SCA/7450/2007 1/36 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 7450 of 2007 For Approval and Signature: HONOURABLE MR.JUSTICE A.S.DAVE ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================================= ELECTROSTEEL INFRASTURCTURE SERVICES - Petitioner(s) Versus GUJARAT URBAN DEVELOPMENT CO. LTD. (GUDCL) & 1 - Respondent(s) ========================================================= Appearance : MR KS NANAVATI SR ADV for NANAVATI ASSOCIATES for Petitioner(s) : 1, MR JR NANAVATI for Respondent(s) : 1, MR AR THACKER for Respondent(s) : 2, ========================================================= CORAM : HONOURABLE MR.JUSTICE A.S.DAVE Date : 08/01/2008 ORAL JUDGMENT 1) This petition under Article 226 of the Constitution of India is filed by the petitioner SCA/7450/2007 2/36 JUDGMENT challenging the action of respondent No.1 in blacklisting the petitioner vide order dated 20.2.2007 with regard to the work performed under contract No.GUDC/GEL/G.2-WSS-15(B11), entered into between the parties, on the ground of gross negligence, bad workmanship and serious lapse in due performance of responsibility on the part of the petitioner, as being illegal, unjust, unreasonable and arbitrary. 2) The petitioner company is a Public Limited Company incorporated under the provisions of the Companies Act, 1956 and engaged in the manufacturing of Ductile Iron (DI) pipes. The petitioner is the turn key/EPC Projects Division of Electrosteel Castings Ltd. engaged in the implementation of world class water and waste water infrastructure management system. 3) The respondent No.1 is a company, incorporated under the provisions of the Companies Act, 1956 and is essentially a Government of Gujarat undertaking. Respondent No.2 herein was a consultant appointed by the respondent No.1 and was at the relevant time exercising power and authority for and on behalf of the respondent No.1. 4) For the sake of brevity, the petitioner is referred to as `EIS' and respondent No.1 is referred to as `GUDCL' and respondent No.2 is referred to as `GEL'. SCA/7450/2007 3/36 JUDGMENT 5) It is the case of the petitioner that respondent No.1 being an Authority and instrumentality of the State within the meaning of Article 12 of the Constitution of India, is subject to the provisions of Part-III and part-IV of the Constitution of India, therefore, amenable to the writ jurisdiction of this Court. 6) Short facts of the case are as under. 7) That in the year 2002, after devastating earthquake in the State of Gujarat in the year 2001, the respondent No.1 under the Gujarat Earthquake Reconstruction & Rehabilitation Program, invited bids from pre-qualified bidders for Water Distribution System (Part I) in Zone IV for construction of Elevated Service Reservoirs (for short `ESR') viz. Over Head Tank and also for Water Pump Systems, Water Transmission Mains, Construction of Pump Houses, Staff Quarters etc. at various places at Bhuj, Kachchh. The petitioner being lowest bidder, tender of the petitioner was accepted and contract was signed and executed by and between the petitioner and the respondent No.1 on 11.10.2002. The project was turnkey project which contained several works to be executed by the petitioner as per the site date, civil and structural engineering designs, construction drawings and works specifications provided by the respondent No.1 and respondent No.2 under SCA/7450/2007 4/36 JUDGMENT the supervision of respondent No.2. Out of various projects, so far as this petition is concerned, we are concerned with construction of ESR of 10,00,000 liters capacity at Shivkrupanagar area in Bhuj, Dist. Kachchh, and the value of which was Rs.38,79,417/-. Along with aforesaid project, the petitioner was given some other projects as per the terms of the contract. 8) It is the case of the petitioner that construction of ESR at Shivkrupanagar was shifted from the earlier site. In view of that the respondent Nos.1 and 2 could not get necessary clearance and permission for construction of ESR site as it was forest land and site was changed, which is 300 meters away from the original site. According to the petitioner, respondent Nos.1 and 2 are solely responsible for site selection and compared to the old location, new location was having considerable amount of soft strata and the soil bearing capacity of soft strata is very low. Since the strata also consisted of lot of shale, therefore, the petitioner brought to the notice of the respondent No.2 to carry out Geo Technical Investigation. However, as per terms of the contract, the petitioner commenced the execution of ESR at the new site and adhered to the strict quality control norms and procedures laid down by the respondents and the material SCA/7450/2007 5/36 JUDGMENT used and work done by the petitioner was supervised, inspected and ultimately Shivkrupanagar ESR was completed on 31.12.2003. No leakage whatsoever was noticed and structure was filled with completely 10 lacs liters of water on 2.3.2004. However, on the same day, at about 5.30 p.m. the said structure has suddenly fallen without showing any early sign/indication of breakage, cracks or damage to the structure. 