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) Whether there is a pattern or prior history of
wrongdoing.
(d) Whether contractor has been excluded or
disqualified by an agency of the Federal Government or
have not been allowed to participate in State or local
contracts or assistance agreements on a basis of conduct
similar to one or more of the causes for debarment
specified in this part.
(e) Whether and to what extent did the contractor plan,
initiate or carry out the wrongdoing.
(f) Whether the contractor has accepted responsibility
for the wrongdoing and recognized the seriousness of the
misconduct.
(g) Whether the contractor has paid or agreed to pay
all criminal, civil and administrative liabilities for the
improper activity, including any investigative or
administrative costs incurred by the government, and
have made or agreed to make full restitution.
(h) Whether contractor has cooperated fully with the
government agencies during the investigation and any
court or administrative action.
(i) Whether the wrongdoing was pervasive within the
contractor’s organization.
(j) The kind of positions held by the individuals
involved in the wrongdoing.
(k) Whether the contractor has taken appropriate
corrective action or remedial measures, such as
establishing ethics training and implementing programs to
prevent recurrence.
(l) Whether the contractor fully investigated the
circumstances surrounding the cause for debarment and,
if so, made the result of the investigation available to the
debarring official.”
THE HIGH COURT OF DELHI AT NEW DELHI
Judgment delivered on: 06.02.2015
W.P.(C) 2041/2014 & CM Nos. 4256/2014 & 14287/2014
M/S AVINASH EM PROJECTS PRIVATE LIMITED .....
versus
M/S GAIL (INDIA) LIMITED
CORAM:-
HON’BLE MR JUSTICE VIBHU BAKHRU
VIBHU BAKHRU, J
Dated;FEBRUARY 06, 2015
The petitioner has filed the present petition impugning an order of
the respondent dated 18.03.2014 (variously referred to as ‘the blacklisting
order’ or ‘the impugned order’) whereby the respondent has banned the
petitioner for an indefinite period from doing any future projects with the
respondent or participating in bidding process for any of its tenders in
future. The said decision is subject to review after a period of ten years.
2.
The brief facts that are relevant for examining the controversy in the
present petition are as under:-
2.1
The respondent - GAIL (India) Limited (hereafter also referred to as
‘GAIL’) 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 the working
capital calculation. Paragraph 9 of IFB provides that a bidder would furnish
documentary evidence by way of copies of work order, completion
certificate, balance sheet or audited financial statements including the profit
and loss account etc. along with the bid, to establish that the qualification
criteria was met.
2.3
Apart from E-Tender 2161, the respondent also invited E-Tender
No.8000002119 - for annual rate contract for construction of pipelines and
W.P.(C) 2041/2014
Page 2 of 25
associated facilities in Northern Region for supplying gas to new/existing
consumers (hereinafter ‘E-Tender 2119’) and E-tender No.8000003564 -
for annual rate contract for construction of pipelines and associated
facilities in Northern Region for supplying gas to new/existing consumers
(hereinafter ‘E-Tender 3564’).
2.4
On 06.09.2010, the petitioner submitted its bid for Parts D and E of
E-Tender 2161 and E-Tender 2119. Along with its bids, the petitioner
submitted an audited financial statement dated 21.08.2010, which reflected
the petitioner’s company’s working capital as on 31.03.2010 to be `6.96
crores approximately. The respondent awarded the contract for E-Tender
2161 and E-Tender 2119 to the petitioner based on the information and
documents supplied by the petitioner in its bids.
2.5
The respondent issued a Show Cause Notice dated 29.07.2013
alleging that a forged and manipulated audited financial statement dated
21.08.2010 was submitted to secure the tenders. It was pointed out that the
balance sheet submitted to the Registrar of Companies, Delhi for the year
2010-11 reflected the working capital of the petitioner company, as on
31.03.2010, as `3.01 crores approximately. The petitioner was called upon
to show cause as to why penal action of banning the petitioner from doing
any business with GAIL not be initiated.
