WP (Civil) No. 7443/2009 page 1 of 26 IN THE HIGH COURT OF DELHI AT NEW DELHI W.P.(C) 7443 of 2009 & CM 3400/2009 Reserved on: 20th January, 2010 Decision on: 5th February, 2010 PRAKASH ATLANTA JV & ORS. ..... Petitioners Through Mr. Rajiv Nayyar, Senior Advocate with Mr. Sandeep Sharma, Advocate. versus NATIONAL HIGHWAYS AUTHORITY OF INDIDA & ORS. ..... Respondents Through Mr. Sandeep Sethi, Senior Advocate with Ms. Padma Priya, Ms. Sindhu Sinha and Mr. Sumit Gahlawat, Advocates. CORAM: HON'BLE DR. JUSTICE S. MURALIDHAR 1. Whether reporters of local paper may be allowed to see the judgment? No 2. To be referred to the report or not? Yes 3. Whether the judgment should be referred in the digest? Yes JUDGMENT S. Muralidhar, J. 1. The challenge in this petition by Prakash Atlanta JV (PAJV) and its group companies is to the validity of a show cause notice dated 27th June 2008 and the consequent decision communicated by a letter dated 24th February 2009 issued by Respondent No. 1 the National Highways Authority of India („NHAI‟) barring the Petitioners from “short-listing, participating or bidding for any future projects to be undertaken by the NHAI”, either directly or indirectly for a period of two years. 2. The work of construction of “Segment of the Lucknow Bypass” WP (Civil) No. 7443/2009 page 2 of 26 connecting National Highway („NH‟) No. 25 and NH No. 28 via NH 56 passing through Lucknow city in the State of Uttar Pradesh (known as Package No. E.W.-15/UP) was awarded to the Petitioners by the NHAI. On 10th August 2001 an agreement was entered into between the parties. The length of the road to be constructed was 22.66 Km and included construction of road works and bridges in accordance with drawings and the provisions of the contract. The value of the project was Rs.158,80,42,423/- and the start date of the work was to be reckoned with effect from 30th August 2001. The work was to be completed on or before 29th August 2004 i.e. within a period of 36 months. 3. The case of the Petitioners is that during the course of the execution of the work they were called upon to execute a new and major structure called via- duct for a length of 1.5 Km which was not envisaged under the original scope of work. This led to procuring additional plant and machinery. The Petitioners state that on account of variations made by the NHAI and for other reasons attributable to the NHAI, the work order extended to a period of 40 months beyond the original stipulated time period. According to the Petitioners nearly 106 variation orders were issued by the NHAI till April 2008 and as many as 58 variation orders were issued beyond the original time limit. No additional time was assigned for carrying out the variation items. 4. There was a dispute between the parties as regards the rates for the work covered by the variation orders. In terms of the contract this dispute was WP (Civil) No. 7443/2009 page 3 of 26 referred to the Dispute Review Expert who on 9th July 2005 directed making all payments to the Petitioners at market rates. Twenty-seven months thereafter, on 4th October 2007 the NHAI invoked the arbitration clause. According to the Petitioners even the admitted payments amounting to Rs.1.5 crores were withheld from them and they have been further crippled by the NHAI encashing bank guarantees to the tune of Rs.28 crores. The Petitioners claim that against the tendered amount of Rs.158.80 crores, they executed work worth about Rs.170 crores excluding price variation up to 14th March 2008 and yet the project was nowhere near completion. 5. The Petitioners, in terms of Clause 59 (iv) of the agreement, issued a notice on 28th May 2004 calling upon the NHAI to make the payment as certified by the Engineer. A meeting was called pursuant to this notice but the NHAI did not fulfill the commitment made by it to release the withheld payments. On 12th June 2006 the Petitioners issued a termination notice. It is stated that they were persuaded by the NHAI to continue the work by formally extending the time. Ultimately, on 14th March 2008 the Petitioners wrote to the NHAI informing it that the contract stood terminated. The Petitioners stated therein that they have suffered huge losses on account of the omissions and commissions of the NHAI and claimed Rs.84,51,12,743/- on various counts. 