1 wp.no.91/11 IN THE HIGH COURT OF BOMBAY AT GOA WRIT PETITION NO. 91/2011 M/s. Shimnit Utsch India Private Limited, a Company incorporated under the Provisions of Companies Act, 1956, having its Registered Office at 8th Floor, Regent Chambers, Nariman Point, Mumbai 400 021 through its Operation Manager and Authorised representative Mr. Sushant Naik Volvoikar. ……… Petitioner. V/s. 1. Union of India, through Ministry of Road Transport & Highways, having its address at Transport Bhavan, 1-Sansad Marg, New Delhi – 110 001. 2. State of Goa, through its Chief Secretary, having his office at Secretariat, Porvorim, Bardez, Goa. 3. Director of Transport, having its Office at Directorate of Transport, Government of Goa, Junta House, Panaji, Goa. …. Respondents. Mr. V. Dhond and Mr. N. Sardessai, Advocates for the Petitioner. Mr. S. S. Kantak, Advocate General with Mr. A. Kamat, Addl. Govt. Advocate for Respondents No.2 and 3. 2 wp.no.91/11 CORAM : S.C. DHARMADHIKARI & F.M. REIS, JJ. Date of reserving Order : 23rd March, 2011. Date of pronouncing Order : 25th April, 2011. P.C. :- By this Petition under Article 226 of the Constitution of India, the Petitioner is questioning termination of a Contract awarded to it. That termination is effected on 25th January, 2011 by the Third Respondent to this Petition. 2. The Petitioner has been incorporated as a Company under the Companies Act, 1956 and its Registered Office is at Mumbai. It claims to be a joint venture company between one Shri Rushang N. Shah and Eric Utsch AG Germany. It has been formed to introduce the High Security Registration Plates (HSRP). These registration plates have to be placed on motor vehicles in terms of Rule 50 of the Central Motor Vehicle Rules, 1950. It is contended that the object of the HSRP Scheme is to curb increasing menace of vehicle thefts and their usage in commission of crimes like murder, dacoity, kidnapping, etc. It was thus felt necessary that urgent checks for the usage of 3 wp.no.91/11 motor vehicles in terrorist activities were required to be implemented. The Central Government on the recommendation of its technical committee devised a system of HSRP to ensure public safety and security. Therefore, Rule 50 was amended and these amendments require manufacture of such registration plates which would be non- reusable and non-replaceable. The technical specifications of the registration plates are such as to make identification of the vehicle and its tracking easier and certain. Other requirements contained in the Amended Rule 50 are that apart from regulating the aspect of issuing registration marked with usage of specific kinds of letters and numerals, it seeks to ensure its safety and security by issuance and fixation of number plates from the premises of the Regional Transport Office of the concerned area. After setting out the salient features of this Scheme, it is contended that the Hon’ble Supreme Court in the case of Association of Registration Plates Vs. Union of India & Ors. (Writ Petition (Civil) No.41 of 2003) by Judgment and Order dated 30th November, 2004 made it mandatory for the States to ensure that the Scheme of HSRP is effectively implemented in the country. Annexure “A” is a copy of the said order. It is stated that the Union of India, on the advice of Technical Committee, came out with a new scheme of 4 wp.no.91/11 HSRP and, therefore, issued the relevant Notification. Under the Scheme, the State had power to select a suitable manufacturer from the Type of Approved Certificate Holder (TACH) for the State, as a whole or for a particular region. The selection was to be made by a fair method of tender process. Under the scheme, the State was also expected to impose strict and rigid eligibility conditions to ensure that only the most experienced, competent and expert manufactures, both technical and financial, take part in the tender process. 3. It is stated that on 7th April, 2001, a Joint Venture Agreement was executed between Utsch Germany and one Nitin G. Shah as an Indian Partner, contemplating a formation of a Joint Venture Company in India. On 4th May, 2001, the Petitioner Company was incorporated with Mr. Nitin G. Shah, being the Promoter Director along with Mr. Manfred Utsch. The Petitioner Company was incorporated for the purposes of manufacturing, supplying and implementing the scheme. On 10th February, 2005, said Nitin Shah resigned as the Director of the Petitioner Company and in compliance of Section 303 of the Companies Act, 1956, Form 32 was filed with the Registrar of Companies, Maharashtra on 10th February, 2005 itself. 