2019 (7) TMI 1959 - HC - Indian Laws

Maintainability of petition - availability of alternative remedy - Arbitrable dispute or not - clause 13A of conditions of contract - forfeiture of earnest money deposited - Article 226 of the Constitution of India - HELD THAT - Clause 13A of conditions of contract provides settlement of disputes through arbitration under the provisions of the Act of 1996 as amended by the Act of 2015. Undoubtedly the dispute is arbitrable and the petitioner has remedy of arbitration under the Act of 1996. It is well settled that the rule of exclusion of writ jurisdiction by availability of an alternative remedy is a rule of discretion and not one of compulsion. In an appropriate case in spite of availability of alternative remedy this Court may still exercise its writ jurisdiction at least in three contingencies (i) where the writ petition seeks enforcement of any of the fundamental rights; (ii) where there is failure of principles of natural justice; or (iii) where the orders or proceedings are wholly without jurisdiction or the vires of an Act is challenged - the writ petition is entertained to the extent of examining and finding out as to whether forfeiture of earnest money to the tune of 50, 00, 000/- is legal and proper or it suffers from vice of arbitrariness leaving rest of dispute with regard to cancellation of contract blacklisting and fresh tender for the said work and risk and cost to be raised by the petitioner by way of arbitration as provided in clause 13A of the conditions of contract as such the writ petition is entertained only to that extent indicated hereinabove leaving rest of the dispute to be adjudicated by way of arbitration if any to be invoked by the petitioner or avail any other remedy available to him under the law. Since the Letter of Intent has been cancelled and consequently earnest money deposit has been forfeited and that being realm of contract writ petition under Article 226 of the Constitution of India is not maintainable? - HELD THAT - It is quite well settled law that where the State or State authorities which is State within the meaning of Article 12 of the Constitution of India behaves arbitrarily even in the realm of contract this Court can interfere under Article 226 of the Constitution of India. Admittedly the respondent-SECL comes under other authorities within the meaning of Article 12 of the Constitution of India and therefore it has an obligation to act fairly not arbitrarily even in contractual matter. It is the case of the petitioner that on 11.6.2018 19.6.2018 and 20.6.2018 the petitioner demanded possession of subject land to commence the work as even in inspection carried out by the team of CMPDI hindrance was caused by the villagers and inspection of work could not be completed. The respondents in para-8 of their return have also admitted that though the subject land on which work was to be executed was under their possession but there was some obstruction by villagers agitation due to which there was little delay in handing over the site but the fact remains that no document has been brought on record by the respondent-SECL that after vesting of land under Section 11 of the Act of 1957 possession of subject land was handed over to SECL before issuance of Letter of Intent and SECL in turn has placed the petitioner in possession to initiate the work awarded to him by Letter of Intent dated 2.5.2018. The petitioner/contractor had reasonable cause or valid reason in not commencing the execution of work within the stipulated time in terms of clause 6.1 of conditions of contract and therefore forfeiture of earnest money deposit on account of non-execution work within the stipulated time and consequently forfeiture of earnest money deposit to the extent of 50, 00, 000/- suffers from vice of arbitrariness and smacks total non-application of mind which is violative of Article 14 of the Constitution of India and consequently the impugned order to that extent deserves to be struck down. The impugned order dated 26.2.2019 (Annexure P/1) passed by respondent No.3 to the extent of forfeiture of earnest money deposit i.e. 50, 00, 000/- is set aside - The respondents are directed to make payment of the aforesaid amount to the petitioner within a period of four weeks from today. However with regard to cancellation of subject work and other related disputes parties are left to invoke clause 13 and clause 13A of conditions of contract relating to settlement of dispute by way of arbitration if any. The writ petition is allowed.

Summary

Issues Involved:
1. Legality of the cancellation of the Letter of Intent (LOI).
2. Forfeiture of the earnest money deposit.
3. Debarring the petitioner from future bids.
4. Availability and appropriateness of arbitration as a remedy.
5. Maintainability of the writ petition under Article 226 of the Constitution of India.

Detailed Analysis:

1. Legality of the Cancellation of the Letter of Intent (LOI):
The petitioner, a company engaged in coal loading and overburden removal, challenged the cancellation of the LOI dated 2.5.2018 by the respondent-SECL. The LOI was cancelled due to alleged non-commencement of work by the petitioner, despite the petitioner’s assertion that statutory clearances and physical possession of the land were not provided by SECL. The court noted that the respondent-SECL had not provided any document proving that possession of the land was handed over to SECL before the issuance of the LOI. The court found that the petitioner had valid reasons for not commencing the work due to the lack of possession and statutory clearances.

2. Forfeiture of the Earnest Money Deposit:
The petitioner’s earnest money deposit of ?50,00,000 was forfeited by the respondent-SECL. The court examined whether this forfeiture was legal and proper. It was determined that the petitioner was not placed in possession of the subject land, which was necessary for commencing the work. The court held that the forfeiture of the earnest money deposit was arbitrary and violated Article 14 of the Constitution of India. Consequently, the court set aside the forfeiture order and directed the respondents to refund the ?50,00,000 to the petitioner within four weeks.

3. Debarring the Petitioner from Future Bids:
The petitioner was debarred from participating in future bids for 24 months. The court did not provide a detailed analysis of this issue in the judgment, focusing instead on the forfeiture of the earnest money deposit. The court left this issue to be resolved through arbitration or other legal remedies available to the petitioner.

4. Availability and Appropriateness of Arbitration as a Remedy:
The respondent-SECL argued that the petitioner should invoke the arbitration clause (clause 13A) in the contract for the resolution of disputes. The court acknowledged that the dispute was arbitrable and that the petitioner had the remedy of arbitration under the Arbitration and Conciliation Act, 1996. However, the court exercised its discretion to entertain the writ petition to the extent of examining the legality of the forfeiture of the earnest money deposit, citing precedents that allow writ jurisdiction even when an alternative remedy is available.

5. Maintainability of the Writ Petition under Article 226:
The respondent-SECL contended that the writ petition was not maintainable as it involved contractual matters and disputed questions of fact. The court referred to the Supreme Court’s decisions in ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd. and ICOMM TELE Limited v. Punjab State Water Supply and Sewerage Board, which allow writ petitions in contractual disputes if the state or its authorities act arbitrarily. The court held that the respondent-SECL, being a state authority, had an obligation to act fairly and not arbitrarily, even in contractual matters. Hence, the writ petition was maintainable to the extent of examining the arbitrariness in the forfeiture of the earnest money deposit.

Conclusion:
The court allowed the writ petition to the extent of setting aside the forfeiture of the earnest money deposit and directed the respondents to refund ?50,00,000 to the petitioner. The remaining disputes, including the cancellation of the LOI and debarment from future bids, were left to be resolved through arbitration or other legal remedies. The court emphasized that state authorities must act fairly and not arbitrarily, even in contractual matters, and upheld the petitioner’s right to seek redress under Article 226 of the Constitution of India.