6. The Petitioners filed a statement of claims dated 28th February 2008 before the Arbitral Tribunal. Thereafter by a letter dated 27th June 2008 the NHAI asked the Petitioners to show cause why they should not be debarred WP (Civil) No. 7443/2009 page 4 of 26 from pre-qualification, participating and bidding in future events. The Petitioners received the aforementioned notice on 3rd July 2008 and sent a detailed reply dated 12th July 2008. In the reply a reference was made to an interim order dated 16th June 2008 passed by the Arbitral Tribunal in which the Tribunal did not accept the contention of the NHAI that it was the NHAI which had terminated the contract. It was observed that once the contract had been terminated by the Petitioners (claimant) “there was no question of termination of contract by the NHAI.” The Arbitral Tribunal observed that it was merely to resort to Clause 51(i) “that the NHAI decided to terminate an already terminated contract”. 7. On 5th September 2008 a letter was received from the General Manager (DK-I) Mr. K.V.Sharma of the NHAI granting personal hearing to the Petitioners. They were asked to appear before Mr. Nirmal Jit Singh, Member (Technical) on 16th September 2008. The Petitioners appeared for the personal hearing and also handed in their written submissions on 22nd September 2008. In the written submissions a request was made for copies of the documents and materials in support of the allegations made in the show cause since these had not been supplied to the Petitioners. 8. Mr. Nirmal Jit Singh, Member (Technical) who gave the Petitioners a personal hearing was transferred on 18th October 2008. Thereafter the impugned order came to be passed by Mr. K.V. Sharma, General Manager, DK-I on 24th February 2009 barring the Petitioners from short-listing, participating or bidding for any future projects undertaken by the NHAI. WP (Civil) No. 7443/2009 page 5 of 26 The Petitioners state that copies of the impugned order dated 24th February 2009 were maliciously endorsed by the NHAI to various central and state government organisations by a circular dated 24th February 2009. This had the effect of severely damaging the reputation of the Petitioners. The Petitioners had been pre-qualified by the various organisations for awarding of works but as a result of the circular dated 24th February 2009 issued by the NHAI, they were not awarded contracts even by other government organisations. 9. The challenge to the impugned show cause notice dated 27th June 2008 and the consequential impugned order dated 24th February 2009 in principally on the grounds of violation of the principles of natural justice and malafides. 10. A very detailed counter affidavit has been filed by the NHAI in which it has pointed out that it is a body constituted under the National Highways Authority of India Act, 1988 and has been entrusted with the responsibilities of development, maintenance and management of national highways vested in or entrusted to it by the Central Government. It is pointed out that with a view to give a major thrust to the economic development of the country, the Central Government took a policy decision leading to the announcement by the Prime Minister in October 1998 of the work of 4/6 laning of national highways linking the four major metros as the Golden Quadrilateral Project, The North-South Corridor is from Kashmir to Kanyakumari and East-West Corridor from Silchar to Porbandar. This includes the development of some WP (Civil) No. 7443/2009 page 6 of 26 other stretches of roads including roads connecting some of the major ports in the country. It is stated that the NHAI is mandated to implement the National Highways Development Project („NHDP‟) in various phases. 11. It is pointed out by the NHAI that the Petitioner No.1 PAJV is a joint venture consisting of Petitioner No.1 and Petitioner No.2 Prakash Building Association Ltd. who jointly submitted a bid in the name of Petitioner No.1 pursuant to which the contract was awarded to them as indicated hereinbefore. According to the NHAI, the performance of the Petitioners was found to be way below the requirements as envisaged under the contract. The Petitioners failed to execute the work in a timely manner. They failed to deploy the requisite plant and machinery, manpower and financial resources into the project as was warranted and were unable, therefore, to complete the project by the scheduled completion date i.e. 29th August 2004. This caused grave inconvenience to the general public apart from causing huge revenue losses to the Government inasmuch as it is proposed to levy toll on vehicles using the completed stretch. Therefore, with each passing day there were losses to the public exchequer. 