2024 (3) TMI 583 - HC - Indian Laws

Arbitration agreement - Refusal to grant work order - L1 bidder in the tender process - forfeiture of the Earnest Money Deposit (EMD) - GST payable was @ 12% - Subsequently by a notification of the Government rate was enhanced from 12% to 18% - Wednesbury test - it is argued that if prayer of the petitioner is allowed would tantamount to a modification of the tender terms - since there was an acceptance on the part of the parties with regard to the tender conditions the same has to be treated on the same footing as a contract. HELD THAT - In the facts of the present case although the State takes a stand that the prayer of the petitioner would tantamount to rewriting the contract between the parities it is not so in view of the Memorandum issued by the State itself on November 22 2022. The said Memorandum in no uncertain terms provides for enhancement of GST by 6% from 12% to 18% even in cases where work order has been issued. In cases where the tender is under process and there is clear indication of rate of GST @ 12% the Memorandum provides for enhancement by 6% on account of GST. The acceptance order dated January 16 2023 was issued subsequent to the November 22 2022 Memorandum and as such was subject to the operation of the said Memorandum. Since the petitioner had participated in the tender before the enhancement of GST from 12% to 18% the provisions of the Memorandum dated November 22 2022 were squarely applicable in the present case. Thus the respondent authorities ought to have honoured the commitment of the State issued by way of a Memorandum dated November 22 2022 by enhancing the GST from 12% to 18% and/or permit the petitioner to refurnish the quotations by incorporating such 6% enhancement which was the precise request of the petitioner vide its communication dated April 17 2023. It is well-settled that State actions have to be scrutinized on a higher standard of fairness than the action of private employers. Supreme Court in 2019 (3) TMI 600 - SUPREME COURT categorically applied the Wednesbury test and opened up a window for judicial review even regarding the tender terms where there is arbitrariness discrimination unreasonableness and malice. The present instance is one where there is palpable arbitrariness and discrimination against the petitioner insofar as the respondents refused to apply the provision of the Memorandum dated November 22 2022 to the petitioner despite the petitioner coming under the purview of the same. Hence on the score of such arbitrariness and discrimination the respondent authorities fail the Wednesbury test and as such their action is palpably unreasonable and discriminatory against the petitioner. Since the expression of the petitioner s interest to terminate the tender was obviously under State coercion and duress the same cannot said to be an unqualified intention on the part of the petitioner or any admission on the part of the petitioner regarding termination of the tender or the work order envisaged thereunder. Hence the said action of the petitioner cannot be held to be on such a high footing that the same would preclude the petitioner s very challenge to the respondents action in not giving effect to the Memorandum dated November 22 2022 in respect of the petitioner. Thus the respondents were duty-bound to permit the petitioner to enhance the GST rates by 6 per cent in terms of their own Memorandum dated November 22 2022 read in conjunction with Notification No. 03/22-Central Tax (Rate) dated July 13 2022 whereby the enhancement of GST rates took effect coupled with WBGST Rate Notification No. 1393-FT dated August 23 2022 whereby the State of West Bengal adopted the GST enhancement. Thus the impugned action of the respondents in refusing such request of the petitioner and consequential refusal to issue work order and forfeiture of the EMD cannot be sustained. Thus as a consequence of the setting aside of the refusal by the respondents to give the work order to the petitioner all subsequent action taken by the State including subsequent tender if any issued are hereby set aside. The respondents shall issue work order to the petitioner by permitting the petitioner to incorporate the enhancement of 6% to the GST rates in its freshly quoted rates. Such fresh quotation shall be given by the petitioner to the respondent authorities within a week from date. Upon such rates being served on the respondent authorities the respondent authorities shall issue the work order in terms thereof in favour of the petitioner pursuant to the tender-in-question. Alternatively the respondent will be at liberty to refund the entire earnest money paid by the petitioner with interest @ of 10% till the date of such payment to the petitioner in which case subsequent action taken by the State in issuing fresh tender shall be sustained.

Summary

Issues:
The petitioner challenged the refusal to grant work order despite being the L1 bidder and the forfeiture of Earnest Money Deposit (EMD).

Challenge against Refusal of Work Order and EMD Forfeiture:
The petitioner participated in the tender process and was the L1 bidder. After winning, the GST rate was increased from 12% to 18%. The petitioner requested to incorporate the enhanced 6% GST in the quoted rates, citing a Memorandum from the Finance Department. The respondent authorities insisted on the original agreement, leading to a loss for the petitioner. The State argued that the dispute pertained to a commercial contract and altering the terms would modify the contract. However, the petitioner argued that the Memorandum allowed for the GST enhancement. The State's actions were scrutinized for fairness, and the refusal to apply the Memorandum was deemed unreasonable and discriminatory.

Validity of Termination and Disqualification Clauses:
The respondent authorities had the right to terminate the contract under Clauses 19 and 21. However, subsequent correspondences and delays indicated a waiver of cancellation rights by the authorities. The conditions for disqualification under Clause 21 were not met as the petitioner did not withdraw the tender before acceptance, and no work order was issued. The petitioner's request for termination was influenced by the refusal to honor the Memorandum, and not a genuine intention.

Judicial Review and Relief Granted:
The Court applied the Wednesbury test, allowing for judicial review in cases of arbitrariness and discrimination. The respondents were directed to permit the petitioner to enhance the GST rates or refund the EMD with interest. The refusal to issue the work order and forfeiture of EMD were set aside, and subsequent actions were annulled. The respondents were instructed to issue the work order with the GST enhancement or refund the EMD. No costs were awarded, and urgent copies of the order were to be provided to the parties.