5 wp.no.91/11 On 19th September, 2005, Respondent No.2 issued a notice inviting bids from eligible manufacturers, having experience in producing the HSRPs, in conformity with the specifications mentioned in the amended Rule 50 of the said Rules. A copy of this Notice is annexed to the Petition and after referring to its salient features, it was stated that the contract was for a period of 15 years. It is stated that about 5 bids were received in pursuance of the tender notice and the bids included that of the Petitioner Company. The bids were opened in presence of representatives of the respective bidders. Three bids were declared to be qualified and responsible. The other two bids were held not to be so. It appears that the decision taken on 21st/25th October, 2005 by the Tender Committee came to be challenged by the disqualified bidders. They also filed Writ Petitions, being Writ Petitions No.432 of 2005 and 457 of 2005 in this Court, which came to be dismissed on 14th February, 2005. Even a Special Leave Petition was filed in the Hon’ble Supreme Court which was dismissed on 1st May, 2006 and a Review Petition also came to be dismissed on 17th August, 2006. 4. Thereafter Financial Bids of the eligible bidders came to 6 wp.no.91/11 be opened, once again in the presence of the parties. The bid submitted by the Petitioner Company was lowest and, therefore, the Petitioner Company was called for negotiations and there were further negotiations held. In the meantime, on 24th December, 2005, the erstwhile Indian Partner of the Joint Venture Company viz., Mr. Nitin G. Shah transferred his shares in the Petitioner Company in favour of Mr. Rushang N. Shah. The said transfer was duly recorded in the Register maintained by the Petitioner Company. A shareholders agreement between the parties was also suitably amended to reflect the aforesaid change. 5. On 24th March, 2006, a Letter of Acceptance (Notification of Award) was issued in favour of the Petitioner by the Second Respondent. Accordingly, the Petitioner on 6th April, 2006 submitted a Performance Guarantee in the sum of Rs.50.00 lakhs. 6. On 31st May, 2006, pursuant to the transfer of shares by Mr. Nitin Shah in favour of Mr. Rushang Shah in the Petitioner Company, the Memorandum of Association & Articles of the Association of the Petitioner Company was suitably updated and 7 wp.no.91/11 amended upto 31st May, 2006. 7. On 12th June, 2006, the First Respondent issued a Gazette Notification titled as “The Motor Vehicles (New High Security Registration Plate) Amendment Rules, 2006. After reproducing the relevant Clauses of the Notification, what has been contended is that despite issuing the Letter of Acceptance for a long time, the contract was not executed between the Petitioner and Respondent No.2. It appears that Respondents No.2 and 3 had no intention and for extraneous considerations, they did not want to implement the order of the Hon’ble Supreme Court. Therefore, a show cause notice was issued on 11th October, 2006 by Respondent No.3 to the Petitioner, calling upon it to show cause as to why the award of tender to it should not be cancelled. The Petitioner was called upon to file its response by 18th October, 2006. There were allegations made in the show cause notice about suppression of information and misrepresentation of facts and particularly with regard to the change in the constitution of the Petitioner Company. 8. The Petitioner filed its reply to the Show Cause Notice 8 wp.no.91/11 dated 18th October, 2006. But without consideration thereof, the order cancelling the award of contract came to be passed on 13th November, 2006. That was challenged by filing a Writ Petition being Writ Petition No.560/2006 in this Court and in the said Petition, a statement was recorded on 21st November, 2006 that Respondent No.2 would not take any steps in awarding the contract to any third party during the pendency of the Petition. In para 34 of the present Petition, this is what is stated : “ 34. On 10th July, 2007, at the hearing of the said Writ Petition, the Ld. Advocate General appearing on behalf of Respondent No.2 sought for time to reconsider the matter and reinstate the Letter of Intent issued in favour of the Petitioner. The Petitioner submits that this decision was taken because Respondent No.2 was cognizant of the untenability of the termination and the fact that the same would be set aside. Respondent No.2 was also cognizant of the fact that on 27th October 2006, the High Court of Meghalaya had delivered a significant and path breaking judgment, ordering the implementation of the HSRP Regime under almost identical circumstances. In Meghalaya too, the State Government had not been implementing the HSRP Regime under pressure from local 9 wp.no.91/11 commercial/transport groups. This impelled the High Court to direct the State to do so. A copy of the Judgment dated 27th October, 2006 is annexed as Exhibit “B” hereto.” 