IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 12.03.2010 CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM W.P.No.26848 of 2009 & M.P.Nos.1,2,3&4/2009 E.Mohan ... Petitioner Vs 1. Madras Fertilizers Limited Rep. by its Dy. General Manager (Acting), No.2, Manali, Chennai 600 068. 2. Muralidharan Chairman and Managing Director, Madras Fertilizers Limited, No.2, Manali, Chennai 600 068. 3. The Branch Manager, H.D.F.C. Bank Ltd., Trade Finance Department, 4th Floor, 115, Dr.Radhakrishnan Salai, Mylapore, Chennai 600 004. ... Respondents The writ petition is filed under Article 226 of the Constitution of India for issuance of a writ of Certiorarified mandamus calling for the records of the first respondent comprised in its Termination Notice dated 11.12.2009 pertaining to the Road Transport Contract 2009-11 and quash the same as arbitrary and illegal and consequently direct the first respondent to continue to avail the services of the petitioner as the transport contractor in terms of the Road Transport contract 2009-11 awarded in favour of the petitioner by strictly adhering to the terms of such contract including complying with the payment obligations contained therein. For Petitioner : Mr.R.Muthukumarasamy Senior counsel for M/s.Satish Parasaran Rahul Balaji For Respondents 1 & 2 : Mr.R.Viduthalai Senior counsel for M/s.L.N.Praghasam https://hcservices.ecourts.gov.in/hcservices/ O R D E R By consent, the main writ petition itself is taken up for disposal. 2. The prayer in the writ petition is to quash the termination notice dated 11.12.2009 issued by the first respondent terminating the road transport contract 2009-2011 awarded to the petitioner and to direct the first respondent to avail the services of the petitioner as transport Contractor by strictly adhering to the terms of such contract including complying with the payment obligations contained under the contract. 3. The case of the petitioner is that the petitioner is the Proprietor of M/s.Krishna Lorry Service, a service provider, engaged in the business of transportation of products and goods on contract basis covering the State of Tamil Nadu, Andhra Pradesh, Kerala, Karnataka and Pondicherry. The proprietorship concern was initially owned and managed by the petitioner's father Mr.Easwaran and after his demise it is managed by the legal heirs, which includes the petitioner, his mother and two sisters and the petitioner's mother and two sisters are stated to have granted Power of Attorney in favour of the petitioner herein. 4. The first respondent herein is a public sector undertaking of the Central Government engaged in the production of Ammonia, Urea and NPK complex. The petitioner herein was engaged as a transport Corporation of the first respondent since 1997 for transporting its bagged fertilizer and consignments. The contract for the period 2007-2009 was awarded to the petitioner as they qualified as the lowest tenderer. The first respondent by tender notice dated 10.6.2009 called for tender to submit bids for transportation of its products for a period of two years, viz., 2009- 2011. The tender was two-cover bid system consisting of "Form A – Qualification Bid" and "Form B – Rate Bid". The petitioner as one of the participants in the said tender, submitted its bids on 8.7.2009. According to the petitioner, on the date of submission of its bids, the petitioner was intimidated by the presence of certain criminal elements within the premises of the office of the first respondent, who attempted to snatch the tender papers from the petitioner and his sister. However, no action was taken inspite of the fact being brought to the notice of the second respondent, the Chairman and Managing Director of the first respondent Company who has been impleaded in his personal capacity in this writ petition. It is stated that the petitioner managed to submit his bid on the said date. Having been qualified in the Qualification bid, the financial bid of the petitioner was opened on 31.7.2009 as scheduled and since the petitioner was the lowest bidder, the contract for the period 2009-2011 was awarded in favour of the petitioner. The earlier https://hcservices.ecourts.gov.in/hcservices/ contract for the period 2007-2009 was to expire on 9.8.2009 and the new contract for the subsequent period ought to have been entered well before the expiry of the previous contract, but stated to have been delayed by the first respondent for the reasons best known to them. It is stated that the second respondent called the petitioner for a meeting on 4.8.2009 and asked them to back out from the said tender and informed that the rates quoted by the petitioner was unworkable and they were inclined to award the contract to the second lowest bidder whose offer was Rs.11 Crores over and above the offer made by the petitioner. According to the petitioner, these facts were brought to the notice of the Department of Fertilizers, Government of India by their letter dated 5.8.2009. Subsequently, by