IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 25/02/2011 CORAM THE HON'BLE MR.JUSTICE V.PERIYA KARUPPIAH ORIGINAL APPLICATION Nos.305,306 and 307 of 2010 ORDER : V.PERIYA KARUPPIAH, J. O.A.No.305 of 2010: This application has been filed by the applicant seeking to grant an order of injunction restraining the 1st respondent to give effect to the letter of termination dated 06.03.2010. O.A.No.306 of 2010: This application has been filed by the applicant seeking an order of injunction restraining the 1st respondent from invoking the Bank Guarantee bearing No.0393BG00 100106 dated 31.03.2008 and amendment dated 09.07.2008 for Rs.2,40,00,000/- (Two crores and forty lakhs only) and for Rs.4,02,22,000/- (Four crores two lakhs and twenty two thousands) vide No.0393BG00152608 dated 26.05.2008 issued by ICICI Bank Ltd. O.A.No.307 of 2010: This application has been filed by the applicant seeking an injunction restraining the 1st respondent from appointing an alternate SCA pending disposal of this application. All the three applications are filed by the applicant on the same cause of action and therefore, it is most convenient to pass a common order on these three applications . 2. The case of the applicant in all three applications would be as follows: (a) The applicant is a Public Limited Company incorporated under the provisions of the Companies Act, 1956 and having its registered office at Navi Mumbai. The applicant is engaged in various business including business for providing software product and services providing consultancy/advisory services on matters relating to software solutions/products, business intelligence, strategy planning, information technology and other related services. (b) The applicant has got several contracts with public institutions regarding several services in e- Governance projects. The 1st respondent is a society formed and registered under the Tamil Nadu Societies Registration Act, 1975 solely and wholly owned by the Government of Tamil Nadu the 2nd respondent herein. The respondents under its National e-Governance plan (NeGP) proposed to provide government and non-government services to the citizens through Common Service Centre(CSCs) to be set up under Public Private Partnership(PPP) on three modes, viz., (1) Connectivity i.e. State Wide Area Network (SWANs)/NICNET (2) National Data Bank/State Data Centers (SDCs) and (3) CSCs for delivery of Web-enabled Anytime Anywhere access to information and services in rural India and thereby integrate the social and commercial goals of rural India with an emphasis and major thrust on development of rural entrepreneurship. The 1st respondent called private entrepreneurs like the applicant to bid through the Tenders/Request For Proposal (RFP) floated by Directorate of Information Technology in Tamil Nadu. (c) Originally as per the RFP dated 26.09.2007, the applicant was required to establish and operationalize CSCs in phases as per the time schedule prescribed by the respondents. The applicant was to set up and operationalize the CSCs at its own cost and expense within 11 months in phases from the effective date as per the deliverables outlined in the RFP. The applicant was to operate and manage the CSCs for four years from the date of scheduled completion of CSC roll out. The applicant participated in CSC scheme not just as a business opportunity but also took as an opportunity to do welfare to the public at large. Therefore, the applicant even opted for a negative bid model rather than taking Revenue support from the respondents. (d) Accordingly, the applicant was declared as the bidder and was issued a Letter of Acceptance (LOA) bearing No.249/CSC/2007 dated 17.03.2008 as Service Centre Agency (SCA) to set up operations and manage 4395_CSC under 4 zones comprising 26 districts in Tamil Nadu. Following the LOA, the Master Service Agreement (MSA) dated 08.07.2008 was executed amongst Government of Tamil Nadu (R2), the Tamil Nadu e-Governance Agency (R1) and 3i infotech Limited (applicant). The MSA is binding upon all the three parties. According to clause (8), the dispute resolution should be done in accordance with the said provisions mentioned in clause 8. As per clause 8, if there is any dispute arisen under this MSA, the said authority shall notify the other party of the detailed nature of the dispute, the right or obligation under this agreement to which the dispute relates, and the relief sought by the party raising the dispute and on such information the parties shall at the first instance attempt to resolve the dispute in good faith and in case, the parties are unable to resolve the dispute in good faith and the matter shall be referred to the Empowered Committee set up in accordance with the agreement and the Empowered Committee shall attempt to resolve the dispute in a meeting specially convened for the purpose and the representatives of all the parties shall