2.6
The petitioner, by its letter dated 07.08.2013, replied that at the time
of submission of the bid, the balance sheet for the year 2009-10 was under
scrutiny and was yet to be finalized and approved. Therefore, the financial
statement dated 21.08.2010, duly audited by a Chartered Accountant, was
submitted to the respondent. And, subsequently the balance sheet for the
year 2009-10 was approved in the Annual General Meeting held on
30.09.2010 and the same was filed with the Registrar of Companies, Delhi.
The petitioner contended that the difference 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 further documents. In the mean time,
the respondent also filed an appeal (LPA No.167/2014) before a Division
Bench of this court against the order dated 21.01.2014.
2.9
After considering the arguments and documents filed by the
petitioner, the respondent passed the impugned order banning the
respondent for an indefinite period. Thereafter on 24.03.2014, the Learned
Division Bench of this court disposed off the LPA No 167/2014 on the
ground that as a reasoned order has been passed by the competent authority,
the appeal had become infructuous.
3.
The learned counsel appearing for the petitioner advanced his
arguments on the assumption that the allegation of submitting a false and
fabricated financial statement alongwith its bids for part D & E of E-Tender
2161 and E-Tender 2119, was made out. He argued that even assuming that
allegations levelled against the petitioner were true, nonetheless, the
punitive measure inflicted upon the petitioner was too harsh and shockingly
disproportionate to the alleged misconduct. He submitted that the petitioner
employed over 300 persons and blacklisting the petitioner would, in effect,
render the said workers jobless.
He contended that the petitioner’s
expertise was in laying gas pipelines and GAIL was the main procurer of
those services. He submitted that bulk of the demand for such services, as
were rendered by the petitioner, emanated from GAIL and from other
Public Sector Undertakings (hereinafter ‘PSUs’). He submitted that
blacklisting by GAIL would also result in the petitioner being debarred
from tendering for projects floated by other PSUs. He emphasized that the
impugned order would effectively result in a ‘civil death’ of the petitioner.
The learned counsel further referred to various clauses of the tender
documents which provided for punitive measures for various acts/breaches.
He submitted that even for grave misconduct or breach of contract, the
punitive measures as contemplated under the IFB, were limited to placing a
contractor on a holiday for a period of six months to three years. He
submitted that in this context debarring the petitioner from bidding for
contracts for an indefinite period, on the allegation of procuring contracts
on the basis of false documents, was disproportionate in comparison with
the measures specified for breaches of contract and/or fraudulent and
corrupt practices.
4.
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 statement dated 31.08.2010, which was
audited by M/s Neeraj Vinod and Associates (i.e. auditors appointed under
the Companies Act, 1956). The financial statement as on 31.08.2010
reflected the net current assets as on 31.03.2010 to be `3.01 crores. It is
also relevant to note that Vishal Aggarwal, subsequently, denied his
signatures on the financial statement dated 21.08.2010 and has filed a
complaint with the Karol Bagh Police Station claiming that his signatures
on the financial statement dated 21.08.2010 were forged. The explanation
furnished by the petitioner that there were certain cheques in hand which
had been accounted for but had subsequently become stale and, therefore,
were excluded from the calculation of net assets has been disbelieved by
the respondent and in my view, rightly so. Even if it is accepted that
cheques, representing borrowed funds, were in petitioner’s possession that
would not alter the net working capital available with the petitioner. In any
event, the explanation that the said cheques enhanced the petitioner’s
working capital is illusory as, admittedly, the cheques were not encashed.
6.
The learned counsel for GAIL also pointed out that the petitioner
submitted another statement as on 31.03.2011 alongwith its bid for E-
Tender 3564 which also reflected its working capital as on 31.03.2010 as
`6.9 crores. This statement was filed by the petitioner in September 2011
and at the material time the explanations furnished by the petitioner for
variance in the figures between annual statements dated 21.08.2010 and
31.08.2010 were no longer relevant. In my view, furnishing of such
statement in 2011 is inexcusable.
7.
In the aforesaid view, the only question to be addressed is whether
the action of GAIL to blacklist the petitioner for an indefinite period is
disproportionally harsh and not commensurate with the misconduct of
furnishing forged/fabricated documents to secure contracts with GAIL.