communication dated 7.8.2009 the first respondent called upon the petitioner to extend the earlier contract for the year 2007-09 for a further period of one month i.e., from 10.8.2009 to 9.9.2009 at the prevailing rates. This request made by the first respondent was agreed to by the petitioner. Subsequently, the contract for the period 2009-2011 was given in favour of the petitioner by letter dated 9.9.2009 and an agreement was also entered into on the same day. 5. The complaint of the petitioner is that as on 27.8.2009 a sum of Rs.4,81,39,413/- was due and payable to the petitioner and the financial burden on the petitioner was severe due to the delay in payments. It is pointed out that in terms of Clause 9.2 of Part-IV of the Terms and Conditions of the contract, the first respondent is required to settle the bills within a period of 30 days. Therefore, the petitioner by letter dated 27.8.2009 intimated the first respondent that they would be adjusting all future payments first against their claim for interest at the rate of 15% for the payments that have been delayed beyond 45 days even though they are entitled for interest for the delay beyond 30 days. However, payments are stated to have been withheld at the instance of the second respondent. It is further submitted that the first respondent company was declared as 'sick Company' by the B.I.F.R. in Case No.501 of 2007. Though information was sought for by the petitioner as regards the status of the Company before the B.I.F.R., such information was not furnished by the second respondent and even the Operating Agency failed to divulge any details inspite of the petitioner's written request dated 31.8.2009. The petitioner is stated to have been reeling under severe financial crunch since their bankers had stopped credit and their suppliers were also pressing for payments and the petitioner continued to request the respondents 1 and 2 to release payments. It is stated that inspite of the best efforts of petitioner to meet the second respondent for redressal of the grievance, the second respondent did not give them an opportunity to sort out the issues. Since there was a stalemate in the matter, the petitioner approached the B.I.F.R. and filed an application dated 5.12.2009 to implead them as a party in the proceedings. At that stage of the matter, the impugned termination notice was issued https://hcservices.ecourts.gov.in/hcservices/ terminating the contract and the first respondent invoked the Bank Guarantee for a sum of Rs.2,76,23,638/-. Subsequently, the petitioner received a cheque dated 8.12.2009 for Rs.25,11,689/- and the outstanding as on 15.12.2009 payable by the first respondent was Rs.6,97,67,587/-. 6. According to the petitioner, the first respondent wrongly withheld payment due to the petitioner owing to which the petitioner was disabled from performing its part of the contract and the first respondent being a public sector Company cannot interpret a contract in a wholly unfair manner. It is further contended that the invocation of Bank Guarantee was unwarranted and a high-handed action. It is further submitted that though the contract contains an arbitration Clause in Clause 11.5 for reference of disputes to the second respondent or any other person nominated by him, the conduct of the second respondent does not inspire any confidence in the petitioner that he would discharge his duties as an Arbitrator with the integrity and impartiality. The petitioner further apprehended that any decision of the second respondent to appoint some other person as Arbitrator would also be tainted with bias and prejudice. Therefore, the petitioner approached this court by way of the present writ petition. 7. Mr.R.Muthukumarasamy, learned Senior counsel appearing for the petitioner would assail the correctness of the impugned order by contending that the termination of the contract is in violation of Article 14 and 19(1)(g) of the Constitution of India and the first respondent acting as an instrumentality or agency of the Government, engaged in production of essential commodities, viz fertilizers, acted in an unfair manner by terminating the petitioner's contract despite the fact that the petitioner offered the lowest quotation in the public tender. The learned counsel further states that Government bodies like the first respondent have to exercise their contractual power free from arbitrariness, favoritism, nepotism and every action of the first respondent is bound to satisfy the principles laid down under Article 14 of the Constitution of India. It is further submitted that the first respondent terminated the contract despite the petitioner being the lowest and experienced bidder and such termination came to be done only at the instance of the second respondent so as to favour a third party viz., the second lowest tenderer whose offer was Rs.11 Crores over and above the petitioner's offer. It is further submitted that the allegations contained in the impugned notice