12. It is stated that due to the persistent defaults and negligence of the petitioners, repeated warnings were issued to them by the Engineer, i.e. the representative of the Supervision Consultant as envisaged under the contract, asking them to comply with the terms of the contract and remedy the defaults. These defaults as pointed out by the Supervision Consultant varied from non-deployment of manpower and resources, extremely slow progress WP (Civil) No. 7443/2009 page 7 of 26 of work and other defaults. The NHAI states that on its part it extended all possible help to the Petitioners. They were given interest-free mobilisation advance of Rs.15.88 crores, advance of Rs.7.93 crores against the equipments brought at the site, advance of Rs.73.44 crore against material brought at site as secured advance and additional mobilization advance of Rs.5.10 crores against the increase in cost of contract due to variation. It is stated that to solve the Petitioners‟ cash flow problem they were given a discretionary advance to the tune of Rs.15 crores. It is pointed out that despite this, the physical progress at the site of the project for a period of 12 months between January 2007 to December 2007) was abysmally low at 3.882%. It is stated that despite several extensions of time having been granted for completion of the project, the last one having been granted on 15th November 2006, the Petitioners were able to achieve physical progress of only 78.36% of the work. In the previous 12 months ending in the month of February 2008 the physical progress of work was only 2.6% which came to a negligible 0.225% per month. This had to, therefore, be construed as a virtual stoppage of the work. 13. The NHAI stated that on 1st October 2007 a meeting was held to discuss the poor progress of the works. The Petitioners were also present at the meeting. A commitment was made by PAJV to complete 1500 sq.m. and 2500 sq.m. of Reinforced Earth Structure (RES)/ works in October and November 2007 respectively. It was further decided not to recover additional mobilization advance more than 20% of IPC, as requested by the Petitioner No.1 to help with its cash flow problem. The NHAI states that despite its support, PAJV‟s average monthly output of RES work in WP (Civil) No. 7443/2009 page 8 of 26 October, November and December 2007 was only12.43 sq.m. RES was one of the critical activities for completing the balance work. About 17000 sq.m. RES work was pending. The average monthly Reinforced Cement Concrete („RCC‟) output in October, November and December 2007 was 85 cubic m. whereas balance RCC work was 3954 cubic m. According to the NHAI almost no work was done on the balance project and therefore there was hardly any progress. The NHAI contends that the situation was equivalent to permanent stoppage of work by the contractor. The defaults committed by the Petitioners were duly recorded by the Engineer by a letter dated 16th January 2008 in which the default was viewed as a fundamental breach of contract by the Petitioners in terms of Clause 59(ii) of the contract. Various defaults were also listed in a letter dated 5th February 2008 to the Petitioners. 14. It is stated that although a meeting was convened on 7th March 2008 with the Petitioners, they chose not to attend the said meeting. Thereafter a joint meeting at the request of Petitioner No.1 was again convened on 13th March 2008. It is claimed that at the meeting the Chairman, NHAI conveyed to PAJV that NHAI was willing to pay PAJV its legitimate dues expeditiously but that no commitment could be made regarding payment against disputed claims pending adjudication before the Arbitral Tribunal or the Court. It is stated that the Petitioners refused to make any commitment to complete the work. They simply stated that they would inform the Respondents of their decision later. 15. According to the NHAI instead of giving the any commitment, the WP (Civil) No. 7443/2009 page 9 of 26 Petitioners abruptly wrote a letter dated 14th March 2008 terminating the contract. On 26th March 2008 the Engineer on behalf of the NHAI wrote to the Petitioners pointing out that the pre-mature termination of the contract was wrongful. As such the termination was itself a fundamental breach of contract on the part of the Petitioners. 16. At this stage, it is necessary to record that the notice was issued in the writ petition by a learned Single Judge of this Court on 13th March 2009 which was made returnable on 30th April 2009. No interim was passed in favour of the Petitioners at that stage. PAJV then filed an appeal being LPA No.120 of 2009 which was disposed of by an order dated 30th March 2009 by a Division Bench. It was directed that pending the disposal of the writ petition, PAJV should be permitted to submit their tenders/bids individually or with others notwithstanding the order dated 24th February 2009 as otherwise they would lose right to participate and submit bids for tenders worth Rs.36,000 crores till 30th April 2009. It was further clarified by the Division Bench that the submission of bids by the Petitioner would not create any special equities and will also be subject to the outcome of the writ petition. It was further clarified that the Clause 2.2.8 and the Office Memorandum dated 5th December 2007 were not the subject matter of the present dispute and that the NHAI would be entitled to rely upon the said clause and office memorandum while considering the request for qualification. The appellants were also permitted to put forth their case before the Respondents in respect of the above clause. 