2004 (3) TMI 419 - SC - Companies Law

Legality of the judgment rendered by a Division Bench of the Delhi High Court whereby held that the act of the appellant in not awarding contract to the respondent No. 1 was not in accordance with law. Held that - Appeal allowed. This is not a case where the appellant-Authority can be said to have acted in a mala fide manner or with oblique motives. If the Authority felt that in view of the background facts, it would be undesirable to accept the tender, the same is not open to judicial review in the absence of any proved mala fide or irrationality. The impugned judgment of the High Court is indefensible and is set aside.

Summary

Issues:
Challenge to legality of judgment by Delhi Development Authority (DDA) regarding contract award to M/s. UEE Electricals Engg. (P.) Ltd.; Consideration of assault incident involving Director of respondent No. 1; Blacklisting of respondent No. 1 by Contractor Registration Board; Judicial review of administrative action; Separation of legal entities between company and its Directors; Principles of illegality, irrationality, and procedural impropriety in administrative decisions.

Detailed Analysis:

Issue 1: Challenge to Legality of Judgment
The Delhi Development Authority (DDA) contested the judgment by a Division Bench of the Delhi High Court questioning the legality of not awarding a contract to M/s. UEE Electricals Engg. (P.) Ltd. The High Court held that the act of the appellant in not awarding the contract was not in accordance with the law. While the contract awarded to another party was not nullified, the High Court ruled that the deprived party was entitled to costs, with the liberty to file a suit for damages if deemed necessary.

Issue 2: Assault Incident Involving Director of Respondent No. 1
The background facts involved an assault incident by a Director of respondent No. 1 on an employee of the DDA. The Enquiry Officer's report found the Director's allegations to be retaliatory and recommended necessary action. Subsequently, the Works Advisory Board decided not to consider the tender of respondent No. 1 due to the incident, leading to the award of the contract to another party.

Issue 3: Blacklisting of Respondent No. 1
The Contractor Registration Board debarred respondent No. 1 and its Director for five years, a decision challenged before the High Court. The Single Judge initially quashed the order but allowed the Authority to issue a detailed order. A subsequent order was passed debarring respondent No. 1, leading to further legal challenges.

Issue 4: Judicial Review of Administrative Action
The appeal emphasized the limited scope of judicial review in administrative actions, highlighting the need for a flaw in the decision-making process to warrant interference. The appellant argued that all relevant aspects were considered before rejecting the tender, including the assault incident involving the Director of respondent No. 1.

Issue 5: Separation of Legal Entities
The High Court observed that the company and its Directors are separate legal entities, suggesting that the objectionable act of a Director should not influence the acceptance of the company's tender. The appellant contended that the Director's actions warranted the decision not to accept the tender, given the company's responsibility for its Directors' conduct.

Issue 6: Principles of Administrative Decision Review
The judgment referred to principles of illegality, irrationality, and procedural impropriety in administrative decisions, emphasizing the need to establish vulnerabilities like lack of fairness, illegality, or irrationality to warrant judicial interference.

In conclusion, the Supreme Court allowed the appeal, setting aside the High Court's judgment, emphasizing that the Authority's decision was not mala fide or irrational. The writ petition challenging the blacklisting decision was transferred to the High Court for further proceedings.