stating that the petitioner failed to perform the duties and responsibilities of the Contractor with integrity and by stating that under normal course, the outstanding amount would be always about Rs.4 Crores and that the petitioner has quoted unreasonable lower rate for just grabbing the contract and after doing so causing unnecessary problems to the company and writing unethical letters to the company are all absolutely arbitrary and unreasonable statements and in the normal course of business https://hcservices.ecourts.gov.in/hcservices/ transaction, a bidder would offer a viable rate so far as he is concerned and by quoting a lower rate alone will not amount to grabbing a contract. Further, the observation that normally Rs.4 Crores would be outstanding, cannot be made as a general statement when the contract contemplates payment within 30 days and in the instant case, the dues as on 30.11.2009 was Rs.7,18,65,084/- and even the payment received after the impugned termination the outstanding was Rs.4,97,67,587/- and therefore the action of the first respondent in insisting upon supply of lorries without releasing payment for the services rendered under the earlier contract is wholly arbitrary. It is further submitted that no adjustment of payment have been made by the petitioner as alleged in the impugned termination notice and all payments made by the first respondent were against the specific bills and therefore the action is arbitrary. It is further contended that malice is writ large on the face of the record and the impugned order itself has been passed at the instance of the second respondent who was bent upon cancelling the contract awarded to the petitioner. The learned Senior counsel would further contend that though the new contract came to be signed on 9.9.2009 the petitioner has not received a single payment except the payment of Rs.50 lakhs which was released during the pendency of the writ petition at the time when the interim applications were heard. The learned Senior counsel relied on Clause 9.2 of the terms and conditions of the Contract stating that the payments shall be made as early as possible but not later than 30 days. It is further contended that there is absolutely no cause of action or much less any loss suffered by the first respondent justifying the invocation of bank guarantee given by the petitioner in favour of the first respondent. The learned Senior counsel referred to the various representations made by the petitioner to the Central Government relating to the complaint made against the second respondent and such other matters. That the sum and substance of all these communications are that the petitioner is being harassed by the second respondent and he has been victimized since they refused to satisfy the certain unethical demands of the second respondent. The learned Senior counsel also relied upon the statement of accounts filed in the form of Additional typeset of papers giving details of the outstanding amount due and payable to the petitioner from April 2007 to January 2010. The learned Senior counsel would submit that the action of the first respondent was wholly unjustified and was aimed at penalising the petitioner by not effecting payment stating that the petitioner has not supplied the trucks. It is further stated that if the first respondent found that the rates offered by the petitioner were unworkable, it was open to the first respondent to reject the petitioner's bid at the first instance. Having not done so, it is not open to the first respondent to cancel the contract of the petitioner stating that the rate offered and accepted by the petitioner is unworkable, after the contract was awarded in favour of the petitioner. On these grounds, the learned Senior counsel contended that the impugned order of termination calls for interference of this court. https://hcservices.ecourts.gov.in/hcservices/ 8. Mr.R.Viduthalai, learned Senior counsel appearing for the respondents 1 and 2 would contend that before dealing with the merits of the matter, he would raise a preliminary objection as regards the maintainability of the writ petition. By stating that the contract in question is purely non statutory contract and the petitioner cannot invoke the jurisdiction of this Court under Article 226 of the Constitution of India to question the correctness of termination of such non statutory contract. Though, this court would have jurisdiction to interfere in such matter when such termination is patently arbitrary or erroneous and the case on hand being not one such case, the writ petition is not maintainable. Clause 11.5 of the contract provides for arbitration for resolving disputes and in-view of the binding arbitration agreement, the petitioner cannot approach this court by way of the present writ petition. The first respondent company having been declared as sick industrial undertaking by the B.I.F.R., the petitioner cannot adopt arm-twisting methods for recovery of the past dues by