17. Aggrieved by the aforementioned order dated 30th March 2009 of the WP (Civil) No. 7443/2009 page 10 of 26 Division Bench, NHAI filed SLP (C) No. 20941 of 2009 in the Supreme Court. By an order dated 7th January 2010, the Supreme Court while directing notice to issue in the SLP stayed the order dated 30th March 2009 passed by the Division Bench of this Court. However, this Court was requested to dispose of the writ petition “under any circumstance before the 1st week of February, 2010”. Further the order was confined “only to the contract in NHAI”. When the case was next listed before this Court on 18th January 2010, it was with the consent of the parties taken up for final hearing. The hearing concluded on 20th January 2010. 18. The submissions on behalf of the Petitioners PAJV were advanced by Mr. Rajiv Nayyar, the learned Senior counsel and on behalf of the Respondents NHAI by Mr. Sandeep Sethi, learned Senior counsel. 19. It is first submitted by Mr.Nayyar that the impugned order is without reasons and neither refers to or deals with various contentions and issues raised by the Petitioners in reply to the show cause notice issued to them by the NHAI. Reliance is placed on the decisions of the Supreme Court in S.N. Mukherjee v. Union of India AIR 1990 SC 1984 and of this Court in Mekaster Trading Corp. v. Union of India 106 (2003) DLT 573; G.D. Tewari & Co. v. DDA 2005 (1) CTLJ 267 (Delhi). 20. In reply it is submitted by Mr.Sethi that the impugned order does reflect the reasons for the decision to blacklist the petitioners. It is submitted that elaborate reasons are not required to be given. In terms of the settled WP (Civil) No. 7443/2009 page 11 of 26 principles of law, it is sufficient that the order, which is at best a quasi- judicial one, should reflect the application of mind by the decision-making authority. According to the Respondents, the impugned order refers to the recommendations of the Engineer regarding the commission of defaults by the Petitioner. It also records a finding that the Petitioner is not trustworthy and reliable for future works. Reliance is placed on the judgment of the Supreme Court in Madhya Pradesh Industries Ltd. v. Union of India AIR 1966 SC 671. It is pointed out that the notices issued by the NHAI to the Petitioner PAJV from time to time and the correspondence between the parties, which are referred to in the show cause notice that preceded the impugned blacklisting order, indicate that the work was far behind schedule. These therefore constituted the reasons. It is not, therefore, as if the impugned order, which was passed after considering the reply of the petitioners, is without reasons. 21. The first issue that arises for consideration is whether the impugned order dated 24th February 2009 which bars PAJV from short-listing, participating or bidding for any future projects undertaken by the NHAI either directly in its name or indirectly in any other name or in association with any other person or entity with which it may use to carry on its business for a period of two years, is rendered illegal for failure to furnish reasons for such decision. The impugned order itself does uses the word „blacklisting‟ but the circular dated 24th February 2009 issued by the NHAI leaves no manner of doubt that it was indeed a `blacklisting‟ order. The said circular reads as under: “NHAI/Arbitration/DW-15/2002-Tech./5807 Dated:24/02/2009 CIRCULAR WP (Civil) No. 7443/2009 page 12 of 26 Sub.: Debarring/Blacklisting of M/s. Prakash-Atlanta Joint Venture from short-listing participating or bidding for projects of/or to be undertaken by NHAI. The National Highways Authority of India (NHAI) had entered into a Contract Agreement dated 10.08.2001 with M/s. Prakash- Atlanta(JV) for the project of Construction of Segment of Lucknow Bypass Connecting NH-25 & NH-28 Via NH-56 passing through Lucknow City in the State of Uttar Pradesh (Contract Package No.EW-15/UP). NHAI has decided without prejudice to any other rights available to the NHAI in terms of the Contract and/or the applicable law to ban/blacklist M/s. Prakash-Atlanta(JV) who are hereby barred from short-listing; participating or bidding for any future projects to be undertaken by NHAI either directly in their name or indirectly in any other name or in association with any other person or entity in which they may choose to carry on their business for a period of two years. The detailed banning/blacklisting Order No. NHAI/Arbitration/ EW-15/2002-Tech/5805 dated 24/02/2009 is enclosed. This is for information and records of all concerned. (K.V.Sharma) General Manager (DK-I) Copy to : 1) Director General (RD) & SS, Ministry of Shipping, Road Transport & Highways. 