9) On 2.3.2004 a letter was issued by respondent No.2 informing that ESR had collapsed because of the fault on the part of the petitioner. The petitioner has given reply to the respondent No.2 in detail stating that respondent No.2 has regularly scrutinized and supervised the construction materials used for the said construction activities and only after its approval at each stage, the construction was carried out, therefore, there was no breach of any of the clauses of the Contract on the part of the petitioner. It was communicated by the petitioner that collapse of the structure was due to wrong site selection and faulty engineering design prepared by respondent No.2 and indicated its willingness to start reconstruction of ESR and further expressed its willingness to cooperate with the investigation by the Expert Committee and assured to construct and complete new ESR at their own cost, if it is SCA/7450/2007 6/36 JUDGMENT found that the petitioner is responsible for the collapse of ESR. 10)The respondent No.1 constituted a Committee of 4 experts and senior officers of Gujarat Water Supply & Sewerage Board (for short `GWSSB')(a State level statutory organization), having experience of constructing major water retaining structures including ESRs in the State of Gujarat, to investigate the issue. On 5.3.2004 the expert committee visited the site and after scrutinizing drawings, correspondence, material testing reports and other testing reports of concrete etc. submitted its report in July, 2004 and the Expert Committee opined that the collapse of ESR had not occurred due to any fault in the workmanship or material used by the contractor and that the construction was satisfactory and as per the specifications. It was also observed by the said Committee that the soil below the foundation had no capacity to bear the heavy load of the structure constructed as per the design. 11)The petitioner, on its own, called the experts from premier institutes like Indian Institute of Science, Bangalore (for short `IISC') and Veermata Jijabai Technological Institute, Mumbai (for short `VJTI') to assess the actual cause of collapse. The experts from VJTI and IISC had visited the site, collected the soil sample, construction drawings, design details and all SCA/7450/2007 7/36 JUDGMENT other relevant documents. As per the reports of both the institutes i.e. IISC and VJTI, the collapse of the ESR took place due to wrong site selection and not because of lacuna on the part of the petitioner. 12)So far as the Expert Committee of GWSSB is concerned, soil investigation was done through GERI and the concrete slabs were tested through National Council for Cement & Building Materials (for short `NCCBM'). That Committee also took the opinion of one Mr.Lavingia, Consulting Engineer, to verify the structural design, who was the Expert Structural Designer. 13)Therefore, the State of Gujarat had appointed Dr.A.S.Arya, Structural Expert, to review the report of the Expert Committee for collapse of ESR. That after taking into consideration various aspects, including the report of Mr.Lavingia, NCCBM & GERI and the documents supplied by GUDC viz. copy of structural design, copy of structural drawing, video recording and photographs of the collapse of ESR, reports of investigations carried out by the professors of VJTI and final investigation report of the Committee of GWSSD etc., Dr.Arya concluded that the reason for the collapse of ESR was due to the joint failure in the middle ring beam which is due to the negligence of both the petitioner and the respondent No.2 and the petitioner was considered to be mainly responsible for collapse SCA/7450/2007 8/36 JUDGMENT of ESR. 14)Thus, show cause notice dated 23.8.2004 came to be issued to show cause as to why the petitioner should not be blacklisted. That detailed reply was furnished by the petitioner by reply dated 16.9.2004 denying the charges levelled therein and reiterated that there was no failure on the part of the petitioner to adhere to any terms or norms of the contract and it was completely a failure on the part of the respondent No.2 while selecting the site certain aspects were not taken into consideration viz. structure and strata of the soil and its load bearing capacity. In the reply, conclusions and opinions of the experts of VJTI and IISC and opinion of Expert Committee of GWSSB were extensively referred and a request was made to withdraw the notice dated 23.8.2004 and to resolve the matter in the spirit of mutually agreed and accepted MoM dated 15.4.2004. 