IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN, JAIPUR BENCH, JAIPUR. JUDGMENT Rajasthan Tube Manufacturing Co. Ltd. Vs. State of Raj. & Another (S. B. Civil Writ Petition No.7176/2005) S.B. Civil Writ Petition under Articles 226 of the Constitution of India. Date of Judgment: December 15, 2008 PRESENT Hon'ble Mr. Justice R. S. Chauhan Ms. Sheetal Mirdha, for the Petitioner. Mr. M. A. Khan, Addl.G.A. for the State. Per Court: Aggrieved by the non-payment of 5% of the price amount, or about Rs.8 lacs, for the supply of 65mm and 125mm galvanized mild steel pipes, aggrieved by non-refunding of security deposit, aggrieved by the non-decision about the claim for escalation of price, the petitioner has approached this Court for redressal. 2. In a nutshell, the case of the petitioner is that the petitioner is manufacturer of galvanized mild steel pipes. After participating in tenders floated by the Public Health and Engineering Department (`PHED' for short), the petitioner was awarded two contracts namely, dated 23-2-98 and 27-4-98, for the supply of 65mm and 125mm galvanized mild steel pipes. According to condition No.1(a) of the contract, the petitioner was required to have a Bureau of Indian Standard (`BIS' for short) licence and the department was to accept only those pipes which were marked with ISI mark by the petitioner. According to condition No.1(3) of the contract, dated 27-4-98, if for any reason BIS licence were suspended or cancelled, during the currency of the contract, the department was, in its discretion, to procure the goods from any other source at the risk and cost of the contractor. 3. The Bureau of Indian Standards (Certification) Regulations, 1988 (`the BIS Regulations' for short) concern the controversy in this case. Regulation 5(5) of the BIS Regulations empowers the Bureau to suspend or cancel the licence issued under BIS Act, in case it is discovered that the specifications established by the Bureau are not being adhered to. Regulation 5(7) of the BIS Regulations further permits the Bureau to direct that marking of the product manufactured be stopped till further permission is granted by the Bureau for resuming the manufacturing process. 4. According to the petitioner, on or about 29-9-98 the officers of the Bureau inspected the petitioner's factory. They directed the petitioner to stop marking 150mm NB medium and 100mm NB medium pipes. Subsequently, vide order dated 1-12-98, the petitioner was permitted to resume the production of said pipes. However, according the petitioner while the respondent No.1 has paid 95% of the price of 65mm and 125mm galvanized mild steel pipes, it has retained 5% of the price of 65mm and 125mm galvanized mild steel pipes, approximately Rs.8 lacs. The said amount has been withheld ostensibly on the ground that the pipes had been supplied in contravention of the contract. Moreover, the security amount deposited by the petitioner has also been forfeited by the respondent No.1. Furthermore, despite various letters written to respondent No.1, and inspite of legal notice served upon respondent No.1, the respondents are continuing to maintain studied silence over the entire issue. Hence, this writ petition before this court. 5. Ms. Sheetal Mirdha, the learned counsel for the petitioner, has vehemently argued that the respondents are confusing between “suspension and cancellation of licence”, on one hand, and “stoppage of production and marking of product” on the other hand. The Bureau had neither suspended nor cancelled petitioner's licence. In fact, it had merely directed, under Regulation 5(7) of the BIS Regulations, to stop the production and marking of product. According to the learned counsel a distinction has to be made between “suspension and cancellation of licence” and “stopping of marking and the production”. Secondly, the respondents have not appreciated the facts of the case in proper perspective. Admittedly the contracts dated 23-2-98 and 27-4-98 dealt with the sale of 65mm and 125mm galvanized mild steel pipes. Yet, the BIS had stopped the marking of 150mm NB medium and 100mm NB medium pipes. Therefore, the BIS never directed to “stop marking” of 65mm and 125mm galvanized mild steel pipes. Therefore, the respondents are unjustified in withholding of 5% of the price of 65mm and 125mm galvanized mild steel pipes. Thirdly, that even during the period between 29-9-98 and 1-12-98 when the embargo was imposed upon the petitioner's production and marking of product, the petitioner supplied 65mm and 125mm galvanized mild steel pipes from its stock. This fact was subsequently verified by the Bureau itself. Therefore, the question of breaching of condition of the contract does not even arise. Fourthly, despite the repeated requests of the petitioner to the respondents for payment of 5% of the price of 65mm and 125mm galvanized mild steel pipes, for the payment of security amount and for the consideration of price escalation, the respondents have continuously maintained studied silence over the issue. Although the respondents claim that the matter was referred to Finance Committee, but no decision of Finance Committee has been supplied to the petitioner. Thus, the respondents are failing in their duty to redress the petitioner's complaints. Hence, their omission is arbitrary, unfair and unjust. 