9. Thereafter, on 30th August, 2006, there was a joint meeting with the Tender Committee and the Petitioner, seeking certain clarifications on the issue. The Petitioner was also asked to submit a written representation on the issue, on 7th September, 2007. On 11th September, 2007, the Petitioner submitted its detailed representation, pursuant to which the Tender Committee took a decision to reinstate the Letter of Intent issued in favour of the Petitioner. The Minutes of the Meeting expressly record that since the composition of the Petitioner Company continued with a foreign partner, public interest will not suffer if the Petitioner Company was awarded the tender and the government could reconsider the matter. Even if a fresh tender was floated the Petitioner Company would be eligible to bid, that is how the Government was advised by the Advocate General. Therefore, it was decided to reverse the earlier decision to cancel the entire tender process and recommendation was made to Respondent No.2 on continuing the award of tender to the Petitioner. 10 wp.no.91/11 10. In para 37 of the Petition, this is what is stated : “ 37. On 19th September, 2007, when the aforesaid Writ Petition was listed before the Division Bench of this Hon'ble Court, the Ld. Advocate General representing the Respondent No.2 herein, made a statement that the Government (i.e. Respondent no.2) had reconsidered the issue and had taken decision to withdraw the impugned order dated 13th November, 2006, pursuant to which, the Petitioner withdrew the said Writ Petition. A copy of the order dated 19th September, 2007 passed by this Hon'ble Court in the aforesaid Writ Petition is included in the accompanying Compilation under Tab '10'.” 11. It is in these circumstances that on 29th February, 2008, the Concession Agreement was executed between the Governor of State of Goa on behalf of Respondent no.2 and the Petitioner in terms whereof, it was granted exclusive right, licence, and authority to emboss and affix HSRPs to the vehicles in the State of Goa for a period of 15 years, commencing from the appointed date. 11 wp.no.91/11 12. Thereafter, in or around August, 2009, the Petitioner started implementing the Scheme in the State of Goa and till date it is stated that it has affixed more than 6000 HSRPs on motor vehicles. The Petitioner has stated that it has employed 70 employees and mobilized men and material and set up State of Art Office and have invested approximately Rs. 50 Crores. There was no breach/default on the part of the Petitioner in implementing/executing the Concessionaire Agreement. But the State Government never wanted to implement the scheme itself and, therefore, the State could not take any steps to control the opposition to the scheme by commercial transport operators who did not want to pay the increased one time costs of HSRPs. These vested interests were funded/sponsored/encouraged by the Petitioner's competitors. There were agitations and questions were raised in the Goa State Legislative Assembly. The State Government, therefore, gave a public assurance to review the Scheme and that is how it has been alleged in the Petition that the Scheme was not properly and factually implemented, for which the Petitioner was compelled to file a Writ Petition, being Writ Petition No.797/2009 before this Court. That sets out the detailed reasons as to why 12 wp.no.91/11 Respondent No.2 was deliberately not implementing the HSRP Scheme and ignoring its constitutional duty. An affidavit was filed in the Writ Petition by Union of India, supporting the Petitioner. The said Writ Petition was admitted and this Court granted Interim Relief by directing the Second and Third Respondents to continue with the implementation of the HSRP Scheme as per amended Rule 50 of the Rules. The Order was passed despite objections raised to the maintainability of the Writ Petition. Notwithstanding this order, there were no steps taken to implement and enforce the scheme and the registration by affixing HSRP in terms of the Rules was minimum. Thus, there was breach committed of the Order dated 1st April, 2010, which compelled the Petitioner to file a Contempt Petition. 13. In the meantime, a Committee was appointed to review the Scheme itself in the State of Goa and this Committee published a report wherein it concluded that the process of finalization of tender in respect of HSRP Scheme had been vitiated and that the Petitioner had also violated the condition 2 (xb) contained in Notification No.601 dated 12th June, 2006, by changing the ownership, without seeking prior permission of the Government. Therefore, it recommended 13 wp.no.91/11 revocation of the Concession Agreement dated 29th February, 2008. Copy of this report was not provided. However, sensing that the Government may take a decision by acting on this report, the Petitioner filed a Civil Application No.140 of 2010 in Writ Petition No.797/2007 and sought stay of the implementation of the report. When this application was placed before this Court, the Advocate General appearing for the