8.
The question whether the impugned order blacklisting the petitioner
for an indefinite period is disproportionately harsh needs to be answered
keeping in view the consequences of the impugned order.
9.
The contention that the petitioner would perish as a result of the
blacklisting order has not been disputed. It is not in dispute that the nature
of the petitioner’s work involves executing contracts with PSUs and bulk of
the work for 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 further period of six months from the
date of termination of the contract.
11.
Article 35 of the IFB provides for measures in respect of corrupt and
fraudulent practices. Sub-article 35.1 of the IFB defines corrupt practices
and fraudulent practices as under:-
“i) ii)
12.
“Corrupt Practice” means the offering, giving,
receiving or soliciting of anything of value to
influence the action of public official in contract
execution; and
“Fraudulent Practice” means a misrepresentation of
facts in order to influence the execution of a
Contract to the detriment of the Owner, and
includes collusive practice among bidders (prior to
or after bid submission) designed to establish bid
prices at artificial non-competitive levels and to
deprive the Owner of the benefits of free and open
competition.”
A bidder is required to observe the highest standard of ethics during
execution of a contract and in terms of Sub-article 35.2 of the IFB, any
proposal for an award would be rejected if it is determined that the
contractor has engaged in corrupt or fraudulent practice in competing for
the contract in question. In terms of Sub-article 35.3 of the IFB, the
contractor is also liable to be declared ineligible for a period as specified
under Clause 32(C) of GCC. A reference to Clause 32(C) of GCC indicates
that the contractor would be put on a holiday for a period of three years
from the date of termination of the contract by GAIL. In other words, if a
contractor engages in a corrupt and fraudulent practice as defined above,
the possible consequence is that he would be put on a holiday – which
implies that “neither any enquiry will be issued to the party by GAIL
(India) Ltd. against any type of tender nor their offer will be considered by
GAIL against any ongoing tender (s) where contract between GAIL and
that particular CONTRACTOR (as a bidder) has not been finalized”- for a
period of three years.
13.
A contractor is also required to furnish an integrity pact in terms of
Sub-article 35.4 of IFB. A bidder is required to execute the “integrity pact”
in the form as appended to the IFB.
14.
A perusal of the said integrity pact indicates that the bidder is to
furnish the following commitments and undertakings:-
“1 The Bidder/Contractor commit and undertakes
to take all measures necessary to prevent
malpractices & corruption. He commits himself
to observe the following principles 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
or
understanding, 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 part of the business relationship
regarding plans, technical proposals and
business
details,
including
information
contained or transmitted electronically for
purposes of competition or personal gain and
will not pass the information so acquired on to
others.
d) The Bidder/ Contractor will, when presenting
his bid undertakes, to disclose any and all
payments made, is committed to or intends to
make to agents, brokers or any other
intermediaries in connection with the award of
the contract.
2 The Bidder/ Contractor will not instigate and
allure third persons/parties to commit offences
outlined above or be an accessory to such
offences.”
15.
GAIL further specified that any transgression of the integrity pact
would disqualify the bidder from the tendering process. The relevant
extract from paragraph no.3 of the integrity pact is quoted below:-
“If the Bidder, before the award of contract, has
committed a transgression through a violation of any
provisions of Section 2 or in any other form so as to put
his reliability or credibility as Bidder into question, the
Principal shall be entitled to disqualify, put on holiday or
blacklist the Bidder including from the future tender
process or to terminate the contract, if already signed, on
that ground.
16.
1. If the Bidder/ Contractor has committed a
transgression through a violation of Section 2 such
as to put his reliability or credibility into question,
the Principal shall be entitled to exclude including
blacklist and put on holiday the Bidder/ Contractor
from entering into any GAIL future contract tender
processes. The imposition and duration of the
exclusion will be determined by the severity of the
transgression. The severity will be determined by
the Principal taking into consideration the full facts
and circumstances of each case particularly taking
into account the number of transgressions, the
position of the transgressors within the company
hierarchy of the Bidder and the amount of the
damage. The exclusion may be imposed for a
minimum period of 6 months and maximum of
three years.”