threatening not to supply the trucks for the subsequent new contract. It is further contended that the petitioner has accepted breach of the contract and after 3.11.2010 they have not supplied a single truck and they held the first respondent company to ransom and therefore, the first respondent was justified in terminating the contract on the reasons assigned. As regards the outstanding bills, the learned senior counsel would contend that it was always a running contract and the outstanding was always to the tune of Rs.4 Crores and this was the situation even when the petitioner's father was a Contractor for the past nearly 12 years and this aspect of the matter is contract by conduct. By referring to the petition filed before the B.I.F.R., the learned Senior counsel would contend that the petitioner having approached the B.I.F.R. ought not to have invoked Article 226 of the Constitution of India by filing the present writ petition. The learned Senior counsel referred to the various paragraphs in the counter affidavit in support of his contentions. The learned Senior counsel on the question regarding maintainability of the writ petition relied upon the following decisions of the Honourable Supreme Court: 1. (1996)6 SCC 22 (State of U.P. and others Vs Bridge & Roof Company (India) Ltd. 2. (2008)8 SCC 172 (Pimpri chinchwad Municipal Corporation and others) 3. (2008)12 SCC 500 (Kisan Sahkari Chini Mills Ltd. and others Vs Vardan Linkers and others) 9. In reply, the learned Senior counsel appearing for the petitioner would submit that the writ petition is maintainable against the first respondent as it is the Central Government Company and when the impugned termination is ex-facie arbitrary and violative of Art.14 and 19(1)(g) of the Constitution of India, this Court has sufficient jurisdiction to entertain the present writ petition. In support of the said contention, the learned Senior counsel relied on https://hcservices.ecourts.gov.in/hcservices/ the decisions of the Hon'ble Supreme Court reported in (2004) 3 SCC 553 (ABL International Vs. Export Credit Guarantee Corporation of India), A.I.R. 2008 SC 1101 (Food Corporation of India and another) and A.I.R. 1973 SC 205 (The D.F.O. South Kheri & others Vs Ram Sanehi Singh) and the decision of the Hon'ble Full Bench of this court reported in 1997(2) SCC 636 (Aluminium Industries Ltd. Madras Vs Minerals & Metals Trading Corporation of India Ltd., Chennai and 2 others). As regards the rule of exclusion of writ jurisdiction by availing an alternative remedy of arbitration, the learned Senior counsel would contend that the said rule is a rule of discretion and not one of compulsion. In support of the said stand, the learned Senior counsel referred to the decisions of the Hon'ble Supreme Court reported in 1974(2) SCC 231 (Union of India Vs. Raman Iron Foundry) and 2003(2) SCC 107 (Harbanslal Sahnia and another Vs. Indian Oil Corporation Ltd and others). The learned Senior counsel would further contend that if there is infringement of the Article 14 of the Constitution of India, the question of invocation of arbitration clause does not arise. Finally, the learned Senior counsel would contend that the respondents 1 and 2 withheld the money payable to the petitioner by making it impossible for the petitioner to proceed with the contract and inspite of such difficulty the petitioner continued to supply the trucks under the new contract till November 2009 and subsequently supplied the trucks after the interim order was granted by this court on 21.12.2009 and in such circumstances, the first respondent cannot compel the petitioner to perform the terms of the contract and in fact despite the severe financial crunch, the petitioner had supplied the trucks and when the outstanding due was more than Rs.6.5 Crores, the petitioner was driven to a situation and took the step which every prudent and reasonable businessman would do if put in such a situation. The learned Senior counsel relied on the decision of the Hon'ble Supreme Court reported in A.I.R. 1961 SC 990 (Mahabir Prasad Rungta Vs Durga Datta), by stating that the facts in the said case were similar, the Honourable Supreme Court has held that a party to which payments were withheld was entitled to rescind the contract as the case was covered by Sec.55 of the Indian Contract Act. 10. In the affidavit filed in support of the writ petition, the allegations of malafide have been made against the second respondent, the Chairman and Managing Director of the first respondent. A counter affidavit has been filed on behalf of the respondents 1 and 2 and sworn to by the Deputy General Manager (Acting), Marketing and Distribution of the first respondent. In paragraph 10 of the counter affidavit, it has been stated that the petitioner informed this court on 12.01.2010 that he is withdrawing all the allegations against the Chairman and Managing Director and hence the allegations in paragraph 10 of the affidavit in the writ petition are not traversed. The