15)However, by way of abundant caution, the petitioner preferred a Civil Suit being Civil Suit No.100 of 2004 before the learned Civil Judge (Senior Division), Gandhinagar. Upon the reply filed by the respondent No.1 herein, order below Ex.14 came to be passed returning the plaint for presentation before the competent court. Against the aforesaid order, the petitioner filed Appeal from Order No.19 of 2007 SCA/7450/2007 9/36 JUDGMENT before this Court and ultimately it came to be withdrawn by the petitioner with a liberty to prefer an appropriate reference before the Arbitration Tribunal for breach of contract and damages and for resolving the question of blacklisting to prefer a writ petition before this Court. Since the efforts of the petitioner to settle the dispute amicably did not materialize in spite of the fact that the petitioner completed the work assigned to it by respondent No.1 under the Bhuj Part I & II projects etc. and performance also being satisfactory, the petitioner is compelled to challenge the impugned action of blacklisting by order dated 20.2.2007 issued by respondent No.1, before this court on various grounds. 16)Mr.K.S.Nanavati, learned Senior Advocate for the petitioner mainly contended that the petitioner being the lowest bidder, awarded contract of construction of ESR at Shivkrupanagar along with other projects pursuant to Gujarat Earthquake Reconstruction & Rehabilitation Program and the petitioner being division of ESI project being turn key, the petitioner company has taken all due care and caution as per the terms of the contract and as per the engineering and structural design, drawings directions given by the respondents, after site location as determined by them. It is further submitted that the petitioner had no locus with regard to SCA/7450/2007 10/36 JUDGMENT selection of site and after strictly adhering to the quality norms with regard to the materials used in construction which came to be supervised, inspected and tested by respondent No.2 for which the petitioner cannot be held responsible on the alleged ground of negligence, bad workmanship and sever lapses. 17)Mr.Nanavati, learned Senior Advocate further contended that it was the sole responsibility of the respondent Nos.1 and 2 to select and finalize the site and location of the said ESR and to carry out all engineering and site surveys, preparing ground profiles, carrying out soil investigations to determine the soil bearing capacity of the place where the ESR was to be constructed. It is submitted that even though the petitioner had suggested to carry out soil investigations etc., no heed was paid to it. Therefore, for the failure on the part of the respondents to carry Geo Technical Investigation, the petitioner cannot be held responsible and on the contrary the petitioner has performed all its required contractual obligations. Mr.Nanavati further submits that new site at which ESR was to be constructed is situated at a hillock with three sides confined with the upper hill and gradual slope on the forth side. The soil at the site is a combination of soft dis-integrated rock in layers, fine course slit, shale and clay layers SCA/7450/2007 11/36 JUDGMENT with boulders. There is slope on one side of the site where erosion of sand and silt is greater. The soft disintegrated mud stone/lime stone/sand stone is soluble in water which can further soften the soil. The soil bearing capacity of the location is not more than 12 MT/m2 to 13 MT/M2 and therefore, the soil under the foundation could not bear the load of the ESR when it was completely filled. It is submitted that due to this the raft foundation settled down unevenly causing differential settlement more than the permissible limit, which caused angular distortion of the raft foundation which further led to the collapse of the ESR. Learned Senior Advocate, further submits that the reason for the collapse of ESR was mainly due to wrong selection of site which was finalized by the respondent No.2. 18)Mr.Nanavati, learned Senior Advocate, then submits that three different expert committees have not fastened any liability upon the petitioner for the collapse of ESR at Shivkrupanagar. He relied on the findings of the experts of VJTI and IISC and a Committee of four experts and senior officers of GWSSB and submitted that the collapse was due to wrong site selection and not because of poor workmanship or usage of poor quality material on the part of the petitioner for construction of ESR. Mr.Nanavati doubted the report of Dr.Arya, SCA/7450/2007 12/36 JUDGMENT Structural Expert, appointed by the respondent to review the report of the Expert Committee of GWSSB and it was submitted that before Dr.Arya also, the petitioner had raised grievance about test results conducted by NCCBM and GERI and Mr.Lavingia, a structural expert. A doubt was raised about appointment of Dr.Arya so as to brush aside the findings of expert committee of GWSSB and how reliance could have been placed by Dr.Arya on the report of Mr.Lavingia of 20.8.2004, which