It is apparent from the above that if a bidder violates any of the
commitments as specified under the integrity pact, he would be excluded
from participating in any of the tenders floated by GAIL for a minimum
period of 6 months and a maximum period of three years. It follows that
even in cases where a contractor has bribed 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
18.
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.”
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 captioned “performance evaluation”. The
said form specifies the criteria for evaluation of the performance of a
contractor. The substance of the said form is to apprise the contractors the
method by which their performance would be evaluated on the basis of the
indicated parameters. In this context, clause 1.5 of the said form must be
read as a caution to a contractor that he is liable to be blacklisted in future.
This does not necessarily imply that the contractor would be barred for all
times to come. But, must be read only to mean that submission of forged
documents in respect of any of the qualifying/eligibility criteria would
invite an action of blacklisting which would result in debarring the
contractors from future contracts with GAIL.
19.
Secondly, it is now well settled that blacklisting for an indefinite
period is not permissible. The Supreme Court in Kulja Industries Ltd. v.
Chief General Manager, BSNL: AIR 2014 SC 9 had held as under:-
“24.
Suffice it to say that ‘debarment’ is recognised
and often used as an effective method for disciplining
deviant suppliers/contractors who may have committed
acts of omission and commission or frauds including
misrepresentations, falsification of records and other
breaches of the regulations under which such contracts
were allotted. What is notable is that the ‘debarment’ is
never permanent and the period of debarment would
invariably depend upon the nature of the offence
committed by the erring contractor.”
Thus, the provision for blacklisting a contractor cannot be for an indefinite
period.
20.
Thirdly, GAIL has also specified that the decision of debarring the
petitioner may be reviewed after expiry of 10 years. Thus, even according
to GAIL, the decision of banning the petitioner from participating in the
contracts with GAIL would not necessarily continue for all times to come
but was liable to be reviewed.
21.
The next aspect that needs to be addressed is whether in the aforesaid
context any interference with the impugned order is warranted.
22.
It is contended on behalf of GAIL that the question whether a
punishment is disproportionate would have to be determined by applying
the Wednesbury principle, that is, no reasonable person could possibly
subscribe to the view that the punishment as imposed was warranted. [See:
Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn.: (1947)
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
W.P.(C) 2041/2014
Page 15 of 25
judging the validity of administrative action. But even
long before that, the Indian Supreme Court has applied
the principle of “proportionality” to legislative action
since 1950, as stated in detail below.
28. By “proportionality”, we mean the question whether,
while regulating exercise of fundamental rights, the
appropriate or least-restrictive choice of measures has
been made by the legislature or the administrator so as to
achieve the object of the legislation or the purpose of the
administrative order, as the case may be. Under the
principle, the court will see that the legislature and the
administrative authority “maintain a proper balance
between the adverse effects which the legislation or the
administrative order may have on the rights, liberties or
interests of persons keeping in mind the purpose which
they were intended to serve”. The legislature and the
administrative authority are, however, given an area of
discretion or a range of choices but as to whether the
choice made infringes the rights excessively or not is for
the Court. That is what is meant by proportionality.”
25.
In R. (Daly) v. Secy. of State for the Home Deptt.: (2001) 3 ALL
ER 433 (HL), the House of Lords had held that the criteria of
proportionality was more precise and more sophisticated than the
traditional grounds of judicial review.
The Court noted the following
differences between the two criteria:-
“(1) Proportionality may require the reviewing court to
assess the balance which the decision-maker has struck, not
merely whether it is within the range of rational or reasonable
decisions.
(2) Proportionality test may go further than the traditional
grounds of review inasmuch as it may require attention to be
directed to the relative weight accorded to interests and
considerations.
(3) Even the heightened scrutiny test is not necessarily
appropriate to the protection of human rights.”
26.
The Supreme Court in State of U.P. v. Sheo Shanker Lal
Srivastava: 2006 SCC (L&S) 521 referred to the decision of House of
Lords in R. (Daly) (supra) and observed as under:-
“24. While saying so, we are not oblivious of the fact that
the doctrine of unreasonableness is giving way to the
doctrine of proportionality.