be invited to participate in such meetings. Thereafter, the negotiations between the parties and the proceedings before the Empowered Committee shall be kept as confidential unless parties agree otherwise. In case, the Empowered Committee is unable to resolve the dispute, the dispute shall be referred to arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (Central Act 26 of 1996) and the arbitration proceedings will be held at Chennai, India and it shall be conducted in English and all documents shall, if not already in English, shall be translated into English by the party relying upon the document. Sole arbitrator shall be nominated by the Government of Tamil Nadu for the purpose of arbitration proceedings. The award or decision of the arbitrator pursuant to this clause shall be a domestic award and final, conclusive and binding upon the persons affected by it. During any period of dispute resolution, there shall be no suspension of MSA. e. While performance of the contract entered through MSA the applicant felt certain difficulties from the respondents side and the respondents failed to do or render support from the SDA for providing the e-formatting data on the SDC and Government portal to ensure that the applicant could roll out the CSCs. Further, the Village Level Entrepreneurs(VLE) lacked interest for want of e-government services, implementation of 3 pillar model. No Empowered Committee was set up to monitor the functions as envisaged in Schedule IV of the MSA. The SDA also failed to facilitate awareness campaigns to promote the CSCs amongst all stakeholders, rural customers and service providers. Similarly no Service Level Agreement with each Government department to deliver the G2C services to the rural citizens within stipulated timelines. The SDA also failed to provide regulatory support for the successful implementation of the CSC. SDA also failed to deliver G2C services which is a important one. The set up of SDC and SWANs which are crucial to implement the CSCs are necessary for rendering services to the citizens through CSCs but they were not available. f. The applicant was put into great difficulty due to the failure of the respondents and therefore, it could not roll out the CSCs not more than 558 as on 31.03.2009, not more than 822 as on 31.05.2009 and finally not more than 1542 as on 10.02.2010. If really the respondents have co- operated with the applicant by not performing all the obligations cast upon them as stated earlier, the applicant would have rolled out all the CSCs i.e 4395 within such time and there would not be any difficulty in continuing its performances. However, the applicant had informed the respondents about the status of roll out of CSCs through its letter dated 11.01.2010 as 2100 out of the aforesaid 4395 CSCs. g. The applicant has spent a total sum of approximately Rs.31 crores directly and indirectly for rolling out of the aforesaid CSCs and is incurring Rs.5 crores per year as operational costs of the no return on the said huge amount. This being so, the 1st respondent issued show cause notice dated 11.03.2009 questioning as to why penal action should not be taken against the applicant. Subsequently, meetings were held between the applicant and respondents and it was specifically pointed out various difficulties by the applicant including non-availability of G2C services as promised by the respondents. The applicant replied on 30.03.2009 informing all the difficulties faced by the applicant. The respondents informed the applicant through its letter dated 21.04.2009 to submit the further action plan. For that the applicant replied through its letter dated 13.05.2009, that it had rolled out 1548 CSCs and to deliver G2C services and were awaiting necessary services availability from the respondents. The applicant had also requested the State Government to provide the applicant atleast 6 months to complete roll out the CSCs in synchronisation with SWAN availability and SDC/e-Governance services delivery portal availability and also not to terminate the contract or invoke/encash bank guarantee or levy penalties on the applicant, unless and until the Government services are made available to the rural citizens in true spirit of purpose of the scheme as provided in the tender documents and relevant understanding given at the time of bidding. h. However, the 1st respondent in its letter dated 27.05.2009 pointed out certain discrepancies in the applicant fulfilling its obligations and threatened levy of penalty through recovery proceedings. For that the applicant replied on 04.06.2009 and by an interim reply requested for further time to submit detailed reply and accordingly on 05.06.2009 replied that many additional districts were covered and the total number of rolled out CSCs was 1828 and had also mentioned that the claim of liquidated damages on the side of the respondents was uncalled for and due