2) Chief Secretaries/Secretaries (PWD/Roads) of all State Governments/UTs dealing with National Highways and Centrally Sponsored Schemes. 3) Chief Engineers of all States/UTs dealing with National Highways and Centrally Sponsored Schemes. 4) Director General (Border Roads), Seema Sadak Bhawan, Ring Road, Naraina, New Delhi – 110010. 5) All Officers of NHAI, HQ/PIUs/CMUs. 6) Media Relation/IT Divisio of NHAI with a request to get it hoisted on NHAI website. 7) M/s Prakash-Atlanta (JV)” (emphasis supplied) WP (Civil) No. 7443/2009 page 13 of 26 22. There are at least three things which are significant from the above circular. One is that the subject matter clearly says “debarred/blacklisting of M/s Prakash Atlanta Joint Venture.......”. The body of the circular refers to the impugned order dated 24th February 2009 as a “banning/blacklisting” order. Secondly, the circular was issued Mr. K.V. Sharma, General Manager (DK-I), by the same person who issued the blacklisting order. Third and most important is that the circular is sent to the “Chief Secretaries/Secretaries (PWD/Roads) of all State Governments/UTs dealing with National Highways and Centrally Sponsored Schemes; Chief Engineers of all States/UTs dealing with National Highways and Centrally Sponsored Schemes; Director General (Border Roads), Media Relation/IT Division of NHAI with a request to get it hoisted on NHAI website”. In other words, the blacklisting of the Petitioner was instantaneously given extensive publicity by the NHAI by hoisting it on a website while simultaneously transmitting it all over the country to several states and organisations. The circular underscores the extent of the adverse impact on the Petitioners as a result of the impugned blacklisting order. This has to be kept in the background while examining if the impugned blacklisting order satisfies the legal requirement of compliance with the principles of natural justice. 23. The requirement of an administrative authority to record reasons for its decisions was considered by the Constitution Bench of the Supreme Court in S.N. Mukherjee v. Union of India (supra). In para 9 of the said judgment (AIR @ p. 1988) one of the first questions formulated was “is there any general principle of law which requires an administrative authority to record the reasons for its decisions”. It was noticed that there was a divergence of WP (Civil) No. 7443/2009 page 14 of 26 opinion on the issue in common law countries. While in the United States of America, the Federal Administrative Procedure Act, 1946 required administrative decisions to indicate a statement of findings and conclusions as well as reasons or basis therefor, in England there was no such requirement. A reference was then made to the recommendations of the Donoughmore Committee and the Franks Committee which led to the enactment in the United Kingdom (U.K.) of the Tribunals and Enquiries Act, 1958 which mandated the tribunal or Minister to furnish a statement, either written or oral, and the reasons for the decision, if requested, on or before the giving of notification of the decision to support the decision. The Tribunals and Enquiries Act, 1971 also contained a similar provision. As far as India was concerned, the 14th Report of the Law Commission of India relating to reforms in judicial administration, recommended that administrative decisions should be accompanied by reasons. A reference was made to the decision of the Supreme Court in Madhya Pradesh Industries Ltd. v. Union of India (supra) and Bhagat Raja v. Union of India AIR 1967 SC 1606. Reference was also made to the decisions in Travancore Rayon Ltd. v. Union of India AIR 1971 SC 862; Mahabir Prasad Santosh Kumar v. State of U.P. AIR 1970 SC 1302 and Raipur Development Authority v. M/s Chokhamal Contractors AIR 1990 SC 1426. Thereafter in paras 34 and 35, the Supreme Court observed as under (AIR @ p. 1995): “34. The decisions of this Court referred to above indicate that with regard to the requirement to record reasons the approach of this Court is more in line with that of the American Courts. An important consideration which has weighed with the Court for holding that an administrative authority exercising quasi- judicial functions must record the reasons for its decision, is WP (Civil) No. 7443/2009 page 15 of 26 that such a decision is subject to the appellate jurisdiction of this Court under Article 136 of the Constitution as well as the supervisory jurisdiction of the High Courts under Article 227 of the Constitution and that the reasons, if recorded, would enable this Court or the High Courts to effectively exercise the appellate