25. It is interesting to note that the Wednesbury principles
may not now be held to be applicable in view of the
development in constitutional law in this behalf. See, for
example, Huang v.Secy. of State for the Home
Deptt. 2006 QB 1 wherein 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 jurisdictions
is also described as the “least injurious means” or
“minimal impairment” test so as to safeguard the
fundamental rights of citizens and to ensure a fair balance
between individual rights and public interest. Suffice it to
say that there has been an overlapping of all these tests in
its content and structure, it is difficult to
compartmentalise or lay down a straitjacket formula and
to say thatWednesbury has met with its death knell is too
tall a statement. Let us, however, recognise the fact that
the current trend seems to favour proportionality test
but Wednesbury has not met with its judicial burial and a
State burial, with full honours is surely not to happen in
the near future.
37. Proportionality requires the court to judge whether
action taken was really needed as well as whether it was
within the range of courses of action which could
reasonably be followed. Proportionality is more
concerned with the aims and intention of the decision-
maker and whether the decision-maker has achieved more
or less the correct balance or equilibrium. The court
entrusted with the task of judicial review has to examine
whether decision taken by the authority is proportionate
i.e. well balanced and harmonious, to this extent the court
may indulge in a merit review and if the court finds that
the decision is proportionate, it seldom interferes with the
decision taken and if it finds that the decision is
disproportionate i.e. if the court feels that it is not well
balanced or harmonious and does not stand to reason it
may tend to interfere.”
28.
The Supreme Court further observed as under:-
“39. The courts have to develop an indefeasible and
principled approach to proportionality, till that is done
there will always be an overlapping between the
traditional grounds of review and the principle of
proportionality and the cases would continue to be
decided in the same manner whoever principle is adopted.
Proportionality as the word indicates has reference to
variables or comparison, it enables the court to apply the
principle with various degrees of intensity and offers a
potentially deeper inquiry into the reasons, projected by
the decision-maker.”
29.
As observed by the Supreme Court in Kulja (supra) the object of
blacklisting is often used as an effective method of disciplining deviant
suppliers/contractors. The object of blacklisting is not to commercially
eliminate 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) Whether there is a pattern or prior history of
wrongdoing.
(d) Whether contractor has been excluded or
disqualified by an agency of the Federal Government or
have not been allowed to participate in State or local
contracts or assistance agreements on a basis of conduct
similar to one or more of the causes for debarment
specified in this part.
(e) Whether and to what extent did the contractor plan,
initiate or carry out the wrongdoing.
(f) Whether the contractor has accepted responsibility
for the wrongdoing and recognized the seriousness of the
misconduct.
(g) Whether the contractor has paid or agreed to pay
all criminal, civil and administrative liabilities for the
improper activity, including any investigative or
administrative costs incurred by the government, and
have made or agreed to make full restitution.
(h) Whether contractor has cooperated fully with the
government agencies during the investigation and any
court or administrative action.
(i) Whether the wrongdoing was pervasive within the
contractor’s organization.
(j) The kind of positions held by the individuals
involved in the wrongdoing.
(k) Whether the contractor has taken appropriate
corrective action or remedial measures, such as
establishing ethics training and implementing programs to
prevent recurrence.
(l) Whether the contractor fully investigated the
circumstances surrounding the cause for debarment and,
if so, made the result of the investigation available to the
debarring official.”
32.
In addition, it would also be necessary to bear in mind the
consequences of a blacklisting order. In cases where the contractor can
carry on its business by executing works for other private agencies,
blacklisting such contractor may not have any significant adverse impact on
him. However, in cases where the effect of blacklisting would be
effectively to exclude the contractor from carrying on his work and in all
probability lead to shutting down his business; the adverse impact would be
overwhelming. The Authority imposing the blacklisting measure would
have to be conscious of the adverse impact of the punitive action.
33.