to the lack of interest by the respondents shown by Village Level Entrepreneurs (VLEs) since positive results were not forthcoming from the Government and the media propogation on the non availability of G2C services and the existing PPP model was not effective and rendering necessary support for achieving goals and the economic melt down across the globe which affected India also and invocation of bank guarantee which would adversely affect the financial planning which in turn shall affect the roll out of the whole project putting the SCAs in more challenges. i. The claim for liquidated damages were punitive, unfair and uncalled for. The applicant had also asked for the constitution of Empowered Committee within 7 days, as per the terms of the contract for redressal of possible dispute and mid course corrections that may be required and to arrange for a meeting between parties to discuss the future rollout plan in frank and transparent manner with mutual willingness to accommodate the challenges faced by each other including the reasonable timelines without levying any liquidated damages noticed in the larger interest of the project in accordance with law and to expedite the availability of G2C (Government to Citizen) through CSCs to rural citizen, as envisaged under PPP model in true spirit of the project and not to levy any further penalty until the G2C services are made available in CSCs. j. Accordingly, the meeting was held on 14.08.2009 at the office of the 2nd respondent for reviewing the CSC project. The challenge being faced by the applicant for implementing CSC project was clearly spelt out including the business and economic environment like recession in the economy, increase in the operational cost, non-availability of various services, challenges in recruiting and franchise/Village Level Entrepreneurs. Accordingly, the applicant requested the respondents to allow the applicant till 31.03.2010 to complete the rollout of the CSCs. The applicant had rolled out 1900 CSCs till then and it wanted to roll out for remaining centres also to with draw the liquidated damages notice in the larger interest of the project and in the light of the law applicable to liquidated damages and not to invoke the bank guarantee or levy penalties as mentioned in the claim for the liquidated damages notice, to waive the payment of negative bid amount till CSCs are rolled out completely and to expedite the availability, more and more G2C (Government to Citizen) services CSCs to rural citizens. The respondents, despite promise given for the improvement in fulfilling the obligations, continued with their failure to fulfil. Due to lack of interest of the respondents in implementing the same, the CSCs suffered set back in implementation of the program. The applicant had issued a letter on 11.01.2010 that the applicant would like to retain 10 districts out of 26 districts and to withdraw from the balance 16. The said reasonable suggestion in the said facts and circumstances was not considered, but the 1st respondent suddenly issued a letter on 18.02.2010 without appraising the various grievances of the applicant and called upon the applicant to show cause within 7 days from the receipt of the same as to why penalty, additional penalty cannot be levied against the applicant. The said letter was suitably replied on 20.02.2010 spelling out in detail the difficulties faced by the applicant. Accordingly, it had stated that as on first week of January 2010, the applicant rolled out 2100 CSCs and those CSCs should be mandatorily provide G2C services but were still not provided by the respondents and the lack of G2C services had brought a lot of unrest among the VLEs as they had banked heavily on G2C service for their income and business growth and it has also acted deterrent for new VLEs to have confidence and enroll thereof under this project. Some of the G2C services like extracting patta, chitta, download of forms, collector grievances etc., were made available to public at large through public link and thus it leaves VLEs with no benefits and the main idea of the CSC scheme suffering due to the non- availability of G2C services. k. However, the 1st respondent without considering the reply had chosen to issue a letter dated 06.03.2010 which was received by the applicant on 08.03.2010 that it terminated the services of the applicant as one of the Service Centre Agency (SCA)for the roll out of 4395 centres in the 26 districts of the State and the Master Service Agreement between the State Designated Agency and Service Centre Agency dated 08.07.2008; to collect the damages and penalty for the non performance in rolling out the CSCs as per the timelines; terminating the MSA and the applicant was directed to comply with the provisions under clause 4.2 of the MSA and submit the Exit Management Plan; the applicant was directed to remit the sum of Rs.13,05,84,186/- within 