State made a statement that action of termination of the Agreement would be taken by the Government only after issuing a Show Cause Notice. Accordingly, a Show Cause Notice was issued for terminating the contract/agreement in which it was alleged that the bid submitted on 26th September, 2005 showed that Shri Nitin Shah was the Director of the Company. Subsequently, it was informed that said Nitin Shah resigned as Director on 19th February, 2005 and his shares were transferred in favour of Shri Rushang Shah on 24th December, 2005. On the date, the bids were submitted, therefore, Shri Nitin Shah was not the Director of the Company, but was shown as the Indian Partner in the Joint Venture Agreement. Since the Indian Partner in the Joint Venture Agreement was not the Director of the Company, the Company was disqualified from being considered. Further, it was stated that there was a foot-note inserted below Form II. This foot- 14 wp.no.91/11 note is signed by the representative of the company and it is not endorsed by the Committee Members. This foot-note is recorded after opening the bid. Thus, the aforementioned Clause 4 of the Motor Vehicles (New High Security Registration Plates) Order 2001 as amended by Notification dated 12th June, 2006 has been violated. Further, it was stated that the indigenous manufacturers who manufacture HSRP are available and there is no necessity of a foreign partner or a joint venture company. It is alleged that the show cause notice was impugned by filing a Writ Petition being Writ Petition No.740/2010 in this Court which was dismissed as infructuous because it was informed that the impugned termination notice dated 25th January, 2011 has been passed. 14. Thus, it is the aforementioned notice and the termination order that is impugned in this Writ Petition. 15. Mr. Dhond learned Counsel appearing on behalf of the Petitioner firstly contended that the Petitioner has been victimized and the impugned order terminating the Concession Agreement is wholly arbitrary and erroneous. It is submitted that all the grounds and reasons 15 wp.no.91/11 alleged in the Show Cause Notice were part of the proceedings before this Court in Writ Petition No. 560/2006. At that time, all clarifications were given by the Petitioners. On the date bids were submitted, Mr. Nitin Shah was not a Director of the Company, but was shown as Indian Partner in the Joint Venture Agreement. Since Shri Nitin Shah resigned as the Director on 19th February, 2005 and shares in the Petitioner Company were transferred in favour of Shri Rushang Shah on 24th December, 2005, there was no question of the Petitioner representing during the tender process that Shri Nitin Shah was the Director on the Board of the Petitioner Company. The Joint Venture Agreement executed between the German Partner and Indian Partner, i.e. Shimnit India and Utsch AG Germany contemplated incorporation of an Indian Joint Venture Company viz. the Petitioner which was consequently incorporated. The transfer of shares was permissible and that the same was not in any manner affecting the constitution of the Joint Venture Company, since the definition of Indian Promoters under Article 2(r) of the Articles of the Association of the Petitioner, includes Mr. Nitin Shah, his wife, their children, successors and heirs. Therefore, the transfer does not change the constitution or definition of the “Indian Promoters”. He submitted that the composition of the 16 wp.no.91/11 shareholding in the Joint Venture Company remains the same. Therefore, the Joint venture Company remains the same. Hence, when the entire bid was opened in their presence, in open bidding process and the facts were to the knowledge of the Authorities, the cancellation on this ground is arbitrary and malafide. 16. Shri Dhond submits that the Notification dated 12th June, 2006 applies prospectively and the transfer of shares from Mr. Nitin Shah to his son Mr. Rushang Shah happened before issuance of the Notification dated 12th June, 2006. Therefore, there was no question of taking prior permission from the State. 17. Shri Dhond submits that the other ground on which the cancellation has been effected is availability of number plates from Indian manufacturers. That cannot be a ground for cancellation of the agreement with the Petitioner Company, because, there is no violation of the Concession Agreement, much less any deliberate breach thereof. This is not a ground to support the action of cancellation. It is wholly illegal and unfair, apart from being arbitrary. 