allegations in paragraph 10 relates to allegations against the second respondent. The learned Senior counsel for the petitioner would submit that no such statement was https://hcservices.ecourts.gov.in/hcservices/ made, but the petitioner agreed to withdraw the allegations in the event of an amicable settlement in the matter. In fact, this court suggested the parties to explore possibility of settlement and by order dated 29.01.2010 referred the matter for mediation before the Mediation and Conciliation Centre of this Court. However, before the Mediation Centre, the respondents 1 and 2 failed to agree for mediation and therefore the matter is before this court to be decided on merits. However, it is to be stated that the allegations of malafide made against the second respondent remains un-controverted even thereafter. 11. I have heard the submissions made by the learned Senior counsels on either side. The following issues would arise for consideration in the present writ petition. 1) Whether the writ petition is maintainable against the first respondent ? 2) Whether the petitioner is entitled to challenge the termination of the contract awarded in his favour by the first respondent by filing a writ petition and without resorting to arbitration ? 3) Whether the reasons assigned for termination are justifiable and whether the same could be gone into in the present writ petition ? 4) To what other relief the parties are entitled ? 12. The first question relating to the maintainability of the writ petition against the public sector undertaking is no longer res integra. The Hon'ble Supreme Court has settled the controversy in several decisions and it is not in dispute that the first respondent is a public sector company carrying on manufacturing activities in essential Commodities viz., fertilizer and other products and thus has a public duty to perform and the first respondent is supported by the Central Government and under the control of the Government namely the Ministry of Fertilizer, Government of India and its Chairman and Managing Director is appointed by the Central Government. Therefore undoubtedly, the first respondent would be amenable to the jurisdiction of this court under Article 226 of the Constitution of India. 13. The second question is that if a writ petition is maintainable against the first respondent, whether a writ petition could be entertained to quash the impugned termination notice issued by the first respondent terminating a transport contract issued in favour of the petitioner. In this regard, it would be relevant to refer to the decision of the Hon'ble Supreme Court in the case of (1997) 11 SCC 636 (Kisan Sakkari Chini Mills Ltd Vs. State of U.P and others) (cited supra) relied on by the learned Senior counsel for the respondents. The case before the Hon'ble Supreme Court was relating to a permission granted for lifting molasses from 5 sugar mills and https://hcservices.ecourts.gov.in/hcservices/ the permission having been cancelled, the beneficiary of such permission approached the High Court, which allowed the writ petition and quashed the order of such cancellation of permission. The Sugar mills were on appeal before the Hon'ble Supreme Court. The Hon'ble Supreme Court framed the following question for consideration: "18. Ordinarily, the remedy available for a party complaining of breach of contract lies for seeking damages. He will be entitled to the relief of specific performance, if the contract is capable of being specifically enforced in law. The remedies for a breach of contract being purely in the realm of contract are dealt with by civil courts. The public law remedy, by way of a writ petition under Article 226 of the Constitution of India, is not available to seek damages for breach of contract or specific performance of contract. However, where the contractual dispute has a public law element, the power of judicial review under Article 226 of the Constitution of India may be invoked."(emphasis supplied) After referring to the earlier decisions of the Hon'ble Supreme Court on the said issue, held as follows: "23. If the dispute was considered as purely one relating to existence of an agreement, that is, whether there was a concluded contract and whether the cancellation and consequential non-supply amounted to breach of such contract, the first respondent ought to have approached the civil court for damages. On the other hand, when a writ petition was filed in regard to the said contractual dispute, the issue was whether the Secretary (Sugar), had acted arbitrarily or unreasonably in staying the operation of the allotment letter dated 26-3-2004 or subsequently cancelling the allotment letter. In a civil suit, the emphasis is on the contractual right. In a writ petition, the focus shifts to the exercise of power by the authority, that is, whether the order of cancellation dated 24-4-2004 passed by the Secretary (Sugar), was arbitrary or unreasonable. The issue whether there was a