10 days from the date of the receipt of the order failing which the bank guarantee to be invoked and to settle the alleged claims of VLEs. l. The applicant issued a notice of dispute dated 15.03.2010, stating the reasons and the respondents' inaction to provide the necessary data but it was replied and it would show the negative attitude of the respondents to fulfil the applicants request for resolving one of the main causes for the hurdles. M.The disputes are necessarily to be discussed and stated amicably or otherwise resulted as stipulated in the MSA. As per the contents of clause 8 of MSA, the applicant informed the respondents through its letter dated 15.03.2010, the total nature of the disputes required to be solved and further required to designate 2 of the senior officers to carry out negotiation on behalf of the applicant with the 1st respondent representative. It was not acted upon and was not productive one. Therefore, the dispute in between the parties should have been referred to the Empowered Committee. However, no Empowered Committee as required by the RFP/MSA has been set up by the respondents. The claims made by the respondents in its letter dated 06.03.2010 are not entertainable. Therefore, the matter should have been referred to arbitration. The respondents are not entitled to unjustly enrich themselves by way of a claim for penalty of damages. The said dispute has also to be resolved in arbitration. The respondents before issuing the order of termination ought to have made an attempt for dispute resolution through settlement in between parties and thereafter, refer the matter to the Empowered Committee and to proceed further but straight away the termination has been effected despite the applicant is running all the 2100 centres that have been already rolled out. n. In the above circumstances, pending arbitration it is just and necessary to grants appropriate interim reliefs by granting order of injunction restraining the 1st respondent to give effect to the letter of termination dated 06.03.2010; and also restraining the 1st respondent from invoking the bank guarantee bearing No.0393BG00 100108 dated 31.03.2008 and amendment dated 09.07.2008 for Rs.2,40,00,000/- and for Rs.4,02,22,000 vide No.0393BG00152608 dated 26.05.2008 issued by ICICI Bank and also to restrain the 1st respondent from appointing an alternate SCA pending the disposal of the application and to render justice. 3. The objections raised by the 1st respondent in the counter affidavit which was adopted by the 2nd respondent would be as follows: a. The 1st respondent society registered under the Tamil Nadu Societies Registration Act, 1975 under the Information Technology department, Government of Tamil Nadu, established for implementation of all programs under the National e-Governance Programme (NeGP), including as the SDA for implementing the Common Service Centres (CSC) under the National e-Governance Plan (NeGP) of the Government of India, the E-Governance is the giant leap forward towards making Government accessible to the citizen, which will not only save huge cost to the Government but also to make it more transparent and to improve efficiency in day to day interaction with the common man. The CSCs are the front end delivery points for the private and social sectors and Government to the citizens of India. The people in the rural and semi-urban areas can avail the services such as digital photos, surfing internet,typing, printing,paying utility bills of private enterprise, booking railway tickets/air tickets, shopping, education, tuition, telemedicine, agricultural services and financial services etc. The efficiency of these and the marketing of the same will depend entirely on the SCA namely the petitioner and the degree to which they are able to train their franchises in reaching out to the public with the services offered by them. b. In order to initiate steps to set up 5440 CSC in rural locations i.e (approx 1 centre for 3 villages) in all districts except Chennai. Two implementing agencies called SCA were selected through a open, transparent bid process to set up these centres. The petitioner was a successful bidder and it was allotted to set up 4395 centres as one of the SCAs in 26 districts of Tamil Nadu except districts of Chennai, Krishnagiri, Dharmapuri,Vellore and Tiruvannamalai. c. Accordingly, a Letter of Acceptance dated 17.03.2008 was issued and the applicant SCA to set up, operationalize and manage 4395 CSCs in four zones, comprising of 26 districts in the State of Tamil Nadu and a Master Service Agreement (MSA) was signed on 08.07.2008 in between the respondents 1 and 2 and the applicant herein. The terms and conditions were clearly laid out with definite timelines. Accordingly, time has been stipulated in schedule I for roll out of the CSC and its operations. Accordingly 20% of roll out CSCs in four months from the date of