Bishwanath Prasad vs The State of Bihar and Others

Ramesh Kr. Datta, J.—Heard learned counsel for the petitioner and learned counsel for the State. The petitioner has filed the writ petition for quashing the letter No. 1287 (Annexure-1) dated 23.11.2006 issued by the Executive Engineer, R.E.O. Work Division, Biharsharif (Nalanda) whereby the authority has forfeited the security money worth Rs. 35,000/- in regard to Agreement No. 24 F2 of 2006-07 after rescinding the contract. The petitioner has also prayed for other reliefs. However in the course of argument learned counsel for the petitioner has confined his prayer only with respect to the forfeiture of the security deposit.

The petitioner was allotted a contract for construction of 4 rooms in the Gaivi Itasang High School under the Rastriya Sam Vikas Yojana (R.S.V.Y.) for the financial year 2006-07 at an estimated cost of Rs. 7,00,000/- approximately on 13.5.2006 for which an agreement was duly entered into between the parties. The work was required to be completed by 12.11.2006 but the same was not done and on inspection it was found that the work has been completed partially and also not according to the specification. It was further found that some construction was made in presence of Junior Engineer and with respect to the remaining it was discovered that the same was much less than required as per the specification. For the aforesaid reasons, the impugned letter dated 23.11.2006. (Annexure-1) was issued by the Executive Engineer rescinding the contract and forfeiting the security money of the petitioner.

Learned counsel for the petitioner submits that the forfeiture of the security money deposited by the petitioner after rescinding the contract could not have been done without issuing show cause and considering his reply to the same. In this regard Learned counsel has strongly relied upon the conditions of the contract (Annexure-A), in the relevant part of Clause 2 and Clause 3 of which it has been laid down as follows:-

"Clause 2.-...In the event of the contractor failing to comply with this condition, he shall be liable to pay as compensation an amount equal to 1/2 percent, on the said estimated cost of the whole work for every day that the due quantity work remains incomplete provided converys that the entire amount of compensation to be paid under the provisions this clause shall not exceed 10 per cent on the estimated cost of the work as shown in the tender.

Clause 3.-...In any case in which under any clause or clauses of this contract the contractor shall have tendered himself liable pay compensation amounting to the whole of his security deposit in the hands of Government (whether paid in one sum or deducted by instalments) the Executive Engineer on behalf of the Governor of Bihar shall have power to adopt any of the following courses, as he may deem suited to the interests of Government."

(a) To resend the contract (of which rescission notice in writing to the contract under the hand of the Executive Engineer shall be conclusive evidence) and in which are the security deposit of the contractor shall stand forfeited and be absolutely at the disposal on Government."

Relying upon the afore said condition learned counsel submits that no notice had been issued by the Executive Engineer and the amount has been forfeited.

In support of the aforesaid proposition learned counsel also relies upon the decision of this Court in the case of Debashree Construction (India) Pvt. Ltd. Vs. The State of Bihar and Others of which it has been held as follows:-

"However, with respect to forfeiture of the security deposit as also that part of the order wherein it has been stated that in terms of Clause 3(c) of the agreement, whatever additional expenditure is made in completing the remaining part of the work it will be realized from the petitioner, learned counsel for the petitioner has rightly relied upon a Division Bench decision of this Court in the case of Kudrat Ali vs. State of Bihar & Ors.: AIR 1973, Patna 111. The said decision arose out of the provisions of the Bihar Excise Act in which it was provided, that on cancellation of a license the holder of the licence shall not be entitled to the refund of any deposit made in respect thereof. It is clearly laid down in the said decision that even if the petitioner is not entitled to a refund of security deposit in respect of licence, he is surely entitled to a notice when the order to that effect is proposed. In the present matter also though there is a provision under the agreement for forfeiture of the security deposit as also the realization of additional expenditure from the contractor, with respect to the remaining work, yet for passing any such order, the petitioner was certainly entitled to proper show cause notice giving details as to what extra expenditure is to be incurred which the petitioner would be required to meet."

Learned counsel also relied upon another decision of this Court in the case of Niranjan Mahto Vs. State of Bihar and Others, of which it has been held as follows:-

"When there was no show cause regarding cancellation of agreement and when that agreement is not an agreement between the two individuals but an agreement by the State, which has got monopoly over the storage of essential commodities and grant of licence and quota to the individuals then such agreement cannot be construed as only an individualistic one as observed earlier and hence this cancellation without following proper procedure and giving any notice to show cause or opportunity of hearing is violative of Article 14 of the Constitution of India and hence the action of cancellation is illegal in the eye of law. Again when show cause has been issued for the purpose of cancellation of licence then on that basis cancellation of agreement is again illegal. On the other hand, if show cause for cancellation of licence is to be construed as cancellation of agreement also then the show cause notice being a vague one without giving any instance as to violation of conditions, the same is bad in the eye of law.

Learned counsel for the State-respondents on the other hand has supported the impugned order stating that the petitioner has not only failed to complete the work within the stipulated time by 12.11.2006 but the work done by him was also not in accordance with the specifications as provided in the agreement. It is further stated by him that the work had been carried out without any written or oral information to the respondent as was required under the contract and the same was also not done under the supervision and inspection of the Junior Engineer and the Assistant Engineer. Learned counsel also submits that the petitioner has been directed to rectify the defect of construction work but he slept over the matter and thus the respondents are justified in not only rescinding the contract but also forfeiting the security deposit which is provided in the agreement also.

On a consideration of the entire facts and circumstances of the case, this Court is of the view that before forfeiting the security deposit of the petitioner, the authorities were required to comply with the principles of natural justice as laid down in the aforesaid decisions cited by learned counsel for the petitioner so that the petitioner would have had an opportunity of answering the points raised by the authorities and showing that in the facts and circumstances of the case the forfeiting of the security deposit was not justified. In the aforesaid facts and circumstances, the writ application is partly allowed and the impugned order dated 23.11.2006 passed by the Executive Engineer is quashed to the extent of the order regarding forfeiture of security deposit. However, it shall be open to the authorities to issue a fresh show cause notice to the petitioner with respect to the same and after considering the reply of the petitioner final orders concerning the same may be passed by the competent authority.