In the present case, it is not contested that blacklisting would
probably lead to winding up of the petitioner company. The Supreme Court
in Gorkha Securities Services v. Govt.(NCT): 2014 SCC Online SC 599
had observed that “With blacklisting many civil and/or evil 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 complete the ongoing projects
on account of financial constraints resulting from the blacklisting
order;
g) GAIL Gas Ltd. had also debarred the petitioner in view of the
impugned order and has invoked the performance guarantees of
`1.76 crores.
h) The petitioner’s annual turnover – which was in excess of `100
crores – has been reduced to nil.
36.
If one juxtaposes the same with the consequences of fraudulent and
corrupt practices as provided in the integrity pact, the measure of
blacklisting for an indefinite period appears relatively harsh and
disproportionate to the alleged misconduct.
37.
The question whether a punitive measure is disproportionate must
also be viewed in the context of the standards set by GAIL themselves. In
the event a contractor is found to have bribed the officials of GAIL and
secured the contract, he would be visited with the maximum penalty of a
three year holiday. By applying this standard, the punishment of
blacklisting for an indefinite period appears to be, clearly, disproportionate
and arbitrary.
38.
It is well settled that the High Court while exercising powers of
judicial review would be reluctant to substitute its own opinion on the
quantum of penalty or punishment imposed. However where the
punishment imposed is shockingly disproportionate, interference with the
same would be warranted. The Supreme Court in Kulja (supra) had
considered a situation where a contractor had fraudulently withdrawn large
sums of money in collusion with the officials of BSNL. On the same being
discovered, the contractor had been blacklisted. The Supreme Court held as
under:-
“25. In the case at hand according to the respondent-
BSNL, the appellant had fraudulently withdrawn a huge
amount of money which was not due to it in collusion and
conspiracy with the officials of the respondent-
corporation. Even so permanent debarment from future
contracts for all times to come may sound too harsh and
heavy a punishment to be considered reasonable
especially when (a) the appellant is supplying bulk of its
manufactured products to the respondent-BSNL and (b)
The excess amount received by it has already been paid
back.”
39.
In the present case too, the petitioner specialises in works which can
be executed mainly for GAIL and other PSUs and, therefore, the punitive
measure would have an overwhelmingly adverse consequence on the
petitioner; in the given context, the blacklisting order would be grossly
disproportionate.
40.
There is yet another aspect that needs to be examined. Indisputably,
the benefit that a contractor obtains from any fraudulent practice would
have a vital bearing on the quantum of punishment that may be imposed on
the contractor for such fraudulent practice. In this case, it is alleged that the
petitioner had secured the contracts in question by submitting fabricated
statement of accounts. But for such fabricated statement, the petitioner
would have been ineligible for being awarded the contracts. The petitioner
has produced other documents in response to the show cause notice to point
out that the petitioner was enjoying other working facilities from ICICI
bank Ltd. at the material time and even if the petitioner did not qualify on
the basis of his existing working capital as reflected in the balance sheet,
the petitioner would qualify on the basis of the working capital facilities
extended to the petitioner by ICICI bank Ltd.. The said documents have
been rejected by GAIL as the same had not been submitted at the relevant
point of time.
41.
In my view, the approach of GAIL in this respect may not be
apposite.
Although such documents would have no bearing whether
petitioner was guilty of alleged misconduct i.e. submission of fabricated
documents, the same would be germane to consider the question whether
the petitioner had acquired any benefit which he was not otherwise entitled
to. And, this would have a bearing on the punitive measure to be imposed.
If the working capital facilities extended by ICICI bank Ltd. to the
petitioner would enable the petitioner to qualify for the tender then the
petitioner would have obtained no benefit which he otherwise was not
entitled to.
42.
In view of the aforesaid, no interference is called for insofar as
blacklisting the petitioner is concerned. However, to the extent that the
petitioner has been debarred from all future business with GAIL, the
impugned order is set aside. The matter is remanded to GAIL to consider
the period of blacklisting afresh in view of the aforesaid observations and in
the context of the period as specified in the integrity pact (i.e. minimum of
six months to maximum of three years). Pending applications also stand
disposed of. No order as to costs.
VIBHU BAKHRU, J
FEBRUARY 06, 2015
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