issuance of the LoA (i.e) 879 CSCs on or before 16.07.2008, completion of 50% of roll out CSCs in seven months from the date of LoA i.e (17.03.2008) on or before 16.10.2008 as many as 2198 CSCs and to complete 80% of CSCs within nine months from the date of LoA 17.03.2008 i.e on or before 16.12.2008 as such as 3516 CSCs being the 80% and completion of all 100% or roll out of CSCs in eleven months from the date of issuance of LoA i.e all the 4395 CSCs on or before 16.02.2009. d. The applicant could not perform its obligations and there was utter failure in implementing the project. As on 23.02.2009, only 280 CSCs were rolled out. Therefore, a show cause notice was issued to it by the 1st respondent on 11.03.2009, for which a reply was submitted on 30.03.2009 and since the reply was not satisfactory, the respondents through its letter dated 27.05.2009 issued a letter claiming a sum of Rs.2,30,22,000/- as liquidated damages as per the MSA. However, a month's time from 01.05.2009 to 31.05.2009 was given to the applicant as stipulated period for mitigation of material breach and even after this mitigation period, the progress made was not significant. Even as per the submission of the applicant, the rollout did not proceed beyond 1542 CSCs as against the 4395 allotted centres from 28.10.2009. The applicant proposal in its letter dated 11.01.2010 for withdrawal from 16 districts and retaining only 10 districts viz., Coimbatore, Erode, Namakkal, Ariyalur, Perambalur, Trichy, Thanjavur,Nagapattinam, Madurai and Kanyakumari which would go to show their inability and incompetence in rolling out and operating the CSC scheme in the four zones allotted to them. It could also be inferred that the applicant had no intention of reaching the rural citizens and they were buying time for a phased withdrawal from the scheme as a whole. Several meetings were held with various representatives of the applicant but there was no further progress. There was no dispute at any given time except the requirement for fulfilment of the MSA in rolling out of the CSCs. Thus, the applicant failed to roll out CSCs as per timelines which implies their incompetence to operate the CSCs scheme to properly deal with and manage the complaints of VLE who were their franchisees which resulted in agitation, dharnas, several petitions to all levels of Government, criticism in the media on the handling of the scheme and to remit the charges to the 1st respondent of Rs.351 per CSC in respect of North West zone, Rs.301/- per CSC in respect of East zone. Rs.301/- per CSC in respect of South zone and Rs.251/- per CSC in respect of Central zone in respect of CSCs rolled out which is an integral part of the Master Service Agreement. e. The 1st respondent after considering the explanation of the applicant with all relevant records has decided that the explanation of the applicant is devoid of merits and therefore terminated the service of the applicant as one of the Service Centre Agencies for the roll out of 4395 centres in the 26 districts of the State and the MSA between the SDA and SCA dated 08.07.2008, with reference to clause 4.1 of the MSA and to collect the damages and penalty of Rs.2,30,22,000/- plus Rs.5,24,95,200/- for the non performance in rolling out the CSCs as per the timelines stipulated and revenue support charges Rs.13,50,426/- towards the payment of negative bid charges as on 31.01.2010 for the rolled out centres, and the difference in amount of support charges proposed by the replacement SCA Rs.5,37,16,560/- as given in the Annexures I & II. Thus totalling to Rs.13,05,84,186.00 and consequently to provide MSA with applicant and to submit exit management plan as contained in the Schedule II of MSA within 15 days of receipt of the said order. f. The applicant filed three applications under section 9 of the Arbitration and Conciliation Act, 1996. The above order passed by the respondent would not directly enable the applicant to seek restitution of the contract through specific performance as a relief even in the main arbitration proceedings itself. Therefore, the present interim relief of staying the termination is wholly impermissible in law and actually amounting to grant the final relief which cannot even be granted in the arbitration proceedings. The applicant has not made out any case as to how the State Data Centres is connected to the roll out CSCs. The alleged lack of interest of the VLEs, if any, is attributed to the VLEs made by the applicant or the faulty business model adopted by the applicant. The other successful SCA namely M/s. SREJ Sahaj has been able to rollout the CSCs in the four districts allotted to it with a business model that was appropriate. There is absolutely no issue that has to be taken before the Empowered Committee. As far as the instructions issued to the District Collectors by the 1st respondent in the letter dated 30.10.2009, the applicant has