was later in time time than the report of Dr.Arya dated 12.8.2004. According to learned counsel for the petitioner, report of Dr.Arya was factually and technically incorrect and contrary to sound engineering principles on various grounds, as mentioned in para 28 of the petition and when cement, steel and other materials used were tested in approved laboratory as per testing standards specified by the Bureau of Indian Standards, there was no justification for finding fault with the petitioner for the collapse of ESR. Mr.Nanavati, further submitted that all other projects and work contracts came to be completed without any grievance by the respondent. It is further submitted in reply to the show cause notice of blacklisting the petitioner that though various details were given and causes were explained, no findings are reflected in the impugned order of 20.2.2007 and in spite of the fact that the whole contract was given for 5 SCA/7450/2007 13/36 JUDGMENT different projects, only part of the contract was considered to be terminated, therefore also, there was no justification to ban the petitioner permanently for a long time and attaching a kind of stigma to the petitioner affecting its further business contracts. 19)Learned counsel for the petitioner submitted that since respondent No.1 is an agency/instrumentality of the State within the meaning of Article 12 of the Constitution of India, it is amenable to the writ jurisdiction of this Hon'ble Court under Article 226 of the Constitution of India and as the law laid down by the Apex Court in various cases, administrative action of the authority can be reviewed and this court can certainly look into the arbitrariness and unreasonableness in administrative action of the Authority, who is under obligation to act in a just and fair manner and not contrary to Articles 14 and 19 of the Constitution of India. Learned counsel for the petitioner has relied on various authorities; (1) AIR 1991 SC 537; (2) AIR 1998 Cal. 153. In support of the above averment, Mr.Nanavati has also further relied on two judgments of two different High Courts on similar issue reported in 1981 Delhi 260 and AIR 2005 Allahabad Bench 3. Mr.K.S.Nanavati, learned Senior Advocate, further submits that the action of the respondent No.1 of permanently SCA/7450/2007 14/36 JUDGMENT blacklisting the petitioner is very harsh, disproportionate to the alleged negligence which shocks the conscience of the Court and considering divergent reports of experts, by invoking doctrine of proportionality also this Court can strike down such action while reviewing the same. For this purpose, reliance was placed by Mr.Nanavati on the judgment reported in AIR 1997 SC 3387. 20)At the outset, Mr.J.R.Nanavati, learned counsel for the respondent, submitted that the petition filed by the petitioner under Article 226 of the Constitution of India is not maintainable inasmuch as the respondent No.1 has never entered into an agreement/contract with the petitioner-Electrosteel Castings Ltd. (ECL). The petitioner has no right to file the present petition challenging the impugned order raising disputed questions of facts, therefore, the petition deserves to be dismissed at the threshold because the same cannot be maintainable under Article 226 of the Constitution of India. However, alternatively, it was submitted that execution of Gujarat Earthquake Rehabilitation Program was funded by the Asian Development Bank and ECL entered into an agreement with respondent No.1 for which no dispute arises except collapse of ESR at Shivkrupanagar for construction for capacity of 10 lac liters of water. Mr.J.R.Nanavati, further SCA/7450/2007 15/36 JUDGMENT submits that dispute has arisen with regard to RCC ESR collapse. The above RCC ESR collapsed on 2.3.2004 during the hydraulic testing and after proper investigation it was found that the petitioner had shown gross negligence and bad workmanship apart from serious lapses in the performance of the responsibility as contractor, therefore, the respondent No.1 has all the powers and authority to blacklist/ban the petitioner. The action of the respondent No.1 which was taken in the interest of respondent No.1 need not to be subjected to judicial review unless it is found extremely perverse and arbitrary on the face of it, which is not in the present case. Therefore, also the present petition deserves to be dismissed in limine. 21)Mr.J.R.Nanavati, learned counsel for the respondent No.1, has relied on the written statement filed by respondent No.1 before the Court of Civil Judge (S.D.), Gandhinagar in Special Civil Suit No.100 of 2004 (annexed along with the affidavit in reply) and submitted that now the matter is pending before the Arbitration Tribunal, which shall decide the responsibility and liability arising out of the terms and conditions of the contract. Therefore, there is no justification to interfere with the just and reasonable order passed in accordance with law of blacklisting the petitioner after issuing proper show cause notice and following SCA/7450/2007 16/36 JUDGMENT principles of natural justice. 