bidders had the option to submit the audited financial result for the year immediately prior to that year for consideration of....
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.... in the figures of the working capital in the financial statement and the balance sheet was due to the fact that the company had received cheques in the month of February 2010 from unsecured creditors, which were accounted in the books as the said cheques were valid at the time of preparation of the financial statement, however, the said cheques become stale and the entries were reversed at the time of finalizing the audited Balance Sheet. 2.7 The respondent rejected the reasons provided by the petitioner and passed an order dated 16.01.2014 blacklisting the petitioner from doing any future business with GAIL. The petitioner challenged the said order by way of a writ petition (W.P(C) 465/2014) before this Court. By an order dated 21.01.2014, a Co-ordinate Bench of this Court set aside the order dated 16.01.2014 and directed the respondent to pass a fresh reasoned order after considering all the documents placed by the petitioner on record and after affording the petitioner an opportunity of hearing. 2.8 Pursuant to the Order dated 21.01.2014, the respondent accorded a personal hearing to the petitioner on 30.01.2014 and also granted the petitioner an opportunity to present furthe....
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.... The learned counsel for the respondent submitted that it was established that the petitioner had used forged documents to procure the contracts in question and this also established the petitioner's lack of integrity. In the circumstances, GAIL could not be compelled to award any further work to the petitioner. He submitted that the quantum of punition was within the discretion of GAIL and such discretion was not amenable to judicial review under Article 226 of the Constitution of India. He further disputed the petitioner's contention that the measure of blacklisting was disproportionate to the allegations levelled against the petitioner. According to GAIL, the Court could interfere only if it is found that the action taken by GAIL failed the Wednesbury test of unreasonableness. 5. Concededly, the petitioner furnished a financial statement dated 21.08.2010 alongwith its bid for part D & E of E-Tender 2161 and E- Tender 2119. The said financial statement was signed by one Vishal Aggarwal and reflected the petitioner's working capital as `6.96 crores. It is not disputed that this financial statement dated 21.08.2010 was materially different from the annual financial sta....
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....which the petitioner can bid involves the participation of GAIL either as a sole employer or as part of a consortium with other entities. Undisputedly, blacklisting the petitioner for an indefinite period, albeit, to be reviewed after ten years, would effectively exclude the petitioner from participating in any contract with any PSU including GAIL and thus, inevitably, destroy the substratum of the petitioner company. 10. The issue whether such measure is excessive must also be viewed in the context of other clauses of the contract. Clause 29 of the General Conditions of the Contract (hereafter 'GCC') provides for the remedy available to GAIL in the event a contractor fails to comply with the provisions of the contract. It is specified that if a contractor refused to execute the work with such diligence as will ensure its completion within the specified time, it would be open for the employer (in this case GAIL) to determine the contract or takeover the work and complete the same at the risk and cost of the contractor. By virtue of Sub-clause 29.2 of GCC, GAIL could also forfeit the security furnished by a contractor and withhold the payment for work already done for a fur....
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....during his participation in the tender process and during the contract execution: i) The Bidder/ Contractor undertakes not to, directly or through any other person or firm offer, promise or give or influence to any employee of the Principal associated Employer associated with the tender process or the execution of the contract or to any other person on their behalf any material or immaterial benefit which he/she is not legally entitled, in order to obtain in exchange any advantage of any kind whatsoever during the tender process or during the execution of the contract. ii) The Bidder/ Contractor undertakes not to enter into any undisclosed agreement orunderstanding, whether formal or informal with other Bidders. This applies in particular to prices, specifications, certifications, subsidiary contracts, submission or non-submission of bids or any other action to restrict competitiveness or to introduce cartelisation in the bidding process. iii) The Bidder/Contractor undertakes not to commit any offence under the relevant Anti- corruption Laws of India. Further the Bidder/Contractor will not use improperly any information or document provided by the Principal as par....
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....ed officials of GAIL to obtain an unfair advantage in the tender process, the maximum punitive measure contemplated is exclusion for a period of three years and this too is subject to the following considerations: (i) the number of transgressions; (ii) the position of the transgressors within the company hierarchy of bidder; and (iii) damage caused to GAIL. 17. At this stage, it is also necessary to refer to clause 1.5 of Form 13, which spells out the system of performance evaluation. The said clause reads as under:- "1.5 The vendors and contractors will be blacklisted for submitting forged documents in respect of experience, turnover and any other requirements forming the basis for pre qualifying / eligibility criteria irrespective of their rating in the past. Such vendors & Contractors will be debarred from having business with GAIL in future." 18. It has been argued on behalf of GAIL that by virtue of the above quoted clause 1.5 of Form 13, the petitioner could be debarred from participating in all tenders floated by GAIL in the future. I find it difficult to accept this contention for several reasons; first and foremost, the said clause is a part of a form which is ca....
