2015 (2) TMI 1241 - HC - Indian Laws

Blacklisting order - petitioner banned for an indefinite period from doing any future projects with the respondent or participating in bidding process for any of its tenders in future - whether a punitive measure is disproportionate? - Held that - Indisputably, the benefit that a contractor obtains from any fraudulent practice would have a vital bearing on the quantum of punishment that may be imposed on the contractor for such fraudulent practice. In this case, it is alleged that the petitioner had secured the contracts in question by submitting fabricated statement of accounts. But for such fabricated statement, the petitioner would have been ineligible for being awarded the contracts. The petitioner has produced other documents in response to the show cause notice to point out that the petitioner was enjoying other working facilities from ICICI bank Ltd. at the material time and even if the petitioner did not qualify on the basis of his existing working capital as reflected in the balance sheet, the petitioner would qualify on the basis of the working capital facilities extended to the petitioner by ICICI bank Ltd.. The said documents have been rejected by GAIL as the same had not been submitted at the relevant point of time. In view thereof, the approach of GAIL in this respect may not be apposite. Although such documents would have no bearing whether petitioner was guilty of alleged misconduct i.e. submission of fabricated documents, the same would be germane to consider the question whether the petitioner had acquired any benefit which he was not otherwise entitled to. And, this would have a bearing on the punitive measure to be imposed. If the working capital facilities extended by ICICI bank Ltd. to the petitioner would enable the petitioner to qualify for the tender then the petitioner would have obtained no benefit which he otherwise was not entitled to. No interference is called for insofar as blacklisting the petitioner is concerned. However, to the extent that the petitioner has been debarred from all future business with GAIL, the impugned order is set aside. The matter is remanded to GAIL to consider the period of blacklisting afresh in view of the aforesaid observations and in the context of the period as specified in the integrity pact (i.e. minimum of six months to maximum of three years)

Summary

Issues Involved:
1. Legality of the blacklisting order.
2. Proportionality of the punitive measure.
3. Compliance with contractual clauses and integrity pact.
4. Judicial review under Article 226 of the Constitution of India.

Detailed Analysis:

1. Legality of the Blacklisting Order:
The petitioner challenged the blacklisting order dated 18.03.2014, which indefinitely banned them from future projects with the respondent, GAIL (India) Limited, with a review after ten years. The petitioner submitted bids for E-Tender 2161 and E-Tender 2119, providing an audited financial statement reflecting a working capital of `6.96 crores. However, a subsequent Show Cause Notice from GAIL alleged that this statement was forged, as the balance sheet submitted to the Registrar of Companies showed a working capital of `3.01 crores. The petitioner contended that the difference was due to uncashed cheques that became stale. GAIL rejected this explanation and blacklisted the petitioner.

2. Proportionality of the Punitive Measure:
The petitioner argued that the indefinite blacklisting was disproportionately harsh and would lead to a "civil death" of the company, affecting over 300 employees. They emphasized that GAIL was the primary procurer of their services, and blacklisting would prevent them from bidding on other PSU projects, effectively destroying their business. The respondent maintained that the blacklisting was justified due to the petitioner's use of forged documents, which demonstrated a lack of integrity. The court noted that the blacklisting order, albeit subject to review after ten years, would effectively exclude the petitioner from participating in any PSU contracts, leading to the probable winding up of the company.

3. Compliance with Contractual Clauses and Integrity Pact:
The court examined various clauses within the contract documents, including the General Conditions of the Contract (GCC) and the Invitation for Bids (IFB). Clause 29 of GCC provided remedies for contract breaches, including contract termination and forfeiture of security. Article 35 of IFB outlined measures for corrupt and fraudulent practices, specifying a maximum penalty of a three-year holiday for such misconduct. The integrity pact required bidders to prevent malpractices and corruption, with violations resulting in exclusion from GAIL tenders for six months to three years. The court found that even in severe cases of bribery, the maximum penalty was a three-year exclusion, making the indefinite blacklisting appear disproportionately harsh.

4. Judicial Review under Article 226:
The court discussed the principles of proportionality and Wednesbury unreasonableness, noting that the doctrine of proportionality requires a more nuanced examination of whether the punitive measure is balanced and appropriate. The court referenced several Supreme Court judgments, including Om Kumar vs. Union of India and Kulja Industries Ltd. v. Chief General Manager, BSNL, which emphasized that debarment should not be permanent and must be proportionate to the offense. The court concluded that the indefinite blacklisting did not meet the proportionality test, especially given the severe adverse impact on the petitioner.

Conclusion:
The court held that while the petitioner's misconduct warranted punitive action, the indefinite blacklisting was excessively harsh and disproportionate. The court set aside the indefinite blacklisting order and remanded the matter to GAIL to reconsider the period of blacklisting, aligning it with the integrity pact's specified period of six months to three years. The petitioner's significant adverse consequences following the blacklisting, including contract terminations and financial constraints, were also considered in the judgment. The court emphasized the need for a balanced approach, ensuring that punitive measures are commensurate with the misconduct while allowing the petitioner to possibly continue their business in the future.