6. On the other hand, Mr. M.A. Khan, learned Additional Government Advocate, has contended that firstly when the officers of of the Bureau had inspected the petitioner's factory, they had discovered certain irregularities committed by the petitioner. It was discovered that pipes of different sizes, including 150mm NB medium and 100mm NB medium pipes, were not conforming to the established standard. Therefore, the petitioner's licence was seized. Since the licence was seized between 29-9-98 and 1-12-98, therefore, the condition of the contract was breached by the petitioner. Hence, respondents were justified in retaining 5% of the price of pipes supplied to them and in forfeiting the security amount. Secondly, during the period between 29-9-98 and 1-12-98, the petitioner had supplied the pipes which did not conform to the standard established by the Bureau. Thus, the respondents were justified in forfeiting the security amount and in not paying 5% of the price of the pipes. The petitioner's case was referred to Finance Committee. The Finance Committee had decided to forfeit the security amount and not to pay 5% of the price of pipes. Hence, the learned counsel has justified the respondents' actions. 7. Heard learned counsel for the parties and perused the material available on record. 8. In the last 60 years, the Government has gone from limited functions to unlimited functions. The Government is not only confined to ensure internal and external security, no longer confined to maintain law and order, but most importantly had entered the commercial arena of buying and selling and of carrying out mega projects. Thus, it has entered into the arena of commercial activities. The concept of fairness, justness and reasonableness is confined not only to administrative actions of the Government, but equally apply to its commercial transactions. Hence, when the State enters into a contract with a private entity or with a local entity, it is required to act in a just, fair and reasonable manner. Any action which is arbitrary, unfair, or unjust, or is afflicted by non-application of mind, or malafide, or Wednesbury rule of unreasonableness, or by ulterior motive, such action is not only questionable, but is also legally unsustainable. In short, the State is duty bound to be just, fair and reasonable in its action. It is as much bound by the conditions of the contract, by the operation of law, as are private parties to a contract. Merely because the State carries out a sovereign functions, it cannot escape the rigorous of a contract. 9. Regulation 5(5) of BIS Regulations reads as under:- 5. Condition of a licence- (5) (a) Any licence granted by the Bureau may be suspended or cancelled by it, if it is satisfied- (i) that the articles marked with the Standard Mark under a licence doe not comply with the related Indian Standard or Standards; or (ii) that the licensee had used the mark in respect of a process which does not come up to the related Indian Standard or Standards; or (iii) that the licensee failed to provide reasonable facilities to any Inspecting Officer to enable him to discharge the duties imposed on him; or (iv) that the licensee has failed to comply with any of the terms and conditions of the licence. (b) Before the Bureau suspends or cancels any licence, it shall give the licensee not less than fourteen days' notice of its intention to suspend or cancel the licence. (c) On the receipt of such notice, the licensee may submit an explanation on his behalf to the Bureau within seven days from the receipt of the notice if an explanation is submitted, the Bureau may consider the explanation and give a hearing to the licensee within fourteen days from the date of receipt of such explanation or before the Expiry of the notice whichever is longer. (d) If no explanation is submitted, the Bureau may, on the expiry of period of the notice, suspend or cancel the licence. (e) Where a licence has been suspended or cancelled, or the term thereof has not been renewed on the expiry of the period of its validity, the licensee shall discontinue forthwith the use of the Standard Mark notwithstanding the pendency of any appeal before the Central Government under Section 16 of the Act and if there be, with the licensee or his agents, any articles in stock which have been improperly marked, the licensee or his agents as the case may be, shall take necessary steps to get the Standard Mark on such articles either removed, cancelled, defaced or erased. 