17 wp.no.91/11 18. He submits that the basis for termination of the agreement cannot be justified even in larger public interest. He invited our attention to the grounds in the petition and submitted that the exercise of power is tainted particularly in the backdrop of the history of the matter. He submits that the termination is illegal, perverse, and unconstitutional and took us through the grounds mentioned in the Petition. He submits that even the issue of conviction of Shri Nitin Shah is contrary to the record, because that cannot be a reason for termination, since his conviction was set aside in Criminal Appeal No.519/2006 by the Hon’ble Delhi High Court vide Judgment and Order dated 22nd February, 2007. Therefore, the conviction has no relevancy to the present case. For all these reasons, there is no justification for the termination, which violates the mandate of Articles 14, and 19(1)(g) of the Constitution of India. 19. Shri Dhond, in support of the above contentions, has relied upon the Judgment of the Hon’ble Supreme Court in Association of Registration Plates vs. Union of India and others, 2005(1) SCC 679. Shri Dhond submits that it is well settled that writ jurisdiction is available to challenge such orders, if the termination of 18 wp.no.91/11 contract is illegal, irrational, arbitrary and malafide. The contract in this case is to implement a statutory duty and a statutory scheme. Therefore, the contract is statutory in nature. In such circumstances, the Petitioner cannot be told to take recourse to the ordinary civil remedy, namely, institution of a Civil Suit or Arbitration. Further, there are no disputed questions of facts and in such circumstances, this writ petition is maintainable. 20. On the other hand, Mr. Kantak, learned Advocate General, appearing on behalf of the State and Respondent No.3 would submit that the Writ Petition involves disputed questions of facts and, therefore, it is not maintainable. The Petitioner can take recourse to contractual remedy. The relief that the Petitioner can seek is damages and compensation for the alleged termination, but in no case the Petitioner can be reinstated as a contractor. If that cannot be done in ordinary civil remedy, the Petitioner cannot take recourse to writ jurisdiction and seek something which is not legally permissible. 21. Further, he submits that the contract is not a statutory contract. It is an ordinary contract which is governed by the terms of 19 wp.no.91/11 the Indian Contract Act and the Clauses in the Agreement. The remedy to seek any relief in terms of such contract, including its repudiation or cancellation is to approach the forum provided under the contract or if no such forum is provided, then, the ordinary Civil Court. Shri Kantak has relied upon a Judgment of the Hon’ble Supreme Court in Pimpri Chinchwad Municipal Corporation and others vs. Gayatri Construction Company and anr., reported in 2008 (8) SCC 172. He submits that the Second and Third Respondents have filed reply-affidavits and have pointed out as to how the termination is justified. The termination is effected for the reasons which are genuine and germane to the contract. It is not as if the termination has come about suddenly or in a malafide manner. The termination notice sets out as to why the Government concluded that when the tender was submitted, Shri Nitin Shah was not a Director of the Petitioner Company. Shri Rushang Shah was also not a Director of the Petitioner Company on 26th September, 2005. The Joint Venture Agreement was entered into between German Partner and Shri Nitin Shah. Joint Venture Company was incorporated on 4th May, 2001, pursuant to the Memorandum of Association & Articles of Association drawn on 9th April, 2001. That agreement has been referred to and what the 20 wp.no.91/11 Authority has concluded is that the Joint Venture Agreement shows that it is an integral part of the Joint Venture Company and that the role of contracting parties, including that of the Indian Partner are part of the same. 22. Therefore, Shri Nitin Shah was not the Director of the Company, but was an Indian Partner in the Indian Joint Venture Agreement between the German and Indian Partner and the nexus between the Joint Venture Agreement and the Joint Venture Company was, therefore, broken and thus, the composition of the Petitioner Company was different than that contemplated by the Joint Venture Agreement. It is also clear that a foot note was inserted in the Finance Bid Form II. However, even if there is correspondence between the parties, the footnote is recorded by hand, but it is not endorsed by the Tender Committee Members. The footnote was recorded after opening of the bid. In these circumstances, there is violation of the Notification dated 12th June, 2006. Therefore, each of the grounds justify the termination. He submits that the Petition should not be entertained on this ground alone and be dismissed. 21 wp.no.91/11 23. With the assistance of the learned Counsel appearing for the parties, we have perused the petition, compilation of documents, to which our attention was invited and the affidavits on record. We are of the view that this Writ Petition involves