22)Mr.J.R.Nanavati, learned counsel for respondent No.1, further submits that even assuming without admitting that there are conflicting opinions and conclusions of different experts and Committees, in such an eventuality also, this Court has no power to go beyond the wisdom of the experts and to opine on the merits of the case in either way. In short, according to Mr.J.R.Nanavati, power to review administrative action, in the backdrop of the present case, judicially by this Court, is circumscribed to a limited extent as to whether an affected person was given proper opportunity to explain the case before the impugned action is taken by respondent No.1. In the present case, show cause notice was already issued on 23.8.2004 to explain as to why the petitioner should not be blacklisted and after considering the reply of the petitioner dated 16.9.2004 in its true spirit and also after considering various reports of the experts, it was thought just and proper by the respondent No.1 to blacklist the petitioner. Therefore, the action of the respondent No.1 cannot be said to be unreasonable, arbitrary and interference of this Court is uncalled, as laid down by the apex court in the case of Gronsons Pharmaceuticals (P) Ltd. V. State of Utter Pradesh reported in AIR 2001 SC 3707. SCA/7450/2007 17/36 JUDGMENT 23)Mr.J.R.Nanavati, learned counsel for the respondent No.1, further submits that contractual liability of the petitioner is absolute and unqualified as it is reflected from the contract produced at page 70 of the compilation and particularly paras 7.2, 7.3, 8.1 and 8.2 include general and specific obligations of the contractor and paras 13.1 and 20.1 also indicate liabilities and duties of the contractor. According to Mr.J.R.Nanavati, learned counsel for the respondent No.1, after final site selection for construction of ESR, the work was carried out by the petitioner and when the ESR collapsed at the time of hydraulic test, the responsibility cannot be shifted on the shoulder of the respondent No.2 only on the ground of selection and finalization of site by respondent No.2. Mr.J.R.Nanavati, submits that at the time of actual commencement of the work of construction of ESR it was very well known to the petitioner about the nature of the soil upon which the construction was to be carried out, which is 300 meters away from the original site. Mr.J.R.Nanavati, further submits that Dr.Arya in his reviewing report also found that the present petitioner is responsible for collapse of ESR. Mr.Nanavati, lastly submitted that, the order impugned is just and proper and no interference of this Court is called for. 24)Having heard learned counsel for the parties and SCA/7450/2007 18/36 JUDGMENT perusing the record of the case, the fact remains that challenge in this petition under Article 226 of the Constitution of India is the order of blacklisting the petitioner for ever and not any challenge about breach of conditions of contract and respondent No.1 is Authority within the meaning of Article 12 of the Constitution and amenable to the writ jurisdiction of this Court under Article 226 of the Constitution of India, therefore, the challenge is maintainable. On perusal of the terms and conditions of the contract dated 11.10.2002 entered into between GUDCL and EIS, communication between the parties and technical reports submitted by the experts, I am of the opinion that submissions of learned counsel for the petitioner are devoid of any merit inasmuch as the action of the respondent Authority of blacklisting the petitioner especially when it was found that ESR collapsed due to gross negligence of workmanship and serious lapses in due performance on the part of the petitioner, the action of the respondent No.1 in any manner cannot be said to be unreasonable, arbitrary and illegal and violative of Articles 14 and 19 of the Constitution of India. 25)That one of the main submissions of the learned counsel for the petitioner about selection of site for construction of ESR was the sole responsibility of respondent No.2 itself does SCA/7450/2007 19/36 JUDGMENT not absolve the petitioner from performing its obligation of the contract. That selection of new site at which ESR was to be constructed consisted of soil, a combination of soft dis- integrated rock in layers, fine course slit, shale and clay layers with boulders. There is slope on one side of the site where erosion of sand and silt is greater and it is situated at a hillock with three sides confined with the upper hill and gradual slope on the forth side. On the contrary, it required special expertise of the petitioner in executing such nature of work with vast experience and perfection. For collapse of ESR at the time of hydraulic test