10. Regulation 5(7) of BIS Regulations reads as under:- (7) (a) If, at any time, there is some difficulty in maintaining the conformity of the product to the specification or the testing equipment goes out of order, the marking of the product shall be stopped by the licensee, under intimation to the Bureau. The marking may be resumed as soon as the defects are removed and information regarding such resumption of marking be sent to the Bureau, immediately thereafter. (b) If, at any time, the Bureau has sufficient evidence that the product carrying the Standard Mark may not be conforming to the Indian Standard the licensee shall be directed to stop marking of such product. The resumption of marking on the product shall be permitted by the Bureau after satisfying itself that the licensee has taken necessary actions to remove the deficiencies. 11. A bare perusal of these provisions clearly reveals that there is distinction between “licence being cancelled and suspended” and “direction being issued for stop marking of the product”. A bare perusal of the record clearly reveals that vide letter dated 29-9-98, the petitioner was directed to stop marking on 150mm NB medium and 100mm NB medium pipes. The said letter also reveals that the Bureau invoked the power under 5(7)(b) of BIS Regulations. Thus, the Bureau had not “seized the licence of the petitioner”. Therefore, the stand taken by respondents that “the petitioner's licence was seized”, is against the record of the case. Hence, the same is unsustainable. 12. Moreover, vide letter dated 1-12-98, issued by the Bureau to petitioner, the petitioner was permitted to resume marking of 150mm NB medium and 100mm NB medium pipes. Thus, obviously, it is not the case that petitioner's licence was cancelled or suspended. Therefore, the contention of respondents that petitioner's licence was seized is belied by the record. Thus, the said contention is absolutely baseless. 13. The contracts dated 23-2-98 and 27-4-98 deal with supply of 65mm and 125mm galvanized mild steel pipes. The said contracts did not deal with supply of 150mm NB medium and 100mm NB medium pipes to the respondents. According to letter dated 29-9-98 issued by the Bureau to the petitioner, the petitioner was directed to stop marking of 150mm NB medium and 100mm NB medium pipes. Thus, it is clear that the Bureau did not stop the production of 65mm and 125mm galvanized mild steel pipes. Hence, the respondents are unjustified in claiming that the petitioner had breached the condition of the contract. 14. According to respondents during the period 29-9-98 and 1-12- 98 the petitioner had supplied sub-standard pipes. But, according to the petitioner, it had supplied the pipes which were in stock and which were produced and marked prior to the inspection carried out by the Bureau. Although the petitioner claims that this fact was subsequently verified by the BIS, but the letter of Bureau confirming this fact has not been placed before this Court. Whether standard or sub-standard pipes were supplied or not, upon this issue evidence is lacking in this case. However, there is no evidence available in the record showing the fact that the respondents had ever complained about the quality of the pipes being supplied to them. Moreover, once the pipes have been utilised, then there is no justification in law for non-payment of the consideration. 15. The respondents claim that they have forfeited the security amount and decided not to pay 5% price amount on the basis of a decision taken by the Finance Committee. Yet, surprisingly, the decision of Finance Committee has not been placed on record. Therefore, this Court is of the opinion that Finance committee has, in fact, not taken any decision on the controversy involved in this case. If any decision were taken by the Finance Committee, the same would have been produced by the respondents before this Court. Therefore, in the absence of decision of Finance Committee, the action of respondents in forfeiting the security amount and in not paying the entire consideration for the pipes supplied by the petitioner is clearly arbitrary, unjust and unfair act. 16. Since sufficient evidence has not been produced by both the sides, therefore, this Court directs the respondents to refer the dispute raised by the petitioner to the Finance Committee within a period of one month. The Finance Committee is directed to decide the dispute with regard to retention of 5% price amount, and with regard to forfeiture of security amount, and with regard to escalation of price during the term of the contract. The Finance Committee shall decide the controversies by a reasoned order within a period of two months thereafter. 17. In the result, the writ petition is allowed, as indicated above. There shall be no order as to costs. (R. S. CHAUHAN) J. arn