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....7) 2 All ER 680 (CA)]. 23. The Wednesbury principle of unreasonableness and the doctrine of proportionality may overlap to some extent but it is difficult to accept that the two principles are, essentially, one and the same. 24. The Supreme Court in Om Kumar vs. Union of India: (2001) 2 SCC 386 referred to the opinion of Lord Diplock in Council of Civil Service Unions v. Minister of Civil Service: (1984) 3 All ER 935 whereby he had reiterated that judicial review of administrative action is permissible on grounds of illegality, procedural irregularity and irrationality. The Supreme Court also took note of Lord Diplock's view that in addition to the above grounds, the ground of "proportionality" was a "future possibility". After taking note of the aforesaid decision, the Supreme Court explained the principle of proportionality as under:- "27. The principle originated in Prussia in the nineteenth century and has since been adopted in Germany, France and other European countries. The European Court of Justice at Luxembourg and the European Court of Human Rights at Strasbourg have applied the principle while judging the validity of administrative action. But even long before th....
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....erein referring to R. (Daly) v. Secy. of State for the Home Deptt. (2001) 2 AC 532 it was held that in certain cases, the adjudicator may require to conduct a judicial exercise which is not merely more intrusive than Wednesbury, but involves a full-blown merit judgment, which is yet more than R. (Daly) [(2001) 2 AC 532, requires on a judicial review where the court has to decide aproportionality issue." 27. The Supreme Court in All India Railway Recruitment Board v. K. Shyam Kumar: (2010) 6 SCC 614 referred to various decisions of the English Courts as well as the earlier decisions of the Supreme Court and summarised the law as under:- "36. Wednesbury applies to a decision which is so reprehensible in its defiance of logic or of accepted moral or ethical standards that no sensible person who had applied his mind to the issue to be decided could have arrived at it. Proportionality as a legal test is capable of being more precise and fastidious than a reasonableness test as well as requiring a more intrusive review of a decision made by a public authority which requires the courts to "assess the balance or equation" struck by the decision-maker. Proportionality test in some jurisd....
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....iminate the contractor but to impose a punitive measure commensurate with his actions. The question whether administrative decision of blacklisting a contractor is disproportionate must be evaluated in the facts of each case. 30. The exclusion of the petitioner from participating in any tender of GAIL must pass the test of Article 14 of the Constitution of India. Further, in the context of this case where there is little possibility for the petitioner to carry on its business of laying pipelines after being blacklisted by GAIL, the impugned order of blacklisting must also be viewed in the context of Article 19(1)(g) and 19(6) of the Constitution of India. 31. In Kulja (supra), the Supreme Court had laid down the guidelines for any action of blacklisting. The factors that were necessary to be considered by the authority imposing the punitive measure were summarised as follows:- "21. The guidelines also stipulate the factors that may influence the debarring official's decision which include the following: (a) The actual or potential harm or impact that results or may result from the wrongdoing. (b) The frequency of incidents and/or duration of the wrongdoing. (c) Whethe....
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.... consequences follow. It is described as "civil death" of a person who is foisted with the order of blacklisting. Such an order is stigmatic in nature and debars such a person from participating in Government Tenders which means precluding him from the award of Government contracts." 34. The aforesaid observations of the Supreme Court would fairly describe the effect of the impugned order on the petitioner. 35. It is also necessary to take into account that the petitioner has already been visited with significant adverse consequences following the blacklisting order. The learned counsel for petitioner has asserted that the petitioner has already suffered the following consequences:- a) The three contracts were terminated by GAIL on 17.01.2014; b) Performance bank guarantees under the three contracts, of aggregate value of `7.17 crores, were invoked and encashed; c) All other contracts with GAIL worth `161 crores apart from the three subject contracts were fore closed; d) No payments had been released to the petitioner after October 2013; e) The petitioner had not been able to bid in any contract for any PSU since 29.07.2013; f) The petitioner has been unable to comple....