2018 (1) TMI 1748 - HC - Indian Laws

Blacklisting of petitioner - ineligibility for award of any contract by DMRC either as a firm or as a part of JV firm/JV SPV in any name and style for a period of five years with effect from 15.07.2015 - fraudulent practice as defined under clause 4.33.1 of the General Conditions of Contract (GCC) - failure to disclose the information at the time of making offer that the Airport Authority of India (AAI) had debarred the petitioner from bidding for its contracts for a period of three years - whether the punishment imposed is disproportionate to the conduct of the petitioner, which has been found to be fraudulent? HELD THAT - It is now well settled that State/State Instrumentalities must act reasonably and fairly. Fair play, natural justice, non-arbitrariness are now well recognized facets of Article 14 of the Constitution of India. Undisputedly, DMRC had the discretion - subject to the discipline of Article 14 of the Constitution - to decide, who it desires to enter into contracts with and its decision not to deal with a party who has been found to have secured a contract by submitting incorrect information, cannot be questioned. However, DMRC, being a State, is enjoined to act reasonably and fairly; its decisions must be informed by reason and cannot be arbitrary. Thus, it is essential that the punitive measure imposed by DMRC be commensurate with the offending conduct of the petitioner. It is also well settled that the period of debarment cannot be permanent. In Kulja Industries Ltd. 2013 (10) TMI 733 - SUPREME COURT , the Supreme Court had also noticed that the legal position governing blacklisting of suppliers in United States of America (USA) and United Kingdom (UK), was no different. The Court also noted that in USA, the Federal Government had issued comprehensive guidelines, which also stipulated the factors that would influence the decision of debarment. As regards the period of blacklisting is concerned, the Supreme Court had observed that for the sake of objectivity and transparency , the respondent therein may frame guidelines to be followed in various cases. The order of blacklisting an entity may be subject to judicial review if it is concluded that it was not within the range of the action, which ought to have been reasonably taken. The question whether the period of debarment of five years was within the reasonable range would necessarily have to be tested on the basis of a benchmark set by the DMRC. In absence of any such benchmark, the benchmark set by other organizations ought to serve as guidelines. In this case, although it is mentioned that the competent authority had relied on other blacklisting orders passed by other organizations, the same have neither been referred to nor is it discernable whether facts in any of the cases were similar to the one in this case. In the impugned order, it has been merely observed that the order of debarment ranges for a few months to ten years; thus, implying that the concerned authorities could exercise its discretion to debar the petitioner for any period within the said range. Plainly, this would suffer from the vice of arbitrariness. Blacklisting or debarring an entity from participating in contracts is a serious measure and insofar as possible must be pivoted on certain objective criteria. Since DMRC has not set out any guidelines which would serve as a benchmark as to the period of debarment in a particular situation, the MD had rightly sought to rely on orders passed by the other government organizations. The Supreme Court in Kulja Industries Ltd. had laid down the factors that ought to be considered by the competent authority while taking a decision to blacklist an entity. Although, it does appear that the impact of the wrongdoing in this case is material as the petitioner was able to secure the contract for which it was disqualified to bid for; however, there is little material to conclude that the petitioner had planned to initiate and carry out the wrongdoing - The petitioner has also asserted that it had conducted an inquiry and had taken disciplinary action against its employees who were found responsible for the bids submitted to the AAI. This Court does not find any reason to doubt the same. It cannot be disputed that there are certain mitigating factors that ought to have been taken into account while fixing the period of debarment - Keeping the Rules and the punitive measures imposed by JICA as well as the explanations provided by the petitioner, the period of debarment is plainly disproportionate. During the course of arguments, this Court had suggested that the period of debarment be reduced to three years. However, it would be apposite for DMRC to reconsider the period of blacklisting keeping in view the observations and principles as noticed above. It is so directed. Petition disposed off.

Summary

Issues Involved:

1. Validity of the blacklisting order and the finding of fraudulent practice.
2. Proportionality of the five-year debarment period imposed on the petitioner.

Detailed Analysis:

1. Validity of the Blacklisting Order and Finding of Fraudulent Practice:

The petitioner challenged the order dated 06.07.2016 by DMRC's Managing Director, which blacklisted the petitioner for five years due to alleged fraudulent practices. The blacklisting was based on the petitioner's failure to disclose a previous debarment by the Airport Authority of India (AAI) in its bid for a DMRC contract. The petitioner argued that the non-disclosure was unintentional, as the division handling the AAI contract was different, and the management was unaware of the debarment. However, the court found that the petitioner was guilty of a fraudulent practice as defined under clause 4.33.1 of the General Conditions of Contract (GCC). The court noted that the knowledge of the employees handling the AAI bid was sufficient to impute knowledge to the petitioner. The court upheld the finding of fraudulent practice, stating that if the petitioner had disclosed the correct information, it would have been disqualified from the DMRC contract.

2. Proportionality of the Five-Year Debarment Period:

The court considered whether the five-year debarment was disproportionate and thus violated Article 14 of the Constitution of India. The petitioner argued that the punishment was harsh, citing the General Financial Rules, 2017, which suggest a maximum debarment of two years for breaches of the Code of Integrity. The petitioner also highlighted that JICA, the funding agency for the project, had only suspended the petitioner for four months. The court acknowledged the need for proportionality in punitive measures, referencing the Supreme Court's guidelines in Kulja Industries Ltd. v. Chief General Manager, BSNL, which emphasize that debarment should not be permanent and should be commensurate with the offense's gravity. The court noted that DMRC had not provided guidelines for determining the debarment period and relied on other organizations' practices, which ranged from a few months to ten years. The court found the five-year period disproportionate, considering mitigating factors such as the petitioner's remedial actions and lack of evidence of deliberate wrongdoing. The court suggested reducing the debarment to three years and directed DMRC to reconsider the period in light of these observations.

In conclusion, while the court upheld the finding of fraudulent practice, it found the five-year debarment period disproportionate and directed DMRC to reassess the duration, considering the mitigating factors and relevant guidelines.